Document:

EXECUTION
      COPY

     

    
      

    

    
      

    

     

    AMENDED
      AND RESTATED CREDIT AGREEMENT

    

     

    Dated
      as
      of April 2, 2007

    

     

    among

     

     

    THE
      EXPLORATION COMPANY OF DELAWARE, INC., as Borrower,

     

    and

     

    OUTPUT
      ACQUISITION CORP.,

    TXCO
      ENERGY CORP.,

    and

    TEXAS
      TAR
      SANDS, INC., 

    as
      Original Guarantors,

    

     

    The
      Several Lenders

    from
      Time
      to Time Parties Hereto,

    

     

    BANK
      OF
      MONTREAL,

    as
      Administrative Agent,

     

    and

     

    BMO
      CAPITAL MARKETS CORP.,

    as
      Arranger

     

     

    
      

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

    
      

        
          	 	 	
                  Page

                
	 	 	 
	
                  ARTICLE
                    I DEFINITIONS

                	 	
                  2

                
	
                  1.1

                	
                  Certain
                    Defined Terms

                	 	
                  2

                
	
                  1.2

                	
                  Other
                    Interpretive Provisions

                	 	
                  27

                
	
                  1.3

                	
                  Accounting
                    Principles

                	 	
                  27

                
	 	 	 
	
                  ARTICLE
                    II THE CREDIT

                	 	
                  27

                
	
                  2.1

                	
                  Amounts
                    and Terms of the Commitments

                	 	
                  27

                
	
                  2.2

                	
                  Procedure
                    for Borrowing

                	 	
                  28

                
	
                  2.3

                	
                  Conversion
                    and Continuation Elections

                	 	
                  29

                
	
                  2.4

                	
                  Voluntary
                    Termination or Reduction

                	 	
                  30

                
	
                  2.5

                	
                  Optional
                    Prepayments

                	 	
                  30

                
	
                  2.6

                	
                  Borrowing
                    Base Determinations, Mandatory Actions

                	 	
                  31

                
	
                  2.7

                	
                  Repayment

                	 	
                  34

                
	
                  2.8

                	
                  Fees

                	 	
                  35

                
	
                  2.9

                	
                  Computation
                    of Fees and Interest

                	 	
                  36

                
	
                  2.10

                	
                  Payments
                    by the Company; Borrowings Pro Rata

                	 	
                  36

                
	
                  2.11

                	
                  Payments
                    by the Lenders to the Administrative Agent

                	 	
                  37

                
	
                  2.12

                	
                  Sharing
                    of Payments, Etc

                	 	
                  37

                
	
                  2.13

                	
                  Issuing
                    the Letters of Credit

                	 	
                  38

                
	 	 	 
	
                  ARTICLE
                    III TAXES, YIELD PROTECTION AND ILLEGALITY

                	 	
                  40

                
	
                  3.1

                	
                  Taxes

                	 	
                  40

                
	
                  3.2

                	
                  Illegality

                	 	
                  42

                
	
                  3.3

                	
                  Increased
                    Costs and Reduction of Return

                	 	
                  43

                
	
                  3.4

                	
                  Funding
                    Losses

                	 	
                  43

                
	
                  3.5

                	
                  Inability
                    to Determine Rates

                	 	
                  44

                
	
                  3.6

                	
                  Certificates
                    of Lenders

                	 	
                  44

                
	
                  3.7

                	
                  Substitution
                    of Lenders

                	 	
                  44

                
	
                  3.8

                	
                  Survival

                	 	
                  44

                
	 	 	 
	
                  ARTICLE
                    IV SECURITY

                	 	
                  45

                
	
                  4.1

                	
                  The
                    Security

                	 	
                  45

                
	
                  4.2

                	
                  Agreement
                    to Deliver Security Documents

                	 	
                  45

                
	
                  4.3

                	
                  Perfection
                    and Protection of Security Interests and Liens

                	 	
                  45

                
	
                  4.4

                	
                  Offset

                	 	
                  45

                
	
                  4.5

                	
                  Guaranty

                	 	
                  46

                
	
                  4.6

                	
                  Maximum
                    Liability

                	 	
                  47

                
	
                  4.7

                	
                  Production
                    Proceeds

                	 	
                  47

                
	 	 	 	 
	
                  ARTICLE
                    V CONDITIONS PRECEDENT

                	 	
                  47

                
	
                  5.1

                	
                  Conditions
                    of the Effective Date and Initial Credit Extensions

                	 	
                  47

                
	
                  5.2

                	
                  Conditions
                    to Closing the Output Acquisition

                	 	
                  50

                
	
                  5.3

                	
                  Conditions
                    to All Credit Extensions

                	 	
                  52

                

        

         

        
          
            
            

          

          
            i

            
              

            

          

          
            
            

          

        

         

        
          	
                  ARTICLE
                    VI REPRESENTATIONS AND WARRANTIES

                	 	
                  52

                
	
                  6.1

                	
                  Organization,
                    Existence and Power

                	 	
                  52

                
	
                  6.2

                	
                  Corporate
                    Authorization; No Contravention

                	 	
                  53

                
	
                  6.3

                	
                  Governmental
                    Authorization

                	 	
                  53

                
	
                  6.4

                	
                  Binding
                    Effect

                	 	
                  53

                
	
                  6.5

                	
                  Litigation

                	 	
                  53

                
	
                  6.6

                	
                  No
                    Default

                	 	
                  54

                
	
                  6.7

                	
                  ERISA
                    Compliance

                	 	
                  54

                
	
                  6.8

                	
                  Use
                    of Proceeds; Margin Regulations

                	 	
                  54

                
	
                  6.9

                	
                  Title
                    to Properties

                	 	
                  55

                
	
                  6.10

                	
                  Oil
                    and Gas Reserves

                	 	
                  55

                
	
                  6.11

                	
                  Reserve
                    Report

                	 	
                  55

                
	
                  6.12

                	
                  Gas
                    Imbalances

                	 	
                  55

                
	
                  6.13

                	
                  Taxes

                	 	
                  56

                
	
                  6.14

                	
                  Financial
                    Statements and Condition

                	 	
                  56

                
	
                  6.15

                	
                  Environmental
                    Matters

                	 	
                  56

                
	
                  6.16

                	
                  Regulated
                    Entities

                	 	
                  57

                
	
                  6.17

                	
                  No
                    Burdensome Restrictions

                	 	
                  57

                
	
                  6.18

                	
                  Copyrights,
                    Patents, Trademarks and Licenses, etc

                	 	
                  57

                
	
                  6.19

                	
                  Subsidiaries

                	 	
                  57

                
	
                  6.20

                	
                  Insurance

                	 	
                  57

                
	
                  6.21

                	
                  Full
                    Disclosure

                	 	
                  57

                
	
                  6.22

                	
                  Solvency

                	 	
                  58

                
	
                  6.23

                	
                  Labor
                    Matters

                	 	
                  58

                
	
                  6.24

                	
                  Midstream
                    Contracts

                	 	
                  58

                
	
                  6.25

                	
                  Derivative
                    Contracts

                	 	
                  58

                
	
                  6.26

                	
                  Exempt
                    Subsidiaries; TTSI

                	 	
                  58

                
	
                  6.27

                	
                  [Intentionally
                    Omitted.]

                	 	
                  58

                
	
                  6.28

                	
                  Output
                    Acquisition Documents

                	 	
                  58

                
	
                  6.29

                	
                  Security
                    Documents

                	 	
                  59

                
	 	 	 
	
                  ARTICLE
                    VII AFFIRMATIVE COVENANTS

                	 	
                  59

                
	
                  7.1

                	
                  Financial
                    Statements

                	 	
                  59

                
	
                  7.2

                	
                  Certificates;
                    Other Production and Reserve Information

                	 	
                  61

                
	
                  7.3

                	
                  Notices

                	 	
                  62

                
	
                  7.4

                	
                  Preservation
                    of Company Existence, Etc

                	 	
                  62

                
	
                  7.5

                	
                  Maintenance
                    of Property

                	 	
                  63

                
	
                  7.6

                	
                  Insurance

                	 	
                  63

                
	
                  7.7

                	
                  Payment
                    of Obligations

                	 	
                  63

                
	
                  7.8

                	
                  Compliance
                    with Laws

                	 	
                  63

                
	
                  7.9

                	
                  Compliance
                    with ERISA

                	 	
                  63

                
	
                  7.10

                	
                  Inspection
                    of Property and Books and Records

                	 	
                  63

                
	
                  7.11

                	
                  Environmental
                    Laws

                	 	
                  64

                
	
                  7.12

                	
                  New
                    Subsidiary Guarantors

                	 	
                  64

                
	
                  7.13

                	
                  Use
                    of Proceeds

                	 	
                  64

                
	
                  7.14

                	
                  Further
                    Assurances

                	 	
                  65

                
	
                  7.15

                	
                  Output
                    Acquisition

                	 	
                  66

                

        

         

        
          
            
            

          

          
            ii

            
              

            

          

          
            
            

          

        

         

        
          	
                  ARTICLE
                    VIII NEGATIVE COVENANTS

                	 	
                  66

                
	
                  8.1

                	
                  Limitation
                    on Liens

                	 	
                  66

                
	
                  8.2

                	
                  Disposition
                    of Assets

                	 	
                  68

                
	
                  8.3

                	
                  Consolidations
                    and Mergers

                	 	
                  70

                
	
                  8.4

                	
                  Loans
                    and Investments

                	 	
                  70

                
	
                  8.5

                	
                  Limitation
                    on Indebtedness

                	 	
                  72

                
	
                  8.6

                	
                  Transactions
                    with Affiliates

                	 	
                  73

                
	
                  8.7

                	
                  Margin
                    Stock

                	 	
                  73

                
	
                  8.8

                	
                  Contingent
                    Obligations

                	 	
                  73

                
	
                  8.9

                	
                  Restricted
                    Payments

                	 	
                  74

                
	
                  8.10

                	
                  Derivative
                    Contracts

                	 	
                  75

                
	
                  8.11

                	
                  Sale
                    Leasebacks

                	 	
                  76

                
	
                  8.12

                	
                  Consolidated
                    Leverage Ratio

                	 	
                  76

                
	
                  8.13

                	
                  Current
                    Ratio

                	 	
                  76

                
	
                  8.14

                	
                  Minimum
                    Interest Coverage Ratio

                	 	
                  77

                
	
                  8.15

                	
                  Minimum
                    PV 10 to Consolidated Total Debt Ratio

                	 	
                  77

                
	
                  8.16

                	
                  Change
                    in Business

                	 	
                  77

                
	
                  8.17

                	
                  Accounting
                    Changes

                	 	
                  77

                
	
                  8.18

                	
                  Certain
                    Contracts; Amendments; Multiemployer ERISA Plans

                	 	
                  77

                
	
                  8.19

                	
                  Midstream
                    Contracts

                	 	
                  77

                
	
                  8.20

                	
                  Second
                    Lien Term Loan Agreement

                	 	
                  77

                
	
                  8.21

                	
                  Limitation
                    on Amendments to Output Acquisition Documents

                	 	
                  78

                
	
                  8.22

                	
                  Forward
                    Sales, Production Payments, Etc

                	 	
                  78

                
	
                  8.23

                	
                  Use
                    of Proceeds

                	 	
                  78

                
	 	 	 
	
                  ARTICLE
                    IX EVENTS OF DEFAULT

                	 	
                  78

                
	
                  9.1

                	
                  Event
                    of Default

                	 	
                  78

                
	
                  9.2

                	
                  Remedies

                	 	
                  81

                
	
                  9.3

                	
                  Rights
                    Not Exclusive

                	 	
                  81

                
	 	 	 
	
                  ARTICLE
                    X THE ADMINISTRATIVE AGENT

                	 	
                  81

                
	
                  10.1

                	
                  Appointment
                    and Authorization; Limitation of Agency

                	 	
                  81

                
	
                  10.2

                	
                  Delegation
                    of Duties

                	 	
                  82

                
	
                  10.3

                	
                  Liability
                    of Administrative Agent

                	 	
                  82

                
	
                  10.4

                	
                  Reliance
                    by Administrative Agent

                	 	
                  82

                
	
                  10.5

                	
                  Notice
                    of Default

                	 	
                  83

                
	
                  10.6

                	
                  Credit
                    Decision

                	 	
                  83

                
	
                  10.7

                	
                  Indemnification

                	 	
                  84

                
	
                  10.8

                	
                  Administrative
                    Agent in Individual Capacity

                	 	
                  84

                
	
                  10.9

                	
                  Successor
                    Administrative Agent

                	 	
                  84

                
	
                  10.10

                	
                  Withholding
                    Tax

                	 	
                  85

                
	
                  10.11

                	
                  Arranger

                	 	
                  86

                
	
                  10.12

                	
                  Release
                    of Collateral

                	 	
                  86

                

        

         

        
          
             

          

          
            iii

            
              

            

          

          
             

          

        

         

        
          	
                  ARTICLE
                    XI MISCELLANEOUS

                	 	
                  87

                
	
                  11.1

                	
                  Amendments
                    and Waivers

                	 	
                  87

                
	
                  11.2

                	
                  Notices

                	 	
                  88

                
	
                  11.3

                	
                  No
                    Waiver; Cumulative Remedies

                	 	
                  88

                
	
                  11.4

                	
                  Costs
                    and Expenses

                	 	
                  88

                
	
                  11.5

                	
                  Indemnity

                	 	
                  89

                
	
                  11.6

                	
                  Payments
                    Set Aside

                	 	
                  90

                
	
                  11.7

                	
                  Successors
                    and Assigns

                	 	
                  90

                
	
                  11.8

                	
                  Assignments,
                    Participations, etc

                	 	
                  90

                
	
                  11.9

                	
                  Interest

                	 	
                  93

                
	
                  11.10

                	
                  Indemnity
                    and Subrogation

                	 	
                  93

                
	
                  11.11

                	
                  Automatic
                    Debits of Fees

                	 	
                  94

                
	
                  11.12

                	
                  Notification
                    of Addresses, Lending Offices, Etc

                	 	
                  94

                
	
                  11.13

                	
                  Counterparts

                	 	
                  94

                
	
                  11.14

                	
                  Severability

                	 	
                  94

                
	
                  11.15

                	
                  No
                    Third Parties Benefited

                	 	
                  94

                
	
                  11.16

                	
                  Governing
                    Law, Jurisdiction

                	 	
                  94

                
	
                  11.17

                	
                  Submission
                    To Jurisdiction; Waivers

                	 	
                  94

                
	
                  11.18

                	
                  Entire
                    Agreement

                	 	
                  95

                
	
                  11.19

                	
                  NO
                    ORAL AGREEMENTS

                	 	
                  95

                
	
                  11.20

                	
                  Accounting
                    Changes

                	 	
                  95

                
	
                  11.21

                	
                  WAIVER
                    OF JURY TRIAL, PUNITIVE DAMAGES, ETC

                	 	
                  96

                
	
                  11.22

                	
                  Intercreditor
                    Agreement

                	 	
                  96

                
	
                  11.23

                	
                  Amendment
                    and Restatement

                	 	
                  96

                
	
                  11.24

                	
                  USA
                    PATRIOT Act

                	 	
                  97

                
	
                  11.25

                	
                  Acknowledgments

                	 	
                  97

                
	
                  11.26

                	
                  Survival
                    of Representations and Warranties

                	 	
                  97

                
	
                  11.27

                	
                  Release
                    of Collateral and Guarantee Obligations.

                	 	
                  98

                

        
 

    

    SCHEDULES

    

      
        	
                Schedule
                  1.1(a)

              	 	
                Commitments
                  and Pro Rata Shares

              
	
                Schedule
                  1.1(b)

              	 	
                Guaranty
                  FSB Mortgages

              
	
                Schedule
                  6.5

              	 	
                Litigation

              
	
                Schedule
                  6.7

              	 	
                ERISA
                  Compliance

              
	
                Schedule
                  6.14(a)

              	 	
                Material
                  Indebtedness

              
	
                Schedule
                  6.15

              	 	
                Environmental
                  Matters

              
	
                Schedule
                  6.17

              	 	
                Burdensome
                  Restrictions

              
	
                Schedule
                  6.19

              	 	
                Subsidiaries
                  and Minority Interests

              
	
                Schedule
                  6.24

              	 	
                Midstream
                  Contracts

              
	
                Schedule
                  6.25

              	 	
                Existing
                  Derivative Contracts

              
	
                Schedule
                  6.28

              	 	
                Material
                  Output Acquisition Documents

              
	
                Schedule
                  6.29(a)-1

              	 	
                Security
                  Agreement UCC Filing Jurisdictions

              
	
                Schedule
                  6.29(a)-2

              	 	
                UCC
                  Financing Statements to Remain Effective

              
	
                Schedule
                  6.29(a)-3

              	 	
                UCC
                  Financing Statement to be Terminated

              
	
                Schedule
                  6.29(b)

              	 	
                Mortgage
                  Filing Jurisdictions

              
	
                Schedule
                  8.1

              	 	
                Permitted
                  Liens

              
	
                Schedule
                  8.6

              	 	
                Transactions
                  with Affiliates

              

      

    

     

    EXHIBITS

    

      
        	
                Exhibit
                  A

              	 	
                Form
                  of Notice of Borrowing

              
	
                Exhibit
                  B

              	 	
                Form
                  of Notice of Conversion/Continuation

              
	
                Exhibit
                  C

              	 	
                Form
                  of Compliance Certificate

              
	
                Exhibit
                  D

              	 	
                Form
                  of Security Agreement

              
	
                Exhibit
                  E

              	 	
                Form
                  of Assignment and Acceptance

              
	
                Exhibit
                  F

              	 	
                Form
                  of Note

              
	
                Exhibit
                  G

              	 	
                Form
                  of Guaranty Agreement

              
	
                Exhibit
                  H

              	 	
                Form
                  of Intercreditor Agreement

              

      

    

     

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

     

    AMENDED
      AND RESTATED CREDIT AGREEMENT

     

    This
      AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”)
      is
      entered into as of April 2, 2007, among THE EXPLORATION COMPANY OF DELAWARE,
      INC., a Delaware corporation (the “Company”);
      OUTPUT ACQUISITION CORP., a Texas corporation (“Merger
      Sub”);
      TXCO
      ENERGY CORP., a Texas corporation (“TXCOE”);
      TEXAS
      TAR SANDS, INC., a Texas corporation (“TTSI”);
      each
      of the financial institutions which is or which may from time to time become
      a
      signatory hereto (individually, a “Lender”
and
      collectively, the “Lenders”);
      and
      BANK OF MONTREAL, a Canadian chartered bank acting through certain of its United
      States branches and agencies, including its Chicago, Illinois branch, as
      administrative agent for the Lenders (in such capacity, together with its
      successors in such capacity, the “Administrative
      Agent”),
      and
      BMO CAPITAL MARKETS CORP., as arranger (in such capacity, the “Arranger”).

     

    This
      Agreement amends and restates in its entirety the Credit Agreement between
      the
      Company and Guaranty Bank, FSB dated June 30, 2004, as amended by a First
      Amendment dated effective as of March 24, 2005, a Waiver and Second Amendment
      dated effective as of August 23, 2005, a Third Amendment dated effective as
      of
      November 15, 2005 and a Fourth Amendment dated effective as of November 1,
      2006
      (the “Existing
      Company Credit Agreement”).

     

    RECITALS

     

    WHEREAS,
      pursuant to that certain Assignment, Assumption and Acceptance Agreement dated
      as of April
      2,
      2007 by and among Guaranty Bank, FSB, as the Lender under the Existing Company
      Credit Agreement and Bank of Montreal, as Administrative Agent (the
“Guaranty
      FSB Assignment”),
      the
      Lenders have purchased all of the Existing Revolving Credit Outstandings, the
      note, the commitment and all other obligations held by Guaranty Bank, FSB under
      the Existing Company Credit Agreement and have become, collectively, the Lender
      thereunder and, as such, have appointed Bank of Montreal to act as their agent
      under the Existing Company Credit Agreement;

     

    WHEREAS,
      the Company desires to refinance, renew, extend and continue the Existing
      Revolving Credit Outstandings, including the Existing Revolving Credit Loans,
      with the proceeds of Loans hereunder, which initially shall be Base Rate
      Loans;

     

    WHEREAS,
      the Company has entered into the Output Acquisition Documents (defined below),
      and desires to consummate the Output Acquisition (defined below) contemplated
      thereby, and, in connection therewith, has requested that the Lenders make
      loans
      and other credit available to the Company on the terms set forth in this
      Agreement;

     

    WHEREAS,
      the Lenders are willing to make such loans and other credit available to finance
      the Output Acquisition, to refinance the Existing Revolving Credit Outstandings
      and for general corporate purposes on the terms, and subject to the satisfaction
      of certain conditions precedent in, this Agreement; and

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    WHEREAS,
      it is the intent of the parties hereto that this Agreement not constitute a
      novation of the obligations and liabilities existing under the Existing Loan
      Documents (defined below) or evidence payment of all or any of such obligations
      and liabilities; that this Agreement amends and restates in its entirety the
      Existing Company Credit Agreement and renews and extends the extensions of
      credit under the Existing Company Credit Agreement, as so amended and restated;
      and that from and after the Effective Time the Existing Company Credit Agreement
      shall be of no further force or effect except as to evidence the incurrence
      of
      the obligations of the Company and its Subsidiaries thereunder.

     

    NOW,
      THEREFORE, in consideration of the mutual agreements, provisions and covenants
      contained herein and other good and valuable consideration, the receipt and
      adequacy of which are hereby acknowledged, the parties hereto agree that the
      Existing Company Credit Agreement shall be and hereby is amended and restated
      in
      its entirety as follows:

     

    ARTICLE
      I

     

    DEFINITIONS

     

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

     

    “Adjusted
      Base Rate”
shall
      mean, for any day and any Base Rate Loan, an interest rate per annum equal
      to
      the greater of (a) the Federal Funds Rate for such day plus one-half of one
      percent (0.5%) and (b) the Base Rate for such day; such rate to be computed
      on
      the basis of a year of 365 or 366 days, as the case may be, and actual days
      elapsed (including the first day but excluding the last day) during the period
      for which payable, but in no event shall such rate at any time exceed the
      Highest Lawful Rate.

     

    “Administrative
      Agent”
has
      the
      meaning specified in the preamble hereto.

     

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

     

    “Affected
      Lender”
has
      the
      meaning specified in Section 3.7.

     

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

     

    “Agent-Related
      Persons”
means
      with respect to each Agent, such Agent, its Affiliates, and each of the
      officers, directors, employees, agents and attorneys-in-fact of it and its
      Affiliates.

     

    “Agents”
means,
      collectively, Bank of Montreal, in its capacity as the Administrative Agent,
      and
      BMO Capital Markets Corp., in its capacity as Arranger.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Agent’s
      Payment Office”
means
      the address set forth on the signature pages hereto in relation to the
      Administrative Agent, or such other address as the Administrative Agent may
      from
      time to time specify.

     

    “Agreement”
means
      this Amended and Restated Credit Agreement, as amended, amended and restated,
      supplemented or otherwise modified from time to time pursuant to the terms
      hereof and the Intercreditor Agreement.

     

    “Annual
      Proposed Borrowing Base”
has
      the
      meaning specified in Section 2.6(b).

     

    “Applicable
      Margin”
means,
      with respect to any Base Rate Loan or LIBO Rate Loan on any day, an amount
      equal
      to the percentage for such day under the Pricing Grid for such type of
      Loan.

     

    “Applicable
      Percentage”
      means
      eighty percent (80%).

     

    “Arranger”
has
      the
      meaning specified in the preamble hereto.

     

    “Assignee”
has
      the
      meaning specified in Section 11.8(a).

     

    “Assignment
      and Acceptance”
has
      the
      meaning specified in Section 11.8(a).

     

    “Attorney
      Costs”
means
      and includes all reasonable fees and disbursements of any law firm or other
      external counsel.

     

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

     

    “Bankruptcy
      Code”
means
      the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et
      seq.).

     

    “Base
      Rate”
means,
      for any day, the rate of interest in effect for such day as publicly announced
      from time to time by Administrative Agent at its Chicago, Illinois office as
      its
“base rate” for Dollar loans made in the United States. (The “base rate” is a
      rate set by Administrative Agent based upon various factors including costs
      and
      desired return, general economic conditions and other factors, and is used
      as a
      reference point for pricing some loans, which may be priced at, above, or below
      such announced rate.) Any change in the base rate announced by Administrative
      Agent shall take effect at the opening of business on the day specified in
      the
      public announcement of such change.

     

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

     

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Borrowing
      Base”
means
      at the particular time in question, the amount provided for in Section
2.6;
      provided, however, that in no event shall the Borrowing Base exceed the Maximum
      Loan Amount.

     

    “Borrowing
      Base Period”
means
      the period from the Effective Time until November 1,
      2007
      and each six-month period commencing May 1 or November 1 of each calendar year
      thereafter.

     

    “Borrowing
      Date”
means
      any date on which a Borrowing occurs under Section 2.2
      or an
      Issuance of a Letter of Credit occurs under Section 2.13.

     

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

     

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

     

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

     

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

     

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

     

    “Cash
      Equivalents”
means:
      (a) securities issued or fully guaranteed or insured by the United States
      Government or any agency thereof and backed by the full faith and credit of
      the
      United States having maturities of not more than 12 months from the date of
      acquisition; (b) certificates of deposit, time deposits, Eurodollar time
      deposits, or bankers’ acceptances having in each case a tenor of not more than
      12 months from the date of acquisition issued by and demand deposits with any
      U.S. commercial bank or any branch or agency of a non-U.S. commercial bank
      licensed to conduct business in the U.S. having combined capital and surplus
      of
      not less than $500,000,000 whose long term securities are rated at least A
      (or
      then equivalent grade) by S&P and A2 (or then equivalent grade) by Moody’s
      at the time of acquisition; (c) commercial paper of an issuer rated at least
      A-1
      by S&P or P-1 by Moody’s at the time of acquisition, and in either case
      having a tenor of not more than 12 months; (d) repurchase agreements with a
      term
      of not more than seven days for underlying securities of the types described
      in
      clauses (a) and (b) above; and (e) money market mutual or similar funds having
      assets in excess of $100,000,000.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    “Change
      of Control”
means
      (a) a purchase or acquisition, directly or indirectly, by any “person” or
“group” within the meaning of Section 13(d)(3) and 14(d)(2) of the Exchange Act
      (a “Group”),
      of
“beneficial ownership” (as such term is defined in Rule 13d-3 under the Exchange
      Act) of securities of the Company which, together with any securities owned
      beneficially by any “affiliates” or “associates” of such Group (as such terms
      are defined in Rule 12b-2 under the Exchange Act), shall represent more than
      thirty percent (30%) of the combined voting power of the Company’s securities
      which are entitled to vote generally in the election of directors and which
      are
      outstanding on the date immediately prior to the date of such purchase or
      acquisition or (b) the first day on which a majority of the Board of Directors
      of the Company are not Continuing Directors (as herein defined). As herein
      defined, “Continuing
      Directors”
means
      any member of the Board of Directors of the Company who (x) is a member of
      such
      Board of Directors as of the Effective Date or (y) was nominated for election
      or
      elected to such Board of Directors with the affirmative vote of a majority
      of
      the Continuing Directors who were members of such Board of Directors at the
      time
      of such nomination or election.

     

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

     

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

     

    “Commitment”
means
      as to each Lender, such Lender’s obligation to make or continue Loans and to
      incur or participate in the LC Obligations in an aggregate principal amount
      at
      any one time outstanding up to but not exceeding the lesser of (a) the Borrowing
      Base multiplied by such Lender’s Pro Rata Share and (b) the amount set forth
      opposite the name of such Lender on Schedule 1.1(a)
      hereto under the heading “Maximum Loan Amount”, or if such Lender is a party to
      an Assignment and Acceptance, the amount set forth on the most recent Assignment
      and Acceptance of such Lender, as that amount may be reduced or terminated
      pursuant to this Agreement.

     

    “Commitment
      Fee”
means
      the fee payable pursuant to Section 2.8(a).

     

    “Commitment
      Letter”
means
      the commitment letter dated February 13, 2007 by and among the Company, BMO
      Capital Markets Corp. and Bank of Montreal.

     

    “Company”
means
      The Exploration Company of Delaware, Inc. a Delaware corporation.

     

    “Company
      Audited Financial Statements”
means
      the Company’s consolidated financial statements as of and for the years ended
      December 31, 2006, 2005 and 2004, together with the unqualified independent
      auditors’ report and opinion of Akin, Doherty, Klein & Feuge, P.C.
      thereon.

     

    “Company
      Materials”
has
      the
      meaning specified in Section 7.1(d).

     

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

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “Consolidated
      EBITDAX”
means
      with respect to the Company and its Subsidiaries on a consolidated basis for
      any
      fiscal period, without duplication, (a) Consolidated Net Income plus (b)
      depreciation, depletion, amortization, adjustments resulting from the
      application of FAS 123R, FAS 133 and FAS 143 and other non-cash losses or
      charges reducing Consolidated Net Income plus (c) Consolidated Interest Expense
      plus (d) income tax expense plus (e) exploration expenses minus (f) any other
      non-cash items increasing Consolidated Net Income plus or minus, respectively
      (g) other extraordinary or non-recurring losses or gains (cash or non-cash)
      to
      the extent taken into account by the Company in any public disclosures of its
      “EBITDAX” or “consolidated EBITDAX” for the relevant period. For purposes of
      Sections 8.12
      and
8.14,
      Consolidated EBITDAX shall be calculated (x) to give pro forma effect to the
      Output Acquisition, other Corporate Acquisitions and other acquisitions and
      Dispositions and related financing transactions as if such transaction(s) had
      been consummated on the first day of the relevant period of calculation and
      (y)
      based on (i) four times Consolidated EBITDAX for the first Fiscal Quarter
      following the Effective Date, (ii) two times Consolidated EBITDAX for the first
      two Fiscal Quarters following the Effective Date, (iii) four-thirds times
      Consolidated EBITDAX for the first three Fiscal Quarters following the Effective
      Date and (iv) thereafter, Consolidated EBITDAX on a rolling four quarter
      basis.

     

    “Consolidated
      Interest Expense”
means,
      with respect to the Company and its Subsidiaries on a consolidated basis for
      any
      fiscal period, total interest expenses (including that portion attributable
      to
      Capitalized Lease Obligations and capitalized interest) of the Company and
      its
      Subsidiaries in such fiscal period which are classified as interest expense
      on
      the consolidated financial statements of the Company and its Subsidiaries,
      all
      as determined in conformity with GAAP. For purposes of Sections 8.12
      and
8.14,
      Consolidated Interest Expense shall be calculated (x) to give pro forma effect
      to the Output Acquisition, other Corporate Acquisitions and other acquisitions
      and Dispositions and related financing transactions and other acquisitions
      and
      related financing transaction(s) as if such transactions had been consummated
      on
      the first day of the relevant period of calculation and (y) based on (i) four
      times Consolidated Interest Expense for the first Fiscal Quarter following
      the
      Effective Date, (ii) two times Consolidated Interest Expense for the first
      two
      Fiscal Quarters following the Effective Date, (iii) four-thirds times
      Consolidated Interest Expense for the first three Fiscal Quarters following
      the
      Effective Date and (iv) thereafter, Consolidated Interest Expense on a rolling
      four quarter basis.

     

    “Consolidated
      Leverage Ratio”
means
      as at the last day of any period of four consecutive fiscal quarters of the
      Company, commencing with the Fiscal Quarter ended June 30, 2007 as the last
      quarter in the initial period of four consecutive fiscal quarters contemplated
      hereby, the ratio of (a) Consolidated Total Debt to (b) Consolidated EBITDAX
      for
      such period.

     

    “Consolidated
      Net Income”
means,
      with respect to the Company and its Subsidiaries on a consolidated basis, for
      any fiscal period, the net income (or net loss) of the Company and its
      Subsidiaries for such period determined in accordance with GAAP, but excluding
      the effects of the application of FAS 133 and 143.

     

    “Consolidated
      Total Debt”
means,
      at any date, the aggregate principal amount (without duplication) of all
      Indebtedness under clauses (a), (b), (c), (d), (f), (g) and (i) of such
      definition of the Company and its Subsidiaries at such date, determined on
      a
      consolidated basis in accordance with GAAP. 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    “Conversion/Continuation
      Date”
means
      any date on which, under Section 2.3,
      the
      Company (a) converts Loans of one Interest Rate Type to another Interest Rate
      Type, or (b) continues as Loans of the same Interest Rate Type, but with a
      new
      Interest Period, Loans having Interest Periods expiring on such
      date.

     

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

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    “Credit
      Extension”
means
      and includes the making, conversion or continuation of any Loan and the Issuance
      of any Letter of Credit hereunder.

     

    “Current
      Assets”
means,
      for any Person, all assets of such Person that, in accordance with GAAP, would
      be included as current assets on a balance sheet as of a date of calculation;
      provided, however, an amount equal to the Available Borrowing Base shall be
      included as current assets.

     

    “Current
      Liabilities”
means,
      for any Person, all liabilities of such Person that, in accordance with GAAP,
      would be included as current liabilities on a balance sheet as of the date
      of
      calculation; provided, however, the current portion of the Loans which are
      not
      past due may be excluded from Current Liabilities.

     

    “Deficiency”
has
      the
      meaning specified in Section 2.6(f).

     

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

     

    “Default
      Rate”
has
      the
      meaning specified in Section 2.7(b)(iii).

     

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

     

    “Disposition”
      has the
      meaning specified
      in
      Section 8.2.

     

    “Disqualified
      Stock”
      means,
      as to
      any Person, any Capital Stock of such Person that by its terms (or by the terms
      of any security into which it is convertible or for which it is exchangeable)
      or
      otherwise (including upon the occurrence of an event) requires the payment
      of
      dividends (other than dividends payable solely in Capital Stock which does
      not
      otherwise constitute Disqualified Stock) or matures or is required to be
      redeemed (pursuant to any sinking fund obligation or otherwise) or is
      convertible into or exchangeable for Indebtedness or is redeemable at the option
      of the holder thereof, in whole or in part, at any time on or prior
      to the
      date
      six months after the Maturity Date.

     

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

     

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

     

    “Effective
      Date”
means
      the date on which the Effective Time occurs.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    “Effective
      Time”
means
      the time as of which all conditions precedent set forth in
      Section 5.1
      are
      satisfied or waived by all Lenders.

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    “Eurodollar
      Reserve Percentage”
has
      the
      meaning specified in the definition of “LIBO Rate”.

     

    “Event
      of Default”
means
      any of the events or circumstances specified in Section 9.1.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934.

     

    “Exempt
      Subsidiary”
means
      (a) any of the following existing Subsidiaries: Eagle Pass Well Service, L.L.C.,
      TXCO Drilling Corp., PPL Operating Inc., Maverick Gas Marketing, Ltd.,
      Maverick-Dimmit Pipeline, Ltd. or Paloma Pipeline, L.P.; and (b) any Subsidiary
      formed or acquired after the Effective Date that owns no Hydrocarbon
      Interests.

     

    “Existing
      Company Credit Agreement”
has
      the
      meaning specified in the preamble hereto.

     

    “Existing
      Derivative Contracts”
means
      the contracts listed on Schedule 6.25
      hereto.

     

    “Existing
      Output Credit Agreements”
means,
      collectively, the Existing Output Senior Credit Agreement and the Existing
      Output Subordinated Credit Agreement.

     

    “Existing
      Output Senior Credit Agreement”
means
      the Second Amended and Restated Credit Agreement executed effective as of
      October 1, 2004 between Output, as Borrower and Wells Fargo Bank, NA, as Agent
      and Lender, as amended and supplemented as of the date hereof.

     

    “Existing
      Output Subordinated Credit Agreement”
means
      the Amended and Restated Credit Agreement executed effective as of April 14,
      2004 between Output, as Borrower and Wells Fargo Energy Capital, Inc., as Lender
      (as amended and supplemented as of the date hereof).

     

    “Existing
      Revolving Credit Loans”
means
      the aggregate $22,851,000 principal amount of Loans (as defined in the Existing
      Company Credit Agreement) outstanding at the Effective Time.

     

    “Existing
      Revolving Credit Outstandings”
means
      the sum of (a) the Existing Revolving Credit Loans and (b) the Reimbursement
      Obligations (as defined in the Existing Company Credit Agreement) outstanding
      at
      the Effective Time.

     

    “FAS
      123R”
means
      Financial Accounting Statement 123R promulgated by the Financial Accounting
      Standards Board.

     

    “FAS
      133”
means
      Financial Accounting Statement 133 promulgated by the Financial Accounting
      Standards Board.

     

    “FAS
      143”
means
      Financial Accounting Statement 143 promulgated by the Financial Accounting
      Standards Board.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

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

     

    “Fee
      Letter Agreement”
means
      the letter agreement dated February 13, 2007 among BMO Capital Markets Corp.,
      Bank of Montreal and the Company.

     

    “Fiscal
      Quarter”
means
      each of the three-month periods coinciding with the fiscal quarters adopted
      by
      the Company for financial reporting purposes.

     

    “Foreign
      Lender”
      means
      any Lender that is organized under the laws of a jurisdiction other than the
      United States of America, any State thereof or the District of
      Columbia.

     

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

     

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

     

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

     

    “Guarantor”
means
      (a) each of the Original Guarantors, (b) from and after the Output Closing
      Time,
      OPEX upon the execution and delivery by OPEX of the Guaranty, and (c) any new
      Subsidiary which is required to execute the Guaranty under Section 7.12
      upon the
      execution and delivery by such Person of the Guaranty.

     

    “Guaranty”
means
      the Guaranty Agreement, substantially in the form of Exhibit
      “G”
      hereto
      executed by each Guarantor in favor of the Administrative Agent and the Lenders,
      as the same may be amended, amended and restated, supplemented or otherwise
      modified from time to time pursuant to the terms hereof (including, in the
      case
      of any Subsidiary required to execute the Guaranty pursuant to Section
7.12,
      by
      execution and delivery of a joinder thereto in the form of Annex 1
      thereto).

     

    “Guaranty
      FSB Assignment”
has
      the
      meaning specified in the recitals hereto.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    “Guaranty
      FSB Assignment Documents”
means
      the Guaranty FSB Assignment and each assignment or other similar agreement,
      document or instrument entered into between or among the Administrative Agent
      and the Lenders, on the one hand, and Guaranty Bank, FSB, on the other hand,
      in
      connection with the purchase from Guaranty Bank, FSB of the Existing Revolving
      Credit Outstandings, including, without limitation, the assignments of the
      Guaranty FSB Mortgages and UCC assignments with respect to the Liens and
      security interests existing in connection with the Existing company Credit
      Agreement.

     

    “Guaranty
      FSB Mortgages”
means
      the mortgages, deeds of trust and other instruments described on Schedule 1.1(b)
      hereto.

     

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

     

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

     

    “Hydrocarbon
      Interests”
means
      leasehold and other real property interests in or under oil, gas and other
      liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty
      and royalty interests, net profit interests, production payment interests
      relating to oil, gas or other liquid or gaseous hydrocarbons wherever located
      including any reserved or residual interest of whatever nature, covering lands
      in or offshore the continental United States.

     

    “Indebtedness”
of
      any
      Person means, without duplication, (a) all indebtedness for borrowed money;
      (b)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      Property or services (other than trade payables entered into in the ordinary
      course of business on ordinary terms and not past due for more than 90 days
      after the due date thereof, other than those trade payables disputed in good
      faith); (c) all non-contingent reimbursement or payment obligations with respect
      to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures
      or similar instruments, including obligations so evidenced incurred in
      connection with the acquisition of Property, assets or businesses; (e) all
      indebtedness created or arising under any conditional sale or other title
      retention agreement, or incurred as financing, in either case with respect
      to
      Property acquired by the Person (even though the rights and remedies of the
      seller or bank under such agreement in the event of default are limited to
      repossession or sale of such Property) including, without limitation, production
      payments, net profit interests and other Hydrocarbon Interests subject to
      repayment out of future Oil and Gas production; (f) all obligations with respect
      to Capital Leases; (g) all non-contingent net obligations with respect to
      Derivative Contracts; (h) gas imbalances or obligations under take-or-pay
      or prepayment contracts with respect to any of the Oil and Gas Properties which
      would require the Company or any of its Subsidiaries to deliver Oil and Gas
      from
      any of the Oil and Gas Properties at some future time without then or thereafter
      receiving full payment therefor; (i) all indebtedness referred to in clauses
      (a)
      through (g) above secured by (or for which the holder of such Indebtedness
      has
      an existing right, contingent or otherwise, to be secured by) any Lien upon
      or
      in Property (including accounts and contracts rights) owned by such Person,
      even
      though such Person has not assumed or become liable for the payment of such
      Indebtedness; and (j) all Guaranty Obligations in respect of indebtedness or
      obligations of others of the kinds referred to in clauses (a) through (g)
      above.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    “Indemnified
      Liabilities”
has
      the
      meaning specified in Section 11.5.

     

    “Indemnified
      Person”
has
      the
      meaning specified in Section 11.5.

     

    “Independent
      Auditor”
has
      the
      meaning specified in Section 7.1(a).

     

    “Independent
      Engineer”
has
      the
      meaning specified in Section 7.2(c).

     

    “Initial
      Borrowing Base”
has
      the
      meaning specified in Section 2.6(a).

     

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

     

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

     

    “Intercreditor
      Agreement”
means
      that certain Intercreditor Agreement dated as of the Effective Date among the
      Loan Parties, the Administrative
      Agent, as first lien collateral agent, and Bank of Montreal, as second lien
      collateral agent
      in
      the form of Exhibit
      “H”
      hereto,
      as amended, amended and restated, restated, supplemented or otherwise modified
      from time to time pursuant to the terms hereof and thereof.

     

    “Interest
      Payment Date”
(a)
      as
      to any Base Rate Loan, means July 2, 2007 and the first Business Day following
      the end of each Fiscal Quarter ending thereafter prior to the Termination Date
      and each date on which such a Base Rate Loan is converted into another Interest
      Rate Type of Loan, and (b) as to any LIBO Rate Loan, the last day of the
      Interest Period applicable to such Loan; provided, however, that if any Interest
      Period for an LIBO Rate Loan exceeds three months, the date that falls three
      months after the beginning of such Interest Period is also an Interest Payment
      Date.

     

    “Interest
      Period”
means,
      as to any LIBO Rate Loan, the period commencing on the Borrowing Date of such
      Loan or on the Conversion/Continuation Date on which such Loan is converted
      into
      or continued as a LIBO Rate Loan, and ending on the date one week (if determined
      by the Administrative Agent to be available), or one, two, three or six months
      thereafter (or such greater number of months as may be requested by the Company
      and determined by the Administrative Agent to be available) as selected by
      the
      Company in its Notice of Borrowing or Notice of Conversion/Continuation;
      provided, however, that: (a) if any Interest Period would otherwise end on
      a day
      that is not a Business Day, that Interest Period shall be extended to the
      following Business Day unless, in the case of an LIBO Rate Loan, the result
      of
      such extension would be to carry such Interest Period into another calendar
      month, in which event such Interest Period shall end on the preceding Business
      Day; (b) any Interest Period pertaining to a LIBO Rate Loan that begins on
      the
      last Business Day of a calendar month (or on a day for which there is no
      numerically corresponding day in the calendar month at the end of such Interest
      Period) shall end on the last Business Day of the calendar month at the end
      of
      such Interest Period; and (c) no Interest Period for any Loan shall extend
      beyond the Termination Date.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    “Issuing
      Lender”
means
      any Affiliate, unit or agency of Bank of Montreal.

     

    “LC
      Application”
means
      an application or agreement for a standby Letter of Credit in the Issuing
      Lender’s current form with appropriate insertions duly executed by the Company
      pursuant to Section 2.13(a).

     

    “LC
      Collateral”
means
      any amounts, plus interest accrued thereon, held by the Administrative Agent
      as
      security for the LC Obligations.

     

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

     

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

     

    “Lenders”
has
      the
      meaning specified in the preamble hereto.

     

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

     

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

     

    “LIBO
      Rate”
means,
      for any Interest Period, with respect to LIBO Rate Loans comprising part of
      the
      same Borrowing, the rate of interest per annum (rounded upward to the next
      1/16th of 1%) determined by the Administrative Agent as follows:

     

    
      	
              LIBO
                Rate = 

            	
              LIBOR

            	 
	 	
              1.00
                - Eurodollar Reserve Percentage

            	 
	 	 	 
	
              where,

            	
              “Eurodollar
                Reserve Percentage”
                means for any day for any Interest Period the maximum reserve percentage
                (expressed as a decimal, rounded upward to the next 1/100th of 1%)
                in
                effect on such day to which the Administrative Agent or any Lender
                is
                subject under regulations issued from time to time by the FRB for
                determining the maximum reserve requirement (including any emergency,
                supplemental or other marginal reserve requirement) with respect
                to
                Eurocurrency funding (currently referred to as “Eurocurrency
                liabilities”); and

            

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    “LIBOR”
means
      relative to any Interest Period for LIBO Rate Loans:

     

    (a) the
      rate
      per annum equal to the rate determined by the Administrative Agent to be the
      offered rate that appears on the page, currently page 3750, of the Telerate
      screen (or any successor thereto or substitute therefor) that displays an
      average British Bankers Association Interest Settlement Rate for deposits in
      Dollars (for delivery on the first day of such Interest Period) with a term
      equivalent to such Interest Period, determined as of approximately 11:00 a.m.
      (London time) two Business Days prior to the first day of such Interest Period,
      or

     

    (b) if
      the
      rate referenced in the preceding clause (a) does not appear on such page or
      service or such page or service shall not be available, the rate per annum
      equal
      to the rate determined by the Administrative Agent to be the offered rate on
      such other page or other service that displays an average British Bankers
      Association Interest Settlement Rate for deposits in Dollars (for delivery
      on
      the first day of such Interest Period) with a term equivalent to such Interest
      Period, determined as of approximately 11:00 a.m. (London time) two Business
      Days prior to the first day of such Interest Period, or

     

    (c) if
      the
      rates referenced in the preceding clauses (a) and (b) are not available, the
      rate per annum determined by the Administrative Agent as the rate of interest
      at
      which deposits in Dollars for delivery on the first day of such Interest Period
      in same day funds in the approximate amount of the LIBO Rate Loan being made,
      continued or converted by Bank of Montreal and with a term equivalent to such
      Interest Period would be offered by Bank of Montreal’s London Branch to major
      banks in the London interbank eurodollar market at their request at
      approximately 4:00 p.m. (London time) two Business Days prior to the first
      day
      of such Interest Period.

     

    The
      LIBO
      Rate shall be adjusted automatically as to all LIBO Rate Loans then outstanding
      as of the effective date of any change in the Eurodollar Reserve
      Percentage.

     

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

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    “Liquidity”
means,
      with respect to the Company and the Guarantors on a consolidated basis, the
      sum
      of (a) their unrestricted cash and unrestricted Cash Equivalents plus (b) the
      Available Borrowing Base.

     

    “Loan
      Documents”
means
      this Agreement, the Notes, each Guaranty, the Security Documents, each LC
      Related Document, the Fee Letter Agreement, the Commitment Letter and all other
      documents delivered to the Administrative Agent or any Lender in connection
      herewith.

     

    “Loans”
has
      the
      meaning specified in Section 2.1(a).

     

    “Loan
      Parties”
means
      the Company and each Guarantor.

     

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

     

    “Material
      Adverse Effect”
means
      (a) a material adverse change in, or a material adverse effect upon, (i) the
      Output Acquisition or (ii) the operations, business, properties or financial
      condition of the Company and its Subsidiaries, taken as a whole excluding
      events, developments or circumstances generally affecting the industry in which
      the Company and its Subsidiaries operate or arising from changes in general
      business or economic conditions, so long as the foregoing do not
      disproportionately adversely affect the Company and its Subsidiaries, taken
      as a
      whole; (b) a material impairment of the ability of the Company or any Guarantor
      to perform under any material Loan Document; or (c) a material adverse effect
      upon the legality, validity, binding effect or enforceability against the
      Company or any Guarantor of any material Loan Document.

     

    “Matured
      LC Obligations”
means
      the aggregate amount of payments theretofore made by the Issuing Lender in
      respect of Letters of Credit and not theretofore reimbursed by the Company
      to
      the Issuing Lender or deemed Loans pursuant to Section 2.13(d).

     

    “Maturity
      Date”
means
      the fourth anniversary of the Effective Date.

     

    “Maximum
      Loan Amount”
means
      an aggregate amount of $125,000,000. Each Lender’s Maximum Loan Amount is set
      forth on Schedule 1.1(a)
      hereto under the heading “Maximum Loan Amount”, or if such Lender is a party to
      an Assignment and Acceptance, the amount set forth on the most recent Assignment
      and Acceptance of such Lender, as that amount may be reduced or terminated
      pursuant to this Agreement.

     

    “Merger
      Sub”
means
      Output Acquisition Corp., a Texas corporation.

     

    “Midstream
      Contracts”
means
      (a) the Firm Transportation Service Agreement by and between Maverick-Dimmit
      Pipeline, Ltd. and TXCOE dated April 1, 2007 and (b) the Marketing Services
      Agreement by and between Maverick Gas Marketing, Ltd. and TXCOE dated April
      1,
      2007.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    “Moody’s”
means
      Moody’s Investors Service, Inc.

     

    “Mortgaged
      Properties”
means
      such Oil and Gas Properties upon which the Company and the Guarantors have
      granted the Administrative Agent for the benefit of the Lenders a valid, first
      Lien pursuant to the Mortgages, subject to Permitted Liens.

     

    “Mortgages”
means
      the Mortgages, Deeds of Trust, Security Agreements, Financing Statements and
      Assignments of Production from the Company and TXCOE, and, from and after the
      Effective Time, Merger Sub and OPEX, in favor of the Administrative Agent,
      for
      the benefit of the Secured Parties, covering the Oil and Gas Properties of
      the
      Company and the Guarantors party thereto and all supplements, assignments,
      assumptions, amendments and restatements thereto (or any agreement in
      substitution therefor) that are executed and delivered to the Administrative
      Agent for benefit of the Lenders pursuant to Article
      IV
      of this
      Agreement.

     

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

     

    “Net
      Cash Proceeds”
means
      in connection with any Disposition or any Recovery Event, all proceeds thereof
      in the form of cash and Cash Equivalents of such Disposition or Recovery Event,
      net of reasonable and customary Attorney Costs, accountants’ fees, investment
      banking fees, amounts required to be applied to the repayment of Indebtedness
      secured by a Lien expressly permitted hereunder on any Property which is the
      subject of such Disposition or Recovery Event and other reasonable and customary
      fees and expenses actually incurred in connection therewith (including survey
      costs, title insurance premiums, search and recording charges) and net of taxes
      paid or reasonably estimated to be payable as a result thereof (after taking
      into account any available tax credits or deductions and any tax sharing
      arrangements).

     

    “Net
      Present Value”
means
      the PV 10 Value of the Oil and Gas Properties and adjusted at the date of
      determination (on the same basis as the most recent Reserve Report previously
      delivered pursuant to Section 6.11
      or
      Section 7.2(c)
      was
      prepared) for Dispositions and purchases of Hydrocarbon Interests occurring
      since the date of such report. The Net Present Value shall be calculated by
      the
      Company as of each date of determination.

     

    “Net
      Proceeds of Production”
means
      the amounts attributable to the Company’s and the Guarantors’ interest in the
      proceeds received from the sale of Oil and Gas produced from Mortgaged
      Properties after deduction of (a) royalties existing as of the effective date
      on
      which the Company or the applicable Guarantor first mortgaged its interests
      in
      such Mortgaged Properties in favor of the Lenders or their predecessors; (b)
      third party (including any Exempt Subsidiary) pipeline and transportation
      charges; (c) production, ad valorem and severance taxes chargeable against
      such
      production; (d) marketing costs; (e) overriding royalties existing as of the
      effective date on which the Company or the applicable Guarantor first mortgaged
      its interests in such Mortgaged Properties in favor of the Lenders or their
      predecessors; (f) other interests in and measured by production burdening the
      Mortgaged Properties existing as of the effective date on which the Company
      or
      the applicable Guarantor first mortgaged its interests in such Mortgaged
      Properties in favor of the Lenders or their predecessors; and (g) the current
      portion of direct operating or production costs which is allocable to such
      interest in such Mortgaged Properties.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    “Non-Recourse
      Debt”
means
      Indebtedness of Exempt Subsidiaries (a) as to which neither the Company nor
      any
      Guarantor (i) provides credit support of any kind (including any undertaking,
      agreement or instrument that would constitute Indebtedness), (ii) is directly
      or
      indirectly liable as a guarantor or otherwise, or (iii) constitutes the lender
      with respect to such Indebtedness; and (b) no default with respect to which
      (including any rights that the holders thereof may have to take enforcement
      action against an Exempt Subsidiary) would permit upon notice, lapse of time
      or
      both any holder of any other Indebtedness of the Company or any Guarantor to
      declare a default on such other Indebtedness or cause the payment thereof to
      be
      accelerated or payable prior to its stated maturity date.

     

    “Notes”
means
      the promissory notes, whether one or more, specified in Section 2.1(b),
      substantially in the same form as Exhibit
      “F”,
      including any amendments, amendments and restatements, modifications, renewals
      or replacements of such promissory notes.

     

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

     

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

     

    “NYMEX”
means
      the New York Mercantile Exchange.

     

    “Obligations”
means
      the unpaid principal of and interest (including interest accruing at the then
      applicable rate provided herein after the maturity of the Loans and interest
      accruing at the then applicable rate provided herein after the filing of any
      petition for an Insolvency Proceeding, or the commencement of any Insolvency
      Proceeding, whether or not a claim for post-filing or post-petition interest
      is
      allowed in such proceeding) on the Loans and all other advances, debts,
      liabilities, obligations, covenants and duties arising under any Loan Document
      owing by the Company or any Guarantor to any Lender, the Issuing Lender, the
      Administrative Agent, any Qualifying Derivative Contract Counterparty or any
      Indemnified Person, whether direct or indirect (including those acquired by
      the
      Guaranty FSB Assignment or other assignment), absolute or contingent, due or
      to
      become due, now existing or hereafter arising, whether on account of principal,
      interest, reimbursement obligations, fees, indemnities, costs, expenses
      (including all reasonable fees, charges and disbursements of counsel in
      accordance with Section 11.4) or otherwise.

     

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

     

    “Oil
      and Gas Liens” means
      (a)
      Liens arising under oil and gas leases, overriding royalty agreements, net
      profits agreements, royalty trust agreements, farm-out agreements, division
      orders, contracts for the sale, purchase, exchange, transportation, gathering
      or
      processing of Oil and Gas, unitizations and pooling designations, declarations,
      orders and agreements, development agreements, operating agreements, production
      sales contracts, area of mutual interest agreements, gas balancing or deferred
      production agreements, injection, repressuring and recycling agreements, salt
      water or other disposal agreements, seismic or geophysical permits or
      agreements, and other agreements that are customary in the oil and gas business
      and are entered into by the Company in the ordinary course of business;
      provided, however, in all instances that such Liens are limited to the assets
      that are the subject of the relevant agreement; and (b) Liens on pipelines
      or
      pipeline facilities that arise by operation of law.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    “OPEX”
means
      OPEX Energy, LLC a Texas limited liability company, which is a wholly owned
      Subsidiary of Output.

     

    “Organization
      Documents”
means,
      for any corporation, the certificate or articles of incorporation, the bylaws,
      any certificate of determination or instrument relating to the rights of
      preferred shareholders of such corporation and any shareholder rights agreement
      and for any limited liability company means the limited liability company
      agreement, and all other documents, filings and instruments necessary to create
      and constitute such company, or for any limited partnership means the original
      agreement of limited partnership as amended from time to time.

     

    “Original
      Guarantor”
means
      any of TXCOE, TTSI or Merger Sub, each of which is a wholly owned
      Subsidiary.

     

    “Originating
      Lender”
has
      the
      meaning specified in Section 11.8(d).

     

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

     

    “Output”
means
      Output Exploration, LLC, a Delaware limited liability company.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    “Output
      Acquisition”
means
      the proposed acquisition by the Company of all of the outstanding Capital Stock
      of Output pursuant to the Output Acquisition Agreement for an aggregate cash
      purchase price not to exceed $100,000,000 in cash and common stock of the
      Company, subject to usual and customary adjustments for transactions of such
      nature.

     

    “Output
      Acquisition Agreement”
means
      the Agreement and Plan of Merger dated effective as of February 20, 2007 by
      and
      among the Company, Merger Sub and Output, as amended, amended and restated,
      supplemented, replaced or otherwise modified from time to time in accordance
      with this Agreement.

     

    “Output
      Acquisition Documents”
means,
      collectively, the Output Acquisition Agreement and all schedules, exhibits,
      annexes and amendments thereto and all side letters and agreements affecting
      the
      terms thereof or entered into in connection therewith, in each case, as amended,
      amended and restated, supplemented or otherwise modified from time to
      time.

     

    “Output
      Closing Time”
means
      the time as of which all conditions precedent set forth in Section 5.2
      are
      satisfied or waived by all Lenders.

     

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

     

    “Participant”
has
      the
      meaning specified in Section 11.8(d).

     

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

     

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

     

    “Permitted
      Indebtedness”
has
      the
      meaning specified in Section 8.5.

     

    “Permitted
      Liens”
means
      the collective reference to (i) in the case of Collateral other than Pledged
      Stock, Liens permitted by Section 8.1
      and (ii)
      in the case of Collateral consisting of Pledged Stock, (A) Liens permitted
      by
      Sections 8.1(b)
      and
(j)
      and (B)
      non-consensual Liens permitted by Section 8.1
      to the
      extent arising by operation of law.

     

    “Permitted
      Refinancing”
means
      any modification, refinancing, refunding, renewal or extension of Indebtedness;
      provided, however, that (w) the principal amount thereof does not exceed the
      principal amount of the Indebtedness so modified, refinanced, refunded, renewed
      or extended except by an amount equal to unpaid accrued interest and premium
      thereon plus other reasonable amounts paid, and fees and expenses reasonably
      incurred, in connection therewith, (x) such modification, refinancing,
      refunding, renewal or extension has a final maturity date equal to or later
      than
      the final maturity date of the Indebtedness being modified, refinanced,
      refunded, renewed or extended, (y) if the Indebtedness being modified,
      refinanced, refunded, renewed or extended is subordinated in right of payment
      to
      the Obligations, such modification, refinancing, renewal or extension is
      subordinated in right of payment to the Obligations on terms at least as
      favorable to the Lenders as those contained in the documentation governing
      the
      original Indebtedness, taken as a whole and (z) the terms and conditions of
      any
      such modified, refinanced, refunded, renewed or extended Indebtedness are not
      materially less favorable to the Loan Parties or the Lenders than the terms
      and
      conditions of the Indebtedness being modified, refinanced, refunded, renewed
      or
      extended, taken as a whole.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

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

     

    “Plan”
means
      an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject
      to ERISA, other than a Multiemployer Plan.

     

    “Platform”
has
      the
      meaning specified in Section 7.1(d).

     

    “Pledged
      Stock”
means
      “Pledged Stock” as such term is defined in the Security Agreement.

     

    “Pricing
      Grid”
means
      the annualized rates (stated in terms of basis points (“bps”)) set forth below
      which shall be computed as of each day during the term hereof for the Applicable
      Margin (and Letter of Credit Rate) and Commitment Fee based upon the Utilization
      Percentage on such day as follows:

     

    
      	 	 	 	 	
              Applicable
                Margin

            	 	 
	
              Pricing

              Level

            	 	
              Utilization

              Percentage

            	 	
              Base
                Rate Loan

              (bps)

            	 	
              LIBO
                Rate Loan/Letter of Credit Rate

              (bps)

            	 	
               

              Commitment
                Fee

              (bps)

            
	
              Level
                I

            	 	
              less
                than 30%

            	 	
              00.0

            	 	
              150.0

            	 	
              37.5

            
	
              Level
                II

            	 	
              30%
                or greater but less
                than 60%

            	 	
              25.0

            	 	
              175.0

            	 	
              50.0

            
	
              Level
                III

            	 	
              60%
                or greater but less than 90%

            	 	
              50.0

            	 	
              200.0

            	 	
              50.0

            
	
              Level
                IV

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

            	 	
              75.0

            	 	
              225.0

            	 	
              50.0

            
	
              Deficiency

            	 	
              more
                than 100%

            	 	
              100.0

            	 	
              250.0

            	 	
              50.0

            

    

    

    “Principal
      Business”
means
      the business of the exploration for, and development, acquisition, production,
      and upstream marketing and transportation of Oil and Gas.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    “Projected
      Oil and Gas Production”
means
      the projected production of oil or gas (measured by volume unit or BTU
      equivalent, not sales price) for the term of the contracts or a particular
      half-year, as applicable, from Oil and Gas Properties and interests owned by
      the
      Company and the Guarantors that have attributable to them Proved Developed
      Producing Reserves, as such production is projected in the most recent Reserve
      Report delivered pursuant to Section 7.2(c),
      after
      deducting projected production from any Oil and Gas Properties sold or under
      contract for sale that had been included in such report and after adding
      projected production from any Oil and Gas Properties or Hydrocarbon Interests
      that had not been reflected in such report but that are reflected in a separate
      or supplemental reports prepared on the same basis as the reports delivered
      pursuant to Section 7.2(c)
      above
      and otherwise are satisfactory to the Administrative Agent.

     

    “Pro
      Rata Share”
means,
      as to any Lender at any time, the percentage equivalent (expressed as a decimal,
      rounded to the ninth decimal place) at such time of such Lender’s Maximum Loan
      Amount divided by the combined Maximum Loan Amounts of all Lenders.

     

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

     

    “Proved
      Developed Producing Reserves”
means
      those Oil and Gas Properties designated as proved developed producing (in
      accordance with the Definitions for Oil and Gas Reserves approved by the Board
      of Directors of the Society of Petroleum Engineers, Inc. from time to time)
      in
      the Reserve Report.

     

    “Proved
      Reserves”
means
      those Oil and Gas Properties designated as proved (in accordance with the
      Definitions for Oil and Gas Reserves approved by the Board of Directors of
      the
      Society of Petroleum Engineers, Inc. from time to time) in the Reserve
      Report.

     

    “Public
      Lender”
has
      the
      meaning specified in Section 7.1(d).

     

    “PV
      10 Value”
means,
      as of any date of determination, the present value of future cash flows from
      Proved Reserves included in the Company’s and the Guarantors’ Oil and Gas
      Properties as set forth in the most recent Reserve Report delivered pursuant
      to
      Section 6.11 or 7.2(c), utilizing the average of the Three-Year Strip Price
      for
      crude oil (WTI Cushing) and natural gas (Henry Hub), quoted on the NYMEX (or
      its
      successor) and utilizing a 10% discount rate. The PV-10 Value shall be adjusted
      to give effect to the Company’s and the Guarantors’ Derivative Contracts for the
      purpose of hedging prices of Oil and Gas and any Oil and Gas sales contracts
      not
      cancellable on 90 or fewer days’ notice. The PV 10 Value shall be
      calculated by the Company as of each date of determination.

     

    “Qualifying
      Derivative Contract”
means
      any Derivative Contract between any Loan Party and any Qualifying Derivative
      Contract Counterparty.

     

    “Qualifying
      Derivative Contract Counterparty”
means,
      with respect to a Qualifying Derivative Contract, any Person that was a Lender
      or an Affiliate thereof at the time such Qualifying Derivative Contract was
      originally entered into.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    “Qualifying
      Preferred Stock”
shall
      mean, as applied to the Capital Stock of any Person, the Capital Stock of any
      class or classes (however designated) that is preferred with respect to the
      payment of dividends, or as to the distribution of assets upon any voluntary
      or
      involuntary liquidation or dissolution of such Person, over shares of Capital
      Stock of any other class of such Person; provided,
      however,
      that
      such stock (x) neither matures, nor provides for mandatory redemption, or
      redemption at the holder’s option, prior to October 31, 2011 and (y) is not
      convertible into or exchangeable for Indebtedness or Disqualified Stock.

     

    “Quarterly
      Status Report”
means
      a
      status report prepared quarterly by the Company in form, scope and content
      acceptable to the Administrative Agent for such quarter then ended (a)
      describing the Company’s position regarding its Derivative Contracts including,
      as of the last Business Day of such quarter, a summary of its hedging positions
      under its Derivative Contracts, including the type, term, price, effective
      date
      and notional principal amount or volumes (in total and as a percentage of the
      Company’s total anticipated production), “mark to market” and margin
      calculations, the hedged price(s), interest rate(s) or exchange rate(s), as
      applicable, and any collateral therefor and credit support agreements relating
      thereto and the counterparty to each Derivative Contract, and (b) containing
      a
      table that demonstrates the Company’s compliance with the requirements set forth
      in Section 8.10.

     

    “Recovery
      Event”
means
      any settlement of or payment in respect of any Property of the Company or any
      Guarantor arising from a casualty insurance claim or any condemnation proceeding
      in an amount in excess of $1,000,000.

     

    “Related
      Funds”
      means,
      with
      respect to any Lender that is a fund or combined investment vehicle that invests
      in bank loans, any other fund that invests in bank loans and is managed or
      advised by the same investment advisor as such Lender or by an Affiliate of
      such
      investment advisor.

     

    “Replacement
      Lender”
has
      the
      meaning specified in Section 3.7.

     

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

     

    “Required
      Lenders”
means,
      at any time, subject to Section 11.1,
      the
      Administrative Agent and the Lenders holding more than 50% of the sum of the
      Effective Amount at such time or, if there is no Effective Amount at such time,
      the Administrative Agent and the Lenders holding more than 50% of the aggregate
      Commitments at such time.

     

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

     

    “Reserve
      Report”
means
      (a) the Initial Reserve Report, (b) the Output Reserve Report and (c) each
      subsequent report delivered pursuant to Section 7.2(c),
      each of
      which shall be a report, in form, scope and content acceptable to the
      Administrative Agent, covering Proved Reserves attributable to the Company’s and
      the Guarantors’ Oil and Gas Properties and setting forth with respect thereto,
      (i) the total quantity of Proved Reserves (separately classified as to
      producing, shut in, behind pipe, and undeveloped), (ii) the estimated future
      net
      revenues and cumulative estimated future net revenues, (iii) the present
      discounted value of future net revenues, and (iv) such other information and
      data with respect to the Proved Reserves as the Administrative Agent may
      reasonably request.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    “Responsible
      Officer”
means,
      with respect to any Person, the chief executive officer, president, chief
      financial officer or treasurer of the Person.

     

    “Restricted
      Payments”
has
      the
      meaning specified in Section 8.9.

     

    “S&P”
means
      Standard & Poor’s Rating Services.

     

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

     

    “Second
      Lien Credit Agent”
means
      the Administrative Agent (as defined in the Second Lien Term Loan
      Agreement).

     

    “Second
      Lien Credit Lenders”
means
      the “Lenders” (as defined in the Second Lien Term Loan Agreement).

     

    “Second
      Lien Loan Documents”
has
      the
      meaning ascribed to such term in the Intercreditor Agreement.

     

    “Second
      Lien Obligations”
has
      the
      meaning ascribed to such term in the Intercreditor Agreement.

     

    “Second
      Lien Term Loan Agreement”
means
      the Term Loan Agreement among the Company, the guarantors from time to time
      party thereto, several lenders from time to time party thereto, Bank of
      Montreal, as Administrative Agent and BMO Capital Markets Corp., as Arranger,
      dated as of the Effective Date, as such may be further amended, restated,
      supplemented or otherwise modified in accordance with the terms
      hereof.

     

    “Second
      Lien Term Loans”
means
      the “Loans” (as defined in the Second Lien Term Loan Agreement).

     

    “Secured
      Parties”
has
      the
      meaning ascribed thereto in the Security Agreement.

     

    “Security
      Agreement”
means
      the Security Agreement in substantially the form of Exhibit “D”
      executed
      by the Company and each Guarantor pledging to the Administrative Agent for
      benefit of the Secured Parties all of the Collateral of the Company and each
      Guarantor, as the same may be amended, amended and restated, supplemented or
      otherwise modified from time to time pursuant to the terms hereof (including,
      in
      the case of any Subsidiary required to execute the Security Agreement pursuant
      to Section 7.12,
      by
      execution and delivery of a joinder thereto in the form of Annex 2
      thereto).

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

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

     

    “Semi-Annual
      Proposed Borrowing Base”
has
      the
      meaning specified in Section 2.6(c).

     

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

     

    “Special
      Damages”
has
      the
      meaning specified in Section 11.21.

     

    “Subsidiary”
of
      a
      Person means any corporation, association, partnership, joint venture or other
      business entity of which more than 50% of the voting stock or other equity
      interests (in the case of Persons other than corporations), is owned or
      controlled directly or indirectly, at the relevant time, by the Person, or
      one
      or more of the Subsidiaries of the Person, or a combination thereof. From and
      after the Output Closing Time, references herein to a “Subsidiary”
of
      the
      Company shall include OPEX. Unless the context otherwise clearly requires,
      references herein to a “Subsidiary”
refer
      to a Subsidiary of the Company.

     

    “Supermajority
      Lenders”
means,
      at any time, subject to Section 11.1,
      the
      Administrative Agent and the Lenders holding at least 662⁄3% of the sum of the
      Effective Amount at such time or, if there is no Effective Amount at such time,
      the Administrative Agent and the Lenders holding at least 662⁄3% of the aggregate
      Commitments at such time.

     

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

     

    “Taxes”
means
      any and all present or future taxes, levies, imposts, deductions, charges or
      withholdings that arise from any payment made hereunder, and all liabilities
      with respect thereto, excluding, in the case of the Administrative Agent, any
      Lender or any other recipient of any payment made or to be made by or on account
      of any obligation of the Company hereunder, (a) such taxes (including income
      or
      franchise taxes) imposed on or measured by its net income, gross receipts,
      taxable margin (as determined under Chapter 171 of the Texas Tax Code) or
      capital by the United States of America, or by the jurisdiction (or any
      political subdivision thereof) under the laws of which it is organized or in
      which its principal office is located or in which it maintains a lending office
      or conducts business (other
      than solely by reason of the transactions evidenced hereby or the taking of
      any
      action contemplated by the Loan Documents)
      or is
      otherwise located, (b) any branch profits taxes imposed by the United States
      or
      any similar tax imposed by any other jurisdiction (or any political subdivision
      thereof) in which the Administrative Agent, any Lender or any other recipient
      of
      any payment made or to be made by or on account of any obligation of the Company
      hereunder or the Company is organized or in which its principal office is
      located or in which it maintains a lending office, conducts business (other
      than
      solely by reason of the transactions evidenced hereby or the taking of any
      action contemplated by the Loan Documents)or is otherwise located, and (c)
      any
      withholding tax that is attributable to a Lender’s failure to comply with
      Section 10.10.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    “Termination
      Date”
means
      the earlier of (a) the Maturity Date and (b) the date on which all Obligations
      (other than those to Qualified Derivative Contract Counterparties in respect
      of
      Qualified Derivative Contracts) have been satisfied and all Commitments have
      terminated, in each case in accordance with the provisions of this
      Agreement.

     

    “Three-Year
      Strip Price”
shall
      mean, as of any date of determination, (a) for the 36-month period commencing
      with the month immediately following the month in which the date of
      determination occurs, the monthly futures contract prices for crude oil and
      natural gas for the 36 succeeding months as quoted on the applicable commodities
      exchange as contemplated in the definition of “PV-10 Value” and (b) for periods
      after such 36-month period, the average of such quoted prices for the period
      from and including the 25th month in such 36-month period through the 36th
      month
      in such period.

     

    “Transaction
      Documents”
means,
      collectively, the Loan Documents and
      the
      Output Acquisition Documents.

     

    “TTSI”
means
      Texas Tar Sands, Inc., a Texas corporation.

     

    “TXCOE”
means
      TXCO Energy Corp., a Texas corporation.

     

    “UCC”
means
      the Uniform Commercial Code as adopted and in effect in any applicable
      jurisdiction.

     

    “UCP”
      has the
      meaning specified in Section 2.13(b).

     

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

     

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

     

    “Utilization
      Percentage”
means,
      at any time, the percentage obtained by dividing (a) the Effective Amount at
      such time by (b) the Borrowing Base at such time.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

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

     

    1.3 Accounting
      Principles.

     

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

     

    (b) References
      herein to “fiscal
      year”
refer
      to such fiscal period of the Company.

     

    ARTICLE
      II

     

    THE
      CREDIT

     

    2.1 Amounts
      and Terms of the Commitments.

     

    (a) Each
      Lender severally agrees, on the terms and conditions set forth herein, to make
      revolving credit loans to the Company from time to time on any Business Day
      during the period from the Effective Time to the Termination Date (together
      with
      any conversions or continuations thereof, “Loans”),
      so
      long as, as of the time at which the requested Loan is to be made and after
      giving effect to such Borrowing, (i) the aggregate amount of all Loans by such
      Lender at such time does not exceed such Lender’s Pro Rata Share of the
      aggregate amount of Loans of all Lenders at such time, and (ii) the aggregate
      amount of such Lender’s Loans and such Lender’s Pro Rata Share of the aggregate
      LC Obligations outstanding at such time does not exceed such Lender’s
      Commitment. Subject to the terms and conditions hereof, until the Termination
      Date, the Company may borrow, repay, and reborrow Loans hereunder.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    (b) The
      Company agrees that upon the request to the Administrative Agent by any Lender,
      the Company will promptly execute and deliver to such Lender a promissory note
      of the Company evidencing the Loans of such Lender, substantially in the form
      of
Exhibit
      “F”
      (a
“Note”),
      with
      appropriate insertions as to date and principal amount; provided, however,
      that
      delivery of Notes shall not be a condition precedent to the occurrence of the
      Effective Date or the making of the Loans on the Effective Date. The amount
      of
      principal owing on any Lender’s Note, if any, at any given time shall be the
      aggregate amount of all Loans theretofore made by such Lender minus all payments
      of principal theretofore received by such Lender on such Note. Interest on
      each
      Note shall accrue and be due and payable as provided herein and
      therein.

     

    (c) Subject
      to the terms and conditions of Section 2.13
      below
      and relying upon the representations and warranties herein set forth, the
      Issuing Lender for the account of the Lenders agrees to issue or renew Letters
      of Credit in accordance with the applicable Notice of Borrowing and LC
      Application therefor. No Letter of Credit will be issued or renewed in a face
      amount which, after giving effect to the issuance or renewal of such Letter
      of
      Credit, would cause either (x) the aggregate LC Obligations to exceed
      $20,000,000 or
      (y)
      the Effective Amount to exceed the Borrowing Base then in effect. Each Letter
      of
      Credit shall by its terms be stated to expire on a date no later than the
      earlier of (i) one year after its Issuance (or, if renewed, one year after
      the
      renewal date) and (ii) the seventh Business Day prior
      to
      the Termination Date; provided, however, that any Letter of Credit may provide
      for the automatic renewal thereof for additional one year periods, which in
      no
      event shall extend beyond the date referred to in the foregoing clause (ii).
      If
      any Letter of Credit has been drawn upon and the amount so drawn has not been
      reimbursed to the Issuing Lender, the Commitment of each Lender shall be deemed
      to be utilized for all purposes hereof in an amount equal to such Lender’s Pro
      Rata Share of the related Matured LC Obligation.
      If, for
      any reason, any Letter of Credit remains outstanding as of the Termination
      Date,
      the Company shall cause such Letter of Credit to be collateralized with cash
      in
      an amount at least equal to 102% of the undrawn face amount thereof under
      arrangements satisfactory to the Administrative Agent or to be secured by
      back-to-back letters of credit issued by banks, and in form and substance,
      satisfactory to the Administrative Agent and the Issuing Lender.

     

    2.2 Procedure
      for Borrowing.

     

    (a) Each
      Borrowing of Loans shall be made upon the Company’s irrevocable written
      notice
      (or
      telephonic notice confirmed promptly in writing by telecopy
      facsimile)
      delivered to the Administrative Agent in the form of a Notice of Borrowing
      duly
      completed, which notice must be received by the Administrative Agent prior
      to
      11:00 a.m. (Chicago, Illinois time) (i) three Business Days prior to the
      requested Borrowing Date, in the case of LIBO Rate Loans; and (ii) on the
      requested Borrowing Date, in the case of Base Rate Loans.

     

    
      
        
        

      

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

     

    (c) The
      number of tranches outstanding of LIBO Rate Loans, whether under a Borrowing,
      conversion or continuation, shall not exceed eight at any one time.

     

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

     

    (e) Provided
      the applicable conditions in Article
      V
      are met,
      each Lender will make the amount of its Pro Rata Share of each Borrowing
      available to the Administrative Agent for the account of the Company at the
      Agent’s Payment Office by 12:00 p.m. (Chicago, Illinois time) on the Borrowing
      Date requested by the Company in funds immediately available to the
      Administrative Agent. The proceeds of all such Loans will then be made available
      to the Company by the Administrative Agent by wire transfer to the account(s)
      specified by the Company in the related Notice of Borrowing.

     

    2.3 Conversion
      and Continuation Elections.

     

    (a) Prior
      to
      the Termination Date, the Company may, upon irrevocable written notice to the
      Administrative Agent in accordance with Section 2.3(b)
      (i)
      elect, as of any Business Day in the case of Base Rate Loans, or as of the
      last
      day of the applicable Interest Period in the case of LIBO Rate Loans, to convert
      any such Loans into Loans of any other Interest Rate Type; or (ii) elect as
      of
      the last day of the applicable Interest Period, to continue any Loans having
      Interest Periods expiring on such day; provided,
      however, that if
      at any
      time a LIBO Rate Loan in respect of any Borrowing is reduced, by payment,
      prepayment, or conversion of part thereof to less than $1,000,000, such LIBO
      Rate Loan shall automatically convert into a Base Rate Loan.

     

    (b) The
      Company shall deliver a Notice of Conversion/Continuation to be received by
      the
      Administrative Agent not later than 11:00 a.m. (Chicago, Illinois time) (i)
      at
      least three Business Days in advance of the Conversion/Continuation Date, if
      the
      Loans are to be converted into or continued as LIBO Rate Loans; and (ii) on
      the
      Conversion/Continuation Date, if the Loans are to be converted into Base Rate
      Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the
      aggregate amount of Loans to be converted or continued; (C) the Interest Rate
      Type of Loans resulting from the proposed conversion or continuation; and (D)
      other than in the case of conversions into Base Rate Loans, the duration of
      the
      requested Interest Period.

     

    
      
        
        

      

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

     

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

     

    2.4 Voluntary
      Termination or Reduction.
      The
      Company may, upon not less than five Business Days’ prior notice to the
      Administrative Agent, permanently terminate the Commitments (in whole or in
      part) or reduce the aggregate Maximum Loan Amount by an aggregate minimum amount
      of $500,000 or any integral multiple thereof; unless, after giving effect
      thereto and to any prepayments of Loans made on the effective date thereof,
      the
      Effective Amount exceeds the aggregate Commitments then in effect. Once
      terminated or reduced in accordance with this Section 2.4,
      the
      aggregate Commitments or Maximum Loan Amount may not be increased. Any
      termination or reduction of the aggregate Commitments or Maximum Loan Amount
      shall be applied to the Commitment or Maximum Loan Amount of each Lender
      according to its Pro Rata Share. All accrued commitment fees to, but not
      including, the effective date of any termination or reduction of the aggregate
      Commitments or Maximum Loan Amount shall be paid on the effective date of such
      termination or reduction.

     

    2.5 Optional
      Prepayments.
      Subject
      to Section 3.4,
      the
      Company may, at any time or from time to time,

     

    (a) prepay
      Base Rate Loans upon irrevocable notice to the Administrative Agent
      prior to
      such prepayment, ratably as to each Lender, in whole or in part, in aggregate
      minimum principal amounts of $100,000 or integral multiples thereof (unless
      the
      Effective Amount is less than $100,000, then such prepayments shall be equal
      to
      the Effective Amount) and

     

    (b) prepay
      LIBO Rate Loans upon irrevocable notice to the Administrative Agent not fewer
      than three Business Days prior to such prepayment, ratably as to each Lender,
      in
      whole or in part, in aggregate minimum principal amounts of $500,000 or integral
      multiples thereof (unless the Effective Amount is less than $500,000, then
      such
      prepayments shall be equal to the Effective Amount) plus
      all
      interest and expenses then outstanding on such LIBO Rate Loans.

     

    Such
      notice of prepayment shall specify the date and amount of such prepayment and
      the Interest Rate Type(s) of Loans to be prepaid.
      Notwithstanding anything to the contrary set forth in this Section 2.5,
      any
      notice of prepayment delivered by the Company may state that such notice is
      conditioned upon the effectiveness of other financing arrangements, in which
      case such notice may be revoked by the Company if such condition is not
      satisfied, but subject to the Company’s reimbursement obligations pursuant to
      Section 3.4
      with
      respect to any funding losses incurred by any Lender as a result of such
      revocation.

     

    
      
        
        

      

      
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    The
      Administrative Agent will promptly notify each Lender of its receipt of any
      such
      notice, and of such Lender’s Pro Rata Share of such prepayment. The payment
      amount specified in such notice shall be due and payable on the date specified
      therein, together with accrued interest to each such date on the amount prepaid
      and any amounts required pursuant to Section 3.4.

     

    2.6 Borrowing
      Base Determinations, Mandatory Actions.

     

    (a) Scheduled
      Borrowing Base Determinations. At
      all
      times prior to the Termination Date the Company shall not permit the Effective
      Amount to exceed the Borrowing Base then in effect and shall, in accordance
      with
      Section 2.7(f), cure any Deficiency. The initial Borrowing Base hereunder shall
      be $60,000,000 (the “Initial
      Borrowing Base”).

     

    (b) Annual
      Borrowing Base Determinations.
      Upon
      receipt by the Administrative Agent of each Reserve Report described in
Section
      7.2(c)(i),
      the
      Administrative Agent shall make a determination by May 1, or, if later, within
      30 days of the receipt of such Reserve Report (such determination, the
“Annual
      Proposed Borrowing Base”)
      of the
      amount of the borrowing base (herein as determined and redetermined from time
      to
      time and in effect on any date called the “Borrowing
      Base”)
      on
      account of the Company’s and the Guarantors’ Proved Reserves as of the preceding
      January 1, subject to the approval of all of the Lenders or the Supermajority
      Lenders (as applicable) as provided in this Section
      2.6(b),
      and the
      Administrative Agent shall promptly notify the Lenders in writing of the Annual
      Proposed Borrowing Base once determined. The Annual Proposed Borrowing Base
      shall be made by the Administrative Agent in accordance with the Administrative
      Agent’s normal and customary practices and standards for oil and gas loans
      (including methodologies, assumptions and discount rates customarily used by
      the
      Administrative Agent in assigning collateral value to Hydrocarbon Interests,
      specifically taking into account, inter
      alia,
      consideration of the Company’s and the Guarantors’ liquidity, Derivative
      Contracts, market interest rates, commodity prices, Indebtedness and capital
      expenditure requirements). Any Annual Proposed Borrowing Base that would
      increase the Borrowing Base then in effect must be approved or deemed to have
      been approved by all of the Lenders, and any Annual Proposed Borrowing Base
      that
      would decrease or maintain the Borrowing Base then in effect must be approved
      or
      deemed to have been approved by the Supermajority Lenders, in each case as
      provided in this Section
      2.6(b).
      The
      Lenders or the Supermajority Lenders (as applicable) may approve the Annual
      Proposed Borrowing Base by written notice to the Administrative Agent within
      15
      days of the Administrative Agent’s notice of the Annual Proposed Borrowing Base.
      Any Lender that fails to respond to any notice of the Annual Proposed Borrowing
      Base by the Administrative Agent pursuant to this Section
      2.6(b)
      within
      such 15 days shall be deemed to have approved such Annual Proposed Borrowing
      Base. If the Lenders or the Supermajority Lenders (as applicable) fail to
      approve the Annual Proposed Borrowing Base within such 15 days, then no later
      than five days after the end of such 15-day period, the Lenders shall submit
      to
      the Administrative Agent in writing, or the Administrative Agent shall poll
      the
      Lenders for, their individual recommendations for the redetermined Borrowing
      Base in accordance with their respective normal and customary practices and
      standards for oil and gas loans (including methodologies, assumptions and
      discount rates customarily used by the Lenders in assigning collateral value
      to
      Hydrocarbon Interests, specifically taking into account, inter
      alia,
      consideration of the Company’s and the Guarantors’ liquidity, Derivative
      Contracts, market interest rates, commodity prices, Indebtedness and capital
      expenditure requirements), whereupon the Administrative Agent shall designate
      the Borrowing Base at the largest amount approved by the Supermajority Lenders;
      provided,
      however,
      that
      it
      is expressly understood that the Lenders and Administrative Agent have no
      obligation to agree upon or designate the Borrowing Base at any particular
      amount. If
      any
      Lender refuses to approve an Annual Proposed Borrowing Base pursuant to this
      Section
      2.6(b),
      the
      Company shall have the right, without the consent of the Lenders but with the
      prior written consent of the Administrative Agent, which consent shall not
      be
      unreasonably withheld, to cause the Commitment of such non-approving Lender
      to
      be replaced pursuant to Section 3.7.

     

    
      
        
        

      

      
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    (c) Semi-Annual
      Borrowing Base Determinations.
      In
      addition, upon the receipt by the Administrative Agent of each Reserve Report
      described in Section
      7.2(c)(ii),
      the
      Administrative Agent shall make a determination by November 1, or, if later,
      within 30 days of the receipt of such report (such determination, the
“Semi-Annual
      Proposed Borrowing Base”)
      of the
      Borrowing Base as of the preceding July 1. The Semi-Annual Proposed Borrowing
      Base shall be determined in the same manner and be subject to the same approvals
      as prescribed with respect to the Annual Proposed Borrowing Base set forth
      in
Section
      2.6(b),
      and
      likewise the Administrative Agent shall notify the Lenders in writing of the
      Semi-Annual Proposed Borrowing Base once determined. The Supermajority Lenders
      or the Lenders (as applicable) may approve the Semi-Annual Proposed Borrowing
      Base by written notice to the Administrative Agent within 15 days of the
      Administrative Agent’s notice of the Semi-Annual Proposed Borrowing Base. Any
      Lender that fails to respond to any notice of the Semi-Annual Proposed Borrowing
      Base by the Administrative Agent pursuant to this Section
      2.6(c)
      within
      such 15 days shall be deemed to have approved such Semi-Annual Proposed
      Borrowing Base. If the Supermajority Lenders or the Lenders (as applicable)
      fail
      to approve the Semi-Annual Proposed Borrowing Base within such 15 days, then
      no
      later than five days after the end of such 15-day period, the Lenders shall
      submit to the Administrative Agent in writing, or the Administrative Agent
      shall
      poll the Lenders for, their individual recommendations for the redetermined
      Borrowing Base in accordance with their respective normal and customary
      practices and standards for oil and gas loans (including methodologies,
      assumptions and discount rates customarily used by the Administrative Agent
      in
      assignment collateral value to Hydrocarbon Interests, specifically taking into
      account, inter
      alia,
      consideration of the Company’s and the Guarantors’ liquidity, Derivative
      Contracts, market interest rates, commodity prices, Indebtedness and capital
      expenditure requirements), whereupon the Administrative Agent shall designate
      the Borrowing Base at the largest amount approved by the Supermajority
      Lenders; provided,
      however,
      that it
      is expressly understood that the Lenders and Administrative Agent have no
      obligation to agree upon or designate the Borrowing Base at any particular
      amount.
      If any
      Lender refuses to approve the Semi-Annual Proposed Borrowing Base pursuant
      to
      this Section
      2.6(c),
      the
      Company shall have the right, without the consent of the Lenders but with the
      prior written consent of the Administrative Agent, which consent shall not
      be
      unreasonably withheld, to cause the Commitment of such non-approving Lender
      to
      be replaced pursuant to Section 3.7.

     

    
      
        
        

      

      
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    (d) Other
      Determinations.
      In
      addition, the Administrative Agent shall, promptly following a request of the
      Company, redetermine the Borrowing Base (in the same manner and subject to
      the
      same approvals as prescribed in Section
      2.6(b)
      for the
      redetermination of the Borrowing Base); provided,
      however,
      the
      Administrative Agent and the Lenders shall not be obligated to respond to more
      than one such request during any Borrowing Base Period in addition to each
      scheduled annual and semi-annual redeterminations provided for above.
      Notwithstanding the foregoing, the Administrative Agent shall, at the request
      of
      the Supermajority
      Lenders, redetermine the Borrowing Base (in the same manner and subject to
      the
      same approvals as prescribed in Section
      2.6(b)
      for the
      redetermination of the Borrowing Base); provided,
      however,
      the
      Administrative Agent and the Lenders may not redetermine the Borrowing Base
      under this second sentence of this Section
      2.6(d)
      more
      than once during any Borrowing Base Period.

     

    (e) Lenders’
      Discretion.
      If the
      Company does not furnish the Reserve Reports or all other information and data
      required pursuant to any of Sections 7.2, 7.14 and 7.15 by the date required,
      the Supermajority Lenders may nonetheless determine a new Borrowing Base. It
      is
      expressly understood that the Lenders shall have no obligation to determine
      the
      Borrowing Base at any particular amount, either in relation to the Maximum
      Loan
      Amount or otherwise. Furthermore, the Company acknowledges that the Lenders
      have
      no obligation to increase the Borrowing Base and may reduce the Borrowing Base
      in connection with any redetermination and that any increase in the Borrowing
      Base is subject to the discretionary credit approval processes of all of the
      Lenders subject to the terms hereof.

     

    (f) Mandatory
      Action.

     

    (i) If
      on any
      date the Effective Amount shall exceed the Borrowing Base (a “Deficiency”),
      then
      the Company shall cure the Deficiency, and except as provided in paragraph
      (ii)
      below, may effect such cure through any of the following means or any
      combination thereof: (A) the making of a lump sum principal prepayment on the
      Loans within 30 days of the occurrence of such Deficiency (and, if any
      Deficiency remains after prepayment of all Loans, cash collateralization of
      the
      LC Obligation to the extent required to eliminate the Deficiency); (B) the
      making of a principal prepayment on the Loans (and, if any Deficiency remains
      after prepayment of all Loans, cash collateralization of the LC Obligation
      to
      the extent required to eliminate the Deficiency) in five equal monthly
      installments commencing thirty 30 days from the date the Deficiency occurs
      and
      continuing on the same day of the next four succeeding months thereafter; or
      (C)
      the pledge within ten Business Days of the occurrence of such Deficiency of
      additional unencumbered Collateral of sufficient value and character (as
      determined by the Required Lenders in their sole discretion) that when added
      to
      the Borrowing Base shall equal the applicable Effective Amount.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (ii) Notwithstanding
      the foregoing paragraph (i),
      if, as
      a result of a Disposition in accordance with Section 8.2(f)
      and/or
      the termination or modification of any related Derivative Contract(s), a
      Deficiency shall exist or the Company or any Guarantor shall have incurred
      any
      early termination or similar payment Obligation(s) to any Qualifying Derivative
      Contract Counterparty, the Company shall contemporaneously with such Disposition
      (A) make, or cause to be made, a principal prepayment on the Loans in an amount
      equal to the Deficiency and (B) satisfy in full all such Obligation(s) to any
      affected Qualifying Derivative Contract Counterparty.

     

    (iii) Unless
      the Required Lenders shall otherwise agree, if the Company or any of its
      Subsidiaries shall receive Net Cash Proceeds from any Disposition described
      in
      Section 8.2(f), or Recovery Event during the continuance of an Event of Default,
      the Company shall cause the Loans to be prepaid or the outstanding Letters
      of
      Credit cash collateralized (at 102% of their respective face amounts) in an
      amount equal to the entirety of such Net Cash Proceeds without duplication
      of
      any amounts prepaid under Section 2.6(f)(ii).

     

    (g) Issuance
      of Qualifying Preferred Stock.
      In the
      event the Company proposes to issue any Qualifying Preferred Stock, the Company
      will provide the Administrative Agent with at least 15 days prior notice of
      such
      proposed issuance, including detailed information with respect to the amount
      of
      the proposed issue, dividend rate, maturity/redemption features, liquidation
      preference, default rights and other material terms. In such event, the
      Administrative Agent, with the approval of the Lenders may prior to such
      issuance redetermine the Borrowing Base to take effect upon and subject to
      consummation of such issuance, taking into account the pro forma effects of
      such
      issuance (in the same manner and subject to the same approvals as prescribed
      in
Section
      2.6(b)
      for the
      redetermination of the Borrowing Base); provided,
      however,
      any
      such redetermination shall not be considered a redetermination for purposes
      of
Section 2.6(d).
      

     

    2.7 Repayment.

     

    (a) Principal.
      The
      Company shall repay to the Administrative Agent for the benefit of the Lenders
      the outstanding principal balance of the Loans (and the outstanding principal
      of
      the Loans shall be due and payable) on the Termination Date.

     

    (b) Interest.

     

    (i) Each
      Loan
      shall bear interest on the principal amount thereof from the applicable
      Borrowing Date or date of conversion or continuation pursuant to Section
2.3,
      as the
      case may be, at a rate per annum equal to the lesser of (A) the LIBO Rate or
      the
      Adjusted Base Rate, as the case may be, plus
      the
      Applicable Margin and (B) the Highest Lawful Rate.

     

    (ii) Interest
      on each Loan shall be paid in arrears on each Interest Payment Date. Interest
      shall also be paid on the date of any prepayment of Loans under Section
2.5
      or
2.6
      for the
      portion of the Loans so prepaid and upon payment (including prepayment) in
      full
      thereof and, during the existence of any Event of Default, interest shall be
      paid on demand of the Administrative Agent.

     

    
      
        
        

      

      
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    (iii) Notwithstanding
      paragraph (i) of this Section 2.7(b),
      while
      any Event of Default exists or after acceleration, the Company shall pay
      interest (after as well as before entry of judgment thereon to the extent
      permitted by law) on the principal amount of all outstanding Loans, at a rate
      per annum equal to the lesser of (A) the Highest Lawful Rate and (B) the rate
      otherwise applicable plus two percent (2%) (“Default
      Rate”).

     

    2.8 Fees.

     

    (a) Commitment
      Fees.
      The
      Company shall pay to the Administrative Agent for the account of the Lenders
      an
      aggregate commitment fee on the actual daily amount of the Available Borrowing
      Base at a per annum rate equal to the amount set forth on the Pricing Grid.
      Such
      commitment fee shall accrue from the Effective Time to the Termination Date
      and
      shall be due and payable quarterly in arrears on the first Business Day of
      each
      Fiscal Quarter commencing on July 2, 2007 through the Termination Date, with
      the
      final payment to be made on the Termination Date; provided, however, that in
      connection with any reduction of the aggregate Maximum Loan Amount or
      termination of the aggregate Commitments under Section 2.4,
      the
      accrued commitment fee, if any, with respect to the aggregate amount of such
      reduced or terminated amounts calculated for the period ending on such date
      shall also be paid on the date of such reduction or termination, with the
      following quarterly payment being calculated giving effect to such reduced
      Maximum Loan Amount or terminated Commitments as of the first date of the
      quarter. The commitment fees provided in this Section 2.8(a)
      shall
      accrue at all times after the Effective Time, up to the Termination Date
      including at any time during which one or more conditions in Article
      V
      are not
      met.

     

    (b) Letter
      of Credit Fees.
      The
      Company agrees to pay (i) to the Administrative Agent for the account of the
      Lenders a Letter of Credit fee for each Letter of Credit, due and payable
      quarterly in arrears on the first Business Day of each Fiscal Quarter commencing
      (if applicable) on July 2, 2007 through the Termination Date, from the date
      of
      Issuance in an amount per annum (calculated on the basis of a year of 360 days)
      equal to the product equal to the Letter of Credit rate set forth on the Pricing
      Grid multiplied by the aggregate amount available under each Letter of Credit
      (excluding the portion thereof attributable to reimbursed LC Obligations earning
      interest pursuant to Section 2.13(d)) from the date of Issuance thereof to
      the
      date on which such Letter of Credit expires or is terminated, (ii) to the
      Issuing Lender for its account a fee, due and payable quarterly in arrears
      on
      the first Business Day of each Fiscal Quarter commencing (if applicable) on
      July
      2, 2007 through the Termination Date, for the Issuance of each Letter of Credit
      in an amount per annum (calculated on the basis of a year of 360 days) equal
      to
      0.00125 multiplied by the aggregate amount available under each Letter of Credit
      from the date of Issuance thereof to the date on which such Letter of Credit
      expires (such fees shall be prorated for any period less than a full year but
      shall not be refunded in the event any such Letter of Credit is terminated
      prior
      to its expiry date) and (iii) to the Issuing Lender, for its account on demand
      its customary letter of credit transactional fees and out-of-pocket expenses
      for
      each Letter of Credit Issued by it, including amendment fees, payable with
      respect to each such Letter of Credit. The Administrative Agent shall pay to
      each Lender its pro-rata share of the Letter of Credit fees paid pursuant to
      Section 2.8(b)(i).
      The
      Administrative Agent shall pay to the Issuing Lender the Letter of Credit fees
      paid pursuant to Section 2.8(b)(ii)
      and
      (iii).

     

    
      
        
        

      

      
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    (c) Other
      Fees.
      In
      addition to all other amounts due to the Administrative Agent under the Loan
      Documents, the Company will pay fees to the parties and in the amounts specified
      in the Fee Letter Agreement.

     

    2.9 Computation
      of Fees and Interest.

     

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

     

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

     

    2.10 Payments
      by the Company; Borrowings Pro Rata.

     

    (a) All
      payments to be made by the Company shall be made without set off, recoupment
      or
      counterclaim. Except as otherwise expressly provided herein, all payments by
      the
      Company shall be made to the Administrative Agent for the account of the Lenders
      at the Agent’s Payment Office, and shall be made in dollars and in immediately
      available funds, no later than 12:00 p.m. (Chicago, Illinois time) on the date
      specified herein. Except to the extent otherwise expressly provided herein,
      (i)
      each payment by the Company of fees shall be made for the account of the Lenders
      pro rata in accordance with their respective Pro Rata Shares, (ii) each payment
      of principal of Loans shall be made for the account of the Lenders pro rata
      in
      accordance with their respective outstanding principal amount of such Loans,
      and
      (iii) each payment of interest on Loans shall be made for the account of the
      Lenders pro rata in accordance with their respective shares of the aggregate
      amount of interest due and payable to the Lenders. The Administrative Agent
      will
      promptly distribute to each Lender its applicable share of such payment in
      like
      funds as received. Any payment received by the Administrative Agent later than
      12:00 p.m. (Chicago, Illinois time) shall be deemed to have been received on
      the
      following Business Day and any applicable interest or fee shall continue to
      accrue.

     

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

     

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

     

    
      
        
        

      

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

     

    2.11 Payments
      by the Lenders to the Administrative Agent.

     

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

     

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

     

    2.12 Sharing
      of Payments, Etc.
      If any
      Lender shall obtain on account of the Obligations held by it any payment
      (whether voluntary, involuntary, through the exercise of any right of set off,
      or otherwise) or receive any collateral in respect thereof in excess of the
      amount such Lender was entitled to receive pursuant to the terms hereof, such
      Lender shall immediately (a) notify the Administrative Agent of such fact,
      and
      (b) purchase from the other Lenders such participations in the Loans made by
      them as shall be necessary to cause such purchasing Lender to share the excess
      payment according to the terms hereof; provided, however, that if all or any
      portion of such excess payment is thereafter recovered from the purchasing
      Lender, such purchase shall to that extent be rescinded and each other Lender
      shall repay to the purchasing Lender the purchase price paid therefor, together
      with an amount equal to such paying Lender’s ratable share (according to the
      proportion of (i) the amount of such paying Lender’s required repayment to (ii)
      the total amount so recovered from the purchasing Lender) of any interest or
      other amount paid or payable by the purchasing Lender in respect of the total
      amount so recovered. The Company agrees that any Lender so purchasing a
      participation from another Lender may, to the fullest extent permitted by law,
      exercise all of its rights of payment (including the right of set off) with
      respect to such participation as fully as if such Lender were the direct
      creditor of the Company in the amount of such participation. The Administrative
      Agent will keep records (which shall be conclusive and binding in the absence
      of
      manifest error) of participations purchased under this Section 2.12
      and will
      in each case notify the Lenders following any such purchases or
      repayments.

     

    
      
        
        

      

      
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    2.13 Issuing
      the Letters of Credit.

     

    (a) In
      order
      to effect the issuance of a Letter of Credit, the Company shall submit a Notice
      of Borrowing and LC Application in writing by telecopy to the Administrative
      Agent (who shall promptly notify the Issuing Lender) not later than 12:00 p.m.,
      Chicago, Illinois time, three Business Days before the requested date of
      issuance of such Letter of Credit. Each such Notice of Borrowing and LC
      Application shall be signed by the Company, specify the Business Day on which
      such Letter of Credit is to be issued, the purpose for the requested Letter
      of
      Credit, specify the availability for Letters of Credit under the Borrowing
      Base,
      and the $20,000,000 aggregate
      LC Obligations limitation as of the date of issuance of such Letter of Credit
      and the expiry date thereof which shall not be later than the earlier of (i)
      twelve (12) months from the date of Issuance of such Letter of Credit and (ii)
      the seventh Business Day prior to Termination Date; provided, however, that
      any
      letter of Credit may provide for the automatic renewal thereof for additional
      one year periods, which in no event shall extend beyond the date referred to
      in
      the foregoing clause (ii).
      If
      requested by the Company not later than three Business Days prior to expiration
      of any Letter of Credit, any Letter of Credit may be renewed for the additional
      period specified in Section 2.1(c).

     

    (b) Upon
      satisfaction of the applicable terms and conditions set forth in Article
      V,
      the
      Issuing Lender shall issue such Letter of Credit to the specified beneficiary
      not later than the close of business, Chicago, Illinois time, on the date so
      specified. The Administrative Agent shall provide the Company and each Lender
      with a copy of each Letter of Credit so issued. Each such Letter of Credit
      shall
      (i) provide for the payment of drafts, presented for honor thereunder by the
      beneficiary in accordance with the terms thereon, at sight when accompanied
      by
      the documents described therein and (ii) be subject to the Uniform Customs
      and
      Practice for Documentary Credits (1993 Revision), International Chamber of
      Commerce Publication No. 500 (and any subsequent revisions thereof approved
      by a
      Congress of the International Chamber of Commerce) (the “UCP”)
      and
      shall, as to matters not governed by the UCP, be governed by, and construed
      and
      interpreted in accordance with, the laws of the State of New York.

     

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

     

    
      
        
        

      

      
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    (d) Upon
      the
      presentment of any draft for honor under any Letter of Credit by the beneficiary
      thereof which the Issuing Lender determines is in compliance with the conditions
      for payment thereunder, the Issuing Lender shall promptly notify the Company,
      the Administrative Agent and each Lender of the intended date of honor of such
      draft and the Company hereby promises and agrees, at the Company’s option, to
      either (i) pay to the Administrative Agent for the account of the Issuing
      Lender, by 2:00 p.m., Chicago, Illinois time, on the date payment is due as
      specified in such notice, the full amount of such draft in immediately available
      funds or (ii) request a Loan pursuant to the provisions of Sections 2.1(a)
      and
2.2
      of this
      Agreement in the full amount of such draft, which request shall specify that
      the
      Borrowing Date is to be the date payment is due under the Letter of Credit
      as
      specified in the Issuing Lender’s notice. If the Company fails timely to make
      such payment because a Loan cannot be made pursuant to Section 2.1(a)
      or
      Section 5.3,
      each
      Lender shall, notwithstanding any other provision of this Agreement (including
      the occurrence and continuance of a Default or an Event of Default), make
      available to the Administrative Agent for the benefit of the Issuing Lender
      an
      amount equal to its Pro Rata Share of the presented draft on the day the Issuing
      Lender is required to honor such draft. If such amount is not in fact made
      available to the Administrative Agent by such Lender on such date, such Lender
      shall pay to the Administrative Agent for the account of the Issuing Lender,
      on
      demand made by the Issuing Lender, in addition to such amount, interest thereon
      at the Federal Funds Rate for the first two days following demand and thereafter
      until paid at the Adjusted Base Rate. Upon receipt by the Administrative Agent
      from the Lenders of the full amount of such draft, notwithstanding any other
      provision of this Agreement (including the occurrence and continuance of a
      Default or an Event of Default) the full amount of such draft shall
      automatically and without any action by the Company, be deemed to have been
      a
      Base Rate Loan as of the date of payment of such draft. Nothing in this Section
      2.13(d)
      or
      elsewhere in this Agreement shall diminish the Company’s obligation under this
      Agreement to provide the funds for the payment of, or on demand to reimburse
      the
      Issuing Lender for payment of, any draft presented to, and duly honored by,
      the
      Issuing Lender under any Letter of Credit, and the automatic funding of a Loan
      as provided in this Section 2.13(d)
      shall
      not constitute a cure or waiver of the Event of Default for failure to provide
      timely such funds as agreed in this Section 2.13(d).

     

    (e) In
      order
      to induce the issuance of Letters of Credit by the Issuing Lender and the
      purchase of participations therein by the other Lenders, the Company agrees
      with
      the Administrative Agent, the Issuing Lender and the other Lenders that neither
      the Administrative Agent nor any Lender (including the Issuing Lender) shall
      be
      responsible or liable (except as provided in the following sentence) for, and
      the Company’s unconditional obligation to reimburse the Issuing Lender through
      the Administrative Agent for amounts paid by the Issuing Lender, as provided
      in
      Section 2.13(d)
      above,
      on account of drafts so honored under the Letters of Credit shall not be
      affected by, any circumstance, act or omission whatsoever (whether or not known
      to the Administrative Agent or any Lender (including the Issuing Lender)) other
      than a circumstance, act or omission resulting from the gross negligence or
      willful misconduct of the Administrative Agent or any Lender, including the
      Issuing Lender. The Company agrees that any action taken or omitted to be taken
      by the Administrative Agent or any Lender (including the Issuing Lender) under
      or in connection with any Letter of Credit or any related draft, document or
      Property shall be binding on the Company and shall not put the Administrative
      Agent or any Lender (including the Issuing Lender) under any resulting liability
      to the Company, unless such action or omission is the result of the gross
      negligence or willful misconduct of the Administrative Agent or any such Lender
      (including the Issuing Lender). The Company hereby waives presentment for
      payment (except the presentment required by the terms of any Letter of Credit)
      and notice of dishonor, protest and notice of protest with respect to drafts
      honored under the Letters of Credit. The Issuing Lender agrees promptly to
      notify the Company whenever a draft is presented under any Letter of Credit,
      but
      failure to so notify the Company shall not in any way affect the Company’s
      obligations hereunder.

     

    
      
        
        

      

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

     

    (g) If
      the
      Obligations, or any part thereof, become immediately due and payable pursuant
      to
Article
      IX
      of this
      Agreement, then the entirety of the LC Obligations shall become immediately
      due
      and payable without regard for actual drawings or payments on the Letters of
      Credit, and the Company shall be obligated to pay to the Administrative Agent
      immediately an amount equal to the entirety of the LC Obligations. All amounts
      made due and payable by the Company under this Section 2.13(g)
      may be
      applied as the Issuing Lender and the Lenders elect to any of the various LC
      Obligations; provided, however, that such amounts applied by the Issuing Lender
      and the Lenders to the LC Obligations shall be (i) first applied to the Matured
      LC Obligations, and (ii) second held by the Administrative Agent in an interest
      bearing account for the benefit of the Issuing Lender and the Lenders as LC
      Collateral, such LC Collateral to be held in an account with the Administrative
      Agent or an Affiliate thereof, until any such remaining LC Obligation has either
      (i) become a Matured LC Obligation, at which time such LC Collateral paid to
      the
      Administrative Agent shall be applied to such Matured LC Obligation, or (ii)
      expired undrawn, at which time an amount of such LC Collateral equal to such
      expired and undrawn LC Obligation, plus accrued interest thereon, shall be
      applied toward the satisfaction of any Obligations then remaining due and
      payable in such order as the Administrative Agent may select. This Section
      2.13(g)
      shall
      not limit or impair any rights that the Administrative Agent, the Issuing Lender
      or any of the Lenders may have under any other document or agreement relating
      to
      any Letter of Credit or LC Obligations, including without limitation, any LC
      Application.

     

    ARTICLE
      III

     

    TAXES,
      YIELD PROTECTION AND ILLEGALITY

     

    3.1 Taxes. 

     

    (a) Except
      as
      otherwise provided in Section 3.1(c)
      and
      Section 10.10,
      any and
      all payments by the Company to each Lender or the Administrative Agent under
      this Agreement and any other Loan Document shall be made free and clear of,
      and
      without deduction or withholding for any Taxes. In addition, the Company shall
      pay all Other Taxes
      to the
      relevant Governmental Authority in accordance with applicable law.

     

    
      
        
        

      

      
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    (b) Subject
      to Section 3.1(f),
      the
      Company agrees to indemnify and hold harmless each Lender and the Administrative
      Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other
      Taxes imposed by any jurisdiction on amounts payable under this Section
3.1)
      paid by
      the Lender or the Administrative Agent and any penalties, interest, additions
      to
      Tax and reasonable expenses arising therefrom or with respect thereto, whether
      or not such Taxes or Other Taxes were correctly or legally asserted. Payment
      under this indemnification shall be made within 30 days after the date the
      affected Lender or the Administrative Agent makes written demand therefor with
      reasonable detail as to the particular imposition; provided, however, that
      neither the Administrative Agent nor any Lender shall be entitled to receive
      any
      payment with respect to Taxes or Other Taxes that are incurred or accrued more
      than 180 days prior to the date the Administrative Agent or Lender (as the
      case
      may be) gives notice and demand thereof to the Company.

     

    (c) If
      the
      Company shall be required by law to deduct or withhold any Taxes or Other Taxes
      from or in respect of any amount payable hereunder to any Lender or the
      Administrative Agent, then: (i) the sum payable shall be increased as necessary
      so that after making all required deductions and withholdings (including
      deductions and withholdings applicable to additional sums payable under this
      Section 3.1),
      such
      Lender or the Administrative Agent, as the case may be, receives an amount
      equal
      to the sum it would have received had no such deductions or withholdings been
      made; (ii) the Company shall make such deductions and withholdings; and (iii)
      the Company shall pay the full amount deducted or withheld to the relevant
      taxing authority or other authority in accordance with applicable
      law.

     

    (d) As
      soon
      as practicable after the date of any payment by the Company of Taxes or Other
      Taxes under Section 3.1(c)
      above,
      the Company shall furnish the Administrative Agent the original or a certified
      copy of any receipt issued by such taxing authority or other authority
      evidencing payment thereof, a copy of any return reporting such payment or
      other
      evidence of such payment as the Administrative Agent
      may
      reasonably request.

     

    (e) Each
      Lender shall use its reasonable efforts (consistent with legal and regulatory
      restrictions) to select a jurisdiction for its Lending Office or change the
      jurisdiction of its Lending Office so as to avoid the imposition of any Taxes
      or
      Other Taxes, to eliminate or reduce any additional payment under this Section
      3.1
      or to
      avoid the obligation to deduct or withhold for taxes under Section 10.10 by
      the
      Company if such selection or change in the judgment of such Lender is not
      materially disadvantageous to such Lender.

     

    (f) No
      Lender
      that is required
      to
      comply with Section 10.10 shall be entitled to any indemnification under this
      Section 3.1 if the obligation with respect to which indemnification is sought
      would not have arisen but for a failure of the affected Lender to comply with
      such Section 10.10.

     

    
      
        
        

      

      
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    (g) If
      the
      Administrative Agent or a Lender determines that it has received a refund of
      any
      Taxes or Other Taxes as to which it has been indemnified by the Company or
      with
      respect to which the Company has paid additional amounts pursuant to this
      Section 3.1, it shall pay over such refund to the Company (but only to the
      extent of indemnity payments made, or additional amounts paid, by the Company
      under this Section 3.1 with respect to the Taxes or Other Taxes giving rise
      to
      such refund), without interest (other than any interest paid by the relevant
      Governmental Authority with respect to such refund); provided, however, that
      the
      Company, upon the reasonable request of the Administrative Agent or such Lender,
      agrees to repay the amount paid over to the Company (plus any penalties,
      interest or other charges imposed by the relevant Governmental Authority) to
      the
      Administrative Agent or such Lender in the event the Administrative Agent or
      such Lender is required to repay such refund to such Governmental
      Authority.

     

    3.2 Illegality.

     

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

     

    (b) If
      a
      Lender determines that it is unlawful to maintain any LIBO Rate Loan, the
      Company shall, upon its receipt of notice of such fact and demand from such
      Lender (with a copy to the Administrative Agent), prepay in full such LIBO
      Rate
      Loans of that Lender then outstanding, together with interest accrued thereon
      and amounts required under Section 3.4,
      either
      on the last day of the Interest Period thereof, if the Lender may lawfully
      continue to maintain such LIBO Rate Loans to such day, or immediately, if the
      Lender may not lawfully continue to maintain such LIBO Rate Loan. If the Company
      is required to so prepay any LIBO Rate Loan, then concurrently with such
      prepayment, the Company shall borrow from the affected Lender, in the amount
      of
      such repayment, a Base Rate Loan.

     

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

     

    (d) Before
      giving any notice to the Administrative Agent under this Section 3.2,
      the
      affected Lender shall designate a different Lending Office with respect to
      its
      LIBO Rate Loans if such designation will avoid the need for giving such notice
      or making such demand and will not, in the judgment of such Lender, be illegal
      or otherwise disadvantageous to such Lender.

     

    
      
        
        

      

      
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    3.3 Increased
      Costs and Reduction of Return.

     

    (a) If
      any
      Lender determines that, due to either (i) the introduction of or any change
      (other than any change by way of imposition of or increase in reserve
      requirements included in the calculation of the LIBO Rate) in or in the
      interpretation of any law or regulation or (ii) the compliance by that Lender
      with any guideline or request from any central bank or other Governmental
      Authority (whether or not having the force of law), there shall be any increase
      in the cost to such Lender of agreeing to make or making, funding or maintaining
      any LIBO Rate Loans, then the Company shall be liable for, and shall from time
      to time, upon demand (with a copy of such demand to be sent to the
      Administrative Agent), pay to the Administrative Agent for the account of such
      Lender, additional amounts as are sufficient to compensate such Lender for
      such
      increased costs.

     

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

     

    3.4 Funding
      Losses.
      The
      Company shall reimburse each Lender and hold each Lender harmless from any
      loss
      or expense which such Lender may sustain or incur as a consequence of (a) the
      failure of the Company to make on a timely basis any payment of principal of
      any
      LIBO Rate Loan; (b) the failure of the Company to borrow or continue a LIBO
      Rate
      Loan or to convert a Base Rate Loan to a LIBO Rate Loan after the Company has
      given (or is deemed to have given) a Notice of Borrowing or a Notice of
      Conversion/Continuation (including by reason of the failure to satisfy any
      condition precedent thereto); (c) the failure of the Company to make any
      prepayment in accordance with any notice delivered under Section 2.5
      (whether
      pursuant to a permitted revocation of notice of prepayment or otherwise); (d)
      the prepayment (including pursuant to Section 2.6)
      or
      other payment (including after acceleration thereof) of a LIBO Rate Loan on
      a
      day that is not the last day of the relevant Interest Period; or (e) the
      automatic conversion under Section 2.3
      of any
      LIBO Rate Loan to a Base Rate Loan on a day that is not the last day of the
      relevant Interest Period; including any such loss or expense arising from the
      liquidation or reemployment of funds obtained by it to maintain its LIBO Rate
      Loans or from fees payable to terminate the deposits from which such funds
      were
      obtained. For purposes of calculating amounts payable by the Company to the
      Lenders under this Section 3.4
      and
      under Section 3.3(a),
      each
      LIBO Rate Loan made by a Lender (and each related reserve, special deposit
      or
      similar requirement) shall be conclusively deemed to have been funded at the
      LIBOR used in determining the LIBO Rate for such LIBO Rate Loan by a matching
      deposit or other borrowing in the interbank eurodollar market for a comparable
      amount and for a comparable period, whether or not such LIBO Rate Loan is in
      fact so funded.

     

    
      
        
        

      

      
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    3.5 Inability
      to Determine Rates.
      If the
      Administrative Agent determines that for any reason adequate and reasonable
      means do not exist for determining the LIBO Rate for any requested Interest
      Period with respect to a proposed LIBO Rate Loan, or that the LIBO Rate
      applicable pursuant to Section 2.7(b)
      for
      any requested Interest Period with respect to a proposed LIBO Rate Loan does
      not
      adequately and fairly reflect the cost to the Lenders of funding such Loan,
      the
      Administrative Agent will promptly so notify the Company and each Lender.
      Thereafter, the obligation of the Lenders to make or maintain LIBO Rate Loans
      hereunder shall be suspended until the Administrative Agent upon the instruction
      of the Lenders revokes such notice in writing. Upon receipt of such notice,
      the
      Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation
      then submitted by it. If the Company does not revoke such notice, the Lenders
      shall make, convert or continue the Loans, as proposed by the Company, in the
      amount specified in the applicable notice submitted by the Company, but such
      Loans shall be made, converted or continued as Base Rate Loans instead of LIBO
      Rate Loans.

     

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

     

    3.7 Substitution
      of Lenders.
      Upon
      (i) the receipt by the Company from any Lender of a claim for compensation
      under
      this Article
      III,
      (ii)
      the refusal of a Lender to accept the Annual Proposed Borrowing Base pursuant
      to
      Section 2.6(b)
      or
      Semi-Annual Proposed Borrowing Base pursuant to Section 2.6(c)
      (as
      applicable) and, as a result, the Company elects by written notice to the
      Administrative Agent to replace such dissenting Lender pursuant to this Section
      3.7,
      or
      (iii) the occurrence and during the continuation of default by a Lender with
      respect to funding its Commitment (such Lender, an “Affected
      Lender”),
      the
      Company may: (a) obtain a replacement bank or financial institution reasonably
      satisfactory to the Administrative Agent to acquire and assume all or a ratable
      part of all of such Affected Lender’s Loans and Commitment (a “Replacement
      Lender”);
      or
      (b) request one more of the other Lenders to acquire and assume all or part
      of
      such Affected Lender’s Loans and Commitment, but none of the Lenders shall have
      any obligation to do so. Any such designation of a Replacement Lender under
      clause (a) shall be subject to the prior written consent of the Administrative
      Agent, which consent shall not be unreasonably withheld.

     

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

     

    
      
        
        

      

      
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    ARTICLE
      IV

     

    SECURITY

     

    4.1 The
      Security.
      The
      Obligations will be secured by the Security Documents. Certain of the Security
      Documents are amendments and restatements of the Security Instruments (as
      defined in the Existing Company Credit Agreement), and as such, are granted
      by
      the Company, or the Guarantors, as applicable, in assumption, renewal,
      extension, amendment and restatement of such prior Liens and security interests
      securing the Existing Company Credit Agreement and are entitled to the priority
      and perfection relating back to the date originally granted and assigned to
      the
      greatest extent possible. Each of the Company and the Guarantors hereby adopts,
      assumes, ratifies, and reaffirms such prior Liens and security interests and
      confirms that such Liens and security interests
      secure the Obligations, which includes in part an assignment and continuation
      of
      the original “Obligations” described in the Existing Company Credit
      Agreement.

     

    4.2 Agreement
      to Deliver Security Documents.
      The
      Company shall, and shall cause the
      Guarantors to, deliver, to further secure the Obligations whenever requested
      by
      the Administrative Agent in its sole and absolute discretion, deeds of trust,
      mortgages, chattel mortgages, security agreements, pledge agreements, financing
      statements and other Security Documents in form and substance satisfactory
      to
      the Administrative Agent for the purpose of granting, confirming, and perfecting
      first and prior Liens or security interests in the Collateral. The Company
      shall
      deliver and shall cause the Guarantors to deliver whenever reasonably requested
      by the Administrative Agent, title opinions or other evidence of title
      reasonably satisfactory to the Administrative Agent with respect to the
      Mortgaged Properties designated by the Administrative Agent, based upon abstract
      or record examinations reasonably acceptable to the Administrative Agent and
      (a)
      evidencing that the Company or a Guarantor , as applicable, has good and
      indefeasible title to the Mortgaged Properties, free and clear of all Liens
      except Permitted Liens, (b) confirming that such Mortgaged Properties are
      subject to Security Documents securing the Obligations that constitute and
      create legal, valid and duly perfected first priority deed of trust or mortgage
      Liens in such Mortgaged Properties and interests, and assignments of and
      security interests in the Oil and Gas attributable to such Mortgaged Properties
      comprised of Oil and Gas Properties and interests and the proceeds thereof,
      in
      each case subject only to Permitted Liens, and (c) covering such other matters
      as the Administrative Agent may reasonably request.

     

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

     

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

     

    
      
        
        

      

      
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    4.5 Guaranty.

     

    (a) Each
      Original Guarantor has executed and delivered to the Administrative Agent,
      and
      each Subsidiary of the Company created, acquired or coming into existence after
      the date hereof that is
      required
      under Section 7.12
      to
      become a Guarantor (including OPEX) shall execute and deliver to the
      Administrative Agent, a Guaranty setting forth therein an absolute and
      unconditional guaranty of the timely repayment of, and the due and punctual
      performance of the Obligations of the Company hereunder. The Company will cause
      each such Subsidiary to deliver to the Administrative Agent, simultaneously
      with
      its delivery of such a Guaranty, written evidence reasonably satisfactory to
      the
      Administrative Agent and its counsel that such Subsidiary has taken all
      corporate, limited liability company or partnership action necessary to duly
      approve and authorize its execution, delivery and performance of such Guaranty
      and any Security Documents and other documents which it is required to
      execute.

     

    (b) Guaranty
      Representations.
      To
      induce the Lenders, the Issuing Lender and the Administrative Agent to enter
      into this Agreement, the Company and each Guarantor represents and warrants
      to
      each such person, (i) in
      the
      case of the Original Guarantors, as of and after giving effect to the making
      of
      the Credit Extensions at the Effective Time, and (ii) in the case of OPEX
      after giving effect to the Output Acquisition and the making of the Credit
      Extensions at the Output Closing Time, as of the Output Closing
      Time:

     

    (i) Benefit
      to Guarantors.
      The
      board of directors, manager or general partner, where applicable, of each
      Guarantor has determined that such Guarantor’s execution, delivery and
      performance of this Agreement may reasonably be expected to directly or
      indirectly benefit such Guarantor and is in the best interests of such
      Guarantor.

     

    (ii) Reasonable
      Consideration for Guaranties.
      The
      direct or indirect value of the consideration received and to be received by
      such Guarantor in connection herewith is reasonably worth at least as much
      as
      the liability and obligations of each Guarantor hereunder and its Guaranty,
      and
      the incurrence of such liability and obligations in return for such
      consideration may reasonably be expected to benefit such Guarantor, directly
      or
      indirectly.

     

    (iii) No
      Insolvencies.
      Neither
      the Company nor any Guarantor is “insolvent” (that is, the sum of such Person’s
      absolute and contingent liabilities, including the Obligations, does not exceed
      the fair value of such Person’s assets, including any rights of contribution,
      reimbursement or indemnity). Each of the Company and each Guarantor has capital
      which is not unreasonably small for the businesses in which such Person is
      engaged and intends to be engaged. None of the Company nor any Guarantor has
      incurred (whether hereby or otherwise), nor does the Company or Guarantor intend
      to incur or believe that it will incur, liabilities which will be beyond its
      ability to pay as such liabilities mature.

     

    
      
        
        

      

      
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    4.6 Maximum
      Liability.
      If and
      to the extent required in order for the obligations of any Guarantor to be
      enforceable under applicable federal, state and other laws relating to the
      insolvency of debtors, the maximum liability of such Guarantor hereunder shall
      be limited to the greatest amount which can lawfully be guaranteed by such
      Guarantor under such laws, after giving effect to any rights of contribution,
      reimbursement and subrogation arising under the Guaranty.

     

    4.7 Production
      Proceeds.
      Notwithstanding that, by the terms of the various Security Documents, the
      Company and the Guarantors are and will be assigning to the Administrative
      Agent
      all of the Net Proceeds of Production accruing to the Mortgaged Properties
      covered thereby, so long as no Event of Default has occurred and is continuing,
      the Administrative Agent, on behalf of the Lenders, grants each of the Company
      and the Guarantors a revocable license to continue to receive from the
      purchasers of production all such Net Proceeds of Production, subject, however,
      to the Liens created under the Security Documents, which Liens are hereby
      affirmed and ratified. During the continuance of an Event of Default described
      under Sections 9.1(g)
      or
(h),
      this
      license shall be automatically revoked, and during the continuance of any other
      Event of Default, this license shall be revocable in the sole discretion of
      the
      Administrative Agent, by notice to the Company, and the Administrative Agent
      may
      exercise all rights and remedies granted under the Security Documents, including
      the right to obtain possession of all Net Proceeds of Production then held
      by
      the Company and the Guarantors or to receive directly from the purchasers of
      production all other Net Proceeds of Production. In no case shall any failure,
      whether purposeful or inadvertent, by the Administrative Agent to collect
      directly any such Net Proceeds of Production constitute in any way a waiver,
      remission or release of any of its rights under the Security Documents, nor
      shall any release of any Net Proceeds of Production by the Administrative Agent
      to the Company and the Guarantors constitute a waiver, remission, or release
      of
      any other Net Proceeds of Production or of any rights of the Administrative
      Agent to collect other Net Proceeds of Production thereafter.

     

    ARTICLE
      V

     

    CONDITIONS
      PRECEDENT

     

    5.1 Conditions
      of the
      Effective Date
      and
      Initial Credit Extensions.
      The
      effectiveness of this Agreement, and each Lender’s obligation to lend money and
      otherwise extend credit to the Company to refinance, renew and extend the
      Existing Revolving Credit Outstandings are subject to the condition that on
      or
      before April
      2,
      2007 the
      Administrative Agent shall have received (or shall substantially
      contemporaneously with the Initial Credit Extensions receive) all of the
      following, in form and substance satisfactory to the Administrative Agent (or,
      in the case of clauses (g), (i) or (r), the conditions specified therein shall
      have been satisfied):

     

    (a) Credit
      Agreement and Related Documents.
      (i) The
      Guaranty FSB Assignment Documents duly executed and delivered by Guaranty Bank,
      FSB and (ii) this Agreement, the Notes, the Guaranty and the Security Documents,
      duly
      executed and delivered by each of the Company and the Original Guarantors (as
      applicable);

     

    
      
        
        

      

      
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    (b) Second
      Lien Loan Documents.
      Evidence that (i) each of the Second Lien Loan Documents has been duly executed
      and delivered by each of the parties thereto; (ii) the Company has received
      gross proceeds from the borrowing of the Second Lien Term Loans in an aggregate
      amount of cash of not less than $80,000,000;
      and
      (iii) the Intercreditor Agreement has been duly executed and delivered by each
      of the parties thereto other than the Administrative Agent;

     

    (c) Resolutions;
      Incumbency; Organization Documents.
      (i)
      Resolutions of the board of directors of the Company and the sole director
      of
      each Original Guarantor authorizing the transactions contemplated hereby,
      certified as of the Effective Time by the Secretary or an Assistant Secretary
      of
      such Person; (ii) Certificates of the Secretary or an Assistant Secretary of
      the
      Company and the Secretary or an Assistant Secretary of each Original Guarantor
      certifying the names and true signatures of the officers of such Person
      authorized to execute, deliver and perform, as applicable, this Agreement,
      the
      Security Documents, the Guaranty, and all other Loan Documents to be delivered
      by it hereunder; and (iii) the Organization Documents of the Company and of
      each
      Original Guarantor as in effect on the Effective Time, certified by the
      Secretary or Assistant Secretary of the such Person as of the Effective
      Time;

     

    (d) Good
      Standing.
      A good
      standing certificate for the Company and each Original Guarantor from its state
      of incorporation or formation, and evidencing its qualification to do business
      in (i) Texas for the Company and the Original Guarantors and (ii) in each other
      jurisdiction where its ownership, lease or operation of Properties or the
      conduct of its business requires such qualification, in each case as of a recent
      date;

     

    (e) Payment
      of Fees.
      Evidence of payment by the Company of all accrued and unpaid fees, costs and
      expenses owed pursuant to the Existing Company Credit Agreement and under this
      Agreement, including the Fee Letter Agreement, in each case to the extent then
      due and payable at the Effective Time, including any such costs, fees and
      expenses arising under or referenced in Sections 2.8
      and
11.4;

     

    (f) [Intentionally
      omitted.]

     

    (g) [Intentionally
      omitted.]

     

    (h) [Intentionally
      omitted.]

     

    (i) [Intentionally
      omitted.]

     

    (j) Insurance
      Certificates.
      Insurance certificates in form and substance reasonably satisfactory to the
      Administrative Agent, from the Company’s insurance carriers reflecting the
      current insurance policies required under Section 7.6
      including any necessary endorsements to reflect the Administrative Agent as
      loss
      payee for the ratable benefit of the Lenders, with the right to receive (absent
      a payment default) at least 30 days prior notice of cancellation of any such
      policy;

     

    
      
        
        

      

      
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    (k) Other
      Documents.
      Such
      other approvals, opinions, documents or materials as the Administrative Agent
      may reasonably request, including those in connection with the Output
      Acquisition;

     

    (l) Opinions
      of Counsel.
      An
      opinion of Fulbright & Jaworski LLP covering such matters with respect to
      the Company and the Original Guarantors as the Administrative Agent may
      reasonably require dated as of the Effective Time;

     

    (m) Output
      Acquisition.
      (i)
      Evidence that all conditions precedent under the Output Acquisition Agreement
      other than performance of the Company’s funding obligations under Section 2.4(c)
      thereof have been satisfied or waived by all parties thereto; and (ii) true
      and
      correct copies (in a form reasonably satisfactory to the Administrative Agent),
      certified as to authenticity by a Responsible Officer of the Company, of the
      Output Acquisition Documents;

     

    (n) Reserve
      Reports.
      The
      Initial Reserve Report and the Output Reserve Report;

     

    (o) Lien
      Searches.
      Evidence of the results of a recent lien search in each of the jurisdictions
      in
      which UCC financing statements or other filings or recordations should be made
      to evidence or perfect security interests in any assets of the Company, each
      Original Guarantor, or
      OPEX,
      and such search shall reveal no Liens on any of the Property of the Company,
      any
      Original Guarantor, Output or OPEX, except for Permitted Liens;

     

    (p) [Intentionally
      omitted.]

     

    (q) Filings,
      Registrations and Recordings.
      Each
      document (including, without limitation, any UCC financing statement) required
      by the Security Documents or under law or reasonably requested by the
      Administrative Agent to be filed, registered or recorded in order to create
      in
      favor of the Administrative Agent, for the benefit of the Lenders, a first
      priority perfected Lien on the Collateral described in any Security Document
      to
      which the Company or any Original Guarantor is (or, upon consummation of the
      Output Acquisition, to which OPEX will be) a party, prior and superior in right
      to any other Person (other than with respect to Permitted Liens (other than
      Liens described in Section 8.1(j)),
      shall
      have been filed, registered or recorded or shall have been delivered to the
      Administrative Agent in proper form for filing, registration or
      recordation;

     

    (r) Approvals.
      All
      government and third party approvals (including any consents) necessary in
      connection with the Output Acquisition, the continuing operations of the Company
      and its Subsidiaries and the transactions contemplated by the Transaction
      Documents shall have been obtained and 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 the Output Acquisition or the financing
      contemplated hereby;

     

    
      
        
        

      

      
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    (s) Solvency.
      A
      certificate from a Responsible Officer of the Company certifying that, on a
      consolidated basis, the Company and its Subsidiaries (i) as of the Effective
      Time, are, and (ii) after giving effect to the transactions contemplated hereby,
      including the Output Acquisition, will be, Solvent; and

     

    (t) Pledged
      Stock; Stock Powers; Acknowledgment and Consent; Pledged Notes.
      The
      Administrative Agent shall have received the certificates representing the
      shares of Capital Stock of the Original Guarantors pledged pursuant to the
      Security Agreement, together with an undated stock power for each such
      certificate executed in blank by a duly authorized officer of the pledgor
      thereof.

     

    5.2 Conditions
      to Closing
      the Output Acquisition.
      Each
      Lender’s commitment to lend money hereunder to the Company and the Issuing
      Lender’s obligation to issue Letters of Credit hereunder, in each case from and
      after (i) the Effective Time and (ii) the making of the initial Credit
      Extensions hereunder described in Section 5.1,
      are
      subject to the conditions that immediately after the consummation of the Output
      Acquisition, the Administrative Agent shall have received all of the following,
      in form and substance satisfactory to the Administrative Agent, and in
      sufficient copies for each Lender (or, in the case of clauses (h), (i) or (o),
      the conditions specified therein shall have been satisfied):

     

    (a) Additional
      Loan Documents.
      (i) The Guaranty and the Security Agreement (or a joinder thereto), in each
      case in form and substance satisfactory to the Administrative Agent and duly
      executed and delivered by OPEX; and (ii) the Mortgages as to such Oil and
      Gas Properties as are required under Section 7.14(b),
      in each
      case in form and substance satisfactory to the Administrative Agent and duly
      executed, delivered and acknowledged by Merger Sub or OPEX (whichever is the
      owner thereof);

     

    (b) Second
      Lien Loan Documents.
      Evidence that each of the Second Lien Loan Documents to which OPEX is or is
      required to be a party has been duly executed and delivered by each of the
      parties thereto;

     

    (c) Resolutions;
      Incumbency; Organization Documents.
      (i)
      Resolutions of the manager of OPEX authorizing the transactions contemplated
      hereby, certified as of the Output Closing Time by the Secretary or an Assistant
      Secretary of such Person; (ii) Certificates of the Secretary or Assistant
      Secretary of OPEX certifying the names and true signatures of the officers
      of
      such Person authorized to execute, deliver and perform, as applicable, all
      Loan
      Documents to be delivered by it hereunder; and (iii) the Organization Documents
      of OPEX as in effect on the Output Closing Time, certified by the Secretary,
      Assistant Secretary or general partner of such Person of such Person as of
      the
      Output Closing Time;

     

    (d) Good
      Standing.
      A good
      standing certificate for OPEX from its state of incorporation or formation,
      and
      evidencing its qualification to do business in each jurisdiction where its
      ownership, lease or operation of Properties or the conduct of its business
      requires such qualification, in each case as of a recent date;

     

    (e) Existing
      Output Credit Agreements; Other Output Indebtedness.
      (i) A
      true and correct copy of a termination agreement
      or
      payoff letter, duly executed and delivered by the agent or other duly authorized
      representative of the lenders under the Existing Output Credit Agreements,
      stating that all amounts owed or owing in respect of the Existing Output Credit
      Agreements have been paid in full and otherwise satisfied, and that the Existing
      Output Credit Agreements, as well as all other agreements executed in connection
      therewith (including all Derivative Contracts secured thereunder), have been
      terminated, and releases of all Liens securing Output’s and OPEX’s obligations
      thereunder, and (ii) a true and correct copy of a termination agreement, duly
      executed by each other holder of any Indebtedness of Output for borrowed money,
      stating that all amounts owed or owing in respect of such Indebtedness have
      been
      paid in full and otherwise satisfied, and that all notes or other instruments
      evidencing such Indebtedness, as well as all other agreements executed in
      connection therewith, have been terminated, and releases of all Liens securing
      Output’s and OPEX’s obligations thereunder; all in form and substance reasonably
      satisfactory to the Administrative Agent;

     

    
      
        
        

      

      
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    (f) Certificate.
      A
      certificate signed by a Responsible Officer of OPEX, dated as of the Output
      Closing Time, stating that as to OPEX, the representations and warranties
      contained in Article
      VI
      and
      Section 4.5(b)
      are true
      and correct on and as of such date;

     

    (g) Insurance
      Certificates.
      Insurance certificates in form and substance reasonably satisfactory to the
      Administrative Agent, from the insurance carriers with respect to each of Output
      and OPEX reflecting the current insurance policies required under Section
7.6
      with
      respect to such Person, to the extent not previously delivered to the
      Administrative Agent, including any necessary endorsements to reflect the
      Administrative Agent as loss payee for the ratable benefit of the Lenders,
      with
      the right to receive (absent a payment default) at least 30 days prior notice
      of
      cancellation of any such policy;

     

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

     

    (i) Opinions
      of Counsel.
      Opinions of (a) Fulbright & Jaworski LLP covering such matters with respect
      to OPEX as the Administrative Agent may reasonably require dated as of the
      Output Closing Time, (b) Gordon Arata McCollam Duplantis & Eagan LLP with
      respect to matters of Louisiana law in form and substance reasonably
      satisfactory to the Administrative Agent and (c) Conner & Winters with
      respect to matters of Oklahoma law in form and substance reasonably satisfactory
      to the Administrative Agent;

     

    (j) Output
      Acquisition.
      Evidence of consummation of the Output Acquisition;

     

    (k) Filings,
      Registrations and Recordings.
      Each
      document (including, without limitation, any UCC financing statement) required
      by the Security Documents or under law or reasonably requested by the
      Administrative Agent to be filed, registered or recorded in order to create
      in
      favor of the Administrative Agent, for the benefit of the Lenders, a first
      priority perfected Lien on the Collateral described in any Security Document
      to
      which OPEX is a party, prior and superior in right to any other Person (other
      than with respect to Permitted Liens (other than Liens described in Section
      8.1(j)), shall have been filed, registered or recorded or shall have been
      delivered to the Administrative Agent in proper form for filing, registration
      or
      recordation; and

     

    
      
        
        

      

      
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    (l) Liquidity.
      A
      certificate from a Responsible Officer of the Company certifying that,
on
      the
      date of the Output Acquisition, after giving effect to the transactions
      contemplated hereby, including the initial Credit Extensions described in
      Section 5.1
      and
      consummation of the Output Acquisition, Liquidity shall equal at least
      $20,000,000.

     

    5.3 Conditions
      to All Credit Extensions.
      The
      obligation of each Lender to make any Loan,
      and of
      the obligation of the Issuing Lender to issue any Letters of Credit, in each
      case from and after the Effective Time, is subject to the satisfaction of the
      following conditions precedent on the relevant Borrowing Date:

     

    (a) Notice.
      The
      Administrative Agent shall have received a Notice of Borrowing;

     

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

     

    (c) No
      Existing Default.
      No
      Default or Event of Default shall exist or shall result from such Borrowing
      or
      Issuance;

     

    (d) No
      Event or Condition of Material Adverse Effect.
      No
      event or condition having a Material Adverse Effect shall have occurred since
      December 31, 2006, or if applicable the date of the most recent annual audited
      consolidated financial statements of the Company delivered to the Administrative
      Agent pursuant to Section 7.1(a);
      and

     

    (e) Mortgaged
      Properties.
      The
      Administrative Agent shall be satisfied that the Loan Parties have granted
      to
      it, at such time, first priority perfected Liens on Oil and Gas Properties
      that
      are Mortgaged Properties, subject only to Permitted Liens, sufficient to cause
      the Mortgaged Properties to include eighty-five percent (85%) of the Net Present
      Value of the Proved Reserves and at least ninety percent (90%) of the Net
      Present Value of the Proved Developed Producing Reserves.

     

    Each
      Notice of Borrowing submitted by the Company hereunder shall constitute a
      representation and warranty by the Company hereunder, as of the date of each
      such notice and as of each Borrowing Date, as applicable, that the conditions
      in
      Section 5.3
      are
      satisfied.

     

    ARTICLE
      VI

     

    REPRESENTATIONS
      AND WARRANTIES

     

    To
      induce
      the Lenders, the Issuing Lender and the Administrative Agent to enter into
      this
      Agreement, the Company and each Guarantor represents and warrants to each such
      Person:

     

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

     

    
      
        
        

      

      
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    6.2 Corporate
      Authorization; No Contravention.
      The
      execution, delivery and performance by the Company and the Guarantors of this
      Agreement and each other Transaction Document to which such Person is a party
      have been duly authorized by all necessary organizational action, and do not
      and
      will not: (a) contravene the terms of any of that Person’s Organization
      Documents; (b) contravene the Second Lien Term Loan Agreement; (c)
      conflict with or result in any breach or contravention of, or the creation
      of
      any Lien under, any document evidencing any material Contractual Obligation
      to
      which such Person is a party that would be prior to the Liens granted to the
      Administrative Agent for the benefit of the Lenders, except to the extent such
      breach or contravention (but not creation of Liens) would not reasonably be
      expected to have a Material Adverse Effect, or any order, injunction, writ
      or
      decree of any Governmental Authority to which such Person or its Property is
      subject; or (d) violate in any material respect any Requirement of
      Law.

     

    6.3 Governmental
      Authorization.
      No
      approval, consent, exemption, authorization, or other action by, or notice
      to,
      or filing with, any Governmental Authority is necessary in connection with
      the
      execution, delivery or performance by, or enforcement against, the Company
      or
      any of the Guarantors of this Agreement or any other Transaction Document to
      which it is a party, except for the filing of a Certificate of Merger with
      the
      Secretary of State of the State of Delaware with respect to the
      Output
      Acquisition, filings necessary to obtain and maintain perfection of Liens,
      routine filings related to the Company and the operation of its business, such
      filings as may be necessary in connection with the Lenders’ exercise of remedies
      hereunder and such other approvals, consents, exemptions, authorizations,
      actions or filings, the failure of which to obtain would not reasonably be
      expected to have a Material Adverse Effect.

     

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

     

    6.5 Litigation.
      Unless
      specifically disclosed in Schedule 6.5
      attached
      hereto, there are no actions, suits, proceedings, claims or disputes pending,
      or
      to the knowledge of the Company, threatened or contemplated, at law, in equity,
      in arbitration or before any Governmental Authority, against the Company or
      its
      Subsidiaries or any of their respective Properties which (i) as of the Effective
      Date purport to affect or pertain to this Agreement or any other Transaction
      Document, or any of the transactions contemplated hereby or thereby; or (ii)
      would reasonably be expected to have a Material Adverse Effect. No injunction,
      writ, temporary restraining order or any order of any nature has been issued
      by
      any court or other Governmental Authority purporting to enjoin or restrain
      the
      execution, delivery or performance of this Agreement or any other Transaction
      Document, or directing that the transactions provided for herein or therein
      not
      be consummated as herein or therein provided.

     

    
      
        
        

      

      
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    6.6 No
      Default.
      Neither
      the Company nor any Subsidiary is in default under or with respect to any other
      Contractual Obligation in any respect which, individually or together with
      all
      such defaults, would reasonably be expected to have a Material Adverse
      Effect.

     

    6.7 ERISA
      Compliance.
      Except
      as specifically disclosed in Schedule 6.7:

     

    (a) Each
      Plan
      of the Company is in compliance in all material respects with the applicable
      provisions of ERISA, the Code and other federal or state law. Each Plan that
      is
      intended to be qualified under Code Section 401(a) is either (i) a
      prototype plan entitled to rely on the opinion letter issued by the IRS as
      to
      the qualified status of such plan under Section 401 of the Code to the extent
      provided in Revenue Procedure 2005-16, or (ii) the recipient of,
      or has
      made or will make timely application for, a determination letter from the IRS
      to
      the effect that such Plan is qualified, and the plans and trusts related thereto
      are exempt from federal income Taxes under Sections 401(a) and 501(a),
      respectively, of the Code. To the knowledge of the Company, nothing has occurred
      which would cause the loss of such qualification. The Company and each ERISA
      Affiliate have made all required contributions to any Plan subject to Section
      412 of the Code, and no application for a funding waiver or an extension of
      any
      amortization period pursuant to Section 412 of the Code has been made with
      respect to any Plan.

     

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

     

    (c) (i)
      No
      ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension
      Plan of the Company has any Unfunded Pension Liability; (iii) neither the
      Company nor any ERISA Affiliate has incurred, or reasonably expects to incur,
      any liability under Title IV of ERISA with respect to any Pension Plan (other
      than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
      the Company nor any ERISA Affiliate has incurred, or reasonably expects to
      incur, any liability (and no event has occurred which, with the giving of notice
      under Section 4219 of ERISA, would result in such liability) under Section
      4201
      or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the
      Company nor any ERISA Affiliate has engaged in a transaction that could be
      subject to Section 4069 or 4212(c) of ERISA.

     

    6.8 Use
      of
      Proceeds; Margin Regulations.
      The
      proceeds of the Loans shall be used solely for the purposes set forth in and
      permitted by Section 7.13.
      Neither
      the Company nor any Subsidiary is generally engaged in the business of
      purchasing or selling Margin Stock or extending credit for the purpose of
      purchasing or carrying Margin Stock.

     

    
      
        
        

      

      
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    6.9 Title
      to Properties.
      The
      Company and each Guarantor
      (a) have
      good and indefeasible title to the Mortgaged Properties subject to no Liens,
      except Permitted Liens, and, except for such defects in title as would not,
      individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect and (b) have good and indefeasible title to, or valid leasehold
      interests in, all other Property necessary in the ordinary conduct of their
      respective businesses.

     

    6.10 Oil
      and Gas Reserves.
      The
      Company and each Guarantor is and will hereafter be, in all material respects,
      the owner of the Oil and Gas that it purports to own from time to time in and
      under its Oil and Gas Properties, together with the right to produce the same.
      The Oil and Gas Properties are not subject to any Lien other than as set forth
      in the financial statements referred to in Section 6.14,
      as
      disclosed in such financial statements to the Lenders in writing prior to the
      Effective Time and Permitted Liens. All Oil and Gas has been and will hereafter
      be produced, sold and delivered by the Company and the Guarantors in accordance
      in all material respects with all applicable laws and regulations of every
      Governmental Authority except such laws and regulations, the failure to comply
      with could not reasonably be expected to have a Material Adverse Effect; each
      of
      the Company and the Guarantors has complied in all material respects (from
      the
      time of acquisition by the Company or a Subsidiary) and will hereafter comply
      in
      all material respects with all material terms of each oil, gas and mineral
      lease
      comprising its Oil and Gas Properties; and all such oil, gas and mineral leases
      under which the Company or a Guarantor is a lessee or co-lessee have been and
      will hereafter be maintained in full force and effect; provided, however, that
      nothing in this Section 6.10
      shall
      prevent the Company or any Guarantor from disposing of any Property in
      accordance with Section 8.2. To the knowledge of the Company and the Guarantors,
      all of the Hydrocarbon Interests comprising its Oil and Gas Properties are
      and
      will hereafter be enforceable in all material respects in accordance with their
      terms, except as such may be modified by applicable bankruptcy law or an order
      of a court in equity and except to the extent the failure to be enforceable
      could not reasonably be expected to have a Material Adverse Effect.

     

    6.11 Reserve
      Report.
      The
      Company has heretofore delivered to the Administrative Agent a true and complete
      copy of (i) a report dated effective as of December
      31, 2006, prepared by DeGolyer and MacNaughton and a report dated effective
      as
      of December 31, 2006 prepared by
      William M. Cobb & Associates, Inc. (collectively, the “Initial
      Reserve Report”)
      covering certain of the Company’s Oil and Gas Properties and (ii) a report dated
      effective as of October 1, 2006 prepared by the Company covering
      certain Oil and Gas Properties of Output and OPEX (the “Output
      Reserve Report”).
      To
      the knowledge of the Company, (w) the assumptions stated or used in the
      preparation of each Reserve Report are reasonable as of the date thereof, (x)
      all information furnished by the Company or any Guarantor to the Independent
      Engineer for use in the preparation of any Reserve Report was accurate in all
      material respects, (y) there has been no material adverse change in the amount
      of the estimated Proved Reserves shown in any Reserve Report since the date
      thereof, except for changes which have occurred as a result of production in
      the
      ordinary course of business, and (z) each Reserve Report does not, in any case,
      omit any material statement or information necessary to cause the same not
      to be
      materially misleading to the Lenders.

     

    6.12 Gas
      Imbalances.
      Except
      as disclosed to the Administrative Agent in writing prior to the Effective
      Time,
      there are no gas imbalances, take or pay or other prepayments with respect
      to
      any of the Oil and Gas Properties in excess of $2,000,000
      in the aggregate that would require the Company or any Guarantor to deliver
      Oil
      and Gas produced from any of the Oil and Gas Properties at some future time
      without then or thereafter receiving full payment therefor.

     

    
      
        
        

      

      
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    6.13 Taxes.
      The
      Company and its
      Subsidiaries have filed all federal Tax returns and reports required to be
      filed, and have paid all federal Taxes, assessments, fees and other governmental
      charges levied or imposed upon them or their Properties, income or assets
      otherwise due and payable, except those which are being contested in good faith
      by appropriate proceedings and for which adequate reserves have been provided
      in
      accordance with GAAP. The Company and its Subsidiaries have filed all material
      state and other non-federal Tax returns and reports required to be filed, and
      have paid all state and other non-federal Taxes, assessments, fees and other
      governmental charges levied or imposed upon them or their Properties, income
      or
      assets prior to delinquency thereof, except those (a) which are not overdue
      by
      more than 30 days or (b) which are being contested in good faith by appropriate
      proceedings and for which adequate reserves have been provided in accordance
      with GAAP. To the Company’s knowledge, there is no proposed Tax assessment
      against the Company or any Subsidiary that would, if made, reasonably be
      expected to have a Material Adverse Effect.

     

    6.14 Financial
      Statements and Condition.

     

    (a) The
      Company Audited Financial Statements and the Company’s unaudited consolidated
      financial statements for the nine months ended September 30, 2006 incorporated
      in the Company’s Form 10-Q filed with the SEC on November 9, 2006 (i) were
      prepared in accordance with GAAP consistently applied throughout the periods
      covered thereby, except as otherwise expressly noted therein; (ii) fairly
      present in all material respects the consolidated financial condition of the
      Company and its Subsidiaries,
      as of
      the dates thereof and results of operations for the periods covered thereby
      (subject, in the case of the Company’s unaudited consolidated financial
      statements referred to above, to normal year-end audit adjustments and the
      absence of footnotes); and (iii) except as specifically disclosed in Schedule
      6.14(a) or
      in the
      case of the Company and its Subsidiaries,
      in the
      Company Audited Financial Statements or the Company’s unaudited consolidated
      financial statements referred to above, the
      Company and its Subsidiaries do not have any material Indebtedness or other
      material liabilities, direct or contingent, as of the date hereof, including
      liabilities for Taxes, material commitments or Contingent
      Obligations.

     

    (b) During
      the period from December 31, 2006 to and including the date hereof there has
      been no Disposition by the Company or any Subsidiaries of any material part
      of
      its business or Property, other than Dispositions permitted by Section
8.2(a),
      (b),
      (c),
      (d)
      or
(e).

     

    6.15 Environmental
      Matters.
      Each of
      the Company and its
      Subsidiaries is in compliance with all Environmental Laws and there exist no
      Environmental Claims on or with respect to its respective business, operations
      and Properties, except as specifically disclosed in Schedule 6.15
      or such
      non-compliance with Environmental Laws, or Environmental Claims as would not,
      individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect.

     

    
      
        
        

      

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

     

    6.17 No
      Burdensome Restrictions.
      Except
      as set forth on Schedule 6.17, neither the Company nor any Subsidiary
      is a party to or bound by any Contractual Obligation, or subject to any
      restriction in any Organization Document, or any Requirement of Law, which
      would
      reasonably be expected to have a Material Adverse Effect.

     

    6.18 Copyrights,
      Patents, Trademarks and Licenses, etc.
      The
      Company and each Subsidiary
      own or are licensed or otherwise have the right to use all of the material
      patents, trademarks, service marks, trade names, copyrights, contractual
      franchises, authorizations and other rights that are reasonably necessary for
      the operation of their respective businesses, without material conflict with
      the
      rights of any other Person. To the knowledge of the Company, no slogan or other
      advertising device, product, process, method, substance, part or other material
      now employed, or now contemplated to be employed, by the Company or any
      Subsidiary infringes upon any rights held by any other Person, except to the
      extent such infringement could not reasonably be expected to have a Material
      Adverse Effect. Except as specifically disclosed in Schedule 6.5,
      no
      claim or litigation regarding any of the foregoing is pending or, to the
      knowledge of the Company, threatened, and no patent, invention, device,
      application, principle or any statute, law, rule, regulation, standard or code
      is pending or, to the knowledge of the Company, proposed, which, in either
      case,
      would reasonably be expected to have a Material Adverse Effect.

     

    6.19 Subsidiaries.
      As of
      the Effective Time and, after giving effect to the Output Acquisition as of
      the
      Output Closing Time, the Company has no Subsidiary other than those specifically
      disclosed in part (a) of Schedule 6.19
      hereto
      and has no material equity investments in any other Person other than those
      specifically disclosed in part (b) of Schedule 6.19.
      The
      capitalization of each Subsidiary and the ownership of its Capital Stock is
      set
      forth on Schedule 6.19 hereto.

     

    6.20 Insurance.
      The
      Properties of the Company and each Subsidiary
      are insured with financially sound and reputable insurance companies that are
      not Affiliates of the Company, in such amounts, with such deductibles and
      covering such risks as are customarily carried by companies engaged in similar
      businesses and owning similar Properties in localities where the Company or
      such
      Subsidiary operates, except where the failure to do so could not reasonably
      be
      expected to have a Material Adverse Effect. 

     

    6.21 Full
      Disclosure.
      None of
      the representations or warranties made by the Company or any Guarantor in the
      Loan
      Documents as of the date such representations and warranties are made or deemed
      made, and none of the statements contained in any exhibit, report, written
      statement or certificate furnished by or on behalf of the Company or any
      Guarantor in connection with the Loan Documents, taken as whole, contains any
      untrue statement of a material fact known to the Company or omits any material
      fact known to the Company required to be stated therein or necessary to make
      the
      statements made therein, in light of the circumstances under which they are
      made, not materially misleading as of the time when made or
      delivered.

     

    
      
        
        

      

      
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    6.22 Solvency.
      The
      Company and its Subsidiaries, taken as a whole are, and after giving effect
      to
      (a) the Output Acquisition and the incurrence of all Indebtedness and
      obligations being incurred in connection herewith and therewith, and (b) all
      rights of contribution of such Person against other Loan Parties under the
      Guaranty, at law, in equity or otherwise, will be and will continue to be,
      Solvent.

     

    6.23 Labor
      Matters.
      Except
      to the extent such matters do not to constitute a Material Adverse Effect,
      (a)
      no actual or threatened strikes, labor disputes, slowdowns, walkouts, work
      stoppages, or other concerted interruptions of operations that involve any
      employees employed at any time in connection with the business activities or
      operations at the Property of the Company or any Subsidiary exist, (b) hours
      worked by and payment made to the employees of the Company have not been in
      violation of the Fair
      Labor Standards Act
      or any
      other applicable laws pertaining to labor matters, (c) all payments due from
      the
      Company or any Subsidiary for employee health and welfare insurance, including,
      without limitation, workers compensation insurance, have been paid or accrued
      as
      a liability on its books, and (d) the business activities and operations of
      the
      Company and each Subsidiary are in compliance with the Occupational Safety
      and
      Health Act and other applicable health and safety laws.

     

    6.24 Midstream
      Contracts.
      As
      of the
      Effective Date, the Company’s and the Guarantors’ marketing, gathering,
      transportation, processing and treating facilities and equipment, together
      with
      the Midstream Contracts, and any other marketing, gathering, transportation,
      processing and treating contracts in effect among, inter alia, the Company,
      any
      Guarantor and any other Person, are, except as set forth on Schedule
6.24,
      sufficient to market, gather, transport, process or treat, as applicable,
      reasonably anticipated volumes of production of Oil and Gas from the Company’s
      and the Guarantors’ Oil and Gas Properties. Any such contracts with Affiliates
      are disclosed on Schedule 6.24
      hereto.

     

    6.25 Derivative
      Contracts.
      Neither
      the Company nor any Subsidiary is party to any Derivative Contract other than
      (a) as of the Effective Time, the Existing Derivative Contracts or
      (b) after the Effective Time, Derivative Contracts permitted by Section
8.10.

     

    6.26 Exempt
      Subsidiaries; TTSI.
      Neither
      any Exempt Subsidiary nor TTSI owns any Hydrocarbon Interests with which Proved
      Reserves are associated.

     

    6.27 [Intentionally
      Omitted.]

     

    6.28 Output
      Acquisition Documents.
      Following the execution and delivery of the Output Acquisition Documents listed
      on Schedule 6.28,
      such
      documents will constitute all of the material agreements, instruments and
      undertakings with Output or its Affiliates to which the Company or any of its
      Subsidiaries is bound or by which such Person or any of its Property is bound
      or
      affected relating to the Output Acquisition (other than agreements, instruments
      or undertakings of Output and its Subsidiary existing prior to the completion
      of
      the Output Acquisition).

     

    
      
        
        

      

      
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    6.29 Security
      Documents.

     

    (a) The
      Security Agreement is effective to create in favor of the Administrative Agent,
      for the benefit of the Secured Parties, a legal, valid, binding and enforceable
      security interest in the Collateral described therein and proceeds and products
      thereof. In the case of the Pledged Stock described in the Security Agreement,
      when any stock certificates representing such Pledged Stock are delivered to
      the
      Administrative Agent, and in the case of the other Collateral described in
      the
      Security Agreement
      which
      may be perfected by filing a financing statement, when financing statements
      in
      appropriate form are filed in the offices specified on
      Schedule 6.29(a)-1
      (which financing statements may be filed by the Administrative Agent) and such
      other filings as are specified on Schedule 3 to the Security Agreement have
      been
      completed (all of which filings may be filed by the Administrative Agent),
      the
      Security Agreement shall constitute a fully perfected Lien on, and security
      interest in, all right, title and interest of the Loan Parties in such
      Collateral and the proceeds and products thereof, as security for the
      Obligations, in each case prior and superior in right to any other Person
      (except Permitted Liens). Schedule 6.29(a)-2
      lists each UCC financing statement that (i) names any Loan Party as debtor
      and
      (ii) will remain on file after the Effective Time or the Output Closing Time
      (as
      applicable). Schedule 6.29(a)-3
      lists each UCC financing statement that (i) names any Loan Party as debtor
      and
      (ii) will be terminated on or prior to the Effective Time or the Output Closing
      Time (as applicable).

     

    (b) Each
      of
      the Mortgages is effective to create in favor of the Administrative Agent,
      for
      the benefit of the Secured Parties, a legal, valid, binding and enforceable
      Lien
      on the Mortgaged Properties described therein and proceeds and products thereof;
      and when the Mortgages are filed in the offices specified on
      Schedule 6.29(b)
      (in
      the case of Mortgages to be executed and delivered on the Effective Date or
      the
      Output Closing Time (as applicable)) or in the recording office designated
      by
      the Company (in the case of any Mortgage to be executed and delivered pursuant
      to Section 7.14(b)),
      each
      Mortgage shall constitute a fully perfected Lien on, and security interest
      in,
      all right, title and interest of the Loan Parties in the Mortgaged Properties
      described therein and the proceeds and products thereof, as security for the
      Obligations, in each case prior and superior in right to any other Person (other
      than Persons holding Liens or other encumbrances or rights permitted by the
      relevant Mortgage).

     

    ARTICLE
      VII

     

    AFFIRMATIVE
      COVENANTS

     

    So
      long
      as the Issuing Lender or any Lender shall have any Commitment hereunder, or
      any
      Loan or other Obligation shall remain unpaid or unsatisfied:

     

    7.1 Financial
      Statements.
      The
      Company and each Guarantor shall, and shall cause each
      of its
      Subsidiaries to deliver to the Administrative Agent who will deliver to each
      Lender:

     

    (a) as
      soon
      as available, but not later than March 31, 2007 and not later than 90 days
      after
      the end of each fiscal year ending thereafter, a copy of the annual audited
      consolidated balance sheet of the Company and its Subsidiaries as at December
      31, 2006 and as at the end of such year ending thereafter, respectively, and
      the
      related consolidated statements of operations and retained earnings,
      comprehensive income and cash flows for such year, setting forth in each case
      in
      comparative form the figures for the previous fiscal year; the Company’s
      financial statements shall be accompanied by the unqualified opinion (or, if
      qualified, of a non-material nature (e.g. FASB changes of accounting principles)
      or nothing indicative of going concern or material misrepresentation nature)
      and
      a copy of the management letter of Akin, Doherty, Klein & Feuge P.C. or
      other independent public accounting firm acceptable to the Administrative Agent
      (the “Independent
      Auditor”),
      which
      report shall state that such consolidated financial statements present fairly
      in
      all material respects the consolidated financial position of the Company and
      its
      Subsidiaries at the end of such periods and the results of their operations
      and
      their cash flows for the periods indicated in conformity with GAAP;
      and

     

    
      
        
        

      

      
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    (b) as
      soon
      as available, but not later than 60 days after the close of each of the first
      three Fiscal Quarters in any fiscal year, a copy of the unaudited consolidated
      balance sheet of the Company as of the end of such quarter and the related
      consolidated statements of operations and retained earnings, comprehensive
      income and cash flows for the period commencing on the first day and ending
      on
      the last day of such period, setting forth in each case in comprehensive form
      the figures for the comparable period in the previous fiscal year and certified
      by a Responsible Officer as fairly presenting in all material respects, in
      accordance with GAAP (subject to normal year-end audit adjustments and the
      absence of footnotes), the consolidated financial position of the Company and
      its Subsidiaries at the end of such periods and the results of their operations
      and their cash flows.

     

    (c) Documents
      required to be delivered pursuant to Section 7.1(a)
      or
      Section 7.1(b)
      may be
      delivered electronically and if so delivered, shall be deemed to have been
      delivered on the date (i) on which the Company posts such documents, or provides
      a link thereto on the Company’s website on the Internet and (ii) on which such
      documents are posted on the Company’s behalf on an Internet or intranet website,
      if any, to which each Lender and the Administrative Agent have access (whether
      a
      commercial, third-party website or whether sponsored by the Administrative
      Agent); provided, however, that (x) the Company shall deliver paper copies
      of
      such documents to the Administrative Agent or any Lender that requests the
      Company to deliver such paper copies until a written request to cease delivering
      paper copies is given by the Administrative Agent or such Lender and (y) the
      Company shall notify the Administrative Agent and each Lender (by telecopier
      or
      electronic mail) of the posting of any such documents and provide to the
      Administrative Agent by electronic mail electronic versions (i.e., soft copies)
      of such documents. Notwithstanding anything contained herein, in every instance
      the Company shall be required to provide paper copies of the Compliance
      Certificates required by Section 7.2(b)
      to the
      Administrative Agent.

     

    (d) The
      Company hereby acknowledges that (i) the Administrative Agent will make
      available to the Lenders and the Issuing Bank materials and/or information
      provided by or on behalf of the Company hereunder (collectively, “Company
      Materials”)
      by
      posting the Company Materials on IntraLinks or another similar electronic system
      (the “Platform”)
      and
      (ii) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do
      not wish to receive material non-public information with respect to the Company
      or its securities) (each, a “Public
      Lender”).
      The
      Company hereby agrees that (w) all Company Materials that are to be made
      available to Public Lenders shall be clearly and conspicuously marked “PUBLIC”
which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently
      on the first page thereof; (x) by marking Company Materials “PUBLIC,” the
      Company shall be deemed to have authorized the Administrative Agent, the Issuing
      Bank and the Lenders to treat such Company Materials as either publicly
      available information or not material information (although it may be sensitive
      and proprietary) with respect to the Company or its securities for purposes
      of
      United States Federal and state securities laws; (y) all Company Materials
      marked “PUBLIC” are permitted to be made available through a portion of the
      Platform designated “Public Investor”; and (z) the Administrative Agent shall be
      entitled to treat Company’s Materials that are not marked “PUBLIC” as being
      suitable only for posting on a portion of the Platform not designated “Public
      Investor.”

     

    
      
        
        

      

      
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    7.2 Certificates;
      Other Production and Reserve Information.
      The
      Company shall furnish to the Administrative Agent and each Lender:

     

    (a) as
      soon
      as available, but not later than 60 days after the close of each of
      the
      first three Fiscal Quarters in any fiscal year and not later than 90 days after
      the close of each Fiscal Year, a Quarterly Status Report in a form reasonably
      acceptable to the Lenders, as of the last day of the immediately preceding
      quarter;

     

    (b) concurrently
      with the delivery of the financial statements referred to in Sections
7.1(a)
      and
(b),
      and the
      reports referred to in Section 7.2(a),
      a
      Compliance Certificate executed by a Responsible Officer;

     

    (c) on
      or
      before (i) April 1 of each year during the term of this Agreement, a Reserve
      Report effective as of January 1 of such year prepared by DeGolyer and
      MacNaughton, William M. Cobb & Associates, Inc., Netherland Sewell &
Associates, Inc., or other independent petroleum engineer acceptable to the
      Administrative Agent (the “Independent
      Engineer”)
      and
      (ii) October 1 of each year during the term of this Agreement, a Reserve Report
      effective as of July 1 of such year prepared by the Company in substantially
      the
      same form as the January 1 Reserve Report and certified by a Responsible Officer
      as true and correct in all material respects,
      in each
      case in form reasonably acceptable to the Administrative Agent;

     

    (d) promptly
      upon the request of the Administrative Agent, at the request of any Lender,
      copies of all geological, engineering and related data contained in the
      Company’s files or readily accessible to the Company relating to its and the
      Guarantors’ Oil and Gas Properties as may reasonably be requested;

     

    (e) [Intentionally
      omitted];

     

    (f) promptly
      upon its completion in each fiscal year of the Company commencing with the
      2007
      fiscal year through and including the 2010
      fiscal
      year, and not later than the date of delivery of the annual financial statements
      for the prior fiscal year, a
      copy of
      the annual budget of the Company and its Subsidiaries on a consolidated basis
      for such fiscal year, projecting total Oil and Gas revenue, total revenue,
      total
      operating costs and expenses, Consolidated Net Income, Consolidated Interest
      Expense, Consolidated EBITDAX and total capital expenditures, by fiscal quarter;
      it
      being
      understood that such projections are not to be viewed as facts, that actual
      results may vary and that such variances may be material;

     

    (g) copies
      of
      all Derivative Contracts then in effect not later than January 1 and July 1
      of
      each year beginning July 2, 2007; and

     

    
      
        
        

      

      
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    (h) promptly,
      such additional information regarding the business, financial or corporate
      affairs of the Company or any Subsidiary as the Administrative Agent, at the
      request of any Lender, may from time to time reasonably request.

     

    7.3 Notices.
      The
      Company shall promptly notify the Administrative Agent and each Lender in
      writing:

     

    (a) of
      the
      occurrence of any Default or Event of Default;

     

    (b) of
      any
      matter that has resulted or may reasonably be expected to result in a Material
      Adverse Effect, including arising out of or resulting from (i) a material breach
      or non performance of, or any default under, a Contractual Obligation of the
      Company or any Subsidiary or any allegation thereof; (ii) any material dispute,
      litigation, investigation, proceeding or suspension between the Company or
      any
      Subsidiary and any Governmental Authority; or (iii) the commencement of, or
      any
      material development in, any material litigation or proceeding affecting the
      Company or any Subsidiary, including pursuant to any applicable Environmental
      Laws;
      and

     

    (c) of
      the
      formation or acquisition of any Subsidiary (other than Output or
      OPEX).

     

    Each
      notice under this Section 7.3
      shall be
      accompanied by a written statement by a Responsible Officer setting forth
      details of the occurrence referred to therein, and, in the case of notices
      delivered pursuant to Sections
      7.3(a)
      or
(b),
      stating
      what action the Company or any affected Subsidiary proposes to take with respect
      thereto and at what time. Each notice under Section 7.3(a)
      shall
      describe with particularity any and all clauses or provisions of this Agreement
      or other Loan Document that have been (or foreseeably will be) breached or
      violated.

     

    7.4 Preservation
      of Company Existence, Etc.
      The
      Company
      and
      each Guarantor shall, and shall cause each of its respective Subsidiaries
      to:

     

    (a) preserve
      and maintain in full force and effect its legal existence, and maintain its
      good
      standing under the laws of its state or jurisdiction of formation,
      except
      in a transaction permitted by Section 8.3 or where the failure to do so could
      not reasonably be expected to have a Material Adverse Effect;

     

    (b) preserve
      and maintain in full force and effect all governmental rights, privileges,
      qualifications, permits, licenses and franchises necessary or desirable in
      the
      normal conduct of its business except where the failure to do so could not
      reasonably be expected to have a Material Adverse Effect;

     

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

     

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

     

    
      
        
        

      

      
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    7.5 Maintenance
      of Property.
      The
      Company and
      each
      Guarantor shall, and shall cause each of its respective Subsidiaries to,
      maintain and preserve all its Property which is used or useful in its business
      in good working order and condition, ordinary wear and tear excepted and to
      use
      the standard of care typical in the industry in the operation and maintenance
      of
      its facilities, except where the failure to do so would not reasonably be
      expected to have a Material Adverse Effect; provided, however, that nothing
      in
      this Section 7.5
      shall
      prevent the Company or any Guarantor from making any Disposition permitted
      by
      Section 8.2.

     

    7.6 Insurance.
      The
      Company and each Guarantor shall,
      and
      shall cause each of its respective Subsidiaries to, maintain, with financially
      sound and reputable independent insurers, insurance with respect to its
      Properties and business against loss or damage of the kinds customarily insured
      against by Persons engaged in the same or similar business, of such types and
      in
      such amounts as are customarily carried under similar circumstances by such
      other Persons except where the failure to do so would not reasonably be expected
      to have a Material Adverse Effect. 

     

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

     

    7.8 Compliance
      with Laws.
      The
      Company and each Guarantor shall,
      and
      shall cause each of its respective Subsidiaries to, comply in all material
      respects with all Requirements of Law of any Governmental Authority having
      jurisdiction over it or its business (including the Federal Fair Labor Standards
      Act), including with respect to the transactions contemplated by the Output
      Acquisition, except (a) such as may be contested in good faith or as to which
      a
      bona fide dispute may exist or (b) where the failure to do so would not
      reasonably be expected to have a Material Adverse Effect.

     

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

     

    7.10 Inspection
      of Property and Books and Records.
      The
      Company and
      each
      Guarantor shall, and shall cause each of its respective Subsidiaries to,
      maintain proper books of record and account, in which full, true and correct
      entries in conformity with GAAP consistently applied shall be made of all
      financial transactions and matters involving the assets and business of the
      Company and such Subsidiary. The Company and each Guarantor shall permit
      representatives and independent contractors of the Administrative Agent or
      any
      Lender to visit and inspect any of their respective Properties, to examine
      their
      respective corporate, financial and operating records, and make copies thereof
      or abstracts therefrom, and to discuss their respective affairs, finances and
      accounts with their respective managers, directors, officers, and independent
      public accountants, all at the expense of the Company and at such reasonable
      times during normal business hours and as often as may be reasonably desired,
      upon reasonable advance notice to the Company; provided, however, that,
      excluding any such visits and inspections during the continuance of an Event
      of
      Default, only the Administrative Agent, on behalf of the Lenders, may exercise
      the rights under this Section 7.10
      and such
      exercise shall not occur more frequently than once per fiscal year; provided
      further, however, when an Event of Default exists the Administrative Agent
      or
      any Lender may do any of the foregoing at the expense of the Company at any
      time
      during normal business hours and without advance notice.

     

    
      
        
        

      

      
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    7.11 Environmental
      Laws.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to, conduct its respective operations and keep and maintain their
      respective Properties in compliance with all Environmental Laws, except where
      the failure to do so would not reasonably be expected to have a Material Adverse
      Effect.

     

    7.12 New
      Subsidiary Guarantors.
      If, at
      any time after the Output Closing Time, there exists any Subsidiary that is
      not
either
      a
      Guarantor or an Exempt Subsidiary, then the Company and each Guarantor shall,
      on
      the date any such Subsidiary is acquired or formed, (a) cause each such
      Subsidiary to execute and deliver a joinder to the Guaranty to the
      Administrative Agent, (b) pledge or cause to be pledged to the Administrative
      Agent for the benefit of the Lenders all of the outstanding Capital Stock
      thereof pursuant to a Security Document satisfactory to the Administrative
      Agent
      and (c) cause such Subsidiary to execute and deliver such Security Documents
      as
      may be required pursuant to Sections 4.2,
      4.5(a)
      or
7.14(b).
      Upon
      the execution and delivery by any Subsidiary of a joinder to the Guaranty,
      such
      Subsidiary shall automatically and immediately, and without any further action
      on the part of any Person, (i) become a Guarantor for all purposes of this
      Agreement and (ii) be deemed to have made the representations and warranties,
      as
      applied to and including such new Subsidiary, set forth in this
      Agreement.

     

    7.13 Use
      of
      Proceeds.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to, use the proceeds of the Loans only for the following purposes:
      (i) at the Effective Time, to refinance, renew and extend the Existing Revolving
      Credit Outstandings (which the Company agrees to do); (ii) at the Output Closing
      Time, together with the $80,000,000 in proceeds of the Second Lien Term Loans,
      to fund the Company’s payment obligations under Section 2.4
      of the
      Output Acquisition Agreement (other than fees and expenses described in (iii)
      below) in an aggregate amount not to exceed $96,000,000, subject to usual and
      customary adjustments for transactions of such nature; (iii) to pay fees and
      expenses incurred in connection with the Output Acquisition in an aggregate
      amount not to exceed $5,000,000; (iv) to fund the acquisition, exploration
      and
      development of Hydrocarbon Interests; and (v) for working capital and other
      general corporate purposes. The Company and each Guarantor shall, and shall
      cause each of its respective Subsidiaries to, use the Letters of Credit solely
      as support for obligations in the ordinary course of business, and for other
      purposes approved by the Administrative Agent.

     

    
      
        
        

      

      
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    7.14 Further
      Assurances.

     

    (a) The
      Company and each Guarantor shall promptly (and in no event later than 20 days
      (or such late date as may be agreed by the Administrative Agent) after becoming
      aware of the need therefor) cure any defects in the creation and issuance of
      the
      Notes and the execution and delivery of this Agreement, the Security Documents
      or any other instruments referred to or mentioned herein or therein. The Company
      and the Guarantors shall, at the Company’s expense, promptly (and in no event
      later than 20 days (or such late date as may be agreed by the Administrative
      Agent) after becoming aware of the need therefor) do all acts and things, and
      execute and file or record, all instruments reasonably requested by the
      Administrative Agent, to establish, perfect, maintain and continue the perfected
      security interest of the Lenders in or the Lien of the Lenders on the Mortgaged
      Properties.

     

    (b) The
      Company shall promptly (and in no event later than ten Business Days after
      the
      need arises) execute and cause its Subsidiaries that are Guarantors to execute
      such additional Security Documents in form and substance reasonably satisfactory
      to Administrative Agent, granting to Administrative Agent first priority
      perfected Liens on Oil and Gas Properties (subject only to Permitted Liens)
      that
      are not then part of the Mortgaged Properties, sufficient to cause the Mortgaged
      Properties to include at all times eighty-five percent (85%) of the Net Present
      Value of the Proved Reserves and at least ninety percent (90%) of the Net
      Present Value of the Proved Developed Producing Reserves, in each case as set
      forth in the most recent Reserve Report. In
      addition, the
      Company and each Guarantor shall furnish
      to the Administrative Agent title due diligence in form satisfactory to the
      Administrative Agent and will furnish all other documents and information
      relating to such Mortgaged Properties as the Administrative Agent may reasonably
      request. The Company shall pay the reasonable out-of-pocket costs and expenses
      of all filings and recordings and all searches reasonably deemed necessary
      by
      the Administrative Agent to establish and determine the validity and the
      priority of the Liens created or intended to be created by the Security
      Documents; and the
      Company and each Guarantor shall satisfy
      all other claims and charges which in the reasonable opinion of the
      Administrative Agent might prejudice, impair or otherwise affect any of the
      Mortgaged Properties or the Lenders’ Lien thereon.

     

    (c) With
      respect to any Collateral (whether tangible or intangible, but excluding titled
      vehicles or other Collateral with respect to which a security interest cannot
      be
      perfected by the filing of a financing statement under the UCC) acquired after
      the Effective Date by the Company or any Guarantor as to which the
      Administrative Agent, for the benefit of the Secured Parties, does not otherwise
      have a first priority perfected Lien, promptly (and in no event later than
      20
      days (or such later date as may be agreed by the Administrative Agent) after
      becoming aware of the need therefor) take all actions necessary or advisable
      to
      grant to the Administrative Agent, for the benefit of the Secured Parties,
      a
      perfected first priority security interest in such Collateral, subject only
      to
      Permitted Liens, including without limitation, the filing of UCC financing
      statements in such jurisdictions as may be required by the Security Documents
      or
      by law or as may be reasonably requested by the Administrative Agent; provided,
      however, notwithstanding the foregoing, Property will be excluded from the
      Collateral in circumstances where the Administrative Agent and the Company
      agree
      that the cost of obtaining a security interest in such Property is excessive
      in
      relation to the value afforded thereby, or if the granting of a security
      interest in such Property would be prohibited by contract (other than any
      non-assignment of payment intangibles provision that is unenforceable under
      the
      UCC) or any applicable Requirement of Law.

     

    
      
        
        

      

      
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    7.15 Output
      Acquisition.
      The
      Company shall cause the Output Acquisition to be consummated
      substantially on the terms described in the Output Acquisition
      Agreement.

     

    ARTICLE
      VIII

     

    NEGATIVE
      COVENANTS

     

    So
      long
      as the Issuing Lender or any Lender shall have any Commitment hereunder, or
      any
      Loan or other Obligation shall remain unpaid or unsatisfied:

     

    8.1 Limitation
      on Liens.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer
      to exist any Lien upon or with respect to any part of its Property, whether
      now
      owned or hereafter acquired, other than the following:

     

    (a) any
      Lien
      on Property of the Company or any Subsidiary as set forth in Schedule
8.1
      (including Liens securing the Indebtedness of the Company under the Existing
      Company Credit Agreement) and any modifications, replacements, renewals or
      extensions thereof; provided, however, that (i) the Lien does not extend to
      any
      additional Property other than (A) after-acquired Property that is affixed
      or
      incorporated into the Property covered by such Lien or financed by Indebtedness
      permitted under Section 8.5,
      and
      (B) proceeds and products thereof and (ii) the modification, replacement,
      renewal, extension or refinancing of the obligations secured or benefited by
      such Liens (if such obligations constitute Indebtedness) is permitted by Section
      8.5;

     

    (b) any
      Lien
      created under any Loan Document;

     

    (c) Liens
      for
      Taxes, fees, assessments or other governmental charges which are not delinquent
      or remain payable without penalty, or to the extent that non payment thereof
      is
      permitted by Section 7.7;

     

    (d) carriers’,
      warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’s or other
      similar Liens arising in the ordinary course of business (whether by law or
      by
      contract) which (i) are not delinquent, (ii) remain payable without penalty,
      (iii) are being contested in good faith and by appropriate proceedings, which
      proceedings have the effect of preventing the forfeiture or sale of the Property
      subject thereto or (iv) the failure of which to pay could not reasonably be
      expected to have a Material Adverse Effect;

     

    (e) Liens
      consisting of (i) pledges or deposits required in the ordinary course of
      business in connection with workers’ compensation, unemployment insurance and
      other social security legislation; (ii) pledges and deposits in the
      ordinary course of business not exceeding $500,000 in the aggregate securing
      insurance premiums or reimbursement obligations under insurance policies, in
      each case payable to insurance carriers that provide insurance to the Company
      or
      any of its Subsidiaries; or (iii) obligations in respect of letters of
      credit or bank guarantees that have been posted by the Company or any of its
      Subsidiaries to support the payments of the items set forth in clauses (i)
      and
      (ii) of this Section 8.1;

     

    
      
        
        

      

      
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    (f) easements,
      rights of way, restrictions, defects or other exceptions to title and other
      similar encumbrances incurred in the ordinary course of business which, in
      the
      aggregate, are not material in amount, are not incurred to secure Indebtedness,
      and which do not in any case materially detract from the value of the Property
      subject thereto or interfere with the ordinary conduct of the businesses of
      the
      Company, the Guarantors and their respective Subsidiaries;

     

    (g) Liens
      on
      the Property of the Company, any Guarantor or any Subsidiary of such Person
      securing (i) the non-delinquent performance of bids, trade contracts (other
      than
      for borrowed money), leases or statutory obligations, (ii) Contingent
      Obligations on surety, performance and appeal bonds, and (iii) other
      non-delinquent obligations of a like nature; in each case, incurred in the
      ordinary course of business;

     

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

     

    (i) Oil
      and
      Gas Liens to secure obligations which are not delinquent and which do not in
      any
      case materially detract from the value of the Oil and Gas Property subject
      thereto;

     

    (j) Liens
      on
      the Collateral securing Second Lien Obligations; provided, however, that such
      Liens are second and junior in priority to the Liens securing the Obligations
      pursuant to the Intercreditor Agreement;

     

    (k) Liens
      on
      Property of Exempt Subsidiaries securing Non-Recourse Debt permitted to be
      incurred under Section 8.5(d);

     

    (l) Liens
      securing judgments for the payment of money not constituting an Event of
      Default;

     

    (m) Liens
      securing purchase money Indebtedness and Capitalized Leases permitted hereunder;
      provided, however, that such Liens do not at any time encumber any Property
      other than the Property (including after-acquired Property) financed by such
      Indebtedness and the proceeds and the products thereof and accessions thereto;
      and provided further, however, that individual financings of assets provided
      by
      one lender may be cross collateralized to other financings of equipment provided
      by such lender;

     

    
      
        
        

      

      
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    (n) 
      (i)
      leases, licenses, subleases or sublicenses granted to other Persons in the
      ordinary course of business which do not (A) interfere in any material respect
      with the business of the Company or any of its Subsidiaries or (B) secure any
      Indebtedness for borrowed money or (ii) the rights reserved or vested in any
      Person by the terms of any lease, license, franchise, grant or permit held
      by
      the Company or any of its Subsidiaries or by a statutory provision, to terminate
      any such lease, license, franchise, grant or permit, or to require annual or
      periodic payments as a condition to the continuance thereof;

     

    (o) Liens
      (i)
      in favor of the seller of any Property to be acquired in an investment permitted
      pursuant to Sections 8.4
      to be
      applied against the purchase price for such investment, (ii) consisting of
      an
      agreement to Dispose of any Property in a Disposition permitted under Section
      8.2,
      in each
      case, solely to the extent such investment or Disposition, as the case may
      be,
      would have been permitted on the date of the creation of such Lien and (iii)
      earnest money deposits made by the Company or any of its Subsidiaries in
      connection with any letter of intent or purchase agreement permitted
      hereunder;

     

    (p) Liens
      existing on the Property of any Person that becomes a Subsidiary, in each case
      after the date hereof (other than Liens on the Capital Stock of any Person
      that
      becomes a Subsidiary) and any modifications, replacements, renewals or
      extensions thereof; provided, however, that (i) such Lien does not extend to
      or
      cover any other Property (other than the proceeds or products thereof and
      after-acquired Property subjected to a Lien pursuant to terms existing at the
      time of such acquisition, it being understood that such requirement shall not
      be
      permitted to apply to any Property to which such requirement would not have
      applied but for such acquisition), and (ii) the Indebtedness secured thereby
      (or, as applicable, any modifications, replacements, renewals or extensions
      thereof) is permitted under Section 8.5;

     

    (q) Liens
      arising from precautionary UCC financing statement filings regarding leases
      entered into by the Company or any of its Subsidiaries in the ordinary course
      of
      business;

     

    (r) Liens
      arising out of conditional sale, title retention, consignment or similar
      arrangements for sale of goods entered into by the Company or any of its
      Subsidiaries in the ordinary course of business not prohibited by this
      Agreement;

     

    (s) Permitted
      Encumbrances (as defined in the Mortgages);

     

    (t) Liens
      in
      favor of the Company securing investments permitted under Section 8.4(i);
      or

     

    (u) other
      Liens securing Indebtedness or other obligations (other than Indebtedness or
      other obligations under the Second Lien Term Loan Agreement) outstanding in
      an
      aggregate principal amount not to exceed the lesser of: (i) the difference
      between $10,000,000 minus the aggregate principal amount then outstanding of
      all
      Indebtedness secured by Liens permitted under Sections 8.1(m)
      and
(p)
      and (ii)
$5,000,000.

    
       

      8.2 Disposition
        of Assets.
        The
        Company and each Guarantor shall not, and shall not permit any of its respective
        Subsidiaries that are Guarantors to, directly or indirectly, sell, assign,
        lease, convey, transfer or otherwise dispose of (whether in one or a series
        of
        transactions) (collectively, “Dispositions”)
        any
        Property (including accounts and notes receivable, with or without recourse),
        except:

       

      (a) Dispositions
        permitted under Sections 8.3,
        8.4,
        or
8.9
        and
        Liens permitted by Section 8.1;

       

    

    
      
        
        

      

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

     

    (c) Dispositions
      among the Company and wholly-owned Subsidiaries that are
      Guarantors;

     

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

     

    (e) Dispositions
      of accounts and notes receivable in the ordinary course of business consistent
      with past practices;

     

    (f) Dispositions
      of interests in Oil and Gas Properties, or portions thereof, that are sold
      for
      fair cash consideration (considering any net production proceeds from the
      effective date of any such Disposition to the closing thereof that are credited
      against the purchase price payable at such closing as Net Cash Proceeds received
      by the Company or such Guarantor); provided, however, that the
      aggregate sales
      prices (as of the effective date of each particular Disposition) for
      Dispositions made pursuant to this Section 8.2(f)
      during
      any Borrowing Base Period shall not exceed 10% of the Borrowing Base;
provided
      further, however,
      that
      any such Dispositions in any Borrowing Base Period which result in the receipt
      on a cumulative basis in such period of Net Cash Proceeds in excess of 5% of
      the
      Borrowing Base (considering any net production proceeds from the effective
      date
      of any Disposition to the closing thereof that are credited against the purchase
      price payable at such closing as Net Cash Proceeds received by the Company
      or
      such Guarantor) shall immediately and automatically, and without the need for
      further act or evidence, reduce the Borrowing Base on a dollar-for-dollar basis
      (based on the amount attributable by the Administrative Agent to the sold Oil
      and Gas Properties in the most recent Borrowing Base determination under
Section
      2.6)
      and any
      resulting Deficiency shall be immediately cured by the Company pursuant to
      Section 2.6(f)(ii);

     

    (g) the
      abandonment of any well or forfeiture, surrender or release by the Company
      or
      any Guarantor of any lease in the ordinary course of business which is not
      materially disadvantageous in any way to the Lenders and which, in the Company’s
      or such Guarantor’s opinion, is in the best interest of the Company or such
      Guarantor;

     

    (h) Dispositions
      of Property other than Hydrocarbon Interests to the extent that (i) such
      Property is exchanged for credit against the purchase price of similar
      replacement Property or (ii) the proceeds of such Disposition are promptly
      applied to the purchase price of such replacement Property;

     

    (i) Dispositions
      of Cash Equivalents;

     

    
      
        
        

      

      
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    (j) farm-out
      agreements or participation agreements, or leases, subleases, licenses or
      sublicenses of Property (including real Property and intellectual Property
      but
      excluding Oil and Gas Properties with which Proved Reserves are associated)
      in
      the ordinary course of business and which do not materially interfere with
      the
      business of the Company and its Subsidiaries;

     

    (k) transfers
      of Property subject to Recovery Events upon receipt of the Net Cash Proceeds
      of
      such Recovery Event; or

     

    (l) other
      Dispositions of Property by the Company and the Guarantors (other than Oil
      and
      Gas Properties); provided, however, that (i) at the time of such Disposition,
      no
      Event of Default shall exist or would result from such Disposition, (ii) the
      aggregate book value of all Property Disposed of in reliance on this Section
      8.2(l)
      shall
      not exceed $2,500,000 and
      (iii)
      the sale price for such Property (if in excess of $250,000) shall
      be
      paid to the Company or such Guarantor for not less than 75% cash or Cash
      Equivalent consideration.

     

    8.3 Consolidations
      and Mergers.
      The
      Company and each Guarantor shall not, directly or indirectly, merge, consolidate
      with or into, or convey, transfer, lease or otherwise dispose of (whether in
      one
      transaction or in a series of transactions) all or substantially all of its
      assets (whether now owned or hereafter acquired) to or in favor of any Person,
      except:

     

    (a) any
      Guarantor may merge with the Company or another Guarantor; provided, however,
      that the Company shall be the continuing or surviving Person in the case of
      a
      merger involving the Company;

     

    (b) any
      Subsidiary that is not a Guarantor may merge with the Company or a Guarantor;
      provided, however, that the Company or such Guarantor shall be the continuing
      or
      surviving Person;

     

    (c) the
      Company and its Subsidiaries may consummate the Output Acquisition;

     

    (d) a
      merger,
      dissolution, liquidation, consolidation or Disposition, the purpose of which
      is
      to effect a Disposition permitted pursuant to Section 8.2;
      or

     

    (e) the
      Company or any Guarantor may complete Corporate Acquisitions permitted under
      Section 8.4.

     

    8.4 Loans
      and Investments.
      The
      Company and each Guarantor shall not, directly or indirectly, purchase or
      acquire, or make any commitment therefor, any Capital Stock or any obligations
      or other securities of, or any interest in, any Person, or make any Corporate
      Acquisitions, or make any advance, loan, extension of credit or capital
      contribution to or any other investment in, any Person, including any Affiliate
      of the Company, except for:

     

    (a) investments
      in Cash Equivalents;

     

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

     

    
      
        
        

      

      
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    (c) investments
      in Guarantors that are directly or indirectly wholly-owned Subsidiaries of
      the
      Company;

     

    (d) investments
      in Derivative Contracts permitted under Section 8.10;

     

    (e) investments
      resulting from transactions specifically permitted under Section 8.3;

     

    (f) investments
      with third parties that are (i) customary in the oil and gas business, (ii)
      made
      in the ordinary course of the Company’s business, and (iii) made in the form of
      or pursuant to purchase agreements, operating agreements, processing agreements,
      farm-in agreements, farm-out agreements, joint venture agreements, development
      agreements, unitization agreements, pooling agreements, joint bidding
      agreements, service contracts and other similar agreements, that do not, in
      any
      case, (x) constitute an investment in any state law partnership or other Person
      (that is not a Guarantor) or (y) involve the Disposition of any Mortgaged
      Property covering Proved Reserves not otherwise permitted under the Loan
      Documents;

     

    (g) advances
      by the Company to any of its employees (other than corporate officers) in the
      ordinary course of business which do not exceed $250,000 at any time outstanding
      in the aggregate to all such employees;

     

    (h) acquisitions
      of Hydrocarbon Interests and related assets in the ordinary course of
      business;

     

    (i) (i)
      with
      respect to loans or advances by the Company to Exempt Subsidiaries existing
      at
      the Effective Date, the conversion of such loans or advances to Capital Stock
      of
      the debtor Exempt Subsidiary, or the contribution thereof to the capital of
      such
      Exempt Subsidiary and (ii) in addition to the investments permitted by the
      foregoing clause (i), provided that there shall not have occurred and be
      continuing an Event of Default hereunder, and no Event of Default would result
      therefrom, after the Effective Date, the making by the Company or a Guarantor
      of
      (A) direct loans and advances to Exempt Subsidiaries to support working capital
      needs not to exceed an aggregate balance of $1,000,000 at any time outstanding
      and (B) other investments in Exempt Subsidiaries not to exceed an aggregate
      amount of $1,000,000 on a cumulative basis;

     

    (j) (i)
      the
      Output Acquisition
      and (ii)
      provided that there shall not have occurred and be continuing an Event of
      Default hereunder, and no Event of Default would result therefrom (and subject
      to compliance with Section 7.12,
      where
      applicable), other Corporate Acquisitions by the Company of Persons
      substantially all of the Property of which is comprised of domestic Proved
      Reserves, including Hydrocarbon Interests in the federal Outer Continental
      Shelf
      or associated gathering, processing, or pipeline assets;

     

    (k) investments
      consisting of Liens, Dispositions, fundamental changes, Indebtedness, and
      Restricted Payments permitted by Sections 8.1,
      8.2,
      8.3,
      8.5
      and
8.9,
      respectively;

     

    (l) promissory
      notes and other noncash consideration received in connection with Dispositions
      permitted by Section 8.2 (other than Sections
      8.2(f)
      or
(k));

     

    
      
        
        

      

      
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    (m) investments
      in the ordinary course of business consisting of endorsements for collection
      or
      deposit;

     

    (n) investments
      (including debt obligations and Capital Stock) received in connection with
      the
      bankruptcy or reorganization of any Person and in settlement of obligations
      of,
      or other disputes with, such Persons arising in the ordinary course of business;
      or

     

    (o) guarantees
      by the Company or any Subsidiary of leases (other than Capital Lease
      Obligations) or of other obligations that do not constitute Indebtedness, in
      each case entered into in the ordinary course of business.

     

    8.5 Limitation
      on Indebtedness.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, create, incur, assume, suffer to exist,
      or otherwise become or remain liable with respect to, any Indebtedness, except
      (collectively, “Permitted
      Indebtedness”):

     

    (a) Indebtedness
      incurred pursuant to this Agreement;

     

    (b) Indebtedness
      incurred pursuant to the Second Lien Term Loan Agreement in an aggregate
      principal amount not to exceed $80,000,000;

     

    (c) Indebtedness
      consisting of Contingent Obligations permitted pursuant to Section 8.8;

     

    (d) Non-Recourse
      Debt not to exceed $20,000,000 in an aggregate principal amount at any time
      outstanding;

     

    (e) Indebtedness
      consisting of gas imbalances or obligations in respect of take or pay or other
      prepayments not exceeding the amount specified in Section 6.12;

     

    (f) Indebtedness
      in respect of Derivative Contracts permitted under Section 8.10;

     

    (g) guarantees
      by the Company and the Guarantors in respect of Indebtedness of the Company
      and
      such Guarantors otherwise permitted hereunder; provided, however, that if the
      Indebtedness being guaranteed is subordinated to the Obligations, such guarantee
      shall be subordinated to the guarantee of the Obligations;

     

    (h) Indebtedness
      of (i) of any Loan Party owing to any other Loan Party, or (ii) any Subsidiary
      that is not a Loan Party owing to (A) any Subsidiary that is not a Loan Party
      or
      (B) a Loan Party in respect of an investment permitted under Section
8.4(i);

     

    (i) Indebtedness
      (other than for borrowed money, purchase money Indebtedness or obligations
      with
      respect to Capital Leases) subject to Liens permitted under Section
      8.1;

     

    (j) Capital
      Leases and purchase money obligations (including obligations in respect of
      mortgage, industrial revenue bond, industrial development bond, and similar
      financings) to finance the purchase, repair or improvement of fixed or capital
      assets and any Permitted Refinancing thereof; provided, however, that the
      aggregate amount of all Indebtedness at any one time outstanding described
      in
      Sections 8.5(j),
      (l),
      (m)
      and
(n)
      shall
      not exceed $10,000,000;

     

    
      
        
        

      

      
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    (k) Indebtedness
      incurred by the Company or its Subsidiaries in a Disposition under agreements
      providing for indemnification, the adjustment of the purchase price or similar
      adjustments;

     

    (l) Indebtedness
      in respect of netting services, overdraft protections and similar arrangements
      in each case in connection with cash management and deposit accounts; provided,
      however, that the aggregate amount of all Indebtedness at any one time
      outstanding described in Sections 8.5(j),
      (l),
      (m)
      and
(n)
      shall
      not exceed $10,000,000;

     

    (m) Indebtedness
      consisting of the financing of insurance premiums; provided, however, that
      the
      aggregate amount of all Indebtedness at any one time outstanding described
      in
      Sections 8.5(j),
      (l),
      (m)
      and
(n)
      shall
      not exceed $10,000,000; or

     

    (n) in
      addition to the Indebtedness otherwise permitted under this Section 8.5,
      Indebtedness described in the definition thereof of the Loan Parties not to
      exceed at any time outstanding, together with Indebtedness outstanding at such
      time described in Sections 8.5(j),
      (l)
      or
(m),
      $10,000,000 in aggregate principal amount.

     

    8.6 Transactions
      with Affiliates.
      Except
      as set forth on Schedule 8.6,
      the
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, enter into any transaction with or
      make
      any payment or transfer to any Affiliate of the Company or its stockholders,
      except transactions (a) among the Loan Parties, (b) in the ordinary course
      of
      business and upon fair and reasonable terms no less favorable to the Company,
      such Guarantor or such Subsidiary than would obtain in a comparable arm’s length
      transaction with a Person not an Affiliate of the Company, such Guarantor
or
      such
      Subsidiary, (c) customary fees payable to any directors of the Company and
      reimbursement of reasonable out of pocket costs of the directors of the Company,
      (d) employment and severance arrangements between the Company or its
      Subsidiaries and their respective officers, consultants and employees in the
      ordinary course of business, (e)
      the
      payment of customary fees and indemnities to directors, officers and employees
      of the Company and the Subsidiaries in the ordinary course of business or (f)
      to
      the extent permitted under Sections 8.4, 8.5 and 8.9.

     

    8.7 Margin
      Stock.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, suffer or permit any Subsidiary to,
      use
      any portion of the proceeds of the Loans to (i) purchase or carry Margin Stock,
      (ii) repay or otherwise refinance Indebtedness of the Company or others incurred
      to purchase or carry Margin Stock, (iii) extend credit for the purpose of
      purchasing or carrying any Margin Stock, or (iv) acquire any security in any
      transaction that is subject to Section 13 or 15(d) of the Exchange
      Act.

     

    8.8 Contingent
      Obligations.
      The
      Company and each Guarantor shall not,
      and
      shall not permit any of its respective Subsidiaries to, directly or indirectly,
      create, incur, assume or suffer to exist any Contingent Obligations
      except:

     

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

     

    
      
        
        

      

      
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    (b) Derivative
      Contracts permitted under Section 8.10
      hereof;

     

    (c) obligations
      under plugging
      bonds, performance bonds and fidelity bonds
      issued
      for the account of the Company or its Subsidiaries, obligations to indemnify
      or
      make whole any surety and similar agreements incurred in the ordinary course
      of
      business;

     

    (d) this
      Agreement and each Guaranty;

     

    (e) Guaranty
      Obligations permitted under Section 8.5
      or
      obligations in respect of letters of credit or bank guarantees permitted under
      Section 8.1(e);

     

    (f) Contingent
      Obligations consisting of gas imbalances or obligations in respect of take
      or
      pay or other prepayments not to exceed the amount specified in Section 6.12;
      or

     

    (g) guarantees
      of leases (other than Capital Leases) or of other obligations that do not
      constitute Indebtedness, in each case entered into in the ordinary course of
      business.

     

    8.9 Restricted
      Payments.
      The
      Company and each Guarantor shall not, directly
      or indirectly, (a) purchase, redeem or otherwise acquire for value any Capital
      Stock, now or hereafter outstanding from its members, partners or stockholders
      (other than from its members, partners or stockholders that are Loan Parties;
      provided, however, that (i) to the extent constituting Restricted Payments,
      the
      Company and the Guarantors may enter into transactions expressly permitted
      by
      Section 8.3;
      (ii)
      the Company may effect repurchases of Capital Stock deemed to occur upon
      exercise of stock options or warrants if such Capital Stock represent a portion
      of the exercise price of such options or warrants; (iii) the Company may make
      repurchases of Capital Stock necessary to enable the Company to pay federal
      withholding Taxes incurred by an employee upon the vesting of restricted Capital
      Stock granted to such employee in connection with a stock incentive plan; or
      (iv) the Company and any of the Guarantors may pay for the repurchase,
      retirement or other acquisition or retirement for value of Capital Stock of
      the
      Company held by any future, present or former director, officer, member of
      management employee or consultant of the Company or any of its Subsidiaries
      (or
      the estate, family members, spouse or former spouse of any of the foregoing);
      provided, however, that the aggregate amount of Restricted Payments made under
      this clause (iv) does not exceed in any calendar year $250,000 (with
      unused amounts in any calendar year being carried over to the two succeeding
      calendar years); (b) declare or pay any distribution, dividend or return capital
      to its members, partners or stockholders (other than to its members, partners
      or
      stockholders that are Loan Parties), or make any distribution of cash or
      Property to its members, partners or stockholders (other than members, partners
      or stockholders that are Loan Parties; provided, however, that (i) the Company
      may declare and make dividend payments or other distributions payable solely
      in
      the Capital Stock (other than Disqualified Capital Stock) of the Company; (ii)
      the Company may make cash payments in lieu of issuing fractional shares in
      connection with the exercise of warrants, options or other securities
      convertible into or exchangeable for Capital Stock of the Company; or (iii)
      in
      addition to the foregoing Restricted Payments, the Company may make additional
      Restricted Payments to holders of any Qualifying Preferred Stock in an aggregate
      annual amount not to exceed $7,000,000; or (c) make any payment or prepayment
      of
      principal of, premium, if any, or interest on, or redemption, purchase,
      retirement, defeasance (including in-substance or legal defeasance), sinking
      fund or similar payment with respect to, any Indebtedness outstanding under
      or
      in respect of any Second Lien Loan Document (collectively “Restricted
      Payments”);
      provided,
      however,
      that
      the Company may (i) make regularly scheduled payments of interest in respect
      of
      the Second Lien Term Loans in accordance with the terms of the Second Lien
      Term
      Loan Agreement and the Intercreditor Agreement, but only to the extent required
      by the Second Lien Term Loan Agreement; and (ii) make optional prepayments
      in
      respect of the Second Lien Term Loans; provided
      further, however, that,
      in
      the case of optional prepayments with respect to the Second Lien Term Loans,
      (A)
      no Default has occurred and is continuing, (B) no such prepayment shall cause
      a
      Default, and (C) at the time any such optional prepayment is made by the
      Company, and giving pro forma effect to such payment, the Utilization Percentage
      does not exceed 75%.

     

    
      
        
        

      

      
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    8.10 Derivative
      Contracts.

     

    (a) The
      Company and each Guarantor shall not, directly or indirectly, enter into or
      in
      any manner be liable on any Derivative Contract except:

     

    (i) Derivative
      Contracts entered into with the purpose and effect of fixing prices on oil
      or
      gas expected to be produced by such Person; provided, however, that at all
      times
      (i) no such contract shall be for speculative purposes; (ii) as of any date
      (the
“Calculation
      Date”)
      no
      such contract, when aggregated with all Derivative Contracts permitted under
      this Section 8.10(a)(i),
      but
      excluding Derivative Contracts described in clause (v) of this Section
8.10(a)(i),
      shall
      cover a notional volume in excess of the Applicable Percentage of the total
      Projected Oil and Gas Production to be produced in any month
      from the
      Proved Developed Producing Reserves reflected in the most recent Reserve Report;
      (iii) each such contract (excluding Derivative Contracts offered by a national
      commodity exchange) shall be with the Administrative Agent, or any of the
      Lenders (or Affiliate of a Lender), the Second Lien Credit Agent or any Second
      Lien Credit Lender (or Affiliate of a Second Lien Credit Lender), or with a
      counterparty or have a Guarantor of the obligation of the counterparty which,
      at
      the time the contract is made, has long-term obligations rated BBB+ or Baa1
      or
      better, respectively, by S&P or Moody’s; (iv) no such contract requires the
      Company to put up money, Property, letters of credit or other security against
      the event of its non-performance prior to actual default by the Company in
      performing its obligations thereunder, except Liens in favor of the
      Administrative Agent for the benefit of the Lenders under the Security Documents
      or the Liens securing Obligations (as defined in the Second Lien Term Loan
      Agreement); and (v) with respect to Derivative Contracts under which the
      Company’s or a Guarantor’s only interest is a “put” right or which is a
      commodity price hedge by means of a price “floor”
      (A)
      there exists no deferred obligation to pay the related premium or other purchase
      price and
      (B)
      all such contracts are with Qualifying Derivative Contract
      Counterparties.

     

    
      
        
        

      

      
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    (ii) The
      Existing Derivative Contracts; provided, however, that no Existing Derivative
      Contract may be amended, restated, supplemented or otherwise modified or
      extended without the prior written consent of the Administrative
      Agent unless such modified Derivative Contract satisfies the requirements set
      forth in clause (i) or clause (ii) of this Section 8.10(a); or

     

    (iii) Derivative
      Contracts entered into with the purpose and effect of fixing interest rates
      on a
      principal amount of Indebtedness of the Company that is accruing interest at
      a
      variable rate; provided,
      however, that
      (i) no
      such contract shall be for speculative purposes; (ii) the floating rate index
      of
      each such contract generally matches the index used to determine the floating
      rates of interest on the corresponding Indebtedness of the Company to be hedged
      by such contract; (iii) no such contract requires the Company to put up money,
      Property, letters of credit, or other security against the event of its
      non-performance prior to actual default by the Company in performing its
      obligations thereunder; (iv) the aggregate notional amount of the Derivative
      Contracts shall not exceed fifty percent (50%) of the Borrowing Base during
      any
      Borrowing Base Period; and (v) each such contract shall be with a Lender (or
      an
      Affiliate of a Lender) or with a counterparty or have a guarantor of the
      obligation of the counterparty who, at the time the contract is made, has
      long-term obligations rated BBB+ or Baa1 or better, respectively, by S&P or
      Moody’s.

     

    (b) In
      the
      event the Company enters into a Derivative Contract with any Lender, the
      Contingent Obligation evidenced under such Derivative Contract shall not be
      applied against such Lender’s Commitment nor against the Effective Amount. The
      benefits of the Security Documents and of the provisions of the Loan
      Documents relating to the Collateral shall also extend to and be available
      on a
      pro rata basis to each Qualifying Derivative Contract Counterparty in respect
      to
      all Obligations with respect to the related Qualifying Derivative
      Contract.

     

    8.11 Sale
      Leasebacks.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, become liable, directly or by way
      of
      any Guaranty Obligation, with respect to any lease of any Property (whether
      real, personal or mixed) whether now owned or hereafter acquired, (a) which
      the
      Company or such Guarantor or Subsidiary has sold or transferred or is to sell
      or
      transfer to any other Person or (b) which the Company or such Guarantor or
      Subsidiary intends to use for substantially the same purposes as any other
      Property which has been or is to be sold or transferred by the Company or such
      Guarantor or Subsidiary to any other Person in connection with such
      lease.

     

    8.12 Consolidated
      Leverage Ratio.
      As
      of the
      last day of any Fiscal Quarter, the Company shall not permit the Consolidated
      Leverage Ratio to exceed 3.00 to 1.00.

     

    8.13 Current
      Ratio.
      As
      of the
      last day of any Fiscal Quarter, the Company shall not permit the ratio of
      Current Assets to Current Liabilities to be less than 1.00 to 1.00; provided,
      however, that for purposes of such ratio, adjustments required by FAS 133 and
      143 that affect the calculation of Current Assets or Current Liabilities shall
      be excluded from current assets and current liabilities,
      respectively.

     

    
      
        
        

      

      
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    8.14 Minimum
      Interest Coverage Ratio.
      The
      Company
      shall not permit the ratio of Consolidated EBITDAX for any period, commencing
      with the period ended June 30, 2007, to Consolidated Interest Expense for such
      period to be less than 2.50 to
      1.00.

     

    8.15 Minimum
      PV 10 to Consolidated Total Debt Ratio.
      So
      long as
      Indebtedness exists under the Second Lien Term Loan Agreement, the Company
      shall
      not permit the ratio of Net Present Value to Consolidated Total Debt at the
      end
      of any fiscal quarter to be less than 1.50 to 1.00.

     

    8.16 Change
      in Business.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, engage in any business or activity
      other than the Principal Business
      and
      businesses ancillary or reasonably related thereto.

     

    8.17 Accounting
      Changes.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, make any significant change in
      accounting treatment or reporting practices, except as required by GAAP, or
      change the fiscal year of the Company or of any Guarantor or
      Subsidiary.

     

    8.18 Certain
      Contracts; Amendments; Multiemployer ERISA Plans.
      Except
      for the restrictions expressly set forth in the Loan
      Documents and the Second Lien Loan Documents, the Company and each Guarantor
      shall not, directly or indirectly, enter into, create, or otherwise allow to
      exist any contract or other consensual restriction on the ability of any
      Guarantor to: (a) pay dividends or make other distributions to the Company
      or
      another Guarantor, (b) redeem its Capital Stock held by the Company or another
      Guarantor, (c) repay Indebtedness owing by it to the Company or another
      Guarantor, or (d) transfer any of its Property to the Company or another
      Guarantor. The Company and each Guarantor shall not, and shall not permit any
      ERISA Affiliate to, incur any obligation to contribute to any Multiemployer
      Plan.

     

    8.19 Midstream
      Contracts.
      The
      Company and each Guarantor shall not, directly or indirectly;

     

    (a) amend,
      supplement or otherwise modify any material term or condition (pursuant to
      a
      waiver granted by or to such Person or otherwise) or fail to enforce strictly
      the terms and conditions of the indemnities and rights furnished to the Company
      or any Guarantor pursuant to the Midstream Contracts,
      in
      each case, such that after giving effect thereto such terms, conditions,
      indemnities and rights shall be materially less favorable to the interests
      of
      the Loan Parties or the Lenders with respect thereto; or

     

    (b) otherwise
      amend, supplement or otherwise modify or fail to enforce the terms and
      conditions of the Midstream Contracts except to the extent that any such
      amendment, supplement or modification or failure to enforce could not reasonably
      expected to have a Material Adverse Effect.

     

    8.20 Second
      Lien Term Loan Agreement.
      The
      Company and each Guarantor shall not, directly or indirectly:
      (a)
      amend or modify any of the terms or provisions of the Second Lien Term Loan
      Agreement, except as permitted by Section 5.3(b) of the Intercreditor Agreement;
      (b) cause, or purport to cause, the Liens securing the Obligations to cease
      to
      be Permitted Liens as defined therein; or (c) grant any Lien for the benefit
      of
      the lenders thereunder, except to the extent permitted hereunder or required
      by
      the Intercreditor Agreement.

     

    
      
        
        

      

      
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    8.21 Limitation
      on Amendments to Output Acquisition Documents.
      The
      Company shall not, directly or indirectly:

     

    (a) amend,
      supplement or otherwise modify any material term or condition (pursuant to
      a
      waiver granted by or to such Person or otherwise) or fail to enforce strictly
      the terms and conditions of the indemnities and rights furnished to the Company
      or any of its Subsidiaries pursuant to the Output Acquisition Documents such
      that after giving effect thereto such terms, conditions, indemnities or rights
      shall be materially less favorable to the interests of the Loan Parties or
      the
      Lenders with respect thereto; or

     

    (b) otherwise
      amend, supplement or otherwise modify or fail to enforce the terms and
      conditions of the Output Acquisition Documents except to the extent that any
      such amendment, supplement or modification or failure to enforce could
not
      reasonably be expected to have a Material Adverse Effect.

     

    8.22 Forward
      Sales, Production Payments, Etc.
      The
      Company and each Guarantor shall not, directly or indirectly:

     

    (a) enter
      into any forward sales transaction or agreement with respect to physical
      deliveries of Oil and Gas outside the ordinary course of business as conducted
      prior to the Effective Time;
      or

     

    (b) sell
      or
      convey any production payment, term overriding interest, net profits interest
      or
      any similar interest (except
      for overriding royalty or net profits interests granted to employees or
      consultants of the Company in the ordinary course of business in connection
      with
      the generation of prospects or the development of Oil and Gas
      Properties).

     

    8.23 Use
      of
      Proceeds.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, use or permit the use of all or any
      portion of the Loans or any Letters of Credit for any purpose other than those
      set forth in Section 7.13.

     

    ARTICLE
      IX

     

    EVENTS
      OF DEFAULT

     

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

     

    (a) Principal
      Non Payment.
      The
      Company fails to pay, when and as required to be paid herein, any amount of
      scheduled principal payment of any Loan, including any mandatory prepayment
      under Section 2.6(f)
      of this
      Agreement;

     

    (b) Interest
      and Expense Non-Payment.
      Any
      Loan Party fails to pay, when and as required to be paid herein, any interest
      due on any Interest Payment Date, any other payments for fees, expenses, or
      other amount payable hereunder or under any other Loan Document within three
      Business Days after the same becomes due and payable;

     

    
      
        
        

      

      
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    (c) Representation
      or Warranty.
      Any
      representation or warranty by the Company or any Guarantor made or deemed made
      herein, in any other Loan Document, or which is contained in any certificate,
      document or financial or other statement by the Company, any Guarantor or any
      Responsible Officer, furnished at any time under this Agreement, or in or under
      any other Loan Document, is incorrect in any material respect on or as of the
      date made or deemed made;

     

    (d) Specific
      Defaults.
      Any
      Loan Party fails to perform or observe any term, covenant or agreement contained
      in Section 7.13
      or in
Article
      VIII;

     

    (e) Other
      Defaults.
      The
      Company or any Guarantor fails to perform or observe any other term or covenant
      contained in this Agreement or any other Loan Document, and such default shall
      continue unremedied for a period of 30 days, in all other cases after the
      earlier of (i) the date upon which a Responsible Officer knew or reasonably
      should have known of such default and (ii) the date upon which written notice
      thereof is given to the Company by the Administrative Agent or any
      Lender;

     

    (f) Cross
      Default.
      (i) The
      Company, any Guarantor or any other Subsidiary (A) fails to make any payment
      of
      more than $2,000,000 in respect of any Indebtedness or Contingent Obligation
      when due (whether by scheduled maturity, required prepayment, acceleration,
      demand, or otherwise) and such failure continues after the applicable grace
      or
      notice period, if any, specified in the relevant document on the date of such
      failure and, in the case of any such failure by an Exempt Subsidiary, such
      failure results in a Material Adverse Effect or (B) fails after the applicable
      grace or notice period, if any, specified in the relevant document on the date
      of such failure to perform or observe any other condition or covenant, or any
      other event shall occur or condition exist, under any agreement or instrument
      relating to any such Indebtedness or Contingent Obligation having an aggregate
      principal amount of more than $2,000,000 if the effect of such failure, event
      or
      condition is to cause, or to permit the holder or holders of such Indebtedness
      or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent
      on
      behalf of such holder or holders or beneficiary or beneficiaries) to cause
      such
      Indebtedness to be declared to be due and payable prior to its stated maturity,
      or such Contingent Obligation to become payable or cash collateral in respect
      thereof to be demanded and, in the case of any such failure by an Exempt
      Subsidiary, such failure results in a Material Adverse Effect; (ii) any
      Indebtedness or Contingent Obligation of the Company, any Guarantor or any
      Subsidiary in excess of $2,000,000 shall be declared due and payable prior
      to
      its stated maturity or cash collateral is demanded in respect of such Contingent
      Obligation, and in the case of any such event affecting a Contingent Obligation
      of an Exempt Subsidiary, such event results in a Material Adverse
      Effect; or
      (iii)
      an “Event of Default” (as defined in any Second Lien Loan Document), shall occur
      and be continuing;

     

    (g) Insolvency;
      Voluntary Proceedings.
      The
      Company, any Guarantor or any other Subsidiary (i) generally fails to pay,
      or
      admits in writing its inability to pay, its debts as they become due, subject
      to
      applicable grace periods, if any, whether at stated maturity or otherwise;
      (ii)
      commences any Insolvency Proceeding with respect to itself; or (iii) takes
      any
      action to effectuate or authorize any of the foregoing and, in the case of
      any
      of the foregoing occurring with respect to an Exempt Subsidiary (other than
      Maverick-Dimmit Pipeline, Ltd.), a Material Adverse Effect results
      therefrom;

     

    
      
        
        

      

      
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    (h) Involuntary
      Proceedings.
      (i) Any
      involuntary Insolvency Proceeding is commenced or filed against the Company,
      any
      Guarantor, or any other Subsidiary, or any writ, judgment, warrant of
      attachment, execution or similar process, is issued or levied against all or
      a
      substantial part of the Company’s, any Guarantor’s or any other Subsidiary’s
      Property, and any such proceeding or petition shall not be dismissed or stayed,
      or such writ, judgment, warrant of attachment, execution or similar process
      shall not be released, vacated or fully bonded within 60 days after
      commencement, filing or levy; (ii) the Company, any Guarantor or any other
      Subsidiary files an answer admitting the material allegations of a petition
      against it in any Insolvency Proceeding, or an order for relief (or similar
      order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii)
      the
      Company, any Guarantor or any other Subsidiary consents to the appointment
      of a
      receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
      (or agent therefor), or other similar Person for itself or a substantial portion
      of its Property or business, and, in the case of any of the foregoing occurring
      with respect to an Exempt Subsidiary (other than Maverick-Dimmit Pipeline,
      Ltd.), a Material Adverse Effect results therefrom;

     

    (i) Monetary
      Judgments.
      One or
      more non-interlocutory judgments, non-interlocutory orders, decrees or
      arbitration awards is entered against the Company or any Guarantor or any other
      Subsidiary involving in the aggregate a liability (to the extent not covered
      by
      independent third-party insurance as to which the insurer has not denied
      coverage) as to any single or related series of transactions, incidents or
      conditions, of $2,000,000 or more, and the same shall remain unsatisfied,
      unvacated and unstayed pending appeal for a period of 60 consecutive days after
      the entry thereof;

     

    (j) Change
      of Control.
      There
      occurs any Change of Control;

     

    (k) Guaranty
      Default.
      A
      Guaranty ceases to be in full force and effect, or such Guarantor contests
      in
      any manner the validity or enforceability thereof or denies that it has any
      further liability or obligation thereunder other than as a result of payment
      in
      full of the Obligations;

     

    (l) Enforceability
      or Perfection of Loan Documents.
      (i) Any
      Loan Document shall, at any time after its execution and delivery and for any
      reason, cease to be in full force and effect or shall be declared to be null
      and
      void, the validity or enforceability thereof shall be contested by any Person
      party thereto (other than the Administrative Agent or any Lender) or any such
      Person party thereto (other than the Administrative Agent or any Lender) shall
      deny that it has any or further liability or obligation thereunder); or (ii)
      any
      Lien created under any Loan Document shall fail to constitute a first priority,
      perfected Lien, subject only to Permitted Liens, and such failure shall continue
      for at least 30 days after the earlier of (A) the date upon which a Responsible
      Officer knew or reasonably should have known of such default or (B) the date
      upon which written notice thereof is given to the Company by the Administrative
      Agent or any Lender;
      or

     

    
      
        
        

      

      
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    (m) ERISA.
      Either
      (i) any “accumulated funding deficiency” (as defined in Section 412(a) of the
      Code) in excess of $2,000,000 exists with respect to any ERISA Plan, whether
      or
      not waived by the Secretary of the Treasury or his delegate, or (ii) the Company
      or any ERISA Affiliate institutes steps to terminate any ERISA Plan and the
      then
      current value of such ERISA Plan’s benefit liabilities exceeds the then current
      value of such ERISA Plan’s assets available for the payment of such benefit
      liabilities by more than $2,000,000.

     

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

     

    (a) declare
      the Commitment, if any, of each Lender to make Loans or participate in Issuances
      of Letters of Credit to be terminated, or declare all or any part of the unpaid
      principal of the Loans, all interest accrued and unpaid thereon and all other
      amounts payable under the Loan
      Documents to be immediately due and payable, whereupon the same shall become
      immediately due and payable, without presentment, demand, protest, notice of
      intention to accelerate, notice of acceleration, or any other notice of any
      kind, all of which are hereby expressly waived by the Company and each
      Guarantor; and

     

    (b) exercise
      on behalf of itself and the Lenders all rights and remedies available to it
      and
      the Lenders under the Loan Documents or applicable law; provided,
      however,
      that
      upon the occurrence of any event specified in Section 9.1(g)
      or
(h)
      (in the
      case of clause (i) of Section 9.1(h)
      upon the
      expiration of the 60-day period mentioned therein), the obligation of each
      Lender to make Loans or participate in Issuances of Letters of Credit shall
      automatically terminate and the unpaid principal amount of all outstanding
      Loans
      and all interest and other amounts as aforesaid shall automatically become
      due
      and payable without further act of the Administrative Agent, or any Lender
      and
      without presentment, demand, protest, notice of intention to accelerate, notice
      of acceleration or any other notice of any kind, all of which are hereby
      expressly waived by the Company and each Guarantor.

     

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

     

    ARTICLE
      X

     

    THE
      ADMINISTRATIVE AGENT

     

    10.1 Appointment
      and Authorization; Limitation of Agency.

     

    (a) Each
      Lender hereby irrevocably (subject to Section 10.9)
      appoints, designates and authorizes the Administrative Agent to take such action
      on its behalf under the provisions of this Agreement and each other Loan
      Document and to exercise such powers and perform such duties as are expressly
      delegated to it by the terms of this Agreement or any other Loan Document,
      together with such powers as are reasonably incidental thereto. The duties
      of
      the Administrative Agent shall be administrative and mechanical in nature;
      notwithstanding any provision to the contrary contained elsewhere in this
      Agreement or in any other Loan Document, the Administrative Agent shall not
      have
      any duty or responsibility, except those expressly set forth herein, nor shall
      the Administrative Agent, under any circumstances, have or be deemed to have
      any
      fiduciary relationship with any Person, and no implied covenants, functions,
      responsibilities, duties, obligations or liabilities shall be read into this
      Agreement or any other Loan Document or otherwise exist against the
      Administrative Agent.

     

    
      
        
        

      

      
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    (b) The
      Issuing Lender shall have all of the benefits and immunities (i) provided to
      the
      Agent in this Article
      X
      with
      respect to any acts taken or omissions suffered by the Issuing Lender in
      connection with Letters of Credit Issued by it or proposed to be Issued by
      it
      and the application and agreements for letters of credit pertaining to the
      Letters of Credit as fully as if the term “Administrative Agent,” as used in
      this Article
      X,
      included the Issuing Lender with respect to such acts or omissions, and (ii)
      as
      additionally provided in this Agreement with respect to the Issuing
      Lender.

     

    10.2 Delegation
      of Duties.
      The
      Administrative Agent may execute any of its duties under this Agreement or
      any
      other Loan
      Document by or through agents, employees or attorneys in fact and shall be
      entitled to advice of counsel concerning all matters pertaining to such duties.
      The Administrative Agent shall not be responsible for the negligence or
      misconduct of any agent or attorney in fact that it selects with reasonable
      care.

     

    10.3 Liability
      of Administrative Agent.
      None of
      the Administrative Agent-Related Persons shall (i) be liable for any action
      taken or omitted to be taken by any of them under or in connection with this
      Agreement or any other Loan
      Document or the transactions contemplated hereby (except for its own gross
      negligence or willful misconduct), or (ii) be responsible in any manner to
      any
      of the Lenders for any recital, statement, representation or warranty made
      by
      the Company, any Guarantor or any Subsidiary or Affiliate of the Company, or
      any
      officer thereof, contained in this Agreement or in any other Loan Document,
      or
      in any certificate, report, statement or other document referred to or provided
      for in, or received by the Administrative Agent under or in connection with,
      this Agreement or any other Loan Document, or the validity, effectiveness (other
      than such Administrative Agent-Related Person’s own due execution and delivery),
      genuineness, enforceability or sufficiency of this Agreement or any other Loan
      Document, or for any failure of the Company, any Guarantor or any other party
      to
      any Loan Document to perform its obligations hereunder or thereunder. No
      Administrative Agent-Related Person shall be under any obligation to any Lender
      to ascertain or to inquire as to the observance or performance of any of the
      agreements contained in, or conditions of, this Agreement or any other Loan
      Document, or to inspect the Property, books or records of the Company, any
      Guarantor or any of the Company’s other Subsidiaries or Affiliates.

     

    10.4 Reliance
      by Administrative Agent.

     

    (a) The
      Administrative Agent shall be entitled to rely, and shall be fully protected
      in
      relying, upon any writing, resolution, notice, consent, certificate, affidavit,
      letter, telegram, facsimile, telex, telephonic or electronic message, statement
      or other document or conversation believed by it to be genuine and correct
      and
      to have been signed, sent or made by the proper Person or Persons, and upon
      advice and statements of legal counsel, independent accountants and other
      experts selected by the Administrative Agent. The Administrative Agent shall
      be
      fully justified in failing or refusing to take any action under this Agreement
      or any other Loan
      Document unless it shall first receive such advice or concurrence of the Lenders
      as it deems appropriate and, if it so requests, it shall first be indemnified
      to
      its satisfaction by the Lenders against any and all liability and expense which
      may be incurred by it by reason of taking or continuing to take any such action.
      The Administrative Agent shall in all cases be fully protected in acting, or
      in
      refraining from acting, under this Agreement or any other Loan Document in
      accordance with a request or consent of the Lenders and such request and any
      action taken or failure to act pursuant thereto shall be binding upon all of
      the
      Lenders.

     

    
      
        
        

      

      
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    (b) For
      purposes of determining compliance with the conditions specified in Section
      Article
      V,
      each
      Lender that has made available to the Administrative Agent its Pro Rata Share
      of
      the initial Credit Extension or subsequent Credit Extension, as the case may
      be,
      shall be deemed to have consented to, approved or accepted or to be satisfied
      with, each document or other matter either sent by the Administrative Agent
      to
      such Lender for consent, approval, acceptance or satisfaction, or required
      thereunder to be consented to or approved by or acceptable or satisfactory
      to
      the Lender as a condition precedent to such initial Credit Extension or
      subsequent Credit Extension, as applicable.

     

    10.5 Notice
      of Default.
      The
      Administrative Agent shall not be deemed to have knowledge or notice of the
      occurrence of any Default or Event of Default, except with respect to Defaults
      in the payment of principal, interest and fees required to be paid to the
      Administrative Agent for the account of the Lenders, unless the Administrative
      Agent shall have received written notice from a Lender or the Company referring
      to this Agreement, describing such Default or Event of Default and stating
      that
      such notice is a “notice of default”. The Administrative Agent will notify the
      Lenders of its receipt of any such notice. Subject to Section 10.4(a),
      the
      Administrative Agent shall take such action with respect to such Default or
      Event of Default as may be requested by the Required Lenders in accordance
      with
Article
      IX;
      provided, however, that unless and until the Administrative Agent has received
      any such request, the Administrative Agent may (but shall not be obligated
      to)
      take such action, or refrain from taking such action, with respect to such
      Default or Event of Default as it shall deem advisable or in the best interest
      of the Lenders.

     

    10.6 Credit
      Decision.
      Each
      Lender acknowledges that no Administrative Agent-Related Person has made any
      representation or warranty to it, and that no act by any Administrative
      Agent-Related Person hereafter taken, including any review of the affairs of
      the
      Company, any Guarantor or their respective Subsidiaries, shall be deemed to
      constitute any representation or warranty by any Administrative Agent-Related
      Person to any Lender. Each Lender represents to the Administrative Agent that
      it
      has, independently and without reliance upon any Administrative Agent-Related
      Person and based on such documents and information as it has deemed appropriate,
      made its own appraisal of and investigation into the business, prospects,
      operations, Property, financial and other condition and creditworthiness of
      the
      Company, and all applicable bank regulatory laws relating to the transactions
      contemplated hereby, and made its own decision to enter into this Agreement
      and
      to extend credit to the Company hereunder. Each Lender also represents that
      it
      will, independently and without reliance upon any Administrative Agent-Related
      Person and based on such documents and information as it shall deem appropriate
      at the time, continue to make its own credit analysis, appraisals and decisions
      in taking or not taking action under this Agreement and the other Loan
      Documents, and to make such investigations as it deems necessary to inform
      itself as to the business, prospects, operations, Property, financial and other
      condition and creditworthiness of the Company. Except for notices, reports
      and
      other documents expressly herein required to be furnished to the Lenders by
      the
      Administrative Agent, the Administrative Agent shall not have any duty or
      responsibility to provide any Lender with any credit or other information
      concerning the business, prospects, operations, Property, financial and other
      condition or creditworthiness of the Company which may come into the possession
      of any of the Administrative Agent-Related Persons.

     

    
      
        
        

      

      
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    10.7 Indemnification.
      Whether
      or not the transactions contemplated hereby are consummated, the Lenders shall
      indemnify upon demand the Administrative Agent-Related Persons (to the extent
      not reimbursed by or on behalf of the Company and without limiting the
      obligation of the Company to do so), pro rata according to each respective
      Lender’s Pro Rata Share, each Administrative Agent-Related Person from and
      against any and all Indemnified Liabilities INCLUDING SUCH INDEMNIFIED
      LIABILITIES AS MAY ARISE OR BE CAUSED BY THE NEGLIGENCE, SOLE, JOINT,
      CONCURRENT, COMPARATIVE OR OTHERWISE OF SUCH ADMINISTRATIVE AGENT-RELATED
      PERSONS; provided, however, that no Lender shall be liable for the payment
      to
      any Administrative Agent-Related Persons of any portion of such Indemnified
      Liabilities to the extent the same arise from (i) the gross negligence or
      willful misconduct of any Administrative Agent-Related Person or (ii) a claim
      or
      action asserted by one or more other Administrative Agent-Related Persons.
      Without limitation of the foregoing, each Lender shall reimburse the
      Administrative Agent upon demand for its ratable share of any costs or out
      of
      pocket expenses (including Attorney Costs) 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, any other Transaction Document or any
      document contemplated by or referred to herein, to the extent that the
      Administrative Agent is not reimbursed for such expenses by or on behalf of
      the
      Company. The undertaking in this Section 10.7
      shall
      survive the payment of all Obligations hereunder and the resignation or
      replacement of the Administrative Agent.

     

    10.8 Administrative
      Agent in Individual Capacity.
      Bank of
      Montreal and its Affiliates may make loans to, issue letters of credit for
      the
      account of, accept deposits from, acquire or underwrite equity or debt
      securities of and generally engage in any kind of banking, investment banking,
      trust, financial advisory, underwriting or other business with the Company
      and
      its Affiliates as though Bank of Montreal were not the Administrative Agent
      hereunder and without notice to or consent of the Lenders. The Lenders
      acknowledge that, pursuant to such activities, Bank of Montreal or its
      Affiliates may receive information regarding the Company or its Affiliates
      (including information that may be subject to confidentiality obligations in
      favor of the Company or such Affiliate) and acknowledge that the Administrative
      Agent-Related Persons shall be under no obligation to provide such information
      to them. With respect to Obligations held by it, Bank of Montreal shall have
      the
      same rights and powers under this Agreement as any other Lender and may exercise
      the same as though it were not the Administrative Agent or the Issuing
      Lender.

     

    10.9 Successor
      Administrative Agent.
      The
      Administrative Agent may resign as Administrative Agent upon 30 days’ notice to
      the Lenders. If the Administrative Agent resigns under this Agreement, the
      Lenders shall appoint from among the Lenders a successor administrative agent
      for the Lenders,
      which
      successor agent shall be consented to by the Company (which consent shall not
      be
      unreasonably withheld or delayed). If no successor administrative agent is
      appointed prior to the effective date of the resignation of the Administrative
      Agent, the Administrative Agent may appoint, after consulting with the Lenders
      and the Company, a successor administrative agent from among the Lenders. Upon
      the acceptance of its appointment as successor administrative agent hereunder,
      such successor administrative agent shall succeed to all the rights, powers
      and
      duties of the retiring Administrative Agent and the term “Administrative Agent”
shall mean such successor administrative agent and the retiring Administrative
      Agent’s appointment, powers and duties as Administrative Agent shall be
      terminated. After any retiring Administrative Agent’s resignation hereunder as
      Administrative Agent, the provisions of this Article
      X
      and
      Sections 11.4
      and
11.5
      shall
      inure to its benefit as to any actions taken or omitted to be taken by it while
      it was Administrative Agent under this Agreement. If no successor agent has
      accepted appointment as Administrative Agent by the date which is 30 days
      following a retiring Administrative Agent’s notice of resignation, the retiring
      Administrative Agent’s resignation shall nevertheless thereupon become effective
      and the Lenders shall perform all of the duties of the Administrative Agent
      hereunder until such time, if any, as the Lenders appoint a successor
      administrative agent as provided for above.

     

    
      
        
        

      

      
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    10.10 Withholding
      Tax.

     

    (a) Any
      Foreign Lender that is entitled to an exemption from or reduction of withholding
      tax under the laws of the United States, or under any treaty to which the United
      States is a party, with respect to payments under this Agreement shall deliver
      to the Company (with a copy to the Administrative Agent), at the time or times
      prescribed by applicable law, such properly completed and executed documentation
      prescribed by applicable law or reasonably requested by the Company or the
      Administrative Agent 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 Company or the Administrative Agent, shall deliver such properly completed
      and executed documentation prescribed by applicable law or reasonably requested
      by the Company or the Administrative Agent as will enable the Company or the
      Administrative Agent to determine whether or not such Lender is subject to
      backup withholding or information reporting requirements. Each Lender shall
      promptly (i) notify the Company and the Administrative Agent of any change
      in
      circumstances which would modify or render invalid any such claimed exemption
      or
      reduction and (ii) take such steps as may be required pursuant to Section
      3.1(e).

     

    (b) Without
      limiting the generality of the foregoing provisions of Section 10.10(a),
      each
      Foreign Lender shall deliver to the Company 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 Company 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 IRS Form W-8BEN claiming eligibility for benefits of an
      income tax treaty to which the United States is a party,

     

    (ii) duly
      completed copies of IRS Form W-8ECI,

     

    
      
        
        

      

      
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    (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 Company 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 IRS 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 Company or the Administrative Agent to determine the withholding
      or
      deduction required to be made.

     

    (c) If
      any
      Lender delivers
      to the Company and the Administrative Agent completed and executed documentation
      described in Section 10.10(a)
      and
(b)
      claiming
      a reduction in withholding tax, the Company and the Administrative Agent may
      withhold from any amount payable to such Lender hereunder an amount equivalent
      to the applicable withholding tax after taking into account such reduction.
      If
      the forms or other documentation required by Section 10.10(a)
      and
(b)
      are not
      delivered by a Lender to the Company and the Administrative Agent, then the
      Company and the Administrative Agent may withhold from any amount payable to
      such Lender not providing such forms or other documentation an amount equivalent
      to the applicable withholding tax.

     

    (d) If
      the
      IRS or any other Governmental Authority of the United States or other
      jurisdiction asserts a claim that the Company or the Administrative Agent did
      not properly withhold tax from amounts paid to or for the account of any Lender
      (because the appropriate form was not delivered, was not properly completed
      or
      executed, or because such Lender failed to notify the Company and the
      Administrative Agent of a change in circumstances which rendered the exemption
      from, or reduction of, withholding tax ineffective or modified, or for any
      other
      reason) such Lender shall indemnify the Company and the Administrative Agent
      fully for all amounts paid, directly or indirectly, by the Company or the
      Administrative Agent (as the case may be) as tax or otherwise, including
      penalties, additions to tax and interest, and including any taxes imposed by
      any
      jurisdiction on the amounts payable to the Company or the Administrative Agent
      under this Section 10.10(d),
      together with all costs and expenses (including Attorney Costs). The obligation
      of the Lenders under this Section 10.10(d)
      shall
      survive the payment of all Obligations and the resignation or the replacement
      of
      the Administrative Agent.

     

    10.11 Arranger.
      The
      Arranger, in its capacity as such, shall have no duties or responsibilities,
      and
      shall incur no liability, under this Agreement or the other Loan
      Documents.

     

    10.12 Release
      of Collateral.
      The
      Administrative Agent is hereby irrevocably authorized by each of the Lenders
      to
      effect any release of Liens or Guaranty Obligations contemplated by Section
      11.27.

     

    
      
        
        

      

      
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    ARTICLE
      XI

     

    MISCELLANEOUS

     

    11.1 Amendments
      and Waivers.
      No
      amendment, modification, termination or waiver of any provision of this
      Agreement or any other Loan
      Document, and no consent with respect to any departure by the Company or any
      Guarantor therefrom, shall be effective unless the same shall be in writing
      and
      signed by the Required Lenders (or by the Administrative Agent at the written
      request of the Required Lenders) and the Company or the applicable Guarantor,
      and then any such waiver or consent shall be effective only in the specific
      instance and for the specific purpose for which it is given; provided, however,
      that no such waiver, amendment, modification, termination or consent shall,
      unless in writing and signed by all the Lenders directly affected thereby (or,
      in the case of clauses (e)
      and
(f),
      all of
      the Lenders), the Company or the applicable Guarantor do any of the
      following:

     

    (a) increase
      or extend the Commitment of any Lender (it being understood that a change to
      the
      definition of “Borrowing Base”, a waiver of any condition precedent set forth in
      Section 5.3
      or the
      waiver of an Event of Default, mandatory prepayment or other prepayment required
      to cure a Deficiency shall not constitute an extension or increase of any
      Commitment of any Lender);

     

    (b) postpone
      the final maturity date of any Loan, or postpone or delay any date fixed by
      this
      Agreement or any other Loan Document for any payment of principal, interest,
      fees or other amounts due to the Lenders (or any of them) hereunder (it being
      understood that the waiver of an obligation to pay interest at the Default
      Rate,
      Event of Default, mandatory prepayment or other prepayment required to cure
      a
      Deficiency shall not constitute a postponement of any date fixed for the payment
      of principal, interest or fees) or under any other Loan Document;

     

    (c) reduce
      the principal of, or the rate of interest specified herein on any Loan, or
      (subject to clause (ii) below) any fees or other amounts payable hereunder
      (it
      being understood that a change to the definition of “Default Rate” or the waiver
      of an Event of Default, mandatory prepayment or other prepayment required to
      cure a Deficiency shall not constitute a reduction of the principal of or rate
      of interest specified) or under any other Loan Document;

     

    (d) change
      the pro rata application of payments, prepayments, or reductions of the
      Commitments or change in any manner the definition of “Required
      Lenders”;

     

    (e) amend
      this Section 11.1,
      or any
      provision of this Agreement which, by its terms, expressly requires the approval
      or concurrence of all Lenders;
      or

     

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

     

    provided further,
      however, that (i) no amendment, waiver or consent shall, unless in writing
      and
      signed by the Issuing Lender in addition to the Required Lenders or all the
      Lenders, as the case may be, affect the rights or duties of the Issuing Lender
      under this Agreement or any LC Related Document relating to any Letter of Credit
      Issued or to be Issued by it, and (ii) no amendment, waiver or consent shall,
      unless in writing and signed by the Administrative Agent in addition to the
      Required Lenders or all the Lenders, as the case may be, affect the rights
      or
      duties of the Administrative Agent under this Agreement or any other Loan
      Document.

     

    
      
        
        

      

      
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    11.2 Notices.

     

    (a) All
      notices, requests and other communications shall be in writing and mailed,
      faxed
      or delivered, to the address or facsimile number specified for notices on the
      signature pages hereof or, as directed to the Company or the Administrative
      Agent, to such other address as shall be designated by such party in a written
      notice to the other parties, and as directed to any other party, at such other
      address as shall be designated by such party in a written notice to the Company
      and the Administrative Agent.

     

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

     

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

     

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

     

    11.4 Costs
      and Expenses.
      The
      Company shall:

     

    (a) whether
      or not the transactions contemplated hereby are consummated, pay or reimburse
      the Administrative Agent and the Arranger within five Business Days after demand
      (subject to Section 5.1(e))
      for all
      reasonable and documented out-of-pocket costs and expenses incurred by the
      Administrative Agent, the Arranger or any of their Affiliates in connection
      with
      the syndications of the Credit Extensions hereunder (other than fees payable
      to
      syndicate members) and the development, preparation, delivery, administration
      and execution of, and any amendment, supplement, waiver or modification to
      (in
      each case, whether or not consummated), this Agreement, any Loan Document and
      any other documents prepared in connection herewith or therewith, the
      consummation of the transactions contemplated hereby and thereby, and the
      syndication of the credit facilities provided herein, including Attorney Costs
      incurred by such Person with respect thereto except such costs and expenses
      as
      may be incurred by the assignor Lenders or Assignee under Section 11.8(c);
      and

     

    
      
        
        

      

      
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    (b) pay
      or
      reimburse the Administrative Agent, any other Agent, the Issuing Lender and
      each
      Lender within five Business Days after demand (subject to Section 5.1(e))
      for all
      documented out-of-pocket costs and expenses (including Attorney Costs) incurred
      by each of them in connection with the enforcement, attempted enforcement,
      or
      preservation of any rights or remedies under this Agreement or any other Loan
      Document during the existence of a Default or after acceleration of the Loans
      (including in connection with any “workout” or restructuring regarding the
      Loans, and including in any Insolvency Proceeding or appellate
      proceeding).

     

    11.5 Indemnity.
      Whether
      or not the transactions contemplated hereby are consummated, the Company shall
      indemnify and hold each Agent-Related Person, the Issuing Lender and each Lender
      and each of their respective Affiliates, successors and permitted
      assigns and its and their respective officers, directors, employees, counsel,
      agents, advisors, controlling Persons, members and attorneys in fact (each,
      an
“Indemnified
      Person”)
      harmless from and against any and all liabilities, obligations, losses, damages,
      penalties, actions, judgments, suits, costs, charges, expenses and disbursements
      (including Attorney Costs) of any kind or nature whatsoever which may at any
      time (including at any time following repayment of the Loans, and the
      termination, resignation or replacement of the Administrative Agent or
      replacement of any Lender) be imposed on, incurred by or asserted against any
      such Person in any way relating to or arising out of this Agreement or any
      document contemplated by or referred to herein, including any of the Transaction
      Documents, or the transactions contemplated hereby, including the Output
      Acquisition, or any action taken or omitted by any such Person under or in
      connection with any of the foregoing, including with respect to any
      investigation, litigation or proceeding (including any Insolvency Proceeding
      or
      appellate proceeding) related to or arising out of this Agreement, any
      Transaction Document, the Loans or the use of the proceeds thereof, whether
      or
      not any Indemnified Person is a party thereto (all the foregoing, collectively,
      the “Indemnified
      Liabilities”),
      WHETHER OR NOT SUCH INDEMNIFIED LIABILITIES ARISE OUT OF OR AS A RESULT OF
      ANY
      INDEMNIFIED PARTY’S NEGLIGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT
      LIMITATION, THOSE CLAIMS WHICH RESULT FROM THE SOLE, JOINT, CONCURRENT OR
      COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PARTY, OR ANY ONE OR MORE OF THEM;
      provided,
      however, that the Company shall have no obligation hereunder to any Indemnified
      Person with respect to Indemnified Liabilities to the extent same arise (i)
      from
      the gross negligence or willful misconduct of, or breach of the Loan Documents
      by, such Indemnified Person or (ii) in the case of any Lender or Affiliate
      thereof, from the gross negligence or willful misconduct of such Indemnified
      Person’s Affiliates, or any of its or their respective officers, directors,
      employees, counsel, agents, advisors, controlling Persons, members or attorneys
      in fact. No Indemnified Person shall be liable for any damages arising from
      the
      use by unauthorized Persons of information or other materials sent through
      electronic, telecommunications or other information transmission systems that
      are intercepted by such Persons or for any special, indirect, consequential
      or
      punitive damages in connection with this Agreement. All amounts due under this
      Section 11.5
      shall be
      payable not later than 30 days after written demand therefor. The agreements
      in
      Section 11.4
      and this
      Section 11.5
      shall
      survive payment of all other Obligations.

     

    
      
        
        

      

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

     

    11.7 Successors
      and Assigns.
      This
      Agreement shall become effective at the Effective Time after it shall have
      been
      executed by the Company, each Original Guarantor and the Administrative Agent
      and after the Administrative Agent shall have been notified by each Lender
      and
      Issuing Lender that such Lender or Issuing Lender has executed it and thereafter
      this Agreement shall be binding upon and inure to the benefit of the parties
      hereto and their respective successors and permitted
      assigns, except that the Company may not assign or transfer any of its rights
      or
      obligations under this Agreement without the prior written consent of the
      Administrative Agent and each Lender.

     

    11.8 Assignments,
      Participations, etc.

     

    (a) Any
      Lender may upon written consent of the Administrative Agent and the Company,
      not
      to be unreasonably withheld, at any time assign and delegate to one or more
      Eligible Assignees (provided
      that
      no
      written consent of the Administrative Agent or the Company shall be required
      in
      connection with any assignment and delegation by any Lender to an Eligible
      Assignee that is a Related Fund or an Affiliate of such Lender and provided
      further
      that no
      written consent of the Company shall be required in connection with any
      assignment and delegation by any Lender to any Eligible Assignee if an Event
      of
      Default shall have occurred and be continuing) (each an “Assignee”)
      all,
      or any ratable part of all in a minimum amount of at least $5,000,000 or in
      $1,000,000 increments in excess thereof, of the Loans, Commitments, and other
      rights and obligations of such Lender hereunder (or such Lender’s entire Pro
      Rata Share of such Loans, Commitments and other rights and obligations, if
      less
      than an aggregate $5,000,000); provided, however, that the Company and the
      Administrative Agent may continue to deal solely and directly with such Lender
      in connection with the interest so assigned to an Assignee until (i) written
      notice of such assignment, together with payment instructions, addresses and
      related information with respect to the Assignee, shall have been given to
      the
      Company and the Administrative Agent by such Lender and the Assignee; (ii)
      such
      Lender and its Assignee shall have delivered to the Company and the
      Administrative Agent an Assignment and Acceptance in the form of Exhibit
      “E”
      (“Assignment
      and Acceptance”)
      together with any Note or Notes subject to such assignment; and (iii)
the
      assignor Lender or Assignee has paid to the Administrative Agent a processing
      and
      recordation fee in the amount
      of
      $3,500.00 (which fee may be waived or
      reduced in the sole discretion of the Administrative Agent);
      provided further, however, that
      only
      one such fee shall be payable in the case of concurrent assignments to Persons
      that, after giving effect to such assignments, will be Related
      Funds.

     

    
      
        
        

      

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

     

    (c) Within
      five Business Days after its receipt of notice by the Administrative Agent
      that
      it has received an executed Assignment and Acceptance and payment of the
      processing fee, and provided
      that, if applicable,
      it
      consents to such assignment in accordance with Section 11.8(a),
      if a
      Note was issued in respect of the assigned interests, upon the request of the
      Administrative Agent by the Assignee, the Company shall execute and deliver
      to
      the Administrative Agent a new Note evidencing such Assignee’s assigned Loans
      and Maximum Loan Amount and, if the assignor Lender has retained a portion
      of
      its Loans and its Commitment, a replacement Note, upon the request of the
      Administrative Agent by the assignor Lender, in the principal amount equal
      to
      the Maximum Loan Amount retained by the assignor Lender (such Note to be in
      exchange for, but not in payment of, the Note held by such Lender). Immediately
      upon each Assignee’s making its processing fee payment under the Assignment and
      Acceptance, this Agreement shall be deemed to be amended to the extent, but
      only
      to the extent, necessary to reflect the addition of the Assignee and the
      resulting adjustment of the Lenders’ respective Maximum Loan Amounts and
      Commitments arising therefrom. The Commitment allocated to each Assignee shall
      reduce such Commitment of the assigning Lender pro tanto.

     

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

     

    
      
        
        

      

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

     

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

     

    
      
        
        

      

      
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    11.9 Interest.
      It is
      the intention of the parties hereto to comply with applicable usury laws, if
      any; accordingly, notwithstanding any provision to the contrary in this
      Agreement, the Notes or in any of the other Loan
      Documents securing the payment hereof or otherwise relating hereto, in no event
      shall this Agreement, the Notes or such other Loan Documents require or permit
      the payment, taking, reserving, receiving, collection, or charging of any sums
      constituting interest under applicable laws which exceed the Highest Lawful
      Rate. If any such excess interest is called for, contracted for, charged, taken,
      reserved, or received in connection with the Loans evidenced by the Notes or
      in
      any of the Loan Documents securing the payment thereof or otherwise relating
      thereto, or in any communication by the Administrative Agent, the Issuing
      Lender, or the Lenders or any other Person to the Company or any other Person,
      or in the event all or part of the principal or interest thereof shall be
      prepaid or accelerated, so that under any of such circumstances or under any
      other circumstance whatsoever the amount of interest contracted for, charged,
      taken, reserved, or received on the amount of principal actually outstanding
      from time to time under the Notes or any other Loan Document shall exceed the
      Highest Lawful Rate, then in any such event it is agreed as follows: (i) the
      provisions of this Section 11.9
      shall
      govern and control, (ii) neither any Company nor any other Person now or
      hereafter liable for the payment of the Notes shall be obligated to pay the
      amount of such interest to the extent such interest is in excess of the Highest
      Lawful Rate, (iii) any such excess which is or has been received notwithstanding
      this Section 11.9
      shall be
      credited against the then unpaid principal balance of the Notes or, if the
      Notes
      have been or would be paid in full, refunded to the Company, and (iv) the
      provisions of this Agreement, the Notes and the other Loan Documents securing
      the payment thereof and otherwise relating thereto, and any communication to
      the
      Company, shall immediately be deemed reformed and such excess interest reduced,
      without the necessity of executing any other document, to the Highest Lawful
      Rate as now or hereafter construed by courts having jurisdiction hereof or
      thereof. Without limiting the foregoing, all calculations of the rate of the
      interest contracted for, charged, collected, taken, reserved, or received in
      connection with the Notes, this Agreement or any other Loan Document which
      are
      made for the purpose of determining whether such rate exceeds the Highest Lawful
      Rate shall be made to the extent permitted by applicable laws by amortizing,
      prorating, allocating and spreading during the period of the full term of the
      Loans, including all prior and subsequent renewals and extensions, all interest
      at any time contracted for, charged, taken, collected, reserved, or received.
      The terms of this Section 11.9
      shall be
      deemed to be incorporated in every document and communication relating to the
      Notes, the Loans or any other Loan Document.

     

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

     

    
      
        
        

      

      
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    11.11 Automatic
      Debits of Fees.
      With
      respect to any commitment fee, arrangement fee, Letter of Credit fee or other
      fee, or any other cost or expense (including Attorney Costs) due and payable
      to
      the Administrative Agent under the Loan
      Documents, the Company hereby irrevocably authorizes the Administrative Agent,
      after giving reasonable prior notice to the Company, to debit any deposit
      account of the Company with the Administrative Agent in an amount such that
      the
      aggregate amount debited from all such deposit accounts does not exceed such
      fee
      or other cost or expense. If there are insufficient funds in such deposit
      accounts to cover the amount of the fee or other cost or expense then due,
      such
      debits will be reversed (in whole or in part, in the Administrative Agent’s sole
      discretion) and such amount not debited shall be deemed to be unpaid. No such
      debit under this Section 11.11
      shall be
      deemed a set-off.

     

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

     

    11.13 Counterparts.
      This
      Agreement may be executed in any number of separate counterparts, no one of
      which need be signed by all parties; each of which, when so executed, shall
      be
      deemed an original, and all of such counterparts taken together shall be deemed
      to constitute but one and the same instrument. A fully executed counterpart
      of
      this Agreement by facsimile signatures shall be binding upon the parties
      hereto.

     

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

     

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

     

    11.16 Governing
      Law, Jurisdiction.
      THIS
      AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT
      SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
      LAW
      OF THE STATE OF NEW YORK.

     

    11.17 Submission
      To Jurisdiction; Waivers.
      Each of
      the parties
      hereto hereby irrevocably and unconditionally:

     

    (a) submits,
      for itself and its Property, to the nonexclusive jurisdiction of the Supreme
      Court of the State of New York sitting in New York County and of the United
      States District Court of the Southern District of New York, and any appellate
      court from any thereof, in any action or proceeding arising out of or relating
      to this Agreement, or for recognition or enforcement of any judgment, and each
      of the parties hereto hereby irrevocably and unconditionally agrees that all
      claims in respect of any such action or proceeding may be heard and determined
      in such New York State or, to the extent permitted by 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 shall affect any right that the Administrative Agent
      may otherwise have to bring any action or proceeding relating to this Agreement
      against the Company or any Guarantor or its respective Property in the courts
      of
      any jurisdiction;

     

    
      
        
        

      

      
        94

        
          

        

      

      
        
        

      

    

     

    (b) waives,
      to the fullest extent it may legally and effectively do so, any objection which
      it may now or hereafter have to the laying of venue of any suit, action or
      proceeding arising out of or relating to this Agreement in any court referred
      to
      in Section 11.17(a),
      and
      each of the parties hereto hereby irrevocably waives, to the fullest extent
      permitted by law, the defense of an inconvenient forum to the maintenance of
      such action or proceeding in any such court; and

     

    (c) consents
      to service of process in the manner provided for notices herein; provided,
      however, nothing in this Agreement will affect the right of any party to this
      Agreement to serve process in any other manner permitted by law.

     

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

     

    11.19 NO
      ORAL AGREEMENTS.
      THIS
      WRITTEN AMENDED AND RESTATED CREDIT AGREEMENT, TOGETHER WITH THE OTHER WRITTEN
      LOAN
      DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS 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.

     

    11.20 Accounting
      Changes.
      If
      at any
      time any Accounting Change (as defined below) would affect the computation
      of
      any financial ratio or requirement set forth in any Loan Document, and either
      the Company or the Required Lenders shall so request, the Administrative Agent
      and the Company shall negotiate to amend such ratio or requirement to preserve
      the original intent thereof in light of such Accounting Change (subject to
      the
      approval of the Required Lenders); provided, however, that until so amended
      such
      ratio or requirement shall continue to be computed in accordance with GAAP
      prior
      to such change therein. “Accounting
      Change”
refers
      to any change in accounting principles required by the promulgation of any
      rule,
      regulation, pronouncement or opinion by the Financial Accounting Standards
      Board
      of the American Institute of Certified Public Accountants or, if applicable,
      the
      SEC.

     

    
      
        
        

      

      
        95

        
          

        

      

      
        
        

      

    

     

    11.21 WAIVER
      OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
      THE
      COMPANY, THE GUARANTORS, THE LENDERS AND THE ADMINISTRATIVE AGENT EACH HEREBY
      KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE
      MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
      IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY
      TIME
      ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN
      DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH,
      BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED
      BY
      LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
“SPECIAL
      DAMAGES”,
      AS
      DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
      AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
      OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
      ENFORCE THE FOREGOING WAIVERS AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED
      TO
      ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
      CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
      AND
      CERTIFICATIONS CONTAINED IN THIS SECTION 11.21. AS USED IN THIS SECTION,
“SPECIAL DAMAGES” INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE
      DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS
      WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
      PARTY HERETO.

     

    11.22 Intercreditor
      Agreement.
      Each
      Lender (a) hereby agrees that it will be bound by and take no actions contrary
      to the Intercreditor Agreement and (b) hereby irrevocably authorizes and
      instructs the Administrative Agent to enter into the Intercreditor Agreement
      on
      its behalf.

     

    11.23 Amendment
      and Restatement.

     

    (a) From
      and
      after the Effective Time, this Agreement amends and restates in its entirety
      the
      Existing Company Credit Agreement; the Notes issued under this Agreement, if
      any, amend and restate the “Note” (as defined in the Existing Company Credit
      Agreement) issued under the Existing Company Credit Agreement; and the Existing
      Company Credit Agreement shall thereafter be of no further force and effect
      except to evidence the incurrence by the Company of the “Obligations” under and
      as defined therein (whether or not such “Obligations” are contingent as of the
      Effective Time. This Agreement and the Notes, if any, issued pursuant hereto
      do
      not constitute and shall not be construed to evidence a novation of or a payment
      and readvance of any of the “Obligations” (as defined in the Existing Company
      Credit Agreement) heretofore outstanding under the Existing Company Credit
      Agreement; it being the intention of the parties hereto that this Agreement
      amend and restate the terms and conditions of, and the Notes, if any, issued
      pursuant hereto evidence, the “Obligations” as are outstanding under the
      Existing Company Credit Agreement immediately prior to the Effective
      Time.

     

    (b) The
      terms
      and conditions of this Agreement and the Administrative Agent’s, the Lenders’
and the Issuing Lender’s rights and remedies under this Agreement and the other
      Loan Documents shall apply to all of the “Obligations” under the Existing
      Company Credit Agreement and the “Note” issued thereunder.

     

    (c) The
      Company reaffirms the Liens granted pursuant to the Existing Company Credit
      Agreement to the Administrative Agent for the benefit of the Lenders and the
      Issuing Lender, which Liens shall continue in full force and effect during
      the
      term of this Agreement and any renewals or extensions thereof and shall continue
      to secure the Obligations hereunder.

     

    
      
        
        

      

      
        96

        
          

        

      

      
        
        

      

    

     

    (d) From
      and
      after the Effective Time, except as the context otherwise provides, all
      references to this Agreement herein (including for purposes of indemnification
      and reimbursement of fees) shall be deemed to be references to the Existing
      Company Credit Agreement as amended and restated hereby.

     

    (e) This
      amendment and restatement is limited as written and is not a consent to any
      other amendment, restatement, waiver or other modification, whether or not
      similar, and, except as expressly provided herein or in any other Loan Document,
      all terms and conditions of the Loan Documents remain in full force and effect
      unless otherwise specifically amended by this Agreement or any other Loan
      Document.

     

    11.24 USA
      PATRIOT Act.
      Each
      Lender hereby notifies each Loan Party that pursuant to the requirements of
      the
      USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26,
      2001)), it is required to obtain, verify and record information that identifies
      each Loan Party, which information includes the name and address of such Loan
      Party and other information that will allow such Lender to identify such Loan
      Party in accordance with that Requirement of Law.

     

    11.25 Acknowledgments.
      Each of
      the Company and each Guarantor hereby acknowledges that:

     

    (a) it
      has
      been advised by counsel in the negotiation, execution and delivery of this
      Agreement and the other Loan
      Documents;

     

    (b) neither
      the Administrative Agent, the Issuing Lender, any other Agent nor any Lender
      has
      any fiduciary relationship with or duty to the Company or any Guarantor arising
      out of or in connection with this Agreement or any of the other Loan Documents,
      and the relationship between the Administrative Agent, the Issuing Lender,
      any
      other Agent and the Lenders, on one hand, and the Company and the Guarantors,
      on
      the other hand, in connection herewith or therewith is solely that of creditor
      and debtor; and

     

    (c) no
      joint
      venture is created hereby or by the other Loan Documents or otherwise exists
      by
      virtue of the transactions contemplated hereby among the Administrative Agent,
      the Issuing Lender, any other Agent and the Lenders or among the Company and
      the
      Guarantors and the Lenders.

     

    11.26 Survival
      of Representations and Warranties.
      All
      representations and warranties made herein, in the other Loan
      Documents and in any document, certificate or statement delivered pursuant
      hereto or in connection herewith shall survive the execution and delivery of
      this Agreement and the making of the Loans and other extensions of credit
      hereunder.

     

    
      
        
        

      

      
        97

        
          

        

      

      
        
        

      

    

     

    11.27 Release
      of Collateral and Guarantee Obligations.

     

    (a) Notwithstanding
      anything to the contrary contained herein or in any other Loan Document, but
      subject to Sections 5.1(e) and 5.4 (e) of the Intercreditor Agreement, upon
      request of the Company in connection with any Disposition of Property (including
      any Disposition of a Guarantor) permitted by the Loan Documents, the
      Administrative Agent shall (without notice to, or vote or consent of, any Lender
      or any Qualified Derivative Contract Counterparty) take such actions as shall
      be
      required to release its security interest in any Collateral being Disposed
      of in
      such Disposition, and to release any Guaranty Obligations under any Loan
      Document of any Person being Disposed of in such Disposition, to the extent
      necessary to permit consummation of such Disposition in accordance with the
      Loan
      Documents; provided, however, that the Company shall have delivered to the
      Administrative Agent, at least ten Business Days prior to the date of the
      proposed release (or such shorter period agreed to by the Administrative Agent),
      a written request for release identifying the relevant Collateral being Disposed
      of in such Disposition and, in the case of a Disposition under Section
8.2(f)
      or any
      other Disposition of Collateral comprising (i) Hydrocarbon Interests or (ii)
      other Property with a book value in excess of $2,000,000, the terms of such
      Disposition in reasonable detail, including the date thereof, the price thereof
      and any expenses in connection therewith, together with a certification by
      the
      Company stating that such transaction is in compliance with this Agreement
      and
      the other Loan Documents and that the proceeds of such Disposition will be
      applied in accordance with this Agreement and the other Loan
      Documents.

     

    (b) Notwithstanding
      anything to the contrary contained herein or any other Loan Document, when
      all
      Obligations (other than obligations in respect of any Qualified Derivative
      Contract) have been paid or otherwise satisfied in full, all Commitments have
      terminated or expired and no Letter of Credit shall be outstanding (unless
      cash
      collateralized or otherwise provided for in a manner satisfactory to the Issuing
      Lender), but subject to Sections 5.1(e) and 5.4(e) of the Intercreditor
      Agreement, upon request of the Company, the Administrative Agent shall (without
      notice to, or vote or consent of, any Lender, or any Qualified Derivative
      Contract Counterparty) take such actions as shall be required to release its
      security interest in all Collateral, and to release all Guaranty Obligations
      provided for in any Loan Document, whether or not on the date of such release
      there may be outstanding Obligations in respect of the Qualified Derivative
      Contracts. Any such release of Guaranty Obligations shall be deemed subject
      to
      the provision that such Guaranty Obligations shall be reinstated if after such
      release any portion of any payment in respect of the Obligations guaranteed
      thereby shall be rescinded or must otherwise be restored or returned upon the
      insolvency, bankruptcy, dissolution, liquidation or reorganization of the
      Company or any Guarantor, or upon or as a result of the appointment of a
      receiver, intervenor or conservator of, or trustee or similar officer for,
      the
      Company or any Guarantor or any substantial part of its Property, or otherwise,
      all as though such payment had not been made.

     

    [THE
      REMAINDER OF THIS PAGE IS LEFT BLANK]

     

    
      
        
        

      

      
        98

        
          

        

      

      
        
        

      

    

     

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

     

    
      	 	 	 	COMPANY:
	 	 	 	 	 
	 	 	 	THE
              EXPLORATION COMPANY OF DELAWARE, INC.
	 	 	 	 	 
	 	 	 	By: 	
              /s/
                James E. Sigmon   

            
	 	 	 	 	
              
                

              

              James
                E. Sigmon

            
	 	 	 	 	
              President
                and Chief Executive Officer

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	ORIGINAL
              GUARANTORS:
	 	 	 	 	 
	 	 	 	TXCO
              ENERGY CORP.
	 	 	 	 	 
	 	 	 	By: 	
              /s/
                P. Mark Stark    

            
	 	 	 	 	
              
                

              

              P.
                Mark Stark

            
	 	 	 	 	
              Vice
                President, Treasurer and 

            
	 	 	 	 	
              Chief
                Financial Officer

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	TEXAS
              TAR SANDS, INC.
	 	 	 	 	 
	 	 	 	By: 	
              /s/
                M. Frank Russell   

            
	 	 	 	 	
              
                
M.
                Frank Russell

            
	 	 	 	 	
              Vice
                President and General Counsel

            

    

     

     

    
      	 	 	 	OUTPUT
              ACQUISITION CORP.

    

    
      	 	 	 	 	 
	 	 	 	By: 	
              /s/
                Roberto R. Thomae   

            
	 	 	 	 	
              
                

              

              Roberto
                R. Thomae

            
	 	 	 	 	
              Vice
                President and Secretary

            

    

     

    
      	 	 	 	
              Address
                for Notice:

              Principal
                Place of Business

              and
                Chief Executive Office:

               

              777
                E. Sonterra Blvd., Suite 350

              San
                Antonio, Texas 78258

              Attention:
                Chief Financial Officer

              Facsimile
                No.: (210) 496-3232

            

    

    

      Amended
        and Restated Credit Agreement Signature Page

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	
              ADMINISTRATIVE
                AGENT AND A LENDER:

            
	 	 	 
	 	 	
              BANK
                OF MONTREAL,
                acting through its U.S. branches and agencies, including its Chicago,
                Illinois branch, as Administrative Agent and as a
                Lender

            
	 	 	 	 
	
            	 	By:	/s/ Joseph A. Bliss 
	
            	 	 	
              
Joseph
              A. Bliss
              Managing
                Director

            

    

     

    
      	 	Address:	
              115
                South LaSalle Street

              11th
                Floor West

              Chicago,
                Illinois 60603

            
	 	 	 
	 	Facsimile No.:	(312) 765-8078
	 	 	 
	 	Attention: 	Terri Perez-Ford, Specialist
	 	 	 
	 	with copy to:	 
	 	 	 
	 	Address: 	
              Bank of Montreal

              
                Houston
                  Agency

                700
                  Louisiana Street

                4400
                  Bank of America Center

                Houston,
                  Texas 77002

              

            
	 	 	 
	 	Facsimile No.: 	(713) 223-4007
	 	 	 
	 	Attention: 	Joseph A. Bliss
	 	 	 
	 	
              Applicable
                Lending Office

              for
                Base Rate Loans and

              LIBO
                Rate Loans:

            
	 	 	 
	 	Address: 	
              115
                South LaSalle Street,

              11th
                Floor West

              Chicago,
                Illinois 60603

            
	 	 	 
	 	Facsimile No.: 	(312) 765-8078
	 	 	 
	 	Attention:	Terri Perez-Ford,
              Specialist

    

    

      Amended
        and Restated Credit Agreement Signature PageEXECUTION
      COPY

    
      

      

    

     

    TERM
      LOAN
      AGREEMENT

     

    Dated
      as
      of April 2, 2007

     

    among

     

    THE
      EXPLORATION COMPANY OF DELAWARE, INC., as Borrower,

     

    and

     

    OUTPUT
      ACQUISITION CORP.,

    TXCO
      ENERGY CORP.,

    and

    TEXAS
      TAR
      SANDS INC., 

    as
      Original Guarantors,

     

    The
      Several Lenders

    from
      Time
      to Time Parties Hereto,

     

    BANK
      OF
      MONTREAL,

    as
      Administrative Agent, 

     

    and

     

    BMO
      CAPITAL MARKETS CORP.,

    as
      Arranger

     

    
      

      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

    

      
        	 	 	 	
                Page

              
	
                Article
                  I DEFINITIONS

              	 	
                1

              
	
                1.1

              	
                Certain
                  Defined Terms

              	 	
                1

              
	
                1.2

              	
                Other
                  Interpretive Provisions

              	 	
                23

              
	
                1.3

              	
                Accounting
                  Principles

              	 	
                24

              
	
                Article
                  II THE CREDIT

              	 	
                24

              
	
                2.1

              	
                Amounts
                  and Terms of the Loans

              	 	
                24

              
	
                2.2

              	
                Maturity
                  Date

              	 	
                25

              
	
                2.3

              	
                Conversion
                  and Continuation Elections

              	 	
                25

              
	
                2.4

              	
                Optional
                  Prepayments

              	 	
                26

              
	
                2.5

              	
                [Intentionally
                  Omitted.]

              	 	
                27

              
	
                2.6

              	
                Repayment

              	 	
                27

              
	
                2.7

              	
                Interest

              	 	
                27

              
	
                2.8

              	
                Fees

              	 	
                28

              
	
                2.9

              	
                Computation
                  of Fees and Interest

              	 	
                28

              
	
                2.10

              	
                Payments
                  by the Company; Loan Pro Rata

              	 	
                28

              
	
                2.11

              	
                Payments
                  by the Lenders to the Administrative Agent

              	 	
                29

              
	
                2.12

              	
                Sharing
                  of Payments, Etc

              	 	
                30

              
	
                Article
                  III TAXES, YIELD PROTECTION AND ILLEGALITY

              	 	
                30

              
	
                3.1

              	
                Taxes

              	 	
                30

              
	
                3.2

              	
                Illegality

              	 	
                32

              
	
                3.3

              	
                Increased
                  Costs and Reduction of Return

              	 	
                32

              
	
                3.4

              	
                Funding
                  Losses

              	 	
                33

              
	
                3.5

              	
                Inability
                  to Determine Rates

              	 	
                33

              
	
                3.6

              	
                Certificates
                  of Lenders

              	 	
                34

              
	
                3.7

              	
                Substitution
                  of Lenders

              	 	
                34

              
	
                3.8

              	
                Survival

              	 	
                34

              
	
                Article
                  IV SECURITY

              	 	
                34

              
	
                4.1

              	
                The
                  Security

              	 	
                34

              
	
                4.2

              	
                Agreement
                  to Deliver Security Documents

              	 	
                34

              
	
                4.3

              	
                Perfection
                  and Protection of Security Interests and Liens

              	 	
                35

              
	
                4.4

              	
                Offset

              	 	
                35

              
	
                4.5

              	
                Guaranty

              	 	
                35

              
	
                4.6

              	
                Maximum
                  Liability

              	 	
                36

              
	
                4.7

              	
                Production
                  Proceeds

              	 	
                36

              
	
                Article
                  V CONDITIONS PRECEDENT

              	 	
                37

              
	
                5.1

              	
                Conditions
                  of the Effective Date

              	 	
                38

              
	
                5.2

              	
                [Intentionally
                  Omitted.]

              	 	
                40

              
	
                Article
                  VI REPRESENTATIONS AND WARRANTIES

              	 	
                40

              
	
                6.1

              	
                Organization,
                  Existence and Power

              	 	
                40

              
	
                6.2

              	
                Corporate
                  Authorization; No Contravention

              	 	
                40

              

      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	
                6.3

              	
                Governmental
                  Authorization

              	 	
                41

              
	
                6.4

              	
                Binding
                  Effect

              	 	
                41

              
	
                6.5

              	
                Litigation

              	 	
                41

              
	
                6.6

              	
                No
                  Default

              	 	
                41

              
	
                6.7

              	
                ERISA
                  Compliance

              	 	
                41

              
	
                6.8

              	
                Use
                  of Proceeds; Margin Regulations

              	 	
                42

              
	
                6.9

              	
                Title
                  to Properties

              	 	
                42

              
	
                6.10

              	
                Oil
                  and Gas Reserves

              	 	
                42

              
	
                6.11

              	
                Reserve
                  Report

              	 	
                43

              
	
                6.12

              	
                Gas
                  Imbalances

              	 	
                43

              
	
                6.13

              	
                Taxes

              	 	
                43

              
	
                6.14

              	
                Financial
                  Statements and Condition

              	 	
                44

              
	
                6.15

              	
                Environmental
                  Matters

              	 	
                44

              
	
                6.16

              	
                Regulated
                  Entities

              	 	
                44

              
	
                6.17

              	
                No
                  Burdensome Restrictions

              	 	
                44

              
	
                6.18

              	
                Copyrights,
                  Patents, Trademarks and Licenses, etc

              	 	
                44

              
	
                6.19

              	
                Subsidiaries

              	 	
                45

              
	
                6.20

              	
                Insurance

              	 	
                45

              
	
                6.21

              	
                Full
                  Disclosure

              	 	
                45

              
	
                6.22

              	
                Solvency

              	 	
                45

              
	
                6.23

              	
                Labor
                  Matters

              	 	
                45

              
	
                6.24

              	
                Midstream
                  Contracts

              	 	
                46

              
	
                6.25

              	
                Derivative
                  Contracts

              	 	
                46

              
	
                6.26

              	
                Exempt
                  Subsidiaries; TTSI

              	 	
                46

              
	
                6.27

              	
                [Intentionally
                  Omitted.]

              	 	
                46

              
	
                6.28

              	
                Output
                  Acquisition Documents

              	 	
                46

              
	
                6.29

              	
                Security
                  Documents

              	 	
                46

              
	
                Article
                  VII AFFIRMATIVE COVENANTS

              	 	
                47

              
	
                7.1

              	
                Financial
                  Statements

              	 	
                47

              
	
                7.2

              	
                Certificates;
                  Other Production and Reserve Information

              	 	
                48

              
	
                7.3

              	
                Notices

              	 	
                49

              
	
                7.4

              	
                Preservation
                  of Company Existence, Etc

              	 	
                50

              
	
                7.5

              	
                Maintenance
                  of Property

              	 	
                50

              
	
                7.6

              	
                Insurance

              	 	
                50

              
	
                7.7

              	
                Payment
                  of Obligations

              	 	
                51

              
	
                7.8

              	
                Compliance
                  with Laws

              	 	
                51

              
	
                7.9

              	
                Compliance
                  with ERISA

              	 	
                51

              
	
                7.10

              	
                Inspection
                  of Property and Books and Records

              	 	
                51

              
	
                7.11

              	
                Environmental
                  Laws

              	 	
                52

              
	
                7.12

              	
                New
                  Subsidiary Guarantors

              	 	
                52

              
	
                7.13

              	
                Use
                  of Proceeds

              	 	
                52

              
	
                7.14

              	
                Further
                  Assurances

              	 	
                52

              
	
                7.15

              	
                Output
                  Acquisition

              	 	
                53

              
	
                Article
                  VIII NEGATIVE COVENANTS

              	 	
                53

              
	
                8.1

              	
                Limitation
                  on Liens

              	 	
                53

              
	
                8.2

              	
                Disposition
                  of Assets

              	 	
                56

              

      

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

       

      
        	
                8.3

              	
                Consolidations
                  and Mergers

              	 	
                57

              
	
                8.4

              	
                Loans
                  and Investments

              	 	
                58

              
	
                8.5

              	
                Limitation
                  on Indebtedness

              	 	
                59

              
	
                8.6

              	
                Transactions
                  with Affiliates

              	 	
                60

              
	
                8.7

              	
                Margin
                  Stock

              	 	
                61

              
	
                8.8

              	
                Contingent
                  Obligations

              	 	
                61

              
	
                8.9

              	
                Restricted
                  Payments

              	 	
                61

              
	
                8.10

              	
                Derivative
                  Contracts

              	 	
                62

              
	
                8.11

              	
                Sale
                  Leasebacks

              	 	
                64

              
	
                8.12

              	
                Consolidated
                  Leverage Ratio

              	 	
                64

              
	
                8.13

              	
                Current
                  Ratio

              	 	
                64

              
	
                8.14

              	
                Minimum
                  Interest Coverage Ratio

              	 	
                64

              
	
                8.15

              	
                Minimum
                  PV 10 to Consolidated Total Debt Ratio

              	 	
                64

              
	
                8.16

              	
                Change
                  in Business

              	 	
                64

              
	
                8.17

              	
                Accounting
                  Changes

              	 	
                64

              
	
                8.18

              	
                Certain
                  Contracts; Amendments; Multiemployer ERISA Plans

              	 	
                64

              
	
                8.19

              	
                Midstream
                  Contracts

              	 	
                65

              
	
                8.20

              	
                First
                  Lien Credit Agreement

              	 	
                65

              
	
                8.21

              	
                Limitation
                  on Amendments to Output Acquisition Documents

              	 	
                65

              
	
                8.22

              	
                Forward
                  Sales, Production Payments, Etc

              	 	
                65

              
	
                8.23

              	
                Use
                  of Proceeds

              	 	
                66

              
	
                Article
                  IX EVENTS OF DEFAULT

              	 	
                66

              
	
                9.1

              	
                Event
                  of Default

              	 	
                66

              
	
                9.2

              	
                Remedies

              	 	
                68

              
	
                9.3

              	
                Rights
                  Not Exclusive

              	 	
                69

              
	
                Article
                  X THE ADMINISTRATIVE AGENT

              	 	
                69

              
	
                10.1

              	
                Appointment
                  and Authorization; Limitation of Agency

              	 	
                69

              
	
                10.2

              	
                Delegation
                  of Duties

              	 	
                69

              
	
                10.3

              	
                Liability
                  of Administrative Agent

              	 	
                69

              
	
                10.4

              	
                Reliance
                  by Administrative Agent

              	 	
                70

              
	
                10.5

              	
                Notice
                  of Default

              	 	
                70

              
	
                10.6

              	
                Credit
                  Decision

              	 	
                70

              
	
                10.7

              	
                Indemnification

              	 	
                71

              
	
                10.8

              	
                Administrative
                  Agent in Individual Capacity

              	 	
                71

              
	
                10.9

              	
                Successor
                  Administrative Agent

              	 	
                72

              
	
                10.10

              	
                Withholding
                  Tax

              	 	
                72

              
	
                10.11

              	
                Arranger;
                  Syndication Agent

              	 	
                74

              
	
                10.12

              	
                Release
                  of Collateral

              	 	
                74

              
	
                Article
                  XI MISCELLANEOUS

              	 	
                74

              
	
                11.1

              	
                Amendments
                  and Waivers

              	 	
                75

              
	
                11.2

              	
                Notices

              	 	
                75

              
	
                11.3

              	
                No
                  Waiver; Cumulative Remedies

              	 	
                76

              
	
                11.4

              	
                Costs
                  and Expenses

              	 	
                76

              
	
                11.5

              	
                Indemnity

              	 	
                77

              
	
                11.6

              	
                Payments
                  Set Aside

              	 	
                77

              

      

       

      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

      

       

      
        	
                11.7

              	
                Successors
                  and Assigns

              	 	
                78

              
	
                11.8

              	
                Assignments,
                  Participations, etc

              	 	
                78

              
	
                11.9

              	
                Interest

              	 	
                82

              
	
                11.10

              	
                Indemnity
                  and Subrogation

              	 	
                82

              
	
                11.11

              	
                Automatic
                  Debits of Fees

              	 	
                83

              
	
                11.12

              	
                Notification
                  of Addresses, Lending Offices, Etc

              	 	
                83

              
	
                11.13

              	
                Counterparts

              	 	
                83

              
	
                11.14

              	
                Severability

              	 	
                83

              
	
                11.15

              	
                No
                  Third Parties Benefited

              	 	
                83

              
	
                11.16

              	
                Governing
                  Law, Jurisdiction

              	 	
                84

              
	
                11.17

              	
                Submission
                  To Jurisdiction; Waivers

              	 	
                84

              
	
                11.18

              	
                Entire
                  Agreement

              	 	
                84

              
	
                11.19

              	
                NO
                  ORAL AGREEMENTS

              	 	
                84

              
	
                11.20

              	
                Accounting
                  Changes

              	 	
                84

              
	
                11.21

              	
                WAIVER
                  OF JURY TRIAL, PUNITIVE DAMAGES, ETC

              	 	
                85

              
	
                11.22

              	
                Intercreditor
                  Agreement

              	 	
                85

              
	
                11.23

              	
                USA
                  PATRIOT Act

              	 	
                85

              
	
                11.24

              	
                Acknowledgments

              	 	
                85

              
	
                11.25

              	
                Survival
                  of Representations and Warranties

              	 	
                86

              
	
                11.26

              	
                Release
                  of Collateral and Guarantee Obligations.

              	 	
                86

              

      

       

      
        	
                SCHEDULES

              	 	 	 
	
                Schedule
                  1.1(a)

              	
                Commitments
                  and Pro Rata Shares

              	 	 
	
                Schedule
                  6.5

              	
                Litigation

              	 	 
	
                Schedule
                  6.7

              	
                ERISA
                  Compliance

              	 	 
	
                Schedule
                  6.14(a)

              	
                Material
                  Indebtedness

              	 	 
	
                Schedule
                  6.15

              	
                Environmental
                  Matters

              	 	 
	
                Schedule
                  6.17

              	
                Burdensome
                  Restrictions

              	 	 
	
                Schedule
                  6.19

              	
                Subsidiaries
                  and Minority Interests

              	 	 
	
                Schedule
                  6.24

              	
                Midstream
                  Contracts

              	 	 
	
                Schedule
                  6.25

              	
                Existing
                  Derivative Contracts

              	 	 
	
                Schedule
                  6.28

              	
                Material
                  Output Acquisition Documents

              	 	 
	
                Schedule
                  6.29(a)-1

              	
                Security
                  Agreement UCC Filing Jurisdictions

              	 	 
	
                Schedule
                  6.29(a)-2

              	
                UCC
                  Financing Statement to be Terminated

              	 	 
	
                Schedule
                  6.29(b)

              	
                Mortgage
                  Filing Jurisdictions

              	 	 
	
                Schedule
                  8.1

              	
                Permitted
                  Liens

              	 	 
	
                Schedule
                  8.6

              	
                Transactions
                  with Affiliates

              	 	 
	 	 	 	 
	
                EXHIBITS

              	 	 	 
	
                Exhibit
                  A

              	
                Form
                  of Notice of Borrowing

              	 	 
	
                Exhibit
                  B

              	
                Form
                  of Notice of Conversion/Continuation

              	 	 
	
                Exhibit
                  C

              	
                Form
                  of Compliance Certificate

              	 	 
	
                Exhibit
                  D

              	
                Form
                  of Security Agreement

              	 	 

      

       

      
        
          
          

        

        
          iv

          
            

          

        

        
          
          

        

      

       

      
        	
                Exhibit
                  E

              	
                Form
                  of Assignment and Acceptance

              	 	 
	
                Exhibit
                  F

              	
                Form
                  of Note

              	 	 
	
                Exhibit
                  G

              	
                Form
                  of Guaranty Agreement

              	 	 
	
                Exhibit
                  H

              	
                Form
                  of Intercreditor Agreement

              	 	 

      

       

    

    
      
        
        

      

      
        v

        
          

        

      

      
        
        

      

    

    TERM
      LOAN AGREEMENT

     

    This
      TERM
      LOAN AGREEMENT (this “Agreement”)
      is
      entered into as of April 2, 2007, among THE EXPLORATION COMPANY OF DELAWARE,
      INC., a Delaware corporation (the “Company”);
      OUTPUT ACQUISITION CORP., a Texas corporation (“Merger
      Sub”);
      TXCO
      ENERGY CORP., a Texas corporation (“TXCOE”);
      TEXAS
      TAR SANDS INC., a Texas corporation (“TTSI”);
      each
      of the financial institutions which is or which may from time to time become
      a
      signatory hereto (individually, a “Lender”
and
      collectively, the “Lenders”);
      and
      BANK OF MONTREAL, a Canadian chartered bank acting through certain of its United
      States branches and agencies, including its Chicago, Illinois branch, as
      administrative agent for the Lenders (in such capacity, together with its
      successors in such capacity, the “Administrative
      Agent”),
      and
      BMO CAPITAL MARKETS CORP., as arranger (in such capacity, the “Arranger”).

     

    RECITALS

     

    WHEREAS,
      the Company has entered into the Output Acquisition Documents (defined below),
      and desires to consummate the Output Acquisition (defined below) contemplated
      thereby, and, in connection therewith, has requested that the Lenders make
      term
      loans to the Company in an aggregate principal amount of $80,000,000;
      and

     

    WHEREAS,
      the Lenders are willing to make such term loans to the Company on the terms
      and
      conditions set forth in this Agreement.

     

    NOW,
      THEREFORE, in consideration of the mutual agreements, provisions and covenants
      contained herein and other good and valuable consideration, the receipt and
      adequacy of which are hereby acknowledged, the parties hereto agree as
      follows:

     

    ARTICLE
      I

     

    DEFINITIONS

     

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

     

    “Adjusted
      Base Rate”
shall
      mean, for any day and any Base Rate Loan, an interest rate per annum equal
      to
      the greater of (a) the Federal Funds Rate for such day plus one-half of one
      percent (0.5%) and (b) the Base Rate for such day; such rate to be computed
      on
      the basis of a year of 365 or 366 days, as the case may be, and actual days
      elapsed (including the first day but excluding the last day) during the period
      for which payable, but in no event shall such rate at any time exceed the
      Highest Lawful Rate. 

     

    “Administrative
      Agent”
has
      the
      meaning specified in the preamble hereto.

     

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

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Administrative
      Questionnaire”
has
      the
      meaning specified in Section 11.8(a).

     

    “Affected
      Lender”
has
      the
      meaning specified in Section 3.7.

     

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

     

    “Agent-Related
      Persons”
means
      with respect to each Agent, such Agent, its Affiliates, and each of the
      officers, directors, employees, agents and attorneys-in-fact of it and its
      Affiliates.

     

    “Agents”
means,
      collectively, Bank of Montreal, in its capacity as the Administrative Agent
      and
      BMO Capital Markets Corp., in its capacity as Arranger.

     

    “Agent’s
      Payment Office”
means
      the address set forth on the signature pages hereto in relation to the
      Administrative Agent, or such other address as the Administrative Agent may
      from
      time to time specify.

     

    “Aggregate
      Exposure”
means,
      with respect to any Lender at any time, an amount equal to (a) if at such time
      the Commitments have not been reduced to zero, the sum of the aggregate unpaid
      principal amount of the Loans of such Lender and the aggregate amount of such
      Lender’s Commitments at such time and (b) if at such time the Commitments have
      been reduced to zero, the sum of the aggregate unpaid principal amount of the
      Loans of such Lender.

     

    “Agreement”
means
      this Term Loan Agreement, as amended, amended and restated, supplemented or
      otherwise modified from time to time pursuant to the terms hereof and the
      Intercreditor Agreement.

     

    “Applicable
      Margin”
means,
      with respect to any Base Rate Loan or LIBO Rate Loan on any day, an amount
      equal
      to the percentage for such day under the Pricing Grid for such type of
      Loan.

     

    “Applicable
      Percentage”
      means
      eighty percent (80%). 

     

    “Arranger”
has
      the
      meaning specified in the preamble hereto.

     

    “Assignee”
has
      the
      meaning specified in Section 11.8(a).

     

    “Assignment
      and Acceptance”
has
      the
      meaning specified in Section 11.8(a).

     

    “Attorney
      Costs”
means
      and includes all reasonable fees and disbursements of any law firm or other
      external counsel.

     

    “Available
      Borrowing Base”
means,
      at the particular time in question, the Borrowing Base (as defined in the First
      Lien Credit Agreement) in effect at such time minus the applicable Effective
      Amount (as defined in the First Lien Credit Agreement) at such
      time.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Bankruptcy
      Code”
means
      the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et
      seq.).

     

    “Base
      Rate”
means,
      for any day, the rate of interest in effect for such day as publicly announced
      from time to time by Administrative Agent at its Chicago, Illinois office as
      its
“base rate” for Dollar loans made in the United States. (The “base rate” is a
      rate set by Administrative Agent based upon various factors including costs
      and
      desired return, general economic conditions and other factors, and is used
      as a
      reference point for pricing some loans, which may be priced at, above, or below
      such announced rate.) Any change in the base rate announced by Administrative
      Agent shall take effect at the opening of business on the day specified in
      the
      public announcement of such change.

     

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

     

    “Borrowing
      Base Period”
has
      the
      meaning ascribed thereto in the First Lien Credit Agreement.

     

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

     

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

     

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

     

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

     

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

     

    “Cash
      Equivalents”
means:
      (a) securities issued or fully guaranteed or insured by the United States
      Government or any agency thereof and backed by the full faith and credit of
      the
      United States having maturities of not more than 12 months from the date of
      acquisition; (b) certificates of deposit, time deposits, Eurodollar time
      deposits, or bankers’ acceptances having in each case a tenor of not more than
      12 months from the date of acquisition issued by and demand deposits with any
      U.S. commercial bank or any branch or agency of a non-U.S. commercial bank
      licensed to conduct business in the U.S. having combined capital and surplus
      of
      not less than $500,000,000 whose long term securities are rated at least A
      (or
      then equivalent grade) by S&P and A2 (or then equivalent grade) by Moody’s
      at the time of acquisition; (c) commercial paper of an issuer rated at least
      A-1
      by S&P or P-1 by Moody’s at the time of acquisition, and in either case
      having a tenor of not more than 12 months; (d) repurchase agreements with a
      term
      of not more than seven days for underlying securities of the types described
      in
      clauses (a) and (b) above; and (e) money market mutual or similar funds having
      assets in excess of $100,000,000.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Change
      of Control”
means
      (a) a purchase or acquisition, directly or indirectly, by any “person” or
“group” within the meaning of Section 13(d)(3) and 14(d)(2) of the Exchange Act
      (a “Group”),
      of
“beneficial ownership” (as such term is defined in Rule 13d-3 under the Exchange
      Act) of securities of the Company which, together with any securities owned
      beneficially by any “affiliates” or “associates” of such Group (as such terms
      are defined in Rule 12b-2 under the Exchange Act), shall represent more than
      thirty percent (30%) of the combined voting power of the Company’s securities
      which are entitled to vote generally in the election of directors and which
      are
      outstanding on the date immediately prior to the date of such purchase or
      acquisition or (b) the first day on which a majority of the Board of Directors
      of the Company are not Continuing Directors (as herein defined). As herein
      defined, “Continuing
      Directors”
means
      any member of the Board of Directors of the Company who (x) is a member of
      such
      Board of Directors as of the Effective Date or (y) was nominated for election
      or
      elected to such Board of Directors with the affirmative vote of a majority
      of
      the Continuing Directors who were members of such Board of Directors at the
      time
      of such nomination or election.

     

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

     

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

     

    “Commitment”
means
      as to each Lender, such Lender’s obligation to make, on the Effective Date,
      Loans to the Company in an aggregate principal amount not to exceed the amount
      set forth opposite the name of such Lender on Schedule 1.1(a)
      hereto under the heading “Commitment”, or if such Lender is a party to an
      Assignment and Acceptance, the amount set forth on the most recent Assignment
      and Acceptance of such Lender, as that amount may be reduced or terminated
      pursuant to this Agreement. 

     

    “Commitment
      Letter”
means
      the commitment letter dated February 13, 2007 by and among the Company, BMO
      Capital Markets Corp. and Bank of Montreal.

     

    “Company”
means
      The Exploration Company of Delaware, Inc. a Delaware corporation.

     

    “Company
      Audited Financial Statements”
means
      the Company’s consolidated financial statements as of and for the years ended
      December 31, 2006, 2005 and 2004, together with the unqualified independent
      auditors’ report and opinion of Akin, Doherty, Klein & Feuge, P.C.
      thereon.

     

    “Company
      Materials”
has
      the
      meaning specified in Section 7.1(d).

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

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

     

    “Consolidated
      EBITDAX”
means
      with respect to the Company and its Subsidiaries on a consolidated basis for
      any
      fiscal period, without duplication, (a) Consolidated Net Income plus (b)
      depreciation, depletion, amortization, adjustments resulting from the
      application of FAS 123R, FAS 133 and FAS 143 and other non-cash losses or
      charges reducing Consolidated Net Income plus (c) Consolidated Interest Expense
      plus (d) income tax expense plus (e) exploration expenses minus (f) any other
      non-cash items increasing Consolidated Net Income plus or minus, respectively
      (g) other extraordinary or non-recurring losses or gains (cash or non-cash)
      to
      the extent taken into account by the Company in any public disclosures of its
      “EBITDAX” or “consolidated EBITDAX” for the relevant period. For purposes of
      Sections 8.12
      and
8.14,
      Consolidated EBITDAX shall be calculated (x) to give pro forma effect to the
      Output Acquisition, other Corporate Acquisitions and other acquisitions and
      Dispositions and related financing transactions as if such transaction(s) had
      been consummated on the first day of the relevant period of calculation and
      (y)
      based on (i) four times Consolidated EBITDAX for the first Fiscal Quarter
      following the Effective Date, (ii) two times Consolidated EBITDAX for the first
      two Fiscal Quarters following the Effective Date, (iii) four-thirds times
      Consolidated EBITDAX for the first three Fiscal Quarters following the Effective
      Date and (iv) thereafter, Consolidated EBITDAX on a rolling four quarter
      basis.

     

    “Consolidated
      Interest Expense”
means,
      with respect to the Company and its Subsidiaries on a consolidated basis for
      any
      fiscal period, total interest expenses (including that portion attributable
      to
      Capitalized Lease Obligations and capitalized interest) of the Company and
      its
      Subsidiaries in such fiscal period which are classified as interest expense
      on
      the consolidated financial statements of the Company and its Subsidiaries,
      all
      as determined in conformity with GAAP. For purposes of Sections 8.12
      and
8.14,
      Consolidated Interest Expense shall be calculated (x) to give pro forma effect
      to the Output Acquisition, other Corporate Acquisitions and other acquisitions
      and Dispositions and related financing transactions and other acquisitions
      and
      related financing transaction(s) as if such transactions had been consummated
      on
      the first day of the relevant period of calculation and (y) based on (i) four
      times Consolidated Interest Expense for the first Fiscal Quarter following
      the
      Effective Date, (ii) two times Consolidated Interest Expense for the first
      two
      Fiscal Quarters following the Effective Date, (iii) four-thirds times
      Consolidated Interest Expense for the first three Fiscal Quarters following
      the
      Effective Date and (iv) thereafter, Consolidated Interest Expense on a rolling
      four quarter basis.

     

    “Consolidated
      Leverage Ratio”
means
      as at the last day of any period of four consecutive fiscal quarters of the
      Company, commencing with the Fiscal Quarter ended June 30, 2007 as the last
      quarter in the initial period of four consecutive fiscal quarters contemplated
      hereby, the ratio of (a) Consolidated Total Debt to (b) Consolidated EBITDAX
      for
      such period.

     

    “Consolidated
      Net Income”
means,
      with respect to the Company and its Subsidiaries on a consolidated basis, for
      any fiscal period, the net income (or net loss) of the Company and its
      Subsidiaries for such period determined in accordance with GAAP, but excluding
      the effects of the application of FAS 133 and 143.

     

    “Consolidated
      Total Debt”
means,
      at any date, the aggregate principal amount (without duplication) of all
      Indebtedness under clauses (a), (b), (c), (d), (f), (g) and (i) of such
      definition of the Company and its Subsidiaries at such date, determined on
      a
      consolidated basis in accordance with GAAP.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    “Conversion/Continuation
      Date”
means
      any date on which, under Section 2.3,
      the
      Company (a) converts Loans of one Interest Rate Type to another Interest Rate
      Type, or (b) continues as Loans of the same Interest Rate Type, but with a
      new
      Interest Period, Loans having Interest Periods expiring on such
      date.

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    “Credit
      Extension”
means
      and includes the making, conversion or continuation of any Loan
      hereunder.

     

    “Current
      Assets”
means,
      for any Person, all assets of such Person that, in accordance with GAAP, would
      be included as current assets on a balance sheet as of a date of calculation;
      provided, however, an amount equal to the Available Borrowing Base shall be
      included as current assets.

     

    “Current
      Liabilities”
means,
      for any Person, all liabilities of such Person that, in accordance with GAAP,
      would be included as current liabilities on a balance sheet as of the date
      of
      calculation; provided, however, the current portion of the Loans which are
      not
      past due may be excluded from Current Liabilities. 

     

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

     

    “Default
      Rate”
has
      the
      meaning specified in Section 2.7(c).

     

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

     

    “Disposition”
      has the
      meaning specified
      in
      Section 8.2.

     

    “Disqualified
      Stock”
      means,
      as to
      any Person, any Capital Stock of such Person that by its terms (or by the terms
      of any security into which it is convertible or for which it is exchangeable)
      or
      otherwise (including upon the occurrence of an event) requires the payment
      of
      dividends (other than dividends payable solely in Capital Stock which does
      not
      otherwise constitute Disqualified Stock) or matures or is required to be
      redeemed (pursuant to any sinking fund obligation or otherwise) or is
      convertible into or exchangeable for Indebtedness or is redeemable at the option
      of the holder thereof, in whole or in part, at any time on or prior
      to the
      date
      six months after the Maturity Date.

     

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

     

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

     

    “Effective
      Date”
means
      the date on which the Effective Time occurs.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    “Effective
      Time”
means
      the time as of which all conditions precedent set forth in
      Section 5.1
      are
      satisfied or waived by all Lenders.

     

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

     

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

     

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

     

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

     

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

     

    “Eurodollar
      Reserve Percentage”
has
      the
      meaning specified in the definition of “LIBO Rate”.

     

    “Event
      of Default”
means
      any of the events or circumstances specified in Section 9.1.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934.

     

    “Exempt
      Subsidiary”
means
      (a) any of the following existing Subsidiaries: Eagle Pass Well Service, L.L.C.,
      TXCO Drilling Corp., PPL Operating Inc., Maverick Gas Marketing, Ltd., Maverick
      Dimmit Pipeline, Ltd. or Paloma Pipeline, L.P.; and (b) any Subsidiary formed
      or
      acquired after the Effective Date that owns no Hydrocarbon
      Interests.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    “Existing
      Derivative Contracts”
means
      the contracts listed on Schedule 6.25
      hereto.

     

    “FAS
      123R”
means
      Financial Accounting Statement 123R promulgated by the Financial Accounting
      Standards Board.

     

    “FAS
      133”
means
      Financial Accounting Statement 133 promulgated by the Financial Accounting
      Standards Board.

     

    “FAS
      143”
means
      Financial Accounting Statement 143 promulgated by the Financial Accounting
      Standards Board.

     

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

     

    “Fee
      Letter Agreement”
means
      the letter agreement dated February 13, 2007 among BMO Capital Markets Corp.,
      Bank of Montreal and the Company.

     

    “First
      Lien Credit Agent”
means
      the Administrative Agent (as defined in the First Lien Credit
      Agreement).

     

    “First
      Lien Credit Agreement”
      means
      the
      Amended and Restated Credit Agreement among the Loan Parties, the First Lien
      Credit Agent and BMO Capital Markets Corp., as arranger, and the
      other
      lenders from time to time party thereto dated as of the Effective Date, as
      amended, amended and restated, restated, supplemented or otherwise modified
      in
      accordance with the terms hereof.

     

    “First
      Lien Credit Documents”
means
      the “Loan Documents” (as defined in the First Lien Credit
      Agreement).

     

    “First
      Lien Credit Lenders”
means
      the “Lenders” (as defined in the First Lien Credit Agreement).

     

    “First
      Lien Loans”
means
      the loans to be made from time to time under and in accordance with the First
      Lien Credit Documents.

     

    “First
      Lien Obligations”
has
      the
      meaning ascribed thereto in the Intercreditor Agreement.

     

    “First
      Lien Secured Parties” means
      the
“Secured Parties” (as defined in the First Lien Credit Agreement).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    “First
      Liens”
has
      the
      meaning specified in Section 7.14(b).

     

    “Fiscal
      Quarter”
means
      each of the three-month periods coinciding with the fiscal quarters adopted
      by
      the Company for financial reporting purposes.

     

    “Foreign
      Lender”
means
      any Lender that is organized under the laws of a jurisdiction other than the
      United States of America, any State thereof or the District of
      Columbia.

     

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

     

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

     

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

     

    “Granting
      Lender”
has
      the
      meaning specified in Section 11.8(d).

     

    “Guarantor”
means
      (a) each of the Original Guarantors, (b) from and after the Output Closing
      Time,
      OPEX upon the execution and delivery by OPEX of the Guaranty, and (c) any new
      Subsidiary which is required to execute the Guaranty under Section 7.12
      upon the
      execution and delivery by such Person of the Guaranty. 

     

    “Guaranty”
means
      the Guaranty Agreement, substantially in the form of Exhibit
      “G”
      hereto
      executed by each Guarantor in favor of the Administrative Agent and the Lenders,
      as the same may be amended, amended and restated, supplemented or otherwise
      modified from time to time pursuant to the terms hereof (including, in the
      case
      of any Subsidiary required to execute the Guaranty pursuant to Section
7.12,
      by
      execution and delivery of a joinder thereto in the form of Annex 1
      thereto).

     

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

     

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

     

    “Hydrocarbon
      Interests”
means
      leasehold and other real property interests in or under oil, gas and other
      liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty
      and royalty interests, net profit interests, production payment interests
      relating to oil, gas or other liquid or gaseous hydrocarbons wherever located
      including any reserved or residual interest of whatever nature, covering lands
      in or offshore the continental United States.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    “Indebtedness”
of
      any
      Person means, without duplication, (a) all indebtedness for borrowed money;
      (b)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      Property or services (other than trade payables entered into in the ordinary
      course of business on ordinary terms and not past due for more than 90 days
      after the due date thereof, other than those trade payables disputed in good
      faith); (c) all non-contingent reimbursement or payment obligations with respect
      to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures
      or similar instruments, including obligations so evidenced incurred in
      connection with the acquisition of Property, assets or businesses; (e) all
      indebtedness created or arising under any conditional sale or other title
      retention agreement, or incurred as financing, in either case with respect
      to
      Property acquired by the Person (even though the rights and remedies of the
      seller or bank under such agreement in the event of default are limited to
      repossession or sale of such Property) including, without limitation, production
      payments, net profit interests and other Hydrocarbon Interests subject to
      repayment out of future Oil and Gas production; (f) all obligations with respect
      to Capital Leases; (g) all non-contingent net obligations with respect to
      Derivative Contracts; (h) gas imbalances or obligations under take-or-pay
      or prepayment contracts with respect to any of the Oil and Gas Properties which
      would require the Company or any of its Subsidiaries to deliver Oil and Gas
      from
      any of the Oil and Gas Properties at some future time without then or thereafter
      receiving full payment therefor; (i) all indebtedness referred to in clauses
      (a)
      through (g) above secured by (or for which the holder of such Indebtedness
      has
      an existing right, contingent or otherwise, to be secured by) any Lien upon
      or
      in Property (including accounts and contracts rights) owned by such Person,
      even
      though such Person has not assumed or become liable for the payment of such
      Indebtedness; and (j) all Guaranty Obligations in respect of indebtedness or
      obligations of others of the kinds referred to in clauses (a) through (g) above.
      

     

    “Indemnified
      Liabilities”
has
      the
      meaning specified in Section 11.5.

     

    “Indemnified
      Person”
has
      the
      meaning specified in Section 11.5.

     

    “Independent
      Auditor”
has
      the
      meaning specified in Section 7.1(a).

     

    “Independent
      Engineer”
has
      the
      meaning specified in Section 7.2(c).

     

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

     

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

     

    “Intercreditor
      Agreement”
means
      that certain Intercreditor Agreement dated as of the Effective Date among the
      Loan Parties, the First Lien Credit Agent,
      as
      first lien collateral agent, and the Administrative Agent, as second lien
      collateral agent
      in
      the form of Exhibit
      “H”
      hereto,
      as amended, amended and restated, restated, supplemented or otherwise modified
      from time to time pursuant to the terms hereof and thereof.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    “Interest
      Payment Date”
(a)
      as
      to any Base Rate Loan, means July 2, 2007 and the first Business Day following
      the end of each Fiscal Quarter ending thereafter prior to the Termination Date
      and each date on which such a Base Rate Loan is converted into another Interest
      Rate Type of Loan, and (b) as to any LIBO Rate Loan, the last day of the
      Interest Period applicable to such Loan; provided, however, that if any Interest
      Period for an LIBO Rate Loan exceeds three months, the date that falls three
      months after the beginning of such Interest Period is also an Interest Payment
      Date.

     

    “Interest
      Period”
means,
      as to any LIBO Rate Loan, the period commencing on the Effective Date or on
      the
      Conversion/Continuation Date on which such Loan is converted into or continued
      as a LIBO Rate Loan, and ending on the date one week (if determined by the
      Administrative Agent to be available), or one, two, three or six months
      thereafter (or such greater number of months as may be requested by the Company
      and determined by the Administrative Agent to be available) as selected by
      the
      Company in its Notice of Borrowing or Notice of Conversion/Continuation;
      provided, however, that: (a) if any Interest Period would otherwise end on
      a day
      that is not a Business Day, that Interest Period shall be extended to the
      following Business Day unless, in the case of an LIBO Rate Loan, the result
      of
      such extension would be to carry such Interest Period into another calendar
      month, in which event such Interest Period shall end on the preceding Business
      Day; (b) any Interest Period pertaining to a LIBO Rate Loan that begins on
      the
      last Business Day of a calendar month (or on a day for which there is no
      numerically corresponding day in the calendar month at the end of such Interest
      Period) shall end on the last Business Day of the calendar month at the end
      of
      such Interest Period; and (c) no Interest Period for any Loan shall extend
      beyond the Termination Date.

     

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

     

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

     

    “Lenders”
has
      the
      meaning specified in the preamble hereto.

     

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

     

    “Letter
      of Credit”
has
      the
      meaning ascribed thereto in the First Lien Credit Agreement.

     

    “LIBO
      Rate”
means,
      for any Interest Period, with respect to LIBO Rate Loans, the rate of interest
      per annum (rounded upward to the next 1/16th of 1%) determined by the
      Administrative Agent as follows:

     

    
      	
              LIBO
                Rate = 

            	
              LIBOR

            	 
	 	
              1.00
                - Eurodollar Reserve Percentage

            	 
	 	 	 
	
              where,

            	
              “Eurodollar
                Reserve Percentage”
                means for any day for any Interest Period the maximum reserve percentage
                (expressed as a decimal, rounded upward to the next 1/100th of 1%)
                in
                effect on such day to which the Administrative Agent or any Lender
                is
                subject under regulations issued from time to time by the FRB for
                determining the maximum reserve requirement (including any emergency,
                supplemental or other marginal reserve requirement) with respect
                to
                Eurocurrency funding (currently referred to as “Eurocurrency
                liabilities”); and

            

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    “LIBOR”
means
      relative to any Interest Period for LIBO Rate Loans:

     

    (a) the
      rate
      per annum equal to the rate determined by the Administrative Agent to be the
      offered rate that appears on the page, currently page 3750, of the Telerate
      screen (or any successor thereto or substitute therefor) that displays an
      average British Bankers Association Interest Settlement Rate for deposits in
      Dollars (for delivery on the first day of such Interest Period) with a term
      equivalent to such Interest Period, determined as of approximately 11:00 a.m.
      (London time) two Business Days prior to the first day of such Interest Period,
      or

     

    (b) if
      the
      rate referenced in the preceding clause (a) does not appear on such page or
      service or such page or service shall not be available, the rate per annum
      equal
      to the rate determined by the Administrative Agent to be the offered rate on
      such other page or other service that displays an average British Bankers
      Association Interest Settlement Rate for deposits in Dollars (for delivery
      on
      the first day of such Interest Period) with a term equivalent to such Interest
      Period, determined as of approximately 11:00 a.m. (London time) two Business
      Days prior to the first day of such Interest Period, or

     

    (c) if
      the
      rates referenced in the preceding clauses (a) and (b) are not available, the
      rate per annum determined by the Administrative Agent as the rate of interest
      at
      which deposits in Dollars for delivery on the first day of such Interest Period
      in same day funds in the approximate amount of the LIBO Rate Loan being made,
      continued or converted by Bank of Montreal and with a term equivalent to such
      Interest Period would be offered by Bank of Montreal’s London Branch to major
      banks in the London interbank eurodollar market at their request at
      approximately 4:00 p.m. (London time) two Business Days prior to the first
      day
      of such Interest Period.

     

    The
      LIBO
      Rate shall be adjusted automatically as to all LIBO Rate Loans then outstanding
      as of the effective date of any change in the Eurodollar Reserve
      Percentage.

     

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

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    “Liquidity”
means,
      with respect to the Company and the Guarantors on a consolidated basis, the
      sum
      of (a) their unrestricted cash and unrestricted Cash Equivalents plus (b) the
      Available Borrowing Base.

     

    “Loan
      Documents”
means
      this Agreement, the Notes, each Guaranty, the Security Documents, the Fee Letter
      Agreement, the Commitment Letter and all other documents delivered to the
      Administrative Agent or any Lender in connection herewith.

     

    “Loans”
has
      the
      meaning specified in Section 2.1(a).
      

     

    “Loan
      Parties”
means
      the Company and each Guarantor.

     

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

     

    “Material
      Adverse Effect”
means
      (a) a material adverse change in, or a material adverse effect upon, (i) the
      Output Acquisition or (ii) the operations, business, properties or financial
      condition of the Company and its Subsidiaries, taken as a whole excluding
      events, developments or circumstances generally affecting the industry in which
      the Company and its Subsidiaries operate or arising from changes in general
      business or economic conditions, so long as the foregoing do not
      disproportionately adversely affect the Company and its Subsidiaries, taken
      as a
      whole; (b) a material impairment of the ability of the Company or any Guarantor
      to perform under any material Loan Document; or (c) a material adverse effect
      upon the legality, validity, binding effect or enforceability against the
      Company or any Guarantor of any material Loan Document.

     

    “Maturity
      Date”
means
      the fifth anniversary of the Effective Date.

     

    “Merger
      Sub”
means
      Output Acquisition Corp., a Texas corporation.

     

    “Midstream
      Contracts”
means
      (a) the Firm Transportation Service Agreement by and between Maverick-Dimmit
      Pipeline, Ltd. and TXCOE dated April 1, 2007 and (b) the Marketing Services
      Agreement by and between Maverick Gas Marketing, Ltd. and TXCOE dated April
      1,
      2007.

     

    “Moody’s”
means
      Moody’s Investors Service, Inc.

     

    “Mortgaged
      Properties”
means
      such Oil and Gas Properties upon which the Company and the Guarantors have
      granted the Administrative Agent for the benefit of the Lenders a valid, second
      Lien pursuant to the Mortgages, subject to Permitted Liens. 

     

    “Mortgages”
means
      the Mortgages, Deeds of Trust, Security Agreements, Financing Statements and
      Assignments of Production from the Company and TXCOE, and, from and after the
      Effective Time, Merger Sub and OPEX, in favor of the Administrative Agent,
      for
      the benefit of the Secured Parties, covering the Oil and Gas Properties of
      the
      Company and the Guarantors party thereto and all supplements, assignments,
      assumptions, amendments and restatements thereto (or any agreement in
      substitution therefor) that are executed and delivered to the Administrative
      Agent for benefit of the Lenders pursuant to Article
      IV
      of this
      Agreement.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

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

     

    “Net
      Cash Proceeds”
means
      in connection with any Disposition or any Recovery Event, all proceeds thereof
      in the form of cash and Cash Equivalents of such Disposition or Recovery Event,
      net of (i) amounts required by the First Lien Credit Agreement to be applied
      to
      the repayment of the First Lien Obligations or the cash collateralization of
      outstanding Letters of Credit, (ii) reasonable and customary Attorney Costs,
      accountants’ fees, investment banking fees, (iii) amounts required to be applied
      to the repayment of Indebtedness secured by a Lien expressly permitted hereunder
      on any Property which is the subject of such Disposition or Recovery Event,
      (iv)
      other reasonable and customary fees and expenses actually incurred in connection
      therewith (including survey costs, title insurance premiums, search and
      recording charges) and (v) net of taxes paid or reasonably estimated to be
      payable as a result thereof (after taking into account any available tax credits
      or deductions and any tax sharing arrangements).

     

    “Net
      Present Value”
means
      the PV 10 Value of the Oil and Gas Properties and adjusted at the date of
      determination (on the same basis as the most recent Reserve Report previously
      delivered pursuant to Section 6.11
      or
      Section 7.2(c)
      was
      prepared) for Dispositions and purchases of Hydrocarbon Interests occurring
      since the date of such report. The Net Present Value shall be calculated by
      the
      Company as of each date of determination.

     

    “Net
      Proceeds of Production”
means
      the amounts attributable to the Company’s and the Guarantors’ interest in the
      proceeds received from the sale of Oil and Gas produced from Mortgaged
      Properties after deduction of (a) royalties existing as of the effective date
      on
      which the Company or the applicable Guarantor first mortgaged its interests
      in
      such Mortgaged Properties in favor of the Lenders or their predecessors; (b)
      third party (including any Exempt Subsidiary) pipeline and transportation
      charges; (c) production, ad valorem and severance taxes chargeable against
      such
      production; (d) marketing costs; (e) overriding royalties existing as of the
      effective date on which the Company or the applicable Guarantor first mortgaged
      its interests in such Mortgaged Properties in favor of the Lenders or their
      predecessors; (f) other interests in and measured by production burdening the
      Mortgaged Properties existing as of the effective date on which the Company
      or
      the applicable Guarantor first mortgaged its interests in such Mortgaged
      Properties in favor of the Lenders or their predecessors; and (g) the current
      portion of direct operating or production costs which is allocable to such
      interest in such Mortgaged Properties.

     

    “Non-Recourse
      Debt”
means
      Indebtedness of Exempt Subsidiaries (a) as to which neither the Company nor
      any
      Guarantor (i) provides credit support of any kind (including any undertaking,
      agreement or instrument that would constitute Indebtedness), (ii) is directly
      or
      indirectly liable as a guarantor or otherwise, or (iii) constitutes the lender
      with respect to such Indebtedness; and (b) no default with respect to which
      (including any rights that the holders thereof may have to take enforcement
      action against an Exempt Subsidiary) would permit upon notice, lapse of time
      or
      both any holder of any other Indebtedness of the Company or any Guarantor to
      declare a default on such other Indebtedness or cause the payment thereof to
      be
      accelerated or payable prior to its stated maturity date.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    “Notes”
means
      the promissory notes, whether one or more, specified in Section 2.1(d),
      substantially in the same form as Exhibit
      “F”,
      including any amendments, amendments and restatements, modifications, renewals
      or replacements of such promissory notes.

     

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

     

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

     

    “NYMEX”
means
      the New York Mercantile Exchange.

     

    “Obligations”
means
      the unpaid principal of and interest (including interest accruing at the then
      applicable rate provided herein after the maturity of the Loans and interest
      accruing at the then applicable rate provided herein after the filing of any
      petition for an Insolvency Proceeding, or the commencement of any Insolvency
      Proceeding, whether or not a claim for post-filing or post-petition interest
      is
      allowed in such proceeding) on the Loans and all other advances, debts,
      liabilities, obligations, covenants and duties arising under any Loan Document
      owing by the Company or any Guarantor to any Lender, the Administrative Agent,
      any Qualifying Derivative Contract Counterparty or any Indemnified Person,
      whether direct or indirect (including those acquired by assignment), absolute
      or
      contingent, due or to become due, now existing or hereafter arising, whether
      on
      account of principal, interest, reimbursement obligations, fees, indemnities,
      costs, expenses (including all reasonable fees, charges and disbursements of
      counsel in accordance with Section 11.4) or otherwise.

     

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

     

    “Oil
      and Gas Liens” means
      (a)
      Liens arising under oil and gas leases, overriding royalty agreements, net
      profits agreements, royalty trust agreements, farm-out agreements, division
      orders, contracts for the sale, purchase, exchange, transportation, gathering
      or
      processing of Oil and Gas, unitizations and pooling designations, declarations,
      orders and agreements, development agreements, operating agreements, production
      sales contracts, area of mutual interest agreements, gas balancing or deferred
      production agreements, injection, repressuring and recycling agreements, salt
      water or other disposal agreements, seismic or geophysical permits or
      agreements, and other agreements that are customary in the oil and gas business
      and are entered into by the Company in the ordinary course of business;
      provided, however, in all instances that such Liens are limited to the assets
      that are the subject of the relevant agreement; and (b) Liens on pipelines
      or
      pipeline facilities that arise by operation of law.

     

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

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

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

     

    “OPEX”
means
      OPEX Energy, LLC a Texas limited liability company, which is a wholly owned
      Subsidiary of Output.

     

    “Organization
      Documents”
means,
      for any corporation, the certificate or articles of incorporation, the bylaws,
      any certificate of determination or instrument relating to the rights of
      preferred shareholders of such corporation and any shareholder rights agreement
      and for any limited liability company means the limited liability company
      agreement, and all other documents, filings and instruments necessary to create
      and constitute such company, or for any limited partnership means the original
      agreement of limited partnership as amended from time to time.

     

    “Original
      Guarantor”
means
      any of TXCOE, TTSI or Merger Sub, each of which is a wholly owned
      Subsidiary.

     

    “Originating
      Lender”
has
      the
      meaning specified in Section 11.8(f). 

     

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

     

    “Output”
means
      Output Exploration, LLC, a Delaware limited liability company. 

     

    “Output
      Acquisition”
means
      the proposed acquisition by the Company of all of the outstanding Capital Stock
      of Output pursuant to the Output Acquisition Agreement for an aggregate cash
      purchase price not to exceed $100,000,000 in cash and common stock of the
      Company, subject to usual and customary adjustments for transactions of such
      nature. 

     

    “Output
      Acquisition Agreement”
means
      the Agreement and Plan of Merger dated effective as of February 20, 2007 by
      and
      among the Company, Merger Sub and Output, as amended, amended and restated,
      supplemented, replaced or otherwise modified from time to time in accordance
      with this Agreement.

     

    “Output
      Acquisition Documents”
means,
      collectively, the Output Acquisition Agreement and all schedules, exhibits,
      annexes and amendments thereto and all side letters and agreements affecting
      the
      terms thereof or entered into in connection therewith, in each case, as amended,
      amended and restated, supplemented or otherwise modified from time to
      time.

     

    “Output
      Closing Time”
means
      the time as of which all conditions precedent set forth in Section 5.2 of the
      First Lien Credit Agreement are satisfied or waived by all Lenders.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

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

     

    “Participant”
has
      the
      meaning specified in Section 11.8(f).

     

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

     

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

     

    “Permitted
      Indebtedness”
has
      the
      meaning specified in Section 8.5.

     

    “Permitted
      Liens”
means
      the collective reference to (i) in the case of Collateral other than Pledged
      Stock, Liens permitted by Section 8.1
      and (ii)
      in the case of Collateral consisting of Pledged Stock, (A) Liens permitted
      by
      Sections 8.1(b)
      and
(j)
      and (B)
      non-consensual Liens permitted by Section 8.1
      to the
      extent arising by operation of law.

     

    “Permitted
      Refinancing”
means
      any modification, refinancing, refunding, renewal or extension of Indebtedness;
      provided, however, that (a) the principal amount thereof does not exceed the
      principal amount of the Indebtedness so modified, refinanced, refunded, renewed
      or extended except by an amount equal to unpaid accrued interest and premium
      thereon plus other reasonable amounts paid, and fees and expenses reasonably
      incurred, in connection therewith, (b) such modification, refinancing,
      refunding, renewal or extension has a final maturity date equal to or later
      than
      the final maturity date of the Indebtedness being modified, refinanced,
      refunded, renewed or extended, (c) if the Indebtedness being modified,
      refinanced, refunded, renewed or extended is subordinated in right of payment
      to
      the Obligations, such modification, refinancing, renewal or extension is
      subordinated in right of payment to the Obligations on terms at least as
      favorable to the Lenders as those contained in the documentation governing
      the
      original Indebtedness, taken as a whole and (d) the terms and conditions of
      any
      such modified, refinanced, refunded, renewed or extended Indebtedness are not
      materially less favorable to the Loan Parties or the Lenders than the terms
      and
      conditions of the Indebtedness being modified, refinanced, refunded, renewed
      or
      extended, taken as a whole.

     

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

     

    “Plan”
means
      an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject
      to ERISA, other than a Multiemployer Plan.

     

    “Platform”
has
      the
      meaning specified in Section 7.1(d).

     

    “Pledged
      Stock”
means
      “Pledged Stock” as such term is defined in the Security Agreement.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    “Premium”
has
      the
      meaning specified in Section 2.4(b).

     

    “Pricing
      Grid”
means
      the annualized rates (stated in terms of basis points (“bps”)) set forth below
      which shall be computed as of each day during the term hereof for the Applicable
      Margin as follows:

     

    
      	
              Applicable
                Margin

            
	
              Base
                Rate Loan

              (bps)

            	 	
              LIBO
                Rate Loan

              (bps)

            
	
              350
                bps

            	 	
              450
                bps

            

    

    

    “Principal
      Business”
means
      the business of the exploration for, and development, acquisition, production,
      and upstream marketing and transportation of Oil and Gas.

     

    “Projected
      Oil and Gas Production”
means
      the projected production of oil or gas (measured by volume unit or BTU
      equivalent, not sales price) for the term of the contracts or a particular
      half-year, as applicable, from Oil and Gas Properties and interests owned by
      the
      Company and the Guarantors that have attributable to them Proved Developed
      Producing Reserves, as such production is projected in the most recent Reserve
      Report delivered pursuant to Section 7.2(c), after deducting projected
      production from any Oil and Gas Properties sold or under contract for sale
      that
      had been included in such report and after adding projected production from
      any
      Oil and Gas Properties or Hydrocarbon Interests that had not been reflected
      in
      such report but that are reflected in a separate or supplemental reports
      prepared on the same basis as the reports delivered pursuant to Section 7.2(c)
      above and otherwise are satisfactory to the Administrative Agent.

     

    “Pro
      Rata Share”
means,
      as to any Lender at any time, the percentage equivalent (expressed as a decimal,
      rounded to the ninth decimal place) at such time of such Lender’s Aggregate
      Exposure divided by the combined Aggregate Exposure of all Lenders.

     

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

     

    “Proved
      Developed Producing Reserves”
means
      those Oil and Gas Properties designated as proved developed producing (in
      accordance with the Definitions for Oil and Gas Reserves approved by the Board
      of Directors of the Society of Petroleum Engineers, Inc. from time to time)
      in
      the Reserve Report.

     

    “Proved
      Reserves”
means
      those Oil and Gas Properties designated as proved (in accordance with the
      Definitions for Oil and Gas Reserves approved by the Board of Directors of
      the
      Society of Petroleum Engineers, Inc. from time to time) in the Reserve Report.
      

     

    “Public
      Lender”
has
      the
      meaning specified in Section 7.1(d).

     

    “PV
      10 Value”
means,
      as of any date of determination, the present value of future cash flows from
      Proved Reserves included in the Company’s and the Guarantors’ Oil and Gas
      Properties as set forth in the most recent Reserve Report delivered pursuant
      to
      Section 6.11 or 7.2(c), utilizing the average of the Three-Year Strip Price
      for
      crude oil (WTI Cushing) and natural gas (Henry Hub), quoted on the NYMEX (or
      its
      successor) and utilizing a 10% discount rate. The PV-10 Value shall be adjusted
      to give effect to the Company’s and the Guarantors’ Derivative Contracts for the
      purpose of hedging prices of Oil and Gas and any Oil and Gas sales contracts
      not
      cancellable on 90 or fewer days’ notice. The PV 10 Value shall be
      calculated by the Company as of each date of determination.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    “Qualifying
      Derivative Contract”
means
      any Derivative Contract between any Loan Party and any Qualifying Derivative
      Contract Counterparty.

     

    “Qualifying
      Derivative Contract Counterparty”
means,
      with respect to a Qualifying Derivative Contract, any Person that was a Lender
      or an Affiliate thereof at the time such Qualifying Derivative Contract was
      originally entered into.

     

    “Qualifying
      Preferred Stock”
shall
      mean, as applied to the Capital Stock of any Person, the Capital Stock of any
      class or classes (however designated) that is preferred with respect to the
      payment of dividends, or as to the distribution of assets upon any voluntary
      or
      involuntary liquidation or dissolution of such Person, over shares of Capital
      Stock of any other class of such Person; provided,
      however,
      that
      such stock (x) neither matures, nor provides for mandatory redemption, or
      redemption at the holder’s option, prior to October 31, 2011 and (y) is not
      convertible into or exchangeable for Indebtedness or Disqualified Stock.

     

    “Quarterly
      Status Report”
means
      a
      status report prepared quarterly by the Company in form, scope and content
      acceptable to the Administrative Agent for such quarter then ended (a)
      describing the Company’s position regarding its Derivative Contracts including,
      as of the last Business Day of such quarter, a summary of its hedging positions
      under its Derivative Contracts, including the type, term, price, effective
      date
      and notional principal amount or volumes (in total and as a percentage of the
      Company’s total anticipated production), “mark to market” and margin
      calculations, the hedged price(s), interest rate(s) or exchange rate(s), as
      applicable, and any collateral therefor and credit support agreements relating
      thereto and the counterparty to each Derivative Contract, and (b) containing
      a
      table that demonstrates the Company’s compliance with the requirements set forth
      in Section 8.10.

     

    “Recovery
      Event”
means
      any settlement of or payment in respect of any Property of the Company or any
      Guarantor arising from a casualty insurance claim or any condemnation proceeding
      in an amount in excess of $1,000,000.

     

    “Register”
means
      a
      register for the recordation of the names and addresses of the Lenders and
      the
      Commitments thereof, and the principal amount of the Loans owing to such Lender
      from time to time.

     

    “Related
      Funds”
has
      the
      meaning specified in Section 11.8(a).

     

    “Replacement
      Lender”
has
      the
      meaning specified in Section 3.7.

     

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

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    “Required
      Lenders”
means,
      at any time, subject to Section 11.1,
      the
      Administrative Agent and the Lenders holding more than 50% of the sum of the
      Effective Amount at such time or, if there is no Effective Amount at such time,
      the Administrative Agent and the Lenders holding more than 50% of the aggregate
      Commitments at such time.

     

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

     

    “Reserve
      Report”
means
      (a) the Initial Reserve Report, (b) the Output Reserve Report and (c) each
      subsequent report delivered pursuant to Section 7.2(c),
      each of
      which shall be a report, in form, scope and content acceptable to the
      Administrative Agent, covering Proved Reserves attributable to the Company’s and
      the Guarantors’ Oil and Gas Properties and setting forth with respect thereto,
      (i) the total quantity of Proved Reserves (separately classified as to
      producing, shut in, behind pipe, and undeveloped), (ii) the estimated future
      net
      revenues and cumulative estimated future net revenues, (iii) the present
      discounted value of future net revenues, and (iv) such other information and
      data with respect to the Proved Reserves as the Administrative Agent may
      reasonably request.

     

    “Responsible
      Officer”
means,
      with respect to any Person, the chief executive officer, president, chief
      financial officer or treasurer of the Person.

     

    “Restricted
      Payments”
has
      the
      meaning specified in Section 8.9.

     

    “S&P”
means
      Standard & Poor’s Rating Services.

     

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

     

    “Secured
      Parties”
has
      the
      meaning ascribed thereto in the Security Agreement.

     

    “Security
      Agreement”
means
      the Security Agreement in substantially the form of Exhibit “D”
      executed
      by the Company and each Guarantor pledging to the Administrative Agent for
      benefit of the Secured Parties all of the Collateral of the Company and each
      Guarantor, as the same may be amended, amended and restated, supplemented or
      otherwise modified from time to time pursuant to the terms hereof (including,
      in
      the case of any Subsidiary required to execute the Security Agreement pursuant
      to Section 7.12,
      by
      execution and delivery of a joinder thereto in the form of Annex 2
      thereto).

     

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

     

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

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    “SPC”
has
      the
      meaning specified in Section 11.8(d).

     

    “Special
      Damages”
has
      the
      meaning specified in Section 11.21.

     

    “Subsidiary”
of
      a
      Person means any corporation, association, partnership, joint venture or other
      business entity of which more than 50% of the voting stock or other equity
      interests (in the case of Persons other than corporations), is owned or
      controlled directly or indirectly, at the relevant time, by the Person, or
      one
      or more of the Subsidiaries of the Person, or a combination thereof. From and
      after the Output Closing Time, references herein to a “Subsidiary”
of
      the
      Company shall include OPEX. Unless the context otherwise clearly requires,
      references herein to a “Subsidiary”
refer
      to a Subsidiary of the Company.

     

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

     

    “Syndication
      Agent”
has
      the
      meaning specified in the preamble hereto.

     

    “Taxes”
means
      any and all present or future taxes, levies, imposts, deductions, charges or
      withholdings that arise from any payment made hereunder, and all liabilities
      with respect thereto, excluding, in the case of the Administrative Agent, any
      Lender or any other recipient of any payment made or to be made by or on account
      of any obligation of the Company hereunder, (a) such taxes (including income
      or
      franchise taxes) imposed on or measured by its net income, gross receipts,
      taxable margin (as determined under Chapter 171 of the Texas Tax Code) or
      capital by the United States of America, or by the jurisdiction (or any
      political subdivision thereof) under the laws of which it is organized or in
      which its principal office is located or in which it maintains a lending office
      or conducts business (other
      than solely by reason of the transactions evidenced hereby or the taking of
      any
      action contemplated by the Loan Documents)
      or is
      otherwise located, (b) any branch profits taxes imposed by the United States
      or
      any similar tax imposed by any other jurisdiction (or any political subdivision
      thereof) in which the Administrative Agent, any Lender or any other recipient
      of
      any payment made or to be made by or on account of any obligation of the Company
      hereunder or the Company is organized or in which its principal office is
      located or in which it maintains a lending office, conducts business (other
      than
      solely by reason of the transactions evidenced hereby or the taking of any
      action contemplated by the Loan Documents)or is otherwise located, and (c)
      any
      withholding tax that is attributable to a Lender’s failure to comply with
      Section 10.10.

     

    “Termination
      Date”
means
      the earlier of (a) the Maturity Date and (b) the date on which all Obligations
      (other than those to Qualified Derivative Contract Counterparties in respect
      of
      Qualified Derivative Contracts) have been satisfied and all Commitments have
      terminated, in each case in accordance with the provisions of this
      Agreement.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    “Three-Year
      Strip Price”
shall
      mean, as of any date of determination, (a) for the 36-month period commencing
      with the month immediately following the month in which the date of
      determination occurs, the monthly futures contract prices for crude oil and
      natural gas for the 36 succeeding months as quoted on the applicable commodities
      exchange as contemplated in the definition of “PV-10 Value” and (b) for periods
      after such 36-month period, the average of such quoted prices for the period
      from and including the 25th month in such 36-month period through the 36th
      month
      in such period.

     

    “Transaction
      Documents”
means,
      collectively, the Loan Documents and
      the
      Output Acquisition Documents.

     

    “TTSI”
means
      Texas Tar Sands Inc., a Texas corporation.

     

    “TXCOE”
means
      TXCO Energy Corp., a Texas corporation.

     

    “UCC”
means
      the Uniform Commercial Code as adopted and in effect in any applicable
      jurisdiction.

     

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

     

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

     

    “Utilization
      Percentage”
means,
      at any time, the percentage obtained by dividing (a) the Effective Amount (as
      defined in the First Lien Credit Agreement) at such time by (b) the Borrowing
      Base (as defined in the First Lien Credit Agreement) at such time.

     

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

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    1.3 Accounting
      Principles.

     

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

     

    (b) References
      herein to “fiscal
      year”
refer
      to such fiscal period of the Company.

     

    ARTICLE
      II

     

    THE
      CREDIT

     

    2.1 Amounts
      and Terms of the Loans.

     

    (a) Each
      Lender severally agrees, on the terms and conditions set forth herein, to make
      term loans to the Company on the Effective Date (together with any conversions
      or continuations thereof, “Loans”),
      so
      long as, as of the time at which the requested Loan is to be made and after
      giving effect thereto, (i) the aggregate amount of all Loans by such Lender
      at
      such time does not exceed such Lender’s Pro Rata Share of the aggregate amount
      of Loans of all Lenders at such time, and (ii) the aggregate amount of such
      Lender’s Loans does not exceed such Lender’s Commitment.
      Principal amounts paid on account of the Loans may not be
      reborrowed.

     

    (b) The
      Commitment of each Lender shall be permanently reduced on the date of funding
      of
      the Loans pursuant to Section 2.1(a)
      by the
      principal amount of the Loans funded. Such Commitment reductions shall be made
      for the account of the Lenders pro rata in accordance with their respective
      Pro
      Rata Shares. 

     

    (c) Provided
      the applicable conditions in Article
      V
      are met,
      each Lender will make the amount of its Pro Rata Share of the Loans available
      to
      the Administrative Agent for the account of the Company at the Agent’s Payment
      Office by 12:00 p.m. (Chicago, Illinois time) on the Effective Date in funds
      immediately available to the Administrative Agent. The proceeds of all such
      Loans will then be made available to the Company by the Administrative Agent
      by
      wire transfer to the account(s) specified by the Company in the Notice of
      Borrowing. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (d) The
      Company agrees that upon the request to the Administrative Agent by any Lender,
      the Company will promptly execute and deliver to such Lender a promissory note
      of the Company evidencing the Loans of such Lender, substantially in the form
      of
Exhibit
      “F”(a
      “Note”),
      with
      appropriate insertions as to date and principal amount; provided,
      however, that delivery of Notes shall not be a condition precedent to the
      occurrence of the Effective Date or the making of the Loans on the Effective
      Date. The amount of principal owing on any Lender’s Note, if any, at any given
      time shall be the aggregate amount of all Loans theretofore made by such Lender
      minus all payments of principal theretofore received by such Lender on such
      Note. Interest on each Note shall accrue and be due and payable as provided
      herein and therein.

     

    2.2 Maturity
      Date.
      The
      Loans of each Lender shall mature on the Maturity Date.

     

    2.3 Conversion
      and Continuation Elections.

     

    (a) Prior
      to
      the Termination Date, the Company may, upon irrevocable written notice to the
      Administrative Agent in accordance with Section 2.3(b)
      (i)
      elect, as of any Business Day in the case of Base Rate Loans, or as of the
      last
      day of the applicable Interest Period in the case of LIBO Rate Loans, to convert
      any such Loans into Loans of any other Interest Rate Type; or (ii) elect as
      of
      the last day of the applicable Interest Period, to continue any Loans having
      Interest Periods expiring on such day; provided,
      however, that if
      at any
      time a LIBO Rate Loan is reduced, by payment, prepayment, or conversion of
      part
      thereof to less than $1,000,000, such LIBO Rate Loan shall automatically convert
      into a Base Rate Loan.

     

    (b) The
      Company shall deliver a Notice of Conversion/Continuation to be received by
      the
      Administrative Agent not later than 11:00 a.m. (Chicago, Illinois time) (i)
      at
      least three Business Days in advance of the Conversion/Continuation Date, if
      the
      Loans are to be converted into or continued as LIBO Rate Loans; and (ii) on
      the
      Conversion/Continuation Date, if the Loans are to be converted into Base Rate
      Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the
      aggregate amount of Loans to be converted or continued; (C) the Interest Rate
      Type of Loans resulting from the proposed conversion or continuation; and (D)
      other than in the case of conversions into Base Rate Loans, the duration of
      the
      requested Interest Period.

     

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

     

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

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (e) The
      number of tranches outstanding of LIBO Rate Loans, whether under a conversion
      or
      continuation, shall not exceed eight (8) at any one time.

     

    2.4 Optional
      Prepayments.
      

     

    (a) Subject
      to Section 3.4,
      the
      Company may, at any time or from time to time, subject to the concurrent payment
      of the Premium:

     

    (i) prepay
      Base Rate Loans upon irrevocable notice to the Administrative Agent not fewer
      than one (1) Business Day prior to such prepayment, ratably as to each Lender,
      in whole or in part, in aggregate minimum principal amounts of $100,000 or
      integral multiples thereof (unless the Effective Amount is less than $100,000,
      in which case such prepayments shall be equal to the aggregate unpaid principal
      amount of the Loans) plus all interest and expenses then outstanding on such
      Base Rate Loans, and

     

    (ii) prepay
      LIBO Rate Loans upon irrevocable notice to the Administrative Agent not fewer
      than three (3) Business Days prior to such prepayment, ratably as to each
      Lender, in whole or in part, in aggregate minimum principal amounts of $500,000
      or integral multiples thereof (unless the Effective Amount is less than
      $500,000, in which case such prepayments shall be equal to the aggregate unpaid
      principal amount of the Loans), plus
      all
      interest and expenses then outstanding on such LIBO Rate Loans. 

     

    Notwithstanding
      the forgoing, no
      payment shall be made pursuant to this Section 2.4
      if (x)
      after giving effect to such payment, such payment would cause the Utilization
      Percentage to exceed 75% or (y) an Event of Default (as defined in the First
      Lien Credit Agreement) has occurred and is continuing under the First Lien
      Credit Agreement. 

     

    Such
      notice of prepayment shall specify the date and amount of such prepayment and
      the Interest Rate Type(s) of Loans to be prepaid. Notwithstanding anything
      to
      the contrary set forth in this Section 2.4, any notice of prepayment delivered
      by the Company may state that such notice is conditioned upon the effectiveness
      of other financing arrangements, in which case such notice may be revoked by
      the
      Company if such condition is not satisfied, but subject to the Company’s
      reimbursement obligations pursuant to Section 3.4 with respect to any funding
      losses incurred by any Lender as a result of such revocation.

     

    The
      Administrative Agent will promptly notify each Lender of its receipt of any
      such
      notice, and of such Lender’s Pro Rata Share of such prepayment. The payment
      amount specified in such notice shall be due and payable on the date specified
      therein, together with accrued interest to each such date on the amount prepaid,
      the applicable Premium, and any amounts required pursuant to Section
3.4.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (b) For
      purposes hereof, the “Premium”
shall
      be a cash amount equal to the percentages of principal amount of the Loans
      being
      prepaid set forth below:

     

    
      	If
              prepaid after the Effective Date, but prior to
              the first anniversary of the Effective Date	 	 	
              1.0

            	
              %

            
	If
              prepaid on or after the first anniversary of
              the Effective Date	 	 	
              0.0

            	
              %

            

    

     

    2.5 [Intentionally
      Omitted.].

     

    2.6 Repayment.

     

    (a) The
      Company shall repay to the Administrative Agent for the benefit of the Lenders
      the outstanding principal balance of the Loans (and the outstanding principal
      of
      the Loans shall be due and payable) on the Maturity Date or on such date on
      which the Loans become due and payable pursuant to Section 2.4
      or
Article
      IX.

     

    (b) Each
      Lender shall maintain in accordance with its usual practice an account or
      accounts evidencing Indebtedness of the Company to such Lender resulting from
      each Loan of such Lender from time to time, including the amounts of principal
      and interest payable and paid to such Lender from time to time under this
      Agreement.

     

    (c) The
      Administrative Agent, on behalf of the Company, shall maintain the Register,
      and
      a subaccount therein for each Lender, in which shall be recorded (i) the amount
      of each Loan made hereunder, (ii) the amount of any principal or interest due
      and payable or to become due and payable from the Company to each Lender
      hereunder and (iii) both the amount of any sum received by the Administrative
      Agent hereunder from the Company and each Lender’s share thereof.
      The
      Register shall be available for inspection by each Loan Party, the
      Administrative Agent and any Lender at any reasonable time and from time to
      time
      upon reasonable prior notice.

     

    (d) The
      entries made in the Register and the accounts of each Lender maintained pursuant
      to Section 2.6(b)
      shall,
      to the extent permitted by applicable law, be prima
      facie
      evidence
      of the existence and amounts of the obligations of the Company therein recorded;
      provided,
      however, that the failure of any Lender or the Administrative Agent to maintain
      the Register or any such account, or any error therein, shall not in any manner
      affect the obligation of the Company to repay (with applicable interest) the
      Loans made to the Company by such Lender in accordance with the terms of this
      Agreement or the Company’s entitlement to credit for any payment of principal or
      interest on the Loans.

     

    2.7 Interest.

     

    (a) Each
      Loan
      shall bear interest on the principal amount thereof from the Effective Date
      or
      date of conversion or continuation pursuant to Section 2.3,
      as the
      case may be, at a rate per annum equal to the lesser of (i) the LIBO Rate or
      the
      Adjusted Base Rate, as the case may be, plus the Applicable Margin and (ii)
      the
      Highest Lawful Rate.

     

    (b) Interest
      on each Loan shall be paid in arrears on each Interest Payment Date. Interest
      shall also be paid on the date of any prepayment of Loans under Section
2.4
      for the
      portion of the Loans so prepaid and upon payment (including prepayment) in
      full
      thereof and, during the existence of any Event of Default, interest shall be
      paid on demand of the Administrative Agent.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    (c) Notwithstanding
      paragraph (a) of this Section 2.7,
      while
      any Event of Default under Section 9.1(a)
      or
(b)
      exists
      or after acceleration, the Company shall pay interest (after as well as before
      entry of judgment thereon to the extent permitted by law) on the principal
      amount of all outstanding Loans, at a rate per annum equal to the lesser of
      (i)
      the Highest Lawful Rate and (ii) the rate otherwise applicable plus two percent
      (2%) (“Default
      Rate”).

     

    2.8 Fees.
      The
      Company will pay fees to the parties and in the amounts specified in the Fee
      Letter Agreement.

     

    2.9 Computation
      of Fees and Interest.
      

     

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

     

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

     

    2.10 Payments
      by the Company; Loan Pro Rata.
      

     

    (a) All
      payments to be made by the Company shall be made without set off, recoupment
      or
      counterclaim. Except as otherwise expressly provided herein, all payments by
      the
      Company shall be made to the Administrative Agent for the account of the Lenders
      at the Agent’s Payment Office, and shall be made in dollars and in immediately
      available funds, no later than 12:00 p.m. (Chicago, Illinois time) on the date
      specified herein. Except to the extent otherwise expressly provided herein,
      (i)
      each payment by the Company of fees shall be made for the account of the Lenders
      pro rata in accordance with their respective Pro Rata Shares, (ii) each payment
      of principal of Loans shall be made for the account of the Lenders pro rata
      in
      accordance with their respective outstanding principal amount of such Loans,
      and
      (iii) each payment of interest on Loans shall be made for the account of the
      Lenders pro rata in accordance with their respective shares of the aggregate
      amount of interest due and payable to the Lenders. The Administrative Agent
      will
      promptly distribute to each Lender its applicable share of such payment in
      like
      funds as received. Any payment received by the Administrative Agent later than
      12:00 p.m. (Chicago, Illinois time) shall be deemed to have been received on the
      following Business Day and any applicable interest or fee shall continue to
      accrue.

     

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

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    (e) Notwithstanding
      anything to the contrary contained herein, after the occurrence and during
      the
      continuance of any Event of Default, each payment in respect of principal or
      interest on the Loans, each payment in respect of fees payable hereunder and
      any
      proceeds of Collateral, and Net Cash Proceeds received by the Administrative
      Agent and not required to be turned over to the First Lien Credit Agent pursuant
      to the Intercreditor Agreement shall be applied in the following
      order:

     

    (i) first,
      to the
      payment or reimbursement of the Administrative Agent for all costs, expenses,
      disbursements and losses incurred by the Administrative Agent and which the
      Company is required to pay or reimburse pursuant to the Loan
      Documents;

     

    (ii) second,
      to the
      payment or reimbursement of the Lenders for all costs, expenses, disbursements
      and losses incurred by such Persons and which any Loan Party is required to
      pay
      or reimburse pursuant to the Loan Documents;

     

    (iii) third,
      to the
      payment or prepayment to the Lenders of
      all
      Obligations;
      and

     

    (iv) fourth,
      to
      whomsoever shall be legally entitled thereto.

     

    If
      any
      Lender owes payments to the Administrative Agent hereunder, any amounts
      otherwise distributable under this Section 2.10(e)
      to such
      Lender shall be deemed to belong to the Administrative Agent to the extent
      of
      such unpaid payments, and the Administrative Agent shall apply such amounts
      to
      make such unpaid payments rather than distribute such amounts to such Lender.
      All distributions of amounts described in paragraphs second
      and
third
      above
      shall be made by the Administrative Agent to each Lender based on its Pro Rata
      Share. 

     

    2.11 Payments
      by the Lenders to the Administrative Agent.
      

     

    (a) Unless
      the Administrative Agent receives notice from a Lender on or prior to 12:00
      pm
      (Chicago, Illinois time) on the Effective Date that such Lender will not make
      available as and when required hereunder to the Administrative Agent for the
      account of the Company the amount of that Lender’s Pro Rata Share of the Loans,
      the Administrative Agent may assume that each Lender has made such amount
      available to the Administrative Agent in immediately available funds on the
      Effective
      Date and the Administrative Agent may (but shall not be so required), in
      reliance upon such assumption, make available to the Company on such date a
      corresponding amount. If and to the extent any Lender shall not have made its
      full amount available to the Administrative Agent in immediately available
      funds
      and the Administrative Agent in such circumstances has made available to the
      Company such amount, that Lender shall on the Business Day following the
      Effective Date make such amount available to the Administrative Agent, together
      with interest at the Federal Funds Rate for each day during such period. A
      notice of the Administrative Agent submitted to any Lender with respect to
      amounts owing under this Section 2.11(a)
      shall be
      conclusive, absent manifest error. If such amount is so made available, such
      payment to the Administrative Agent shall constitute such Lender’s Loan on the
      Effective Date for all purposes of this Agreement. If such amount is not made
      available to the Administrative Agent on the Business Day following the
      Effective Date, the Administrative Agent will notify the Company of such failure
      to fund and, upon demand by the Administrative Agent, the Company shall pay
      such
      amount to the Administrative Agent for the Administrative Agent’s account,
      together with interest thereon for each day elapsed since the Effective Date,
      at
      a rate per annum equal to the interest rate applicable at the time to the
      Loans.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

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

     

    2.12 Sharing
      of Payments, Etc.
      If any
      Lender shall obtain on account of the Obligations held by it any payment
      (whether voluntary, involuntary, through the exercise of any right of set off,
      or otherwise) or receive any collateral in respect thereof in excess of the
      amount such Lender was entitled to receive pursuant to the terms hereof, such
      Lender shall immediately (a) notify the Administrative Agent of such fact,
      and
      (b) purchase from the other Lenders such participations in the Loans made by
      them as shall be necessary to cause such purchasing Lender to share the excess
      payment according to the terms hereof; provided, however, that if all or any
      portion of such excess payment is thereafter recovered from the purchasing
      Lender, such purchase shall to that extent be rescinded and each other Lender
      shall repay to the purchasing Lender the purchase price paid therefor, together
      with an amount equal to such paying Lender’s ratable share (according to the
      proportion of (i) the amount of such paying Lender’s required repayment to (ii)
      the total amount so recovered from the purchasing Lender) of any interest or
      other amount paid or payable by the purchasing Lender in respect of the total
      amount so recovered. The Company agrees that any Lender so purchasing a
      participation from another Lender may, to the fullest extent permitted by law,
      exercise all of its rights of payment (including the right of set off) with
      respect to such participation as fully as if such Lender were the direct
      creditor of the Company in the amount of such participation. The Administrative
      Agent will keep records (which shall be conclusive and binding in the absence
      of
      manifest error) of participations purchased under this Section 2.12
      and will
      in each case notify the Lenders following any such purchases or
      repayments.

     

    ARTICLE
      III

     

    TAXES,
      YIELD PROTECTION AND ILLEGALITY

     

    3.1 Taxes.

     

    (a) Except
      as
      otherwise provided in Section 3.1(c)
      and
      Section 10.10,
      any and
      all payments by the Company to each Lender or the Administrative Agent under
      this Agreement and any other Loan Document shall be made free and clear of,
      and
      without deduction or withholding for any Taxes. In addition, the Company shall
      pay all Other Taxes
      to the
      relevant Governmental Authority in accordance with applicable law.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    (b) Subject
      to Section 3.1(f),
      the
      Company agrees to indemnify and hold harmless each Lender and the Administrative
      Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other
      Taxes imposed by any jurisdiction on amounts payable under this Section
3.1)
      paid by
      the Lender or the Administrative Agent and any penalties, interest, additions
      to
      Tax and reasonable expenses arising therefrom or with respect thereto, whether
      or not such Taxes or Other Taxes were correctly or legally asserted. Payment
      under this indemnification shall be made within 30 days after the date the
      affected Lender or the Administrative Agent makes written demand therefor with
      reasonable detail as to the particular imposition; provided, however, that
      neither the Administrative Agent nor any Lender shall be entitled to receive
      any
      payment with respect to Taxes or Other Taxes that are incurred or accrued more
      than 180 days prior to the date the Administrative Agent or Lender (as the
      case
      may be) gives notice and demand thereof to the Company.

     

    (c) If
      the
      Company shall be required by law to deduct or withhold any Taxes or Other Taxes
      from or in respect of any amount payable hereunder to any Lender or the
      Administrative Agent, then: (i) the sum payable shall be increased as necessary
      so that after making all required deductions and withholdings (including
      deductions and withholdings applicable to additional sums payable under this
      Section 3.1),
      such
      Lender or the Administrative Agent, as the case may be, receives an amount
      equal
      to the sum it would have received had no such deductions or withholdings been
      made; (ii) the Company shall make such deductions and withholdings; and (iii)
      the Company shall pay the full amount deducted or withheld to the relevant
      taxing authority or other authority in accordance with applicable
      law.

     

    (d) As
      soon
      as practicable after the date of any payment by the Company of Taxes or Other
      Taxes under Section 3.1(c)
      above,
      the Company shall furnish the Administrative Agent the original or a certified
      copy of any receipt issued by such taxing authority or other authority
      evidencing payment thereof, a copy of any return reporting such payment or
      other
      evidence of such payment as the Administrative Agent
      may
      reasonably request.

     

    (e) Each
      Lender shall use its reasonable efforts (consistent with legal and regulatory
      restrictions) to select a jurisdiction for its Lending Office or change the
      jurisdiction of its Lending Office so as to avoid the imposition of any Taxes
      or
      Other Taxes, or to eliminate or reduce any additional payment under this Section
      3.1
      or to
      avoid the obligation to deduct or withhold for taxes under Section 10.10
      by the
      Company if such selection or change in the judgment of such Lender is not
      materially disadvantageous to such Lender.

     

    (f) No
      Lender
      that is required
      to
      comply with Section 10.10 shall be entitled to any indemnification under this
      Section 3.1 if the obligation with respect to which indemnification is sought
      would not have arisen but for a failure of the affected Lender to comply with
      such Section 10.10.

     

    
      
        
        

      

      
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    (g) If
      the
      Administrative Agent or a Lender determines that it has received a refund of
      any
      Taxes or Other Taxes as to which it has been indemnified by the Company or with
      respect to which the Company has paid additional amounts pursuant to this
      Section 3.1, it shall pay over such refund to the Company (but only to the
      extent of indemnity payments made, or additional amounts paid, by the Company
      under this Section 3.1 with respect to the Taxes or Other Taxes giving rise
      to
      such refund), without interest (other than any interest paid by the relevant
      Governmental Authority with respect to such refund); provided, however, that
      the
      Company, upon the reasonable request of the Administrative Agent or such Lender,
      agrees to repay the amount paid over to the Company (plus any penalties,
      interest or other charges imposed by the relevant Governmental Authority) to
      the
      Administrative Agent or such Lender in the event the Administrative Agent or
      such Lender is required to repay such refund to such Governmental
      Authority.

     

    3.2 Illegality.
      

     

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

     

    (b) If
      a
      Lender determines that it is unlawful to maintain any LIBO Rate Loan, the
      Company shall, upon its receipt of notice of such fact and demand from such
      Lender (with a copy to the Administrative Agent), prepay in full such LIBO
      Rate
      Loans of that Lender then outstanding, together with interest accrued thereon
      and amounts required under Section 3.4,
      either
      on the last day of the Interest Period thereof, if the Lender may lawfully
      continue to maintain such LIBO Rate Loans to such day, or immediately, if the
      Lender may not lawfully continue to maintain such LIBO Rate Loan. If the Company
      is required to so prepay any LIBO Rate Loan, then concurrently with such
      prepayment, the Company shall borrow from the affected Lender, in the amount
      of
      such repayment, a Base Rate Loan.

     

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

     

    (d) Before
      giving any notice to the Administrative Agent under this Section 3.2,
      the
      affected Lender shall designate a different Lending Office with respect to
      its
      LIBO Rate Loans if such designation will avoid the need for giving such notice
      or making such demand and will not, in the judgment of such Lender, be illegal
      or otherwise disadvantageous to such Lender.

     

    3.3 Increased
      Costs and Reduction of Return.
      

     

    (a) If
      any
      Lender determines that, due to either (i) the introduction of or any change
      (other than any change by way of imposition of or increase in reserve
      requirements included in the calculation of the LIBO Rate) in or in the
      interpretation of any law or regulation or (ii) the compliance by that Lender
      with any guideline or request from any central bank or other Governmental
      Authority (whether or not having the force of law), there shall be any increase
      in the cost to such Lender of agreeing to make or making, funding or maintaining
      any LIBO Rate Loans, then the Company shall be liable for, and shall from time
      to time, upon demand (with a copy of such demand to be sent to the
      Administrative Agent), pay to the Administrative Agent for the account of such
      Lender, additional amounts as are sufficient to compensate such Lender for
      such
      increased costs.

     

    
      
        
        

      

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

     

    3.4 Funding
      Losses.
      The
      Company shall reimburse each Lender and hold each Lender harmless from any
      loss
      or expense which such Lender may sustain or incur as a consequence of (a) the
      failure of the Company to make on a timely basis any payment of principal of
      any
      LIBO Rate Loan; (b) the failure of the Company to continue a LIBO Rate Loan
      or
      to convert a Base Rate Loan to a LIBO Rate Loan after the Company has given
      (or
      is deemed to have given) a Notice of Conversion/Continuation (including by
      reason of the failure to satisfy any condition precedent thereto); (c) the
      failure of the Company to make any prepayment in accordance with any notice
      delivered under Section 2.4
      (whether
      pursuant to a permitted revocation of notice of prepayment or otherwise); (d)
      the prepayment (including pursuant to Section 2.4) or other payment (including
      after acceleration thereof) of a LIBO Rate Loan on a day that is not the last
      day of the relevant Interest Period; or (e) the automatic conversion under
      Section 2.3
      of any
      LIBO Rate Loan to a Base Rate Loan on a day that is not the last day of the
      relevant Interest Period; including any such loss or expense arising from the
      liquidation or reemployment of funds obtained by it to maintain its LIBO Rate
      Loans or from fees payable to terminate the deposits from which such funds
      were
      obtained. For purposes of calculating amounts payable by the Company to the
      Lenders under this Section 3.4
      and
      under Section 3.3(a),
      each
      LIBO Rate Loan made by a Lender (and each related reserve, special deposit
      or
      similar requirement) shall be conclusively deemed to have been funded at the
      LIBOR used in determining the LIBO Rate for such LIBO Rate Loan by a matching
      deposit or other borrowing in the interbank eurodollar market for a comparable
      amount and for a comparable period, whether or not such LIBO Rate Loan is in
      fact so funded.

     

    3.5 Inability
      to Determine Rates.
      If the
      Administrative Agent determines that for any reason adequate and reasonable
      means do not exist for determining the LIBO Rate for any requested Interest
      Period with respect to a proposed LIBO Rate Loan, or that the LIBO Rate
      applicable pursuant to Section 2.7(b)
      for any
      requested Interest Period with respect to a proposed LIBO Rate Loan does not
      adequately and fairly reflect the cost to the Lenders of funding such Loan,
      the
      Administrative Agent will promptly so notify the Company and each Lender.
      Thereafter, the obligation of the Lenders to make or maintain LIBO Rate Loans
      hereunder shall be suspended until the Administrative Agent upon the instruction
      of the Lenders revokes such notice in writing. Upon receipt of such notice,
      the
      Company may revoke any Notice of Conversion/Continuation then submitted by
      it.
      If the Company does not revoke such notice, the Lenders shall make, convert
      or
      continue the Loans, as proposed by the Company, in the amount specified in
      the
      applicable notice submitted by the Company, but such Loans shall be made,
      converted or continued as Base Rate Loans instead of LIBO Rate
      Loans.

     

    
      
        
        

      

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

     

    3.7 Substitution
      of Lenders.
      Upon
      (i) the receipt by the Company from any Lender of a claim for compensation
      under
      this Article
      III,
      (ii)
      the refusal of any Lender to execute any amendment, waiver or consent requiring
      the consent of all Lenders or all affected Lenders as to which Required Lenders
      have otherwise agreed or (iii) the occurrence and during the continuation of
      default by a Lender with respect to funding its Commitment (such Lender, an
      “Affected
      Lender”),
      the
      Company may: (a) obtain a replacement bank or financial institution reasonably
      satisfactory to the Administrative Agent to acquire and assume all or a ratable
      part of all of such Affected Lender’s Loans (a “Replacement
      Lender”);
      or
      (b) request one more of the other Lenders to acquire and assume all or part
      of
      such Affected Lender’s Loans, but none of the Lenders shall have any obligation
      to do so. Any such designation of a Replacement Lender under clause (a) shall
      be
      subject to the prior written consent of the Administrative Agent, which consent
      shall not be unreasonably withheld.

     

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

     

    ARTICLE
      IV

     

    SECURITY

     

    4.1 The
      Security.
      The
      Obligations will be secured by the Security Documents. 

     

    4.2 Agreement
      to Deliver Security Documents.
      The
      Company shall, and shall cause the Guarantors to, deliver, to further secure
      the
      Obligations whenever requested by the Administrative Agent in its sole and
      absolute discretion, deeds of trust, mortgages, chattel mortgages, security
      agreements, pledge agreements, financing statements and other Security Documents
      in form and substance satisfactory to the Administrative Agent for the purpose
      of granting, confirming, and perfecting second
      priority Liens or security interests in the Collateral. The Company shall
      deliver and shall cause the Guarantors to deliver whenever reasonably requested
      by the Administrative Agent, title opinions or other evidence of title
      reasonably satisfactory to the Administrative Agent with respect to the
      Mortgaged Properties designated by the Administrative Agent, based upon abstract
      or record examinations reasonably acceptable to the Administrative Agent and
      (a)
      evidencing that the Company or a Guarantor, as applicable, has good and
      indefeasible title to the Mortgaged Properties, free and clear of all Liens
      except Permitted Liens, (b) confirming that such Mortgaged Properties are
      subject to Security Documents securing the Obligations that constitute and
      create legal, valid and duly perfected second priority deed of trust or mortgage
      Liens in such Mortgaged Properties and interests, and assignments of and
      security interests in the Oil and Gas attributable to such Mortgaged Properties
      comprised of Oil and Gas Properties and interests and the proceeds thereof,
      in
      each case subject only to Permitted Liens, and (c) covering such other matters
      as the Administrative Agent may reasonably request. 

     

    
      
        
        

      

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

     

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

     

    4.5 Guaranty.
      

     

    (a) Each
      Original Guarantor has executed and delivered to the Administrative Agent,
      and
      each Subsidiary of the Company created, acquired or coming into existence after
      the date hereof that is required under Section 7.12 to become a Guarantor
      (including OPEX) shall execute and deliver to the Administrative Agent, a
      Guaranty setting forth therein an absolute and unconditional guaranty of the
      timely repayment of, and the due and punctual performance of the Obligations
      of
      the Company hereunder. The Company will cause each such Subsidiary to deliver
      to
      the Administrative Agent, simultaneously with its delivery of such a Guaranty,
      written evidence reasonably satisfactory to the Administrative Agent and its
      counsel that such Subsidiary has taken all corporate, limited liability company
      or partnership action necessary to duly approve and authorize its execution,
      delivery and performance of such Guaranty and any Security Documents and other
      documents which it is required to execute.

     

    
      
        
        

      

      
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    (b) Guaranty
      Representations.
      To
      induce the Lenders and the Administrative Agent to enter into this Agreement,
      the Company and each Guarantor represents and warrants to each such person,
      (i) in the case of the Original Guarantors, as of and after giving effect
      to the making of the Loans at the Effective Time, and (ii) in the case of
      OPEX after giving effect to the Output Acquisition and the making of the Loans
      at the Output Closing Time, as of the Output Closing Time:

     

    (i) Benefit
      to Guarantors.
      The
      board of directors, manager or general partner, where applicable, of each
      Guarantor has determined that such Guarantor’s execution, delivery and
      performance of this Agreement may reasonably be expected to directly or
      indirectly benefit such Guarantor and is in the best interests of such
      Guarantor.

     

    (ii) Reasonable
      Consideration for Guaranties.
      The
      direct or indirect value of the consideration received and to be received by
      such Guarantor in connection herewith is reasonably worth at least as much
      as
      the liability and obligations of each Guarantor hereunder and its Guaranty,
      and
      the incurrence of such liability and obligations in return for such
      consideration may reasonably be expected to benefit such Guarantor, directly
      or
      indirectly.

     

    (iii) No
      Insolvencies.
      Neither
      the Company nor any Guarantor is “insolvent” (that is, the sum of such Person’s
      absolute and contingent liabilities, including the Obligations, does not exceed
      the fair value of such Person’s assets, including any rights of contribution,
      reimbursement or indemnity). Each of the Company and each Guarantor has capital
      which is not unreasonably small for the businesses in which such Person is
      engaged and intends to be engaged. None of the Company nor any Guarantor has
      incurred (whether hereby or otherwise), nor does the Company or Guarantor intend
      to incur or believe that it will incur, liabilities which will be beyond its
      ability to pay as such liabilities mature.

     

    4.6 Maximum
      Liability.
      If and
      to the extent required in order for the obligations of any Guarantor to be
      enforceable under applicable federal, state and other laws relating to the
      insolvency of debtors, the maximum liability of such Guarantor hereunder shall
      be limited to the greatest amount which can lawfully be guaranteed by such
      Guarantor under such laws, after giving effect to any rights of contribution,
      reimbursement and subrogation arising under the Guaranty. 

     

    4.7 Production
      Proceeds.
      Notwithstanding that, by the terms of the various Security Documents, the
      Company and the Guarantors are and will be assigning to the Administrative
      Agent
      all of the Net Proceeds of Production accruing to the Mortgaged Properties
      covered thereby, so long as no Event of Default has occurred and is continuing,
      the Administrative Agent, on behalf of the Lenders, grants each of the Company
      and the Guarantors a revocable license to continue to receive from the
      purchasers of production all such Net Proceeds of Production, subject, however,
      to the Liens created under the Security Documents, which Liens are hereby
      affirmed and ratified. During the continuance of an Event of Default described
      under Sections 9.1(g)
      or
(h),
      this
      license shall be automatically revoked, and during the continuance of any other
      Event of Default, this license shall be revocable in the sole discretion of
      the
      Administrative Agent, by notice to the Company, and the Administrative Agent
      may
      exercise all rights and remedies granted under the Security Documents, including
      the right to obtain possession of all Net Proceeds of Production then held
      by
      the Company and the Guarantors or to receive directly from the purchasers of
      production all other Net Proceeds of Production. In no case shall any failure,
      whether purposeful or inadvertent, by the Administrative Agent to collect
      directly any such Net Proceeds of Production constitute in any way a waiver,
      remission or release of any of its rights under the Security Documents, nor
      shall any release of any Net Proceeds of Production by the Administrative Agent
      to the Company and the Guarantors constitute a waiver, remission, or release
      of
      any other Net Proceeds of Production or of any rights of the Administrative
      Agent to collect other Net Proceeds of Production thereafter.

     

    
      
        
        

      

      
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    ARTICLE
      V

     

    CONDITIONS
      PRECEDENT

     

    
      
        
        

      

      
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    5.1 Conditions
      of the
      Effective Date.
      The
      effectiveness of this Agreement is subject to the condition that on or before
      April 2, 2007 the
      Administrative Agent shall have received all of the following, in form and
      substance satisfactory to the Administrative Agent (or, in the case of clauses
      (g), (i) or (r), the conditions specified therein shall have been
      satisfied):

     

    (a) Credit
      Agreement and Related Documents.
      This
      Agreement, the Notes, the Guaranty and the Security Documents, duly
      executed and delivered by each of the Company and the Original Guarantors (as
      applicable);

     

    (b) First
      Lien Credit Documents.
      Evidence that (i) each of the First Lien Credit Documents has been duly executed
      and delivered by each of the parties thereto; and
      (ii)
      the Intercreditor Agreement has been duly executed and delivered by each of
      the
      parties thereto other than the Administrative Agent;

     

    (c) Resolutions;
      Incumbency; Organization Documents.
      (i)
      Resolutions of the board of directors of the Company and the sole director
      of
      each Original Guarantor authorizing the transactions contemplated hereby,
      certified as of the Effective Time by the Secretary or an Assistant Secretary
      of
      such Person; (ii) Certificates of the Secretary or an Assistant Secretary of
      the
      Company and the Secretary or an Assistant Secretary of each Original Guarantor
      certifying the names and true signatures of the officers of such Person
      authorized to execute, deliver and perform, as applicable, this Agreement,
      the
      Security Documents, the Guaranty, and all other Loan Documents to be delivered
      by it hereunder; and (iii) the Organization Documents of the Company and of
      each
      Original Guarantor as in effect on the Effective Time, certified by the
      Secretary or Assistant Secretary of the such Person as of the Effective
      Time; 

     

    (d) Good
      Standing.
      A good
      standing certificate for the Company and each Original Guarantor from its state
      of incorporation or formation, and evidencing its qualification to do business
      in (i) Texas for the Company and the Original Guarantors and (ii) in each other
      jurisdiction where its ownership, lease or operation of Properties or the
      conduct of its business requires such qualification, in each case as of a recent
      date;

     

    (e) Payment
      of Fees.
      Evidence of payment by the Company of all accrued and unpaid fees, costs and
      expenses owed pursuant to the Existing Company Credit Agreement (as defined
      in
      the First Lien Credit Agreement), the First Lien Credit Agreement and under
      this
      Agreement, including the Fee Letter Agreement, in each case to the extent then
      due and payable at the Effective Time, including any such costs, fees and
      expenses arising under or referenced in Sections 2.8
      and
11.4;

     

    (f) [Intentionally
      omitted.]

     

    (g) [Intentionally
      omitted.]

     

    (h) [Intentionally
      omitted.]

     

    (i) [Intentionally
      omitted.]

     

    (j) Insurance
      Certificates.
      Insurance certificates in form and substance reasonably satisfactory to the
      Administrative Agent, from the Company’s insurance carriers reflecting the
      current insurance policies required under Section 7.6
      including any necessary endorsements to reflect the Administrative Agent as
      loss
      payee for the ratable benefit of the Lenders, with the right to receive (absent
      a payment default) at least 30 days prior notice of cancellation of any such
      policy;

     

    
      
        
        

      

      
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    (k) Other
      Documents.
      Such
      other approvals, opinions, documents or materials as the Administrative Agent
      may reasonably request, including those in connection with the Output
      Acquisition; 

     

    (l) Opinions
      of Counsel.
      An
      opinion of Fulbright & Jaworski LLP covering such matters with respect to
      the Company, the Original Guarantors and OPEX as the Administrative Agent may
      reasonably require dated as of the Effective Time;
      (b)
      Gordon Arata McCollam Duplantis & Eagan LLP with respect to matters of
      Louisiana law in form and substance reasonably satisfactory to the
      Administrative Agent and (c) Conner & Winters with respect to matters of
      Oklahoma law in form and substance reasonably satisfactory to the Administrative
      Agent;

     

    (m) Output
      Acquisition.
      (i)
      Evidence that all conditions precedent under the Output Acquisition Agreement
      other than performance of the Company’s funding obligations under Section 2.4(c)
      thereof have been satisfied or waived by all parties thereto; and (ii) true
      and
      correct copies (in a form reasonably satisfactory to the Administrative Agent),
      certified as to authenticity by a Responsible Officer of the Company, of the
      Output Acquisition Documents;

     

    (n) Reserve
      Reports.
      The
      Initial Reserve Report and the Output Reserve Report; 

     

    (o) Lien
      Searches.
      Evidence of the results of a recent lien search in each of the jurisdictions
      in
      which UCC financing statements or other filings or recordations should be made
      to evidence or perfect security interests in any assets of the Company, each
      Original Guarantor, or
      OPEX,
      and such search shall reveal no Liens on any of the Property of the Company,
      any
      Original Guarantor, Output or OPEX, except for Permitted Liens;

     

    (p) [Intentionally
      omitted.] 

     

    (q) Filings,
      Registrations and Recordings.
      Each
      document (including, without limitation, any UCC financing statement) required
      by the Security Documents or under law or reasonably requested by the
      Administrative Agent to be filed, registered or recorded in order to create
      in
      favor of the Administrative Agent, for the benefit of the Lenders, a second
      priority perfected Lien on the Collateral described in any Security Document
      to
      which the Company or any Original Guarantor is (or, upon consummation of the
      Output Acquisition, to which OPEX will be) a party, prior and superior in right
      to any other Person (other than with respect to Permitted Liens (other than
      Liens described in Section 8.1(j)),
      shall
      have been filed, registered or recorded or shall have been delivered to the
      Administrative Agent in proper form for filing, registration or
      recordation;

     

    (r) Approvals.
      All
      government and third party approvals (including any consents) necessary in
      connection with the Output Acquisition, the continuing operations of the Company
      and its Subsidiaries and the transactions contemplated by the Transaction
      Documents shall have been obtained and 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 the Output Acquisition or the financing
      contemplated hereby;

     

    
      
        
        

      

      
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    (s) Solvency.
      A
      certificate from a Responsible Officer of the Company certifying that, on a
      consolidated basis, the Company and its Subsidiaries (i) as of the Effective
      Time, are, and (ii) after giving effect to the transactions contemplated hereby,
      including the Output Acquisition, will be, Solvent; 

     

    (t) Pledged
      Stock; Stock Powers; Acknowledgment and Consent; Pledged Notes.
      The
      First Lien Credit Agent, on behalf of itself, for the benefit of the First
      Lien
      Secured Parties, and as agent and bailee for the Administrative Agent, for
      the
      benefit of the Secured Parties, shall have received the certificates
      representing the shares of Capital Stock of the Original Guarantors pledged
      pursuant to the Security Agreement, together with an undated stock power for
      each such certificate executed in blank by a duly authorized officer of the
      pledgor thereof; and

     

    (u) Notice
      of Borrowing.
      The
      Administrative Agent shall have received a Notice of Borrowing in the form
      of
Exhibit
      A
      with
      respect to the Credit Extensions hereunder contemplated by Section
      2.1.

     

    5.2 [Intentionally
      Omitted.].
      

     

    ARTICLE
      VI

     

    REPRESENTATIONS
      AND WARRANTIES

     

    To
      induce
      the Lenders and the Administrative Agent to enter into this Agreement, the
      Company and each Guarantor represents and warrants to each such
      Person:

     

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

     

    6.2 Corporate
      Authorization; No Contravention.
      The
      execution, delivery and performance by the Company and the Guarantors of this
      Agreement and each other Transaction Document to which such Person is a party
      have been duly authorized by all necessary organizational action, and do not
      and
      will not: (a) contravene the terms of any of that Person’s Organization
      Documents; (b) contravene the First Lien Credit Agreement; (c) conflict with
      or
      result in any breach or contravention of, or the creation of any Lien under,
      any
      document evidencing any material Contractual Obligation to which such Person
      is
      a party that would be prior to the Liens granted to the Administrative Agent
      for
      the benefit of the Lenders, except to the extent such breach or contravention
      (but not creation of Liens) would not reasonably be expected to have a Material
      Adverse Effect, or any order, injunction, writ or decree of any Governmental
      Authority to which such Person or its Property is subject; or (d) violate in
      any
      material respect any Requirement of Law.

     

    
      
        
        

      

      
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    6.3 Governmental
      Authorization.
      No
      approval, consent, exemption, authorization, or other action by, or notice
      to,
      or filing with, any Governmental Authority is necessary in connection with
      the
      execution, delivery or performance by, or enforcement against, the Company
      or
      any of the Guarantors of this Agreement or any other Transaction Document to
      which it is a party, except for the filing of a Certificate of Merger with
      the
      Secretary of State of the State of Delaware with respect to the Output
      Acquisition, filings necessary to obtain and maintain perfection of Liens,
      routine filings related to the Company and the operation of its business, such
      filings as may be necessary in connection with the Lenders’ exercise of remedies
      hereunder and such other approvals, consents, exemptions, authorizations,
      actions or filings, the failure of which to obtain would not reasonably be
      expected to have a Material Adverse Effect.

     

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

     

    6.5 Litigation.
      Unless
      specifically disclosed in Schedule 6.5
      attached
      hereto, there are no actions, suits, proceedings, claims or disputes pending,
      or
      to the knowledge of the Company, threatened or contemplated, at law, in equity,
      in arbitration or before any Governmental Authority, against the Company or
      its
      Subsidiaries or any of their respective Properties which (i) as of the Effective
      Date purport to affect or pertain to this Agreement or any other Transaction
      Document, or any of the transactions contemplated hereby or thereby; or (ii)
      would reasonably be expected to have a Material Adverse Effect. No injunction,
      writ, temporary restraining order or any order of any nature has been issued
      by
      any court or other Governmental Authority purporting to enjoin or restrain
      the
      execution, delivery or performance of this Agreement or any other Transaction
      Document, or directing that the transactions provided for herein or therein
      not
      be consummated as herein or therein provided.

     

    6.6 No
      Default.
      Neither
      the Company nor any Subsidiary is in default under or with respect to any other
      Contractual Obligation in any respect which, individually or together with
      all
      such defaults, would reasonably be expected to have a Material Adverse
      Effect.

     

    6.7 ERISA
      Compliance.
      Except
      as specifically disclosed in Schedule 6.7:
      

     

    (a) Each
      Plan
      of the Company is in compliance in all material respects with the applicable
      provisions of ERISA, the Code and other federal or state law. Each Plan that
      is
      intended to be qualified under Code Section 401(a) is either (i) a
      prototype plan entitled to rely on the opinion letter issued by the IRS as
      to
      the qualified status of such plan under Section 401 of the Code to the extent
      provided in Revenue Procedure 2005-16, or (ii) the recipient of, or has
      made or will make timely application for, a determination letter from the IRS
      to
      the effect that such Plan is qualified, and the plans and trusts related thereto
      are exempt from federal income Taxes under Sections 401(a) and 501(a),
      respectively, of the Code. To the knowledge of the Company, nothing has occurred
      which would cause the loss of such qualification. The Company and each ERISA
      Affiliate have made all required contributions to any Plan subject to Section
      412 of the Code, and no application for a funding waiver or an extension of
      any
      amortization period pursuant to Section 412 of the Code has been made with
      respect to any Plan.

     

    
      
        
        

      

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

     

    (c) (i)
      No
      ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension
      Plan of the Company has any Unfunded Pension Liability; (iii) neither the
      Company nor any ERISA Affiliate has incurred, or reasonably expects to incur,
      any liability under Title IV of ERISA with respect to any Pension Plan (other
      than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
      the Company nor any ERISA Affiliate has incurred, or reasonably expects to
      incur, any liability (and no event has occurred which, with the giving of notice
      under Section 4219 of ERISA, would result in such liability) under Section
      4201
      or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the
      Company nor any ERISA Affiliate has engaged in a transaction that could be
      subject to Section 4069 or 4212(c) of ERISA.

     

    6.8 Use
      of
      Proceeds; Margin Regulations.
      The
      proceeds of the Loans shall be used solely for the purposes set forth in and
      permitted by Section 7.13.
      Neither
      the Company nor any Subsidiary is generally engaged in the business of
      purchasing or selling Margin Stock or extending credit for the purpose of
      purchasing or carrying Margin Stock.

     

    6.9 Title
      to
      Properties.
      The
      Company and each Guarantor (a) have good and indefeasible title to the Mortgaged
      Properties subject to no Liens, except Permitted Liens, and, except for such
      defects in title as would not, individually or in the aggregate, reasonably
      be
      expected to have a Material Adverse Effect and (b) have good and indefeasible
      title to, or valid leasehold interests in, all other Property necessary in
      the
      ordinary conduct of their respective businesses. 

     

    6.10 Oil
      and
      Gas Reserves.
      The
      Company and each Guarantor is and will hereafter be, in all material respects,
      the owner of the Oil and Gas that it purports to own from time to time in and
      under its Oil and Gas Properties, together with the right to produce the same.
      The Oil and Gas Properties are not subject to any Lien other than as set forth
      in the financial statements referred to in Section 6.14,
      as
      disclosed in such financial statements to the Lenders in writing prior to the
      Effective Time and Permitted Liens. All Oil and Gas has been and will hereafter
      be produced, sold and delivered by the Company and the Guarantors in accordance
      in all material respects with all applicable laws and regulations of every
      Governmental Authority except such laws and regulations, the failure to comply
      with which could not reasonably be expected to have a Material Adverse Effect;
      each of the Company and the Guarantors has complied in all material respects
      (from the time of acquisition by the Company or a Subsidiary) and will hereafter
      comply in all material respects with all material terms of each oil, gas and
      mineral lease comprising its Oil and Gas Properties; and all such oil, gas
      and
      mineral leases under which the Company or a Guarantor is a lessee or co-lessee
      have been and will hereafter be maintained in full force and effect;
      provided, however, that
      nothing in this Section 6.10
      shall
      prevent the Company or any Guarantor from disposing of any Property in
      accordance with Section 8.2. To the knowledge of the Company and the Guarantors,
      all of the Hydrocarbon Interests comprising its Oil and Gas Properties are
      and
      will hereafter be enforceable in all material respects in accordance with their
      terms, except as such may be modified by applicable bankruptcy law or an order
      of a court in equity and except to the extent the failure to be enforceable
      could not reasonably be expected to have a Material Adverse Effect.

     

    
      
        
        

      

      
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    6.11 Reserve
      Report.
      The
      Company has heretofore delivered to the Administrative Agent a true and complete
      copy of (i) a report dated effective as of December 31, 2006, prepared by
      DeGolyer and MacNaughton and a report dated effective as of December 31, 2006
      prepared by
      William M. Cobb & Associates, Inc. (collectively, the “Initial
      Reserve Report”)
      covering certain of the Company’s Oil and Gas Properties and (ii) a report dated
      effective as of October 1, 2006 prepared by the Company covering
      certain Oil and Gas Properties of Output and OPEX (the “Output
      Reserve Report”).
      To
      the knowledge of the Company, (w) the assumptions stated or used in the
      preparation of each Reserve Report are reasonable as of the date thereof, (x)
      all information furnished by the Company or any Guarantor to the Independent
      Engineer for use in the preparation of any Reserve Report was accurate in all
      material respects, (y) there has been no material adverse change in the amount
      of the estimated Proved Reserves shown in any Reserve Report since the date
      thereof, except for changes which have occurred as a result of production in
      the
      ordinary course of business, and (z) each Reserve Report does not, in any case,
      omit any material statement or information necessary to cause the same not
      to be
      materially misleading to the Lenders.

     

    6.12 Gas
      Imbalances.
      Except
      as disclosed to the Administrative Agent in writing prior to the Effective
      Time,
      there are no gas imbalances, take or pay or other prepayments with respect
      to
      any of the Oil and Gas Properties in excess of $2,000,000 in the aggregate
      that
      would require the Company or any Guarantor to deliver Oil and Gas produced
      from
      any of the Oil and Gas Properties at some future time without then or thereafter
      receiving full payment therefor. 

     

    6.13 Taxes.
      The
      Company and its Subsidiaries have filed all federal Tax returns and reports
      required to be filed, and have paid all federal Taxes, assessments, fees and
      other governmental charges levied or imposed upon them or their Properties,
      income or assets otherwise due and payable, except those which are being
      contested in good faith by appropriate proceedings and for which adequate
      reserves have been provided in accordance with GAAP. The Company and its
      Subsidiaries have filed all material state and other non-federal Tax returns
      and
      reports required to be filed, and have paid all state and other non-federal
      Taxes, assessments, fees and other governmental charges levied or imposed upon
      them or their Properties, income or assets prior to delinquency thereof, except
      those (a) which are not overdue by more than 30 days and (b) which are being
      contested in good faith by appropriate proceedings and for which adequate
      reserves have been provided in accordance with GAAP. To the Company’s knowledge,
      there is no proposed Tax assessment against the Company or any Subsidiary that
      would, if made, reasonably be expected to have a Material Adverse
      Effect.

     

    
      
        
        

      

      
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    6.14 Financial
      Statements and Condition.

     

    (a) The
      Company Audited Financial Statements and the Company’s unaudited consolidated
      financial statements for the nine months ended September 30, 2006 incorporated
      in the Company’s Form 10-Q filed with the SEC on November 9, 2006 (i) were
      prepared in accordance with GAAP consistently applied throughout the periods
      covered thereby, except as otherwise expressly noted therein; (ii) fairly
      present in all material respects the consolidated financial condition of the
      Company and its Subsidiaries,
      as of
      the dates thereof and results of operations for the periods covered thereby
      (subject, in the case of the Company’s unaudited consolidated financial
      statements referred to above, to normal year-end audit adjustments and the
      absence of footnotes); and (iii) except as specifically disclosed in Schedule
      6.14(a) or
      in the
      case of the Company and its Subsidiaries,
      in the
      Company Audited Financial Statements or the Company’s unaudited consolidated
      financial statements referred to above, the
      Company and its Subsidiaries do not have any material Indebtedness or other
      material liabilities, direct or contingent, as of the date hereof, including
      liabilities for Taxes, material commitments or Contingent
      Obligations.

     

    (b) During
      the period from December 31, 2006 to and including the date hereof there has
      been no Disposition by the Company or any Subsidiaries of any material part
      of
      its business or Property, other than Dispositions permitted by Section
8.2(a),
      (b),
      (c),
      (d)
      or
(e).

     

    6.15 Environmental
      Matters.
      Each of
      the Company and its Subsidiaries is in compliance with all Environmental Laws
      and there exist no Environmental Claims on or with respect to its respective
      business, operations and Properties, except as specifically disclosed in
      Schedule 6.15
      or such
      non-compliance with Environmental Laws, or Environmental Claims as would not,
      individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect.

     

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

     

    6.17 No
      Burdensome Restrictions.
      Except
      as set forth on Schedule 6.17, neither the Company nor any Subsidiary is a
      party
      to or bound by any Contractual Obligation, or subject to any restriction in
      any
      Organization Document, or any Requirement of Law, which would reasonably be
      expected to have a Material Adverse Effect.

     

    6.18 Copyrights,
      Patents, Trademarks and Licenses, etc.
      The
      Company and each Subsidiary own or are licensed or otherwise have the right
      to
      use all of the material patents, trademarks, service marks, trade names,
      copyrights, contractual franchises, authorizations and other rights that are
      reasonably necessary for the operation of their respective businesses, without
      material conflict with the rights of any other Person. To the knowledge of
      the
      Company, no slogan or other advertising device, product, process, method,
      substance, part or other material now employed, or now contemplated to be
      employed, by the Company or any Subsidiary infringes upon any rights held by
      any
      other Person, except to the extent such infringement could not reasonably be
      expected to have a Material Adverse Effect. Except as specifically disclosed
      in
      Schedule 6.5,
      no
      claim or litigation regarding any of the foregoing is pending or, to the
      knowledge of the Company, threatened, and no patent, invention, device,
      application, principle or any statute, law, rule, regulation, standard or code
      is pending or, to the knowledge of the Company, proposed, which, in either
      case,
      would reasonably be expected to have a Material Adverse Effect.

     

    
      
        
        

      

      
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    6.19 Subsidiaries.
      As of
      the Effective Time and, after giving effect to the Output Acquisition as of
      the
      Output Closing Time, the Company has no Subsidiary other than those specifically
      disclosed in part (a) of Schedule 6.19
      hereto
      and has no material equity investments in any other Person other than those
      specifically disclosed in part (b) of Schedule 6.19. The capitalization of
      each
      Subsidiary and the ownership of its Capital Stock is set forth on
      Schedule 6.19 hereto.

     

    6.20 Insurance.
      The
      Properties of the Company and each Subsidiary are insured with financially
      sound
      and reputable insurance companies that are not Affiliates of the Company, in
      such amounts, with such deductibles and covering such risks as are customarily
      carried by companies engaged in similar businesses and owning similar Properties
      in localities where the Company or such Subsidiary operates, except where the
      failure to do so could not reasonably be expected to have a Material Adverse
      Effect.

     

    6.21 Full
      Disclosure.
      None of
      the representations or warranties made by the Company or any Guarantor in the
      Loan Documents as of the date such representations and warranties are made
      or
      deemed made, and none of the statements contained in any exhibit, report,
      written statement or certificate furnished by or on behalf of the Company or
      any
      Guarantor in connection with the Loan Documents, taken as whole, contains any
      untrue statement of a material fact known to the Company or omits any material
      fact known to the Company required to be stated therein or necessary to make
      the
      statements made therein, in light of the circumstances under which they are
      made, not materially misleading as of the time when made or delivered.

     

    6.22 Solvency.
      The
      Company and its Subsidiaries, taken as a whole are, and after giving effect
      to
      (a) the Output Acquisition and the incurrence of all Indebtedness and
      obligations being incurred in connection herewith and therewith, and (b) all
      rights of contribution of such Person against other Loan Parties under the
      Guaranty, at law, in equity or otherwise, will be and will continue to be,
      Solvent.

     

    6.23 Labor
      Matters.
      Except
      to the extent such matters do not to constitute a Material Adverse Effect,
      (a)
      no actual or threatened strikes, labor disputes, slowdowns, walkouts, work
      stoppages, or other concerted interruptions of operations that involve any
      employees employed at any time in connection with the business activities or
      operations at the Property of the Company or any Subsidiary exist, (b) hours
      worked by and payment made to the employees of the Company have not been in
      violation of the Fair
      Labor Standards Act
      or any
      other applicable laws pertaining to labor matters, (c) all payments due from
      the
      Company or any Subsidiary for employee health and welfare insurance, including,
      without limitation, workers compensation insurance, have been paid or accrued
      as
      a liability on its books, and (d) the business activities and operations of
      the
      Company and each Subsidiary are in compliance with the Occupational Safety
      and
      Health Act and other applicable health and safety laws.

     

    
      
        
        

      

      
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    6.24 Midstream
      Contracts.
      As of
      the Effective Date, the Company’s and the Guarantors’ marketing, gathering,
      transportation, processing and treating facilities and equipment, together
      with
      the Midstream Contracts, and any other marketing, gathering, transportation,
      processing and treating contracts in effect among, inter alia, the Company,
      any
      Guarantor and any other Person, are, except as set forth on Schedule
6.24,
      sufficient to market, gather, transport, process or treat, as applicable,
      reasonably anticipated volumes of production of Oil and Gas from the Company’s
      and the Guarantors’ Oil and Gas Properties. Any such contracts with Affiliates
      are disclosed on Schedule 6.24
      hereto.

     

    6.25 Derivative
      Contracts.
      Neither
      the Company nor any Subsidiary is party to any Derivative Contract other than
      (a) as of the Effective Time, the Existing Derivative Contracts or
      (b) after the Effective Time, Derivative Contracts permitted by Section
8.10.

     

    6.26 Exempt
      Subsidiaries; TTSI.
      Neither
      any Exempt Subsidiary nor TTSI owns any Hydrocarbon Interests with which Proved
      Reserves are associated. 

     

    6.27 [Intentionally
      Omitted.]

     

    6.28 Output
      Acquisition Documents.
      Following the execution and delivery of the Output Acquisition Documents listed
      on Schedule 6.28,
      such
      documents will constitute all of the material agreements, instruments and
      undertakings with Output or its Affiliates to which the Company or any of its
      Subsidiaries is bound or by which such Person or any of its Property is bound
      or
      affected relating to the Output Acquisition (other than agreements, instruments
      or undertakings of Output and its Subsidiary existing prior to the completion
      of
      the Output Acquisition).

     

    6.29 Security
      Documents.
      

     

    (a) The
      Security Agreement is effective to create in favor of the Administrative Agent,
      for the benefit of the Secured Parties, a legal, valid, binding and enforceable
      security interest in the Collateral described therein and proceeds and products
      thereof. In the case of the Pledged Stock described in the Security Agreement,
      when any stock certificates representing such Pledged Stock are delivered to
      the
      First Lien Credit Agent, as agent and bailee for the Administrative Agent,
      and
      in the case of the other Collateral described in the Security Agreement which
      may be perfected by filing a financing statement, when financing statements
      in
      appropriate form are filed in the offices specified on
      Schedule 6.29(a)-1
      (which financing statements may be filed by the Administrative Agent) and such
      other filings as are specified on Schedule 3 to the Security Agreement have
      been
      completed (all of which filings may be filed by the Administrative Agent),
      the
      Security Agreement shall constitute a fully perfected Lien on, and security
      interest in, all right, title and interest of the Loan Parties in such
      Collateral and the proceeds and products thereof, as security for the
      Obligations, in each case prior and superior in right to any other Person
      (except Permitted Liens). Schedule 6.29(a)-2
      lists each UCC financing statement that (i) names any Loan Party as debtor
      and
      (ii) will be terminated on or prior to the Effective Time or the Output Closing
      Time (as applicable).

     

    
      
        
        

      

      
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    (b) Each
      of
      the Mortgages is effective to create in favor of the Administrative Agent,
      for
      the benefit of the Secured Parties, a legal, valid, binding and enforceable
      Lien
      on the Mortgaged Properties described therein and proceeds and products thereof;
      and when the Mortgages are filed in the offices specified on
      Schedule 6.29(b)
      (in
      the case of Mortgages to be executed and delivered on the Effective Date or
      the
      Output Closing Time (as applicable)) or in the recording office designated
      by
      the Company (in the case of any Mortgage to be executed and delivered pursuant
      to Section 7.14(b)),
      each
      Mortgage shall constitute a fully perfected Lien on, and security interest
      in,
      all right, title and interest of the Loan Parties in the Mortgaged Properties
      described therein and the proceeds and products thereof, as security for the
      Obligations, in each case prior and superior in right to any other Person (other
      than Persons holding Liens or other encumbrances or rights permitted by the
      relevant Mortgage).

     

    ARTICLE
      VII

     

    AFFIRMATIVE
      COVENANTS

     

    So
      long
      as any Lender shall have any Commitment hereunder, or any Loan or other
      Obligation shall remain unpaid or unsatisfied: 

     

    7.1 Financial
      Statements.
      The
      Company and each Guarantor shall, and shall cause each of its Subsidiaries
      to
      deliver to the Administrative Agent who will deliver to each
      Lender:

     

    (a) as
      soon
      as available, but not later than March 31, 2007 and not later than 90 days
      after
      the end of each fiscal year ending thereafter, a copy of the annual audited
      consolidated balance sheet of the Company and its Subsidiaries as at December
      31, 2006 and as at the end of such year ending thereafter, respectively, and
      the
      related consolidated statements of operations and retained earnings,
      comprehensive income and cash flows for such year, setting forth in each case
      in
      comparative form the figures for the previous fiscal year; the Company’s
      financial statements shall be accompanied by the unqualified opinion (or, if
      qualified, of a non-material nature (e.g. FASB changes of accounting principles)
      or nothing indicative of going concern or material misrepresentation nature)
      and
      a copy of the management letter of Akin, Doherty, Klein & Feuge P.C. or
      other independent public accounting firm acceptable to the Administrative Agent
      (the “Independent
      Auditor”),
      which
      report shall state that such consolidated financial statements present fairly
      in
      all material respects the consolidated financial position of the Company and
      its
      Subsidiaries at the end of such periods and the results of their operations
      and
      their cash flows for the periods indicated in conformity with GAAP;
      and

     

    (b) as
      soon
      as available, but not later than 60 days after the close of each of the first
      three Fiscal Quarters in any fiscal year, a copy of the unaudited consolidated
      balance sheet of the Company as of the end of such quarter and the related
      consolidated statements of operations and retained earnings, comprehensive
      income and cash flows for the period commencing on the first day and ending
      on
      the last day of such period, setting forth in each case in comprehensive form
      the figures for the comparable period in the previous fiscal year and certified
      by a Responsible Officer as fairly presenting in all material respects, in
      accordance with GAAP (subject to normal year-end audit adjustments and the
      absence of footnotes), the consolidated financial position of the Company and
      its Subsidiaries at the end of such periods and the results of their operations
      and their cash flows.

     

    
      
        
        

      

      
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    (c) Documents
      required to be delivered pursuant to Section 7.1(a)
      or
      Section 7.1(b)
      may be
      delivered electronically and if so delivered, shall be deemed to have been
      delivered on the date (i) on which the Company posts such documents, or provides
      a link thereto on the Company’s website on the Internet and (ii) on which such
      documents are posted on the Company’s behalf on an Internet or intranet website,
      if any, to which each Lender and the Administrative Agent have access (whether
      a
      commercial, third-party website or whether sponsored by the Administrative
      Agent); provided, however, that (x) the Company shall deliver paper copies
      of
      such documents to the Administrative Agent or any Lender that requests the
      Company to deliver such paper copies until a written request to cease delivering
      paper copies is given by the Administrative Agent or such Lender and (y) the
      Company shall notify the Administrative Agent and each Lender (by telecopier
      or
      electronic mail) of the posting of any such documents and provide to the
      Administrative Agent by electronic mail electronic versions (i.e., soft copies)
      of such documents. Notwithstanding anything contained herein, in every instance
      the Company shall be required to provide paper copies of the Compliance
      Certificates required by Section 7.2(b)
      to the
      Administrative Agent. 

     

    (d) The
      Company hereby acknowledges that (i) the Administrative Agent will make
      available to the Lenders materials and/or information provided by or on behalf
      of the Company hereunder (collectively, “Company
      Materials”)
      by
      posting the Company Materials on IntraLinks or another similar electronic system
      (the “Platform”)
      and
      (ii) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do
      not wish to receive material non-public information with respect to the Company
      or its securities) (each, a “Public
      Lender”).
      The
      Company hereby agrees that (w) all Company Materials that are to be made
      available to Public Lenders shall be clearly and conspicuously marked “PUBLIC”
which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently
      on the first page thereof; (x) by marking Company Materials “PUBLIC,” the
      Company shall be deemed to have authorized the Administrative Agent and the
      Lenders to treat such Company Materials as either publicly available information
      or not material information (although it may be sensitive and proprietary)
      with
      respect to the Company or its securities for purposes of United States Federal
      and state securities laws; (y) all Company Materials marked “PUBLIC” are
      permitted to be made available through a portion of the Platform designated
      “Public Investor”; and (z) the Administrative Agent shall be entitled to treat
      Company’s Materials that are not marked “PUBLIC” as being suitable only for
      posting on a portion of the Platform not designated “Public
      Investor.”

     

    7.2 Certificates;
      Other Production and Reserve Information.
      The
      Company shall furnish to the Administrative Agent and each Lender:

     

    (a) as
      soon
      as available, but not later than 60 days after the close of each of the first
      three Fiscal Quarters in any fiscal year and not later than 90 days after the
      close of each Fiscal Year, a Quarterly Status Report in a form reasonably
      acceptable to the Lenders, as of the last day of the immediately preceding
      quarter;

     

    
      
        
        

      

      
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    (b) concurrently
      with the delivery of the financial statements referred to in Sections
7.1(a)
      and
(b),
      and the
      reports referred to in Section 7.2(a),
      a
      Compliance Certificate executed by a Responsible Officer;

     

    (c) on
      or
      before (i) April 1 of each year during the term of this Agreement, a Reserve
      Report effective as of January 1 of such year prepared by DeGolyer and
      MacNaughton, William M. Cobb & Associates, Inc., Netherland Sewell &
Associates, Inc., or other independent petroleum engineer acceptable to the
      Administrative Agent (the “Independent
      Engineer”)
      and
      (ii) October 1 of each year during the term of this Agreement, a Reserve Report
      effective as of July 1 of such year prepared by the Company in substantially
      the
      same form as the January 1 Reserve Report and certified by a Responsible Officer
      as true and correct in all material respects,
      in each
      case in form reasonably acceptable to the Administrative Agent;

     

    (d) promptly
      upon the request of the Administrative Agent, at the request of any Lender,
      copies of all geological, engineering and related data contained in the
      Company’s files or readily accessible to the Company relating to its and the
      Guarantors’ Oil and Gas Properties as may reasonably be requested;

     

    (e) [Intentionally
      omitted];

     

    (f) promptly
      upon its completion in each fiscal year of the Company commencing with the
      2007
      fiscal year through and including the 2010
      fiscal
      year, and not later than the date of delivery of the annual financial statements
      for the prior fiscal year, a
      copy of
      the annual budget of the Company and its Subsidiaries on a consolidated basis
      for such fiscal year, projecting total Oil and Gas revenue, total revenue,
      total
      operating costs and expenses, Consolidated Net Income, Consolidated Interest
      Expense, Consolidated EBITDAX and total capital expenditures, by fiscal quarter;
      it
      being
      understood that such projections are not to be viewed as facts, that actual
      results may vary and that such variances may be material;

     

    (g) copies
      of
      all Derivative Contracts then in effect not later than January 1 and July 1
      of
      each year beginning July 2, 2007; and

     

    (h) promptly,
      such additional information regarding the business, financial or corporate
      affairs of the Company or any Subsidiary as the Administrative Agent, at the
      request of any Lender, may from time to time reasonably request.

     

    7.3 Notices.
      The
      Company shall promptly notify the Administrative Agent and each Lender in
      writing:

     

    (a) of
      the
      occurrence of any Default or Event of Default;

     

    (b) of
      any
      matter that has resulted or may reasonably be expected to result in a Material
      Adverse Effect, including arising out of or resulting from (i) a material breach
      or non performance of, or any default under, a Contractual Obligation of the
      Company or any Subsidiary or any allegation thereof; (ii) any material dispute,
      litigation, investigation, proceeding or suspension between the Company or
      any
      Subsidiary and any Governmental Authority; or (iii) the commencement of, or
      any
      material development in, any material litigation or proceeding affecting the
      Company or any Subsidiary, including pursuant to any applicable Environmental
      Laws; and
      

     

    
      
        
        

      

      
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    (c) of
      the
      formation or acquisition of any Subsidiary (other than Output or
      OPEX).

     

    Each
      notice under this Section 7.3
      shall be
      accompanied by a written statement by a Responsible Officer setting forth
      details of the occurrence referred to therein, and, in the case of notices
      delivered pursuant to Sections
      7.3(a)
      or
(b),
      stating
      what action the Company or any affected Subsidiary proposes to take with respect
      thereto and at what time. Each notice under Section 7.3(a)
      shall
      describe with particularity any and all clauses or provisions of this Agreement
      or other Loan Document that have been (or foreseeably will be) breached or
      violated.

     

    7.4 Preservation
      of Company Existence, Etc.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to:

     

    (a) preserve
      and maintain in full force and effect its legal existence, and maintain its
      good
      standing under the laws of its state or jurisdiction of formation, except in
      a
      transaction permitted by Section 8.3 or where the failure to do so could not
      reasonably be expected to have a Material Adverse Effect;

     

    (b) preserve
      and maintain in full force and effect all governmental rights, privileges,
      qualifications, permits, licenses and franchises necessary or desirable in
      the
      normal conduct of its business except where the failure to do so could not
      reasonably be expected to have a Material Adverse Effect;

     

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

     

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

     

    7.5 Maintenance
      of Property.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to, maintain and preserve all its Property which is used or useful
      in its business in good working order and condition, ordinary wear and tear
      excepted and to use the standard of care typical in the industry in the
      operation and maintenance of its facilities, except where the failure to do
      so
      would not reasonably be expected to have a Material Adverse Effect; provided,
      however, that nothing in this Section 7.5
      shall
      prevent the Company or any Guarantor from making any Disposition permitted
      by
      Section 8.2.

     

    7.6 Insurance.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to, maintain, with financially sound and reputable independent
      insurers, insurance with respect to its Properties and business against loss
      or
      damage of the kinds customarily insured against by Persons engaged in the same
      or similar business, of such types and in such amounts as are customarily
      carried under similar circumstances by such other Persons except where the
      failure to do so would not reasonably be expected to have a Material Adverse
      Effect.

     

    
      
        
        

      

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

     

    7.8 Compliance
      with Laws.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to, comply in all material respects with all Requirements of Law
      of
      any Governmental Authority having jurisdiction over it or its business
      (including the Federal Fair Labor Standards Act), including with respect to
      the
      transactions contemplated by the Output Acquisition, except (a) such as may
      be
      contested in good faith or as to which a bona fide dispute may exist or (b)
      where the failure to do so would not reasonably be expected to have a Material
      Adverse Effect.

     

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

     

    7.10 Inspection
      of Property and Books and Records.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to, maintain proper books of record and account, in which full,
      true and correct entries in conformity with GAAP consistently applied shall
      be
      made of all financial transactions and matters involving the assets and business
      of the Company and such Subsidiary. The Company and each Guarantor shall permit
      representatives and independent contractors of the Administrative Agent or
      any
      Lender to visit and inspect any of their respective Properties, to examine
      their
      respective corporate, financial and operating records, and make copies thereof
      or abstracts therefrom, and to discuss their respective affairs, finances and
      accounts with their respective managers, directors, officers, and independent
      public accountants, all at the expense of the Company and at such reasonable
      times during normal business hours and as often as may be reasonably desired,
      upon reasonable advance notice to the Company; provided, however, that,
      excluding any such visits and inspections during the continuance of an Event
      of
      Default, only the Administrative Agent, on behalf of the Lenders, may exercise
      the rights under this Section 7.10 and such exercise shall not occur more
      frequently than once per fiscal year; provided further, however, when an Event
      of Default exists the Administrative Agent or any Lender may do any of the
      foregoing at the expense of the Company at any time during normal business
      hours
      and without advance notice.

     

    
      
        
        

      

      
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    7.11 Environmental
      Laws.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to, conduct its respective operations and keep and maintain their
      respective Properties in compliance with all Environmental Laws, except where
      the failure to do so would not reasonably be expected to have a Material Adverse
      Effect.

     

    7.12 New
      Subsidiary Guarantors.
      If, at
      any time after the Output Closing Time, there exists any Subsidiary that is
      not
      either a Guarantor or an Exempt Subsidiary, then the Company and each Guarantor
      shall, on the date any such Subsidiary is acquired or formed, (a) cause each
      such Subsidiary to execute and deliver a joinder to the Guaranty to the
      Administrative Agent, (b) pledge or cause to be pledged to the Administrative
      Agent for the benefit of the Lenders all of the outstanding Capital Stock
      thereof pursuant to a Security Document satisfactory to the Administrative
      Agent, to be held by the First Lien Credit Agent on behalf of itself, for the
      benefit of the First Lien Secured Parties, and the Administrative Agent, for
      the
      benefit of the Secured Parties, and (c) cause such Subsidiary to execute and
      deliver such Security Documents as may be required pursuant to Sections
4.2,
      4.5(a)
      or
7.14(b).
      Upon
      the execution and delivery by any Subsidiary of a joinder to the Guaranty,
      such
      Subsidiary shall automatically and immediately, and without any further action
      on the part of any Person, (i) become a Guarantor for all purposes of this
      Agreement and (ii) be deemed to have made the representations and warranties,
      as
      applied to and including such new Subsidiary, set forth in this
      Agreement.

     

    7.13 Use
      of
      Proceeds.
      The
      Company and each Guarantor shall, and shall cause each of its respective
      Subsidiaries to, use the proceeds of the Loans only for the following purposes:
      at the Output Closing Time, together with proceeds of the First Lien Loans,
      to
      fund the Company’s payment obligations under Section 2.4 of the Output
      Acquisition Agreement (other than fees and expenses incurred in connection
      with
      the Output Acquisition) in an aggregate amount not to exceed $96,000,000,
      subject to usual and customary adjustments for transactions of such nature.
      

     

    7.14 Further
      Assurances.
      

     

    (a) The
      Company and each Guarantor shall promptly (and in no event later than 20 days
      (or such late date as may be agreed by the Administrative Agent) after becoming
      aware of the need therefor) cure any defects in the creation and issuance of
      the
      Notes and the execution and delivery of this Agreement, the Security Documents
      or any other instruments referred to or mentioned herein or therein. The Company
      and the Guarantors shall, at the Company’s expense, promptly (and in no event
      later than 20 days (or such late date as may be agreed by the Administrative
      Agent) after becoming aware of the need therefor) do all acts and things, and
      execute and file or record, all instruments reasonably requested by the
      Administrative Agent, to establish, perfect, maintain and continue the perfected
      security interest of the Lenders in or the Lien of the Lenders on the Mortgaged
      Properties. 

     

    (b) The
      Company shall promptly (and in no event later than ten Business Days after
      the
      need arises) execute and cause its Subsidiaries that are Guarantors to execute
      such additional Security Documents in form and substance reasonably satisfactory
      to Administrative Agent, granting to Administrative Agent fully perfected Liens
      on Oil and Gas Properties that are not then part of the Mortgaged Properties,
      subject only to the Liens securing the Collateral in respect of the First Lien
      Credit Documents (the “First
      Liens”)
      and
      other Permitted Liens, sufficient to cause the Mortgaged Properties to include
      at all times eighty-five percent (85%) of the Net Present Value of the Proved
      Reserves and at least ninety percent (90%) of the Net Present Value of the
      Proved Developed Producing Reserves, in each case as set forth in the most
      recent Reserve Report. In
      addition, the
      Company and each Guarantor shall furnish
      to the Administrative Agent title due diligence in form satisfactory to the
      Administrative Agent and will furnish all other documents and information
      relating to such Mortgaged Properties as the Administrative Agent may reasonably
      request. The Company shall pay the reasonable out-of-pocket costs and expenses
      of all filings and recordings and all searches reasonably deemed necessary
      by
      the Administrative Agent to establish and determine the validity and the
      priority of the Liens created or intended to be created by the Security
      Documents; and the
      Company and each Guarantor shall satisfy
      all other claims and charges which in the reasonable opinion of the
      Administrative Agent might prejudice, impair or otherwise affect any of the
      Mortgaged Properties or the Lenders’ Lien thereon.

     

    
      
        
        

      

      
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    (c) With
      respect to any Collateral (whether tangible or intangible, but excluding titled
      vehicles or other Collateral with respect to which a security interest cannot
      be
      perfected by the filing of a financing statement under the UCC) acquired after
      the Effective Date by the Company or any Guarantor as to which the
      Administrative Agent, for the benefit of the Secured Parties, does not otherwise
      have a fully perfected Lien subject only to the First Liens, promptly (and
      in no
      event later than twenty (20) days (or such later date as may be agreed by the
      Administrative Agent) after becoming aware of the need therefor) take all
      actions necessary or advisable to grant to the Administrative Agent, for the
      benefit of the Secured Parties, fully perfected second priority security
      interest in such Collateral, subject only to the First Liens and other Permitted
      Liens, including without limitation, the filing of UCC financing statements
      in
      such jurisdictions as may be required by the Security Documents or by law or
      as
      may be reasonably requested by the Administrative Agent; provided, however,
      notwithstanding the foregoing, Property will be excluded from the Collateral
      in
      circumstances where the Administrative Agent and the Company agree that the
      cost
      of obtaining a security interest in such Property is excessive in relation
      to
      the value afforded thereby, or if the granting of a security interest in such
      Property would be prohibited by contract (other than any non-assignment of
      payment intangibles provision that is unenforceable under the UCC) or any
      applicable Requirement of Law.

     

    7.15 Output
      Acquisition.
      The
      Company shall cause the Output Acquisition to be consummated substantially
      on
      the terms described in the Output Acquisition Agreement.

     

    ARTICLE
      VIII

     

    NEGATIVE
      COVENANTS

     

    So
      long
      as any Lender shall have any Commitment hereunder, or any Loan or other
      Obligation shall remain unpaid or unsatisfied:

     

    8.1 Limitation
      on Liens.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer
      to exist any Lien upon or with respect to any part of its Property, whether
      now
      owned or hereafter acquired, other than the following:

     

    (a) any
      Lien
      on Property of the Company or any Subsidiary as set forth in Schedule
8.1
      and any
      modifications, replacements, renewals or extensions thereof; provided, however,
      that (i) the Lien does not extend to any additional Property other than (A)
      after-acquired Property that is affixed or incorporated into the Property
      covered by such Lien or financed by Indebtedness permitted under Section
8.5,
      and
      (B) proceeds and products thereof and (ii) the modification, replacement,
      renewal, extension or refinancing of the obligations secured or benefited by
      such Liens (if such obligations constitute Indebtedness) is permitted by Section
      8.5;

     

    
      
        
        

      

      
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    (b) any
      Lien
      created under any Loan Document;

     

    (c) Liens
      for
      Taxes, fees, assessments or other governmental charges which are not delinquent
      or remain payable without penalty, or to the extent that non payment thereof
      is
      permitted by Section 7.7;

     

    (d) carriers’,
      warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’s or other
      similar Liens arising in the ordinary course of business (whether by law or
      by
      contract) which (i) are not delinquent, (ii) remain payable without penalty,
      (iii) are being contested in good faith and by appropriate proceedings, which
      proceedings have the effect of preventing the forfeiture or sale of the Property
      subject thereto or (iv) the failure of which to pay could not reasonably be
      expected to have a Material Adverse Effect;

     

    (e) Liens
      consisting of (i) pledges or deposits required in the ordinary course of
      business in connection with workers’ compensation, unemployment insurance and
      other social security legislation; (ii) pledges and deposits in the
      ordinary course of business not exceeding $625,000 in the aggregate securing
      insurance premiums or reimbursement obligations under insurance policies, in
      each case payable to insurance carriers that provide insurance to the Company
      or
      any of its Subsidiaries; or (iii) obligations in respect of letters of
      credit or bank guarantees that have been posted by the Company or any of its
      Subsidiaries to support the payments of the items set forth in clauses (i)
      and
      (ii) of this Section 8.1;

     

    (f) easements,
      rights of way, restrictions, defects or other exceptions to title and other
      similar encumbrances incurred in the ordinary course of business which, in
      the
      aggregate, are not material in amount, are not incurred to secure Indebtedness,
      and which do not in any case materially detract from the value of the Property
      subject thereto or interfere with the ordinary conduct of the businesses of
      the
      Company, the Guarantors and their respective Subsidiaries; 

     

    (g) Liens
      on
      the Property of the Company, any Guarantor or any Subsidiary of such Person
      securing (i) the non-delinquent performance of bids, trade contracts (other
      than
      for borrowed money), leases or statutory obligations, (ii) Contingent
      Obligations on surety, performance and appeal bonds, and (iii) other
      non-delinquent obligations of a like nature; in each case, incurred in the
      ordinary course of business;

     

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

     

    
      
        
        

      

      
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    (i) Oil
      and
      Gas Liens to secure obligations which are not delinquent and which do not in
      any
      case materially detract from the value of the Oil and Gas Property subject
      thereto; 

     

    (j) Liens
      on
      the Collateral securing the First Lien Obligations; provided, however, that
      such
      Liens are subject to the Intercreditor Agreement;
      

     

    (k) Liens
      on
      Property of Exempt Subsidiaries securing Non-Recourse Debt permitted to be
      incurred under Section 8.5(d);

     

    (l) Liens
      securing judgments for the payment of money not constituting an Event of
      Default;

     

    (m) Liens
      securing purchase money Indebtedness and Capitalized Leases permitted hereunder;
      provided, however, that such Liens do not at any time encumber any Property
      other than the Property (including after-acquired Property) financed by such
      Indebtedness and the proceeds and the products thereof and accessions thereto;
      and provided further, however, that individual financings of assets provided
      by
      one lender may be cross collateralized to other financings of equipment provided
      by such lender; 

     

    (n) (i)
      leases, licenses, subleases or sublicenses granted to other Persons in the
      ordinary course of business which do not (A) interfere in any material respect
      with the business of the Company or any of its Subsidiaries or (B) secure any
      Indebtedness for borrowed money or (ii) the rights reserved or vested in any
      Person by the terms of any lease, license, franchise, grant or permit held
      by
      the Company or any of its Subsidiaries or by a statutory provision, to terminate
      any such lease, license, franchise, grant or permit, or to require annual or
      periodic payments as a condition to the continuance thereof;

     

    (o) Liens
      (i)
      in favor of the seller of any Property to be acquired in an investment permitted
      pursuant to Sections 8.4
      to be
      applied against the purchase price for such investment, (ii) consisting of
      an
      agreement to Dispose of any Property in a Disposition permitted under Section
      8.2,
      in each
      case, solely to the extent such investment or Disposition, as the case may
      be,
      would have been permitted on the date of the creation of such Lien and (iii)
      earnest money deposits made by the Company or any of its Subsidiaries in
      connection with any letter of intent or purchase agreement permitted
      hereunder;

     

    (p) Liens
      existing on the Property of any Person that becomes a Subsidiary, in each case
      after the date hereof (other than Liens on the Capital Stock of any Person
      that
      becomes a Subsidiary) and any modifications, replacements, renewals or
      extensions thereof; provided, however, that (i) such Lien does not extend to
      or
      cover any other Property (other than the proceeds or products thereof and
      after-acquired Property subjected to a Lien pursuant to terms existing at the
      time of such acquisition, it being understood that such requirement shall not
      be
      permitted to apply to any Property to which such requirement would not have
      applied but for such acquisition), and (ii) the Indebtedness secured thereby
      (or, as applicable, any modifications, replacements, renewals or extensions
      thereof) is permitted under Section 8.5;
      

     

    
      
        
        

      

      
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    (q) Liens
      arising from precautionary UCC financing statement filings regarding leases
      entered into by the Company or any of its Subsidiaries in the ordinary course
      of
      business;

     

    (r) Liens
      arising out of conditional sale, title retention, consignment or similar
      arrangements for sale of goods entered into by the Company or any of its
      Subsidiaries in the ordinary course of business not prohibited by this
      Agreement;

     

    (s) Permitted
      Encumbrances (as defined in the Mortgages);

     

    (t) Liens
      in
      favor of the Company securing investments permitted under Section 8.4(i);
      or

     

    (u) other
      Liens securing Indebtedness or other obligations (other than First Liens)
      outstanding in an aggregate principal amount not to exceed the lesser of: (i)
      the difference between $12,500,000 minus
      the
      aggregate principal amount then outstanding of all Indebtedness secured by
      Liens
      permitted under Sections 8.1(m)
      and
8.1(p)
      and (ii)
      $6,250,000.

     

    8.2 Disposition
      of Assets.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries that are Guarantors to, directly or indirectly, sell, assign,
      lease, convey, transfer or otherwise dispose of (whether in one or a series
      of
      transactions) (collectively, “Dispositions”)
      any
      Property (including accounts and notes receivable, with or without recourse),
      except:

     

    (a) Dispositions
      permitted under Sections 8.3,
      8.4,
      or
8.9
      and
      Liens permitted by Section 8.1; 

     

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

     

    (c) Dispositions
      among the Company and wholly-owned Subsidiaries that are Guarantors; 

     

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

     

    (e) Dispositions
      of accounts and notes receivable in the ordinary course of business consistent
      with past practices; 

     

    (f) Dispositions
      of interests in Oil and Gas Properties, or portions thereof, that are sold
      for
      fair cash consideration (considering any net production proceeds from the
      effective date of any such Disposition to the closing thereof that are credited
      against the purchase price payable at such closing as Net Cash Proceeds received
      by the Company or such Guarantor); provided, however, that the
      aggregate sales
      prices (as of the effective date of each particular Disposition) for
      Dispositions made pursuant to this Section 8.2(f)
      during
      any Borrowing Base Period shall not exceed 5% of the present value of the future
      cash flows from Proved Reserves included in the Oil and Gas Properties as set
      forth in the most recent Reserve Report delivered pursuant to Section
6.11
      or
7.2(c);

     

    
      
        
        

      

      
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    (g) the
      abandonment of any well or forfeiture, surrender or release by the Company
      or
      any Guarantor of any lease in the ordinary course of business which is not
      materially disadvantageous in any way to the Lenders and which, in the Company’s
      or such Guarantor’s opinion, is in the best interest of the Company or such
      Guarantor;

     

    (h) Dispositions
      of Property other than Hydrocarbon Interests to the extent that (i) such
      Property is exchanged for credit against the purchase price of similar
      replacement Property or (ii) the proceeds of such Disposition are promptly
      applied to the purchase price of such replacement Property;

     

    (i) Dispositions
      of Cash Equivalents;

     

    (j) farm-out
      agreements or participation agreements, or leases, subleases, licenses or
      sublicenses of Property (including real Property and intellectual Property
      but
      excluding Oil and Gas Properties with which Proved Reserves are associated)
      in
      the ordinary course of business and which do not materially interfere with
      the
      business of the Company and its Subsidiaries;

     

    (k) transfers
      of Property subject to Recovery Events upon receipt of the Net Cash Proceeds
      of
      such Recovery Event; or

     

    (l) other
      Dispositions of Property by the Company and the Guarantors (other than Oil
      and
      Gas Properties); provided, however, that (i) at the time of such Disposition,
      no
      Event of Default shall exist or would result from such Disposition, (ii) the
      aggregate book value of all Property Disposed of in reliance on this Section
      8.2(l)
      shall
      not exceed $3,750,000 and
      (iii)
      the sale price for such Property (if in excess of $375,000) shall
      be
      paid to the Company or such Guarantor for not less than 75% cash or Cash
      Equivalent consideration.

     

    8.3 Consolidations
      and Mergers.
      The
      Company and each Guarantor shall not, directly or indirectly, merge, consolidate
      with or into, or convey, transfer, lease or otherwise dispose of (whether in
      one
      transaction or in a series of transactions) all or substantially all of its
      assets (whether now owned or hereafter acquired) to or in favor of any Person,
      except:

     

    (a) any
      Guarantor may merge with the Company or another Guarantor; provided, however,
      that the Company shall be the continuing or surviving Person in the case of
      a
      merger involving the Company; 

     

    (b) any
      Subsidiary that is not a Guarantor may merge with the Company or a Guarantor;
      provided, however, that the Company or such Guarantor shall be the continuing
      or
      surviving Person; 

     

    
      
        
        

      

      
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    (c) the
      Company and its Subsidiaries may consummate the Output Acquisition;

     

    (d) a
      merger,
      dissolution, liquidation, consolidation or Disposition, the purpose of which
      is
      to effect a Disposition permitted pursuant to Section 8.2;
      or

     

    (e) the
      Company or any Guarantor may complete Corporate Acquisitions permitted under
      Section 8.4.

     

    8.4 Loans
      and
      Investments.
      The
      Company and each Guarantor shall not, directly or indirectly, purchase or
      acquire, or make any commitment therefor, any Capital Stock or any obligations
      or other securities of, or any interest in, any Person, or make any Corporate
      Acquisitions, or make any advance, loan, extension of credit or capital
      contribution to or any other investment in, any Person, including any Affiliate
      of the Company, except for: 

     

    (a) investments
      in Cash Equivalents; 

     

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

     

    (c) investments
      in Guarantors that are directly or indirectly wholly-owned Subsidiaries of
      the
      Company;

     

    (d) investments
      in Derivative Contracts permitted under Section 8.10;

     

    (e) investments
      resulting from transactions specifically permitted under Section 8.3; 

     

    (f) investments
      with third parties that are (i) customary in the oil and gas business, (ii)
      made
      in the ordinary course of the Company’s business, and (iii) made in the form of
      or pursuant to purchase agreements, operating agreements, processing agreements,
      farm-in agreements, farm-out agreements, joint venture agreements, development
      agreements, unitization agreements, pooling agreements, joint bidding
      agreements, service contracts and other similar agreements, that do not, in
      any
      case, (x) constitute an investment in any state law partnership or other Person
      (that is not a Guarantor) or (y) involve the Disposition of any Mortgaged
      Property covering Proved Reserves not otherwise permitted under the Loan
      Documents;

     

    (g) advances
      by the Company to any of its employees (other than corporate officers) in the
      ordinary course of business which do not exceed $375,000 at any time outstanding
      in the aggregate to all such employees; 

     

    (h) acquisitions
      of Hydrocarbon Interests and related assets in the ordinary course of
      business;

     

    (i) (i)
      with
      respect to loans or advances by the Company to Exempt Subsidiaries existing
      at
      the Effective Date, the conversion of such loans or advances to Capital Stock
      of
      the debtor Exempt Subsidiary, or the contribution thereof to the capital of
      such
      Exempt Subsidiary and (ii) in addition to the investments permitted by the
      foregoing clause (i), provided that there shall not have occurred and be
      continuing an Event of Default hereunder, and no Event of Default would result
      therefrom, after the Effective Date, the making by the Company or a Guarantor
      of
      (A) direct loans and advances to Exempt Subsidiaries to support working capital
      needs not to exceed an aggregate balance of $1,200,000 at any time outstanding
      and (B) other investments in Exempt Subsidiaries not to exceed an aggregate
      amount of $1,200,000 on a cumulative basis; 

     

    
      
        
        

      

      
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    (j) (i)
      the
      Output Acquisition
      and (ii)
      provided that there shall not have occurred and be continuing an Event of
      Default hereunder, and no Event of Default would result therefrom (and subject
      to compliance with Section 7.12,
      where
      applicable), other Corporate Acquisitions by the Company of Persons
      substantially all of the Property of which is comprised of domestic Proved
      Reserves, including Hydrocarbon Interests in the federal Outer Continental
      Shelf
      or associated gathering, processing, or pipeline assets.

     

    (k) investments
      consisting of Liens, Dispositions, fundamental changes, Indebtedness, and
      Restricted Payments permitted by Sections 8.1,
      8.2,
      8.3,
      8.5
      and
8.9,
      respectively;

     

    (l) promissory
      notes and other noncash consideration received in connection with Dispositions
      permitted by Section 8.2 (other than Sections
      8.2(f)
      or
(k));

     

    (m) investments
      in the ordinary course of business consisting of endorsements for collection
      or
      deposit;

     

    (n) investments
      (including debt obligations and Capital Stock) received in connection with
      the
      bankruptcy or reorganization of any Person and in settlement of obligations
      of,
      or other disputes with, such Persons arising in the ordinary course of business;
      or

     

    (o) guarantees
      by the Company or any Subsidiary of leases (other than Capital Lease
      Obligations) or of other obligations that do not constitute Indebtedness, in
      each case entered into in the ordinary course of business.

     

    8.5 Limitation
      on Indebtedness.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, create, incur, assume, suffer to exist,
      or otherwise become or remain liable with respect to, any Indebtedness, except
      (collectively, “Permitted
      Indebtedness”):

     

    (a) Indebtedness
      incurred pursuant to this Agreement; 

     

    (b) Indebtedness
      incurred pursuant to the First Lien Credit Agreement; 

     

    (c) Indebtedness
      consisting of Contingent Obligations permitted pursuant to Section 8.8; 

     

    (d) Non-Recourse
      Debt not to exceed $25,000,000 in an aggregate principal amount at any time
      outstanding; 

     

    
      
        
        

      

      
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    (e) Indebtedness
      consisting of gas imbalances or obligations in respect of take or pay or other
      prepayments not exceeding the amount specified in Section 6.12;

     

    (f) Indebtedness
      in respect of Derivative Contracts permitted under Section 8.10;
      

     

    (g) guarantees
      by the Company and the Guarantors in respect of Indebtedness of the Company
      and
      such Guarantors otherwise permitted hereunder; provided, however, that if the
      Indebtedness being guaranteed is subordinated to the Obligations, such guarantee
      shall be subordinated to the guarantee of the Obligations;

     

    (h) Indebtedness
      of (i) of any Loan Party owing to any other Loan Party, or (ii) any Subsidiary
      that is not a Loan Party owing to (A) any Subsidiary that is not a Loan Party
      or
      (B) a Loan Party in respect of an investment permitted under Section
8.4(i);

     

    (i) Indebtedness
      (other than for borrowed money, purchase money Indebtedness or obligations
      with
      respect to Capital Leases) subject to Liens permitted under Section
      8.1;

     

    (j) Capital
      Leases and purchase money obligations (including obligations in respect of
      mortgage, industrial revenue bond, industrial development bond, and similar
      financings) to finance the purchase, repair or improvement of fixed or capital
      assets and any Permitted Refinancing thereof; provided, however, that the
      aggregate amount of all Indebtedness at any one time outstanding described
      in
      Sections 8.5(j),
      (l),
      (m)
      and
(n)
      shall
      not exceed $12,500,000;

     

    (k) Indebtedness
      incurred by the Company or its Subsidiaries in a Disposition under agreements
      providing for indemnification, the adjustment of the purchase price or similar
      adjustments;

     

    (l) Indebtedness
      in respect of netting services, overdraft protections and similar arrangements
      in each case in connection with cash management and deposit accounts; provided,
      however, that the aggregate amount of all Indebtedness at any one time
      outstanding described in Sections 8.5(j),
      (l),
      (m)
      and
(n)
      shall
      not exceed $12,500,000;

     

    (m) Indebtedness
      consisting of the financing of insurance premiums; provided, however, that
      the
      aggregate amount of all Indebtedness at any one time outstanding described
      in
      Sections 8.5(j),
      (l),
      (m)
      and
(n)
      shall
      not exceed $12,500,000; or

     

    (n) in
      addition to the Indebtedness otherwise permitted under this Section 8.5,
      Indebtedness described in the definition thereof of the Loan Parties not to
      exceed at any time outstanding, together with Indebtedness outstanding at such
      time described in Sections 8.5(j),
      (l)
      or
(m),
      $12,500,000 in
      aggregate principal amount.

     

    8.6 Transactions
      with Affiliates.
      Except
      as set forth on Schedule 8.6,
      the
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, enter into any transaction with or
      make
      any payment or transfer to any Affiliate of the Company or its stockholders,
      except transactions (a) among the Loan Parties, (b) in the ordinary course
      of
      business and upon fair and reasonable terms no less favorable to the Company,
      such Guarantor or such Subsidiary than would obtain in a comparable arm’s length
      transaction with a Person not an Affiliate of the Company, such Guarantor
or
      such
      Subsidiary, (c) customary fees payable to any directors of the Company and
      reimbursement of reasonable out of pocket costs of the directors of the Company,
      (d) employment and severance arrangements between the Company or its
      Subsidiaries and their respective officers, consultants and employees in the
      ordinary course of business, (e)
      the
      payment of customary fees and indemnities to directors, officers and employees
      of the Company and the Subsidiaries in the ordinary course of business or (f)
      to
      the extent permitted under Sections 8.4, 8.5 and 8.9.

     

    
      
        
        

      

      
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    8.7 Margin
      Stock.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, suffer or permit any Subsidiary to,
      use
      any portion of the proceeds of the Loans to (i) purchase or carry Margin Stock,
      (ii) repay or otherwise refinance Indebtedness of the Company or others incurred
      to purchase or carry Margin Stock, (iii) extend credit for the purpose of
      purchasing or carrying any Margin Stock, or (iv) acquire any security in any
      transaction that is subject to Section 13 or 15(d) of the Exchange Act.

     

    8.8 Contingent
      Obligations.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly
      or indirectly, create, incur, assume or suffer to exist any Contingent
      Obligations except:

     

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

     

    (b) Derivative
      Contracts permitted under Section 8.10
      hereof; 

     

    (c) obligations
      under plugging
      bonds, performance bonds and fidelity bonds
      issued
      for the account of the Company or its Subsidiaries, obligations to indemnify
      or
      make whole any surety and similar agreements incurred in the ordinary course
      of
      business; 

     

    (d) this
      Agreement and each Guaranty;

     

    (e) Guaranty
      Obligations permitted under Section 8.5
      or
      obligations in respect of letters of credit or bank guarantees permitted under
      Section 8.1(e);

     

    (f) Contingent
      Obligations consisting of gas imbalances or obligations in respect of take
      or
      pay or other prepayments not to exceed the amount specified in Section 6.12;
      or

     

    (g) guarantees
      of leases (other than Capital Leases) or of other obligations that do not
      constitute Indebtedness, in each case entered into in the ordinary course of
      business.

     

    8.9 Restricted
      Payments.
      The
      Company and each Guarantor shall not, directly or indirectly, (a) purchase,
      redeem or otherwise acquire for value any Capital Stock, now or hereafter
      outstanding from its members, partners or stockholders (other than from its
      members, partners or stockholders that are Loan Parties; provided, however,
      that
      (i) to the extent constituting Restricted Payments, the Company and the
      Guarantors may enter into transactions expressly permitted by Section
8.3;
      (ii)
      the Company may effect repurchases of Capital Stock deemed to occur upon
      exercise of stock options or warrants if such Capital Stock represent a portion
      of the exercise price of such options or warrants; (iii) the Company may make
      repurchases of Capital Stock necessary to enable the Company to pay federal
      withholding Taxes incurred by an employee upon the vesting of restricted Capital
      Stock granted to such employee in connection with a stock incentive plan; or
      (iv) the Company and any of the Guarantors may pay for the repurchase,
      retirement or other acquisition or retirement for value of Capital Stock of
      the
      Company held by any future, present or former director, officer, member of
      management employee or consultant of the Company or any of its Subsidiaries
      (or
      the estate, family members, spouse or former spouse of any of the foregoing);
      provided, however, that the aggregate amount of Restricted Payments made under
      this clause (iv) does not exceed in any calendar year $375,000 (with
      unused amounts in any calendar year being carried over to the two succeeding
      calendar years); or (b) declare or pay any distribution, dividend or return
      capital to its members, partners or stockholders (other than to its members,
      partners or stockholders that are Loan Parties), or make any distribution of
      cash or Property to its members, partners or stockholders (other than members,
      partners or stockholders that are Loan Parties; provided, however, that (i)
      the
      Company may declare and make dividend payments or other distributions payable
      solely in the Capital Stock (other than Disqualified Capital Stock) of the
      Company; (ii) the Company may make cash payments in lieu of issuing fractional
      shares in connection with the exercise of warrants, options or other securities
      convertible into or exchangeable for Capital Stock of the Company; or (iii)
      in
      addition to the foregoing Restricted Payments, the Company may make additional
      Restricted Payments to holders of any Qualifying Preferred Stock in an aggregate
      annual amount not to exceed $7,000,000 (collectively “Restricted
      Payments”).

     

    
      
        
        

      

      
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    8.10 Derivative
      Contracts.
      

     

    (a) The
      Company and each Guarantor shall not, directly or indirectly, enter into or
      in
      any manner be liable on any Derivative Contract except:

     

    (i) Derivative
      Contracts entered into with the purpose and effect of fixing prices on oil
      or
      gas expected to be produced by such Person; provided, however, that at all
      times
      (i) no such contract shall be for speculative purposes; (ii) as of any date
      (the
“Calculation
      Date”)
      no
      such contract, when aggregated with all Derivative Contracts permitted under
      this Section 8.10(a)(i),
      but
      excluding Derivative Contracts described in clause (v) of this Section
8.10(a)(i),
      shall
      cover a notional volume in excess of the Applicable Percentage of the total
      Projected Oil and Gas Production to be produced in any month
      from the
      Proved Developed Producing Reserves reflected in the most recent Reserve Report;
      (iii) each such contract (excluding Derivative Contracts offered by a national
      commodity exchange) shall be with the Administrative Agent, or any of the
      Lenders (or Affiliate of a Lender), the First Lien Credit Agent or any First
      Lien Lender (or Affiliate of a First Lien Lender), or with a counterparty or
      have a Guarantor of the obligation of the counterparty which, at the time the
      contract is made, has long-term obligations rated BBB+ or Baa1 or better,
      respectively, by S&P or Moody’s; (iv) no such contract requires the Company
      to put up money, Property, letters of credit or other security against the
      event
      of its non-performance prior to actual default by the Company in performing
      its
      obligations thereunder, except Liens in favor of the Administrative Agent for
      the benefit of the Lenders under the Security Documents, or the First Liens;
      and
      (v) with respect to Derivative Contracts under which the Company’s or a
      Guarantor’s only interest is a “put” right or which is a commodity price hedge
      by means of a price “floor”
      (A)
      there exists no deferred obligation to pay the related premium or other purchase
      price and
      (B)
      all such contracts are with Qualifying Derivative Contract
      Counterparties.

     

    
      
        
        

      

      
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    (ii) The
      Existing Derivative Contracts; provided, however, that no Existing Derivative
      Contract may be amended, restated, supplemented or otherwise modified or
      extended without the prior written consent of the Administrative Agent
unless
      such modified Derivative Contract satisfies the requirements set forth in clause
      (i) or clause (ii) of this Section 8.10(a); or

     

    (iii) Derivative
      Contracts entered into with the purpose and effect of fixing interest rates
      on a
      principal amount of Indebtedness of the Company that is accruing interest at
      a
      variable rate; provided,
      however, that
      (i) no
      such contract shall be for speculative purposes; (ii) the floating rate index
      of
      each such contract generally matches the index used to determine the floating
      rates of interest on the corresponding Indebtedness of the Company to be hedged
      by such contract; (iii) no such contract requires the Company to put up money,
      Property, letters of credit, or other security against the event of its
      non-performance prior to actual default by the Company in performing its
      obligations thereunder; (iv) the aggregate notional amount of the Derivative
      Contracts shall not exceed fifty percent (50%) of the Borrowing Base (as defined
      in the First Lien Credit Agreement) during any Borrowing Base Period (as defined
      in the First Lien Credit Agreement); and (v) each such contract shall be with
      a
      Lender (or an Affiliate of a Lender) or with a counterparty or have a guarantor
      of the obligation of the counterparty who, at the time the contract is made,
      has
      long-term obligations rated BBB+ or Baa1 or better, respectively, by S&P or
      Moody’s.

     

    
      
        
        

      

      
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    (b) In
      the
      event the Company enters into a Derivative Contract with any Lender, the
      Contingent Obligation evidenced under such Derivative Contract shall not be
      applied against such Lender’s Commitment nor against the Effective Amount. The
      benefits of the Security Documents and of the provisions of the Loan Documents
      relating to the Collateral shall also extend to and be available on a pro rata
      basis to each Qualifying Derivative Contract Counterparty in respect to all
      Obligations with respect to the related Qualifying Derivative
      Contract.

     

    8.11 Sale
      Leasebacks.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, become liable, directly or by way
      of
      any Guaranty Obligation, with respect to any lease of any Property (whether
      real, personal or mixed) whether now owned or hereafter acquired, (a) which
      the
      Company or such Guarantor or Subsidiary has sold or transferred or is to sell
      or
      transfer to any other Person or (b) which the Company or such Guarantor or
      Subsidiary intends to use for substantially the same purposes as any other
      Property which has been or is to be sold or transferred by the Company or such
      Guarantor or Subsidiary to any other Person in connection with such lease.
      

     

    8.12 Consolidated
      Leverage Ratio.
      As of
      the last day of any Fiscal Quarter, the Company shall not permit the
      Consolidated Leverage Ratio to exceed 3.50 to 1.00. 

     

    8.13 Current
      Ratio.
      As of
      the last day of any Fiscal Quarter, the Company shall not permit the ratio
      of
      Current Assets to Current Liabilities to be less than 1.00 to 1.00; provided,
      however, that for purposes of such ratio, adjustments required by FAS 133 and
      143 that affect the calculation of Current Assets or Current Liabilities shall
      be excluded from current assets and current liabilities, respectively.

     

    8.14 Minimum
      Interest Coverage Ratio.
      The
      Company
      shall not permit the ratio of Consolidated EBITDAX for any period commencing
      with the period ended June 30, 2007 to Consolidated Interest Expense for such
      period to be less than 2.00 to
      1.00.

     

    8.15 Minimum
      PV 10 to Consolidated Total Debt Ratio.
      The
      Company shall not permit the ratio of Net Present Value to Consolidated Total
      Debt at the end of any fiscal quarter to be less than 1.50 to 1.00. 

     

    8.16 Change
      in
      Business.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, engage in any business or activity
      other than the Principal Business and businesses ancillary or reasonably related
      thereto. 

     

    8.17 Accounting
      Changes.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, make any significant change in
      accounting treatment or reporting practices, except as required by GAAP, or
      change the fiscal year of the Company or of any Guarantor or
      Subsidiary.

     

    8.18 Certain
      Contracts; Amendments; Multiemployer ERISA Plans.
      Except
      for the restrictions expressly set forth in the Loan Documents and the First
      Lien Credit Documents, the Company and each Guarantor shall not, directly or
      indirectly, enter into, create, or otherwise allow to exist any contract or
      other consensual restriction on the ability of any Guarantor to: (a) pay
      dividends or make other distributions to the Company or another Guarantor,
      (b)
      redeem its Capital Stock held by the Company or another Guarantor, (c) repay
      Indebtedness owing by it to the Company or another Guarantor, or (d) transfer
      any of its Property to the Company or another Guarantor. The Company and each
      Guarantor shall not, and shall not permit any ERISA Affiliate to, incur any
      obligation to contribute to any Multiemployer Plan.

     

    
      
        
        

      

      
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    8.19 Midstream
      Contracts.
      The
      Company and each Guarantor shall not, directly or indirectly;

     

    (a) amend,
      supplement or otherwise modify any material term or condition (pursuant to
      a
      waiver granted by or to such Person or otherwise) or fail to enforce strictly
      the terms and conditions of the indemnities and rights furnished to the Company
      or any Guarantor pursuant to the Midstream Contracts, in each case, such that
      after giving effect thereto such terms, conditions, indemnities and rights
      shall
      be materially less favorable to the interests of the Loan Parties or the Lenders
      with respect thereto; or

     

    (b) otherwise
      amend, supplement or otherwise modify or fail to enforce the terms and
      conditions of the Midstream Contracts except to the extent that any such
      amendment, supplement or modification or failure to enforce could not reasonably
      expected to have a Material Adverse Effect.

     

    8.20 First
      Lien Credit Agreement.
      The
      Company and each Guarantor shall not, directly or indirectly: (a) amend or
      modify any of the terms or provisions of the First Lien Credit Agreement, except
      as permitted by Section 5.3(a) of the Intercreditor Agreement; (b) cause, or
      purport to cause, the Liens securing the Obligations to cease to be Permitted
      Liens as defined therein; or (c) grant any Lien for the benefit of the lenders
      thereunder, except to the extent permitted hereunder or required by the
      Intercreditor Agreement.

     

    8.21 Limitation
      on Amendments to Output Acquisition Documents.
      The
      Company shall not, directly or indirectly:

     

    (a) amend,
      supplement or otherwise modify any material term or condition (pursuant to
      a
      waiver granted by or to such Person or otherwise) or fail to enforce strictly
      the terms and conditions of the indemnities and rights furnished to the Company
      or any of its Subsidiaries pursuant to the Output Acquisition Documents such
      that after giving effect thereto such terms, conditions, indemnities or rights
      shall be materially less favorable to the interests of the Loan Parties or
      the
      Lenders with respect thereto; or 

     

    (b) otherwise
      amend, supplement or otherwise modify or fail to enforce the terms and
      conditions of the Output Acquisition Documents except to the extent that any
      such amendment, supplement or modification or failure to enforce could
not
      reasonably be expected to have a Material Adverse Effect.

     

    8.22 Forward
      Sales, Production Payments, Etc.
      The
      Company and each Guarantor shall not, directly or indirectly:

     

    (a) enter
      into any forward sales transaction or agreement with respect to physical
      deliveries of Oil and Gas outside the ordinary course of business as conducted
      prior to the Effective Time; or

     

    
      
        
        

      

      
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    (b) sell
      or
      convey any production payment, term overriding interest, net profits interest
      or
      any similar interest (except
      for overriding royalty or net profits interests granted to employees or
      consultants of the Company in the ordinary course of business in connection
      with
      the generation of prospects or the development of Oil and Gas
      Properties).

     

    8.23 Use
      of
      Proceeds.
      The
      Company and each Guarantor shall not, and shall not permit any of its respective
      Subsidiaries to, directly or indirectly, use or permit the use of all or any
      portion of the Loans for any purpose other than those set forth in Section
      7.13.

     

    ARTICLE
      IX

     

    EVENTS
      OF DEFAULT

     

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

     

    (a) Principal
      Non Payment.
      The
      Company fails to pay, when and as required to be paid herein, any amount of
      scheduled principal payment of any Loan of this Agreement; 

     

    (b) Interest
      and Expense Non-Payment.
      Any
      Loan Party fails to pay, when and as required to be paid herein, any interest
      due on any Interest Payment Date, any other payments for fees, expenses, or
      other amount payable hereunder or under any other Loan Document within three
      Business Days after the same becomes due and payable; 

     

    (c) Representation
      or Warranty.
      Any
      representation or warranty by the Company or any Guarantor made or deemed made
      herein, in any other Loan Document, or which is contained in any certificate,
      document or financial or other statement by the Company, any Guarantor or any
      Responsible Officer, furnished at any time under this Agreement, or in or under
      any other Loan Document, is incorrect in any material respect on or as of the
      date made or deemed made; 

     

    (d) Specific
      Defaults.
      Any
      Loan Party fails to perform or observe any term, covenant or agreement contained
      in Section 7.13
      or in
Article
      VIII; 

     

    (e) Other
      Defaults.
      The
      Company or any Guarantor fails to perform or observe any other term or covenant
      contained in this Agreement or any other Loan Document, and such default shall
      continue unremedied for a period of 30 days, in all other cases after the
      earlier of (i) the date upon which a Responsible Officer knew or reasonably
      should have known of such default and (ii) the date upon which written notice
      thereof is given to the Company by the Administrative Agent or any
      Lender; 

     

    (f) Cross
      Default.
      (i)
      Subject to clause (iii) of this paragraph, the Company, any Guarantor or any
      other Subsidiary (A) fails to make any payment of more than $5,000,000 in
      respect of any Indebtedness or Contingent Obligation when due (whether by
      scheduled maturity, required prepayment, acceleration, demand, or otherwise)
      and
      such failure continues after the applicable grace or notice period, if any,
      specified in the relevant document on the date of such failure and, in the
      case
      of any such failure by an Exempt Subsidiary, such failure results in a Material
      Adverse Effect or (B) fails after the applicable grace or notice period, if
      any,
      specified in the relevant document on the date of such failure to perform or
      observe any other condition or covenant, or any other event shall occur or
      condition exist, under any agreement or instrument relating to any such
      Indebtedness or Contingent Obligation having an aggregate principal amount
      of
      more than $5,000,000 if the effect of such failure, event or condition is to
      cause, or to permit the holder or holders of such Indebtedness or beneficiary
      or
      beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
      holder or holders or beneficiary or beneficiaries) to cause such Indebtedness
      to
      be declared to be due and payable prior to its stated maturity, or such
      Contingent Obligation to become payable or cash collateral in respect thereof
      to
      be demanded and, in the case of any such failure by an Exempt Subsidiary, such
      failure results in a Material Adverse Effect; (ii) subject to clause (iii)
      of
      this paragraph, any Indebtedness or Contingent Obligation of the Company, any
      Guarantor or any other Subsidiary in excess of $5,000,000 shall be declared
      due
      and payable prior to its stated maturity or cash collateral is demanded in
      respect of such Contingent Obligation; or
      (iii)
      with respect to the Indebtedness or Contingent Obligation under any First Lien
      Credit Documents, (x) an “Event of Default” (as defined in any First Lien Credit
      Document) shall have occurred and shall continue and (y) the First Lien Credit
      Agent shall have exercised its remedies pursuant to Section 9.2 of the First
      Lien Credit Agreement;

     

    
      
        
        

      

      
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    (g) Insolvency;
      Voluntary Proceedings.
      The
      Company, any Guarantor or any other Subsidiary (i) generally fails to pay,
      or
      admits in writing its inability to pay, its debts as they become due, subject
      to
      applicable grace periods, if any, whether at stated maturity or otherwise;
      (ii)
      commences any Insolvency Proceeding with respect to itself; or (iii) takes
      any
      action to effectuate or authorize any of the foregoing and, in the case of
      any
      of the foregoing occurring with respect to an Exempt Subsidiary (other than
      Maverick-Dimmit Pipeline, Ltd.), a Material Adverse Effect results
      therefrom; 

     

    (h) Involuntary
      Proceedings.
      (i) Any
      involuntary Insolvency Proceeding is commenced or filed against the Company,
      any
      Guarantor, or any other Subsidiary, or any writ, judgment, warrant of
      attachment, execution or similar process, is issued or levied against all or
      a
      substantial part of the Company’s, any Guarantor’s or any other Subsidiary’s
      Property, and any such proceeding or petition shall not be dismissed or stayed,
      or such writ, judgment, warrant of attachment, execution or similar process
      shall not be released, vacated or fully bonded within 60 days after
      commencement, filing or levy; (ii) the Company, any Guarantor or any other
      Subsidiary files an answer admitting the material allegations of a petition
      against it in any Insolvency Proceeding, or an order for relief (or similar
      order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii)
      the
      Company, any Guarantor or any other Subsidiary consents to the appointment
      of a
      receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
      (or agent therefor), or other similar Person for itself or a substantial portion
      of its Property or business, and, in the case of any of the foregoing occurring
      with respect to an Exempt Subsidiary (other than Maverick-Dimmit Pipeline,
      Ltd.), a Material Adverse Effect results therefrom; 

     

    (i) Monetary
      Judgments.
      One or
      more non-interlocutory judgments, non-interlocutory orders, decrees or
      arbitration awards is entered against the Company or any Guarantor or any other
      Subsidiary involving in the aggregate a liability (to the extent not covered
      by
      independent third-party insurance as to which the insurer has not denied
      coverage) as to any single or related series of transactions, incidents or
      conditions, of $5,000,000 or more, and the same shall remain unsatisfied,
      unvacated and unstayed pending appeal for a period of 60 consecutive days after
      the entry thereof; 

     

    
      
        
        

      

      
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    (j) Change
      of Control.
      There
      occurs any Change of Control; 

     

    (k) Guaranty
      Default.
      A
      Guaranty ceases to be in full force and effect, or such Guarantor contests
      in
      any manner the validity or enforceability thereof or denies that it has any
      further liability or obligation thereunder other than as a result of payment
      in
      full of the Obligations; 

     

    (l) Enforceability
      or Perfection of Loan Documents.
      (i) Any
      Loan Document shall, at any time after its execution and delivery and for any
      reason, cease to be in full force and effect or shall be declared to be null
      and
      void, the validity or enforceability thereof shall be contested by any Person
      party thereto (other than the Administrative Agent or any Lender) or any such
      Person party thereto (other than the Administrative Agent or any Lender) shall
      deny that it has any or further liability or obligation thereunder; or (ii)
      any
      Lien created under any Loan Document shall fail to constitute a fully perfected
      Lien, subject only to Permitted Liens, and such failure shall continue for
      at
      least 30 days after the earlier of (A) the date upon which a Responsible Officer
      knew or reasonably should have known of such default or (B) the date upon which
      written notice thereof is given to the Company by the Administrative Agent
      or
      any Lender;
      or

     

    (m) ERISA.
      Either
      (i) any “accumulated funding deficiency” (as defined in Section 412(a) of the
      Code) in excess of $2,000,000 exists with respect to any ERISA Plan, whether
      or
      not waived by the Secretary of the Treasury or his delegate, or (ii) the Company
      or any ERISA Affiliate institutes steps to terminate any ERISA Plan and the
      then
      current value of such ERISA Plan’s benefit liabilities exceeds the then current
      value of such ERISA Plan’s assets available for the payment of such benefit
      liabilities by more than $2,000,000.

     

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

     

    (a) declare
      the Commitment, if any, of each Lender to make Loans to be terminated, or
      declare all or any part of the unpaid principal of the Loans, all interest
      accrued and unpaid thereon and all other amounts payable under the Loan
      Documents to be immediately due and payable, whereupon the same shall become
      immediately due and payable, without presentment, demand, protest, notice of
      intention to accelerate, notice of acceleration, or any other notice of any
      kind, all of which are hereby expressly waived by the Company and each
      Guarantor; and

     

    (b) exercise
      on behalf of itself and the Lenders all rights and remedies available to it
      and
      the Lenders under the Loan Documents or applicable law; provided,
      however,
      that
      upon the occurrence of any event specified in Section 9.1(g)
      or
(h)
      (in the
      case of clause (i) of Section 9.1(h)
      upon the
      expiration of the 60-day period mentioned therein), the obligation of each
      Lender to make Loans shall automatically terminate and the unpaid principal
      amount of all outstanding Loans and all interest and other amounts as aforesaid
      shall automatically become due and payable without further act of the
      Administrative Agent, or any Lender and without presentment, demand, protest,
      notice of intention to accelerate, notice of acceleration or any other notice
      of
      any kind, all of which are hereby expressly waived by the Company and each
      Guarantor.

     

    
      
        
        

      

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

     

    ARTICLE
      X

     

    THE
      ADMINISTRATIVE AGENT

     

    10.1 Appointment
      and Authorization; Limitation of Agency.
      Each
      Lender hereby irrevocably (subject to Section 10.9)
      appoints, designates and authorizes the Administrative Agent to take such action
      on its behalf under the provisions of this Agreement and each other Loan
      Document and to exercise such powers and perform such duties as are expressly
      delegated to it by the terms of this Agreement or any other Loan Document,
      together with such powers as are reasonably incidental thereto. The duties
      of
      the Administrative Agent shall be administrative and mechanical in nature;
      notwithstanding any provision to the contrary contained elsewhere in this
      Agreement or in any other Loan Document, the Administrative Agent shall not
      have
      any duty or responsibility, except those expressly set forth herein, nor shall
      the Administrative Agent, under any circumstances, have or be deemed to have
      any
      fiduciary relationship with any Person, and no implied covenants, functions,
      responsibilities, duties, obligations or liabilities shall be read into this
      Agreement or any other Loan Document or otherwise exist against the
      Administrative Agent.

     

    10.2 Delegation
      of Duties.
      The
      Administrative Agent may execute any of its duties under this Agreement or
      any
      other Loan Document by or through agents, employees or attorneys in fact and
      shall be entitled to advice of counsel concerning all matters pertaining to
      such
      duties. The Administrative Agent shall not be responsible for the negligence
      or
      misconduct of any agent or attorney in fact that it selects with reasonable
      care.

     

    10.3 Liability
      of Administrative Agent.
      None of
      the Administrative Agent-Related Persons shall (i) be liable for any action
      taken or omitted to be taken by any of them under or in connection with this
      Agreement or any other Loan Document or the transactions contemplated hereby
      (except for its own gross negligence or willful misconduct), or (ii) be
      responsible in any manner to any of the Lenders for any recital, statement,
      representation or warranty made by the Company, any Guarantor or any Subsidiary
      or Affiliate of the Company, or any officer thereof, contained in this Agreement
      or in any other Loan Document, or in any certificate, report, statement or
      other
      document referred to or provided for in, or received by the Administrative
      Agent
      under or in connection with, this Agreement or any other Loan Document, or
      the
      validity, effectiveness (other than such Administrative Agent-Related Person’s
      own due execution and delivery), genuineness, enforceability or sufficiency
      of
      this Agreement or any other Loan Document, or for any failure of the Company,
      any Guarantor or any other party to any Loan Document to perform its obligations
      hereunder or thereunder. No Administrative Agent-Related Person shall be under
      any obligation to any Lender to ascertain or to inquire as to the observance
      or
      performance of any of the agreements contained in, or conditions of, this
      Agreement or any other Loan Document, or to inspect the Property, books or
      records of the Company, any Guarantor or any of the Company’s other Subsidiaries
      or Affiliates.

     

    
      
        
        

      

      
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    10.4 Reliance
      by Administrative Agent.
      

     

    (a) The
      Administrative Agent shall be entitled to rely, and shall be fully protected
      in
      relying, upon any writing, resolution, notice, consent, certificate, affidavit,
      letter, telegram, facsimile, telex, telephonic or electronic message, statement
      or other document or conversation believed by it to be genuine and correct
      and
      to have been signed, sent or made by the proper Person or Persons, and upon
      advice and statements of legal counsel, independent accountants and other
      experts selected by the Administrative Agent. The Administrative Agent shall
      be
      fully justified in failing or refusing to take any action under this Agreement
      or any other Loan Document unless it shall first receive such advice or
      concurrence of the Lenders as it deems appropriate and, if it so requests,
      it
      shall first be indemnified to its satisfaction by the Lenders against any and
      all liability and expense which may be incurred by it by reason of taking or
      continuing to take any such action. The Administrative Agent shall in all cases
      be fully protected in acting, or in refraining from acting, under this Agreement
      or any other Loan Document in accordance with a request or consent of the
      Lenders and such request and any action taken or failure to act pursuant thereto
      shall be binding upon all of the Lenders.

     

    (b) For
      purposes of determining compliance with the conditions specified in Section
      Article
      V,
      each
      Lender that has made available to the Administrative Agent its Pro Rata Share
      of
      the initial Credit Extension or subsequent Credit Extension, as the case may
      be,
      shall be deemed to have consented to, approved or accepted or to be satisfied
      with, each document or other matter either sent by the Administrative Agent
      to
      such Lender for consent, approval, acceptance or satisfaction, or required
      thereunder to be consented to or approved by or acceptable or satisfactory
      to
      the Lender as a condition precedent to such initial Credit Extension or
      subsequent Credit Extension, as applicable.

     

    10.5 Notice
      of
      Default.
      The
      Administrative Agent shall not be deemed to have knowledge or notice of the
      occurrence of any Default or Event of Default, except with respect to Defaults
      in the payment of principal, interest and fees required to be paid to the
      Administrative Agent for the account of the Lenders, unless the Administrative
      Agent shall have received written notice from a Lender or the Company referring
      to this Agreement, describing such Default or Event of Default and stating
      that
      such notice is a “notice of default”. The Administrative Agent will notify the
      Lenders of its receipt of any such notice. Subject to Section 10.4(a),
      the
      Administrative Agent shall take such action with respect to such Default or
      Event of Default as may be requested by the Required Lenders in accordance
      with
Article
      IX;
      provided, however, that unless and until the Administrative Agent has received
      any such request, the Administrative Agent may (but shall not be obligated
      to)
      take such action, or refrain from taking such action, with respect to such
      Default or Event of Default as it shall deem advisable or in the best interest
      of the Lenders.

     

    10.6 Credit
      Decision.
      Each
      Lender acknowledges that no Administrative Agent-Related Person has made any
      representation or warranty to it, and that no act by any Administrative
      Agent-Related Person hereafter taken, including any review of the affairs of
      the
      Company, any Guarantor or their respective Subsidiaries, shall be deemed to
      constitute any representation or warranty by any Administrative Agent-Related
      Person to any Lender. Each Lender represents to the Administrative Agent that
      it
      has, independently and without reliance upon any Administrative Agent-Related
      Person and based on such documents and information as it has deemed appropriate,
      made its own appraisal of and investigation into the business, prospects,
      operations, Property, financial and other condition and creditworthiness of
      the
      Company, and all applicable bank regulatory laws relating to the transactions
      contemplated hereby, and made its own decision to enter into this Agreement
      and
      to extend credit to the Company hereunder. Each Lender also represents that
      it
      will, independently and without reliance upon any Administrative Agent-Related
      Person and based on such documents and information as it shall deem appropriate
      at the time, continue to make its own credit analysis, appraisals and decisions
      in taking or not taking action under this Agreement and the other Loan
      Documents, and to make such investigations as it deems necessary to inform
      itself as to the business, prospects, operations, Property, financial and other
      condition and creditworthiness of the Company. Except for notices, reports
      and
      other documents expressly herein required to be furnished to the Lenders by
      the
      Administrative Agent, the Administrative Agent shall not have any duty or
      responsibility to provide any Lender with any credit or other information
      concerning the business, prospects, operations, Property, financial and other
      condition or creditworthiness of the Company which may come into the possession
      of any of the Administrative Agent-Related Persons.

     

    
      
        
        

      

      
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    10.7 Indemnification.
      Whether
      or not the transactions contemplated hereby are consummated, the Lenders shall
      indemnify upon demand the Administrative Agent-Related Persons (to the extent
      not reimbursed by or on behalf of the Company and without limiting the
      obligation of the Company to do so), pro rata according to each respective
      Lender’s Pro Rata Share, each Administrative Agent-Related Person from and
      against any and all Indemnified Liabilities INCLUDING SUCH INDEMNIFIED
      LIABILITIES AS MAY ARISE OR BE CAUSED BY THE NEGLIGENCE, SOLE, JOINT,
      CONCURRENT, COMPARATIVE OR OTHERWISE OF SUCH ADMINISTRATIVE AGENT-RELATED
      PERSONS; provided, however, that no Lender shall be liable for the payment
      to
      any Administrative Agent-Related Persons of any portion of such Indemnified
      Liabilities to the extent the same arise from (i) the gross negligence or
      willful misconduct of any Administrative Agent-Related Person or (ii) a claim
      or
      action asserted by one or more other Administrative Agent-Related Persons.
      Without limitation of the foregoing, each Lender shall reimburse the
      Administrative Agent upon demand for its ratable share of any costs or out
      of
      pocket expenses (including Attorney Costs) 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, any other Transaction Document or any
      document contemplated by or referred to herein, to the extent that the
      Administrative Agent is not reimbursed for such expenses by or on behalf of
      the
      Company. The undertaking in this Section 10.7
      shall
      survive the payment of all Obligations hereunder and the resignation or
      replacement of the Administrative Agent.

     

    10.8 Administrative
      Agent in Individual Capacity.
      Bank of
      Montreal and its Affiliates may make loans to, accept deposits from, acquire
      or
      underwrite equity or debt securities of and generally engage in any kind of
      banking, investment banking, trust, financial advisory, underwriting or other
      business with the Company and its Affiliates as though Bank of Montreal were
      not
      the Administrative Agent hereunder and without notice to or consent of the
      Lenders. The Lenders acknowledge that, pursuant to such activities, Bank of
      Montreal or its Affiliates may receive information regarding the Company or
      its
      Affiliates (including information that may be subject to confidentiality
      obligations in favor of the Company or such Affiliate) and acknowledge that
      the
      Administrative Agent-Related Persons shall be under no obligation to provide
      such information to them. With respect to Obligations held by it, Bank of
      Montreal shall have the same rights and powers under this Agreement as any
      other
      Lender and may exercise the same as though it were not the Administrative
      Agent.

     

    
      
        
        

      

      
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    10.9 Successor
      Administrative Agent.
      The
      Administrative Agent may resign as Administrative Agent upon 30 days’ notice to
      the Lenders. If the Administrative Agent resigns under this Agreement, the
      Lenders shall appoint from among the Lenders a successor administrative agent
      for the Lenders, which successor agent shall be consented to by the Company
      (which consent shall not be unreasonably withheld or delayed). If no successor
      administrative agent is appointed prior to the effective date of the resignation
      of the Administrative Agent, the Administrative Agent may appoint, after
      consulting with the Lenders and the Company, a successor administrative agent
      from among the Lenders. Upon the acceptance of its appointment as successor
      administrative agent hereunder, such successor administrative agent shall
      succeed to all the rights, powers and duties of the retiring Administrative
      Agent and the term “Administrative Agent” shall mean such successor
      administrative agent and the retiring Administrative Agent’s appointment, powers
      and duties as Administrative Agent shall be terminated. After any retiring
      Administrative Agent’s resignation hereunder as Administrative Agent, the
      provisions of this Article
      X
      and
      Sections 11.4
      and
11.5
      shall
      inure to its benefit as to any actions taken or omitted to be taken by it while
      it was Administrative Agent under this Agreement. If no successor agent has
      accepted appointment as Administrative Agent by the date which is 30 days
      following a retiring Administrative Agent’s notice of resignation, the retiring
      Administrative Agent’s resignation shall nevertheless thereupon become effective
      and the Lenders shall perform all of the duties of the Administrative Agent
      hereunder until such time, if any, as the Lenders appoint a successor
      administrative agent as provided for above.

     

    10.10 Withholding
      Tax.
      

     

    (a) Any
      Foreign Lender that is entitled to an exemption from or reduction of withholding
      tax under the laws of the United States, or under any treaty to which the United
      States is a party, with respect to payments under this Agreement shall deliver
      to the Company (with a copy to the Administrative Agent), at the time or times
      prescribed by applicable law, such properly completed and executed documentation
      prescribed by applicable law or reasonably requested by the Company or the
      Administrative Agent 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 Company or the Administrative Agent, shall deliver such properly completed
      and executed documentation prescribed by applicable law or reasonably requested
      by the Company or the Administrative Agent as will enable the Company or the
      Administrative Agent to determine whether or not such Lender is subject to
      backup withholding or information reporting requirements. Each Lender shall
      promptly (i) notify the Company and the Administrative Agent of any change
      in
      circumstances which would modify or render invalid any such claimed exemption
      or
      reduction and (ii) take such steps as may be required pursuant to Section
      3.1(e).

     

    (b) Without
      limiting the generality of the foregoing provisions of Section 10.10(a),
      each
      Foreign Lender shall deliver to the Company 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 Company 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 IRS Form W-8BEN claiming eligibility for benefits of an
      income tax treaty to which the United States is a party,

     

    
      
        
        

      

      
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    (ii) duly
      completed copies of IRS 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 Company 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 IRS 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 Company or the Administrative Agent to determine the withholding
      or
      deduction required to be made.

     

    
      
         

      

      
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    (c) If
      any
      Lender delivers to the Company and the Administrative Agent completed and
      executed documentation described in Section 10.10(a)
      and
(b)
      claiming
      a reduction in withholding tax, the Company and the Administrative Agent may
      withhold from any amount payable to such Lender hereunder an amount equivalent
      to the applicable withholding tax after taking into account such reduction.
      If
      the forms or other documentation required by Section 10.10(a)
      and
(b)
      are not
      delivered by a Lender to the Company and the Administrative Agent, then the
      Company and the Administrative Agent may withhold from any amount payable to
      such Lender not providing such forms or other documentation an amount equivalent
      to the applicable withholding tax.

     

    (d) If
      the
      IRS or any other Governmental Authority of the United States or other
      jurisdiction asserts a claim that the Company or the Administrative Agent did
      not properly withhold tax from amounts paid to or for the account of any Lender
      (because the appropriate form was not delivered, was not properly completed
      or
      executed, or because such Lender failed to notify the Company and the
      Administrative Agent of a change in circumstances which rendered the exemption
      from, or reduction of, withholding tax ineffective or modified, or for any
      other
      reason) such Lender shall indemnify the Company and the Administrative Agent
      fully for all amounts paid, directly or indirectly, by the Company or the
      Administrative Agent (as the case may be) as tax or otherwise, including
      penalties, additions to tax and interest, and including any taxes imposed by
      any
      jurisdiction on the amounts payable to the Company or the Administrative Agent
      under this Section 10.10(d),
      together with all costs and expenses (including Attorney Costs). The obligation
      of the Lenders under this Section 10.10(d)
      shall
      survive the payment of all Obligations and the resignation or the replacement
      of
      the Administrative Agent.

     

    10.11 Arranger;
      Syndication Agent.
      Each of
      the Arranger and the Syndication Agent, in their respective capacities as such,
      shall have no duties or responsibilities, and shall incur no liability, under
      this Agreement or the other Loan Documents.

     

    10.12 Release
      of Collateral.
      The
      Administrative Agent is hereby irrevocably authorized by each of the Lenders
      to
      effect any release of Liens or Guaranty Obligations contemplated by Section
      11.26.

     

    ARTICLE
      XI

     

    MISCELLANEOUS

     

    
      
        
        

      

      
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    11.1 Amendments
      and Waivers.
      No
      amendment, modification, termination or waiver of any provision of this
      Agreement or any other Loan Document, and no consent with respect to any
      departure by the Company or any Guarantor therefrom, shall be effective unless
      the same shall be in writing and signed by the Required Lenders (or by the
      Administrative Agent at the written request of the Required Lenders) and the
      Company or the applicable Guarantor, and then any such waiver or consent shall
      be effective only in the specific instance and for the specific purpose for
      which it is given; provided, however, that no such waiver, amendment,
      modification, termination or consent shall, unless in writing and signed by
      all
      the Lenders directly affected thereby (or in the case of clauses (e) and (f),
      all of the Lenders), the Company or the applicable Guarantor do any of the
      following:

     

    (a) increase
      or extend the Commitment of any Lender (it being understood that the waiver
      of
      an Event of Default shall not constitute an extension or increase of any
      Commitment of any Lender);

     

    (b) postpone
      the final maturity date of any Loan, or postpone or delay any date fixed by
      this
      Agreement or any other Loan Document for any payment of principal, interest,
      fees or other amounts due to the Lenders (or any of them) hereunder (it being
      understood that the waiver of an obligation to pay interest at the Default
      Rate
      or Event of Default shall not constitute a postponement of any date fixed for
      the payment of principal, interest or fees)or under any other Loan
      Document; 

     

    (c) reduce
      the principal of, or the rate of interest specified herein on any Loan, or
      (subject to clause (ii) below) any fees or other amounts payable hereunder
      (it
      being understood that a change to the definition of “Default Rate” or the waiver
      of an Event of Default shall not constitute a reduction of the principal of
      or
      rate of interest specified) or under any other Loan Document;

     

    (d) change
      the pro rata application of payments, prepayments, reductions of the Commitments
      or change in any manner the definition of “Required Lenders”; 

     

    (e) amend
      this Section 11.1,
      or any
      provision of this Agreement which, by its terms, expressly requires the approval
      or concurrence of all Lenders;
      or

     

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

     

    provided further,
      however, that no amendment, waiver or consent shall, unless in writing and
      signed by the Administrative Agent in addition to the Required Lenders or all
      the Lenders, as the case may be, affect the rights or duties of the
      Administrative Agent under this Agreement or any other Loan
      Document.

     

    11.2 Notices.

     

    (a) All
      notices, requests and other communications shall be in writing and mailed,
      faxed
      or delivered, to the address or facsimile number specified for notices on the
      signature pages hereof or, as directed to the Company or the Administrative
      Agent, to such other address as shall be designated by such party in a written
      notice to the other parties, and as directed to any other party, at such other
      address as shall be designated by such party in a written notice to the Company
      and the Administrative Agent.

     

    
      
        
        

      

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

     

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

     

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

     

    11.4 Costs
      and
      Expenses.
      The
      Company shall:

     

    (a) whether
      or not the transactions contemplated hereby are consummated, pay or reimburse
      the Administrative Agent and the Arranger within five Business Days after demand
      (subject to Section 5.1(e))
      for all
      reasonable and documented out-of-pocket costs and expenses incurred by the
      Administrative Agent, the Arranger or any of their Affiliates in connection
      with
      the syndications of the Credit Extensions hereunder (other than fees payable
      to
      syndicate members) and the development, preparation, delivery, administration
      and execution of, and any amendment, supplement, waiver or modification to
      (in
      each case, whether or not consummated), this Agreement, any Loan Document and
      any other documents prepared in connection herewith or therewith, the
      consummation of the transactions contemplated hereby and thereby, and the
      syndication of the credit facilities provided herein, including Attorney Costs
      incurred by such Person with respect thereto except such costs and expenses
      as
      may be incurred by the assignor Lenders or Assignee under Section 11.8(a);
      and

     

    (b) pay
      or
      reimburse the Administrative Agent, any other Agent and each Lender within
      five
      Business Days after demand (subject to Section 5.1(e))
      for all
      documented out-of-pocket costs and expenses (including Attorney Costs) incurred
      by each of them in connection with the enforcement, attempted enforcement,
      or
      preservation of any rights or remedies under this Agreement or any other Loan
      Document during the existence of a Default or after acceleration of the Loans
      (including in connection with any “workout” or restructuring regarding the
      Loans, and including in any Insolvency Proceeding or appellate
      proceeding).

     

    
      
        
        

      

      
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    11.5 Indemnity.
      Whether
      or not the transactions contemplated hereby are consummated, the Company shall
      indemnify and hold each Agent-Related Person and each Lender and each of their
      respective Affiliates, successors and permitted assigns and its and their
      respective officers, directors, employees, counsel, agents, advisors,
      controlling Persons, members and attorneys in fact (each, an “Indemnified
      Person”)
      harmless from and against any and all liabilities, obligations, losses, damages,
      penalties, actions, judgments, suits, costs, charges, expenses and disbursements
      (including Attorney Costs) of any kind or nature whatsoever which may at any
      time (including at any time following repayment of the Loans, and the
      termination, resignation or replacement of the Administrative Agent or
      replacement of any Lender) be imposed on, incurred by or asserted against any
      such Person in any way relating to or arising out of this Agreement or any
      document contemplated by or referred to herein, including any of the Transaction
      Documents, or the transactions contemplated hereby, including the Output
      Acquisition, or any action taken or omitted by any such Person under or in
      connection with any of the foregoing, including with respect to any
      investigation, litigation or proceeding (including any Insolvency Proceeding
      or
      appellate proceeding) related to or arising out of this Agreement, any
      Transaction Document, the Loans or the use of the proceeds thereof, whether
      or
      not any Indemnified Person is a party thereto (all the foregoing, collectively,
      the “Indemnified
      Liabilities”),
      WHETHER OR NOT SUCH INDEMNIFIED LIABILITIES ARISE OUT OF OR AS A RESULT OF
      ANY
      INDEMNIFIED PARTY’S NEGLIGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT
      LIMITATION, THOSE CLAIMS WHICH RESULT FROM THE SOLE, JOINT, CONCURRENT OR
      COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PARTY, OR ANY ONE OR MORE OF THEM;
      provided,
      however, that the Company shall have no obligation hereunder to any Indemnified
      Person with respect to Indemnified Liabilities to the extent same arise (i)
      from
      the gross negligence or willful misconduct of, or breach of the Loan Documents
      by, such Indemnified Person or (ii) in the case of any Lender or Affiliate
      thereof, from the gross negligence or willful misconduct of such Indemnified
      Person’s Affiliates, or any of its or their respective officers, directors,
      employees, counsel, agents, advisors, controlling Persons, members or attorneys
      in fact. No Indemnified Person shall be liable for any damages arising from
      the
      use by unauthorized Persons of information or other materials sent through
      electronic, telecommunications or other information transmission systems that
      are intercepted by such Persons or for any special, indirect, consequential
      or
      punitive damages in connection with this Agreement. All amounts due under this
      Section 11.5
      shall be
      payable not later than 30 days after written demand therefor. The agreements
      in
      Section 11.4
      and this
      Section 11.5
      shall
      survive payment of all other Obligations.

     

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

     

    
      
        
        

      

      
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    11.7 Successors
      and Assigns.
      This
      Agreement shall become effective at the Effective Time after it shall have
      been
      executed by the Company, each Original Guarantor and the Administrative Agent
      and after the Administrative Agent shall have been notified by each Lender
      that
      such Lender has executed it and thereafter this Agreement shall be binding
      upon
      and inure to the benefit of the parties hereto and their respective successors
      and permitted assigns, except that the Company may not assign or transfer any
      of
      its rights or obligations under this Agreement without the prior written consent
      of the Administrative Agent and each Lender.

     

    11.8 Assignments,
      Participations, etc.
      

     

    (a) Each
      Lender may assign to one or more assignees (each, an “Assignee”)
      all or
      a portion of its interests, rights and obligations under this Agreement
      (including all or a portion of its Commitment and the Loans at the time owing
      to
      it) with the prior written consent of the Administrative Agent (not to be
      unreasonably withheld or delayed) and prior written notice to (but not consent
      of) the Company; provided, however, that (i) the amount of the Commitment or
      Loans of the assigning Lender subject to each such assignment (determined as
      of
      the date the Assignment and Acceptance in the form of Exhibit
      “E”
      (the
“Assignment
      and Acceptance”)
      with
      respect to such assignment is delivered to the Administrative Agent and
      determined on an aggregate basis in the event of concurrent assignments to
      Related Funds (as defined below)) shall not, unless consented to by the
      Administrative Agent, be less than $1,000,000 (or, if less, the entire remaining
      amount of such Lender’s Commitment or Loans), (ii) the parties to each such
      assignment shall execute and deliver to the Administrative Agent an Assignment
      and Acceptance via an electronic settlement system acceptable to the
      Administrative Agent (or, if previously agreed with the Administrative Agent,
      manually) and shall pay to the Administrative Agent a processing and recordation
      fee in the amount of $3,500.00 (which fee may be waived or reduced in the sole
      discretion of the Administrative Agent), provided
      further, however, that
      only
      one such fee shall be payable in the case of concurrent assignments to Persons
      that, after giving effect to such assignments, will be Related Funds and
      (iii)
      the Assignee, if it shall not be a Lender, shall deliver to the Administrative
      Agent an administrative questionnaire in such form as supplied from time to
      time
      by the Administrative Agent (an “Administrative
      Questionnaire”)
      and
      all applicable tax forms. Upon acceptance and recording pursuant to Section
      11.8(c),
      from
      and after the effective date specified in each Assignment and Acceptance, (A)
      the assignee thereunder shall be a party hereto and, to the extent of the
      interest assigned by such Assignment and Acceptance, have the rights and
      obligations of a Lender under this Agreement and (B) the assigning Lender
      thereunder shall, to the extent of the interest assigned by such Assignment
      and
      Acceptance, be released from its obligations under this Agreement (and, in
      the
      case of an Assignment and Acceptance covering all or the remaining portion
      of an
      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 Article
      III
      and
      Section 11.5,
      as well
      as to any fees accrued for its account prior to the effective date specified
      in
      such Assignment and Acceptance and not yet paid). The term “Related
      Funds”
shall
      mean with respect to any Lender that is a fund or combined investment vehicle
      that invests in bank loans, any other fund that invests in bank loans and is
      managed or advised by the same investment advisor as such Lender or by an
      Affiliate of such investment advisor.

     

    
      
        
        

      

      
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    (b) By
      executing and delivering an Assignment and Acceptance, the assigning Lender
      thereunder and the Assignee thereunder shall be deemed to confirm to and agree
      with each other and the other parties hereto as follows: (i) such assigning
      Lender warrants that it is the legal and beneficial owner of the interest being
      assigned thereby free and clear of any adverse claim and that its Commitment,
      and the outstanding balances of its Loans, in each case without giving effect
      to
      assignments thereof which have not become effective, are as set forth in such
      Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning
      Lender makes no representation or warranty and assumes no responsibility with
      respect to any statements, warranties or representations made in or in
      connection with this Agreement, or the execution, legality, validity,
      enforceability, genuineness, sufficiency or value of this Agreement, any other
      Loan Document or any other instrument or document furnished pursuant hereto,
      or
      the financial condition of the Company or any Subsidiary or the performance
      or
      observance by the Company or any Subsidiary of any of its obligations under
      this
      Agreement, any other Loan Document or any other instrument or document furnished
      pursuant hereto; (iii) such Assignee represents and warrants that it is legally
      authorized to enter into such Assignment and Acceptance; (iv) such Assignee
      confirms that it has received a copy of this Agreement, together with copies
      of
      the most recent financial statements referred to in Section 5.1
      or
      delivered pursuant to Section 7.1,
      the
      Intercreditor Agreement and such other documents and information as it has
      deemed appropriate to make its own credit analysis and decision to enter into
      such Assignment and Acceptance; (v) such Assignee will independently and without
      reliance upon the Administrative Agent, such assigning Lender or any other
      Lender and based on such documents and information as it shall deem appropriate
      at the time, continue to make its own credit decisions in taking or not taking
      action under this Agreement; (vi) such Assignee appoints and authorizes the
      Administrative Agent to take such action as agent on its behalf and to exercise
      such powers under this Agreement, as are delegated to the Administrative Agent,
      by the terms hereof and thereof, together with such powers as are reasonably
      incidental thereto; and (vii) such Assignee agrees that it will perform in
      accordance with their terms all the obligations which by the terms of this
      Agreement are required to be performed by it as a Lender and will be bound
      by
      and will take no actions contrary to the provisions of the Intercreditor
      Agreement. The Administrative Agent shall be entitled to rely, without any
      independent investigation, on the representations and warranties and other
      statements deemed to be made by the assigning Lender and the Assignee pursuant
      to this Section 11.8(c) and shall not incur any liability for relying
      thereon.

     

    (c) The
      Administrative Agent, acting for this purpose as an agent of the Company, shall
      maintain at one of its offices in Chicago, Illinois a copy of each Assignment
      and Acceptance delivered to it. Upon its receipt of, and consent to, a duly
      completed Assignment and Acceptance executed by an assigning Lender and an
      Assignee, an Administrative Questionnaire completed in respect of the Assignee
      (unless the Assignee shall already be a Lender hereunder), the processing and
      recordation fee referred to in Section 11.8(b)
      above,
      if applicable, and the written consent of the Administrative Agent to such
      assignment and any applicable tax forms, the Administrative Agent shall (i)
      accept such Assignment and Acceptance and (ii) record the information contained
      therein in the Register. No assignment shall be effective unless it has been
      recorded in the Register as provided in this Section 11.8(c).
      The
      Register shall be available for inspection by the Company or any Lender (with
      respect to any entry relating to such Lender’s Loans) at any reasonable time and
      from time to time upon reasonable prior notice.

     

    
      
        
        

      

      
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    (d) Notwithstanding
      anything to the contrary contained herein, any Lender (a “Granting
      Lender”)
      may
      grant to a special purpose funding vehicle (an “SPC”),
      identified as such in writing from time to time by the Granting Lender to the
      Administrative Agent and the Company, the option to provide to the Company
      all
      or any part of any Loan that such Granting Lender would otherwise be obligated
      to make to the Company on the Effective Date pursuant to this Agreement;
      provided, however, that (i) nothing herein shall constitute a commitment by
      any
      SPC to make any Loan and (ii) if an SPC elects not to exercise such option
      or
      otherwise fails to provide all or any part of such Loan, the Granting Lender
      shall be obligated to make such Loan pursuant to the terms hereof. The making
      of
      a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender
      to the same extent, and as if, such Loan were made by such Granting Lender.
      Each
      party hereto hereby agrees that no SPC shall be liable for any indemnity or
      similar payment obligation under this Agreement (all liability for which shall
      remain with the Granting Lender). In furtherance of the foregoing, each party
      hereto hereby agrees (which agreement shall survive the termination of this
      Agreement) that, prior to the date that is one year and one day after the
      payment in full of all outstanding commercial paper or other senior Indebtedness
      of any SPC, it will not institute against, or join any other person in
      instituting against, such SPC any bankruptcy, reorganization, arrangement,
      insolvency or liquidation proceedings under the laws of the United States or
      any
      State thereof. In addition, notwithstanding anything to the contrary contained
      in this Section 11.8, any SPC may (i) with notice to, but without the prior
      written consent of, the Company and the Administrative Agent and without paying
      any processing fee therefor, assign all or a portion of its interests in any
      Loans to the Granting Lender or to any financial institutions (consented to
      by
      the Administrative Agent) providing liquidity and/or credit support to or for
      the account of such SPC to support the funding or maintenance of Loans and
      (ii)
      disclose on a confidential basis any non−public information relating to its
      Loans to any rating agency, commercial paper dealer or provider of any surety,
      guarantee or credit or liquidity enhancement to such SPC.

     

    (e) Within
      five Business Days after its receipt of notice by the Administrative Agent
      that
      it has received an executed Assignment and Acceptance and payment of the
      processing fee, if a Note was issued in respect of the assigned interests,
      upon
      the request of the Administrative Agent by the Assignee, the Company shall
      execute and deliver to the Administrative Agent a new Note evidencing such
      Assignee’s assigned Loans and, if the assignor Lender has retained a portion of
      its Loans and its Commitment, a replacement Note, upon the request of the
      Administrative Agent by the assignor Lender, in the principal amount equal
      to
      the Loans and Commitments, if any, retained by the assignor Lender (such Note
      to
      be in exchange for, but not in payment of, the Note held by such Lender).

     

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

     

    
      
        
        

      

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

     

    (h) Notwithstanding
      any other provision in this Agreement, any Lender may at any time create a
      security interest in, or pledge, all or any portion of its rights under and
      interest in this Agreement and the Note held by it in favor of any Federal
      Reserve Lender in accordance with Regulation A of the FRB or U.S. Treasury
      Regulation 31 CFR §203.14, and such Federal Reserve Lender may enforce such
      pledge or security interest in any manner permitted under applicable
      law.
      Any
      Lender may at any time assign all or any portion of its rights under this
      Agreement to secure extensions of credit to such Lender or in support of
      obligations owed by such Lender; provided, however, that no such assignment
      shall release a Lender from any of its obligations hereunder or substitute
      any
      such assignee for such Lender as a party hereto.

     

    
      
        
        

      

      
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    11.9 Interest.
      It is
      the intention of the parties hereto to comply with applicable usury laws, if
      any; accordingly, notwithstanding any provision to the contrary in this
      Agreement, the Notes or in any of the other Loan Documents securing the payment
      hereof or otherwise relating hereto, in no event shall this Agreement, the
      Notes
      or such other Loan Documents require or permit the payment, taking, reserving,
      receiving, collection, or charging of any sums constituting interest under
      applicable laws which exceed the Highest Lawful Rate. If any such excess
      interest is called for, contracted for, charged, taken, reserved, or received
      in
      connection with the Loans evidenced by the Notes or in any of the Loan Documents
      securing the payment thereof or otherwise relating thereto, or in any
      communication by the Administrative Agent or the Lenders or any other Person
      to
      the Company or any other Person, or in the event all or part of the principal
      or
      interest thereof shall be prepaid or accelerated, so that under any of such
      circumstances or under any other circumstance whatsoever the amount of interest
      contracted for, charged, taken, reserved, or received on the amount of principal
      actually outstanding from time to time under the Notes or any other Loan
      Document shall exceed the Highest Lawful Rate, then in any such event it is
      agreed as follows: (i) the provisions of this Section 11.9
      shall
      govern and control, (ii) neither any Company nor any other Person now or
      hereafter liable for the payment of the Notes shall be obligated to pay the
      amount of such interest to the extent such interest is in excess of the Highest
      Lawful Rate, (iii) any such excess which is or has been received notwithstanding
      this Section 11.9
      shall be
      credited against the then unpaid principal balance of the Notes or, if the
      Notes
      have been or would be paid in full, refunded to the Company, and (iv) the
      provisions of this Agreement, the Notes and the other Loan Documents securing
      the payment thereof and otherwise relating thereto, and any communication to
      the
      Company, shall immediately be deemed reformed and such excess interest reduced,
      without the necessity of executing any other document, to the Highest Lawful
      Rate as now or hereafter construed by courts having jurisdiction hereof or
      thereof. Without limiting the foregoing, all calculations of the rate of the
      interest contracted for, charged, collected, taken, reserved, or received in
      connection with the Notes, this Agreement or any other Loan Document which
      are
      made for the purpose of determining whether such rate exceeds the Highest Lawful
      Rate shall be made to the extent permitted by applicable laws by amortizing,
      prorating, allocating and spreading during the period of the full term of the
      Loans, including all prior and subsequent renewals and extensions, all interest
      at any time contracted for, charged, taken, collected, reserved, or received.
      The terms of this Section 11.9
      shall be
      deemed to be incorporated in every document and communication relating to the
      Notes, the Loans or any other Loan Document.

     

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

     

    
      
        
        

      

      
        82

        
          

        

      

      
        
        

      

    

     

    11.11 Automatic
      Debits of Fees.
      With
      respect to any fee, or any other cost or expense (including Attorney Costs)
      due
      and payable to the Administrative Agent under the Loan Documents, the Company
      hereby irrevocably authorizes the Administrative Agent, after giving reasonable
      prior notice to the Company, to debit any deposit account of the Company with
      the Administrative Agent in an amount such that the aggregate amount debited
      from all such deposit accounts does not exceed such fee or other cost or
      expense. If there are insufficient funds in such deposit accounts to cover
      the
      amount of the fee or other cost or expense then due, such debits will be
      reversed (in whole or in part, in the Administrative Agent’s sole discretion)
      and such amount not debited shall be deemed to be unpaid. No such debit under
      this Section 11.11
      shall be
      deemed a set-off.

     

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

     

    11.13 Counterparts.
      This
      Agreement may be executed in any number of separate counterparts, no one of
      which need be signed by all parties; each of which, when so executed, shall
      be
      deemed an original, and all of such counterparts taken together shall be deemed
      to constitute but one and the same instrument. A fully executed counterpart
      of
      this Agreement by facsimile signatures shall be binding upon the parties
      hereto.

     

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

     

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

     

    
      
        
        

      

      
        83

        
          

        

      

      
        
        

      

    

     

    11.16 Governing
      Law, Jurisdiction.
      THIS
      AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT
      SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
      LAW
      OF THE STATE OF NEW YORK.

     

    11.17 Submission
      To Jurisdiction; Waivers.
      Each of
      the parties hereto hereby irrevocably and unconditionally:

     

    (a) submits,
      for itself and its Property, to the nonexclusive jurisdiction of the Supreme
      Court of the State of New York sitting in New York County and of the United
      States District Court of the Southern District of New York, and any appellate
      court from any thereof, in any action or proceeding arising out of or relating
      to this Agreement, or for recognition or enforcement of any judgment, and each
      of the parties hereto hereby irrevocably and unconditionally agrees that all
      claims in respect of any such action or proceeding may be heard and determined
      in such New York State or, to the extent permitted by 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 shall affect any right that the Administrative Agent
      may otherwise have to bring any action or proceeding relating to this Agreement
      against the Company or any Guarantor or its respective Property in the courts
      of
      any jurisdiction;

     

    (b) waives,
      to the fullest extent it may legally and effectively do so, any objection which
      it may now or hereafter have to the laying of venue of any suit, action or
      proceeding arising out of or relating to this Agreement in any court referred
      to
      in Section 11.17(a),
      and
      each of the parties hereto hereby irrevocably waives, to the fullest extent
      permitted by law, the defense of an inconvenient forum to the maintenance of
      such action or proceeding in any such court; and

     

    (c) consents
      to service of process in the manner provided for notices herein; provided,
      however, nothing in this Agreement will affect the right of any party to this
      Agreement to serve process in any other manner permitted by law.

     

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

     

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

     

    11.20 Accounting
      Changes.
      If at
      any time any Accounting Change (as defined below) would affect the computation
      of any financial ratio or requirement set forth in any Loan Document, and either
      the Company or the Required Lenders shall so request, the Administrative Agent
      and the Company shall negotiate to amend such ratio or requirement to preserve
      the original intent thereof in light of such Accounting Change (subject to
      the
      approval of the Required Lenders); provided, however, that until so amended
      such
      ratio or requirement shall continue to be computed in accordance with GAAP
      prior
      to such change therein. “Accounting
      Change”
refers
      to any change in accounting principles required by the promulgation of any
      rule,
      regulation, pronouncement or opinion by the Financial Accounting Standards
      Board
      of the American Institute of Certified Public Accountants or, if applicable,
      the
      SEC.

     

    
      
        
        

      

      
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    11.21 WAIVER
      OF
      JURY TRIAL, PUNITIVE DAMAGES, ETC.
      THE
      COMPANY, THE GUARANTORS, THE LENDERS AND THE ADMINISTRATIVE AGENT EACH HEREBY
      KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE
      MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
      IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY
      TIME
      ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
      TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
      MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
      IT
      MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY “SPECIAL
      DAMAGES”,
      AS
      DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
      AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
      OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
      ENFORCE THE FOREGOING WAIVERS AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED
      TO
      ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
      CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
      AND
      CERTIFICATIONS CONTAINED IN THIS SECTION 11.21. AS USED IN THIS SECTION,
“SPECIAL DAMAGES” INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE
      DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS
      WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
      PARTY HERETO.

     

    11.22 Intercreditor
      Agreement.
      Each
      Lender (a) hereby agrees that it will be bound by and take no actions contrary
      to the Intercreditor Agreement and (b) hereby irrevocably authorizes and
      instructs the Administrative Agent to enter into the Intercreditor Agreement
      on
      its behalf.

     

    11.23 USA
      PATRIOT Act.
      Each
      Lender hereby notifies each Loan Party that pursuant to the requirements of
      the
      USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26,
      2001)), it is required to obtain, verify and record information that identifies
      each Loan Party, which information includes the name and address of such Loan
      Party and other information that will allow such Lender to identify such Loan
      Party in accordance with that Requirement of Law.

     

    11.24 Acknowledgments.
      Each of
      the Company and each Guarantor hereby acknowledges that:

     

    (a) it
      has
      been advised by counsel in the negotiation, execution and delivery of this
      Agreement and the other Loan Documents;

     

    
      
        
        

      

      
        85

        
          

        

      

      
        
        

      

    

     

    (b) neither
      the Administrative Agent, any other Agent nor any Lender has any fiduciary
      relationship with or duty to the Company or any Guarantor arising out of or
      in
      connection with this Agreement or any of the other Loan Documents, and the
      relationship between the Administrative Agent, any other Agent and the Lenders,
      on one hand, and the Company and the Guarantors, on the other hand, in
      connection herewith or therewith is solely that of creditor and debtor;
      and

     

    (c) no
      joint
      venture is created hereby or by the other Loan Documents or otherwise exists
      by
      virtue of the transactions contemplated hereby among the Administrative Agent,
      any other Agent and the Lenders or among the Company and the Guarantors and
      the
      Lenders.

     

    11.25 Survival
      of Representations and Warranties.
      All
      representations and warranties made herein, in the other Loan Documents and
      in
      any document, certificate or statement delivered pursuant hereto or in
      connection herewith shall survive the execution and delivery of this Agreement
      and the making of the Loans and other extensions of credit
      hereunder.

     

    11.26 Release
      of Collateral and Guarantee Obligations.

     

    (a) Notwithstanding
      anything to the contrary contained herein or in any other Loan Document, but
      subject to Sections 5.1(e) and 5.4 (e) of the Intercreditor Agreement, upon
      request of the Company in connection with any Disposition of Property (including
      any Disposition of a Guarantor) permitted by the Loan Documents, the
      Administrative Agent shall (without notice to, or vote or consent of, any Lender
      or any Qualified Derivative Contract Counterparty) take such actions as shall
      be
      required to release its security interest in any Collateral being Disposed
      of in
      such Disposition, and to release any Guaranty Obligations under any Loan
      Document of any Person being Disposed of in such Disposition, to the extent
      necessary to permit consummation of such Disposition in accordance with the
      Loan
      Documents; provided, however, that the Company shall have delivered to the
      Administrative Agent, at least ten Business Days prior to the date of the
      proposed release (or such shorter period agreed to by the Administrative Agent),
      a written request for release identifying the relevant Collateral being Disposed
      of in such Disposition and, in the case of a Disposition under Section
8.2(f)
      or any
      other Disposition of Collateral comprising (i) Hydrocarbon Interests or (ii)
      other Property with a book value in excess of $2,000,000, and the terms of
      such
      Disposition in reasonable detail, including the date thereof, the price thereof
      and any expenses in connection therewith, together with a certification by
      the
      Company stating that such transaction is in compliance with this Agreement
      and
      the other Loan Documents and that the proceeds of such Disposition will be
      applied in accordance with this Agreement and the other Loan Documents.

     

    (b) Notwithstanding
      anything to the contrary contained herein or any other Loan Document, when
      all
      Obligations (other than obligations in respect of any Qualified Derivative
      Contract) have been paid or otherwise satisfied in full and all Commitments
      have
      terminated or expired, but subject to Sections 5.1(e) and 5.4(e) of the
      Intercreditor Agreement, upon request of the Company, the Administrative Agent
      shall (without notice to, or vote or consent of, any Lender, or any Qualified
      Derivative Contract Counterparty) take such actions as shall be required to
      release its security interest in all Collateral, and to release all Guaranty
      Obligations provided for in any Loan Document, whether or not on the date of
      such release there may be outstanding Obligations in respect of the Qualified
      Derivative Contracts. Any such release of Guaranty Obligations shall be deemed
      subject to the provision that such Guaranty Obligations shall be reinstated
      if
      after such release any portion of any payment in respect of the Obligations
      guaranteed thereby shall be rescinded or must otherwise be restored or returned
      upon the insolvency, bankruptcy, dissolution, liquidation or reorganization
      of
      the Company or any Guarantor, or upon or as a result of the appointment of
      a
      receiver, intervenor or conservator of, or trustee or similar officer for,
      the
      Company or any Guarantor or any substantial part of its Property, or otherwise,
      all as though such payment had not been made.

     

    
      
        
        

      

      
        86

        
          

        

      

      
        
        

      

    

     

    [THE
      REMAINDER OF THIS PAGE IS LEFT BLANK]

     

    
      
        
        

      

      
        87

        
          

        

      

      
        
        

      

    

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

    
      	 	 	 
	 	
              COMPANY:

               

              
                THE
                  EXPLORATION COMPANY OF DELAWARE, INC.

              

            
	 
 	 
 	 
 
	
            	By:  	/s/
              James E. Sigmon
	 	
              

              James
                E. Sigmon

            
	 	
              President
                and Chief Executive Officer

            

    

     

    
      	
            	 	 
	 	
              ORIGINAL
                GUARANTORS:

               

              
                TXCO
                  ENERGY CORP.

              

            
	 
 	 
 	 
 
	
            	By:  	/s/
              P.
              Mark Stark
	 	
              

              
                P.
                  Mark Stark

              

            
	 	
              
                Vice
                  President, Treasurer and 

                
                  Chief
                    Financial Officer

                

              

            

    

     

    
      	
            	 	 
	 	
              
                TEXAS
                  TAR SANDS INC.

              

            
	 
 	 
 	 
 
	
            	By:  	/s/
              M.
              Frank Russell
	 	
              

              
                
                  M.
                    Frank Russell

                

              

            
	 	
              
                
                  Vice
                    President and General
                    Counsel

                

              

            

    

     

    
      	
            	 	 
	 	
              
                
                  OUTPUT
                    ACQUISITION CORP.

                

              

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Roberto R. Thomae
	 	
              

              
                
                  
                    Roberto
                      R. Thomae

                  

                

              

            
	 	
              
                
                  Vice
                    President and Secretary

                

              

            

    

    
      	
            	
                      

            	 
	 	
              
                
                  Address
                    for Notice:

                  Principal
                    Place of Business

                  and
                    Chief Executive Office:

                

              

            
	 
 	 	 
 
	
            	 	
              777
                E. Sonterra Blvd., Suite 350

              San
                Antonio, Texas 78258

              Attention:
                Chief Financial Officer

              Facsimile
                No.: (210) 496-3232

            

    

     

    Term
      Loan Agreement Signature Page

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
            	 	 
	 	
              
                
                  
                    ADMINISTRATIVE
                      AGENT AND A LENDER:

                     

                    BANK
                      OF MONTREAL,
                      acting through its U.S. branches and agencies, including its
                      Chicago,
                      Illinois branch, as Administrative Agent and as a
                      Lender

                  

                

              

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Joseph A. Bliss 
	 	
              

              
                
                  
                    
                      Joseph
                        A. Bliss

                    

                  

                

              

            
	 	
              
                
                  Managing
                    Director

                

              

            

      
        	
              	
                        

              	 
	 	
                
                  Address:   
                    115
                    South LaSalle Street 

                  
                    11th
                      Floor West

                    Chicago,
                      Illinois 60603

                  

                   

                  
                    Facsimile
                      No.: (312)
                      765-8078

                    

                    Attention:     Terri
                      Perez-Ford, Specialist

                    

                    with
                      copy to:

                    

                    Address:       
                      Bank
                      of Montreal

                    Houston
                      Agency

                    700
                      Louisiana Street

                    4400
                      Bank of America Center

                    Houston,
                      Texas 77002

                    

                    Facsimile
                      No.: (713)
                      223-4007

                    

                    Attention:    
                       Joseph
                      A. Bliss

                    

                    Applicable
                      Lending Office 

                    for
                      Base Rate Loans and 

                    LIBO
                      Rate Loans:

                    

                    Address:      
                       115
                      South LaSalle Street,

                    11th
                      Floor West

                    Chicago,
                      Illinois 60603

                    

                    Facsimile
                      No.:  (312)
                      765-8078

                    

                    Attention:     
                      Terri
                      Perez-Ford, Specialist

                  

                   

                

              

      

       

      Term
        Loan Agreement Signature Page

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