Document:

Exhibit 10.3

 

 

EXECUTION VERSION

 

CREDIT AGREEMENT

 

dated as of

September 27, 2005

 

among

 

TXOK ACQUISITION, INC.,

as Borrower

 

CERTAIN SUBSIDIARIES OF BORROWER,

as Guarantors

 

The Lenders Party Hereto

 

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

 

J.P. MORGAN SECURITIES INC.,

as Sole Bookrunner and Lead Arranger

 

$500,000,000 Senior Secured Revolving Credit
Facility

 

 

 

 

TABLE OF CONTENTS

 

	
  Article I Definitions

  	
  1

  
	
  Section 1.01.

  	
  Defined
  Terms

  	
  1

  
	
  Section 1.02.

  	
  Types
  of Loans and Borrowings

  	
  24

  
	
  Section 1.03.

  	
  Terms
  Generally

  	
  24

  
	
  Section 1.04.

  	
  Accounting
  Terms; GAAP

  	
  24

  
	
  Section 1.05.

  	
  Oil
  and Gas Definitions

  	
  24

  
	
   

  	
   

  	
   

  
	
  Article II The Credits

  	
  25

  
	
  Section 2.01.

  	
  Commitments

  	
  25

  
	
  Section 2.02.

  	
  Termination
  and Reduction of the Aggregate Commitment

  	
  25

  
	
  Section 2.03.

  	
  Loans
  and Borrowings

  	
  26

  
	
  Section 2.04.

  	
  Requests
  for Borrowings

  	
  26

  
	
  Section 2.05.

  	
  Letters
  of Credit

  	
  27

  
	
  Section 2.06.

  	
  Funding
  of Borrowings

  	
  31

  
	
  Section 2.07.

  	
  Interest
  Elections

  	
  32

  
	
  Section 2.08.

  	
  Repayment of
  Loans; Evidence of Debt

  	
  33

  
	
  Section 2.09.

  	
  Optional
  Prepayment of Loans

  	
  34

  
	
  Section 2.10.

  	
  Mandatory
  Prepayment of Loans

  	
  34

  
	
  Section 2.11.

  	
  Fees

  	
  35

  
	
  Section 2.12.

  	
  Interest

  	
  36

  
	
  Section 2.13.

  	
  Alternate
  Rate of Interest

  	
  37

  
	
  Section 2.14.

  	
  Increased
  Costs

  	
  37

  
	
  Section 2.15.

  	
  Break
  Funding Payments

  	
  39

  
	
  Section 2.16.

  	
  Taxes

  	
  39

  
	
  Section 2.17.

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

  	
  41

  
	
  Section 2.18.

  	
  Mitigation
  Obligations; Replacement of Lenders

  	
  42

  
	
   

  	
   

  	
   

  
	
  Article III Borrowing Base

  	
  44

  
	
  Section 3.01.

  	
  Reserve
  Report; Proposed Borrowing Base; Conforming Borrowing Base

  	
  44

  
	
  Section 3.02.

  	
  Scheduled
  Redeterminations of the Borrowing Base; Procedures and Standards

  	
  44

  
	
  Section 3.03.

  	
  Special
  Redeterminations

  	
  45

  
	
  Section 3.04.

  	
  Notice
  of Redetermination

  	
  46

  
	
   

  	
   

  	
   

  
	
  Article IV Representations and
  Warranties

  	
  46

  
	
  Section 4.01.

  	
  Organization;
  Powers

  	
  46

  
	
  Section 4.02.

  	
  Authorization;
  Enforceability

  	
  46

  
	
  Section 4.03.

  	
  Governmental
  Approvals; No Conflicts

  	
  46

  
	
  Section 4.04.

  	
  Financial
  Condition; No Material Adverse Change

  	
  47

  
	
  Section 4.05.

  	
  Properties

  	
  47

  

 

i

 

	
  Section 4.06.

  	
  Litigation
  and Environmental Matters

  	
  47

  
	
  Section 4.07.

  	
  Compliance
  with Laws and Agreements

  	
  48

  
	
  Section 4.08.

  	
  Investment
  and Holding Company Status

  	
  48

  
	
  Section 4.09.

  	
  Taxes

  	
  48

  
	
  Section 4.10.

  	
  ERISA

  	
  48

  
	
  Section 4.11.

  	
  Disclosure

  	
  48

  
	
  Section 4.12.

  	
  Labor
  Matters

  	
  49

  
	
  Section 4.13.

  	
  Capitalization

  	
  49

  
	
  Section 4.14.

  	
  Margin
  Stock

  	
  49

  
	
  Section 4.15.

  	
  Oil
  and Gas Interests

  	
  49

  
	
  Section 4.16.

  	
  Insurance

  	
  50

  
	
  Section 4.17.

  	
  Solvency

  	
  50

  
	
  Section 4.18.

  	
  Deposit
  Accounts

  	
  50

  
	
   

  	
   

  	
   

  
	
  Article V Conditions

  	
  51

  
	
  Section 5.01.

  	
  Effective
  Date

  	
  51

  
	
  Section 5.02.

  	
  Each
  Credit Event

  	
  54

  
	
   

  	
   

  	
   

  
	
  Article VI Affirmative
  Covenants

  	
  55

  
	
  Section 6.01.

  	
  Financial
  Statements; Other Information

  	
  55

  
	
  Section 6.02.

  	
  Notices
  of Material Events

  	
  56

  
	
  Section 6.03.

  	
  Existence;
  Conduct of Business

  	
  57

  
	
  Section 6.04.

  	
  Payment
  of Obligations

  	
  57

  
	
  Section 6.05.

  	
  Maintenance
  of Properties; Insurance

  	
  57

  
	
  Section 6.06.

  	
  Books
  and Records; Inspection Rights

  	
  58

  
	
  Section 6.07.

  	
  Compliance
  with Laws

  	
  58

  
	
  Section 6.08.

  	
  Use of
  Proceeds and Letters of Credit

  	
  58

  
	
  Section 6.09.

  	
  Mortgages

  	
  58

  
	
  Section 6.10.

  	
  Title
  Data

  	
  58

  
	
  Section 6.11.

  	
  Swap
  Agreements

  	
  59

  
	
  Section 6.12.

  	
  Operation
  of Oil and Gas Interests

  	
  59

  
	
  Section 6.13.

  	
  Restricted
  Subsidiaries

  	
  60

  
	
  Section 6.14.

  	
  Pledged
  Equity Interests

  	
  60

  
	
  Section 6.15.

  	
  Production
  Proceeds and Bank Accounts

  	
  60

  
	
   

  	
   

  	
   

  
	
  Article VII Negative Covenants

  	
  61

  
	
  Section 7.01.

  	
  Indebtedness

  	
  61

  
	
  Section 7.02.

  	
  Liens

  	
  62

  
	
  Section 7.03.

  	
  Fundamental
  Changes

  	
  63

  
	
  Section 7.04.

  	
  Investments,
  Loans, Advances, Guarantees and Acquisitions

  	
  64

  
	
  Section 7.05.

  	
  Swap
  Agreements

  	
  65

  
	
  Section 7.06.

  	
  Restricted
  Payments

  	
  65

  
	
  Section 7.07.

  	
  Transactions
  with Affiliates

  	
  66

  
	
  Section 7.08.

  	
  Restrictive
  Agreements

  	
  66

  
	
  Section 7.09.

  	
  Disqualified
  Stock

  	
  66

  
	
  Section 7.10.

  	
  Amendments
  to Organizational Documents and Preferred Stock Documents

  	
  66

  

 

ii

 

	
  Section 7.11.

  	
  Financial
  Covenants

  	
  67

  
	
  Section 7.12.

  	
  Sale
  and Leaseback Transactions and other Off-Balance Sheet Liabilities

  	
  68

  
	
  Section 7.13.

  	
  Term
  Facility Restrictions

  	
  68

  
	
  Section 7.14.

  	
  Short
  Term Note Restrictions

  	
  68

  
	
   

  	
   

  	
   

  
	
  Article VIII Guarantee of
  Obligations

  	
  69

  
	
  Section 8.01.

  	
  Guarantee
  of Payment

  	
  69

  
	
  Section 8.02.

  	
  Guarantee
  Absolute

  	
  69

  
	
  Section 8.03.

  	
  Guarantee
  Irrevocable

  	
  69

  
	
  Section 8.04.

  	
  Reinstatement

  	
  70

  
	
  Section 8.05.

  	
  Subrogation

  	
  70

  
	
  Section 8.06.

  	
  Subordination

  	
  70

  
	
  Section 8.07.

  	
  Payments
  Generally

  	
  70

  
	
  Section 8.08.

  	
  Setoff

  	
  71

  
	
  Section 8.09.

  	
  Formalities

  	
  71

  
	
   

  	
   

  	
   

  
	
  Article IX Events of Default

  	
  71

  
	
   

  	
   

  	
   

  
	
  Article X The Administrative
  Agent

  	
  74

  
	
   

  	
   

  	
   

  
	
  Article XI Miscellaneous

  	
  76

  
	
  Section 11.01.

  	
  Notices

  	
  76

  
	
  Section 11.02.

  	
  Waivers;
  Amendments

  	
  76

  
	
  Section 11.03.

  	
  Expenses;
  Indemnity; Damage Waiver

  	
  77

  
	
  Section 11.04.

  	
  Successors
  and Assigns

  	
  79

  
	
  Section 11.05.

  	
  Survival

  	
  82

  
	
  Section 11.06.

  	
  Counterparts;
  Integration; Effectiveness

  	
  83

  
	
  Section 11.07.

  	
  Severability

  	
  83

  
	
  Section 11.08.

  	
  Right
  of Setoff

  	
  83

  
	
  Section 11.09.

  	
  GOVERNING
  LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS

  	
  84

  
	
  Section 11.10.

  	
  WAIVER
  OF JURY TRIAL

  	
  84

  
	
  Section 11.11.

  	
  Headings

  	
  85

  
	
  Section 11.12.

  	
  Confidentiality

  	
  85

  
	
  Section 11.13.

  	
  Interest
  Rate Limitation

  	
  85

  
	
  Section 11.14.

  	
  USA
  PATRIOT Act

  	
  86

  

 

	
  SCHEDULES:

  	
   

  
	
   

  	
   

  
	
  Schedule 2.01 – Applicable Percentages and Initial Commitments

  	
   

  
	
  Schedule 4.06 – Disclosed Matters

  	
   

  
	
  Schedule 4.13 – Capitalization

  	
   

  
	
  Schedule 4.18 – Deposit and Investment Accounts

  	
   

  
	
  Schedule 7.01 – Existing Indebtedness

  	
   

  
	
  Schedule 7.02 – Existing Liens

  	
   

  

 

iii

 

	
  Schedule 7.07 – Transactions with Affiliates

  	
   

  	
   

  
	
  Schedule 7.08 – Existing Restrictions

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A – Form of Assignment and Assumption

  	
   

  	
   

  
	
  Exhibit B – Form of Opinion of Borrower’s Counsel

  	
   

  	
   

  
	
  Exhibit C – Form of Counterpart Agreement

  	
   

  	
   

  
	
  Exhibit D – Form of Solvency Certificate

  	
   

  	
   

  

 

iv

 

CREDIT AGREEMENT dated as of September 27, 2005, among TXOK ACQUISITION,
INC., as Borrower, CERTAIN SUBSIDIARIES OF BORROWER, as Guarantors, the LENDERS
party hereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.

 

The
parties hereto agree as follows:

 

Article I

 

Definitions

 

Section 1.01.          Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:

 

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

 

“Acquisition”
means, the
acquisition by the Borrower or any Restricted Subsidiary, whether by purchase,
merger (and, in the case of a merger with any such Person, with such Person being
the surviving corporation) or otherwise, of all or substantially all of the Equity
Interest of, or the business, property or fixed assets of or business line or
unit or a division of, any other Person primarily engaged in the business of
producing oil or natural gas or the acquisition by such Person of property or
assets consisting of Oil and Gas Interests.

 

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

 

“Adjustment
Percentage” means, at any date prior to the first anniversary of the
Effective Date, the quotient, expressed as a percentage, of the Conforming
Borrowing Base divided by the Borrowing Base.

 

“Administrative
Agent” means JPMorgan Chase Bank, N.A., in its capacity as contractual
representative of the Lenders hereunder pursuant to Article X and not in
its individual capacity as a Lender, and any successor agent appointed pursuant
to Article X.

 

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

 

“Advance
Payment Contract” means any contract whereby any Credit Party either (a) receives
or becomes entitled to receive (either directly or indirectly) any payment (an “Advance
Payment”) to be applied toward payment of the
purchase price of Hydrocarbons produced or to be produced from Oil and Gas
Interests owned by any Credit Party and which Advance Payment is, or is to be,
paid in advance of actual delivery of such production to or for

 

1

 

the account of the purchaser regardless of such production, or (b) grants
an option or right of refusal to the purchaser to take delivery of such
production in lieu of payment, and, in either of the foregoing instances, the
Advance Payment is, or is to be, applied as payment in full for such production
when sold and delivered or is, or is to be, applied as payment for a portion
only of the purchase price thereof or of a percentage or share of such
production; provided that inclusion of the standard “take or
pay” provision in any gas sales or purchase contract or any other similar contract
shall not, in and of itself, constitute such contract as an Advance Payment
Contract for the purposes hereof.

 

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

 

“Aggregate
Commitment” means the amount equal to the lesser of (i) $500,000,000
and (ii) the Borrowing Base, as such Aggregate Commitment may be reduced
or increased pursuant to Section 2.02 and Article III; provided that
in no event shall the Aggregate Commitment exceed the Borrowing Base and if at
any time the Borrowing Base is reduced below the Aggregate Commitment, the
Aggregate Commitment shall be reduced automatically to the amount of the
Borrowing Base in effect at such time.

 

“Aggregate
Credit Exposure” means, as of any date of determination, the sum of the
outstanding principal amount of the Loans of all Lenders as of such date, plus
the aggregate LC Exposure of all Lenders as of such date.

 

“Agreement”
means this Credit Agreement, dated as of September 27, 2005 as it may be
amended, supplemented or otherwise modified from time to time.

 

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

 

“Applicable
Percentage” means, with respect to any Lender, the percentage of the Aggregate
Commitment represented by such Lender’s Commitment.  The initial amount of each Lender’s
Applicable Percentage is as set forth on Schedule 2.01.  If the Aggregate Commitment has terminated or
expired, the Applicable Percentages shall be determined based upon the Aggregate
Commitment most recently in effect, giving effect to any assignments.

 

“Applicable
Rate” means, for any day, with respect to any ABR Loan or Eurodollar Loan,
or with respect to the Unused Commitment Fees payable hereunder, as the case
may be, the applicable rate per annum set forth below under the caption “ABR
Spread”, “Eurodollar Spread” or “Unused Commitment Fee Rate”, as the case may
be, based upon the Borrowing Base Usage applicable on such date:

 

2

 

	
  Borrowing Base 

  Usage

  	
   

  	
  Eurodollar 

  Spread

  	
   

  	
  ABR

  Spread

  	
   

  	
  Unused 

  Commitment 

  Fee Rate

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  > 100%

  	
   

  	
  275
  b.p.

  	
   

  	
  175
  b.p.

  	
   

  	
  50
  b.p.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  > 90%
  and <100%

  	
   

  	
  200
  b.p.

  	
   

  	
  100
  b.p.

  	
   

  	
  50
  b.p.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  > 75%
  and < 90%

  	
   

  	
  175 b.p.

  	
   

  	
   75 b.p.

  	
   

  	
  50 b.p.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  > 50%
  and < 75%

  	
   

  	
  150 b.p.

  	
   

  	
   50 b.p.

  	
   

  	
  37.5 b.p.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  < 50%

  	
   

  	
  125 b.p.

  	
   

  	
   25 b.p.

  	
   

  	
   25 b.p.

  

 

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

 

“Approved
Counterparty” means, at any time and from time to time, (i) any Person
engaged in the business of writing Swap Agreements for commodity, interest rate
or currency risk that is acceptable to the Administrative Agent and has (or the
credit support provider of such Person has), at the time Borrower or any
Restricted Subsidiary enters into a Swap Agreement with such Person, a long
term senior unsecured debt credit rating of BBB+ or better from S&P or Baa1
or better by Moody’s and (ii) any Lender Counterparty.

 

“Approved
Fund” has the meaning assigned to such term in Section 11.04.

 

“Approved
Investor” means (a) any BP Investor and (b) any Person other than
a BP Investor or the Persons described in clause (a) of the definition of “Control
Group” to whom Equity Interests of the Borrower are transferred or assigned
with the prior written consent of the Required Lenders, which consent shall not
be unreasonably withheld, conditioned or delayed.  For the avoidance of doubt, any assignment or
transfer of Equity Interests of the Borrower by any Person to any Person other
than a BP Investor or the Persons described in clause (a) of the
definition of “Control Group” is subject to the foregoing clause (b), including
any transferee or assignee of such Person.

 

“Approved
Petroleum Engineer” means Lee Keeling & Associates or any other
reputable firm of independent petroleum engineers selected by the Borrower and acceptable
to the Administrative Agent and the Required Lenders.

 

“Assessment
Rate” means, for any day, the annual assessment rate in effect on such day
that is payable by a member of the Bank Insurance Fund classified as “well-capitalized”
and within supervisory subgroup “B” (or a comparable successor risk
classification) within the meaning of 12 C.F.R. Part 327 (or any successor
provision) to the Federal Deposit Insurance Corporation for insurance by such
Corporation of time deposits made in Dollars at the offices of such member in
the United States; provided that if, as a result of any change in any
law, rule or regulation, it is no longer possible to determine the
Assessment Rate 

 

3

 

as aforesaid, then the Assessment Rate shall be such annual rate as
shall be determined by the Administrative Agent to be representative of the
cost of such insurance to the Lenders.

 

“Assignment
and Assumption” means an assignment and assumption entered into by a Lender
and an assignee (with the consent of any party whose consent is required by Section 11.04),
and accepted by the Administrative Agent, in the form of Exhibit A or any
other form approved by the Administrative Agent.

 

“Availability
Period” means the period from and including the Effective Date to but
excluding the earlier of the Maturity Date and the date of termination of the Aggregate
Commitment.

 

“Base
CD Rate” means the sum of (a) the Three-Month Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.

 

“Board”
means the Board of Governors of the Federal Reserve System of the United States
of America.

 

“Borrower”
means TXOK Acquisition, Inc., a Delaware corporation, and its successors
and permitted assigns.

 

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

 

“Borrowing Base” means, at any time an amount equal
to the amount determined in accordance with Section 3.01, as the same may
be redetermined, adjusted or reduced from time to time pursuant to Section 3.02
and Section 3.03.

 

“Borrowing Base Deficiency” means, as of any date, the amount,
if any, by which the Aggregate Credit Exposure on such date exceeds the
Borrowing Base in effect on such date; provided, that,
for purposes of determining the existence and amount of any Borrowing Base
Deficiency, obligations under any Letter of Credit will not be deemed to be
outstanding to the extent such obligations are secured by cash in the manner
contemplated by Section 2.05(j).

 

“Borrowing Base Properties” means all Oil
and Gas Interests of the Borrower and the Restricted Subsidiaries evaluated by the
Lenders for purposes of establishing the Borrowing Base.

 

“Borrowing
Base Usage” means, as of any date and for all purposes, other than as set
forth in the following proviso, the quotient, expressed as a percentage, of (i) the
Aggregate Credit Exposure as of such date, divided by (ii) the
Borrowing Base; provided that, with respect to the determination of the
Applicable Margin prior to the first anniversary of the Effective Date, “Borrowing
Base Usage” means the quotient, expressed as a percentage, of (x) the
quotient calculated pursuant to the foregoing clauses (i) and (ii),
divided by (y) the Adjustment Percentage.

 

“Borrowing
Request” means a request by the Borrower for a Borrowing in accordance with
Section 2.04.

 

4

 

“BP
Investor” means, collectively, (a) BP EXCO Holdings LP, a Texas
limited partnership and any other investment fund managed by BP Capital
Management LP, and (b) Boone Pickens, 
any Affiliate of Boone Pickens, any spouse or lineal descendant of Boone
Pickens (whether natural or adopted), the estate of Boone Pickens, and any
trust solely for the benefit of Boone Pickens and/or his spouse and/or lineal
descendants.

 

“Business
Day” means any day that is not a Saturday, Sunday or other day on which
commercial banks in Chicago, Illinois are authorized or required by law to
remain closed; provided that, when used in connection with a Eurodollar
Loan, the term “Business Day” shall also exclude any day on which banks
are not open for dealings in dollar deposits in the London interbank market.

 

“Capital
Lease Obligations” of any Person means the obligations of such Person to
pay rent or other amounts under any lease of (or other arrangement conveying
the right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases
on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.

 

“Change
in Law” means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender
or the Issuing Bank (or, for purposes of Section 2.14(b), by any lending
office of such Lender or by such Lender’s or the Issuing Bank’s holding
company, if any) with any request, guideline or directive (whether or not
having the force of law) of any Governmental Authority made or issued after the
date of this Agreement.

 

“Change
of Control” means (a) at any time prior to the IPO Date, (i) any
Person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act) other than the Control Group (1) shall have acquired, directly
or indirectly, beneficial ownership of 51% or more on a fully diluted basis of
the voting and/or economic interest in the Equity Interests of the Borrower or (2) shall
have obtained, directly or indirectly, the power (whether or not exercised) to
elect a majority of the members of the board of directors (or similar governing
body) of the Borrower; or (ii) Douglas H. Miller shall cease to serve as a
member of the board of directors (or similar governing body of the Borrower for
any reason other than death or disability unless his replacement is a person
reasonably acceptable to the Required Lenders (which acceptance shall not be
unreasonably withheld, conditioned or delayed) and (b) at any time after
the IPO Date, (i) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934 and the rules of the Securities and
Exchange Commission thereunder as in effect on the IPO Date) other than the
Control Group, of Equity Interests representing more than 30% of the aggregate
ordinary voting power represented by the issued and outstanding Equity
Interests of Borrower (or its parent company or successor); or (ii) occupation
of a majority of the seats (other than vacant seats) on the board of directors
of Borrower (or its parent company or successor) by persons who were neither (1) nominated
by the board of directors of Borrower (or its parent company or successor) nor (2) appointed
by directors so nominated; or (iii) the acquisition of direct or indirect Control
of 

 

5

 

Borrower (or its parent company or successor) by any Person or group
other than the Control Group.

 

“Charges”
has the meaning assigned to such term in Section 11.13.

 

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

 

“Commitment”
means, with respect to each Lender, the commitment of such Lender to make Loans
and to acquire participations in Letters of Credit hereunder, expressed as an
amount representing the maximum aggregate amount of such Lender’s Credit
Exposure hereunder, as such commitment may be (a) reduced from time to
time pursuant to Section 2.02, (b) reduced or increased from time to
time as a result of changes in the Borrowing Base pursuant to Article III
and (c) reduced or increased from time to time pursuant to assignments by
or to such Lender pursuant to Section 11.04.  The initial amount of each Lender’s
Commitment (which amount is such Lender’s Applicable Percentage of the initial
Aggregate Commitment) is set forth in Schedule 2.01, or in the Assignment
and Assumption pursuant to which such Lender shall have assumed its Commitment,
as applicable.

 

“Conforming
Borrowing Base” means, at any time an amount equal to the amount determined
in accordance with Section 3.01, as the same may be redetermined, adjusted
or reduced from time to time pursuant to Section 3.02 and Section 3.03.

 

“Consolidated
Current Assets” means, as of any date of determination, the total of (i) the
consolidated current assets of the Borrower and the Restricted Subsidiaries
determined in accordance with GAAP as of such date and calculated on a combined
basis, plus, all Unused Commitments as of such date, (ii) less
any non-cash assets required to be included in consolidated current assets of the
Borrower and the Restricted Subsidiaries as a result of the application of FASB
Statement 133 as of such date.

 

“Consolidated
Current Liabilities” means, as of any date of determination, the total of (i) consolidated
current liabilities of the Borrower and the Restricted Subsidiaries, as
determined in accordance with GAAP as of such date, (ii) less
current maturities of the Loans, (iii) less any non-cash
obligations required to be included in consolidated current liabilities of the
Borrower and the Restricted Subsidiaries as a result of the application of FASB
Statement 133 as of such date.

 

“Consolidated
Current Ratio” means, as of any date of determination, the ratio of
Consolidated Current Assets to Consolidated Current Liabilities as of such
date.

 

“Consolidated EBITDAX” means, with
respect to the Borrower and its Consolidated Subsidiaries for any period,
Consolidated Net Income for such period; plus, without duplication and to
the extent deducted in the calculation of Consolidated Net Income for such
period, the sum of (a) income or franchise Taxes paid or accrued; (b) Consolidated
Interest Expense; (c) amortization, depletion and depreciation expense; (d) any
non-cash losses or charges on any Swap Agreement resulting from the
requirements of FASB Statement 133 for that period; (e) oil and gas
exploration expenses (including all drilling, completion, geological and
geophysical costs) for such period; (f) losses from sales or other
dispositions of assets (other than Hydrocarbons produced in the ordinary course
of business) and other extraordinary or non-

 

6

 

recurring losses, (g) workover expenses for such period and (h) other
non-cash charges (excluding accruals for cash expenses made in the ordinary
course of business); minus, to the extent included in the calculation of
Consolidated Net Income for such period, (i) the sum of (1) any
non-cash gains on any Swap Agreements resulting from the requirements of FASB Statement
133 for that period; (2) extraordinary or non-recurring gains; and (3) gains
from sales or other dispositions of assets (other than Hydrocarbons produced in
the ordinary course of business); provided that, (x) with respect to the fiscal quarter ending
on December 31, 2005, Consolidated EBITDAX of the Borrower and its
Consolidated Subsidiaries for such period shall be calculated without giving
effect to the Existing Swap Agreements and (y) with respect to the
determination of Borrower’s compliance with the leverage ratio set forth in Section 7.11(b) for
any period, Consolidated EBITDAX shall be adjusted to give effect, on a pro
forma basis, to any Acquisitions made during such period as if such Acquisitions
were made at the beginning of such period.

 

“Consolidated
Funded Indebtedness” means, as of any date and without duplication,
Indebtedness of the Borrower and the Consolidated Subsidiaries, Indebtedness of
the type described in clauses (a), (b), (c), (d), (e), (f), (g) or (h) of
the definition of Indebtedness.

 

“Consolidated Net Income” means for
any period, the consolidated net income (or loss) of the Borrower and its Consolidated
Subsidiaries, as applicable, determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded (a) the income (or
deficit) of any Person accrued prior to the date it becomes a Consolidated
Subsidiary of the Borrower, or is merged into or consolidated with the Borrower
or any of its Consolidated Subsidiaries, as applicable, and (b) the
undistributed earnings of any Consolidated Subsidiary of the Borrower, to the
extent that the declaration or payment of dividends or similar distributions by
such Consolidated Subsidiary is not at the time permitted by the terms of any contractual
obligation (other than under any Loan Document) or by any law applicable to
such Consolidated Subsidiary.

 

“Consolidated
Interest Expense” means for any period, without duplication, the aggregate
of all interest paid or accrued by the Borrower and its Consolidated
Subsidiaries, on a consolidated basis, in respect of Indebtedness of any such
Person, on a consolidated basis, including all interest, fees and costs payable
with respect to the obligations related to such Indebtedness (other than fees
and costs which may be capitalized as transaction costs in accordance with
GAAP) and the interest component of Capitalized Lease Obligations, all as
determined in accordance with GAAP.

 

“Consolidated Subsidiaries” means,
for any Person, any Subsidiary or other entity the accounts of which would be
consolidated with those of such Person in its consolidated financial statements
in accordance with GAAP.

 

“Control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled”
have meanings correlative thereto.

 

7

 

“Control
Group” means (a) Douglas H. Miller, Stephen F. Smith, any Affiliate
Controlled by any such Person and any spouse or lineal descendants (whether
natural or adopted) of any such Person and any trust solely for the benefit of
such Person and/or such Person’s spouse and/or lineal descendants and (b) any
Approved Investor.

 

“Counterpart
Agreement” means a Counterpart Agreement substantially in the form of Exhibit C
delivered by a Guarantor pursuant to Section 6.13.

 

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

 

“Credit
Parties” means collectively, Borrower, and each Guarantor and each individually,
a “Credit Party”.

 

“Crude
Oil” means all crude oil and condensate.

 

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

 

“Disclosed
Matters” means the actions, suits and proceedings and the environmental
matters disclosed in Schedule 4.06.

 

“Disqualified
Stock” means any Equity Interest, other than the Preferred Stock, which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in whole or in part, on
or prior to the Maturity Date.

 

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

 

“Domestic
Subsidiary” means, with respect to any Person, a subsidiary of such Person
that is incorporated or formed under the laws of the United States of America,
any state thereof or the District of Columbia.

 

“Effective
Date” means the date on which the conditions specified in Section 5.01
are satisfied (or waived in accordance with Section 11.02).

 

“Eligible Account”
has the meaning
assigned to such term in Section 6.15.

 

“Engineered
Value” means, the value attributed to the Borrowing Base Properties for
purposes of the most recent Redetermination of the Borrowing Base pursuant to Article III
(or for purposes of determining the Initial Borrowing Base in the event no such
Redetermination has occurred), based upon the discounted present value of the
estimated net cash flow to be realized from the production of Hydrocarbons from
the Oil and Gas Interests as set forth in the Reserve Report.

 

8

 

“Environmental
Laws” means all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to
health and safety matters.

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

“Event
of Default” has the meaning assigned to such term in Article IX.

 

“Excluded
Taxes” means, with respect to the Administrative Agent, any Lender, the
Issuing Bank or any other recipient of any payment to be made by or on account
of any obligation of the Borrower hereunder, (a) income or franchise taxes
imposed on (or measured by) its net income 
by the United States of America, or by the jurisdiction under the laws
of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable lending office
is located, (b) any branch profits taxes imposed by the United States of
America or any similar tax imposed by any other jurisdiction in which the
Borrower is located and (c) in the case of a Foreign Lender (other than an
assignee pursuant to a request by the Borrower under Section 2.18(b)), any
withholding tax that is imposed on amounts payable to such Foreign Lender at
the time such Foreign Lender becomes a party to this Agreement (or designates a
new lending office) or is attributable to such Foreign Lender’s failure to
comply with Section 2.16(e), except to the extent that such Foreign Lender
(or its assignor, if any) was entitled, at the time of designation of a new
lending office (or assignment), to receive additional amounts from the Borrower
with respect to such withholding tax pursuant to Section 2.16(a).

 

“EXCO”
means EXCO Resources, Inc., a Texas corporation, and its successors.

 

“Existing
Swap Agreements” means the existing Swap Agreements of the Persons acquired
in the ONEOK Acquisition and set forth on Schedule 4.11 of each of the
ONEOK Purchase Agreements.

 

“FASB”
means Financial Accounting Standards Board.

 

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

 

“Financial
Officer” means the chief financial officer, principal accounting officer,
treasurer or controller of any Credit Party.

 

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

 

10

 

“GAAP”
means generally accepted accounting principles in the United States of America.

 

“Gas Balancing Agreement” means any
agreement or arrangement whereby the Borrower or any Restricted Subsidiary, or
any other party having an interest in any Hydrocarbons to be produced from Oil
and Gas Interests in which the Borrower or any Restricted Subsidiary owns an
interest, has a right to take more than its proportionate share of production
therefrom.

 

“Governmental
Authority” means the government of the United States of America, any other
nation or any political subdivision thereof, whether state or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity properly exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of or pertaining to government.

 

“Guarantee”
of or by any Person (in this definition, the “guarantor”) means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having
the economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation or to purchase (or to advance or supply
funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c) to
maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account
party in respect of any letter of credit or letter of guaranty issued to
support such Indebtedness or obligation; provided, that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.

 

“Guaranteed
Liabilities” has the meaning assigned to such term in Section 8.01.

 

“Guarantor”
means each Restricted Subsidiary that hereafter executes and delivers to the
Administrative Agent and the Lenders, a Counterpart Agreement.

 

“Hazardous
Materials”  means all explosive or
radioactive substances or wastes and all hazardous or toxic substances, wastes
or other pollutants, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon gas, infectious
or medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.

 

“Holdings”
means EXCO Holdings II, Inc., a Delaware corporation and its successors.

 

“Hydrocarbons”
means all Crude Oil and Natural Gas produced from or attributable to the Oil
and Gas Interests of the Credit Parties.

 

11

 

“Indebtedness”
of any Person means, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person upon which interest
charges are paid, (d) all obligations of such Person under conditional
sale or other title retention agreements relating to property acquired by such
Person, (e) all obligations of such Person in respect of the deferred
purchase price of property or services (excluding current accounts payable
incurred in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (g) all Guarantees by such Person of Indebtedness of others,
(h) all Capital Lease Obligations of such Person, (i) all
obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers’
acceptances.  The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such
Person is liable therefor as a result of such Person’s ownership interest in or
other relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.

 

“Indemnified
Taxes” means Taxes other than Excluded Taxes.

 

“Indemnitee”
has the meaning assigned to such term in Section 11.03.

 

“Information”
has the meaning assigned to such term in Section 11.12.

 

“Initial
Borrowing Base” has the meaning assigned to such term in Section 3.01.

 

“Initial
Public Offering” means a sale by EXCO (or its parent company or successor
so long as EXCO, such parent company or such successor is an Affiliate or
successor of the Borrower at the time of such sale) of its common stock in an
underwritten (firm commitment) initial public offering registered under the
Securities Act of 1933, with gross proceeds to EXCO (or such parent company or
successor) of not less than $500,000,000, resulting in the listing of EXCO’s
(or such parent company’s or successor’s) common stock on a nationally
recognized stock exchange, including without limitation, the NASDAQ National
Market System.

 

“Intercreditor
Agreement” means an Intercreditor Agreement by and among the Administrative
Agent, the Term Agent, and the Credit Parties, dated the date hereof and in
form and substance satisfactory to the Lenders, as amended, modified,
supplemented or restated from time to time.

 

“Interest
Election Request” means a request by the Borrower to convert or continue a
Borrowing in accordance with Section 2.07.

 

“Interest
Payment Date” means (a) with respect to any ABR Loan, the last day of each
calendar month, and (b) with respect to any Eurodollar Loan, the last day
of the Interest Period applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar Borrowing with an Interest Period of more than
three months’ duration, each day prior to the last

 

12

 

day of such Interest Period that occurs at intervals of three months’
duration after the first day of such Interest Period.

 

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

 

“IPO
Date” means the date the Initial Public Offering is consummated.

 

“Issuing
Bank” means JPMorgan Chase Bank, N.A., in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in
Section 2.05(i).  The Issuing Bank
may, in its discretion, arrange for one or more Letters of Credit to be issued
by Affiliates of the Issuing Bank, in which case the term “Issuing Bank” shall
include any such Affiliate with respect to Letters of Credit issued by such
Affiliate.

 

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

 

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

 

“Lender
Counterparty” means any Lender or any Affiliate of a Lender counterparty to
a Swap Agreement with any Credit Party.

 

“Lenders”
means the Persons listed on Schedule 2.01 and any other Person that shall
have become a party hereto pursuant to an Assignment and Assumption, other than
any such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.

 

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

 

“LIBO
Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Page 3750 of the Dow Jones Market Service
(or on any successor or substitute page of such Service, or any successor
to or substitute for such Service, providing rate quotations comparable to
those currently provided on such page of such Service, as determined by
the Administrative Agent from time to time for purposes of providing quotations

 

13

 

of interest rates applicable to dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such Interest Period, as the rate for dollar deposits
with a maturity comparable to such Interest Period.  In the event that such rate is not available
at such time for any reason, then the “LIBO Rate” with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period
are offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of
such Interest Period.

 

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

 

“Loan
Documents” means this Agreement, any promissory notes executed in connection
herewith, Security Instruments, the Letters of Credit (and any applications
therefore and reimbursement agreements related thereto), the Fee Letter, the
Intercreditor Agreement and any other agreements executed in connection with
this Agreement.

 

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

 

“Material
Adverse Effect” means a material adverse effect on (a) the assets or
properties, financial condition, businesses or operations of the Borrower and
its Subsidiaries taken as a whole, (b) the ability of any Credit Party to
carry out its business as of the date of this Agreement or as proposed at the
date of this Agreement to be conducted, (c) the ability of any Credit
Party to perform fully and on a timely basis its respective obligations under any
of the Loan Documents to which it is a party, or (d) the validity or
enforceability of any of the Loan Documents or the rights and remedies of the Administrative
Agent or the Lenders under this Agreement and the other Loan Documents.

 

“Material
Domestic Subsidiary” means any Domestic Subsidiary that owns or holds
assets, properties or interests (including Oil and Gas Interests) with an
aggregate fair market value, on a consolidated basis, greater than five percent
(5%) of the aggregate fair market value of all of the assets, properties and
interests (including Oil and Gas Interests) of the Borrower and the Restricted
Subsidiaries, on a consolidated basis.

 

“Material
Gas Imbalance” means, with respect to all Gas Balancing Agreements to which
Borrower or any Restricted Subsidiary is a party or by which any Oil and Gas
Interests owned by Borrower or a Restricted Subsidiary is bound, a net
overproduced gas imbalance to Borrower and the Restricted Subsidiaries, taken
as a whole, in excess of $5,000,000.

 

“Material
Indebtedness” means Indebtedness permitted under Section 7.01(h) and
any other Indebtedness (other than the Loans and Letters of Credit), or
obligations in respect of

 

14

 

one or more Swap Agreements, of the Borrower or any one or more of the Restricted
Subsidiaries in an aggregate principal amount exceeding $5,000,000.  For purposes of determining Material
Indebtedness, the “principal amount” of the obligations of the Borrower or any
Guarantor in respect of any Swap Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Borrower or
such Guarantor would be required to pay if such Swap Agreement were terminated
at such time.

 

“Material
Sales Contract” means, as of any date of determination,  any agreement for the sale of Hydrocarbons
from the Borrowing Base Properties to which the Borrower or any Restricted
Subsidiary is a party if the aggregate volume of Hydrocarbons sold pursuant to
such agreement during the twelve months immediately preceding such date equals
or exceeds 10% of the aggregate volume of Hydrocarbons sold by the Borrower and
the Restricted Subsidiaries, on a consolidated basis, from the Borrowing Base Properties
during the twelve months immediately preceding such date.

 

“Maturity
Date” means September 27, 2009.

 

“Maximum
Rate” has the meaning assigned to such term in Section 11.13.

 

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

 

“Mortgaged
Properties” means the Oil and Gas Interests described in one or more duly
executed, delivered and filed Mortgages evidencing a first and prior Lien in
favor of the Administrative Agent for the benefit of the Secured Parties and
subject only to the Liens permitted pursuant to Section 7.02.

 

“Mortgages”  means all mortgages, deeds of trust,
amendments to mortgages, security agreements, assignments of production, pledge
agreements, collateral mortgages, collateral chattel mortgages, collateral
assignments, financing statements and other documents, instruments and
agreements evidencing, creating, perfecting or otherwise establishing the Liens
required by Section 6.09.  All
Mortgages shall be in form and substance satisfactory to Administrative Agent
in its sole discretion

 

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

 

“Natural
Gas” means all natural gas, distillate or sulphur, natural gas liquids and
all products recovered in the processing of natural gas (other than condensate)
including, without limitation, natural gasoline, coalbed methane gas,
casinghead gas, iso-butane, normal butane, propane and ethane (including such
methane allowable in commercial ethane).

 

“Net
Cash Proceeds” means, with respect to the sale of Borrowing Base Properties
by the Borrower or any Restricted Subsidiary, the excess, if any, of (a) the
sum of cash and cash equivalents received in connection with such sale, but
only as and when so received, over (b) the sum of (i) the principal
amount of any Indebtedness that is secured by such asset and that is required
to be repaid in connection with the sale thereof (other than the Loans), and (ii) the
out-of-pocket expenses incurred by the Borrower or such Restricted Subsidiary in
connection with such sale.

 

15

 

“Non-Consenting
Lender” has the meaning assigned to such term in Section 2.18(c).

 

“Obligations”
means all obligations of every nature of the Borrower from time to time owed to
the Administrative Agent, the Issuing Bank, the Lenders or any of them and the
Lender Counterparties under any Loan Document or Swap Agreement (including,
with respect to any Swap Agreement, obligations owed under any Swap Agreement
to any Person that was a Lender Counterparty at the time such Swap Agreement
was entered into), whether for principal, interest, reimbursement of amounts
drawn under any Letter of Credit, payments for early termination of Swap
Agreements, funding indemnification amounts, fees, expenses, indemnification or
otherwise.

 

“Off-Balance Sheet Liability” of a Person means (i) any
repurchase obligation or liability of such Person with respect to accounts or
notes receivable sold by such Person, (ii) any liability under any Sale
and Leaseback Transaction which is not a Capital Lease Obligation, (iii) any
liability under any so-called “synthetic lease” transaction entered into by
such Person, (iv) any Material Gas Imbalance, (v) any Advance Payment
Contract, or (vi) any obligation arising with respect to any other
transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the balance sheets of
such Person, but excluding from the foregoing clauses (iii) through (vi) operating
leases and usual and customary oil, gas and mineral leases.

 

“Oil
and Gas Interest(s)” means: (a) direct and indirect interests in and
rights with respect to oil, gas, mineral and related properties and assets of
any kind and nature, direct or indirect, including, without limitation, working,
royalty and overriding royalty interests, mineral interests, leasehold
interests, production payments, operating rights, net profits interests, other
non-working interests, contractual interests, non-operating interests and
rights in any pooled, unitized or communitized acreage by virtue of such
interest being a part thereof; (b) interests in and rights with respect to
Crude Oil, Natural Gas and other minerals or revenues therefrom and contracts
and agreements in connection therewith and claims and rights thereto (including
oil and gas leases, operating agreements, unitization, communitization and
pooling agreements and orders, division orders, transfer orders, mineral deeds,
royalty deeds, oil and gas sales, exchange and processing contracts and agreements
and, in each case, interests thereunder), and surface interests, fee interests,
reversionary interests, reservations and concessions related to any of the
foregoing; (c) easements, rights-of-way, licenses, permits, leases, and
other interests associated with, appurtenant to, or necessary for the operation
of any of the foregoing; (d) interests in oil, gas, water, disposal and
injection wells, equipment and machinery (including well equipment and
machinery), oil and gas production, gathering, transmission, compression,
treating, processing and storage facilities (including tanks, tank batteries,
pipelines and gathering systems), pumps, water plants, electric plants,
gasoline and gas processing plants, refineries and other tangible or
intangible, movable or immovable, real or personal property and fixtures
located on, associated with, appurtenant to, or necessary for the operation of
any of the foregoing; and (e) all seismic, geological, geophysical and
engineering records, data, information, maps, licenses and interpretations.

 

“ONEOK”
means ONEOK, Inc., an Oklahoma corporation.

 

16

 

“ONEOK
Acquisition” means the
acquisition of all of the issued and outstanding Equity Interests of ONEOK
Resources Holdings from ONEOK Resources and ONEOK Resources from ONEOK pursuant
to the ONEOK Purchase Agreements.

 

“ONEOK Acquisition Documents” means the
ONEOK Purchase Agreements and all other certificates and other documents and
instruments now or hereafter executed and delivered by, between or among the
Borrower, ONEOK and ONEOK Resources pursuant to the ONEOK Purchase Agreements
or in connection with the ONEOK Acquisition.

 

“ONEOK
Purchase Agreements” means, collectively, that certain Limited Liability
Company Membership Interest Purchase Agreement by and between ONEOK Resources,
as seller, and Borrower, as purchaser, dated as of September 19, 2005 and
that certain Stock Purchase Agreement by and between ONEOK, as seller, and
Borrower, as purchaser dated as of September 19, 2005.

 

“ONEOK
Resources” means ONEOK Energy Resources Company, a Delaware corporation.

 

“ONEOK
Resources Holdings” means ONEOK Energy Resources Holdings, L.L.C., a
Delaware limited liability company,

 

“Organizational
Documents” means (a) with respect to any corporation, its certificate
or articles of incorporation or organization, as amended, and its by-laws, as
amended, (b) with respect to any limited partnership, its certificate of
limited partnership, as amended, and its partnership agreement, as amended, (c) with
respect to any general partnership, its partnership agreement, as amended, and (d) with
respect to any limited liability company, its certificate of formation or
articles of organization, as amended, and its limited liability company
agreement or operating agreement, as amended.

 

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

 

“Participant”
has the meaning assigned to such term in Section 11.04.

 

“Payment
Currency” has the meaning assigned to such term in Section 8.07.

 

“PBGC”
means the Pension Benefit Guaranty Corporation referred to and defined in ERISA
and any successor entity performing similar functions.

 

“Permitted
Encumbrances” means:

 

(a) Liens
imposed by law for Taxes that are not yet due or are being contested in
compliance with Section 6.04;

 

(b) carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens
imposed by law, and contractual Liens granted to operators and non-operators
under

 

17

 

oil and gas operating agreements, in each case, arising in the ordinary
course of business or incident to the exploration, development, operation and
maintenance of Oil and Gas Interests and securing obligations that are not
overdue by more than 30 days or are being contested in compliance with Section 6.04;

 

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

 

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

 

(e) judgment
liens in respect of judgments that do not constitute an Event of Default under
clause (k) of Article IX;

 

(f) easements,
zoning restrictions, rights-of-way, servitudes, permits, surface leases, and
similar encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere with
the ordinary conduct of business of any Credit Party;

 

(g) royalties,
overriding royalties, reversionary interests and similar burdens with respect
to the Oil and Gas Interests owned by the Borrower or such Restricted
Subsidiary, as the case may be, if the net cumulative effect of such burdens
does not operate to deprive the Borrower or any Restricted Subsidiary of any
material right in respect of its assets or properties (except for rights
customarily granted with respect to such interests);

 

(h) Liens
arising from Uniform Commercial Code financing statement filings regarding
operating leases entered into by the Borrower or any Restricted Subsidiary in
the ordinary course of business covering the property under the lease; and

 

(i) preferential
rights to purchase, and provisions requiring a third party’s consent prior to
assignment and similar restraints on alienation, in each case, granted pursuant
to an oil and gas operating agreement and arising in the ordinary course of
business or incident to the exploration, development, operation and maintenance
of Oil and Gas Interests; provided such right, requirement or restraint does
not material affect the value of such Oil and Gas Interests;

 

provided that the term “Permitted Encumbrances” shall not
include any Lien securing Indebtedness (other than contractual Liens described
in the foregoing clause (b) granted to operators and non-operators under
oil and gas operating agreements to the extent the obligations secured by such
Liens constitute Indebtedness).

 

“Permitted
Investments” means:

 

(a) U.S.
Government Securities;

 

18

 

(b) investments in
demand and time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued by
a bank or trust company which is organized under the laws of the United States
of America, any State thereof or any foreign country recognized by the United
States of America, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated “A” (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act of 1933, as amended) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor;

 

(c) investments in
deposits available for withdrawal on demand with any commercial bank that is
organized under the laws of any country in which the Borrower or any Restricted
Subsidiary maintains an office or is engaged in the oil and gas business; provided,
however, that (i) all such deposits have been made in such accounts
in the ordinary course of business and (ii) such deposits do not at any
one time exceed $10,000,000 in the aggregate;

 

(d) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (a) above entered into with a bank meeting
the qualifications described in clause (b) above;

 

(e) investments in
commercial paper, maturing (not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of Holdings or the Borrower)
organized and in existence under the laws of the United States of America or
any foreign country recognized by the United States of America with a rating at
the time as of which any investment therein is made of “P-1” (or higher)
according to Moody’s or “A-l” (or higher) according to Standard and Poor’s;

 

(f) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least “A” by Standard & Poor’s or “A” by Moody’s;
and

 

(g) investments in
money market funds that invest substantially all their assets in securities of
the types described in clauses (a) through (f) above

 

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

 

“Plan”
means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the
Code or Section 302 of ERISA, and in respect of which any Credit Party or
any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069
of ERISA be deemed to be) an “employer” as defined in Section 3(5) of
ERISA.

 

“Pledge Agreement”
means a Pledge and Security Agreement in favor of the Administrative Agent for
the benefit of the Secured Parties covering, among other things, the rights and
interests of Borrower or any Restricted Subsidiary in the Equity Interest of
each

 

19

 

Restricted
Subsidiary and otherwise in form and substance satisfactory to the
Administrative Agent and the Required Lenders.

 

“Preferred
Stock” means the 15% Series A Convertible Preferred Stock of the
Borrower, par value $0.001 per share.

 

“Preferred
Stock Documents” means that certain Preferred Stock Purchase Agreement and
that certain Co-Sale Agreement, each dated on or about the date hereof, by and
between one or more BP Investors and the Borrower, the Amended and Restated
Certificate of Incorporation of Borrower filed on or before the Effective Date
and any certificates and other agreements (including side letter agreements) executed
in connection with the issuance of the Preferred Stock, as the same may be
amended, modified, supplemented or restated from time to time to the extent
permitted under this Agreement.

 

“Prime
Rate” means the rate of interest per annum publicly announced from time to
time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal
office in Chicago, Illinois, each change in the Prime Rate shall be effective
from and including the date such change is publicly announced as being
effective.

 

“Projections”
means the Borrower’s forecasted (a) balance sheets, (b) profit and
loss statements, and (c) cash flow statements, all prepared on a basis
consistent with the historical financial statements described in Section 4.04
and after giving effect to the Transactions, together with appropriate
supporting details and a statement of underlying assumptions, in each case in
form and substance satisfactory to the Lenders.

 

“Redetermination”
means any Scheduled Redetermination or Special Redetermination.

 

“Redetermination
Date” means (a) with respect to any Scheduled Redetermination, each May 1
and November 1 of each year, commencing May 1, 2006, and (b) with
respect to any Special Redetermination, the first day of the first month which
is not less than twenty (20) Business Days following the date of a request for
a Special Redetermination.

 

“Register”
has the meaning assigned to such term in Section 11.04.

 

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

 

“Required
Lenders” means, at any time, Lenders having Credit Exposures and Unused
Commitments representing at least 66-2/3% (or if there are less than four
Lenders, at least 75%) of the sum of the Aggregate Credit Exposure and all Unused
Commitments of all Lenders at such time or, if the Aggregate Commitment has been
terminated, Lenders having Credit Exposures representing at least 66-2/3% (or
if there are less than four Lenders, at least 75%) of the sum of the Aggregate
Credit Exposure of all Lenders at such time.

 

“Reserve
Report” means an unsuperseded engineering analysis of the Borrowing Base
Properties, in form and substance reasonably acceptable to the Administrative
Agent,

 

20

 

prepared in accordance with customary and prudent practices in the
petroleum engineering industry.

 

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

 

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

 

“S&P”
means Standard & Poor’s Ratings Group, a division of The McGraw Hill
Corporation.

 

“Sale and Leaseback
Transaction” means any sale or other transfer of any property by any Person
with the intent to lease such property as lessee.

 

“Scheduled
Redetermination” means any redetermination of the Borrowing Base pursuant
to Section 3.02.

 

“Secured
Party” means the Administrative Agent, any Lender and any Lender
Counterparty and shall include Lenders and Lender Counterparties to the extent
that any Obligations owing to such Persons were incurred while such Persons
were Lenders or Lender Counterparties.

 

“Security
Instruments” means collectively, all Guarantees of the Obligations
evidenced by the Loan Documents and all mortgages, security agreements, pledge
agreements, collateral assignments and other collateral documents covering the Oil
and Gas Interests of the Borrower and the Restricted Subsidiaries and the
Equity Interests of the Restricted Subsidiaries and other personal property,
equipment, oil and gas inventory and proceeds of the foregoing, all such
documents to be in form and substance reasonably satisfactory to the
Administrative Agent.

 

“Short
Term Notes” means, collectively, those certain promissory notes of Borrower
dated September 21, 2005, in the aggregate stated principal amount of
$20,000,000.

 

“Special
Redetermination” means any redetermination of the Borrowing Base made pursuant
to Section 3.03.

 

“Statutory
Reserve Rate” means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus
the aggregate of the maximum reserve percentages (including any marginal,
special, emergency or supplemental reserves) expressed as a decimal established
by the Board to which the Administrative Agent is subject (a) with respect
to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars
over $100,000 with maturities approximately equal to three months and (b) with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve

 

21

 

percentages shall include those imposed pursuant to such
Regulation D.  Eurodollar Loans
shall be deemed to constitute eurocurrency funding and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under such
Regulation D or any comparable regulation. 
The Statutory Reserve Rate shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.

 

“Subsidiary”
means, with respect to any Person (the “parent”) at any date, any
corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent’s consolidated financial statements if such financial statements
were prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or,
in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is,
as of such date, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent any subsidiary of the Borrower. Unless the context otherwise clearly
requires, references herein to a “Subsidiary” refer to a Subsidiary of the
Borrower.

 

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

 

“Target”
means collectively, ONEOK Resources, ONEOK Resources Holdings, ONEOK Texas
Energy Holdings, LLC, a Delaware limited liability company, and ONEOK Texas Energy
Resources, L.P., a Delaware limited partnership.

 

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

 

“Temporary
Bank Account” means the deposit account designated as such on Schedule 4.18.

 

“Term
Agent” means, JPMorgan Chase Bank, N.A. in its capacity as contractual
representative of the financial institutions and other Persons from time to
time a party to the Term Facility and any successor agent appointed pursuant to
the terms of the Term Facility Documents.

 

“Term Facility”
means the term loan facility evidenced by the Term Facility Documents.

 

22

 

“Term
Facility Documents” means that certain Credit Agreement dated September 27,
2005, by and among Borrower, certain Subsidiaries of Borrower and JPMorgan
Chase Bank, N.A., as Administrative Agent and any promissory notes executed in
connection therewith, security instruments and any other agreements executed in
connection with such Credit Agreement as the same may be amended, modified,
supplemented or restated from time to time to the extent permitted under this
Agreement.

 

“Term
Loans” means the term loans made under the Term Facility.

 

“Three-Month
Secondary CD Rate” means, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if such
day is not a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of
New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York
City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next preceding Business
Day) by the Administrative Agent from three negotiable certificate of deposit
dealers of recognized standing selected by it.

 

“Transactions”
means the execution, delivery and performance by the Credit Parties of this
Agreement and the Loan Documents, the borrowing of Loans, the use of the
proceeds thereof, the issuance of Letters of Credit hereunder, the execution,
delivery and performance of the Term Facility Documents and the funding of the
Term Loans, the execution, delivery and performance of the Preferred Stock
Documents and the sale and issuance of the Preferred Stock and the ONEOK
Acquisition.

 

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

 

“Unrestricted
Subsidiary” means (a) any Subsidiary that at the time of determination
shall be designated an Unrestricted Subsidiary by the  Board of Directors of the Borrower in the
manner provided below and (b) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors of the Borrower may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries is a Material Domestic Subsidiary or
a Subsidiary owning Oil and Gas Interests included in the Borrowing Base Properties.

 

“Unused
Commitment” means, with respect to each Lender at any time, such Lender’s
Commitment at such time minus such Lender’s Credit Exposure at such time.

 

“Unused
Commitment Fee” has the meaning assigned to such term in Section 2.11(a).

 

“U.S.
Government Securities” means direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by, the
United States of 

 

23

 

America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in each
case maturing within one year from the date of acquisition thereof.

 

“Withdrawal
Liability” means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.

 

Section 1.02.          Types of Loans and Borrowings.  For purposes of this Agreement, Loans may be
classified and referred to by Type (e.g., a “Eurodollar Loan” or an “ABR
Loan and Borrowings also may be classified and referred to by Type (e.g.,
a “Eurodollar Borrowing” or an “ABR Borrowing”).

 

Section 1.03.          Terms Generally.  The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall.”  Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be
construed to include such Person’s successors and assigns, (c) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Exhibits
and Schedules to, this Agreement and (e) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.

 

Section 1.04.          Accounting Terms; GAAP.  Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; provided that, if
the Borrower notifies the Administrative Agent that the Borrower request an
amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision (or if the Administrative Agent notifies the Borrower
that the Required Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until 
such notice shall have been withdrawn or such provision  amended in accordance herewith.

 

Section 1.05.          Oil and Gas Definitions.   For purposes of this Agreement, the terms “proved
reserves,” “proved developed reserves,” “proved undeveloped reserves,” “proved
developed nonproducing reserves” and “proved developed producing reserves,”
have the

 

24

 

meaning given such terms
from time to time and at the time in question by the Society of Petroleum
Engineers of the American Institute of Mining Engineers.

 

Article II

 

The
Credits

 

Section 2.01.          Commitments.  Subject to the terms
and conditions set forth herein, each Lender agrees to make Loans to the
Borrower from time to time during the Availability Period in an aggregate
principal amount that will not result in (a) such Lender’s Credit Exposure
exceeding such Lender’s Commitment or (b) the Aggregate Credit Exposure
exceeding the Aggregate Commitment. 
Within the foregoing limits and subject to the terms and conditions set
forth herein, the Borrower may borrow, prepay and reborrow Loans.

 

Section 2.02.          Termination and Reduction of the
Aggregate Commitment.

 

(a)           Unless previously terminated, the Aggregate Commitment
shall terminate on the Maturity Date.

 

(b)           The Borrower may at any time terminate, or from time to
time reduce, the Aggregate Commitment; provided that (i) each
reduction of the Aggregate Commitment shall be in an amount that is an integral
multiple of $1,000,000 and not less than $1,000,000, (ii) no such
reduction shall reduce the Aggregate Commitment to an amount that is less than
the Borrowing Base and (iii) the Borrower shall not terminate or reduce
the Aggregate Commitment if, after giving effect to any concurrent prepayment
of the Loans in accordance with Section 2.09 and Section 2.10, the Aggregate
Credit Exposure would exceed the Aggregate Commitment.

 

(c)           The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Aggregate Commitment under paragraph (b) of
this Section at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof.  Promptly following receipt of
any notice, the Administrative Agent shall advise the Lenders of the contents
thereof.  Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided
that a notice of termination of the Aggregate Commitment delivered by the
Borrower may state that such notice is conditioned upon the effectiveness of
other credit facilities, in which case such notice may be revoked by the
Borrower (by notice to the Administrative Agent on or prior to the specified
effective date) if such condition is not satisfied.  Any termination of the Aggregate Commitment
shall be permanent.  Each reduction of
the Aggregate Commitment shall be made ratably among the Lenders in accordance
with their respective  Commitment.

 

(d)           With respect to any sale, transfer or disposition of
Borrowing Base Properties, the Borrowing Base and, with respect to any such
sale, transfer or disposition prior to the first anniversary of the Effective
Date, the Conforming Borrowing Base shall be automatically reduced by an amount
equal to the value assigned to such Borrowing Base Properties by the
Administrative Agent in connection with the most recent

 

25

 

Redetermination of the Borrowing Base and the
Conforming Borrowing Base (if applicable) preceding the date of such sale (or
in connection with the determination of the Initial Borrowing Base and the
Initial Conforming Borrowing Base with respect to any sale occurring prior to
the first Redetermination of the Borrowing Base and the Conforming Borrowing
Base).

 

Section 2.03.          Loans
and Borrowings.

 

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

 

(b)           Subject to Section 2.13, each  Borrowing shall be comprised entirely of ABR
Loans or Eurodollar Loans as the Borrower may request in accordance
herewith.  Each Lender at its option may
make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate
of such Lender to make such Loan; provided that any exercise of such
option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.

 

(c)           At the commencement of each Interest Period for any
Eurodollar  Borrowing, such Borrowing
shall be in an aggregate amount that is an integral multiple of $1,000,000 and
not less than $1,000,000.  At the time
that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount
that is an integral multiple of $100,000 and not less than $100,000; provided
that an ABR Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the Aggregate Commitment or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.05(e).  Borrowings of more than one Type may be
outstanding at the same time; provided that there shall not at any time
be more than a total of four (4) Eurodollar Borrowings outstanding.

 

(d)           Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.

 

Section 2.04.          Requests for Borrowings.  To request a Borrowing, the Borrower shall
notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 11:00 a.m., Chicago,
Illinois time, three Business Days before the date of the proposed Borrowing or
(b) in the case of an ABR Borrowing, not later than 11:00 a.m.,
Chicago, Illinois time, one Business Day before the date of the proposed
Borrowing; provided that any such notice of an ABR Borrowing to finance
the reimbursement of an LC Disbursement as contemplated by Section 2.05(e) may
be given not later than 10:00 a.m., Chicago, Illinois time, on the date of
the proposed Borrowing.  Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and

 

26

 

signed by the Borrower.  Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.03:

 

(i)            the aggregate amount of the requested Borrowing;

 

(ii)           the date of such Borrowing, which shall be a Business Day;

 

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

 

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

 

(v)           the location and number of the Borrower’s account to which
funds are to be disbursed, which shall comply with the requirements of Section 2.06.

 

If
no election as to the Type of Borrowing is specified, then the requested Borrowing
shall be an ABR Borrowing.  If no
Interest Period is specified with respect to any requested Eurodollar Borrowing,
then the Borrower shall be deemed to have selected an Interest Period of one
month’s duration.  Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender’s Loan to be made as part of the requested Borrowing.

 

Section 2.05.          Letters of Credit.

 

(a)           General. 
Subject to the terms and conditions set forth herein, the Borrower may
request the issuance of Letters of Credit for its own or the account of any
Restricted Subsidiary in a form reasonably acceptable to the Administrative
Agent and the Issuing Bank, at any time and from time to time during the
Availability Period.  In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by the Borrower to, or entered into by the Borrower with, the Issuing
Bank relating to any Letter of Credit, the terms and conditions of this
Agreement shall control.

 

(b)           Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions.  To request the
issuance of a Letter of Credit (or the amendment, renewal or extension of an
outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or
transmit by electronic communication, if arrangements for doing so have been
approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent
(reasonably in advance of the requested date of issuance, amendment, renewal or
extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, and
specifying the date of issuance, amendment, renewal or extension (which shall
be a Business Day), the date on which such Letter of Credit is to expire (which
shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare, amend, renew or extend such
Letter of Credit.  If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application on
the

 

27

 

Issuing Bank’s standard form in connection
with any request for a Letter of Credit. 
A Letter of Credit shall be issued, amended, renewed or extended only if
(and upon issuance, amendment, renewal or extension of each Letter of Credit
the Borrower shall be deemed to represent and warrant that), after giving
effect to such issuance, amendment, renewal or extension (i) the LC
Exposure shall not exceed $10,000,000 and (ii) the Aggregate Credit
Exposure shall not exceed the Aggregate Commitment.

 

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

 

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

 

(e)           Reimbursement. 
If the Issuing Bank shall make any LC Disbursement in respect of a Letter
of Credit, the Borrower shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than
12:00 noon, Chicago, Illinois time, on the date that such LC Disbursement is
made, if the Borrower shall have received notice of such LC Disbursement prior
to 10:00 a.m., Chicago, Illinois time, on such date, or, if such notice
has not been received by the Borrower prior to such time on such date, then not
later than 12:00 noon, Chicago, Illinois time, on (i) the Business Day
that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., Chicago, Illinois time, on the day of receipt, or (ii) the
Business Day immediately following the day that the Borrower receives such
notice, if such notice is not received prior to such time on the day of
receipt; provided that the Borrower may, subject to the conditions to
borrowing set forth herein, request in accordance with Section 2.04 that
such payment be financed with an ABR Borrowing in an equivalent amount and, to
the extent so financed, the Borrower’s obligation to make such payment shall be
discharged and replaced by the resulting ABR Borrowing.  If the Borrower fails to make such payment
when due, the Administrative Agent shall notify 

 

28

 

each Lender of the applicable LC
Disbursement, the payment then due from the Borrower in respect thereof and
such Lender’s Applicable Percentage thereof. 
Promptly following receipt of such notice, each Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.06 with respect to
Loans made by such Lender (and Section 2.06 shall apply, mutatis  mutandis,
to the payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Issuing Bank the amounts so received by it from the
Lenders.  Promptly following receipt by
the Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the
Issuing Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing
Bank as their interests may appear.  Any
payment made by a Lender pursuant to this paragraph to reimburse the Issuing
Bank for any LC Disbursement (other than the funding of ABR Loans as
contemplated above) shall not constitute a Loan and shall not relieve the Borrower
of its obligation to reimburse such LC Disbursement.

 

(f)            Obligations Absolute.  The Borrower’s obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall
be absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability
of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be
forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank
under a Letter of Credit against presentation of a draft or other document that
does not comply with the terms of such Letter of Credit, or (iv) any other
event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section, constitute a legal
or equitable discharge of, or provide a right of setoff against, the Borrower’s
obligations hereunder.  Neither the
Administrative Agent, the Lenders nor the Issuing Bank, nor any of their
Related Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of
the Issuing Bank; provided that the foregoing shall not be construed to
excuse the Issuing Bank from liability to the Borrower to the extent of any
direct damages (as opposed to consequential damages, claims in respect of which
are hereby waived by the Borrower to the extent permitted by applicable law)
suffered by the Borrower that are caused by the Issuing Bank’s failure to
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof.  The parties hereto expressly agree that, in
the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such
determination.  In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that,
with respect

 

29

 

to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.

 

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

 

(h)           Interim Interest. 
If the Issuing Bank shall make any LC Disbursement, then, unless the
Borrower shall reimburse such LC Disbursement in full on the date such LC
Disbursement is made, the unpaid amount thereof shall bear interest, for each
day from and including the date such LC Disbursement is made to but excluding
the date that the Borrower reimburses such LC Disbursement, at the rate per
annum then applicable to ABR Loans; provided that, if the Borrower fails
to reimburse such LC Disbursement when due pursuant to paragraph (e) of
this Section, then Section 2.12(c) shall apply.  Interest accrued pursuant to this paragraph
shall be for the account of the Issuing Bank, except that interest accrued on
and after the date of payment by any Lender pursuant to paragraph (e) of
this Section to reimburse the Issuing Bank shall be for the account of
such Lender to the extent of such payment.

 

(i)            Replacement of the Issuing Bank.  The Issuing Bank may be replaced at any time
by written agreement among the Borrower, the Administrative Agent, the replaced
Issuing Bank and the successor Issuing Bank. 
The Administrative Agent shall notify the Lenders of any such
replacement of the Issuing Bank.  At the
time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.11(b).  From and after the effective date of any such
replacement, (i) the successor Issuing Bank shall have all the rights and
obligations of the Issuing Bank under this Agreement with respect to Letters of
Credit to be issued thereafter and (ii) references herein to the term “Issuing
Bank” shall be deemed to refer to such successor or to any previous Issuing
Bank, or to such successor and all previous Issuing Banks, as the context shall
require.  After the replacement of an
Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto
and shall continue to have all the rights and obligations of an Issuing Bank
under this Agreement with respect to Letters of Credit issued by it prior to
such replacement, but shall not be required to issue additional Letters of
Credit.

 

(j)            Cash Collateralization.  If any Event of Default shall occur and be
continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been

 

30

 

accelerated, Lenders with LC Exposure
representing greater than 66-2/3% of the total LC Exposure) demanding the
deposit of cash collateral pursuant to this paragraph, the Borrower shall
deposit in an account with the Administrative Agent, in the name of the
Administrative Agent and for the benefit of the Lenders, an amount in cash
equal to the LC Exposure as of such date plus any accrued and unpaid interest
thereon; provided that the obligation to deposit such cash collateral
shall become effective immediately, and such deposit shall become immediately
due and payable, without demand or other notice of any kind, upon the
occurrence of any Event of Default with respect to the Borrower described in
clause (h) or (i) of Article IX.  Such deposit shall be held by the
Administrative Agent as collateral for the payment and performance of the
obligations of the Borrower under this Agreement.  The Administrative Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such
account.  Other than any interest earned
on the investment of such deposits and interest at the rate per annum in effect
for accounts of the same type maintained with the Administrative Agent at such
time, which investments shall be made at the option and sole discretion of the
Administrative Agent and at the Borrower’s risk and expense, such deposits
shall not bear interest.  Interest or
profits, if any, on such investments shall accumulate in such account.  Moneys in such account shall be applied by
the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for
which it has not been reimbursed and, to the extent not so applied, shall be
held for the satisfaction of the reimbursement obligations of the Borrower for
the LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of Lenders with LC Exposure  representing 66-2/3% or more of the total LC
Exposure), be applied to satisfy other obligations of the Borrower under this
Agreement.  If the Borrower is required
to provide an amount of cash collateral hereunder as a result of the occurrence
of an Event of Default, such amount (to the extent not applied as aforesaid)
shall be returned to the Borrower within three Business Days after all Events
of Default have been cured or waived.

 

Section 2.06.          Funding of Borrowings.

 

(a)           Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately
available funds by 12:00 noon, Chicago, Illinois time, to the account of the
Administrative Agent most recently designated by it for such purpose by notice
to the Lenders.  The Administrative Agent
will make such Loans available to the Borrower by promptly crediting the
amounts so received, in like funds, to an Eligible Account of the Borrower
designated by the Borrower in the applicable Borrowing Request; provided
that ABR Loans made to finance the reimbursement of an LC Disbursement as
provided in Section 2.05(e) shall be remitted by the Administrative
Agent to the Issuing Bank.

 

(b)           Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender’s share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section and
may, in reliance upon such assumption, make available to the Borrower a
corresponding amount.  In such event, if
a Lender has

 

31

 

not in fact made its share of the applicable
Borrowing available to the Administrative Agent, then the applicable Lender and
the Borrower severally agree to pay to the Administrative Agent forthwith on
demand such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to the Borrower to but
excluding the date of payment to the Administrative Agent, at (i) in the
case of such Lender, the greater of the Federal Funds Effective Rate and a rate
determined by the Administrative Agent in accordance with banking industry rules on
interbank compensation or (ii) in the case of the Borrower, the interest
rate applicable to ABR Loans.  If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender’s Loan included in such Borrowing.

 

Section 2.07.          Interest Elections.

 

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

 

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

 

(c)           Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.03:

 

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

 

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

 

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

 

32

 

(iv)          if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such election,
which shall be a period contemplated by the definition of the term “Interest
Period”; except that the Interest Period for any Eurodollar Borrowing requested
during the 30 day period following the Effective Date shall be of one month’s
duration unless otherwise agreed upon by the Borrower and the Administrative Agent.

 

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

 

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

 

(e)           If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing.  Notwithstanding
any contrary provision hereof, if an Event of Default has occurred and is
continuing and the Administrative Agent, at the request of the Required
Lenders, so notifies the Borrower, then, so long as an Event of Default is
continuing (i) no outstanding  Borrowing
may be converted to or continued as a Eurodollar Borrowing and (ii) unless
repaid, each Eurodollar  Borrowing shall
be converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.

 

Section 2.08.          Repayment of Loans; Evidence
of Debt.

 

(a)           The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Loan on the Maturity Date.

 

(b)           Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.

 

(c)           The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the Borrower
to each Lender hereunder and (iii) the amount of any sum received by the
Administrative Agent hereunder for the account of the Lenders and each Lender’s
share thereof.

 

(d)           The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima
facie evidence of the existence and amounts of the obligations recorded
therein; provided that the failure of any Lender or the Administrative
Agent to maintain such accounts or any error therein shall not in any

 

33

 

manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.

 

(e)           Any Lender or Participant may request that Loans made by
it be evidenced by a promissory note.  In
such event, the Borrower shall prepare, execute and deliver to such Lender or
Participant a promissory note payable to the order of such Lender or
Participant (or, if requested by such Lender or Participant, to such Lender or
Participant and its registered assigns) and in a form approved by the
Administrative Agent; provided that any promissory note issued to
evidence any Lender’s Loans shall be in a stated amount equal to such Lender’s
Applicable Percentage of the amount set forth in clause (i) of the
definition of “Aggregate Commitment.” 
Thereafter, the Loans evidenced by such promissory note and interest
thereon shall at all times (including after assignment pursuant to Section 11.04)
be represented by one or more promissory notes in such form payable to the order
of the payee named therein (or, if such promissory note is a registered note,
to such payee and its registered assigns).

 

Section 2.09.          Optional Prepayment of Loans.

 

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

 

(b)           The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m.,
Chicago, Illinois time, three Business Days before the date of prepayment, or (ii) in
the case of prepayment of an ABR Borrowing, not later than 11:00 a.m.,
Chicago, Illinois time, one Business Day before the date of prepayment.  Each such notice shall be irrevocable and
shall specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid; provided that, if a notice of prepayment
is given in connection with a conditional notice of termination or reduction of
the Aggregate Commitment as contemplated by Section 2.02, then such notice
of prepayment may be revoked if such notice of termination or reduction is
revoked in accordance with Section 2.02. 
Promptly following receipt of any such notice relating to a Borrowing,
the Administrative Agent shall advise the Lenders of the contents thereof.  Each partial prepayment of any Borrowing
shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.03.  Each prepayment of a Borrowing shall be
applied ratably to the Loans included in the prepaid Borrowing.  Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.12.

 

Section 2.10.          Mandatory Prepayment of Loans.

 

(a)           Except as otherwise provided in Section 2.10(b), in
the event a Borrowing Base Deficiency exists, the Borrower shall, within
fifteen (15) days after written notice from the Administrative Agent to the
Borrower of such Borrowing Base Deficiency, either (a) by instruments
satisfactory in form and substance to the Required Lenders, provide the Lenders
with additional security consisting of Oil and Gas Interests with

 

34

 

value and quality satisfactory to the Lenders
in their sole discretion to eliminate such Borrowing Base Deficiency, or  prepay, without premium or penalty, the
principal amount of the Loans in an amount sufficient to eliminate such
Borrowing Base Deficiency (or by a combination of such additional security and
such prepayment eliminate such Borrowing Base Deficiency), or (b) prepay,
without premium or penalty, the principal amount of such Borrowing Base
Deficiency in not more than six (6) equal monthly installments plus
accrued interest thereon with the first such monthly payment being due upon the
30th day after the Borrower’s receipt of notice of such Borrowing Base
Deficiency.

 

(b)           If the Borrower or any Restricted Subsidiary sells,
transfers or otherwise disposes of any Borrowing Base Properties at any time a
Borrowing Base Deficiency exists or would exist after giving effect to such
sale, transfer or disposition, the Borrower shall prepay the Borrowings in an
amount equal to the Net Cash Proceeds received from such sale, transfer or
other disposition on the date it or any Restricted Subsidiary receives such Net
Cash Proceeds; provided, however that amounts applied to the payment of
Borrowings pursuant to this Section may be reborrowed subject to and in
accordance with the terms of this Agreement. 
Amounts applied to the prepayment of Borrowings pursuant to this Section shall
be first applied ratably to ABR Borrowings then outstanding and, upon payment
in full of all outstanding ABR Borrowings, second, to Eurodollar Borrowings
then outstanding, and if more than one Eurodollar Borrowing is then
outstanding, to each such Eurodollar Borrowing beginning with the Eurodollar
Borrowing with the least number of days remaining in the Interest Period
applicable thereto and ending with the Eurodollar Borrowing with the most
number of days remaining in the Interest Period applicable thereto, subject to
the payment of any funding indemnification amounts required by Section 2.15
but without penalty or premium.

 

Section 2.11.          Fees.

 

(a)           The Borrower agrees to pay to the Administrative Agent,
for the account of each Lender, an unused commitment fee (the “Unused
Commitment Fee”) equivalent to the Applicable Rate times the daily average
of the Unused Commitment.  Such Unused
Commitment Fee shall be calculated on the basis of a year consisting of 360
days.  The Unused Commitment Fee shall be
payable in arrears on the last day of March, June, September and December of
each year, commencing with the first such date to occur after the Effective
Date, and on the Maturity Date for any period then ending for which the Unused
Commitment Fee shall not have been theretofore paid.  In the event the Aggregate Commitment
terminates on any date other than the last day of March, June, September or
December of any year, the Borrower agrees to pay to the Administrative
Agent, for the account of each Lender, on the date of such termination, the
total Unused Commitment Fee due for the period from the last day of the
immediately preceding March, June, September or December, as the case may
be, to the date such termination occurs.

 

(b)           The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate used to determine the interest rate

 

35

 

applicable to Eurodollar Loans on the average
daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable
to unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Lender’s
Commitment terminates and the date on which such Lender ceases to have any LC
Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue
at the rate or rates per annum separately agreed upon between the Borrower and
the Issuing Bank on the average daily amount of the LC Exposure (excluding any
portion thereof attributable to unreimbursed LC Disbursements) during the
period from and including the Effective Date to but excluding the later of the
date of termination of the Aggregate Commitment and the date on which there
ceases to be any LC Exposure, as well as the Issuing Bank’s standard fees with
respect to the issuance, amendment, renewal or extension of any Letter of
Credit or processing of drawings thereunder. 
Participation fees and fronting fees accrued through and including the
last day of March, June, September and December of each year shall be
payable on the third Business Day following such last day, commencing on the
first such date to occur after the Effective Date; provided that all
such fees shall be payable on the date on which the Aggregate Commitment
terminates and any such fees accruing after the date on which the Aggregate
Commitment terminates shall be payable on demand.  Any other fees payable to the Issuing Bank
pursuant to this paragraph shall be payable within 10 days after demand.  All participation fees and fronting fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day).

 

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

 

(d)           All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of Unused
Commitment Fees and participation fees, to the Lenders.  Fees paid shall not be refundable under any
circumstances.

 

Section 2.12.          Interest.

 

(a)           The Loans comprising each ABR Borrowing shall bear
interest at the Alternate Base Rate plus the Applicable Rate.

 

(b)           The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.

 

(c)           Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration
or otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue
principal of any Loan, 2% plus the  rate
otherwise applicable to such Loan as provided in the preceding paragraphs of
this Section or (ii) in the case of any other

 

36

 

amount, 2% plus the rate applicable to ABR
Loans as provided in paragraph (a) of this Section.

 

(d)           Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan, upon termination of the Aggregate
Commitment and on the Maturity Date; provided that (i) interest
accrued pursuant to paragraph (c) of this Section shall be payable on
demand, (ii) in the event of any repayment or prepayment of any Loan (other
than a prepayment of an ABR Loan prior to the end of the Availability Period at
a time when no Borrowing Base Deficiency exists), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.

 

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

 

Section 2.13.          Alternate Rate of Interest.  If prior to the commencement of any Interest
Period for a Eurodollar Borrowing:

 

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

 

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

 

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

 

Section 2.14.          Increased Costs.

 

(a)           If any Change in Law shall:

 

37

 

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

 

(ii)           impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or Eurodollar
Loans made by such Lender or any Letter of Credit or participation therein;

 

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

 

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

 

(c)           A certificate of a Lender or the Issuing Bank setting
forth (i) the amount or amounts reasonably necessary to compensate such
Lender or the Issuing Bank or its holding company, as the case may be, as
specified in paragraph (a) or (b) of this Section, (ii) 
the factual basis for such compensation and (iii) the manner in which such
amount or amounts were calculated shall be delivered to the Borrower.  Such certificate shall be conclusive absent
manifest error.  The Borrower shall pay
such Lender or the Issuing Bank, as the case may be, the amount shown as due on
any such certificate within 10 days after receipt thereof.

 

(d)           Failure or delay on the part of any Lender or the Issuing
Bank to demand compensation pursuant to this Section shall not constitute
a waiver of such Lender’s or the Issuing Bank’s right to demand such
compensation; provided that the Borrower shall not be required to
compensate a Lender or the Issuing Bank pursuant to this Section for any
increased costs or reductions incurred more than 180 days prior to the date
that such

 

38

 

Lender or the Issuing Bank, as the case may
be, notifies the Borrower of the Change in Law giving rise to such increased
costs or reductions and of such Lender’s or the Issuing Bank’s intention to
claim compensation therefor; provided  further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.

 

Section 2.15.          Break Funding Payments.  In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b) the
conversion of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto, (c) the failure to borrow, convert, continue or
prepay any Eurodollar Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice may be revoked under Section 2.09(b) and
is revoked in accordance therewith), (d) the assignment of any Eurodollar
Loan other than on the last day of the Interest Period applicable thereto as a
result of a request by the Borrower pursuant to Section 2.18, then, in any
such event, the Borrower shall compensate each Lender for the loss, cost and
expense attributable to such event.  In
the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall
be deemed to include an amount determined by such Lender to be the excess, if
any, of (i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount
of interest which would accrue on such principal amount for such period at the
interest rate which such Lender would bid were it to bid, at the commencement
of such period, for dollar deposits of a comparable amount and period from
other banks in the eurodollar market.  A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered to the Borrower
and shall be conclusive absent manifest error. 
The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.

 

Section 2.16.          Taxes.

 

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

 

(b)           In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

 

39

 

(c)           The Borrower shall indemnify the Administrative Agent,
each Lender and the Issuing Bank, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on
or with respect to any payment by or on account of any obligation of the Borrower
hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority.  A certificate delivered to the Borrower by a
Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or
on behalf of a Lender or the Issuing Bank, setting forth (i) the  amount of such payment or liability reasonably
necessary to compensate the Administrative Agent, such Lender or the Issuing
Bank, as the case may be, (ii) the factual basis for such compensation and
(iii) the manner in which such amount or amounts were calculated, shall be
conclusive absent manifest error.

 

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

 

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

 

(f)            If the Administrative
Agent or a Lender determines, in its sole discretion, that it has received a
refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower
or with respect to which the Borrower have paid additional amounts pursuant to
this Section 2.16, it shall pay over such refund to the Borrower (but only
to the extent of indemnity payments made, or additional amounts paid, by the Borrower
under this Section 2.16 with respect to the Taxes or Other Taxes giving
rise to such refund), net of all out-of-pocket expenses of the Administrative
Agent or such Lender and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund); provided, that
the Borrower, upon the request of the Administrative Agent or such Lender,
agrees to repay the amount paid over to the Borrower (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.
This Section shall not be construed to require the Administrative Agent or
any Lender to make available its tax returns (or any other

 

40

 

information relating to
its taxes which it deems confidential) to the Borrower or any other Person.

 

Section 2.17.          Payments Generally; Pro Rata
Treatment; Sharing of Set-offs.

 

(a)           The Borrower shall make each payment required to be made
by it hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or of amounts payable under Section 2.14, Section 2.15
or Section 2.16, or otherwise) prior to 12:00 noon, Chicago, Illinois
time, on the date when due, in immediately available funds, without set-off or
counterclaim.  Any amounts received after
such time on any date may, in the discretion of the Administrative Agent, be
deemed to have been received on the next succeeding Business Day for purposes
of calculating interest thereon.  All
such payments shall be made to the Administrative Agent at its offices at Mail
Code IL1-0634, 21 South Clark Street, Chicago, Illinois, except payments to be
made directly to the Issuing Bank as expressly provided herein and except that
payments pursuant to Section 2.14, Section 2.15, Section 2.16
and Section 11.03 shall be made directly to the Persons entitled
thereto.  The Administrative Agent shall
distribute any such payments received by it for the account of any other Person
to the appropriate recipient promptly following receipt thereof.  If any payment hereunder shall be due on a day
that is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension.  All payments hereunder shall be made in
Dollars.

 

(b)           If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and (ii) second,
towards payment of principal and unreimbursed LC Disbursements then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties; provided that
in the event such funds are received by and available to the Administrative
Agent as a result of the exercise of any rights and remedies with respect to
any collateral under the Security 
Instruments, the parties entitled to a ratable share of such funds pursuant
to the foregoing clause (ii) and the determination of each parties’
ratable share shall include, on a pari passu
basis, the Lender Counterparties and the actual aggregate amounts then due and
owing to each Lender Counterparty by the Borrower or any Guarantor as a result
of the early termination of any transactions under any Swap Agreements included
in the Obligations (after giving effect to any netting agreements).

 

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

 

41

 

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

 

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

 

(e)           If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.05(d) or Section 2.05(e), Section 2.06(b),
Section 2.17(d) or Section 11.03(c), then the Administrative
Agent may, in its discretion (notwithstanding any contrary provision hereof),
apply any amounts thereafter received by the Administrative Agent for the
account of such Lender to satisfy such Lender’s obligations under such Sections
until all such unsatisfied obligations are fully paid.

 

Section 2.18.          Mitigation Obligations; Replacement
of Lenders.

 

(a)           If any Lender requests compensation under Section 2.14,
or if the Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section 2.16,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment

 

42

 

(i) would eliminate or reduce amounts
payable pursuant to Section 2.14 or Section 2.16, as the case may be,
in the future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to such Lender.  The Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment.

 

(b)           If any Lender requests compensation under Section 2.14,
or if the Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower
may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in Section 11.04),
all its interests, rights and obligations under this Agreement to an assignee
that shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and
if a  Commitment is being assigned, the
Issuing Bank), which consent shall not unreasonably be withheld, (ii) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Loans and participations in LC Disbursements, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the
case of any such assignment resulting from a claim for compensation under Section 2.14
or payments required to be made pursuant to Section 2.16, such assignment
will result in a reduction in such compensation or payments.  A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such  assignment and delegation cease to
apply.

 

(c)           If in connection with any proposed amendment,
modification, termination, waiver or consent with respect to any of the
provisions of this Agreement or any other Loan Document as contemplated by Section 11.02,
the consent of Required Lenders shall have been obtained but the consent of one
or more of such other Lenders (each a “Non-Consenting Lender”) whose
consent is required has not been obtained; then, the Borrower may elect to
replace such Non-Consenting Lender as a Lender party to this Agreement in
accordance with and subject to the restrictions contained in, and consents
required by Section 11.04; provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and
if a  Commitment is being assigned, the
Issuing Bank), which consent shall not unreasonably be withheld, (ii) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Loans and participations in LC Disbursements, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the
case of any such assignment resulting from a claim for compensation under Section 2.14
or payments required to be made pursuant to Section 2.16, such assignment
will result in a reduction in such compensation or payments.  A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result

 

43

 

of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such  assignment and delegation cease to apply.

 

Article III

 

Borrowing
Base

 

Section 3.01.          Reserve
Report; Proposed Borrowing Base; Conforming Borrowing Base.  During the period from the Effective Date
until the first Redetermination after the Effective Date, the Borrowing Base
shall be $325,000,000 (the “Initial Borrowing Base”) and the Conforming
Borrowing Base shall be $275,000,000.  As
soon as available and in any event by April  1 and October 1 of  each year, beginning April 1, 2006, the
Borrower shall deliver to the Administrative Agent and each Lender a Reserve
Report, prepared as of the immediately preceding March 1 and September 1,
respectively, in form and substance reasonably satisfactory to the Administrative
Agent and prepared by an Approved Petroleum Engineer (or, in the case of the Reserve
Report due on October 1 of each year, by petroleum engineers employed by
the Borrower), said Reserve Report to utilize economic and pricing parameters
established from time to time by the Administrative Agent, together with such
other information, reports and data concerning the value of the Borrowing Base
Properties as the Administrative Agent shall deem reasonably necessary to
determine the value of such Borrowing Base Properties.  Simultaneously with the delivery to the
Administrative Agent and the Lenders of each Reserve Report, the Borrower shall
submit to the Administrative Agent and each Lender the Borrower’s requested amount
of the Borrowing Base as of the next Redetermination Date.  Promptly after the receipt by the Administrative
Agent of such Reserve Report and Borrower’s requested amount for the Borrowing
Base, the Administrative Agent shall submit to the Lenders a recommended amount
of the Borrowing Base and, with respect to any Redetermination prior to the
first anniversary of the Effective Date, the Conforming Borrowing Base as of
the next Redetermination Date; provided that no Redetermination of the
Conforming Borrowing Base shall be required after the first anniversary of the
Effective Date.

 

Section 3.02.          Scheduled
Redeterminations of the Borrowing Base; Procedures and Standards.  Based in part on the Reserve Reports made
available to the Administrative Agent and the Lenders pursuant to Section 3.01,
the Lenders shall redetermine the Borrowing Base on or prior to the next
Redetermination Date and, if such Redetermination Date is prior to the first anniversary
of the Effective Date, the Conforming Borrowing Base (or such date promptly
thereafter as reasonably possible based on the engineering and other
information available to the Lenders). 
Any Borrowing Base or Conforming Borrowing Base which becomes effective
as a result of any Redetermination shall be subject to the following
restrictions: (a) such Borrowing Base shall not exceed the amount set
forth in clause (i) of the definition of “Aggregate Commitment”, (b) such
Conforming Borrowing Base shall not exceed such Borrowing Base, (c) to the
extent such Borrowing Base or Conforming Borrowing Base represents an increase
in the Borrowing Base or the Conforming Borrowing Base in effect prior to such
Redetermination, such Borrowing Base or Conforming Borrowing Base, as the case
may be, must be approved by all Lenders, and (d) to the extent such
Borrowing Base or Conforming Borrowing Base represents a decrease in the
Borrowing Base or Conforming Borrowing Base in effect prior to such
Redetermination or a reaffirmation of such prior Borrowing Base or Conforming
Borrowing Base, such Borrowing Base or Conforming Borrowing Base must be
approved by the

 

44

 

Administrative Agent and Required Lenders.  If a redetermined Borrowing Base or
Conforming Borrowing Base is not approved by the Administrative Agent and Required
Lenders within twenty (20) days after the submission to the Lenders by the Administrative
Agent of its recommended Borrowing Base and Conforming Borrowing Base pursuant
to Section 3.01, or by all Lenders within such twenty (20) day period in
the case of any increase in the Borrowing Base or Conforming Borrowing Base,
the Administrative Agent shall notify each Lender that the recommended Borrowing
Base and Conforming Borrowing Base, as the case may be, has not been approved
and request that each Lender submit to the Administrative Agent within ten (10) days
thereafter its proposed Borrowing Base and proposed Conforming Borrowing Base.  Promptly following the 10th day
after the Administrative Agent’s request for each Lender’s proposed Borrowing
Base and proposed Conforming Borrowing Base, the Administrative Agent shall determine
the Borrowing Base and Conforming Borrowing Base for such Redetermination by
calculating the highest Borrowing Base and highest Conforming Borrowing Base then
acceptable to the Administrative Agent and a number of Lenders sufficient to constitute
Required Lenders (or all Lenders in the case of an increase in the Borrowing
Base or the Conforming Borrowing Base). 
Each Redetermination shall be made by the Lenders in their sole
discretion, but based on the Administrative Agent’s and such Lender’s usual and
customary procedures for evaluating Oil and Gas Interests as such exist at the
time of such Redetermination, and including adjustments to reflect the effect
of any Swap Agreements of the Borrower and the Restricted Subsidiaries as such
exist at the time of such Redetermination. 
The Borrower acknowledges and agrees that each Redetermination shall be
based upon the loan collateral value which each Agent and each Lender in its
sole discretion (using such methodology, assumptions and discount rates as the
Administrative Agent and such Lender customarily uses in assigning collateral
value to Oil and Gas Interests) to the Borrowing Base Properties at the time in
question and based upon such other credit factors consistently applied
(including, without limitation, the assets, liabilities, cash flow, business,
properties, prospects, management and ownership of the Credit Parties) as the
Administrative Agent and such Lender customarily considers in evaluating
similar oil and gas credits.  It is
expressly understood that the Administrative Agent and Lenders have no
obligation to designate the Borrowing Base or the Conforming Borrowing Base at
any particular amounts, except in the exercise of their discretion, whether in
relation to the Aggregate Commitment or otherwise. If the Borrower does not
furnish all information, reports and data required to be delivered by any date
specified in this Article III, unless such failure is not the fault of the
Borrower, the Administrative Agent and Lenders may nonetheless designate the
Borrowing Base and the Conforming Borrowing Base at any amounts which the Administrative
Agent and Lenders in their reasonable discretion determine and may redesignate
the Borrowing Base and the Conforming Borrowing Base from time to time
thereafter until the Administrative Agent and Lenders receive all such
information, reports and data, whereupon the Administrative Agent and Lenders
shall designate a new Borrowing Base and a new Conforming Borrowing Base, as
described above.

 

Section 3.03.          Special
Redeterminations.  In addition to
Scheduled Redeterminations, the Borrower shall 
be permitted to request a Special Redetermination of the Borrowing Base and
the Conforming Borrowing Base once between each Scheduled Redetermination and
the Required Lenders shall be permitted to request a Special Redetermination at
any time.  Any request by Borrower
pursuant to this Section 3.03 shall be submitted to the Administrative
Agent and each Lender and at the time of such request (or within twenty (20)
days thereafter in the case of the Reserve Report) Borrower shall (1) deliver
to the Administrative Agent and each Lender a

 

45

 

Reserve Report
prepared as of a date prior to the date of such request that is reasonably
acceptable to the Administrative Agent and such other information which the
Administrative Agent shall reasonably request, and (2) notify the
Administrative Agent and each Lender of the Borrowing Base requested by
Borrower in connection with such Special Redetermination.  Any request by Required Lenders pursuant to
this Section 3.03 shall be submitted to the Administrative Agent and the Borrower.
Any Special Redetermination shall be made by the Administrative Agent and
Lenders in accordance with the procedures and standards set forth in Section 3.02;
provided that no Reserve Report is required to be delivered to the
Administrative Agent or the Lenders in connection with any Special
Redetermination requested by the Required Lenders pursuant to this Section 3.03.

 

Section 3.04.          Notice of Redetermination.  Promptly following any Redetermination
of the Borrowing Base or the Conforming Borrowing Base, the Administrative
Agent shall notify the Borrower of the amount of the redetermined Borrowing
Base and Conforming Borrowing Base, which Borrowing Base and Conforming
Borrowing Base shall be effective as of the date specified in such notice, and
such Borrowing Base and Conforming Borrowing Base shall remain in effect for
all purposes of this Agreement until the next Redetermination.

 

Article IV

 

Representations
and Warranties

 

Each
Credit Party represents and warrants to the Lenders that: (it being understood
and agreed that with respect to the Effective Date such representations and
warranties are deemed to be made concurrently with and after giving effect to
the consummation of the Transactions):

 

Section 4.01.          Organization; Powers.  Each Credit Party is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.

 

Section 4.02.          Authorization; Enforceability.  The Transactions are within each Credit Party’s
corporate, limited liability company or partnership powers and have been duly
authorized by all necessary corporate, limited liability company or partnership
and, if required, stockholder action. 
This Agreement has been duly executed and delivered by each Credit Party
and constitutes a legal, valid and binding obligation of each Credit Party,
enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered
in a proceeding in equity or at law.

 

Section 4.03.          Governmental Approvals; No
Conflicts.  The Transactions (a) do
not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (b) will not violate any
applicable law or regulation or the charter, by-laws or other

 

46

 

Organizational Documents of the
Borrower or any Restricted Subsidiary or any order of any Governmental
Authority, (c) will not violate or result in a default under any
indenture, agreement or other instrument evidencing Material Indebtedness or a
Material Sales Contract binding upon the Borrower or any Restricted Subsidiary or
any of their respective assets, or give rise to a right thereunder to require
any payment to be made by the Borrower or any Restricted Subsidiary, and (d) will
not result in the creation or imposition of any Lien on any asset of the
Borrower or any Restricted Subsidiary other than Liens permitted under Section 7.02.

 

Section 4.04.          Financial Condition; No Material
Adverse Change.

 

(a)           The Borrower has heretofore furnished to the Lenders the unaudited
consolidated balance sheet and related statements of income of the Target (i) as
of and for the fiscal year ended December 31, 2004, and (ii) as of
and for the seventh month period ended July 31, 2005.  Such financial statements present fairly, in
all material respects, the financial position and results of operations of ONEOK
Resources and its Consolidated Subsidiaries as of such dates and for such
periods in accordance with GAAP, subject to year-end audit adjustments and the
absence of footnotes.

 

(b)           Since July 31, 2005, there has been no material
adverse change in the business, assets, operations, prospects or condition,
financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole.

 

Section 4.05.          Properties.

 

(a)           Except as otherwise provided in Section 4.15 with
respect to Oil and Gas Interests, the Borrower and each Restricted Subsidiary has
good title to, or valid leasehold interests in, all such real and personal
property material to its business, except for minor defects in title that do
not interfere with its ability to conduct its business as currently conducted
or to utilize such properties for their intended purposes.

 

(b)           The Borrower and each Restricted Subsidiary owns, or is
licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Borrower and such Restricted Subsidiaries, as the case may be, does not
infringe upon the rights of any other Person, except for any such infringements
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.

 

Section 4.06.          Litigation and Environmental
Matters.

 

(a)           There are no actions, suits or proceedings by or before
any arbitrator or Governmental Authority pending against or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or any Restricted
Subsidiary, (i) as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect (other than the Disclosed Matters) or (ii) that involve this
Agreement or the Transactions.

 

47

 

(b)           Except for the
Disclosed Matters and except with respect to any other matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, neither the Borrower nor any Restricted Subsidiary
to the Borrower’s knowledge (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become
subject to any Environmental Liability, (iii) has received notice of any
claim with respect to any Environmental Liability or (iv) knows of any basis
for any Environmental Liability.

 

(c)           Since the date of
this Agreement, there has been no change in the status of the Disclosed Matters
that, individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.

 

Section 4.07.          Compliance with Laws and
Agreements.  The Borrower and each
Restricted Subsidiary is in compliance with all laws, regulations and orders of
any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.  No Default has occurred and is continuing.

 

Section 4.08.          Investment and Holding Company
Status.  Neither the Borrower nor any
Restricted Subsidiary is (a) an “investment company” as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a “holding
company” as defined in, or subject to regula­tion under, the Public Utility
Holding Company Act of 1935.

 

Section 4.09.          Taxes.  The Borrower and each Restricted Subsidiary has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Restricted
Subsidiary, as applicable, has set aside on its books adequate reserves or
(b) to the extent that the failure to do so could not reasonably be
expected to result in a Material Adverse Effect.

 

Section 4.10.          ERISA.  No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events
for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect.  The present value of all accumulated benefit
obligations under each Plan (based on the assumptions used for purposes of FASB
Statement 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $1,000,000 the fair
market value of the assets of such Plan, and the present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of FASB Statement 87) did not, as of the
date of the most recent financial statements reflecting such amounts, exceed by
more than $1,000,000 the fair market value of the assets of all such
underfunded Plans.

 

Section 4.11.          Disclosure.  The Borrower has disclosed to the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
Restricted Subsidiary is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.  None of the
other reports, financial statements, 

 

48

 

certificates or other information furnished
by or on behalf of the Borrower or any Restricted Subsidiary to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided
that, with respect to the Projections, the Borrower represents only that such
information was prepared in good faith based on assumptions believed to be
reasonable at the time.

 

Section 4.12.          Labor Matters.  There are no strikes, lockouts or slowdowns
against the Borrower or any of its Restricted Subsidiaries pending or, to the
knowledge of the Borrower, threatened that could reasonably be expected to have
a Material Adverse Effect.  The hours
worked by and payments made to employees of the Borrower and its Restricted
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other Law dealing with such matters to the extent that such violation could
reasonably be expected to have a Material Adverse Effect.

 

Section 4.13.          Capitalization.  Schedule 4.13 lists, for Holdings, the
Borrower and each Restricted Subsidiary, as of the date hereof, its full legal
name, its jurisdiction of organization, and the number of shares of capital
stock or other Equity Interests outstanding and the owner(s) of such shares or
Equity Interests.

 

Section 4.14.          Margin Stock.  Neither the Borrower nor any Restricted Subsidiary
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation T, U or X of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Loan will be used
to purchase or carry any margin stock in violation of said Regulation T, U or X
or to extend credit to others for the purpose of purchasing or carrying margin
stock in violation of said Regulation T, U or X.

 

Section 4.15.          Oil and Gas Interests.  Each Credit Party has good and defensible
title to all proved reserves included in the Oil and Gas Interests (for
purposes of this Section 4.15, “proved Oil and Gas Interests”) described in the
most recent Reserve Report provided to the Administrative Agent, free and clear
of all Liens except Liens permitted pursuant to Section 7.02.  All such proved Oil and Gas Interests are
valid, subsisting, and in full force and effect, and all rentals, royalties,
and other amounts due and payable in respect thereof have been duly paid.  Without regard to any consent or non-consent
provisions of any joint operating agreement covering any Credit Party’s proved Oil
and Gas Interests, such Credit Party’s share of (a) the costs for each proved
Oil and Gas Interest described in the Reserve Report is not materially greater
than the decimal fraction set forth in the Reserve Report, before and after
payout, as the case may be, and described therein by the respective
designations “working interests,” “WI,” “gross working interest,” “GWI,” or
similar terms (except in such cases where there is a corresponding increase in
the net revenue interest), and (b) production from, allocated to, or
attributed to each such proved Oil and Gas Interest is not materially less than
the decimal fraction set forth in the Reserve Report, before and after payout,
as the case may be, and described therein by the designations “net revenue
interest,” “NRI,” or similar terms.  Each
well drilled in respect of proved producing Oil and Gas Interests described in
the Reserve Report (1)

 

49

 

is capable of, and is presently, either
producing Hydrocarbons in commercially profitable quantities or in the process
of being worked over or enhanced, and the Credit Party that owns such proved
producing Oil and Gas Interests is currently receiving payments for its share
of production, with no funds in respect of any thereof being presently held in
suspense, other than any such funds being held in suspense pending delivery of
appropriate division orders, and (2) has been drilled, bottomed, completed, and
operated in compliance with all applicable laws, in the case of clauses (1) and
(2), except where any failure to satisfy clause (1) or to comply with clause
(2) would not have a Material Adverse Effect, and no such well which is
currently producing Hydrocarbons is subject to any penalty in production by
reason of such well having produced in excess of its allowable production.

 

Section 4.16.          Insurance.  The certificate signed by the Financial
Officer that attests to the existence and adequacy of, and summarizes, the
property and casualty insurance program maintained by the Credit Parties that
has been furnished by the Borrower to the Administrative Agent and the Lenders
as of the Effective Date, is complete and accurate in all material respects as
of the Effective Date and demonstrates the Borrower’s and the Restricted
Subsidiaries’ compliance with Section 6.05.

 

Section 4.17.          Solvency.

 

(a)           Immediately
after the consummation of the Transactions and immediately following the making
of the initial Borrowing made on the Effective Date and after giving effect to
the application of the proceeds thereof, (1) the fair value of the assets of
the Credit Parties on a consolidated basis, at a fair valuation, will exceed
the debts and liabilities, subordinated, contingent or otherwise, of the Credit
Parties on a consolidated basis; (2) the present fair saleable value of the real
and personal property of the Credit Parties on a consolidated basis will be
greater than the amount that will be required to pay the probable liability of
the Credit Parties on a consolidated basis on their debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (3) the Credit Parties on a
consolidated basis will be able to pay their debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (4) the Credit Parties on a consolidated basis will
not have unreasonably small capital with which to conduct the businesses in
which they are engaged as such businesses are now conducted and are proposed to
be conducted after the date hereof.

 

(b)           The
Credit Parties do not intend to, and do not believe that they will, incur debts
beyond their ability to pay such debts as they mature, taking into account the
timing of and amounts of cash to be received by it and the timing of the
amounts of cash to be payable on or in respect of its Indebtedness.

 

Section 4.18.          Deposit Accounts.  Except as set forth on Schedule 4.18 and other
deposit accounts maintained at financial institutions other than the
Administrative Agent (the aggregate balance of which does not exceed $50,000 at
any time for all such other deposit accounts taken as a whole), no Credit Party
has any deposit or investment accounts and no Affiliate of any Credit Party has
any deposit or investment account into which proceeds of Hydrocarbon production
from the Oil and Gas Interests included in the Borrowing Base Properties are 

 

50

 

deposited.  Except for the Temporary Bank Account, all
proceeds of Hydrocarbon production from the Oil and Gas Interests included in
the Borrowing Base Properties and all distributions and dividends on any Equity
Interests owned by any Credit Party are deposited and maintained, from the date
of receipt by any Credit Party, in a deposit or investment account subject to a
first and prior perfected security interest in favor of the Administrative
Agent for the benefit of the Secured Parties.

 

Article V

 

Conditions

 

Section 5.01.          Effective Date.  The obligations of the Lenders to make Loans
and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 11.02):

 

(a)           The
Administrative Agent (or its counsel) shall have received from each party
hereto either (i) a counterpart of this Agreement signed on behalf of such
party or (ii) written evidence satisfactory to the Administrative Agent (which
may include telecopy transmission of a signed signature page of this Agreement)
that such party has signed a counterpart of this Agreement.

 

(b)           The
Administrative Agent shall have received (i) a favorable written opinion
(addressed to the Administrative Agent and the Lenders and dated the Effective
Date) of Haynes and Boone, LLP, counsel for the Credit Parties, substantially
in the form of Exhibit B, and covering such other matters relating to the Credit
Parties, this Agreement or the Transactions as the Required Lenders shall
reasonably request and (ii) if agreed by opining counsel, opinions delivered
pursuant to the Preferred Stock Documents, the Term Facility Documents and the
ONEOK Acquisition Documents, if any, addressed to the Lenders or accompanied by
reliance letters in favor of the Lenders stating that the Lenders may rely on
such opinions as though they were addressed to them.  The Credit Parties hereby request such
counsel to deliver such opinions.

 

(c)           The
Administrative Agent shall have received such documents and certificates as the
Administrative Agent or its counsel may reasonably request relating to the
organization, existence and good standing of each Credit Party, the
authorization of the Transactions and any other legal matters relating to the Credit
Parties, this Agreement or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.

 

(d)           The
Administrative Agent shall have received a certificate, dated the Effective
Date and signed by the President, a Vice President or a Financial Officer of
the Borrower, confirming that the Borrower has (i) complied with the conditions
set forth in paragraphs (a) and (b) of Section 5.02, (ii) complied with
the covenants set forth in Section 6.05 (and demonstrating such compliance by
the attachment of an insurance summary and insurance certificates evidencing
the coverage described in such summary) and (iii) simultaneously with the
initial Borrowing under this Agreement and in accordance with applicable law,
consummated the ONEOK Acquisition without waiver 

 

51

 

or amendment of any material term or condition of any of the ONEOK
Acquisition Documents.

 

(e)           The
Administrative Agent, the Lenders and the Lead Arranger shall have received all
fees and other amounts due and payable on or prior to the Effective Date, and,
to the extent invoiced, reimbursement or payment of all out-of-pocket
expenses required to be reimbursed or paid by the Borrower hereunder, including
all fees, expenses and disbursements of counsel for the Administrative Agent to
the extent invoiced on or prior to the Effective Date, together with such
additional amounts as shall constitute such counsel’s reasonable estimate of
expenses and disbursements to be incurred by such counsel in connection with
the recording and filing of Mortgages and financing statements; provided,
that, such estimate shall not thereafter preclude further settling of
accounts between the Borrower and the Administrative Agent.

 

(f)            The
Administrative Agent shall have received the Mortgages to be executed on the
Effective Date pursuant to Section 6.09 of this Agreement, duly executed and
delivered by the appropriate Credit Party, together with such other
assignments, conveyances, amendments, agreements and other writings, including,
without limitation, UCC-1 financing statements, tax affidavits and applicable
department of revenue documentation, creating first and prior Liens, subject to
Permitted Encumbrances, in Oil and Gas Interests having an Engineered Value
equal to or greater than the Engineered Value required under Section 6.09.

 

(g)           The
Administrative Agent shall have received the title information and
opinions with respect to the Mortgaged Properties, or the portion thereof,
required by Section 6.10 on the Effective Date.

 

(h)           The
Administrative Agent shall have received the Pledge Agreement to be
executed on the Effective Date pursuant to Section 6.14 of this Agreement, duly
executed and delivered by the appropriate Credit Party, together with such
other assignments, conveyances, amendments, agreements and other writings,
including, without limitation, UCC-1 financing statements and control
agreements, creating first and prior Liens, subject to the Liens permitted
under Section 7.02, in all Equity Interests of each Restricted Subsidiary now
or hereafter owned by Borrower or any Restricted Subsidiary.

 

(i)            On
or prior to the Effective Date, the Administrative Agent shall have received a
Borrowing Request acceptable to the Administrative Agent setting forth the
Loans requested by the Borrower on the Effective Date, the Type and amount of
each Loan and the accounts to which such Loans are to be funded; provided that
all Borrowings on the Effective Date shall be ABR Borrowings.

 

(j)            If
the initial Borrowing includes the issuance of a Letter of Credit, the
Administrative Agent shall have received a written request in accordance with Section
2.05 of this Agreement.

 

(k)           The
Administrative Agent shall have received such financing statements (including,
without limitation, the financing statements referenced in subclause (f)
and 

 

52

 

(h) above) as Administrative Agent shall specify to fully evidence and
perfect all Liens contemplated by the Loan Documents, all of which shall be
filed of record in such jurisdictions as the Administrative Agent shall require
in its sole discretion.

 

(l)            The
Administrative Agent shall have received reasonably satisfactory evidence that
the Borrower has (ii) received $20,000,000 in cash proceeds from the issuance
of the Short Term Notes on terms and conditions satisfactory to the Lenders, (ii)
received $150,000,000 in cash proceeds from the issuance of Preferred Stock to one
or more BP Investors pursuant to the Preferred Stock Documents and otherwise on
terms and conditions satisfactory to the Lenders and (iii) received
$200,000,000 in cash proceeds from the incurrence of the Indebtedness evidenced
by the Term Facility Documents and otherwise on terms and conditions
satisfactory to the Lenders.

 

(m)          The
Administrative Agent shall have received reasonably satisfactory evidence that
after giving effect to the Transactions, (i) Borrowing Base Usage shall not
exceed 95%, and (ii) the Control Group shall own not less than 51% of the
issued and outstanding Equity Interests of the Borrower.

 

(n)           The
Administrative Agent shall have received a Solvency Certificate in the form
attached hereto as Exhibit D, dated the Effective Date, and signed by the Chief
Financial Officer of the Borrower.

 

(o)           The
Lenders shall have received from the Borrower (i) the financial statements of
the Target described in Section 4.04, (ii) a pro forma consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as at the Effective
Date, and reflecting the consummation of the Transactions, the related
financings and other transactions contemplated by the Loan Documents to occur
on or prior to the Effective Date, which pro forma balance sheet shall be
prepared consistent in all respects with the information previously provided by
the Borrower to the Administrative Agent and the Lenders and otherwise in form
and substance satisfactory to the Administrative Agent and (iii) the
Projections.

 

(p)           The
Administrative Agent, the Term Agent and the Credit Parties shall have executed
and delivered the Intercreditor Agreement.

 

(q)           Each
Credit Party shall have obtained all approvals required from any
Governmental Authority and all consents of other Persons, in each case that are
necessary or advisable in connection with the Transactions and each of the
foregoing shall be in full force and effect and in form and substance
reasonably satisfactory to the Administrative Agent.  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
transactions contemplated by the Loan Documents, the Preferred Stock Documents,
the Term Facility Documents or the ONEOK Acquisition Documents or the financing
thereof and no action, request for stay, petition for review or rehearing,
reconsideration, or appeal with respect to any of the foregoing shall be
pending, and the time for any applicable agency to take action to set aside its
consent on its own motion shall have expired.

 

53

 

(r)            There
shall not exist any action, suit, investigation, litigation or proceeding or
other legal or regulatory developments, pending or threatened in any court or
before any arbitrator or Governmental Authority that, in the reasonable opinion
of Administrative Agent, singly or in the aggregate, materially impairs the
Transactions, the financing thereof or any of the other transactions contemplated
by the Loan Documents, the Preferred Stock Documents, the Term Facility
Documents or the ONEOK Acquisition Documents or that could have a Material
Adverse Effect.

 

(s)           All
partnership, corporate and other proceedings taken or to be taken in connection
with the Transactions and all documents incidental thereto shall be
satisfactory in form and substance to Administrative Agent and its counsel, and
Administrative Agent and such counsel shall have received all such counterpart
originals or certified copies of such documents as Administrative Agent may
reasonably request.

 

(t)            The
Borrower shall have delivered to the Administrative Agent with a description of
the sources and uses of funding for the Transactions that is consistent with
the terms of the Loan Documents, the Preferred Stock Documents and the Term
Facility Documents and otherwise satisfactory to the Administrative Agent and
the Arranger and the capitalization, structure and equity ownership of the
Borrower and Holdings after the Transactions shall be satisfactory to the
Lenders in all respects.

 

The Administrative Agent shall notify the Borrower and the Lenders of
the Effective Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit hereunder shall not become effective unless each of the
foregoing conditions is satisfied (or waived pursuant to Section 11.02) at or
prior to 3:00 p.m., Chicago, Illinois time, on September 30, 2005 (and, in the
event such conditions are not so satisfied or waived, the Aggregate Commitment shall
terminate at such time).

 

Section 5.02.          Each Credit Event.  The obligation of each Lender to make a Loan
on the occasion of any Borrowing, and of the Issuing Bank to issue, amend,
renew or extend any Letter of Credit, is subject to the satisfaction of the
following conditions:

 

(a)           The
representations and warranties of each Credit Party set forth in this Agreement
shall be true and correct in all material respects on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of such
Letter of Credit, as applicable except to the extent that such representations
and warranties specifically refer to an earlier date, in which case they shall
be true and correct as of such earlier date.

 

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

 

(c)           At
the time of and immediately after giving effect to such Borrowing or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, no Borrowing Base Deficiency exists or would be caused thereby.

 

54

 

Each Borrowing and each
issuance, amendment, renewal or extension of a Letter of Credit shall be deemed
to constitute a representation and warranty by the Borrower on the date thereof
as to the matters specified in paragraphs (a), (b) and (c) of this Section.

 

Article VI

 

Affirmative Covenants

 

Until the Aggregate
Commitment has expired or been terminated and the principal of and interest on
each Loan and all fees payable hereunder shall have been paid in full and all
Letters of Credit shall have expired or terminated and all LC Disbursements
shall have been reimbursed, each Credit Party covenants and agrees with the
Lenders that:

 

Section 6.01.          Financial Statements; Other
Information.  The Borrower will
furnish to the Administrative Agent and each Lender:

(a)           within
90 days after the end of each fiscal year of the Borrower, the audited
consolidated balance sheet and related statements of operations, stockholders’
equity and cash flows of the Borrower and its Consolidated Subsidiaries as of
the end of and for such year, setting forth in each case in comparative form
the figures for the previous fiscal year, all reported on by a firm of independent
public accountants reasonably acceptable to Administrative Agent (without a “going
concern” or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such consolidated and
consolidating financial statements present fairly in all material respects the
financial condition and results of operations of the Borrower and its
Consolidated Subsidiaries on a consolidated and consolidating basis in
accordance with GAAP consistently applied;

 

(b)           within
45 days after the end of each fiscal quarter of the Borrower, the consolidated
balance sheet and related statements of operations, stockholders’ equity and
cash flows of the Borrower and its Consolidated Subsidiaries as of the end of
and for such fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of
the end of) the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial condition
and results of operations of the Borrower and its Consolidated Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;

 

(c)           concurrently
with any delivery of financial statements under clause (a) or (b) above, a
certificate in a form reasonably acceptable to Administrative Agent signed by a
Financial Officer of the Borrower (i) certifying as to whether a Default
has occurred and, if a Default has occurred, specifying the details thereof and
any action taken or proposed to be taken with respect thereto, and
(ii) setting forth reasonably detailed calculations demonstrating
compliance with Section 7.11;

 

55

 

(d)           promptly
after the same become publicly available, copies of all periodic and other
reports, proxy statements and other materials filed by the Borrower or any
Subsidiary with the Securities and Exchange Commission, or any Govern­mental
Authority succeeding to any or all of the functions of said Commission, or with
any national securities exchange, or distributed by the Borrower to its share­holders
generally, as the case may be;

 

(e)           as
soon as available, and in any event no later than March 1 and September 1 of each
year, the Reserve Reports required on such dates pursuant to Section 3.01;

 

(f)            together
with the Reserve Reports required under clause (e) above, (i) a report, in
reasonable detail, setting forth the Swap Agreements then in effect, the
notional volumes of and prices for, on a monthly basis and in the aggregate,
the Crude Oil and Natural Gas for each such Swap Agreement and the term of each
such Swap Agreement; (ii) a true and correct schedule of the Mortgaged Properties,
(iii) the percentage of the Engineered Value of the Borrowing Base that the
Mortgaged Properties represent and (iv) a description of the additional Oil and
Gas Interests, if any, to be mortgaged by the Credit Parties to comply with Section
6.09 and the Engineered Value thereof;

 

(g)           if
requested by Required Lenders and within thirty (30) days of such request, a
monthly report, in form and substance satisfactory to the Administrative Agent,
indicating the next preceding month’s sales volumes, sales revenues, production
taxes, operating expenses and net operating income from the Borrowing Base
Properties, with detail, calculations and worksheets, all in form and substance
reasonably satisfactory to the Administrative Agent; and

 

(h)           promptly
following any request therefor, such other information regarding the
operations, business affairs and financial condition of any Credit Party, or
compliance with the terms of this Agreement, as the Administrative Agent or any
Lender may reasonably request.

 

Section 6.02.          Notices of Material Events.  The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:

 

(a)           the
occurrence of any Default;

 

(b)           the
filing or commencement of any action, suit or proceeding by or before any
arbitrator or Governmental Authority against or affecting any Credit Party or
any Affiliate thereof that, if adversely determined, could reasonably be
expected to result in a Material Adverse Effect;

 

(c)           the
occurrence of any ERISA Event that, alone or together with any other ERISA
Events that have occurred, could reasonably be expected to result in liability
of the Borrower and the Restricted Subsidiaries in an aggregate amount
exceeding $5,000,000;

 

56

 

(d)           any
written notice or written claim to the effect that any Credit Party is or may
be liable to any Person as a result of the release by any Credit Party, or any
other Person of any Hazardous Materials into the environment, which could
reasonably be expected to have a Material Adverse Effect;

 

(e)           any
written notice alleging any violation of any Environmental Law by any Credit
Party, which could reasonably be expected to have a Material Adverse Effect;

 

(f)            the
occurrence of any material breach or default under, or repudiation or
termination of, any Material Sales Contract that results in, or could
reasonably be expected to result in, a Material Adverse Effect;

 

(g)           the
receipt by the Borrower or any Restricted Subsidiary of any management letter or
comparable analysis prepared by the auditors for the Borrower or any such
Restricted Subsidiary; and

 

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

 

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

 

Section 6.03.          Existence; Conduct of Business.  The Borrower will, and will cause each Restricted
Subsidiary to, do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence and the rights, licenses,
permits, privileges and franchises material to the conduct of its business; provided
that the foregoing shall not prohibit any merger, consolidation, liquidation or
dissolution permitted under Section 7.03.

 

Section 6.04.          Payment
of Obligations.  The Borrower will,
and will cause each Restricted Subsidiary to, pay its obligations, including
Tax liabilities, that, if not paid, could result in a Material Adverse Effect
before the same shall become delinquent or in default, except where (a) the
validity or amount thereof is being contested in good faith by appropri­ate
proceedings, (b) the Borrower or such Restricted Subsidiary has set aside on
its books adequate reserves with respect thereto in accordance with GAAP and
(c) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.

 

Section 6.05.          Maintenance of Properties;
Insurance.  The Borrower will, and
will cause each Restricted Subsidiary and use commercially reasonable efforts
to cause each operator of Borrowing Base Properties to, (a) keep and
maintain all property material to the conduct of its business in good working
order and condition, ordinary wear and tear excepted, and (b) maintain,
with financially sound and reputable insurance companies, insurance in such
amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations.  On or prior to the Effective
Date and thereafter, upon request of the Administrative Agent, the Borrower will
furnish or cause to be furnished to the Administrative Agent from time to time
a summary of the respective insurance coverage of the Borrower and its
Restricted Subsidiaries in form and substance 

 

57

 

reasonably satisfactory to the Administrative
Agent, and, if requested, will furnish the Administrative Agent copies of the
applicable policies.  Upon demand by
Administrative Agent, the Borrower will cause any insurance policies covering
any such property to be endorsed (a) to provide that such policies may not be
cancelled, reduced or affected in any manner for any reason without fifteen
(15) days prior notice to Administrative Agent, and (b) to provide for such
other matters as the Lenders may reasonably require.

 

Section 6.06.          Books and Records; Inspection
Rights.  The Borrower will, and will
cause each Restricted Subsidiary to, keep proper books of record and account in
which full, true and correct entries are made of all dealings and transactions
in relation to its business and activities. 
The Borrower will, and will cause each Restricted Subsidiary to, permit
any representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and, provided an officer of the Borrower has
the reasonable opportunity to participate, its independent accountants, all at
such reasonable times and as often as reasonably requested.

 

Section 6.07.          Compliance with Laws.  The Borrower will, and will cause each Restricted
Subsidiary to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.

 

Section 6.08.          Use of Proceeds and Letters of
Credit.  The proceeds of the Loans
will be used only to (a) finance the ONEOK Acquisition, (b) pay the fees,
expenses and transaction costs of the Transactions and (c) finance the working
capital needs of the Borrower, including capital expenditures, and for general
corporate purposes of the Borrower and the Guarantors, in the ordinary course
of business, including the exploration, acquisition and development of Oil and
Gas Interests.  No part of the proceeds
of any Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the regulations of the Board, including Regulations
T, U and X.  Letters of Credit will be
issued only to support general corporate purposes of the Borrower and the
Subsidiaries.

 

Section 6.09.          Mortgages.  Each Borrower will, and will cause each
Guarantor to, execute and deliver to the Administrative Agent, for the benefit
of the Secured Parties, Mortgages in form and substance acceptable to the
Administrative Agent together with such other assignments, conveyances, amendments,
agreements and other writings, including, without limitation, UCC-1 financing
statements (each duly authorized and executed, as applicable) as the
Administrative Agent shall deem necessary or appropriate to grant, evidence and
perfect Liens in not less than ninety percent (90%) of the Engineered Value of
the Borrowing Base Properties.

 

Section 6.10.          Title Data.  The Borrower will, and will cause each Guarantor
to, deliver to the Administrative Agent such opinions of counsel and other
evidence of title as the Administrative Agent shall deem reasonably necessary
or appropriate to verify (i) as of the Effective Date, such Credit Party’s
title to not less than fifty percent (50%) of the Engineered Value of the Mortgaged
Properties and at all times from and after October 31, 2005, eighty percent
(80%) of the Engineered Value of the Mortgaged Properties and (ii) the
validity, 

 

58

 

perfection and priority of the Liens created
by such Mortgages and such other matters regarding such Mortgages as
Administrative Agent shall reasonably request.

 

Section 6.11.          Swap Agreements.  On or within ten (10) Business Days after the
Effective Date, the Borrower will enter into and thereafter maintain one or
more hedge, collar or swap transactions pursuant to Swap Agreements with
Approved Counterparties to hedge not less than seventy-five percent (75%) of the
forecasted production of Crude Oil and Natural Gas from the proved producing
Oil and Gas Interests of the Borrower and its Restricted Subsidiaries, taken as
a whole, through at least the fifth anniversary of the Effective Date as
reflected in the Reserve Report used by the Lenders to determine the Initial
Borrowing Base and at or above prices specified by the Administrative Agent on
or prior to the Effective Date or otherwise acceptable to the Administrative
Agent. Once confirmed, no such hedge, collar or swap transaction nor any Swap
Agreement may be amended or modified, or cancelled without the prior written
consent of Required Lenders.  Upon the
request of the Required Lenders, each of Borrower and each Restricted
Subsidiary will take all actions necessary to cause all of its right, title and
interest in each Swap Agreement to which it is a party and the hedge
transactions related thereto to be collaterally assigned to the Administrative
Agent, for the benefit of the Secured Parties, and shall, if requested by the
Administrative Agent or the Required Lenders, use its commercially reasonable
efforts to cause each such agreement or contract to (a) expressly permit such
assignment and (b) upon the occurrence of any default or event of default under
such agreement or contract, (i) to permit the Lenders to cure such default or
event of default and assume the obligations of such Credit Party under such
agreement or contract and (ii) to prohibit the termination of such
agreement or contract by the counterparty thereto if the Lenders assume the
obligations of such Credit Party under such agreement or contract and the
Lenders take the actions required under the foregoing clause (i).  Upon the request of the Administrative Agent,
the Borrower shall, within thirty (30) days of such request, provide to the
Administrative Agent and each Lender copies of all agreements, documents and
instruments evidencing the Swap Agreements not previously delivered to the
Administrative Agent and Lenders, certified as true and correct by a Financial
Officer of the Borrower, and such other information regarding such Swap
Agreements as the Administrative Agent and Lenders may reasonably request.

 

Section 6.12.          Operation of Oil and Gas Interests.

 

(a)           Each
Borrower will, and will cause each Restricted Subsidiary to, maintain, develop
and operate its Oil and Gas Interests in a good and workmanlike manner, and
observe and comply with all of the terms and provisions, express or implied, of
all oil and gas leases relating to such Oil and Gas Interests so long as such
Oil and Gas Interests are capable of producing Hydrocarbons and accompanying
elements in paying quantities, except where such failure to comply could not
reasonably be expected to have a Material Adverse Effect.

 

(b)           Borrower
will, and will cause each Restricted Subsidiary to, comply in all respects with
all contracts and agreements applicable to or relating to its Oil and Gas
Interests or the production and sale of Hydrocarbons and accompanying elements
therefrom, except to the extent a failure to so comply could not reasonably be
expected to have a Material Adverse Effect.

 

59

 

Section 6.13.          Restricted Subsidiaries.  In the event any Person is or becomes a
Restricted Subsidiary, Borrower will (a) promptly take all action necessary to
comply with Section 6.14, (b) promptly take all such action and execute
and deliver, or cause to be executed and delivered, to the Administrative Agent
all such documents, opinions, instruments, agreements, and certificates similar
to those described in Section 5.01(b) and Section 5.01(c) that the
Administrative Agent may request, and (c) promptly cause such Restricted Subsidiary to (i) become a party to
this Agreement and Guarantee the Obligations by executing and delivering to the
Administrative Agent a Counterpart Agreement in the form of Exhibit C, and (ii)
to the extent required to comply with Section 6.09, grant to the Administrative
Agent, for the benefit of the Lenders, a security interest in all of such Restricted
Subsidiary’s Oil and Gas Interests to secure the Obligations.  Upon delivery of any such Counterpart
Agreement to the Administrative Agent, notice of which is hereby waived by each
Credit Party, such Restricted Subsidiary shall be a Guarantor and shall be as
fully a party hereto as if such Restricted Subsidiary were an original
signatory hereto.  Each Credit Party expressly
agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Credit Party hereunder.  This Agreement shall be fully effective as to
any Credit Party that is or becomes a party hereto regardless of whether any
other Person becomes or fails to become or ceases to be a Credit Party hereunder.  With respect to each such Restricted Subsidiary,
the Borrower shall  promptly send to the
Administrative Agent written notice setting forth with respect to such Person
the date on which such Person became a Restricted Subsidiary of the Borrower,
and supplement the data required to be set forth in the Schedules to this
Agreement as a result of the acquisition or creation of such Restricted Subsidiary;
provided that such supplemental data must be reasonably acceptable to the
Administrative Agent and Required Lenders.

 

Section 6.14.          Pledged
Equity Interests.  On the date
hereof and at the time hereafter that any Restricted Subsidiary of the Borrower
is created or acquired or any Unrestricted Subsidiary becomes a Restricted
Subsidiary, the Borrower and the Subsidiaries (as applicable) shall execute and
deliver to the Administrative Agent for the benefit of the Secured Parties, a Pledge
Agreement, in form and substance acceptable to the Administrative Agent, from
the Borrower and/or the Subsidiaries (as applicable) covering all Equity
Interests owned by the Borrower or such Restricted Subsidiaries in such Restricted
Subsidiaries, together with all certificates (or other evidence acceptable to
Administrative Agent) evidencing the issued and outstanding Equity Interests of
each such Restricted Subsidiary of every class owned by such Credit Party (as
applicable) which, if certificated, shall be duly endorsed or accompanied by
stock powers executed in blank (as applicable), as Administrative Agent shall
deem necessary or appropriate to grant, evidence and perfect a first priority
security interest in the issued and outstanding Equity Interests owned by
Borrower or any Restricted Subsidiary in each Restricted Subsidiary.

 

Section 6.15.          Production
Proceeds and Bank Accounts.  Subject to the terms and conditions of the
Mortgages, each Credit Party shall cause all production proceeds and revenues attributable to the Oil
and Gas Interests of such Credit Party to be paid and deposited into deposit
accounts of such Credit Party maintained with the Administrative Agent or with
other financial institutions acceptable to the Administrative Agent and cause
all such deposit accounts at such other financial institutions to be subject to
a control agreement in favor of the Administrative Agent for the benefit of the
Secured Parties, in form and substance satisfactory to the Administrative Agent
(an “Eligible Account”); provided that for the ten (10) day period
following the Effective Date, the Temporary Bank Account shall constitute an
Eligible Account.

 

60

 

Article VII

 

Negative Covenants

 

Until the Aggregate
Commitment has expired or terminated and the principal of and interest on each
Loan and all fees payable hereunder have been paid in full and all Letters of
Credit have expired or terminated and all LC Disbursements shall have been
reimbursed, each Credit Party covenants and agrees with the Lenders that:

 

Section 7.01.          Indebtedness.  The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness, except:

 

(a)           The Obligations;

 

(b)           Indebtedness
existing on the date hereof and set forth in Schedule 7.01 and extensions,
renewals and replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof;

 

(c)           Indebtedness of the
Borrower to any Guarantor and of any Guarantor to the Borrower or any other Guarantor;
provided, that (i) all such Indebtedness shall be unsecured and
subordinated in right of payment to the payment in full of all of the
Obligations in a manner and on terms and conditions reasonably satisfactory to
the Administrative Agent and (ii) all such Indebtedness is evidenced by
promissory notes in form and substance reasonably satisfactory to the
Administrative Agent, and such promissory notes are subject to a first priority
security interest in favor of the Administrative Agent for the benefit of the Secured
Parties on terms and conditions reasonably satisfactory to the Administrative
Agent.

 

(d)           Guarantees of the
Obligations.

 

(e)           Indebtedness of the
Borrower and the Restricted Subsidiaries incurred to finance the acquisition,
construction or improvement of any fixed or capital assets, including Capital
Lease Obligations and any Indebtedness assumed in connection with the
acquisition of any such assets or secured by a Lien on any such assets prior to
the acquisition thereof, and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof; provided
that (i) such Indebtedness is incurred prior to or within 90 days after such
acquisition or the completion of such construction or improvement and (ii) the
aggregate principal amount of Indebtedness permitted by this clause (e) shall
not exceed $5,000,000 at any time outstanding;

 

(f)            Indebtedness
incurred or deposits made by the Borrower and the Restricted Subsidiaries (i)
under worker’s compensation laws, unemployment insurance laws or similar
legislation, or (ii) in connection with bids, tenders, contracts (other than
for the payment of Indebtedness) or leases to which such Credit Party is a
party, (iii) to secure public or statutory obligations of such Credit Party,
and (iv) of cash or U.S. Government Securities made to secure the performance
of statutory obligations, surety,

 

61

 

stay,
customs and appeal bonds to which such Credit Party is a party in connection
with the operation of the Oil and Gas Interests, in each case in the ordinary
course of business;

 

(g)           Indebtedness under
Swap Agreements to the extent permitted under Section 7.05;

 

(h)           Indebtedness under
the Term Facility in an aggregate principal amount not exceeding $200,000,000
at any time outstanding;

 

(i)            Unsecured
Indebtedness under the Short Term Notes; and

 

(j)            Other unsecured
Indebtedness of the Credit Parties in an aggregate principal amount not exceeding
$1,000,000 at any time outstanding.

 

Section 7.02.          Liens.  The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, create, incur, assume or permit to exist any
Lien on any property or asset now owned or hereafter acquired by it, or assign
or sell any income or revenues (including accounts receivable) or rights in
respect of any thereof, except:

 

(a)           any Lien created
pursuant to this Agreement or the Security Instruments;

 

(b)           Permitted
Encumbrances;

 

(c)           any Lien on any
property or asset of the Borrower or any Restricted Subsidiary existing on the
date hereof and set forth in Schedule 7.02; provided that (i) such
Lien shall not apply to any other property or asset of the Borrower or any
other Restricted Subsidiary and (ii) such Lien shall secure only those
obligations which it secures on the date hereof and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof;

 

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

 

(e)           Liens on fixed or
capital assets acquired, constructed or improved by the Borrower or any
Restricted Subsidiary; provided that (i) such Liens, secure
Indebtedness permitted by clause (e) of Section 7.01, (ii) such
security interests and the Indebtedness secured thereby are incurred prior to
or within 90 days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does
not exceed the cost of acquiring, constructing or improving such fixed or
capital 

 

62

 

assets
and (iv) such security interests shall not apply to any other property or
assets of the Borrower or any other Restricted Subsidiaries; and

 

(f)            Subject to the
Intercreditor Agreement, Liens securing Indebtedness permitted by clause (h) of
Section 7.01.

 

Section 7.03.          Fundamental
Changes.

 

(a)           The Borrower will
not, nor will it permit any of its Restricted Subsidiaries to, merge into or
consolidate with any other Person, or permit any other Person to merge into or
consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any substantial part of its
assets, or any of its Borrowing Base Properties or any of the Equity Interests of
any Restricted Subsidiary (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, the Borrower or any
Restricted Subsidiary may sell Hydrocarbons produced from its Oil and Gas
Interests in the ordinary course of business, and if at the time thereof and immediately after giving effect thereto
no Default shall have occurred and be continuing, (i) any Restricted Subsidiary
may merge into the Borrower in a transaction in which the Borrower is the
surviving entity, (ii) any Restricted Subsidiary may merge into any other
Restricted Subsidiary in a transaction in which the surviving entity is a Restricted
Subsidiary, (iii) any Restricted Subsidiary may sell, transfer, lease or
otherwise dispose of its assets to the Borrower or to another Restricted
Subsidiary, (iv) any Restricted Subsidiary may liquidate or dissolve if the Borrower
determines in good faith that such liquidation or dissolution is in the best
interests of the Borrower and is not materially disadvantageous to the Lenders,
(v) the Borrower or any Restricted
Subsidiary may sell, transfer, lease or otherwise dispose of equipment and
related items in the ordinary course of business, that are obsolete or no
longer necessary in the business of the Borrower or any of its Restricted Subsidiaries
or that is being replaced by equipment of comparable value and utility, (vi) subject
to Section 2.10(b), the Borrower or any Restricted Subsidiary may sell,
transfer, lease, exchange, abandon or otherwise dispose of Borrowing Base
Properties with a value not exceeding, in the aggregate for the Borrower and
its Restricted Subsidiaries taken as a whole, 5% of the Borrowing Base between
Scheduled Redeterminations and (vii) with the prior written consent of Required
Lenders and subject to Section 2.10(b), the Borrower or any Restricted
Subsidiary may sell, transfer, lease, exchange, abandon  or otherwise dispose of Borrowing Base
Properties not otherwise permitted pursuant to the foregoing clause (vi). For
purposes of the foregoing clause (vi), the value of any Oil and Gas Interests
included in the Borrowing Base Properties shall be the Engineered Value of such
Oil and Gas Interests and the value of all other Oil and Gas Interests shall be
the value which would be assigned to such Oil and Gas Interests using the same
methodology, assumptions and discount rates used to determine the Engineered
Value of the Borrowing Base Properties as of the most recent Redetermination.  In addition, for purposes of determining
compliance with clause (vi) of this Section with respect to any exchange of Oil
and Gas Interests, the value of such exchange shall be the net reduction, if
any, in Engineered Value realized or resulting from such exchange.

 

63

 

(b)           The Borrower will
not, nor will it permit any of its Restricted Subsidiaries to, engage to any
material extent in any business other than businesses of the type conducted by the
Borrower and its Restricted Subsidiaries on the date of execution of this
Agreement and after giving effect to the Transactions and businesses reasonably
related thereto.

 

Section 7.04.          Investments,
Loans, Advances, Guarantees and Acquisitions.  The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, purchase, hold or acquire (including
pursuant to any merger with any Person that was not a wholly owned Restricted Subsidiary
prior to such merger) any capital stock, evidences of Indebtedness or other
securities (including any option, warrant or other right to acquire any of the
foregoing) of, make or permit to exist any loans or advances to, Guarantee any Indebtedness
of, or make or permit to exist any investment or any other interest in, any
other Person, or purchase or otherwise acquire (in one transaction or a series
of transactions) any assets of any other Person constituting a business unit,
except:

 

(a)           Permitted
Investments;

 

(b)           investments by the Borrower
in the Equity Interests of any Restricted Subsidiary;

 

(c)           investments by the
Borrower or Guarantor consisting of intercompany Indebtedness permitted under Section
7.01(c)

 

(d)           Guarantees
constituting Indebtedness permitted by Section 7.01;

 

(e)           investments by the
Borrower and its Restricted Subsidiaries that are (1) customary in the oil
and gas business, (2) made in the ordinary course of the Borrower’s or
such Restricted Subsidiary’s business, and (3) made in the form of, or pursuant
to, oil, gas and mineral leases, operating agreements, farm-in agreements,
farm-out agreements, development agreements, unitization agreements, joint
bidding agreements, services contracts and other similar agreements that a
reasonable and prudent oil and gas industry owner or operator would find
acceptable;

 

(f)            investments consisting
of Swap Agreements to the extent permitted under Section 7.05; and

 

(g)           other investments by
the Borrower and the Restricted Subsidiaries in an aggregate principal amount
not exceeding $1,000,000 at any time Adjustment Percentage is used in the calculation
of Borrowing Base Usage and thereafter other  investments; provided that, on the date
any such other investment is made, the amount of such investment, together with
all other investments made pursuant to this clause (g) of Section 7.04 (in each
case determined based on the cost of such investment) since the Effective Date,
does not exceed (A) in the aggregate, $5,000,000 if Borrowing Base Usage is
equal to or greater than 75% on the date of and after giving effect to such
investment, and (B) in the aggregate, $10,000,000 if Borrowing Base Usage is
less than 75% on the date of and after giving effect to such investment.

 

64

 

Section 7.05.          Swap
Agreements.  The Borrower will not, nor
will it permit any of its Restricted Subsidiaries to, enter into or maintain any
Swap Agreement, except the Existing Swap Agreements, the Swap Agreements required
under Section 6.11 and Swap Agreements entered into in the ordinary course of
business and not for speculative purposes to (a) hedge or mitigate Crude Oil
and Natural Gas price risks to which the Borrower or any Restricted Subsidiary
has actual exposure, and (b) effectively cap, collar or exchange interest rates
(from fixed to floating rates, from one floating rate to another floating rate
or otherwise) with respect to any interest-bearing liability or investment of
any Credit Party; provided that such Swap Agreements (at the time each
transaction under such Swap Agreement is entered into) would not cause the
aggregate notional amount of Crude Oil and Natural Gas under all Swap
Agreements then in effect (including the Existing Swap Agreements and the Swap
Agreements required under Section 6.11) to exceed eighty (80%) of the “forecasted
production from proved producing reserves” (as defined below) of the Borrower
and the Restricted Subsidiaries for the forthcoming five year period.  As used in this clause, “forecasted
production from proved producing reserves” means the forecasted production of
Crude Oil and Natural Gas as reflected in the most recent Reserve Report
delivered to the Administrative Agent pursuant to Section 6.01, after giving
effect to any pro forma adjustments for the consummation of any acquisitions or
dispositions since the effective date of such Reserve Report.  Once the Borrower or any Restricted
Subsidiaries enters into a Swap Agreement or any hedge transaction pursuant to
any Swap Agreement, the terms and conditions of such Swap Agreement and such
hedge transaction may not be amended or modified, nor may such Swap Agreement or
hedge transaction be cancelled without the prior written consent of Required
Lenders.

 

Section 7.06.          Restricted Payments.  The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (a) the Borrower
may declare and pay dividends with respect to its Equity Interests payable
solely in additional shares of its common stock, (b) the Borrower may declare
and pay dividends with respect to its Preferred Stock in additional shares of
Preferred Stock, (c) so long as no Default shall have occurred and be
continuing or would result from the making of such Restricted Payment,
Restricted Payments to redeem the Preferred Stock on, or within five (5)
Business Days following, the IPO Date with the proceeds of the Initial Public
Offering, (d) the Borrower may make Restricted Payments pursuant to and in
accordance with stock option plans or other benefit plans for management or
employees of the Borrower and its Restricted Subsidiaries in an aggregate
amount not to exceed $1,000,000 in any fiscal year, (e) any Restricted
Subsidiary may make Restricted Payments to the Borrower or any Guarantor, (f) so
long as no Default shall have occurred and be continuing or would result from
the making of such Restricted Payment, Restricted Payments by the Borrower to
Holdings to (i) fund the payment by Holdings of administrative, legal,
financial, accounting or other similar expenses relating to Holdings’ direct or
indirect ownership of the Borrower, so long as payments are paid as and when
needed by Holdings and do not exceed in the aggregate $1,000,000 in any fiscal
year of the Borrower; (ii) to pay the consolidated tax liabilities of Holdings
and its Subsidiaries so long as Holdings applies the amount of any such
Restricted Payment for such purpose and the Borrower’s  aggregate Restricted Payments for payment of
such taxes as a result of the filing of a consolidated return with Holdings is not
greater nor the receipt of tax benefits less, than they would have been had the
Borrower not filed a consolidated return with Holdings; and (iii) fund the
repurchase, redemption or other acquisition or retirement for value of any of
Holdings’ Equity Interests upon the termination of employment, death, permanent
disability or retirement 

 

65

 

of any officer or employee of Holdings or any
of its Subsidiaries; provided that, the aggregate amount of such Restricted
Payments pursuant to this clause (iii) shall not exceed $2,000,000 in the
aggregate.

 

Section 7.07.          Transactions
with Affiliates.  The Borrower will
not, nor will it permit any of its Restricted Subsidiaries to, sell, lease or otherwise transfer any property
or assets to, or purchase, lease or otherwise acquire any property or assets
from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on
terms and conditions not less favorable to the Borrower or such Restricted Subsidiary
than could be obtained on an arm’s-length basis from unrelated third parties,
(b) transactions between or among the Borrower and its Restricted Subsidiaries
not involving any other Affiliate, (c) transactions described on Schedule 7.07,
and (d) any Restricted Payment permitted by Section 7.06.

 

Section 7.08.          Restrictive
Agreements.  The Borrower will not,
nor will it permit any of its Restricted Subsidiaries to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Restricted
Subsidiary to create, incur or permit to exist any Lien upon any of its
property or assets, or (b) the ability of any Restricted Subsidiary to pay
dividends or other distributions with respect to any of its Equity Interests or
to make or repay loans or advances to the Borrower or any Restricted Subsidiary
or to Guarantee Indebtedness of the Borrower or any Restricted Subsidiary; provided
that (i) the foregoing shall not apply to restrictions and conditions imposed
by law or by this Agreement, (ii) the foregoing shall not apply to restrictions
and conditions set forth in the Term Facility Documents, (iii) the foregoing
shall not apply to restrictions and conditions existing on the date hereof
identified on Schedule 7.08 (but shall apply to any extension or renewal of, or
any amendment or modification expanding the scope of, any such restriction or
condition), (iv) clause (a) of the foregoing shall not apply to restrictions or
conditions imposed by any agreement relating to secured Indebtedness permitted
by this Agreement (other than the Term Facility) if such restrictions or
conditions apply only to the property or assets securing such Indebtedness and
(v) clause (a) of the foregoing shall not apply to customary provisions in
leases and other contracts restricting the assignment thereof.

 

Section 7.09.          Disqualified
Stock.  The Borrower will not,
nor will it permit any of its Restricted Subsidiaries to, issue any Disqualified Stock.

 

Section 7.10.          Amendments
to Organizational Documents and Preferred Stock Documents.  The Borrower will not, nor will it
permit any of its Restricted Subsidiaries to, enter into or permit any material modification or amendment of, or
waive any material right or obligation of any Person under its Organizational
Documents.  The Borrower will not enter
into or permit any modification or amendment of, or waive any right or obligation
of any Person under the Preferred Stock Documents.

 

66

 

Section 7.11.          Financial
Covenants.

 

(a)           Consolidated
Current Ratio.  The Borrower will not
permit the Consolidated Current Ratio as of the end of any fiscal quarter ending
on or after December 31, 2005 to be less than 1.00 to 1.00.

 

(b)           Leverage Ratio.

 

(i)            The
Borrower will not permit the ratio, determined as of the end of the fiscal
quarter ending December 31, 2005, of (A) Consolidated Funded Indebtedness as of
the end of such fiscal quarter, to (B) Consolidated EBITDAX for such fiscal
quarter multiplied by four (4) to be greater than 3.75 to 1.0.

 

(ii)           The
Borrower will not permit the ratio, determined as of the end of any fiscal
quarter ending after December 31, 2005 and 
on or before September 30, 2006, of (A) Consolidated Funded Indebtedness
as of the end of such fiscal quarter, to (B) Consolidated EBITDAX for the
period from January 1, 2006 to the end of such fiscal quarter multiplied by a
fraction, the numerator of which is four (4) and the denominator of which is
the number of fiscal quarters ended since January 1, 2006, including the then
ending fiscal quarter, to be greater than 3.50 to 1.00.

 

(iii)          The
Borrower will not permit the ratio, determined as of the end of any fiscal
quarter ending on or after December 31, 2006, of (A) Consolidated Funded
Indebtedness as of the end of such fiscal quarter to (B) Consolidated EBITDAX
for the trailing four fiscal quarter period ending on such date, to be greater
than 3.50 to 1.00.

 

(c)           Interest
Coverage Ratio.

 

(i)            The
Borrower will not permit the ratio, determined as of December 31, 2005, of (A)
Consolidated EBITDAX for such fiscal quarter multiplied by four (4) to (B)
Consolidated Interest Expense for such fiscal quarter multiplied by four (4) to
be less than 2.50 to 1.00.

 

(ii)           The
Borrower will not permit the ratio, determined as of the end of any fiscal
quarter ending after December 31, 2005 and 
on or before September 30, 2006, of (A) Consolidated EBITDAX for the
period from January 1, 2006 to the end of such fiscal quarter multiplied by a
fraction, the numerator of which is four (4) and the denominator of which is
the number of fiscal quarters ended since January 1, 2006, including the then
ending fiscal quarter, to (B) Consolidated Interest Expense for the period from
January 1, 2006 to the end of such fiscal quarter multiplied by a fraction, the
numerator of which is four (4) and the denominator of which is the number of
fiscal quarters ended since January 1, 2006, including the then ending fiscal
quarter, to be less than 2.50 to 1.00.

 

(iii)          The
Borrower will not permit the ratio, determined as of the end of any fiscal
quarter ending on or after December 31, 2006, of (A) Consolidated EBITDAX for the
trailing four fiscal quarter period ending on such date, to (B) 

 

67

 

Consolidated Interest Expense for such four fiscal quarter period to be
less than 2.50 to 1.00.

 

Section 7.12.          Sale and Leaseback Transactions and
other Off-Balance Sheet Liabilities. 
The Borrower will not, nor will it permit any Restricted Subsidiary to,
enter into or suffer to exist any (i) Sale and Leaseback Transaction or (ii)
any other transaction pursuant to which it incurs or has incurred Off-Balance
Sheet Liabilities, except for Swap Agreements permitted under the terms of Section
7.05 and Advance Payment Contracts; provided, that the aggregate
amount of all Advance Payments received by any Credit Party that have not been
satisfied by delivery of production at any time does not exceed, in the
aggregate $1,000,000.

 

Section 7.13.          Term Facility Restrictions.  Prior to the termination of all Commitments
and the payment and performance in full of the Obligations, the Borrower will
not, nor will it permit any Restricted Subsidiary to, (a) except for the
regularly scheduled payments of principal and interest required under the Term
Facility Documents, directly or indirectly, retire, redeem, defease, repurchase
or prepay prior to the scheduled due date thereof any part of the principal of,
or interest on, the Term Loans, or (b) enter into or permit any modification or
amendment of, or waive any material right or obligation of any Person under any
Term Facility Document if the effect of any such modification or amendment is
to (i) increase the maximum principal amount of the Indebtedness evidenced by
the Term Facility Documents or the rate of interest on any such Indebtedness
(other than as a result of the imposition of a default rate of interest in
accordance with the terms of the Term Facility Documents), (ii) change or
add any event of default or any covenant with respect to the Indebtedness evidenced
by the Term Facility Documents if the effect of such change or addition is to
cause any one or more of the Term Facility Documents to be more restrictive on
any Credit Party than such Term Facility Documents were prior to such change or
addition (unless such change or addition is deemed to have been made to the
Term Facility Documents pursuant to the Intercreditor Agreement), (iii) change
the dates upon which payments of principal or interest on the Indebtedness evidenced
by the Term Facility Documents are due, (iv) change any redemption or
prepayment provisions of the 
Indebtedness evidenced by the Term Facilty Documents, or (v) grant any
Liens in any assets or properties of any Credit Party, other than the Liens permitted
under the Intercreditor Agreement. Notwithstanding the foregoing, so long as no
Default shall have occurred and be continuing or would result from the making
of such payment, the Borrower may retire, redeem, defease, repurchase or prepay
the Indebtedness evidenced by the Term Facility Documents (x) on, or within
five (5) Business Days following, the IPO Date with the proceeds of the Initial
Public Offering and (y) on, or within five (5) Business Days following, the
receipt thereof, with the proceeds of cash equity contributions received by the
Borrower in exchange for common stock.

 

Section 7.14.          Short Term Note Restrictions.  Prior to the termination of all Commitments
and the payment and performance in full of the Obligations, the Borrower will
not, nor will it permit any Restricted Subsidiary to, (a) except for payments
made with the proceeds of cash equity contributions received by the Borrower in
exchange for common stock on, or within five (5) Business Days following, the
receipt thereof, directly or indirectly, pay, retire, redeem, defease,
repurchase or prepay any part of the principal of, or interest on, the Indebtedness
evidenced by any Short Term Note or any amount owing under any consulting
agreement listed on Schedule 7.07, or (b) enter into or permit any modification
or amendment of, 

 

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or waive any material right or obligation of
any Person under any Short Term Note or any consulting agreement listed on
Schedule 7.07.

 

Article VIII

 

Guarantee of Obligations

 

Section 8.01.          Guarantee of Payment.  Each Guarantor
unconditionally and irrevocably guarantees to the Administrative Agent for the
benefit of the Lenders and the Lender Counterparties, the punctual payment of
all Obligations now or which may in the future be owing by the Borrower under
the Loan Documents and all Obligations which may now or which may in the future
be owing by the Borrower or any other Guarantor to any Lender Counterparty
under any Swap Agreement (the “Guaranteed Liabilities”).  This Guarantee is a guaranty of payment and
not of collection only.  The
Administrative Agent shall not be required to exhaust any right or remedy or
take any action against the Borrower or any other Person or any collateral.  The Guaranteed Liabilities include interest
accruing after the commencement of a proceeding under bankruptcy, insolvency or
similar laws of any jurisdiction at the rate or rates provided in the Loan
Documents, or the Swap Agreements between any Credit Party and any Lender
Counterparty, as the case may be, regardless of whether such interest is an
allowed claim.  Each Guarantor agrees
that, as between the Guarantor and the Administrative Agent, the Guaranteed
Liabilities may be declared to be due and payable for the purposes of this
Guarantee notwithstanding any stay, injunction or other prohibition which may
prevent, delay or vitiate any declaration as regards the Borrower or any other
Guarantor and that in the event of a declaration or attempted declaration, the Guaranteed
Liabilities shall immediately become due and payable by each Guarantor for the
purposes of this Guarantee.

 

Section 8.02.          Guarantee Absolute.  Each Guarantor
guarantees that the Guaranteed Liabilities shall be paid strictly in accordance
with the terms of this Agreement and the Swap Agreements to which any Lender
Counterparty is a party.  The liability
of each Guarantor hereunder is absolute and unconditional irrespective of:  (a) any change in the time, manner or place
of payment of, or in any other term of, all or any of the Loan Documents or the
Guaranteed Liabilities, or any other amendment or waiver of or any consent to
departure from any of the terms of any Loan Document or Guaranteed Liability,
including any increase or decrease in the rate of interest thereon; (b) any
release or amendment or waiver of, or consent to departure from, any other
guaranty or support document, or any exchange, release or non-perfection
of any collateral, for all or any of the Loan Documents or Guaranteed
Liabilities; (c) any present or future law, regulation or order of any
jurisdiction (whether of right or in fact) or of any agency thereof purporting
to reduce, amend, restructure or otherwise affect any term of any Loan Document
or Guaranteed Liability; (d) without being limited by the foregoing, any lack
of validity or enforceability of any Loan Document or Guaranteed Liability; and
(e) any other setoff, defense or counterclaim whatsoever (in any case, whether
based on contract, tort or any other theory) with respect to the Loan Documents
or the transactions contemplated thereby which might constitute a legal or
equitable defense available to, or discharge of, the Borrower or a Guarantor.

 

Section 8.03.          Guarantee Irrevocable.  This
Guarantee is a continuing guaranty of the payment of all Guaranteed Liabilities
now or hereafter existing under this Agreement and such Swap Agreements to
which any Lender Counterparty is a party and shall remain in full force and 

 

69

 

effect until payment in full of all Guaranteed Liabilities
and other amounts payable hereunder and until this Agreement and the Swap
Agreements are no longer in effect or, if earlier, when the Guarantor has given
the Administrative Agent written notice that this Guarantee has been revoked; provided
that any notice under this Section shall not release the revoking Guarantor
from any Guaranteed Liability, absolute or contingent, existing prior to the
Administrative Agent’s actual receipt of the notice at its branches or
departments responsible for this Agreement and such Swap Agreements and
reasonable opportunity to act upon such notice.

 

Section 8.04.          Reinstatement.  This Guarantee shall continue
to be effective or be reinstated, as the case may be, if at any time any
payment of any of the Guaranteed Liabilities is rescinded or must otherwise be
returned by the Administrative Agent, any Lender or any Lender Counterparty on
the insolvency, bankruptcy or reorganization of the Borrower, or any other
Credit Party, or otherwise, all as though the payment had not been made.

 

Section 8.05.          Subrogation.  No Guarantor shall exercise any
rights which it may acquire by way of subrogation, by any payment made under
this Guarantee or otherwise, until all the Guaranteed Liabilities have been
paid in full and this Agreement and the Swap Agreements to which any Lender
Counterparty is a party are no longer in effect.  If any amount is paid to the Guarantor on
account of subrogation rights under this Guarantee at any time when all the Guaranteed
Liabilities have not been paid in full, the amount shall be held in trust for
the benefit of the Lenders and the Lender Counterparties and shall be promptly
paid to the Administrative Agent to be credited and applied to the Guaranteed Liabilities,
whether matured or unmatured or absolute or contingent, in accordance with the
terms of this Agreement and such Swap Agreements.  If any Guarantor makes payment to the
Administrative Agent, Lenders, or any Lender Counterparties of all or any part
of the Guaranteed Liabilities and all the Guaranteed Liabilities are paid in
full and this Agreement and such Swap Agreements are no longer in effect, the
Administrative Agent, Lenders and Lender Counterparties shall, at such Guarantor’s
request, execute and deliver to such Guarantor appropriate documents, without
recourse and without representation or warranty, necessary to evidence the
transfer by subrogation to such Guarantor of an interest in the Guaranteed Liabilities
resulting from the payment.

 

Section 8.06.          Subordination.  Without limiting the rights of
the Administrative Agent, the Lenders and the Lender Counterparties under any
other agreement, any liabilities owed by the Borrower to any Guarantor in
connection with any extension of credit or financial accommodation by any
Guarantor to or for the account of the Borrower, including but not limited to
interest accruing at the agreed contract rate after the commencement of a
bankruptcy or similar proceeding, are hereby subordinated to the Guaranteed Liabilities,
and such liabilities of the Borrower to such Guarantor, if the Administrative
Agent so requests, shall be collected, enforced and received by any Guarantor
as trustee for the Administrative Agent and shall be paid over to the
Administrative Agent on account of the Guaranteed Liabilities but without
reducing or affecting in any manner the liability of the Guarantor under the
other provisions of this Guarantee.

 

Section 8.07.          Payments Generally.  All
payments by the Guarantors shall be made in the manner, at the place and in the
currency (the “Payment Currency”) required by the Loan Documents and the
Swap Agreement to which any Lender Counterparty is a party, as the case may be;
provided, however, that (if the Payment Currency is other than Dollars)
any Guarantor may, at its option (or, if for any reason whatsoever any
Guarantor is unable to effect payments in the 

 

70

 

foregoing manner, such Guarantor shall be
obligated to) pay to the Administrative Agent at its principal office the
equivalent amount in Dollars computed at the selling rate of the Administrative
Agent or a selling rate chosen by the Administrative Agent, most recently in
effect on or prior to the date the Guaranteed Liability becomes due, for cable
transfers of the Payment Currency to the place where the Guaranteed Liability
is payable.  In any case in which any
Guarantor makes or is obligated to make payment in Dollars, the Guarantor shall
hold the Administrative Agent, the Lenders and the Lender Counterparties
harmless from any loss incurred by the Administrative Agent, any Lender or any
Lender Counterparty arising from any change in the value of Dollars in relation
to the Payment Currency between the date the Guaranteed Liability becomes due
and the date the Administrative Agent, such Lender or such Lender Counterparty
is actually able, following the conversion of the Dollars paid by such
Guarantor into the Payment Currency and remittance of such Payment Currency to
the place where such Guaranteed Liability is payable, to apply such Payment
Currency to such Guaranteed Liability.

 

Section 8.08.          Setoff.  Each Guarantor agrees that, in addition to
(and without limitation of) any right of setoff, banker’s lien or counterclaim
the Administrative Agent, any Lender or any Lender Counterparty may otherwise
have, the Administrative Agent, such Lender or such Lender Counterparty shall
be entitled, at its option, to offset balances (general or special, time or
demand, provisional or final) held by it for the account of any Guarantor at
any office of the Administrative Agent, such Lender or such Lender
Counterparty, in Dollars or in any other currency, against any amount payable
by such Guarantor under this Guarantee which is not paid when due (regardless
of whether such balances are then due to such Guarantor), in which case it
shall promptly notify such Guarantor thereof; provided that the failure
of the Administrative Agent, such Lender, or such Lender Counterparty to give
such notice shall not affect the validity thereof.

 

Section 8.09.          Formalities.  Each Guarantor waives
presentment, notice of dishonor, protest, notice of acceptance of this Guarantee
or incurrence of any Guaranteed Liability and any other formality with respect
to any of the Guaranteed Liabilities or this Guarantee.

 

Article IX

 

Events of Default

 

If any of the following
events (“Events of Default”) shall occur:

 

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

 

(b)           the Borrower shall
fail to pay any interest on any Loan or any fee or any other amount (other than
an amount referred to in clause (a) of this Article) payable under this
Agreement, when and as the same shall become due and payable, and such failure
shall continue unremedied for a period of three days;

 

(c)           any representation
or warranty made or deemed made by or on behalf of the Borrower or any
Restricted Subsidiary in or in connection with this Agreement or any 

 

71

 

amendment
or modification hereof or waiver hereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in connection
with this Agreement or any amendment or modification hereof or waiver hereunder
or in any Loan Document furnished pursuant to or in connection with this
Agreement or any amendment or modification thereof or waiver hereunder, shall
prove to have been incorrect in any material respect when made or deemed made;

 

(d)           the Borrower or any
Restricted Subsidiary shall fail to observe or perform any covenant, condition
or agreement contained in Section 6.01,
Section 6.02, Section 6.03 (with respect to the Borrower or any Restricted
Subsidiary’s existence), Section 6.05 (with respect to insurance), Section 6.08,
or in Article VII;

 

(e)           the Borrower or any
Restricted Subsidiary shall fail to observe or perform any covenant, condition
or agree­ment contained in this Agreement (other than those specified in clause
(a), (b) or (d) of this Article) or any Loan Document, and such failure shall
continue unremedied for a period of 30 days after notice thereof from the
Administrative Agent to the Borrower (which notice will be given at the request
of any Lender);

 

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

 

(g)           any event or
condition occurs that results in any Material Indebtedness becoming due prior
to its scheduled maturity or that enables or permits the holder or holders of
any Material Indebtedness or any trustee or agent on its or their behalf to
cause any Material Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity; provided
that this clause (g) shall not apply to secured Indebtedness that becomes
due as a result of the voluntary sale or transfer of the property or assets
securing such Indebtedness;

 

(h)           an involuntary
proceeding shall be commenced or an involuntary petition shall be filed seeking
(i) liquidation, reorganization or other relief in respect of the Borrower
or any Restricted Subsidiary or its debts, or of a substantial part of its
assets, under any  Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any Restricted
Subsidiary or for a substantial part of its assets, and, in any such case, such
proceeding or petition shall continue undismissed for 60 days or an order
or decree approving or ordering any of the foregoing shall be entered;

 

(i)            the Borrower or any
Restricted Subsidiary shall (i) voluntarily commence any proceeding or
file any petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, 

 

72

 

conservator
or similar official for the Borrower or any Restricted Subsidiary or for a
substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or
(vi) take any action for the purpose of effecting any of the fore­going;

 

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

 

(k)           one or more
judgments for the payment of money in an aggregate amount in excess of $5,000,000
shall be rendered against the Borrower or any Restricted Subsidiary or any
combination thereof and the same shall remain undischarged for a period of
30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach
or levy upon any assets of the Borrower or any Restricted Subsidiary to enforce
any such judgment;

 

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

 

(m)          the delivery by any
Guarantor to the Administrative Agent of written notice that its Guarantee
under Article VIII has been revoked; or

 

(n)           a Change of Control
shall occur;

 

then, and in every such
event (other than an event with respect to the Borrower or any Restricted
Subsidiary described in clause (h) or (i) of this Article), and at any time
thereafter during the continuance of such event, the Administrative Agent may,
and at the request of the Required Lenders shall, by notice to the Borrower,
take either or both of the following actions, at the same or different
times:  (i) terminate the Aggregate Commitment, and thereupon
the Aggregate Commitment shall terminate immediately, and (ii) declare the
Loans then outstanding to be due and payable in whole (or in part, in which
case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become  due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to the Borrower
described in clause (h) or (i) of this Article, the Aggregate Commitment shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of
the Borrower accrued hereunder, shall automatically become due and payable,
without present­ment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.

 

73

 

Article X

 

The Administrative Agent

 

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

 

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

 

The Administrative Agent
shall not have any duties or obligations except those expressly set forth
herein.  Without limiting the generality
of the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing, (b) the Administrative Agent shall not have any duty to
take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing as directed by the
Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 11.02), and (c) except
as expressly set forth herein, the Administrative Agent shall not have any duty
to disclose, and shall not be liable for the failure to disclose, any
information relating to any Credit Party that is communicated to or obtained by
the bank serving as Administrative Agent or any of its Affiliates in any
capacity.  The Administrative Agent shall
not be liable for any action taken or not taken by it with the consent or at
the request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
11.02) or in the absence of its own gross negligence or willful
misconduct.  The Administrative Agent
shall be deemed not to have knowledge of any Default unless and until written
notice thereof is given to the Administrative Agent by the Borrower or a
Lender, and the Administrative Agent shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement, (ii) the
contents of any certificate, report or other document delivered hereunder or in
connection herewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth herein,
(iv) the validity, enforceability, effectiveness or genuineness of this
Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article V or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.

 

The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing believed by it to be genuine and to have been signed or sent
by the proper Person.  The Administrative
Agent also may rely upon any statement made to it orally or by telephone and
believed by it to be made by the proper Person, and shall not incur any
liability for relying thereon.  The
Administrative Agent may consult with legal counsel (who may be 

 

74

 

counsel for the Borrower),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.

 

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

 

Subject to the appointment
and acceptance of a successor Administrative Agent as provided in this
paragraph, the Administrative Agent may resign at any time by notifying the
Lenders, the Issuing Bank and the Borrower. 
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor.  If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within
30 days after the retiring Administrative Agent gives notice of its
resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the Issuing Bank, appoint a successor Administrative Agent which
shall be a bank with an office in Chicago, Illinois or New York, New York, or
an Affiliate of any such bank.  Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder.  The fees payable by the Borrower
to a successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such
successor.  After the Administrative
Agent’s resignation hereunder, the provisions of this Article and Section 11.03
shall continue in effect for the benefit of such retiring Administrative Agent,
its sub-agents and their respective Related Parties in respect of any
actions taken or omitted to be taken by any of them while it was acting as
Administrative Agent.

 

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

 

75

 

Article
XI

 

Miscellaneous

 

Section 11.01.        Notices.

 

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

 

(i)            if to the Borrower, to TXOK Acquisition, Inc., 12377
Merit Drive, Suite 1700, Dallas, Texas 75251, Attention:  Douglas H. Miller, Chief Executive Officer
and Attention:  J. Douglas Ramsey, Chief
Financial Officer, Telecopy No. (214) 368-2087, with a copy to BP EXCO Holdings
LP, c/o BP Capital LP, 8117 Preston Road, Suite 260W, Dallas, Texas  75225, Attention Sandy Campbell, Telecopy
No.: (214) 750-9773;

 

(ii)           if to the Administrative Agent or Issuing Bank, to
JPMorgan Chase Bank, N.A., Mail Code IL1-0634, 21 South Clark Street,
Chicago, Illinois, 60670-0634, Telecopy No.: (312) 732-4840, Attention: Jim
Moore, with a copy to JPMorgan Chase Bank, N.A., 1717 Main Street, TX1-2448,
Dallas, Texas 75201, Telecopy No. (214) 290-2332, Attention:  Wm. Mark Cranmer, Vice President;

 

(iii)          if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.

 

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

 

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

 

Section 11.02.        Waivers; Amendments.

 

(a)           No failure or delay by the Administrative Agent, the
Issuing Bank or any Lender in exercising any right or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further 

 

76

 

exercise thereof or the exercise of any other right or power.  The rights and remedies of the Administrative
Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this Agree­ment
or consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this
Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  Without limiting the generality of the foregoing,
the making of a Loan or issuance of a Letter of Credit shall not be construed
as a waiver of any Default, regardless of whether the Administrative Agent, any
Lender or the Issuing Bank may have had notice or knowledge of such Default at
the time.

 

(b)           Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Credit Parties and the Required Lenders or by the Credit
Parties and the Administrative Agent with the consent of the Required Lenders; provided
that no such agreement shall (1) increase the Borrowing Base or, at any time
prior to the first anniversary of the Effective Date, the Conforming Borrowing
Base, (2) increase the Applicable Percentage of any Lender or the Aggregate
Commitment above the amount set forth in clause (i) of the definition thereof without
the written consent of such Lender, (3) reduce the principal amount of any Loan
or LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(4) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any of the Aggregate Commitment, without the
written consent of each Lender affected thereby, (5) change Section 2.17(b) or Section
2.17(c) in a manner that would alter the pro rata sharing of payments required
thereby, without the written consent of each Lender, (6) release any Credit
Party from its obligations under the Loan Documents or, except in connection
with any sales, transfers, leases or other dispositions permitted in Section
7.03, release any of the Collateral, or (7) change any of the provisions of
this Section or the definition of “Required Lenders” or any other provision
hereof specifying the number or percentage of Lenders required to waive, amend
or modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender; provided  further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent or the Issuing Bank hereunder without the
prior written consent of the Administrative Agent or the Issuing Bank, as the
case may be.

 

Section 11.03.        Expenses; Indemnity; Damage Waiver.

 

(a)           The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement and the other Loan
Documents or any amendments, modifications or waivers of the provi­sions hereof
(whether or not the transactions contemplated hereby or 

 

77

 

thereby shall be consummated), (ii) all reasonable out-of-pocket
expenses incurred by the Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder and (iii) all out-of-pocket expenses incurred by the
Administrative Agent, the Issuing Bank or any Lender, including the fees,
charges and disbursements of any counsel for the Administrative Agent, the
Issuing Bank or any Lender, in connection with the enforcement or protection of
its rights in connection with this Agreement, including its rights under this
Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during  any workout, restructuring or negotiations in
respect of such Loans or Letters of Credit.

 

(b)           THE CREDIT PARTIES SHALL
INDEMNIFY THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND EACH LENDER, AND EACH
RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN
“INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND
ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE
FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY
OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A
RESULT OF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY AGREEMENT
OR INSTRUMENT CONTEMPLATED HEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF
THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS
OR ANY OTHER TRANSACTIONS CONTEMPLATED HEREBY, (II) ANY LOAN OR LETTER OF
CREDIT OR THE USE OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE
ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE
DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH
THE TERMS OF SUCH LETTER OF CREDIT), (III) ANY ACTUAL OR ALLEGED PRESENCE
OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY
THE BORROWER OR ANY SUBSIDIARY, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY
WAY TO THE BORROWER OR ANY SUBSIDIARY, OR (IV) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO; PROVIDED THAT SUCH INDEMNITY SHALL
NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

 

78

 

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

 

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

 

(e)           All amounts due under this Section shall be payable not
later than 10 days after written demand therefor.

 

Section 11.04.        Successors and Assigns.

 

(a)           The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby (including any Affiliate of the Issuing Bank that
issues any Letter of Credit), except that (i) no Credit Party may assign or
otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by
such Credit Party without such consent shall be null and void) and (ii) no
Lender may assign or otherwise transfer its rights or obligations hereunder
except in accordance with this Section. 
Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit), Participants (to the extent provided in
paragraph (c) of this Section) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent, the Issuing
Bank and the Lenders) any legal or equitable right, remedy or claim under or by
reason of this Agreement.

 

(b)

 

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

 

(A)          the Borrower, provided
that no consent of the Borrower shall be required for an assignment to a
Lender, an Affiliate of a Lender, a 

 

79

 

Federal
Reserve Bank, an Approved Fund or, if an Event of Default has occurred and is
continuing, any other assignee; and

 

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

 

(C)           the Issuing Bank.

 

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

 

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

 

(B)           each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender’s rights and obligations in respect of such Lender’s
Commitment and such Lender’s Loans under this Agreement;

 

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

 

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

 

For
the purposes of this Section 11.04(b), the term “Approved Fund” has the
following meaning:

 

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

 

(iii)          Subject to acceptance and recording thereof pursuant to
paragraph (b)(iv) of this Section, from and after the effective date
specified in each Assignment and Assumption the assignee thereunder shall be a
party hereto 

 

80

 

and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations
under this Agreement (and, in the case of an Assignment and Assumption covering
all of the assigning Lender’s rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to
the benefits of Section 2.14, Section 2.15, Section 2.16 and Section 11.03).  Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this Section
11.04 shall be treated for purposes of this Agreement as a sale by such Lender
of a participation in such rights and obligations in accordance with paragraph
(c) of this Section except that any attempted assignment or transfer by any
Lender that does not comply with clause (C) of Section 11.04(b)(ii) shall be
null and void.

 

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

 

(v)           Upon its receipt of a duly completed Assignment and
Assumption executed by an assigning Lender and an assignee, the assignee’s
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in
paragraph (b) of this Section any written consent to such assignment
required by paragraph (b) of this Section, the Administrative Agent shall
accept such Assignment and Assumption and record the information contained
therein in the Register; provided that if either the assigning Lender or
the assignee shall have failed to make any payment required to be made by it
pursuant to Section 2.05(d) or Section 2.05(e), Section 2.06, Section 2.17(d)
or Section 11.03(c), the Administrative Agent shall have no obligation to
accept such Assignment and Assumption and record the information therein in the
Register unless and until such payment shall have been made in full, together
with all accrued interest thereon.  No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.

 

81

 

(c)

 

(i)            Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a “Participant”) in all or a portion of such
Lender’s rights and obligations under this Agreement (including all or a
portion of its  Commitment and the Loans
owing to it); provided that (A) such Lender’s obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrower, the Administrative Agent, the Issuing Bank and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 11.02(b) that affects such
Participant.  Subject to paragraph
(c)(ii) of this Section, the Borrower agrees that each Participant shall be
entitled to the benefits of Section 2.14, Section 2.15 and Section 2.16 to the
same extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section. 
To the extent permitted by law, each Participant also shall be entitled
to the benefits of Section 11.08 as though it were a Lender, provided such
Participant agrees to be subject to Section 2.17(c) as though it were a Lender.

 

(ii)           A Participant shall not be entitled to receive any greater
payment under Section 2.14 or Section 2.16 than the applicable Lender would
have been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the prior written consent of the Borrower. 
A Participant that would be a Foreign Lender if it were a Lender shall
not be entitled to the benefits of Section 2.16 unless the Borrower is notified
of the participation sold to such Participant and such Participant agrees, for
the benefit of the Borrower, to comply with Section 2.16(e) as though it were a
Lender.

 

(d)           Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including without limitation any pledge or
assignment to secure obligations to a Federal Reserve Bank, and this Section
shall not apply to any such pledge or assignment of a security interest; provided
that no such pledge or assignment of a security interest shall release a Lender
from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.

 

Section 11.05.        Survival.  All covenants, agreements, representations
and warranties made by the Credit Parties herein and in the certificates or
other instru­ments  delivered in connection
with or pursuant to this Agreement shall be considered to have been relied upon
by the other parties hereto and shall survive the execution and delivery of
this Agreement and the making of any Loans and issuance of any Letters of
Credit, regardless of any investigation made by any 

 

82

 

such other party or on its
behalf and notwithstanding that the Administrative Agent, the Issuing Bank or
any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Aggregate Commitment has not expired or terminated.  The provisions of Section 2.14, Section 2.15,
Section 2.16 and Section 11.03 and Article X shall survive and remain in full
force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Aggregate Commitment or the termination of
this Agreement or any provision hereof.

 

Section 11.06.        Counterparts; Integration;
Effectiveness.  This Agreement may be
executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract.  This Agreement and any separate letter
agreements with respect to fees payable to the Administrative Agent constitute
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof.  THIS WRITTEN CREDIT AND GUARANTY AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN 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 BETWEEN THE PARTIES.  Except as provided in Section 5.01, this
Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as delivery of
a manually executed counterpart of this Agreement.

 

Section 11.07.        Severability.  Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.

 

Section 11.08.        Right of Setoff.  If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of the Borrower
against any of and all the obligations of any Credit Party now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured.  The
rights of each Lender under this Section and Section 8.08 are in addition to
other rights and remedies (including other rights of setoff) which such Lender
may have.

 

83

 

Section 11.09.        GOVERNING LAW; JURISDICTION; CONSENT
TO SERVICE OF PROCESS.

 

(a)           THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF TEXAS.

 

(b)           EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY
UNITED STATES FEDERAL OR TEXAS STATE COURT SITTING IN DALLAS, TEXAS 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 TEXAS 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, THE ISSUING
BANK OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AGAINST ANY CREDIT PARTY OR ITS PROPERTIES IN THE
COURTS OF ANY JURISDICTION.

 

(c)           EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY
OBJECTION WHICH IT MAY NOW OR HERE­AFTER HAVE TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY
COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

(d)           EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN Section 11.01.  NOTHING IN THIS AGREEMENT WILL AFFECT THE
RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.

 

Section 11.10.        WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, 

 

84

 

TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREE­MENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

Section 11.11.        Headings.  Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.

 

Section 11.12.        Confidentiality.  Each of the Administrative Agent, the Issuing
Bank and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its
and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority,
(c) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or the enforcement of rights
hereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section, to (i) any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement or (ii)  any actual
or prospective counterparty (or its advisors) to any swap or derivative
transaction relating to the Credit Parties and their obligations, (g) with the
consent of the Borrower or (h) to the extent such Information
(i) becomes publicly available other than as a result of a breach of this
Section or (ii) becomes available to the Administrative Agent, the Issuing
Bank or any Lender on a nonconfidential basis from a source other than a Credit
Party.  For the purposes of this Section,
“Information” means all information received from any Credit Party
relating to any Credit Party or its business, other than any such information
that is available to the Administrative Agent, the Issuing Bank or any Lender
on a nonconfidential basis prior to disclosure by any Credit Party; provided
that, in the case of information received from any Credit Party after the date
hereof, such information is clearly identified at the time of delivery as
confidential.  Any Person required to
maintain the confidentiality of Information as provided in this Section shall
be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such Information
as such Person would accord to its own confidential information.

 

Section 11.13.        Interest Rate Limitation.  Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under appli­cable law (collectively the “Charges”), shall exceed
the maximum lawful rate (the “Maximum Rate”) which may be contracted
for, charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such

 

85

 

Loan hereunder, together
with all Charges payable in respect thereof, shall be limited to the Maximum
Rate and, to the extent lawful, the interest and Charges that would have been
payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.  Chapter 346 of the Texas Finance Code (which
regulates certain revolving credit accounts (formerly Tex. Rev. Civ. Stat. Ann.
Art. 5069, Ch. 15)) shall not apply to this Agreement or to any Loan, nor shall
this Agreement or any Loan be governed by or be subject to the provisions of
such Chapter 346 in any manner whatsoever.

 

Section 11.14.        USA PATRIOT Act.  Each Lender that is subject to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “Act”) hereby notifies each Credit Party that
pursuant to the requirements of the Act, it is required to obtain, verify and
record information that identifies each Credit Party, which information
includes the name and address of each Credit Party and other information that will
allow such Lender to identify each Credit Party in accordance with the Act.

 

86

 

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

 

	
   

  	
  TXOK
  ACQUISITION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/
  J. DOUGLAS RAMSEY

  
	
   

  	
   

  	
  Name:

  	
  J.
  Douglas Ramsey, Ph. D.

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President and Chief Financial

  Officer

  

 

 

	
   

  	
  JPMORGAN
  CHASE BANK, N.A., individually 

  and as Administrative Agent,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/
  WM. MARK CRANMER

  
	
   

  	
   

  	
  Name:
  Wm. Mark Cranmer

  
	
   

  	
   

  	
  Title:
  Vice President

  

 

 

EXHIBIT A

ASSIGNMENT AND
ASSUMPTION

 

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

 

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

 

 

	
  1.

  	
  Assignor:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Assignee:

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Borrower(s):

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Administrative Agent:

  	
  JPMorgan Chase Bank,
  N.A. (as the administrative agent under the Credit Agreement

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Credit Agreement:

  	
  Credit Agreement dated
  as of [          ] among
  [           ], the Lenders
  parties thereto, and JPMorgan Chase Bank, N.A. (as Administrative Agent

  

 

 

	
  6.

  	
  Assigned
  Interest:

  	
   

  	
   

  

 

	
  Facility Assigned

  	
   

  	
  Aggregate Amount of 

  Commitment/Loans 

  for all Lenders

  	
   

  	
  Amount of 

  Commitment/Loans 

  Assigned

  	
   

  	
  Percentage Assigned 

  of 

  Commitment/Loans

  	
   

  
	
  Commitment

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  

 

 

Effective
Date:                               ,
20        

 

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

 

	
   

  	
   

  	
  ASSIGNOR

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [NAME
  OF ASSIGNOR]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ASSIGNEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [NAME OF ASSIGNEE]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  

 

 

[Consented
to and] Accepted:

 

	
  JPMORGAN CHASE BANK, N.A.

  	
   

  
	
  as Administrative Agent

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
  [Consented to:]

  	
   

  
	
   

  	
   

  
	
  [                                ]

  	
   

  
				

 

 

ANNEX 1

 

Credit
Agreement dated as of September 27, 2005 among TXOK Acquisition, Inc., as
Borrower, Certain Subsidiaries of Borrower, as Guarantors, the Lenders party
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

 

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

 

1.  Representations and
Warranties.

 

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

 

1.2.  Assignee.  The Assignee (a) represents and warrants that
(i) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby and to become a Lender under the Credit
Agreement, (ii) it satisfies the requirements, if any, specified in the Credit
Agreement that are required to be satisfied by it in order to acquire the
Assigned Interest and become a Lender, (iii) from and after the Effective Date,
it shall be bound by the provisions of the Credit Agreement as a Lender
thereunder and, to the extent of the Assigned Interest, shall have the
obligations of a Lender thereunder, (iv) it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 6.01 thereof, as applicable, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Assumption and to
purchase the Assigned Interest on the basis of which it has made such analysis
and decision independently and without reliance on the Administrative Agent or
any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment
and Assumption is any documentation required to be delivered by it pursuant to
the terms of the Credit Agreement, duly completed and executed by the Assignee;
and (b) agrees that (i) it will, independently and without reliance on the
Administrative Agent, the Assignor or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Documents, and (ii) it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Lender.

 

 

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

 

3.     General Provisions.
This Assignment and Assumption shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and assigns.  This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an executed counterpart of a
signature page of this Assignment and Assumption by telecopy shall be effective
as delivery of a manually executed counterpart of this Assignment and
Assumption.  This Assignment and
Assumption shall be governed by, and construed in accordance with, the law of
the State of Texas.

 

 

EXHIBIT B

 

OPINION OF COUNSEL FOR THE BORROWER

 

 

EXHIBIT C

 

COUNTERPART AGREEMENT

 

This COUNTERPART AGREEMENT, dated [               ]
(this “Counterpart Agreement”) is
delivered pursuant to that certain Credit Agreement, dated as of September 27, 2005 (as it may be amended,
supplemented or otherwise modified, the “Credit
Agreement”; the terms defined therein and not otherwise defined
herein being used herein as therein defined), by and among TXOK ACQUISITION, INC., as Borrower, CERTAIN
SUBSIDIARIES OF BORROWER, as Guarantors, the LENDERS party thereto,  and JPMORGAN CHASE BANK, N.A., as
Administrative Agent (the “Administrative
Agent”).

 

Section 1.  Pursuant to Section 6.13 of the Credit
Agreement, the undersigned hereby:

 

(a)           agrees
that this Counterpart Agreement may be attached to the Credit Agreement and
that by the execution and delivery hereof, the undersigned becomes a Guarantor
under the Credit Agreement and agrees to be bound by all of the terms thereof;

 

(b)           represents
and warrants that each of the representations and warranties set forth in the
Credit Agreement and each other Loan Document and applicable to the undersigned
is true and correct both before and after giving effect to this Counterpart
Agreement, except to the extent that any such representation and warranty
relates solely to any earlier date, in which case such representation and
warranty is true and correct as of such earlier date;

 

(c)           no
event has occurred or is continuing as of the date hereof, or will result from
the transactions contemplated hereby on the date hereof, that would constitute
an Event of Default or a Default;

 

(d)           agrees
to irrevocably and unconditionally guaranty the due and punctual payment in
full of all Obligations when the same shall become due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. § 362(a)) and in accordance with Section 8 of the
Credit Agreement;

 

(e)           the
undersigned hereby (i) agrees that this counterpart may also be attached
to the Pledge Agreement, (ii) agrees that the undersigned will comply with
all the terms and conditions of the Pledge Agreement as if it were an original
signatory thereto, (iii) grants to Secured Party (as such term is defined
in the Pledge Agreement) a security interest in all of the undersigned’s right,
title and interest in and to all “Collateral” (as such term is defined in the Pledge
Agreement) of the undersigned, in each case whether now or hereafter existing
or in which the undersigned now has or hereafter acquires an interest and
wherever the same may be located and (iv) delivers to Agent supplements to
all schedules attached to the Pledge Agreement. 
All such Collateral shall be deemed to be part of the “Collateral” and
hereafter subject to each of the terms and conditions of the Pledge Agreement;
and

 

1

 

(f)            the
undersigned hereby (i) agrees that this counterpart may also be attached
to the Intercreditor Agreement, and (ii) agrees that the undersigned will
comply with all the terms and conditions of the Intercreditor Agreement as if
it were an original signatory thereto.

 

Section 2.  The undersigned agrees from time to time,
upon request of Administrative Agent, to take such additional actions and to
execute and deliver such additional documents and instruments as Administrative
Agent may request to effect the transactions contemplated by, and to carry out
the intent of, this Agreement.  Neither
this Agreement nor any term hereof may be changed, waived, discharged or
terminated, except by an instrument in writing signed by the party (including,
if applicable, any party required to evidence its consent to or acceptance of
this Agreement) against whom enforcement of such change, waiver, discharge or
termination is sought.  Any notice or
other communication herein required or permitted to be given shall be given in
pursuant to Section 11.01 of the Credit Agreement, and all for purposes thereof,
the notice address of the undersigned shall be the address as set forth on the
signature page hereof.  In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.

 

THIS
AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.

 

2

 

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

 

	
   

  	
  [NAME
  OF SUBSIDIARY]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  Address for
  Notices:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Attention:

  	
   

  	
   

  	
   

  
	
   

  	
  Telecopier

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Telecopier

  	
   

  	
   

  	
   

  

 

ACKNOWLEDGED AND
ACCEPTED,

as of the date above
first written:

 

JPMORGAN
CHASE BANK, N.A.,

as Administrative Agent

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

3

 

EXHIBIT D

 

CERTIFICATE REGARDING SOLVENCY

 

 

EXHIBIT “A”

Pro-Forma Balance Sheet

(see attached)

 

4

 

EXHIBIT “B”

Projections

(see attached)

 

5

 

SCHEDULE 2.01

Applicable Percentages
and Initial Commitments

 

 

	
  Lender

  	
   

  	
  Title

  	
   

  	
  Applicable

  Percentage

  	
   

  	
  Initial

  Commitment

  	
   

  
	
  JPMorgan Chase Bank , N.A.

  Mail Code IL1-0634

  21 South Clark Street,

  Chicago, Illinois 60670-0634

  Attention: Jim Moore

  Telephone: (312) 732-8012

  Facsimile: (312) 732-4840

  jim.t.moore@chase.com

  	
   

  	
  Administrative Agent

  	
   

  	
  100

  	
  %

  	
  $

  	
  500,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JPMorgan Chase Bank, N.A.

  Mail Code TX1-2448

  1717 Main Street

  Dallas, TX 75201

  Attention: Wm. Mark Cranmer

  Telephone: (214) 290-2212

  Facsimile: (214) 290-2332

  mark.cranmer@chase.com

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
   

  	
   

  	
  100.00000

  	
  %

  	
  $

  	
  500,000,000Exhibit 10.4

 

FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT

 

FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (hereinafter referred to
as the “Amendment”) dated as of December 15, 2005, by and among TXOK
ACQUISITION, INC. (“Borrower”), CERTAIN SUBSIDIARIES OF BORROWER, as
Guarantors (the “Guarantors”),
the LENDERS party hereto (the “Lenders”), and JPMORGAN CHASE BANK, N.A.,
as Administrative Agent (“Administrative Agent”).  Unless the context otherwise requires or
unless otherwise expressly defined herein, capitalized terms used but not
defined in this Amendment have the meanings assigned to such terms in the
Credit Agreement (as defined below).

 

WITNESSETH:

 

WHEREAS, Borrower,
Guarantors, Administrative Agent and Lenders entered into that certain Credit
Agreement dated as of September 27, 2005, (as amended, supplemented or
otherwise modified from time to time, the “Credit Agreement”); and

 

WHEREAS, Borrower
has requested that the Administrative Agent and the Lenders amend the Credit
Agreement to permit the Credit Parties to hedge a greater percentage of the
anticipated production from their proved producing reserves of crude oil and
natural gas;  and Administrative Agent
and Lenders have agreed to do so on the terms and conditions hereinafter set
forth;

 

NOW, THEREFORE, for
and in consideration of the mutual covenants and agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged and confessed, Borrower, Guarantors, Administrative
Agent and the Lenders, hereby agree as follows:

 

SECTION 1.                   Amendments to Credit Agreement.  Subject to the satisfaction or waiver in
writing of each condition precedent set forth in Section 2 hereof,
and in reliance on the representations, warranties, covenants and agreements
contained in this Amendment, the Credit Agreement shall be amended in the
manner provided in this Section 1.

 

1.1          Liens.  Section 7.05 of the Credit
Agreement shall be and it hereby is amended in its entirety to read as follows:

 

Section 7.05.
 Swap Agreements.  The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, enter into or maintain any Swap Agreement,
except the Existing Swap Agreements, the Swap Agreements required under Section 6.11
and Swap Agreements entered into in the ordinary course of business and not for
speculative purposes to (a) hedge or mitigate Crude Oil and Natural Gas
price risks to which the Borrower or any Restricted Subsidiary has actual
exposure, and (b) effectively cap, collar or exchange interest rates (from
fixed to floating rates, from one floating rate to another floating rate or
otherwise) with respect to any interest-bearing liability or investment of any
Credit Party; provided that such Swap Agreements (at the time each
transaction under such Swap Agreement is entered into) would not cause the
aggregate notional amount of Crude Oil and Natural Gas under all Swap
Agreements then in effect (including the Existing Swap Agreements and the Swap
Agreements required under

 

1

 

Section 6.11)
to exceed (i) ninety percent (90%) of the “forecasted production from
proved producing reserves” (as defined below) of the Borrower and the
Restricted Subsidiaries for each of the first two years of the forthcoming five
year period and (ii) eighty percent (80%) of the forecasted production
from proved producing reserves of the Borrower and the Restricted Subsidiaries
for each of the third, fourth and fifth years of the forthcoming five year
period.  As used in this Section, “forecasted
production from proved producing reserves” means the forecasted production of
Crude Oil and Natural Gas as reflected in the most recent Reserve Report
delivered to the Administrative Agent pursuant to Section 6.01, after
giving effect to any pro forma adjustments for the consummation of any
acquisitions or dispositions since the effective date of such Reserve
Report.  Once the Borrower or any
Restricted Subsidiaries enters into a Swap Agreement or any hedge transaction
pursuant to any Swap Agreement, the terms and conditions of such Swap Agreement
and such hedge transaction may not be amended or modified, nor may such Swap
Agreement or hedge transaction be cancelled without the prior written consent
of Required Lenders.

 

SECTION 2.      Conditions. 
The amendments to the Credit Agreement contained in Section 1
of this Amendment shall be effective upon the satisfaction of each of the
conditions set forth in this Section 2.

 

2.1          Execution
and Delivery.  Each Credit Party
shall have executed and delivered this Amendment

 

2.2          Term
Facility Amendment.  The Administrative
Agent shall have received a fully executed amendment of the Term Facility
amending such facility in a manner similar to that set forth herein.

 

2.3          No
Default.  No Default shall have
occurred and be continuing.

 

2.4          Other
Documents.  The Administrative Agent
shall have received such other instruments and documents incidental and
appropriate to the transaction provided for herein as the Administrative Agent
or its special counsel may reasonably request, and all such documents shall be
in form and substance satisfactory to the Administrative Agent.

 

SECTION 3.      Representations
and Warranties of Borrower.  To
induce the Lenders to enter into this Amendment, each Credit Party hereby represents
and warrants to the Lenders as follows:

 

3.1          Reaffirmation
of Representations and Warranties/Further Assurances.  After giving effect to the amendments herein,
each representation and warranty of such Credit Party contained in the Credit
Agreement or in any other Loan Document is true and correct in all material
respects on the date hereof (except to the extent such representations and
warranties relate solely to an earlier date).

 

3.2          Corporate
Authority; No Conflicts.  The
execution, delivery and performance by such Credit Party of this Amendment and
all documents, instruments and agreements contemplated herein are within such
Credit Party’s corporate or other organizational powers, have

 

2

 

been duly authorized by necessary action,
require no action by or in respect of, or filing with, any court or agency of
government and do not violate or constitute a default under any provision of
any applicable law or other agreements binding upon such Credit Party or result
in the creation or imposition of any Lien upon any of the assets of such Credit
Party except for Liens permitted under Section 7.02 of the Credit
Agreement.

 

3.3          Enforceability.  This Amendment constitutes the valid and
binding obligation of such Credit Party enforceable in accordance with its
terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditor’s rights generally,
and (ii) the availability of equitable remedies may be limited by
equitable principles of general application.

 

SECTION 4.      Miscellaneous.

 

4.1          Reaffirmation
of Loan Documents and Liens.  Any and
all of the terms and provisions of the Credit Agreement and the Loan Documents
shall, except as amended and modified hereby, remain in full force and
effect.  Each Credit Party hereby agrees
that the amendments and modifications herein contained shall in no manner
affect or impair the liabilities, duties and obligations of any Credit Party
under the Credit Agreement and the other Loan Documents or the Liens securing
the payment and performance thereof.

 

4.2          Parties
in Interest.  All of the terms and
provisions of this Amendment shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.

 

4.3          Legal
Expenses.  Each Credit Party hereby
agrees to pay all reasonable fees and expenses of special counsel to the Administrative
Agent incurred by the Administrative Agent in connection with the preparation,
negotiation and execution of this Amendment and all related documents.

 

4.4          Counterparts.  This Amendment may be executed in one or more
counterparts and by different parties hereto in separate counterparts each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are
physically attached to the same document. 
However, this Amendment shall bind no party until each Credit Party, the
Lenders, and the Administrative Agent have executed a counterpart.  Delivery of photocopies of the signature pages to
this Amendment by facsimile or electronic mail shall be effective as delivery
of manually executed counterparts of this Amendment.

 

4.5          Complete
Agreement.  THIS AMENDMENT, THE CREDIT
AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR ORAL AGREEMENTS OF THE PARTIES.  THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

3

 

4.6          Headings.  The headings, captions and arrangements used
in this Amendment are, unless specified otherwise, for convenience only and
shall not be deemed to limit, amplify or modify the terms of this Amendment,
nor affect the meaning thereof.

 

 

[Signature Pages Follow]

 

4

 

IN WITNESS WHEREOF,
the parties have caused this First Amendment to Revolving Credit Agreement to
be duly executed as of the date first above written.

 

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  TXOK ACQUISITION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Douglas Ramsey

  	
   

  
	
   

  	
  Name:

  	
  J. Douglas Ramsey, Ph.D

  
	
   

  	
  Title:

  	
  Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
  TXOK ENERGY RESOURCES COMPANY,
a Delaware corporation (formerly known as

  ONEOK Energy Resources Company)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Douglas Ramsey

  	
   

  
	
   

  	
  Name:

  	
  J. Douglas Ramsey, Ph.D

  
	
   

  	
  Title:

  	
  Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TXOK ENERGY RESOURCES HOLDINGS,

  L.L.C.,
a Delaware limited liability company (formerly

  known as ONEOK Energy Resource Holdings,

  L.L.C.)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Douglas Ramsey

  	
   

  
	
   

  	
  Name:

  	
  J. Douglas Ramsey, Ph.D

  
	
   

  	
  Title:

  	
  Vice President and Chief Financial Officer

  

 

 

	
   

  	
  TXOK TEXAS ENERGY HOLDINGS, LLC,
a Delaware limited liability company (formerly

  known as ONEOK Texas Energy Holdings, LLC)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Douglas Ramsey

  	
   

  
	
   

  	
  Name:

  	
  J. Douglas Ramsey, Ph.D

  
	
   

  	
  Title:

  	
  Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TXOK TEXAS ENERGY RESOURCES, L.P.,
a Delaware limited partnership (formerly known as

  ONEOK Texas Energy Resources, L.P.)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  TXOK Texas Energy Holdings, LLC,

  as general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Douglas Ramsey

  	
   

  
	
   

  	
  Name:

  	
  J. Douglas Ramsey, Ph.D

  
	
   

  	
  Title:

  	
  Vice President and Chief Financial Officer

  
					

 

 

	
   

  	
  ADMINISTRATIVE AGENT:

  
	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A., individually

  and as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wm. Mark Cranmer

  	
   

  
	
   

  	
  Name:

  	
  Wm. Mark Cranmer

  
	
   

  	
  Title:

  	
  Vice President

  

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  THE BANK OF SCOTLAND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Karen Weich

  	
   

  
	
   

  	
  Name:

  	
  Karen Weich

  
	
   

  	
  Title:

  	
  Assistant Vice President

  

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  BNP PARIBAS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Dodd

  	
   

  
	
   

  	
  Name:

  	
  David Dodd

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Polly Schott

  	
   

  
	
   

  	
  Name:

  	
  Polly Schott

  
	
   

  	
  Title:

  	
  Vice President

  
					

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  CITIBANK TEXAS, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Angela McCracken

  	
   

  
	
   

  	
  Name:

  	
  Angela McCracken

  
	
   

  	
  Title:

  	
  Vice President

  

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  COMERICA BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Fuqua

  	
   

  
	
   

  	
  Name:

  	
  Mark Fuqua

  
	
   

  	
  Title:

  	
  Senior Vice President

  

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  FORTIS CAPITAL CORP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Trond Rockholt

  	
   

  
	
   

  	
  Name:

  	
  Trond Rockholt

  
	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michele Jones

  	
   

  
	
   

  	
  Name:

  	
  Michele Jones

  
	
   

  	
  Title:

  	
  Senior Vice President

  
					

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  GUARANTY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John A. Clark

  	
   

  
	
   

  	
  Name:

  	
  John A. Clark

  
	
   

  	
  Title:

  	
  Senior Vice President

  

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  KEY BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas Rajan

  	
   

  
	
   

  	
  Name:

  	
  Thomas Rajan

  
	
   

  	
  Title:

  	
  Vice President

  

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  SCOTIABANC, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William E. Zarrett

  	
   

  
	
   

  	
  Name:

  	
  William E. Zarrett

  
	
   

  	
  Title:

  	
  Managing Director

  

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  SUNTRUST BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sean M. Roche

  	
   

  
	
   

  	
  Name:

  	
  Sean M. Roche

  
	
   

  	
  Title:

  	
  Vice President

  

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  UNION BANK OF CALIFORNIA, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kimberly Coll

  	
   

  
	
   

  	
  Name:

  	
  Kimberly Coll

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sean Murphy

  	
   

  
	
   

  	
  Name:

  	
  Sean Murphy

  
	
   

  	
  Title:

  	
  Vice President

  
					

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  WACHOVIA BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dwight Battle

  	
   

  
	
   

  	
  Name:

  	
  Dwight Battle

  
	
   

  	
  Title:

  	
  Vice President

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00097-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00097-of-00352.parquet"}]]