Document:

Exhibit 4.2

Resale Registration Rights Agreement

between

deCODE genetics, Inc.

and

Lehman Brothers Inc.

as
representative of the Initial Purchasers

Dated as of November 17, 2006

 

TABLE OF
CONTENTS

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Shelf Registration

  	
  7

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Additional Amounts

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Registration Procedures

  	
  14

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Registration Expenses

  	
  32

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Indemnification and Contribution

  	
  35

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Rule 144A

  	
  45

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Participation in Underwritten Registrations

  	
  45

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Miscellaneous

  	
  46

  

 

 

Resale Registration Rights Agreement,
dated as of November 17, 2006, between deCODE genetics, Inc., a Delaware
corporation (together with any successor entity, herein referred to as the “Company”), Lehman Brothers Inc., as
representative of the several initial purchasers (the “Initial Purchasers”) listed on Schedule I
to the purchase agreement dated November 14, 2006 between the Company and the
Initial Purchasers (the “Purchase Agreement”).

Pursuant to the Purchase
Agreement, and the exercise by the Initial Purchasers of their over-allotment
option on November 15, 2006, the Initial Purchasers have agreed to purchase
from the Company $80,000,000 aggregate principal amount of 3.50% Senior
Convertible Notes due 2011 (the “Notes”).  The Notes initially will be convertible into
fully paid, nonassessable shares of common stock, par value $0.001 per share,
of the Company (the “Common Stock”)
on the terms, and subject to the conditions, set forth in the Indenture (as
defined herein).  To induce the Initial
Purchasers to purchase the Notes, the Company has agreed to provide the
registration rights set forth in this Agreement pursuant to the Purchase
Agreement.

The parties hereby agree
as follows:

1.             Definitions.

As used in this
Agreement, the following capitalized terms shall have the following meanings:

Additional
Amounts:  As defined in
Section 3(a) hereof.

Additional
Amounts Payment Date: 
Each April 15 and October 15 of each year, commencing April 15, 2007.

Affiliate:  As such term is defined in Rule 405 under the
Securities Act.

Agreement:  This Resale Registration Rights Agreement, as
amended, modified or otherwise supplemented from time to time in accordance
with the terms hereof.

Blue Sky
Application:  As
defined in Section 6(a)(i) hereof.

Business
Day:  A day other than
a Saturday or Sunday or any day on which banking institutions in The City of
New York are authorized or obligated by law or executive order to close.

Closing
Date:  The date of this
Agreement.

Commission:  Securities and Exchange Commission.

Common
Stock:  As defined in
the preamble hereto.

 

Effectiveness
Period:  As defined in
Section 2(a)(iii) hereof.

Effectiveness
Target Date:  As
defined in Section 2(a)(ii) hereof.

Exchange
Act:  Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder.

Holder:  A Person who owns, beneficially or otherwise,
Transfer Restricted Securities.

Indemnified
Holder:  As defined in
Section 6(a) hereof.

Indenture:  The Indenture, dated as of November 17, 2006,
between the Company and The Bank of New York, as trustee (the “Trustee”),
pursuant to which the Notes are to be issued, as such Indenture is amended,
modified or supplemented from time to time in accordance with the terms
thereof.

Initial
Purchasers:  As defined
in the preamble hereto.

Interest
Payment Date:  Each
April 15 and October 15 of each year, commencing April 15, 2007.

Company:  As defined in the preamble hereto.

Majority
of Holders:  Holders
holding more than 50% of the aggregate principal amount at maturity of Notes
outstanding; provided that, for
purpose of this definition, a holder of shares of Common Stock which constitute
Transfer Restricted Securities when issued upon conversion of the Notes shall
be deemed to hold an aggregate principal amount at maturity of Notes (in
addition to the principal amount at maturity of Notes held by such holder)
equal to $1,000 times the quotient of (i) the number of such shares of Common
Stock received upon conversion of the Notes and then held by such holder
divided by (ii) the prevailing conversion rate, such prevailing conversion rate
as determined in accordance with the Indenture.

NASD:  National Association of Securities Dealers,
Inc.

Notes:  As defined in the preamble hereto.

Person:  An individual, partnership, corporation,
unincorporated organization, limited liability company, trust, joint venture or
a government or agency or political subdivision thereof.

Prospectus:  The prospectus included in a Shelf
Registration Statement, as amended or supplemented by any prospectus supplement
and by all other amendments thereto, including post-effective amendments, and
all material incorporated by reference into such Prospectus.

 2
 

 

Purchase
Agreement:  As defined
in the preamble hereto.

Questionnaire:  As defined in Section 2(b) hereof.

Record
Holder:  With respect
to any Additional Amounts Payment Date, each Person who is a Holder on the
record date with respect to the Interest Payment Date on which such Additional
Amounts Payment Date shall occur.  In the
case of a Holder of shares of Common Stock issued upon conversion of the Notes,
“Record Holder” shall mean each Person who is a Holder of shares of Common
Stock that constitute Transfer Restricted Securities on the 15th day preceding
the relevant Additional Amounts Payment Date.

Registration
Default:  As defined in
Section 3(a) hereof.

Securities
Act:  Securities Act of
1933, as amended, and the rules and resolutions of the Commission thereunder.

Shelf
Filing Deadline: As defined in Section 2(a)(i) hereof.

Shelf
Registration Statement: 
As defined in Section 2(a)(i) hereof.

Suspension
Period.  As defined in
Section 4(b)(i) hereof.

TIA:  Trust Indenture Act of 1939, as amended, and
the rules and regulations of the Commission thereunder, in each case, as in
effect on the date the Indenture is qualified under the TIA.

Transfer
Restricted Securities: 
Each Note and each share of Common Stock issued upon conversion of Notes
until the earlier of:

(a)   the
date on which such Note or such share of Common Stock issued upon conversion
thereof has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement;

(b)   the
date on which such Note or such share of Common Stock issued upon conversion
thereof is transferred in compliance with Rule 144 under the Securities Act or
may be sold or transferred by a person who is not an Affiliate of the Company
pursuant to Rule 144 under the Securities Act (or any other similar provision
then in force) without any volume or manner of sale restrictions thereunder;
and

(c)   the
date on which such Note or such share of Common Stock issued upon conversion
ceases to be outstanding (whether as a result of redemption, repurchase and
cancellation, conversion or otherwise); provided that any Note and any Common
Stock issued upon conversion of such Note that is redeemed or repurchased by
the Company shall not be

 3
 

 

deemed
Transfer Restricted Securities for purposes of this Agreement upon resale by
the Company.

Underwritten
Registration or Underwritten Offering:  A registration in which Notes or shares of
our Common Stock issued upon conversion of Notes are sold to an underwriter for
reoffering to the public.

2.             Shelf Registration.  (a) 
The Company shall:

(i)                 not
later than 90 days after the date hereof (the “Shelf Filing Deadline”), cause to be filed a registration
statement pursuant to Rule 415 under the Securities Act (together with any
amendments thereto, and including any documents incorporated by reference
therein, the “Shelf Registration Statement”),
which Shelf Registration Statement shall provide for resales of all Transfer
Restricted Securities held by Holders that have provided the information
required pursuant to the terms of Section 2(b) hereof;

(ii)                use
its commercially reasonable best efforts to cause the Shelf Registration
Statement to be declared effective by the Commission as promptly as
practicable, but in no event later than 180 days after the date hereof (the “Effectiveness Target Date”); and

(iii)               use its commercially reasonable best
efforts to keep the Shelf Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 4(b) hereof
to the extent necessary to ensure that (A) it is available for resales by the
Holders of Transfer Restricted Securities entitled to the benefit of this
Agreement and (B) conforms with the requirements of this Agreement and the
Securities Act for a period (the “Effectiveness
Period”) of:

(A)          two
years following the last date of original issuance of any of the Notes; or

(B)           such
shorter period that will terminate when (x) all of the Holders of Transfer
Restricted Securities are able to sell all Transfer Restricted Securities
immediately without restriction pursuant to Rule 144(k) under the Securities
Act or any successor rule thereto, (y) when all Transfer Restricted Securities
have ceased to be outstanding (whether as a result of redemption, repurchase
and cancellation, conversion or otherwise) or (z) all Transfer Restricted
Securities registered under the

 4
 

 

Shelf
Registration Statement have been disposed of in accordance with the
Registration Statement.

(b)   To
have its Transfer Restricted Securities included in the Shelf Registration
Statement pursuant to this Agreement at the time of effectiveness, each Holder
shall complete the Selling Securityholder Notice and Questionnaire, the form of
which is contained in Annex A to the Offering Memorandum relating to the Notes
(the “Questionnaire”), and deliver
the Questionnaire within 20 Business Days of the date of the
Questionnaire.  The Company shall mail
the Questionnaire to the Holders at the addresses set forth on the records of
the registrar under the Indenture at least 20 Business Days (but not more than
40 Business Days) prior to the time the Company intends in good faith to have the
Shelf Registration Statement declared effective by the Commission.  Upon receipt of a written request for
additional information from the Company, each Holder who intends to be named as
a selling securityholder in the Shelf Registration Statement shall furnish to
the Company in writing, within 20 Business Days after such Holder’s receipt of
such request, such additional information regarding such Holder and the
proposed distribution by such Holder of its Transfer Restricted Securities, in
connection with the Shelf Registration Statement or Prospectus or Preliminary
Prospectus included therein and in any application to be filed with or under
state securities law, as the Company may reasonably request.  In connection with all such requests for
information from Holders of Transfer Restricted Securities, the Company shall
notify such Holders of the requirements set forth in this paragraph regarding
their obligation to provide the information requested pursuant to this
Section.  Each Holder must notify the
Company not later than three Business Days prior to any proposed sale by that
Holder pursuant to the Shelf Registration Statement.  This notice will be effective for five
Business Days.  Holders who have not
delivered a Questionnaire prior to the effectiveness of the Shelf Registration
Statement may receive a Questionnaire from the Company upon request.  Upon receipt of such a completed
Questionnaire from a Holder following the effectiveness of the Shelf
Registration Statement, the Company shall, as promptly as reasonably
practicable, and in any event within 30 calendar days, file such amendments to
the Shelf Registration Statement or supplements to a related Prospectus as are
necessary to permit such Holder to be named in, and to transfer its Transfer
Restricted Securities pursuant to, the Shelf Registration Statement.  Each Holder as to which the Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make information
previously furnished to the Company by such Holder not materially misleading.

 5
 

 

3.        Additional Amounts.

(a)   If:

(i)                 the
Shelf Registration Statement is not filed with the Commission prior to or on
the Shelf Filing Deadline;

(ii)                the
Shelf Registration Statement has not been declared effective by the Commission
prior to or on the Effectiveness Target Date;

(iii)               except as provided in Section 4(b)(i)
hereof, the Shelf Registration Statement is filed and declared effective but,
during the Effectiveness Period, shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded within five
Business Days by a post-effective amendment to the Shelf Registration
Statement, a supplement to the Prospectus or a report filed with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures
such failure and, in the case of a post-effective amendment, is itself
immediately declared effective; or

(iv)               (A)
prior to or on the 60th or 90th day, as the case may be, of any Suspension
Period, such suspension has not been terminated or (B) Suspension Periods
exceed an aggregate of 120 days in any 360-day period,

(each such event referred to in foregoing clauses (i)
through (iv), a “Registration Default”),
the Company hereby agrees to pay additional amounts (“Additional Amounts”) with respect to the
Notes from and including the day following the Registration Default to but
excluding the day on which the Registration Default has been cured, accruing at
a rate:

(x) with respect to each
day during the first 90-day period during which a Registration Default shall
have occurred and be continuing, equal to 0.25% per annum of the principal
amount of the Notes, and

(y) with respect to each
day during the period commencing on the 91st day following the day the
Registration Default shall have occurred and be continuing, equal to 0.50% per
annum of the principal amount of the Notes; provided
that in no event shall Additional Amounts accrue at a rate per annum exceeding
0.50% of the principal amount of the Notes.

(b)   All
accrued Additional Amounts shall be paid semiannually in arrears to Record
Holders by the Company on each Additional Amounts Payment Date by wire transfer
of immediately available funds or by federal funds check.  Following the cure of all Registration
Defaults

 6
 

 

relating
to any particular Security, the accrual of Additional Amounts with respect to
such Security will cease.  The Company
agrees to deliver all notices, certificates and other documents contemplated by
the Indenture in connection with the payment of Additional Amounts.

All obligations of the
Company set forth in this Section 3 that are outstanding with respect to any
Notes at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.

The Additional Amounts
set forth above shall be the exclusive monetary remedy available to the Holders
of Notes for such Registration Default.

4.             Registration Procedures.

(a)   In
connection with the Shelf Registration Statement, the Company shall comply with
all the provisions of Section 4(b) hereof and shall use its commercially
reasonable best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof, and pursuant thereto, shall prepare
and file with the Commission a Shelf Registration Statement relating to the
registration on any appropriate form under the Securities Act.

(b)   In
connection with the Shelf Registration Statement and any Prospectus required by
this Agreement to permit the sale or resale of Transfer Restricted Securities,
the Company shall:

(i)                 Use
its commercially reasonable best efforts to keep the Shelf Registration
Statement continuously effective during the Effectiveness Period; upon the
occurrence of any event or the existence of any fact that would cause the Shelf
Registration Statement or the Prospectus contained therein, in either case
including any document incorporated by reference therein, (A) to contain a
material misstatement or omission or (B) not be effective and usable for resale
of Transfer Restricted Securities during the Effectiveness Period, the Company
shall file promptly an appropriate amendment to the Shelf Registration
Statement, a supplement to the Prospectus or a report filed with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case
of clause (A), correcting any such misstatement or omission, and, in the case
of either clause (A) or (B), use its commercially reasonable best efforts to
cause such amendment to be declared effective and the Shelf Registration
Statement and the related Prospectus to become usable for their intended
purposes as soon as practicable thereafter.

 7
 

 

Notwithstanding
the foregoing, the Company may suspend the effectiveness of the Shelf
Registration Statement by written notice to the Holders for a period not to
exceed an aggregate of 60 days in any 90-day period (each such period, a “Suspension Period”) if:

(x)  an event
occurs and is continuing as a result of which the Shelf Registration Statement
would, in the Company’s reasonable judgment, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and

(y)  the Company
reasonably determines that the disclosure of such event at such time would have
a material adverse effect on the business of the Company (and its subsidiaries,
if any, taken as a whole);

provided that in the event the disclosure
relates to a previously undisclosed proposed or pending material business
transaction, the disclosure of which would impede the Company’s ability to
consummate such transaction, the Company may extend a Suspension Period from 60
days to 90 days; provided, however,
that Suspension Periods shall not exceed an aggregate of 120 days in any
360-day period.

(ii)                Prepare
and file with the Commission such amendments and post-effective amendments to
the Shelf Registration Statement as may be necessary to keep the Shelf
Registration Statement effective during the Effectiveness Period; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act, and to
comply fully with the applicable provisions of Rules 424 and 430A under the
Securities Act in a timely manner; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
Shelf Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the sellers thereof set forth
in the Shelf Registration Statement or supplement to the Prospectus.

(iii)               Advise the underwriter(s), if any, and
selling Holders promptly (but in any event within two Business Days) (with
respect to any selling Holders, through a posting on the Company’s website)
and, if requested by such Persons, to confirm such advice in writing:

 8
 

 

(A)          when
the Prospectus or any Prospectus supplement or post-effective amendment (other
than a document incorporated by reference upon filing with the Commission) has
been filed, and, with respect to the Shelf Registration Statement or any
post-effective amendment thereto (other than a document incorporated by
reference upon filing with the Commission), when the same has become effective,

(B)           of
any request by the Commission for amendments to the Shelf Registration
Statement or amendments or supplements to the Prospectus or for additional
information relating thereto,

(C)           of
the issuance by the Commission of any stop order suspending the effectiveness
of the Shelf Registration Statement under the Securities Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, or

(D)          of
the existence of any fact or the happening of any event, during the
Effectiveness Period, that makes any statement of a material fact made in the
Shelf Registration Statement, the Prospectus, any amendment or supplement
thereto, or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Shelf Registration
Statement or the Prospectus in order to make the statements therein not
misleading.

If at
any time the Commission shall issue any stop order suspending the effectiveness
of the Shelf Registration Statement, or any state securities commission or
other regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company shall use its commercially reasonable
best efforts to obtain the withdrawal or lifting of such order at the earliest
possible time and will provide to the Initial Purchasers and each Holder who is
named in the Shelf Registration Statement prompt notice of the withdrawal of
any such order.

(iv)               Furnish
to each of the selling Holders and each of the underwriter(s), if any, before
filing with the Commission, a copy of the Shelf Registration Statement and
copies of any Prospectus included therein or any amendments or supplements to

 9
 

 

the
Shelf Registration Statement or Prospectus (other than documents incorporated
by reference after the initial filing of the Shelf Registration Statement),
which documents will be subject to the review of such Holders and
underwriter(s), if any, for a period of at least ten Business Days (in the case
of the Shelf Registration Statement and Prospectus) and two Business Days (in
the case of any amendment or supplement thereto), and the Company will not file
the Shelf Registration Statement or Prospectus or any amendment or supplement
to the Shelf Registration Statement or Prospectus (other than documents
incorporated by reference) to which a selling Holder of Transfer Restricted
Securities covered by the Shelf Registration Statement or the underwriter(s),
if any, shall reasonably object prior to the filing thereof.  Notwithstanding anything to the contrary
contained herein, if a supplement to a Prospectus is filed for the sole
purposes of adding or deleting Holders from the selling stockholders named
therein, the Company need not furnish such supplement before filing to any
Holder other than a Holder who is to be added or deleted as a selling
stockholder.  A selling Holder or
underwriter, if any, shall be deemed to have reasonably objected to such filing
if the Shelf Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains a material misstatement or
omission.

(v)                Make
available at reasonable times for inspection by one or more representatives of
the selling Holders, designated in writing by a Majority of Holders whose
Transfer Restricted Securities are included in the Shelf Registration
Statement, any underwriter participating in any distribution pursuant to the
Shelf Registration Statement, and any attorney or accountant retained by such
selling Holders or any of the underwriter(s), all financial and other records,
pertinent corporate documents and properties of the Company as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the Company’s officers, directors, managers and
employees to supply all information reasonably requested by any such
representative or representatives of the selling Holders, underwriter, attorney
or accountant in connection with the Shelf Registration Statement after the
filing thereof and before its effectiveness, provided,
however, that any information designated by the Company as
confidential at the time of delivery of such information shall be kept
confidential by the recipient thereof.

(vi)               If
requested by any selling Holders or the underwriter(s), if any, promptly
incorporate in the Shelf Registration Statement or Prospectus, pursuant to a
supplement or

 10
 

 

post
effective amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation: (1) information relating to the “Plan of
Distribution” of the Transfer Restricted Securities, (2) information with
respect to the principal amount of Notes or number of shares of Common Stock
being sold to such underwriter(s), (3) the purchase price being paid therefor
and (4) any other terms of the offering of the Transfer Restricted Securities
to be sold in such offering; and make all required filings of such Prospectus
supplement or post effective amendment as soon as reasonably practicable after
the Company is notified of the matters to be incorporated in such Prospectus
supplement or post effective amendment.

(vii)              Furnish to each selling Holder through a
posting on the Company’s website and each of the underwriter(s), if any,
without charge, at least one copy of the Shelf Registration Statement, as first
filed with the Commission, and of each amendment thereto (and any documents
incorporated by reference therein or exhibits thereto (or exhibits incorporated
in such exhibits by reference) as such Person may request).

(viii)             Deliver to each selling Holder and each of
the underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons reasonably may request; subject to any notice by the Company in
accordance with this Section 4(b) of the existence of any fact or event of the
kind described in Section 4(b)(iii)(D), the Company hereby consents to the use
of the Prospectus and any amendment or supplement thereto by each of the
selling Holders and each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto.

(ix)               Upon
request, furnish to each selling Holder and each underwriter, if any, in such
substance and scope as they may reasonably request and as are customarily made
by issuers to underwriters in primary underwritten offerings for selling
security holders, upon the date of closing of any sale of Transfer Restricted
Securities in an Underwritten Registration:

(A)          a
certificate, dated the date of such closing, signed by an executive officer of
the Company confirming, as of the date thereof, matters of the type set

 11
 

 

forth
in Section 5(a) of the Purchase Agreement and such other matters as such
parties may reasonably request;

(B)           opinions,
each dated the date of such closing, of counsel to the Company covering such of
the matters as are customarily covered in legal opinions to underwriters in
connection with underwritten offerings of securities; and

(C)           customary
comfort letters, dated the date of such closing, from the Company’s independent
accountants in the customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with underwritten
offerings of securities.

(x)                Set
forth in full in the underwriting agreement, if any, indemnification provisions
and procedures which provide rights no less protective than those set forth in
Section 6 hereof with respect to all parties to be indemnified.

(xi)               Deliver
such other documents and certificates as may be reasonably requested by such
parties to evidence compliance with Section 4(b)(ix) above and with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the selling Holders pursuant to this Section 4(b)(xi).

(xii)              Before any public offering of Transfer
Restricted Securities, cooperate with the selling Holders, the underwriter(s),
if any, and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities or
Blue Sky laws of such jurisdictions in the United States as the selling Holders
or underwriter(s), if any, may reasonably request and do any and all other acts
or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the Shelf
Registration Statement; provided, however,
that the Company shall not be required (A) to register or qualify as a foreign
corporation or a dealer of securities where it is not now so qualified or to
take any action that would subject it to the service of process in any
jurisdiction where it is not now so subject or (B) to subject itself to
taxation in any such jurisdiction if it is not now so subject.

 12
 

 

(xiii)             Cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold and not
bearing any restrictive legends (unless required by applicable securities
laws); and enable such Transfer Restricted Securities to be in such
denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two Business Days before any sale
of Transfer Restricted Securities made by such underwriter(s).

(xiv)             Use its commercially reasonable best
efforts to cause the Transfer Restricted Securities covered by the Shelf
Registration Statement to be registered with or approved by such other U.S.
governmental agencies or authorities as may be necessary to enable the seller
or sellers thereof or the underwriter(s), if any, to consummate the disposition
of such Transfer Restricted Securities.

(xv)              Provide
CUSIP numbers for all Transfer Restricted Securities not later than the
effective date of the Shelf Registration Statement and provide the Trustee
under the Indenture with certificates for the Notes that are in a form eligible
for deposit with The Depository Trust Company.

(xvi)             Cooperate and assist in any filings required
to be made with the NASD and in the performance of any due diligence
investigation by any underwriter that is required to be retained in accordance
with the rules and regulations of the NASD.

(xvii)            Otherwise use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the
Commission and all reporting requirements under the Exchange Act.

(xviii)           Cause the Indenture to be qualified under
the TIA not later than the effective date of the Shelf Registration Statement required
by this Agreement, and, in connection therewith, cooperate with the Trustee and
the holders of Notes to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use its commercially reasonable best efforts to cause the
Trustee thereunder to execute all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner.

 13

 

(xix)              Cause all shares of Common Stock covered
by the Shelf Registration Statement to be listed or quoted, as the case may be,
on each securities exchange or automated quotation system on which similar
securities issued by the Company are then listed or quoted.

(xx)               Provide
to each Holder upon written request each document filed with the Commission
pursuant to the requirements of Section 13 and Section 15 of the Exchange Act
after the effective date of the Shelf Registration Statement.

(xxi)              If requested by the
underwriter(s), make appropriate officers of the Company available to the
underwriter(s) for meetings with prospective purchasers of the Transfer
Restricted Securities and prepare and present to potential investors customary “road
show” or marketing materials in a manner consistent with other new issuances of
other securities similar to the Transfer Restricted Securities.

(c)   Each Holder agrees by
acquisition of a Transfer Restricted Security that, upon receipt of any notice
from the Company of the existence of any fact of the kind described in Section
4(b)(iii)(D) hereof, such Holder will, and will use its reasonable best efforts
to cause any underwriter(s) in an Underwritten Offering to, forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the Shelf
Registration Statement until:

(i)                 such
Holder has received copies of the supplemented or amended Prospectus
contemplated by Sections 4(b)(i) and 4(b)(viii) hereof; or

(ii)                such
Holder is advised in writing by the Company that the use of the Prospectus may
be resumed, and has received copies of any additional or supplemental filings
that are incorporated by reference in the Prospectus.

If so directed by the Company, each Holder will
deliver to the Company (at the Company’s expense) all copies, other than
permanent file copies then in such Holder’s possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of such notice of suspension.

5.     Registration Expenses.

(a)   All expenses incident to the
Company’s performance of or compliance with this Agreement shall be borne by
the Company regardless of whether a Shelf Registration Statement becomes
effective, including, without limitation:

 14
 

 

(i)                 all registration and filing fees and expenses
(including filings made by any Initial Purchasers or Holders with the NASD);

(ii)                all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws;

(iii)               all
expenses of printing (including printing of Prospectuses and certificates for
the Common Stock to be issued upon conversion of the Notes) and the Company’s
expenses for messenger and delivery services and telephone;

(iv)               all
fees and disbursements of counsel to the Company and, subject to Section 5(b)
below, the Holders of Transfer Restricted Securities;

(v)                all
application and filing fees in connection with listing (or authorizing for
quotation) the Common Stock on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and

(vi)               all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).

The Company shall bear
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal, accounting or other duties),
the expenses of any annual audit and the fees and expenses of any Person,
including special experts, retained by the Company.

(b)   In connection with the Shelf
Registration Statement required by this Agreement, including any amendment or
supplement thereto, and any other documents delivered to any Holders, the
Company shall reimburse the Initial Purchasers and the Holders of Transfer
Restricted Securities being registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, which shall be chosen by a Majority of Holders for whose
benefit the Shelf Registration Statement is being prepared.

6.     Indemnification and Contribution.

(a)   The Company shall indemnify and
hold harmless each Holder, such Holder’s officers, directors, partners and
employees and each person, if any, who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, an “Indemnified Holder”),
from and against any loss, claim, damage or

 15
 

 

liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to resales of the Transfer Restricted Securities), to which
such Indemnified Holder may become subject, insofar as any such loss, claim,
damage, liability or action arises out of, or is based upon:

(i)                 any untrue statement or alleged untrue
statement of a material fact contained in (A) the Shelf Registration Statement
or Prospectus or any amendment or supplement thereto or (B) any blue sky
application or other document or any amendment or supplement thereto prepared
or executed by the Company (or based upon written information furnished by or
on behalf of the Company expressly for use in such blue sky application or
other document or amendment on supplement) filed in any jurisdiction
specifically for the purpose of qualifying any or all of the Transfer
Restricted Securities under the securities law of any state or other
jurisdiction (such application or document being hereinafter called a “Blue Sky Application”); or

(ii)                the omission or alleged omission to state
in the Shelf Registration Statement, Prospectus or any amendment or supplement
thereto, or in any Blue Sky Application, any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading,

and shall reimburse each Indemnified Holder promptly
upon demand for any legal or other expenses reasonably incurred by such
Indemnified Holder in connection with investigating or defending or preparing
to defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, (A) any untrue statement
or alleged untrue statement or omission or alleged omission made in the Shelf
Registration Statement or Prospectus or amendment or supplement thereto or Blue
Sky Application or other document referred to in Section 6(a)(i) hereof in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Holder specifically for inclusion therein and
(B) the failure of the Indemnified Holder to deliver any corrective amendment
or supplement after delivery by the Company to such Indemnified Holder of such
amendment or supplement.  The foregoing
indemnity agreement is in addition to any liability which the Company may
otherwise have to any Indemnified Holder.

(b)   Each Holder, severally and not
jointly, shall indemnify and hold harmless the Company, its officers, directors
and employees and each person, if any, who controls the Company within the
meaning of the

 16
 

 

Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof, to
which the Company or any such officer, director, employee or controlling person
may become subject, insofar as any such loss, claim, damage or liability or
action arises out of, or is based upon:

(i)                 any
untrue statement or alleged untrue statement of any material fact contained in
the Shelf Registration Statement or Prospectus or any amendment or supplement
thereto or any Blue Sky Application or other document referred to in Section
6(a)(i) hereof; or

(ii)                the
omission or the alleged omission to state in the Shelf Registration Statement,
Prospectus or any amendment or supplement thereto, or in any Blue Sky
Application or other document referred to in Section 6(a)(i) hereof, any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading,

but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Holder (or its related Indemnified Holder)
specifically for use therein, and shall reimburse the Company and any such
officer, employee or controlling person promptly upon demand for any legal or
other expenses reasonably incurred by the Company or any such officer, employee
or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action
as such expenses are incurred.  In no
event shall the liability of any Holder hereunder be greater in amount than the
dollar amount of the proceeds received by such Holder upon the sale of the
Transfer Restricted Securities pursuant to the Shelf Registration Statement
giving rise to such indemnification obligation. 
The foregoing indemnity agreement is in addition to any liability which
any Holder may otherwise have to the Company and any such officer, employee or
controlling person.

(c)   Promptly after receipt by an
indemnified party under this Section 6 of notice of any claim or the
commencement of any action, the indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under this Section 6,
notify the indemnifying party in writing of the claim or the commencement of
that action; provided, however, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have
under this Section 6 except to the extent it has been materially prejudiced by
such failure and, provided, further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise

 17
 

 

than under this Section 6.  If any such claim or action shall be brought
against an indemnified party, and the indemnified party shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel satisfactory to the indemnified party. 
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided, however,
that a Majority of Holders shall have the right to employ a single counsel to
represent jointly a Majority of Holders and their respective officers,
directors, partners, employees and controlling persons who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by a Majority of Holders against the Company under this Section 6, and, if a
Majority of Holders seeking indemnification shall have been advised by legal
counsel that there may be one or more legal defenses available to them and
their respective directors, officers, partners, employees and controlling
persons that are different from or additional to those available to the Company
and its officers, directors, employees and controlling persons, the fees and
expenses of a single separate counsel shall be paid by the Company.  No indemnifying party shall:

(i)                 without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld) settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or

(ii)                be
liable for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if settled with
its written consent or if there be a final judgment for the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.

(d)   If the indemnification provided
for in this Section 6 shall for any reason be unavailable or insufficient to
hold harmless an

 18
 

 

indemnified party under Section 6(a) or 6(b) in
respect of any loss, claim, damage or liability (or action in respect thereof)
referred to therein, each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability (or
action in respect thereof):

(i)                 in such proportion as is appropriate to
reflect the relative benefits received by the Company from the offering and
sale of the Transfer Restricted Securities on the one hand and a Holder with
respect to the sale by such Holder of the Transfer Restricted Securities on the
other, or

(ii)                if the allocation provided by Section
6(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in Section
6(d)(i) but also the relative fault of the Company on the one hand and the
Holders on the other in connection with the statements or omissions or alleged
statements or alleged omissions that resulted in such loss, claim, damage or
liability (or action in respect thereof), as well as any other relevant
equitable considerations.

The relative benefits received by the Company on the
one hand and a Holder on the other with respect to such offering and such sale
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Notes purchased under the Purchase Agreement (before deducting
expenses) received by the Company on the one hand, bear to the total proceeds
received by such Holder with respect to its sale of Transfer Restricted
Securities on the other.  The relative
fault of the parties shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Holders on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission.  The Company
and each Holder agree that it would not be just and equitable if the amount of
contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method
of allocation that does not take into account the equitable considerations
referred to in the first sentence of this paragraph (d).  The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 6 shall be deemed to include, for
purposes of this Section 6, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending or
preparing to defend any such action or claim. 
Notwithstanding the provisions of this Section 6, no Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Transfer Restricted Securities purchased by it were resold
exceeds the amount of any damages which such Holder has otherwise been required
to pay by reason of any untrue or alleged untrue statement or omission or
alleged

 19
 

 

omission.  No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.  The Holders’ obligations to contribute as
provided in this Section 6(d) are several and not joint.

7.     Rule 144A.  In the event the Company is not subject to
Section 13 or 15(d) of the Exchange Act, the Company hereby agrees with each
Holder, for so long as any Transfer Restricted Securities remain outstanding,
to make available to any Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities from such Holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A.

8.     Participation in Underwritten Registrations.  No Holder may participate in any Underwritten
Registration hereunder unless such Holder:

(a)   agrees to sell such Holder’s
Transfer Restricted Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements; and

(b)   completes and executes all
reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of
such underwriting arrangements.

9.     Miscellaneous.

(a)   Remedies.  The Company acknowledges and agrees that any
failure by the Company to comply with its obligations under Section 2 hereof
may result in material irreparable injury to the Initial Purchasers or the
Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such
relief as may be required to specifically enforce the Company’s obligations
under Section 2 hereof.  The Company
further agrees to waive the defense in any action for specific performance that
a remedy at law would be adequate.

(b)   Actions Affecting Transfer Restricted Securities.  The Company shall not, directly or
indirectly, take any action with respect to the Transfer Restricted Securities
as a class that would adversely affect the ability of the Holders of Transfer
Restricted Securities to include such Transfer Restricted Securities in a
registration undertaken pursuant to this Agreement.

 20
 

 

(c)   No Inconsistent Agreements.  The Company will not, on or after the date of
this Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. 
In addition, the Company shall not grant to any of its security holders
(other than the Holders of Transfer Restricted Securities in such capacity) the
right to include any of its securities in the Shelf Registration Statement
provided for in this Agreement other than the Transfer Restricted
Securities.  Except as contained in any
agreement filed as an exhibit to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2005, the Company has not previously entered into
any agreement (which has not expired or been terminated) granting any
registration rights with respect to its securities to any Person which rights
conflict with the provisions hereof.

(d)   Amendments and Waivers.  This Agreement may not be amended, modified
or supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the Company has obtained the written consent of
a Majority of Holders or such greater percentage of the Holders as required by
the Indenture.

(e)   Notices. 
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand delivery, first class mail (registered or certified,
return receipt requested), telex, facsimile transmission, or air courier
guaranteeing overnight delivery:

(i)                 if
to a Holder, at the address set forth on the records of the registrar under the
Indenture or the transfer agent of the Common Stock, as the case may be; and

(ii)                if to the Company:

deCODE genetics, Inc.

Sturlugata 8

Reykjavik, Iceland

Attention: 
Corporate Counsel

Fax: +354-570-1806

Telephone:
+354-570-1943

With a copy to:

Stevens & Lee, P.C.

600 College Road East

Suite 4400

Princeton, NJ 08540

United States of America

Attention: Marsha E. Novick, Esq.

Fax: +1-610-371-7929

Telephone:
+1-609-987-6677

 21
 

 

All such notices and
communications shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when answered back, if telexed; when
receipt acknowledged, if transmitted by facsimile; and on the next Business
Day, if timely delivered to an air courier guaranteeing overnight delivery.

(f)    Successors and Assigns.  This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that (i) this Agreement
shall not inure to the benefit of or be binding upon a successor or assign of a
Holder unless and to the extent such successor or assign acquired Transfer
Restricted Securities from such Holder and (ii) nothing contained herein shall
be deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Securities in violation of the terms of the Purchase Agreement or
the Indenture.  If any transferee of any
Holder shall acquire Transfer Restricted Securities, in any manner, whether by
operation of law or otherwise, such Transfer Restricted Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Transfer Restricted Securities such person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement.

(g)   Counterparts.  This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

(h)   Securities Held by the Company or Its Affiliates.  Whenever the consent or approval of Holders
of a specified percentage of Transfer Restricted Securities is required
hereunder, Transfer Restricted Securities held by the Company or its Affiliates
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.

(i)    Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 22
 

 

(j)    Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.

(k)   Severability.  If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.

(l)    Entire Agreement.  This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. 
There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein with respect to the registration
rights granted by the Company with respect to the Transfer Restricted
Securities.  This Agreement supersedes
all prior agreements and understandings between the parties with respect to such
subject matter.

 23

 

In
Witness Whereof, the parties have executed this Agreement as of the date
first written above.

	
  

  	
  deCODE genetics, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /s/ Kari Stefansson

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kari Stefansson

  
	
   

  	
   

  	
  Title:

  	
  President and Chief

  Executive Officer

  
					

 

RRA EXECUTION PAGE

 

 

	
  

  	
  Lehman Brothers Inc.

  Acting severally on behalf of themselves

  and the several initial purchasers named in

  Schedule I to the Purchase Agreement

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Lehman Brothers Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
     /s/ Mark Schwartz

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mark Schwartz

  
	
   

  	
   

  	
  Title:

  	
  VPECMExhibit
10.1

 

 

 

 

CREDIT AGREEMENT

 

 

dated as of

 

 

November 16, 2006

 

 

among

 

 

WARREN RESOURCES, INC.,

As Borrower

 

 

The Lenders Party Hereto

 

 

and

 

 

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

 

 

 

J.P. MORGAN SECURITIES INC.,

as Sole Bookrunner and Sole Lead Arranger

 

 

 

 

TABLE OF CONTENTS

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE I. Definitions

  	
   

  	
  1

  
	
   

  	
  SECTION 1.01.

  	
  Defined Terms

  	
   

  	
  1

  
	
   

  	
  SECTION 1.02.

  	
  Classification of Loans and Borrowings

  	
   

  	
  16

  
	
   

  	
  SECTION 1.03.

  	
  Terms Generally

  	
   

  	
  16

  
	
   

  	
  SECTION 1.04.

  	
  Accounting Terms; GAAP

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II. The Credits

  	
   

  	
  16

  
	
   

  	
  SECTION 2.01.

  	
  Commitments

  	
   

  	
  16

  
	
   

  	
  SECTION 2.02.

  	
  Loans and Borrowings

  	
   

  	
  17

  
	
   

  	
  SECTION 2.03.

  	
  Requests for Borrowings

  	
   

  	
  17

  
	
   

  	
  SECTION 2.04.

  	
  Intentionally Omitted

  	
   

  	
  18

  
	
   

  	
  SECTION 2.05.

  	
  Intentionally Omitted

  	
   

  	
  18

  
	
   

  	
  SECTION 2.06.

  	
  Letters of Credit

  	
   

  	
  18

  
	
   

  	
  SECTION 2.07.

  	
  Funding of Borrowings

  	
   

  	
  21

  
	
   

  	
  SECTION 2.08.

  	
  Interest Elections

  	
   

  	
  22

  
	
   

  	
  SECTION 2.09.

  	
  Borrowing Base

  	
   

  	
  23

  
	
   

  	
  SECTION 2.10.

  	
  Repayment of Loans; Evidence of Debt

  	
   

  	
  24

  
	
   

  	
  SECTION 2.11.

  	
  Prepayment of Loans

  	
   

  	
  25

  
	
   

  	
  SECTION 2.12.

  	
  Fees

  	
   

  	
  25

  
	
   

  	
  SECTION 2.13.

  	
  Interest

  	
   

  	
  26

  
	
   

  	
  SECTION 2.14.

  	
  Alternate Rate of Interest

  	
   

  	
  27

  
	
   

  	
  SECTION 2.15.

  	
  Increased Costs

  	
   

  	
  27

  
	
   

  	
  SECTION 2.16.

  	
  Break Funding Payments

  	
   

  	
  28

  
	
   

  	
  SECTION 2.17.

  	
  Taxes

  	
   

  	
  29

  
	
   

  	
  SECTION 2.18.

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

  	
   

  	
  30

  
	
   

  	
  SECTION 2.19.

  	
  Mitigation Obligations; Replacement of Lenders

  	
   

  	
  31

  
	
   

  	
  SECTION 2.20.

  	
  Collateral

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III. Representations and Warranties

  	
   

  	
  33

  
	
   

  	
  SECTION 3.01.

  	
  Organization; Powers

  	
   

  	
  33

  
	
   

  	
  SECTION 3.02.

  	
  Authorization; Enforceability

  	
   

  	
  33

  
	
   

  	
  SECTION 3.03.

  	
  Governmental Approvals; No Conflicts

  	
   

  	
  34

  
	
   

  	
  SECTION 3.04.

  	
  Financial Condition; No Material Adverse Change

  	
   

  	
  34

  
	
   

  	
  SECTION 3.05.

  	
  Ownership; Title to Properties; Licenses; Liens

  	
   

  	
  34

  
	
   

  	
  SECTION 3.06.

  	
  Litigation and Environmental Matters

  	
   

  	
  36

  
	
   

  	
  SECTION 3.07.

  	
  Compliance with Laws and Agreements

  	
   

  	
  36

  
	
   

  	
  SECTION 3.08.

  	
  Investment Company Status

  	
   

  	
  36

  
	
   

  	
  SECTION 3.09.

  	
  Taxes

  	
   

  	
  36

  
	
   

  	
  SECTION 3.10.

  	
  ERISA

  	
   

  	
  36

  
	
   

  	
  SECTION 3.11.

  	
  Disclosure

  	
   

  	
  37

  
	
   

  	
  SECTION 3.12.

  	
  Insurance

  	
   

  	
  37

  
	
   

  	
  SECTION 3.13.

  	
  Subsidiaries

  	
   

  	
  37

  
	
   

  	
  SECTION 3.14.

  	
  No Default

  	
   

  	
  37

  
	
   

  	
  SECTION 3.15.

  	
  Compliance with Anti-Terrorism Laws

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV. Conditions

  	
   

  	
  37

  
	
   

  	
  SECTION 4.01.

  	
  Effective Date

  	
   

  	
  38

  
	
   

  	
  SECTION 4.02.

  	
  Each Credit Event

  	
   

  	
  39

  

 

 ii
 

 

 

	
  ARTICLE V. Covenants

  	
   

  	
  40

  
	
   

  	
  SECTION 5.01.

  	
  Financial Statements; Other Information

  	
   

  	
  40

  
	
   

  	
  SECTION 5.02.

  	
  Notices of Material Events

  	
   

  	
  42

  
	
   

  	
  SECTION 5.03.

  	
  Existence; Conduct of Business

  	
   

  	
  42

  
	
   

  	
  SECTION 5.04.

  	
  Payment of Obligations

  	
   

  	
  42

  
	
   

  	
  SECTION 5.05.

  	
  Maintenance of Properties; Insurance

  	
   

  	
  43

  
	
   

  	
  SECTION 5.06.

  	
  Books and Records; Inspection Rights

  	
   

  	
  43

  
	
   

  	
  SECTION 5.07.

  	
  Compliance with Laws

  	
   

  	
  43

  
	
   

  	
  SECTION 5.08.

  	
  Use of Proceeds and Letters of Credit

  	
   

  	
  43

  
	
   

  	
  SECTION 5.09.

  	
  Indebtedness

  	
   

  	
  43

  
	
   

  	
  SECTION 5.10.

  	
  Liens

  	
   

  	
  44

  
	
   

  	
  SECTION 5.11.

  	
  Fundamental Changes

  	
   

  	
  45

  
	
   

  	
  SECTION 5.12.

  	
  Investments, Loans, Advances, Guarantees and
  Acquisitions

  	
   

  	
  45

  
	
   

  	
  SECTION 5.13.

  	
  Swap Agreements

  	
   

  	
  47

  
	
   

  	
  SECTION 5.14.

  	
  Restricted Payments

  	
   

  	
  47

  
	
   

  	
  SECTION 5.15.

  	
  Transactions with Affiliates

  	
   

  	
  47

  
	
   

  	
  SECTION 5.16.

  	
  Restrictive Agreements

  	
   

  	
  48

  
	
   

  	
  SECTION 5.17.

  	
  Agreement to Deliver Collateral Documents

  	
   

  	
  48

  
	
   

  	
  SECTION 5.18.

  	
  Deposit of Production Proceeds

  	
   

  	
  49

  
	
   

  	
  SECTION 5.19.

  	
  Subsidiary Guaranty

  	
   

  	
  49

  
	
   

  	
  SECTION 5.20.

  	
  Patriot Act

  	
   

  	
  49

  
	
   

  	
  SECTION 5.21.

  	
  Equity Interests

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI. Financial Covenants

  	
   

  	
  50

  
	
   

  	
  SECTION 6.01.

  	
  Minimum Current Ratio

  	
   

  	
  50

  
	
   

  	
  SECTION 6.02.

  	
  Maximum Indebtedness to EBITDAX

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII. Events of Default

  	
   

  	
  50

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII. The Administrative Agent

  	
   

  	
  52

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX. Miscellaneous

  	
   

  	
  54

  
	
   

  	
  SECTION 9.01.

  	
  Notices

  	
   

  	
  54

  
	
   

  	
  SECTION 9.02.

  	
  Waivers; Amendments

  	
   

  	
  55

  
	
   

  	
  SECTION 9.03.

  	
  Expenses; Indemnity; Damage Waiver

  	
   

  	
  56

  
	
   

  	
  SECTION 9.04.

  	
  Successors and Assigns

  	
   

  	
  57

  
	
   

  	
  SECTION 9.05.

  	
  Survival

  	
   

  	
  59

  
	
   

  	
  SECTION 9.06.

  	
  Counterparts; Integration; Effectiveness

  	
   

  	
  59

  
	
   

  	
  SECTION 9.07.

  	
  Severability

  	
   

  	
  60

  
	
   

  	
  SECTION 9.08.

  	
  Right of Setoff

  	
   

  	
  60

  
	
   

  	
  SECTION 9.09.

  	
  Governing Law; Jurisdiction; Consent to Service of
  Process

  	
   

  	
  60

  
	
   

  	
  SECTION 9.10.

  	
  WAIVER OF JURY TRIAL

  	
   

  	
  61

  
	
   

  	
  SECTION 9.11.

  	
  Headings

  	
   

  	
  61

  
	
   

  	
  SECTION 9.12.

  	
  Confidentiality

  	
   

  	
  61

  
	
   

  	
  SECTION 9.13.

  	
  Interest Rate Limitation

  	
   

  	
  61

  
	
   

  	
  SECTION 9.14.

  	
  Patriot Act

  	
   

  	
  62

  

 

 iii
 

 

SCHEDULES:

 

Pricing Schedule

Schedule 2.01 — Commitments

Schedule 3.06 — Disclosed
Matters

Schedule 3.13 — Subsidiaries

Schedule 5.09 — Existing
Indebtedness

Schedule 5.10 — Existing
Liens

Schedule
5.16 — Existing Restrictions

EXHIBITS:

Exhibit A — Form of
Assignment and Assumption

Exhibit B — Form of Note

 iv

 

CREDIT
AGREEMENT

This Credit Agreement, dated
as of November 16, 2006, is among WARREN RESOURCES, INC., a Maryland
corporation; JPMORGAN CHASE BANK, N.A., a national banking association,
individually and as the Administrative Agent and as issuer of Letters of
Credit; and J.P. MORGAN SECURITIES, INC., as Sole Lead Arranger and Sole
Bookrunner; and the LENDERS. The Parties 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” means
Alternative Base Rate when used in reference to any Loan or Borrowing, and
refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Alternate Base Rate.

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

“Administrative Agent” means JPMorgan Chase Bank, N.A., in its
capacity as administrative agent for the Lenders hereunder.

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

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

“Agreement” means this Credit Agreement, as the same may be
amended, restated, or supplemented.

“Alternate Base Rate” means, for any day, a rate per annum equal to the
greater of (a) the Prime Rate in effect on such day, and (b) the
Federal Funds Effective Rate in effect on such day plus 1⁄2 of 1%. Any
change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective from and after 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 total Commitments represented by such Lender’s Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect after 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 facility fees payable
hereunder, as the case may be, the applicable rate per annum set forth in the
Pricing Schedule.

 

“Approved Fund” has the meaning assigned to such term in Section
9.04.

“Approved Petroleum Engineer” means Williamson Petroleum
Consultants, Inc. or any other reputable firm of independent petroleum
engineers selected by the Borrower and acceptable to the Administrative Agent.

“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 9.04), and accepted by the
Administrative Agent, in the form of Exhibit A or any other form
approved by the Administrative Agent.

“Authorized Officer” means any of the Chairman of the Board,
Chief Executive Officer, President, Chief Financial Officer, Treasurer, or any
Vice President of the Borrower or the Guarantor, acting singly.

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

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

“Bond” means any completion bond, performance bond, bid bond,
appeal bond, surety bond, insurance obligation or bond or any similar bond or
obligation, or any letter of credit or guarantee functioning as or supporting
any of the foregoing bonds or obligations, incurred by the Borrower or any
Subsidiary in the ordinary course of business.

“Borrower” means WARREN RESOURCES, INC., a Maryland corporation.

“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 the amount of indebtedness which can be
adequately supported by the value of oil and gas reserves attributable to the
Collateral, which value shall be determined by the Lenders or Required Lenders,
as applicable, in the exercise of their reasonable discretion and in accordance
with the Lenders’ customary practices and standards for oil and gas loans; all
as more particularly set forth in Section 2.09.

“Borrowing Request” means a request by the Borrower for a
Borrowing in accordance with Section 2.03.

“Business Day” means any day that is not a Saturday, Sunday or
other day on which commercial banks in Houston, Texas are authorized or required
by law to be 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.

 2
 

 

“Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of Equity
Interests representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Equity Interests of the Borrower; or
(b) occupation of a majority of the seats (other than vacant seats) on the
board of directors of the Borrower by Persons who were neither (i) nominated by
the board of directors of the Borrower, nor (ii) appointed by directors so
nominated.

“Change in Law” means (a) the adoption of any law, rule or
regulation by any Governmental Authority 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 2.15(b), by any lending office of such Lender or by
such Lender’s or the Issuing Bank’s holding company, if any) with any
applicable 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.

“Charges” has the meaning assigned to such term in Section
9.13.

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

“Collateral” means any Property or asset of the Borrower or any
Restricted Subsidiary, now or hereafter acquired, which is subject to a Lender
Lien in favor of the Secured Parties (or in favor of the Administrative Agent
for the benefit of the Secured Parties) or which, under the terms of any
Collateral Document or otherwise, is purported to be subject to such a Lien, as
described in Section 2.20.

“Collateral Documents” means, collectively, the Deeds of Trust,
any Guaranty, and any Security Agreements, in each case executed pursuant to
this Agreement, and all financing statements filed in connection therewith.

“Commitment” means, with respect to each Lender, the commitment
of such Lender to make Loans and to acquire participations in Letters of Credit
hereunder, expressed as an amount representing the maximum aggregate amount of
such Lender’s Revolving Credit Exposure hereunder, as such commitment may be
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender’s
Commitment is set forth on Schedule 2.01, or in the Assignment and
Assumption pursuant to which such Lender shall have assumed its Commitment, as
applicable. The maximum aggregate amount of the Lenders’ Commitments during the
term of this agreement shall not exceed $150,000,000.

“Consolidated Current Assets” means the total of the
consolidated current assets of the Borrower (excluding assets of Unrestricted
Subsidiaries), including the amounts available for borrowing under the
Borrowing Base; provided, however, that in determining consolidated
current assets, such determination shall not include non-cash gains, losses or
charges required (a) under SFAS 133, (b) under SFAS 143, or (c) the non-cash
effects, if any, of any non-cash stock option accrual under FAS 123.

“Consolidated Current Liabilities” means the total of the
consolidated current liabilities of the Borrower (excluding liabilities of
Unrestricted Subsidiaries), provided, however, that in determining
consolidated current liabilities, such determination shall not include non-cash
gains, losses or charges required (a) under SFAS 133, or (b) under SFAS 143.

 3
 

 

“Consolidated Net Income” means, with reference to any period,
the consolidated net income (or loss) of the Borrower for such period in
accordance with GAAP (excluding the net income (or loss) of Unrestricted
Subsidiaries).

“Control”, including the variants “Controlling” and “Controlled,”
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 majority voting power, by contract or otherwise.

“Current Maturities of Long Term Indebtedness” means, at any
time, that portion of Long Term Indebtedness that should be classified as
current in accordance with GAAP.

“Deed of Trust” means each Deed of Trust, Mortgage, Line of
Credit Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement executed by the Borrower or any Guarantor in favor of the
Administrative Agent, for the ratable benefit of the Secured Parties, as it may
be amended or modified and in effect from time to time.

“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.

“Defaulting Lender” means any Lender that (a) has failed to
fund any portion of the Loans or any participation in any Letter of Credit
required to be funded by it hereunder within one Business Day of the date
required to be funded by it hereunder, (b) unless subject to a good faith
dispute, has failed to pay over to the Administrative Agent or any other Lender
any other amount required to be paid by it hereunder within one Business Day of
the date when due, or (c) has been deemed insolvent or become the subject
of a bankruptcy or insolvency proceeding.

“Defensible Title” means, with respect to the assets of the
Borrower or any Restricted Subsidiary (a) the title of the Borrower or
such Restricted Subsidiary to such assets is free and clear of all Liens of any
kind whatsoever (except Liens and encumbrances permitted by Section 5.10),
(b) the title of the Borrower or such Restricted Subsidiary as is
deducible from applicable public records, and (c) with respect to the
Mortgaged Properties, the representations and warranties set forth in Section 3.05(a)
are true and correct.

“Designated Title Exceptions” has the meaning assigned to such
term in Section 3.05(a).

“Disclosed Matters” means the actions, suits and proceedings and
the environmental matters disclosed in Schedule 3.06.

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

“Draw Limit” means the amount the Borrower may elect to be
available for Loans and Letters of Credit hereunder, provided that the amount
elected by the Borrower shall not, once so elected, be increased without the
consent of the Administrative Agent in its sole discretion.

“EBITDAX” means Consolidated Net Income plus, to the extent deducted from revenues
in determining Consolidated Net Income, (i) interest expense, (ii) expense for
taxes paid or accrued, (iii) depreciation, (iv) amortization, (v)
depletion of reserves, (vi) oil and gas asset impairment write downs, (vii)
lease impairment expense, (viii) abandonment, (ix) exploration expenses, and
(x) extraordinary losses incurred other than in the ordinary course of business,
minus, to the extent included in
Consolidated Net Income, extraordinary gains realized other than in the
ordinary course of

 4
 

 

business, and other non-cash charges. 
EBITDAX shall not include non-cash effects of (i) the early
extinguishment of long-term debt, and (ii) stock option expense.

“Effective Date” means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance
with Section 9.02).

“Embargoed Person” means any Person identified by OFAC or any
other Person with whom a Person resident in the United States of America may
not conduct business or transactions by prohibition of federal law or Executive
Order of the President of the United States of America.

“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 the Borrower or any
Restricted Subsidiary 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 the Borrower, 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 the Borrower 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 the Borrower 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 the Borrower 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 the Borrower or any ERISA
Affiliate of any notice, or the receipt by any Multiemployer Plan from the
Borrower or any ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that

 5
 

 

a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA.

“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 VII.

“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 2.19(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 2.17(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 2.17(a).

“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.

“Fee Letter” has the meaning assigned such term in Section
2.12(d).

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

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

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

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

“Guarantee” of or by any Person (the “guarantor”) means
any obligation, contingent or otherwise, of the guarantor guaranteeing or
having the economic effect of guaranteeing any Indebtedness

 6
 

 

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.

“Guarantor” means (i) initially, Warren Resources of California,
Inc., a California corporation, and Warren E&P, Inc., a New Mexico
corporation, and (ii) each other Restricted Subsidiary that hereafter executes
and delivers to the Administrative Agent and the Lenders a Guaranty, in each
case until such Person ceases to be a Guarantor in accordance with the terms
hereof.

“Guaranty” means any Guarantee, executed by a Guarantor in favor
of the Administrative Agent, for the ratable benefit of the Secured Parties, as
it may be amended or modified and in effect from time to time.

“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.

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

“Hydrocarbons Interests” means all of the Borrower’s and the
Guarantors’ rights, titles, interests and estates in and to oil and gas leases,
oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases,
mineral fee interests, overriding royalty and royalty interests, net profit
interests and production payment interests, including any reserved or residual
interest of similar nature, in and under the Oil and Gas Properties that are
subject to Lenders Liens.

“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 customarily 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

 7
 

 

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.

“Initial Reserve Report” means the reserve report dated January
14, 2006, as of December 31, 2005, prepared by Williamson Petroleum
Consultants, Inc., an independent petroleum engineer, concerning the Oil and
Gas Properties based on reasonable assumptions specified by the Administrative
Agent (including discount rates and projected hydrocarbon price assumptions), a
copy of which has been delivered to each Lender.

“Interest Election Request” means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.08.

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

“Interest Period” means (a) 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, six or twelve 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 immediately 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 initial date of a Borrowing shall be the date on which
such Borrowing is made, and in the case of a Borrowing thereafter shall be the
effective date of the most recent conversion or continuation of such Borrowing.

“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 2.06(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.

“Law” means all applicable statutes, laws, ordinances,
regulations, orders, writs, injunctions or decrees of any state, commonwealth,
nation, country, territory, possession, county, parish, municipality or
Tribunal.

“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 minus (c) the amount of cash

 8
 

 

collateral deposited pursuant to Section 2.06(j) or Section
2.09(e) or (f). 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 Person that was a Lender or any
Affiliate of a Lender at the time it became a counterparty to a Swap Agreement
with Borrower or any Guarantor.

“Lender Liens” means the Liens granted in the Collateral in
favor of the Administrative Agent for the ratable benefit of the Secured
Parties or directly for the benefit of any Secured Party pursuant to the Loan
Documents.

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

“Lien” means, with respect to any asset or any other Lien
authorized hereby (a) any mortgage, deed of trust, lien, pledge,
hypothecation, encumbrance, charge or security interest in, on or of such
asset, and (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.

“Loan Documents” means this Agreement, the Notes, the
applications, agreement and/or such other instruments required by the Lenders
in connection with Letters of Credit, the Collateral Documents and the ISDA
Master Agreement.

“Loan Excess” means the amount (if any) by which the Revolving
Credit Exposure exceeds the Borrowing Base in effect on the date of
determination (whether as a result of a scheduled or unscheduled
redetermination or otherwise).

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

“Long Term Indebtedness” means, at any time, all consolidated
Indebtedness of the Borrower that should be classified as “funded indebtedness”
or “long term indebtedness” on the Borrower’s balance sheet as of such date, in
accordance with GAAP, excluding “funded indebtedness” or “long term
indebtedness” of the Unrestricted Subsidiaries.

 9
 

 

“Material Adverse Effect” means a material adverse effect on
(a) the business, assets, operations, or condition, financial or
otherwise, of the Borrower and the Subsidiaries taken as a whole (other than
general economic conditions affecting the oil and gas industry as a whole),
(b) the ability of the Borrower to perform any of its obligations under
this Agreement or (c) the rights of or benefits available to the Lenders
under this Agreement or any other Loan Document.

“Material Indebtedness” means Indebtedness (other than the Loans
and Letters of Credit), or obligations in respect of one or more Swap
Agreements, of any one or more of the Borrower and its Restricted Subsidiaries
in an aggregate principal amount exceeding $2,000,000. For purposes of
determining Material Indebtedness, the “principal amount” of the obligations of
the Borrower or any Restricted Subsidiary 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 Restricted Subsidiary 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 Oil and Gas
Properties included in the Borrowing Base 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 from the Oil
and Gas Properties included in the Borrowing Base sold by the Borrower and the
Restricted Subsidiaries, on a consolidated basis, during the twelve months immediately
preceding such date.

“Maturity Date” means November    , 2011.

“Maximum Rate” has the meaning assigned to such term in Section
9.13.

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

“Mortgaged Properties” means the Oil and Gas Properties
described in one or more duly executed, delivered and filed Deeds of Trust
evidencing a first and prior Lender Lien in favor of the Administrative Agent
for the benefit of the Secured Parties and subject only to the Liens permitted
pursuant to Section 5.10.

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

“Non-Recourse Debt” mean Indebtedness of the Borrower or any
Guarantor for which the Borrower or such Guarantor, as the case may be, is not
personally liable for payment.

“Note” means, with respect to any Lender, the promissory note in
the form of Exhibit B issued at the request of such Lender pursuant
to Section 2.10.

“OFAC” means the Office of Foreign Assets Control, Department of
the Treasury.

“Oil and Gas Properties” means Hydrocarbon Interests; the
properties now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization, pooling agreements and declarations
of pooled units and the units created thereby (including without limitation all
units created under orders, regulations and rules of any governmental body or
agency having jurisdiction) which may affect all or any portion of the
Hydrocarbon Interests; all operating agreements, contracts and other agreements
which relate to any of the Hydrocarbon Interests or the production, sale,
purchase, exchange or processing of Hydrocarbons from or attributable to such
Hydrocarbon Interests; all

 10
 

 

Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, the lands covered thereby and all
oil in tanks and all rents, issues, profits, proceeds, products, and revenues
from or attributable to the Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and properties in anywise appertaining, belonging,
affixed or incidental to the Hydrocarbon Interests, rights, titles, interests
and estates described or referred to above, including any and all real or
personal property, now owned or hereafter acquired and situated upon, used,
held for use or useful in connection with the operating, working or development
of any of such Hydrocarbon Interests (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings,
structures, fuel separators, liquid extraction plants, plant compressors,
pumps, pumping units, field gathering systems, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers, meters,
apparatus, equipment, appliances, tools, implements, cables, wires, towers,
casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing, insofar as the same relate to
the Hydrocarbon Interests.

“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 set forth in Section 9.04.

“Patriot Act” means the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), and the
related regulations issued thereunder, including temporary regulations.

“Party” and “Parties” mean, individually and
collectively, the Administrative Agent, each Lender, the Borrower, each
Guarantor and each Restricted Subsidiary.

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

“Permitted Encumbrances” means any or all of the following:

(a)           Lender Liens;

(b)           Liens imposed by law
for taxes, assessments or other governmental charges that are not yet due or
are being contested in compliance with Section 5.04;

(c)           Liens of landlords,
vendors, carriers, warehousemen, mechanics, materialmen, repairmen and other
like Liens or charges imposed by law, or otherwise, arising in the ordinary
course of business for amounts not yet delinquent (including any amounts being
withheld) or securing obligations that are not overdue by more than 90 days or
are being contested in compliance with Section 5.04;

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

(e)           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;

 11

 

 

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

(g)           easements, zoning or
other restrictions, rights-of-way, covenants, conditions, servitudes, permits,
authorizations, surface and use leases and agreements, rights, obligations and
similar encumbrances on real or personal property imposed by law or arising in
the ordinary course of business that: 
(i) are of record, (ii) are apparent from a physical
inspection of the affected properties, (iii) the Borrower took subject to,
(iv) do not secure any monetary obligations, (v) do not materially detract
from the value of the affected property, and (vi) do not interfere with
the ordinary conduct of business of the Borrower or any Subsidiary;

(h)           liens in favor of
co-owner working interest owners under joint operating agreements;

(i)            inchoate liens
arising under ERISA to secure the contingent liabilities, if any, permitted by
this Agreement;

(j)            deposits,
encumbrances or pledges to secure payments of workers compensation insurance
and related payments, public liability, unemployment and other insurance,
old-age pensions of other social security obligations, or the performance of
bids, tenders, leases, contracts (other than contracts for the payment of
money), public or statutory obligations, surety, stay or appeal bonds, or other
similar obligations arising in the ordinary course of business;

(k)           any Designated Title
Exceptions which are incurred in the ordinary course of business;

(l)            encumbrances arising
out of judgments or awards in respect of which the Borrower shall in good faith
be prosecuting an appeal or proceedings for review; provided that the Borrower
shall have set aside on its books adequate reserves, in accordance with GAAP,
with respect to such judgment or award;

(m)          Liens affecting the
Borrower’s or any Restricted Subsidiary’s Equity Interests in any Unrestricted
Subsidiary;

provided that the term “Permitted Encumbrances” shall
not include any Lien securing Indebtedness (other than Bonds).

“Permitted Investments” means:

(a)           direct obligations
of, or obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of 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;

(b)           investments in
commercial paper maturing within 270 days after the date of acquisition thereof
and having, at such date of acquisition, one of the two highest credit rating
obtainable from S&P or from Moody’s;

(c)           investments in
certificates of deposit, banker’s acceptances and time deposits maturing within
365 days after the date of acquisition thereof that are issued or guaranteed by
or placed with, and money market deposit accounts issued or offered by, any
domestic office of any

 12
 

 

 

commercial bank organized under the laws of the United States of
America or any State thereof which has a combined capital and surplus and undivided
profits of not less than $250,000,000;

(d)           fully collateralized
repurchase agreements with a term of not more than 30 days for securities
described in clause (a) above and entered into with a financial
institution satisfying the criteria described in clause (c) above;
and

(e)           money market funds
that (i) comply with the criteria set forth in Securities and Exchange
Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated
AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least
$5,000,000,000.

“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 the Borrower 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.

“Pricing Schedule” means the schedule attached hereto identified
as such.

“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 New York City, and each change in the Prime
Rate shall be effective from and after the date such change is publicly
announced as being effective.

“Property” of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.

“Register” has the meaning set forth in Section 9.04.

“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 Revolving
Credit Exposures and unused Commitments representing at least 662⁄3% of the
sum of the total Revolving Credit Exposures and unused Commitments.

“Reserve Report” means the Initial Reserve Report and each
reserve report delivered pursuant to Section 5.01(d) or (e).

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

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

 13
 

 

 

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

“Rights” means rights, remedies, powers, and privileges.

“S&P” means Standard & Poor’s.

“Security Agreements” means any and all security agreements now
or hereafter executed by a Guarantor or the Borrower in favor of the
Administrative Agent, for the ratable benefit of the Secured Parties, as they
may be amended or modified and in effect from time to time.

“Secured Obligations” means, collectively, all obligations of
every nature of the Borrower or any Guarantor 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.

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

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

“Subordinated Indebtedness” of a Person means any Indebtedness
of such Person the payment of which is subordinated to payment of the Secured
Obligations and contains satisfactory provisions regarding maturity, covenants
and events of default; all to the reasonable written satisfaction of the
Administrative Agent.

“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.

 14
 

 

 

“Subsidiary” means any 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; economic, financial or pricing indices or measures
of economic, financial or pricing risk or value; any similar transaction; or
any combination of these transactions, including, without limitation, the ISDA
Master Agreement; provided that no phantom stock or similar plan
providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or the
Subsidiaries shall be a Swap Agreement.

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

“Total Net Debt” means, on any date of determination, the
Borrower’s consolidated Indebtedness (excluding Non-Recourse Debt and
Indebtedness of any Unrestricted Subsidiary on such date) less the amount of
unrestricted cash and cash equivalents on hand as of such date.

“Transactions” means the execution, delivery and performance by
the Borrower of this Agreement, the borrowing of Loans, the use of the proceeds
thereof and the issuance of Letters of Credit hereunder.

“Tribunal” means any government, any arbitration panel, any
court or any governmental department, central bank or comparable agency,
commission, board, bureau, agency or instrumentality of the United States or
any state, province, commonwealth, nation, territory, possession, county,
parish, town, township, village or municipality, whether now or hereafter
constituted or existing.

“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 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, at any time and from time to
time, designate any Subsidiary (including any newly acquired or newly formed
Subsidiary, but excluding any Subsidiary that owns or operates Oil and Gas
Properties included in the Borrowing Base (except to the extent the Borrower
complies with Section 9.02(c) in connection therewith) to be an
Unrestricted Subsidiary provided that (i) no Default or Event of Default
has occurred or is continuing at the time of such designation and after giving
effect to such designation, (ii) immediately after such designation, neither
for Borrower nor any Guarantor has any obligation to pay any Indebtedness of
such Subsidiary (excluding any contingent liability arising solely by virtue of
such Person’s general partnership interest so long as (i) such
Unrestricted Subsidiary’s charter documents prohibit it from incurring
Indebtedness and (ii) such Unrestricted Subsidiary has not incurred any
Indebtedness), has in any way guaranteed any Indebtedness of such Subsidiary,
or has any assets or properties (excluding a pledge of the Equity Interests in
such Subsidiary) which are subject to any Lien securing any Indebtedness of
such Subsidiary, and (iii) notice of any such designation is promptly given to
the Administrative Agent in writing.  The
Board of Directors of the Borrower may, at any time and from time to time,
designate any Unrestricted Subsidiary to be a Restricted Subsidiary provided
that (i) no Default or Event of Default has occurred or is continuing at the
time of such designation and after giving effect to such designation, and (ii)
notice of any such designation is promptly given to the Administrative Agent in
writing.

 15
 

 

 

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

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
assignees, (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 requests 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.

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
Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the
sum of the total Revolving Credit Exposures exceeding the total Commitments.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Borrower may borrow, prepay and reborrow Loans, provided,
that the aggregate Revolving Credit Exposure shall not exceed the least of (a)
the aggregate Commitments, (b) the Borrowing Base, and (c) the Draw Limit.

 16
 

 

 

SECTION 2.02.         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 2.14, 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 $100,000 and not less than $500,000. 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 $500,000; provided
that an ABR Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the total Commitments or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.06(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 5 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 2.03.         Requests
for Borrowings. To request a Borrowing, the Borrower shall notify the
Administrative Agent of such request by telephone (a) in the case of a
Eurodollar Borrowing, not later than 11:00 a.m., Houston, Texas time, three
Business Days before the date of the proposed Borrowing, or (b) in the
case of an ABR Borrowing, not later than 11:00 a.m., Houston, Texas 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 2.06(e) may be given not
later than 10:00 a.m., Houston, Texas 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 signed by the Borrower. Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.02:

(i)
the aggregate amount of the requested Borrowing;

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

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

(iv)
in the case of a Eurodollar Borrowing, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of
the term “Interest Period”; 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 2.07.

 17
 

 

 

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 2.04.         Intentionally
Omitted.

SECTION 2.05.         Intentionally
Omitted.

SECTION 2.06.         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 account, 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, or such terms and conditions contain representations,
defaults, covenants, or grants of security not found in this Agreement or any
other Loan Document, then such provisions shall be deemed ineffective and 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 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 sum of
the total Revolving Credit Exposures shall not exceed the total Commitments.

(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 ; provided that any Letter of Credit with a one-year
term may provide for the renewal thereof for additional one-year periods (which
shall in no event extend beyond the date referred to in clause (ii)
above).

(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

 18
 

 

 

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 Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.

(e)           Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse
such LC Disbursement by paying to the Administrative Agent an amount equal to
such LC Disbursement not later than 12:00 noon, Houston, Texas time, on the
date that such LC Disbursement is made, if the Borrower shall have received
notice of such LC Disbursement prior to 10:00 a.m., Houston, Texas time, on
such date, or, if such notice has not been received by the Borrower prior to
such time on such date, then not later than 12:00 noon, Houston, Texas time, on
(i) the Business Day that the Borrower receives such notice, if such notice is
received prior to 10:00 a.m., Houston, Texas time, on the day of receipt, or
(ii) the Business Day immediately following the day that the Borrower receives
such notice, if such notice is not received prior to such time on the day of receipt;
provided that the Borrower may, subject to the conditions to borrowing
set forth herein, request in accordance with Section 2.03 that such
payment be financed with an ABR Borrowing in an equivalent amount and, to the
extent so financed, the Borrower’s obligation to make such payment shall be
discharged and replaced by the resulting ABR Borrowing. If the Borrower fails
to make such payment when due, the Administrative Agent shall notify each
Lender of the applicable LC Disbursement, the payment then due from the
Borrower in respect thereof and such Lender’s Applicable Percentage thereof.
Promptly following receipt of such notice, each Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.07 with
respect to Loans made by such Lender (and Section 2.07 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,

 19
 

 

 

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), 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), or 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
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 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 up 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 2.13(d) 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 2.12(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

 20
 

 

 

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 accelerated, Lenders with LC Exposure representing greater than 662⁄3%
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 VII.  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, 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 greater than 662⁄3% 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 2.07.         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, Houston, Texas time, to the account of the
Administrative Agent most recently designated by it for such purpose by notice
to the Lenders. The Administrative Agent will make such Loans available to the
Borrower by promptly crediting the amounts so received, in like funds, to an
account of the Borrower maintained with the Administrative Agent in Houston,
Texas and designated by the Borrower in the applicable Borrowing Request; provided
that ABR Loans made to finance the reimbursement of an LC Disbursement as
provided in Section 2.06(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 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 up 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

 21

 

such Lender pays such amount
to the Administrative Agent, then such amount shall constitute such Lender’s
Loan included in such Borrowing.

SECTION 2.08.         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.
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 therefore, 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 2.03 if the
Borrower were requesting a Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic
Interest Election Request shall be irrevocable and shall be confirmed promptly
by hand delivery or telecopy (or transmitted by electronic communication if
arrangements for doing so have been approved by the Administrative Agent) 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 2.02:

(i)            the Borrowing to
which such Interest Election Request applies and, if different options are
being elected with respect to different portions thereof, the portions thereof
to be allocated to each resulting Borrowing (in which case the information to
be specified pursuant to 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)          whether the
resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

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

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

(d)           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

 22
 

 

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 2.09.         Borrowing
Base.

(a)           During the period from the date of this Agreement to the
date as of which the Borrowing Base is first redetermined pursuant to Section
2.09(b), the Borrowing Base shall be $40,000,000.00.

(b)           On or before March 1
and September 1 of each year, the Borrower shall furnish to the Administrative
Agent all information, reports, and data which the Administrative Agent has
then reasonably requested concerning the Borrower’s and its Subsidiaries’
businesses and properties (including their Oil and Gas Properties and interests
and the reserves and production relating thereto and detailed consolidated
financial projections and capital budget), together with the Reserve Report
described in Section 5.01(d) or (e), as appropriate, prepared as
of the immediately preceding June 30 or December 31, respectively.  By April 1, in the case of the Reserve Report
delivered by March 1, and by October 1, in the case of the Reserve Report
delivered by September 1, or as promptly thereafter as practicable, in either
case, (i) the Administrative Agent shall determine and the Required Lenders
shall approve an amount for the Borrowing Base (provided that all Lenders must
agree to any increase in the Borrowing Base) and (ii) the Administrative Agent
shall, by notice to the Borrower, designate such amount as the new Borrowing
Base available to the Borrower hereunder, which designation shall take effect
immediately on the date such notice is sent and shall remain in effect (subject
to reduction pursuant to Section 2.09(e) or (f)) until, but not
including, the next date as of which the Borrowing Base is redetermined. After
having received notice of such proposed Borrowing Base by the Administrative
Agent, each Lender shall have ten (10) days to agree or disagree with such
proposal.  Any failure of a Lender to
communicate its approval or disapproval within such ten (10) day period shall
be deemed to be an approval of such proposal. If the Borrower does not furnish
such Reserve Report by the date specified in the first sentence of this
section, the Administrative Agent may nonetheless designate the Borrowing Base
at any amount which the Required Lenders in their reasonable discretion have
approved, and may redesignate the Borrowing Base from time to time thereafter
until each Lender receives the Reserve Report, whereupon the Required Lenders
shall designate a new Borrowing Base as described above. Any redetermination of
the Borrowing Base shall not be effective until written notice is sent to the
Borrower.

(c)           In addition to the foregoing, the Required Lenders or the
Borrower may initiate a redetermination of the Borrowing Base at any other time
as they or it, as the case may be, so elect (including, without limitation, if
the Borrower fails to follow the development plan disclosed to the
Administrative Agent on or about the Effective Date); provided, however, that the Borrower may initiate only one (1) such
unscheduled redetermination between each scheduled redetermination by
specifying in writing to the Administrative Agent the date on which the
Borrower will furnish the information required by Section 2.09(b) and
the date on which it desires such redetermination to occur. The Administrative
Agent shall propose, and the Required Lenders shall have at least forty-five
(45) days after the delivery of the information required by Section 2.09(b)
to approve, any unscheduled redetermination of the Borrowing Base requested by
the Borrower (provided that all Lenders must agree to any increase in the
Borrowing Base).  Any failure of a Lender
to communicate its approval or disapproval within such forty-five (45) day
period shall be deemed an approval of such proposal. The Required Lenders may,
at any time in their reasonable discretion, initiate an unscheduled
redetermination of the Borrowing Base by specifying in writing to the Borrower
the date by which the Borrower is to furnish the information

 23
 

 

required by Section
2.09(b) which shall be at least forty-five (45) days from the date of such
notice and the projected date on which such redetermination is to occur. The
Administrative Agent shall promptly notify the Borrower, in writing, of the new
Borrowing Base.

(d)           The Administrative Agent shall
determine and the Required Lenders shall approve the amount of the Borrowing
Base based upon the loan collateral value which they, in their reasonable
discretion (using such methodology, assumptions and discount rates as the
Administrative Agent and the Required Lenders customarily use in assigning
collateral value to Oil and Gas Property) assign to the various Oil and Gas
Properties of the Guarantor, the Borrower and their Subsidiaries at the time in
question, and based upon such other credit factors consistently applied
(including, without limitation, the assets senior and subordinate liabilities,
cash flow, hedged and unhedged exposure to oil and gas prices, foreign exchange
rate and interest rate changes, business, properties, prospects, management,
and ownership of the Guarantor, the Borrower and their Subsidiaries) as they in
their reasonable discretion deem significant and customarily consider in
evaluating similar oil and gas credits. It is expressly understood that the
Required Lenders and the Administrative Agent have no obligation to agree upon
or designate the Borrowing Base at any particular amount, whether in relation
to the Aggregate Commitment or otherwise, and that the Lenders’ Commitments to
advance funds hereunder is determined by reference to the Borrowing Base from
time to time in effect, and, to the extent permitted by Law and regulatory
authorities, for the purposes of capital adequacy determination and
reimbursements under Section 2.15. Notwithstanding anything to the
contrary herein, the amount of the Borrowing Base may not be increased at any
time without the consent of 100% of the Lenders.

(e)           Upon the sale of any of the Oil and Gas Properties of the
Borrower or any Restricted Subsidiary representing in excess of five percent
(5%) of the Borrowing Base immediately prior to such sale, the Agent and the
Required Lenders may redetermine the Borrowing Base in accordance with Section 2.09(c)
and the Borrower shall eliminate any Loan Excess within ten (10) days after
receipt of written notice from the Administrative Agent of the new Borrowing
Base and such Loan Excess by prepaying without premium or penalty (other than
funding indemnification amounts due under Section 2.16), the
principal amount of the Loans in an amount sufficient to eliminate such Loan
Excess (or if a Loan Excess remains after prepaying all of the Loans because of
LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
equal to such remaining Loan Excess to be held in a cash collateral account).

(f)            Except as otherwise provided in Section 2.09(e),
in the event a Loan Excess exists, the Borrower shall, within ten (10) days
after written notice from the Administrative Agent to the Borrower of such Loan
Excess, notify the Administrative Agent that the Borrower intends to take one
or more of the following actions: 
(i) provide the Administrative Agent within thirty (30) days
thereafter and by instruments reasonably satisfactory in form and substance to
the Administrative Agent, with additional security consisting of Oil and Gas
Property with a value and quality satisfactory to the Administrative Agent in
its reasonable discretion sufficient to eliminate such Loan Excess,
(ii) within thirty (30) days thereafter, prepay, without premium or
penalty (other than funding indemnification amounts due under Section 2.16),
the principal amount of the Loans in an amount sufficient to eliminate such Loan
Excess (or if a Loan Excess remains after prepaying all of the Loans because of
LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
equal to such remaining Loan Excess to be held in a cash collateral account),
(iii) prepay, without premium or penalty, the principal amount of such
Loan Excess in not more than three (3) equal monthly installments plus accrued
interest thereon and make the first such monthly payment on the 60th day after
the Borrower’s receipt of notice of such Loan Excess, or (iv) provide a
combination of such additional security and such prepayments to eliminate such
Loan Excess.

 24
 

 

SECTION 2.10.         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 manner affect the obligation of
the Borrower to repay the Loans in accordance with the terms of this Agreement.

(e)           Any Lender may request that Loans made by it be evidenced
by a promissory note. In such event, the Borrower shall execute and deliver to
such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) 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 2.11.         Prepayment
of Loans.

(a)           The Borrower shall have the right at any time and from
time to time to prepay any Borrowing in whole or in part, subject to Section
2.16 and 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 or other electronic communication agreed by the
Administrative Agent) of any prepayment hereunder (i) in the case of prepayment
of a Eurodollar Borrowing, not later than 11:00 a.m., Houston, Texas time,
three Business Days before the date of prepayment, or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., Houston, Texas time,
one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid. Promptly following receipt of
any such notice relating to a Borrowing, the Administrative Agent shall advise
the Lenders of the contents thereof. Each partial prepayment of any Borrowing
shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02. Each prepayment
of a Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent
required by Section 2.13.

 25
 

 

SECTION 2.12.         Fees.

(a)           The Borrower agrees to pay to the Administrative Agent for
the account of each Lender a facility fee, which shall accrue at the Applicable
Rate on the daily amount of such Lender’s Applicable Percentage of the Draw
Limit minus such Lender’s Revolving Credit Exposure during the period from and
including the Maturity Date up to but excluding the date on which such Lender’s
Commitment terminates; provided that, if such Lender continues to have
any Revolving Credit Exposure after its Commitment terminates, then such
facility fee shall continue to accrue on the daily amount of such Lender’s
Revolving Credit Exposure from and including the date on which its Commitment
terminates up to but excluding the date on which such Lender ceases to have any
Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on
the last day of March, June, September and December of each year and on the
date on which the Commitments terminate, commencing on the first such date to
occur after the date hereof; provided that any facility fees accruing
after the date on which the Commitments terminate shall be payable on demand.
All facility 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).

(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 (plus, at any time an Event of Default is continuing, two percent (2%))
used to determine the interest rate applicable to Eurodollar Loans on the average
daily amount of such Lender’s LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date up 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 of 0.00125% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date up to
but excluding the later of the date of termination of the Commitments and the
date on which there ceases to be any LC Exposure, 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 Commitments terminate and any such fees accruing after the date on
which the Commitments terminate 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)           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 to the Lenders (in
the case of facility fees and participation fees). Fees paid shall not be
refundable under any circumstances.

(d)           The Borrower agrees to pay all other fees payable to the
Administrative Agent as set forth in a fee letter (the “Fee Letter”)
dated of even date herewith between the Borrower and the Administrative Agent.

SECTION 2.13.         Interest.

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

 26
 

 

(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 2% plus the rate otherwise in effect for
such Loan, fee or other amount.

(d)           Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and upon termination of the
Commitments; 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), 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 2.14.         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 2.15.         Increased
Costs.

(a)           If any Change in Law shall:

(i)            impose, modify or
deem applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by,

 27
 

 

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 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 , and (ii)
in reasonable detail the basis for, and the calculation of, such additional
amount or amounts, shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender or the Issuing Bank,
as the case may be, the amount shown as due on any such certificate within
15 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 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 2.16.         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 2.11(b)
and is revoked in accordance therewith), or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a

 28
 

 

result
of a request by the Borrower pursuant to Section 2.19, 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 15 days
after receipt thereof.

SECTION 2.17.         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.

(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 as to the amount of such payment or liability 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, 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

 29
 

 

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 has paid additional amounts pursuant to this
Section 2.17, 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 2.17 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 information relating to its taxes which it deems confidential) to the
Borrower or any other Person.

SECTION 2.18.         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 2.15, 2.16 or 2.17,
or otherwise) prior to 12:00 noon, Houston, Texas 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 600 Travis, 20th Floor, Houston, Texas, except
payments to be made directly to the Issuing Bank as expressly provided herein
and except that payments pursuant to Sections 2.15, 2.16, 2.17
and 9.03 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 costs and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of costs and fees then due to such
parties, and (ii) second, towards payment of the Secured Obligations, in such
manner and order as the Administrative Agent may elect; 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 Collateral Documents, the
Administrative Agent’s determination of the application of proceeds (as set
forth in the Collateral Documents) shall include 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 Secured 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

 30
 

 

LC Disbursements resulting
in such Lender receiving payment of a greater proportion of the aggregate
amount of its Loans and participations in LC Disbursements and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans and participations in LC Disbursements of other
Lenders to the extent necessary so that the benefit of all such payments shall be
shared by the Lenders ratably in accordance with the aggregate amount of
principal of and accrued interest on their respective Loans and participations
in LC Disbursements; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this 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 has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders
or the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.

(e)           If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.06(d) or (e), 2.07(b),
2.18(d) or 9.03(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 2.19.         Mitigation
Obligations; Replacement of Lenders.

(a)           If any Lender requests compensation
under Section 2.15, 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 2.17, then such Lender shall use
reasonable efforts to (x) file any certificate or document reasonably requested
by the Borrower or (y) designate a different lending office for funding or
booking its Loans hereunder or (z) assign its rights and obligations hereunder
to another of its offices, branches or affiliates, if, in the judgment of such
Lender, such filing, designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.15 or 2.17, 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.

 31

 

 

(b)           If any Lender requests compensation under Section 2.15,
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 2.17,
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 9.04),
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 2.15 or payments required to be made
pursuant to Section 2.17, 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 9.02, 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 or if any Lender is a Defaulting Lender; then, the Borrower may
elect to replace such Non-Consenting Lender or Defaulting Lender, as the case
may be, as a Lender party to this Agreement in accordance with and subject to
the restrictions contained in, and consents required by Section 9.04;
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 2.15 or payments required to be made
pursuant to Section 2.17, 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.

SECTION 2.20. 
Collateral.

(a)           First Lien. The full and
complete payment and performance of the Secured Obligations shall be secured
under the Collateral Documents by first and prior Lender Liens (subject to Section
5.10) in, to and on all of the following Rights, titles, and interests in
and to (but none of the Borrower’s or Guarantors’ obligations with respect to)
the following items and types of Property, to the extent and all as more
particularly set forth in the Collateral Documents:

(i)            all
present and future Rights, titles and interests that the Borrower and any
Guarantor now own or hereafter acquire in and to their respective Oil and Gas
Properties including, but not limited to, oil and gas and/or oil, gas and
mineral leases and interests, royalty and overriding royalty interests, production
payment and net profits

 32
 

 

 

interests, mineral fee interests, and Rights
therein, including, without limitation, all reversionary or carried interests
relating to the foregoing, together with all present and future Rights, titles
and interests in and to all present and future unitization, communitization and
pooling agreements (and all properties covered and units created thereby),
whether arising by contract or operation of Law, which now or hereafter include
all or any part of the foregoing and together with all lands now or hereafter
subject to any of the foregoing, and all tenements, hereditaments,
appurtenances, and properties in anywise appertaining, belonging, affixed or
incidental to any of the foregoing;

(ii)           all
present and future oil, gas or other liquid and gaseous hydrocarbons, and other
minerals now or hereafter accruing to or produced from mineral interests
described in (i) preceding and/or to which the Borrower and any Guarantor now
or hereafter may be entitled as a result of ownership thereof;

(iii)          whether
now owned or hereafter acquired, all present and future Rights, titles and
interests of the Borrower and any Guarantor (including without limitation, the
Rights to receive payments due thereunder) in and to any and all gas sales
contracts, oil, gas or other condensates or other products sales contracts now
or hereafter existing in connection with the Collateral described hereinabove;
and

(iv)          all
present and future increases, profits, combinations and reclassifications of,
and substitutions and replacements for, all or part of the Collateral
heretofore described;

provided, that as to Oil and Gas Properties, the Borrower shall only be required
to grant a Lenders Lien up to 80% of the aggregate present worth of the proved
reserves included in the Borrowing Base.

(b)           Lender Liens.
The Lender Liens in the Collateral shall be further evidenced and governed by
the Collateral Documents.

ARTICLE
III.

Representations
and Warranties

The Borrower represents and
warrants to the Lenders that:

SECTION 3.04.  Organization;
Powers. Each of the Borrower and its Restricted
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and authority
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 3.02.  Authorization;
Enforceability. The Transactions are within the Borrower’s
corporate powers and have been duly authorized by all necessary corporate and,
if required, stockholder action on the part of the Borrower. This Agreement has
been duly executed and delivered by the Borrower and constitutes a legal, valid
and binding obligation of the Borrower, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or

 33
 

 

 

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 3.03.  Governmental
Approvals; No Conflicts. The Transactions
(a) do not require the Borrower or any Subsidiary to obtain 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 result in a violation by the Borrower or
any Subsidiary of any applicable law or regulation or the charter, by-laws or
other organizational documents of the Borrower or any of its Subsidiaries or
any order of any Governmental Authority, (c) will not violate or result in a
default under any indenture, agreement or other instrument evidencing Material
Indebtedness or a Material Sales Contract binding upon the Borrower or any of
its Subsidiaries or its assets, or give rise to a right thereunder to require
any payment to be made by the Borrower or any of its Subsidiaries, and (d) will
not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries other than Permitted Encumbrances.

SECTION 3.04. 
Financial Condition; No Material Adverse Change.

(a)           The Borrower has heretofore furnished to the Lenders its
consolidated balance sheet and statements of income, stockholders equity and
cash flows (i) as of and for the fiscal year ended December 31, 2005, and (ii)
as of and for the fiscal quarter and the portion of the fiscal year ended
September 30, 2006, each certified by its chief financial officer. Such
financial state­ments present fairly, in all material respects, the financial
position and results of operations and cash flows of the Borrower and its
consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of
footnotes in the case of the statements referred to in clause (ii) above.

(b)           As of the date hereof, since September 30, 2006,
there has been no material adverse change in the business, assets, operations
or condition, financial or otherwise, of the Borrower and its Restricted
Subsidiaries, taken as a whole.

(c)           As of the date of delivery of each financial statement
required by Section 5.01 (the “Current Financial Statement”),
since the delivery of the financial statements immediately preceding the
Current Financial Statement, there has been no material adverse change in the
business, assets, operations or condition, financial or otherwise, of the
Borrower and its Restricted Subsidiaries, taken as a whole.

SECTION 3.05. 
Ownership; Title to Properties; Licenses; Liens.

(a)           Except as set forth
on Schedule 5.10 attached hereto, Borrower and each Guarantor has
Defensible Title to each Mortgaged Property having a book cost in excess of
$200,000 (except to the extent that (a) such assets have thereafter been
disposed of in compliance with this Agreement or (b) leases for such property
have expired pursuant to their terms), in each case free and clear of all
Liens, except (i) Liens permitted by Section 5.10,
(ii) obligations or duties to any municipality or public authority with
respect to any franchise, grant, license or permit and all applicable laws,
rules, regulations and orders of any Governmental Authority, (iii) all
lessors’ royalties, overriding royalties, net profits interests, production
payments, carried interests, reversionary interests and other burdens on or
deductions from the proceeds of production, (iv) the terms and conditions
of joint operating agreements and other oil and gas contracts, (v) all
rights to consent by required notices to, and filing with or other actions by
governmental or tribal entities, if any, in connection with the change of
ownership or control of an interest in federal, state, tribal or other domestic
governmental oil and gas leases, if the same are customarily obtained in
connection with such change of ownership or control, but only insofar as such

 34
 

 

 

consents, notices, filings and other actions relate to the transactions
permitted by this Agreement, (vi) any preferential purchase rights,
(vii) required third party consents to assignment,
(viii) conventional rights of reassignment prior to abandonment and
(ix) the terms and provisions of oil and gas leases, unit agreements,
pooling agreements, and other documents creating interests comprising the Oil
and Gas Properties, Hydrocarbons and Hydrocarbon Interests; provided, however,
the exceptions described in clauses (i) through (viii) inclusive
above are qualified to include only those exceptions in each case which do not
operate to (A) reduce the net revenue interest of Borrower or any
Guarantor below that set forth in the Reserve Report, (B) increase the
proportionate share of costs and expenses of leasehold operations attributable
to or to be borne by the working interest of Borrower or any Guarantor above
that set forth in the Reserve Report without a proportionate increase in the
net revenue interest of Borrower or such Guarantor or (C) increase the
working interest of Borrower or any Guarantor above that set forth in the
Reserve Report without a proportionate increase in the net revenue interest of
Borrower or such Guarantor, and. provided  further that the
foregoing defects, limitations, liens and encumbrances, whether individually
material or not, do not in the aggregate create a Material Adverse Effect (the
categories of exceptions in clauses (i) through (viii), as so
qualified and as any such exceptions may exist from time to time, being
referred to as the “Designated Title Exceptions”).

(b)           After giving full effect to the Liens
permitted under Section 5.10, except as set out in Schedule 5.10,
the Guarantor, the Borrower or their Subsidiaries own the net interests in
production attributable to the wells and units evaluated in the Initial Reserve
Report or the most recent Reserve Report furnished to the Lenders pursuant to Section
5.01(d) or (e) except to the extent that (a) such assets have
thereafter been disposed of incompliance with this Agreement or (b) leases for
such property have expired pursuant to their terms. The ownership of such Oil
and Gas Properties shall not in any material respect obligate the Borrower or
any Restricted Subsidiary to bear the costs and expenses relating to the
maintenance, development and operations of each such Oil and Gas Property in
any amount in excess of the working interest of each Oil and Gas Property set
forth in the Initial Reserve Report or the most recent Reserve Report furnished
to the Lenders pursuant to Section 5.01(d) or (e). The Guarantor,
the Borrower and their Restricted Subsidiaries shall have paid all royalties
payable under the oil and gas leases to which they are operator, except those
not yet due or contested in accordance with the terms of the applicable joint
operating agreement or otherwise contested in good faith by appropriate
proceedings or where failure to so pay could not reasonably be expected to have
a Material Adverse Effect. Upon the delivery of each Reserve Report furnished
to the Lenders pursuant to Section 5.01(d) or (e), the statements
made in the preceding sentences of this section shall, as of the date of such
Reserve Report, be true in all material respects with respect to such Reserve
Reports.

(c)           The Borrower and each Restricted Subsidiary possess all
material licenses, permits, franchises, patents, copyrights, trademarks and
trade names, and other intellectual property (or otherwise possess the right to
use such intellectual property without violation of the rights of any other
Person) which are necessary to carry out their respective business as presently
conducted and as presently proposed to be conducted hereafter, and neither the
Borrower nor any Restricted Subsidiary is in violation in any respect of the
terms under which it possesses such intellectual property or the right to use
such intellectual property, except violations that could not reasonably be
expected to result in a Material Adverse Effect.

(d)           Upon filing of the Deeds of Trust with the Clerk of the
County or Parish where the Property thereby covered is located and the
financing statements with the appropriate governmental entity, and upon filing
financing statements relating to the other Collateral Documents with the
appropriate governmental entity, the Collateral Documents will constitute
legal, valid and continuing perfected first liens on the Collateral (to the
extent perfection is permissible by such filings) as security for the Loans,
free and clear of all other Liens, except for the Liens permitted by Section
5.10.

 35
 

 

 

SECTION 3.06. 
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 of its Subsidiaries (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.

(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 of its Subsidiaries (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 3.07.  Compliance
with Laws and Agreements. Each of the
Borrower and its Subsidiaries 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.

SECTION 3.08.  Investment
Company Status. Neither the Borrower nor any of its
Subsidiaries is an “investment company” as defined in, or subject to regulation
under, the Investment Company Act of 1940.

SECTION 3.09.  Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused
to be filed all Tax returns and reports required to have been filed and has
paid or caused to be paid all Taxes required to have been paid by it, except
(a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves or (b) to the extent that the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect.

SECTION 3.10.  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 Statement
of Financial Accounting Standards No. 87) did not, as of the date of the
most recent financial statements reflecting such amounts, exceed by more than
$100,000 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 Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $100,000 the fair
market value of the assets of all such underfunded Plans.

 36
 

 

 

SECTION 3.11.  Disclosure. All written
information heretofore or contemporaneously herewith furnished by the Borrower
to the Administrative Agent and/or the Lenders for the purposes of or in
connection with this Agreement or any transaction contemplated hereby
(excluding projections, estimates, and engineering reports) is, and all such
information hereafter furnished by or on behalf of the Borrower to the
Administrative Agent and/or the Lenders will be, true and accurate in every
material respect on the date as of which such information is dated or
certified.  None of the reports,
financial statements, certificates or other information (excluding projections,
estimates, and engineering reports) furnished by or on behalf of the Borrower
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 on the
date as of which such information is dated or certified. To the best knowledge
of the Borrower, the engineering reports delivered to the Administrative Agent
and/or the Lenders in connection with this Agreement do not contain any
material inaccuracies and/or omissions. 
The said engineering reports, however, are based upon professional
opinions, estimates and projections and the Borrower does not warrant that such
opinions, estimates and projections will ultimately prove to have been
accurate.  All other projections and
estimates by the Borrower delivered hereunder or in connection herewith were
prepared in good faith on the basis of the assumptions believed by the Borrower
in good faith to be reasonable in light of the then current and foreseeable
business conditions of the Borrower and its Subsidiaries at the time of
preparation thereof, it being understood by the Administrative Agent and the
Lenders that actual results may vary from projected results.

SECTION 3.12.  Insurance. The certificates signed by the applicable insurers that attest to the
existence of, and summarize, the property and casualty insurance program
carried by the Borrower with respect to itself and its Subsidiaries and that
has been furnished by the Borrower to the Administrative Agent and the Lenders,
is complete and accurate in all material respects. This summary includes the
insurer’s or insurers’ name(s), policy number(s), expiration date(s), amount(s)
of coverage, type(s) of coverage, exclusion(s), and deductibles. This summary
also includes similar information, and describes any reserves, relating to any self-insurance
program that is in effect.

SECTION 3.13.  Subsidiaries. Schedule 3.13 contains an accurate
list of all Subsidiaries of the Borrower as of the date of this Agreement,
setting forth their respective jurisdictions of organization, the percentage of
their respective capital stock or other ownership interests owned by the
Borrower or other Subsidiaries, their taxpayer identification number and
organizational number, if any, and whether each is a Restricted Subsidiary or
an Unrestricted Subsidiary.

SECTION 3.14.  No
Default. No event has occurred and is continuing
which constitutes a Default or Event of Default.

SECTION 3.15.  Compliance
with Anti-Terrorism Laws. Neither the
Borrower nor any Guarantor is identified by OFAC or otherwise qualifies as a
Embargoed Person. Neither the Borrower nor any Guarantor is in violation of any
applicable law relating to anti-money laundering or anti-terrorism, including,
without limitation, those related to transacting business with Embargoed
Persons or the requirements of the Patriot Act.

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ARTICLE
IV.

Conditions

SECTION 4.01.  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 9.02):

(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 the Notes issued
pursuant to Section 2.10 payable to the order of each Lender, or an
application for Letter of Credit, if applicable.

(c)           The Administrative Agent shall have received the Deed of
Trust, executed by the Borrower, in a form satisfactory to the Administrative
Agent, the Lenders and their counsel with respect to the Properties therein
described, which are part of the Collateral, and such other agreements,
documents and instruments as may be necessary and appropriate, in form and
substance satisfactory to the Administrative Agent and the Lenders, executed
and delivered by the Borrower, as mortgagor or assignor, in favor of the
Administrative Agent, ratably for the benefit of the Lenders, in order to
create and perfect the Lender Liens in and to all Collateral described therein.

(d)           The Administrative Agent shall have received the Guaranty,
executed by Guarantor (if any), in a form satisfactory to the Administrative
Agent, the Lenders, and their counsel.

(e)           The
Administrative Agent shall have received a favorable written opinion (addressed
to the Administrative Agent and the Lenders and dated the Effective Date) of
(i) Baker Botts L.L.P., Texas counsel for the Borrower, (ii) Brown,
Drew & Massey, LLP, Wyoming counsel for the Borrower, (iii) Ellis G.
Vickers, Senior Vice President and General Counsel of Warren E&P, Inc.,
(iv) Hanna & Morton, LLP, California counsel for the Borrower and
(v) David E. Fleming, Senior Vice President, General Counsel and
Secretary of the Borrower.  The Borrower
hereby requests such counsel to deliver such opinion.

(f)            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
the Borrower, the authorization of the Transactions and any other legal matters
relating to the Borrower, this Agreement or the Transactions, all in form and
substance satisfactory to the Administrative Agent and its counsel.

(g)           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 compliance with
the conditions set forth in paragraphs (a) and (b) of Section 4.02.

(h)           The Administrative Agent shall have received incumbency
certificates, executed by the respective Secretary or Assistant Secretary of
the Borrower and each Guarantor which shall identify by name and title and bear
the signatures of the Authorized Officers and any other officers authorized to
sign the Loan Documents to which the Borrower and each Guarantor, respectively
is a party, upon which certificate the Administrative Agent and the Lenders
shall be entitled to rely until informed of any change in writing by the
Borrower.

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

 38
 

 

 

(j)            The Administrative Agent shall have received written
money transfer instructions, acceptable to the Administrative Agent and
addressed to the Administrative Agent and signed by an Authorized Officer of
the Borrower, on behalf of the Borrower, together with such other related money
transfer authorizations as the Administrative Agent may have reasonably
requested.

(k)           The Administrative Agent shall have received title reports
or summaries, other title information and title review with respect to the Oil
and Gas Properties included in the Collateral and in a form reasonably
acceptable to the Administrative Agent and the Lenders, covering at least
seventy percent (70%) of the aggregate present worth of the proved reserves
that are included in the Borrowing Base.

(l)            The Administrative Agent shall have received the Initial
Reserve Report upon which the initial Borrowing Base has been determined.

(m)          The Administrative Agent shall have received copies of any
environmental reports possessed by Borrower regarding any environmental
assessment of the Oil and Gas Properties included in the Collateral.

(n)           The Administrative Agent shall have received the insurance
certificate(s) described in Section 3.12.

(o)           The Administrative Agent shall have received the Financial
Statements described in Section 3.04.

(p)           The Administrative Agent shall have received full payment
of all fees due hereunder or under the terms of the Fee Letter.

(q)           The Administrative Agent shall have received such other
documents as any Lender or its counsel may have reasonably requested.

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 9.02)
at or prior to 3:00 p.m., Houston, Texas time, on November 16, 2006 (and, in
the event such conditions are not so satisfied or waived, the Commitments shall
terminate at such time).

SECTION 4.02.  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 the Borrower set forth in this Agreement shall be true and
correct on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, except
to the extent 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 and taking into account any amendments to the schedules or exhibits as a
result of any disclosures made in writing by the Borrower to the Administrative
Agent after the Effective Date and approved by the Administrative Agent and
Required Lenders in writing.

 39
 

 

 

(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.

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) and (b) of this
Section.

ARTICLE
V.

Covenants

Until the Commitments have
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, the Borrower covenants and agrees with the Lenders that:

SECTION 5.01.  Financial Statements; Other Information. The Borrower will furnish to the Administrative Agent and each Lender:

(a)           within 120 days after the end of each fiscal year of
the Borrower, its audited consolidated balance sheet and related statements of
operations, stockholders’ equity and cash flows as of the end of and for such
year, setting forth in each case in comparative form the figures for the
previous fiscal year, all reported on by an independent public accounting firm
acceptable to the Administrative Agent, and the Administrative Agent hereby
approves Grant Thornton LLP for such purposes (without a “going concern” or
like qualification or exception and without any qualification or exception as
to the scope of such audit) to the effect that such consolidated financial
statements present fairly in all material respects the financial condition and
results of operations of the Borrower and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied;

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

(c)           concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of 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, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Sections 6.01
and 6.02 and (iii) stating whether any change in GAAP or in the
application thereof has occurred since the date of the audited financial
statements referred to in Section 3.04 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such certificate;

 40
 

 

 

(d)           by March 1st of each
year, a Reserve Report prepared by an Approved Petroleum Engineer, which report
shall be dated as of December 31 of the prior year, concerning the Oil and Gas
Properties and interests owned by the Borrower, the Guarantors and their
Restricted Subsidiaries which are located in the United States of America and
which have attributable to them proved oil or gas reserves. This report shall be
in form reasonably satisfactory to the Administrative Agent and shall include
such reasonable assumptions as the Administrative Agent shall specify
(including discount rates and projected Hydrocarbon price assumptions), shall
contain sufficient information to enable the Borrower to meet the reporting
requirements concerning oil and gas reserves contained in Regulations S-K and
S-X promulgated by the Securities and Exchange Commission, shall take into
account any material “over-produced” and “under produced” status under gas
balancing arrangements, and shall contain information and analysis comparable
in scope to that contained in the Initial Reserve Report, including the
domestic on-shore proved oil and gas reserves of the Guarantor, the Borrower
and their Restricted Subsidiaries as of the date of such report, and the
discounted net present value (at a rate reasonably acceptable to the Lenders).
Together with such report, the Borrower shall furnish to the Lenders any
updated production history of the proven oil and gas reserves of the Guarantor,
the Borrower and their Restricted Subsidiaries as of such date, the lease
operating expenses attributable to the Borrower’s and its Subsidiaries’ Oil and
Gas Properties for the prior twelve month period, together with any other
information as to the operations of the Guarantor, the Borrower and their
Subsidiaries as reasonably requested by the Lenders. Together with such report,
the Borrower shall furnish to the Lenders such additional data and information
concerning pricing, quantities, or volume of production from or attributable to
the Oil and Gas Properties with respect thereto as the Lenders may reasonably
request, including, without limitation, detailed consolidated financial
projections and capital budget. This report shall distinguish (or shall be
delivered together with a certificate from an appropriate officer of the
Borrower which distinguishes) those properties treated in the report which are
Collateral from those properties treated in the report which are not
Collateral;

(e)           by September 1st of
each year and promptly following notice of an additional Borrowing Base
redetermination under Section 2.09(c) above, a Reserve Report prepared
as of June 30 of such year by petroleum engineers who are employees of the
Borrower, in the same form and scope as the report delivered in paragraph
(d) above.  The Reserve Report shall
be prepared by or at the direction of the Borrower and shall be certified by
the senior petroleum engineer of the Borrower as to the truth and accuracy of
the information utilized to prepare the Reserve Report and the estimates
included therein;

(f)            as soon as
available, and in any event within forty-five (45) days after the end of each
quarter, the following reports and information for such fiscal quarter:  production reports for the Oil and Gas
Properties included in the Borrowing Base, commodity prices, sales revenues,
operating expenses for the Oil and Gas Properties included in the Borrowing
Base and production taxes, in form reasonably acceptable to the Administrative
Agent; and

(g)           promptly following
any request therefor, such other information (including reserve, engineering,
geological, and title information) regarding the operations, business affairs
and financial condition of the Borrower or any Subsidiary, or compliance with
the terms of this Agreement, as the Administrative Agent or any Lender may
reasonably request.

Documents required to be
delivered pursuant to Section 5.01(a) or Section 5.01(b)
(to the extent any such documents are included in materials otherwise filed
with the Securities and Exchange Commission) may be delivered electronically
and if so delivered, shall be deemed to have been delivered on the date
(i) on which the Borrower posts such documents, or provides a link thereto
on the Borrower’s website on the

 41
 

 

 

Internet at www.warrenresources.com; or
(ii) on which such documents are posted on the Borrower’s behalf on the
website of the Securities and Exchange Commission or any other Internet or
intranet website, if any, to which each Lender and the Administrative Agent
have access (whether a commercial, third-party website or whether
sponsored by the Administrative Agent); provided that the Borrower shall
notify the Administrative Agent, which shall then promptly notify each Lender
(by telecopier or electronic mail) of the posting of any such documents, and
the Borrower shall provide to the Administrative Agent by electronic mail
electronic versions (i.e., soft copies) of such documents;
notwithstanding anything contained herein, in every instance the Borrower shall
be required to provide paper copies of the compliance certificate required by Section 5.01(c)
to the Administrative Agent, which shall then promptly furnish such compliance
certificate to the Lenders. Except for such compliance certificates, the
Administrative Agent shall have no obligation to request the delivery or to
maintain copies of the documents referred to above, and in any event shall have
no responsibility to monitor compliance by the Borrower with any such request
for delivery, and each Lender shall be solely responsible for requesting
delivery to it .or maintaining its copies of such documents.

SECTION 5.02.  Notices
of Material Events. The Borrower will furnish to the
Administrative Agent prompt written notice of the following after an Authorized
Officer obtains knowledge thereof:

(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 the Borrower or any Restricted
Subsidiary 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 its Subsidiaries in an aggregate amount exceeding $100,000; and

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

Each notice delivered under
this Section 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 5.03.  Existence; Conduct of Business. The
Borrower will, and will cause each of its Restricted Subsidiaries to, do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect (a) its legal existence and (b) except where the failure to do so
could not reasonably be excepted to result in a Material Adverse Effect, 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 5.11.

SECTION 5.04.  Payment of Obligations. The Borrower will, and will cause each of its Restricted Subsidiaries
to, pay its obliga­tions, including Tax liabilities, that, if not paid, could
reasonably be expected to 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 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.

 42

 

 

SECTION 5.05.      Maintenance
of Properties; Insurance. The Borrower will,
and will cause each of its Restricted Subsidiaries to, (a) keep and
maintain all operating equipment 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.

SECTION 5.06.      Books
and Records; Inspection Rights. The Borrower will
keep proper consolidated books of record and account in accordance with GAAP.
The Borrower will, and will cause each of its Subsidiaries 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, all at such reasonable times and as often as
reasonably requested , subject in all cases to any confidentiality
restrictions that may be applicable to the Borrower and its Subsidiaries and to
any confidentiality restrictions that the Borrower reasonably imposes on the
Persons receiving such information; provided, however, that
neither the Borrower nor any of its Subsidiaries shall be required to disclose
to the Administrative Agent or any agents or representatives thereof any
information which is the subject of attorney-client privilege or attorney’s
work product privilege properly asserted by the applicable Person to prevent
the loss of such privilege in connection with such information; and provided,
further, that the Borrower will use commercially reasonable efforts to
furnish such information (excluding information covered by confidentiality
restrictions in agreements relating to seismic, geologic or geophysical data or
similar technical and business matters relating to the exploration for oil and
gas), which requirement shall be satisfied if the Administrative Agent is
offered the opportunity to review such confidential information by executing or
otherwise becoming a party to the confidentiality restrictions on substantially
the same terms (including any standstill provisions) as are applicable to the
Borrower.

SECTION 5.07.      Compliance
with Laws. The Borrower will, and will cause each of
its Restricted Subsidiaries 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 5.08.      Use
of Proceeds and Letters of Credit. The proceeds of
the Loans and Letters of Credit will be used only for Borrower or the
Restricted Subsidiaries’ working capital, capital expenditures, permitted
acquisitions, other general corporate purposes and the exploration, development
and acquisition of Oil and Gas Properties. No part of the proceeds of any Loan
will be used, whether directly or indirectly, for any other purpose, or for the
benefit of any Unrestricted Subsidiary, or for any purpose that entails a
violation of any of the Regulations of the Board, including Regulations T,
U and X.

SECTION 5.09.      Indebtedness. The Borrower will not, and will not permit any Restricted Subsidiary
to, create, incur, assume or permit to exist any Indebtedness, except:

(a)            Indebtedness
created hereunder;

(b)            Indebtedness
existing on the date hereof and set forth in Schedule 5.09, and any
extensions, renewals or replacements of any such Indebtedness, provided that
such extension, renewal or replacement does not increase the outstanding
principal amount thereof;

(c)            Indebtedness of the
Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other
Subsidiary;

 43
 

 

 

(d)            Guarantees by the
Borrower of Indebtedness of any Restricted Subsidiary and by any Restricted
Subsidiary of Indebtedness of the Borrower or any other Subsidiary;

(e)             Indebtedness of
the Borrower or any Subsidiary 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 the aggregate principal amount of Indebtedness permitted by this paragraph (e)
shall not exceed $5,000,000 at any time outstanding;

(f)             Indebtedness
arising under any Bond;

(g)            Indebtedness under
Swap Agreements, to the extent permitted under Section 5.13;

(h)            Indebtedness
consisting of Non-Recourse Debt in an aggregate principal amount not to exceed
$25,000,000 at any time outstanding; provided that Borrower shall not
incur any Non-Recourse Debt after the Effective Date without the Administrative
Agent’s prior written consent to the relevant documentation establishing or
evidencing the non-recourse nature and amount of such Non-Recourse Debt, which
consent shall not be unreasonably withheld;

(i)              Indebtedness of
any Person that becomes a Subsidiary after the Effective Date; provided
that such Indebtedness exists at the time such Person becomes a Subsidiary and
is not created in contemplation of or in connection with such Person becoming a
Subsidiary;

(j)              Subordinated
Indebtedness;

(k)             Indebtedness
incurred to finance the acquisition of equipment, provided that the
amount of such Indebtedness does not exceed the purchase price of such
equipment; and

(l)              other unsecured
Indebtedness in an aggregate principal amount not exceeding $2,000,000 at any
time outstanding.

SECTION 5.10.       Liens. The Borrower will not, and will not permit any Restricted Subsidiary
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)             Permitted
Encumbrances;

(b)             any Lien on any
property or asset of the Borrower or any Restricted Subsidiary existing on the
date hereof and set forth in Schedule 5.10; provided that
(i) such Lien shall not apply to any other property or asset of the Borrower or
any Subsidiary and (ii) such Lien shall secure only those obligations which it
secures on the date hereof and extensions, renewals or replacements thereof
that do not increase the outstanding principal amount thereof;

(c)             any Lien existing
on any property or asset (together with receivables, intangibles and proceeds
thereof) prior to the acquisition thereof by the Borrower or any Subsidiary or
existing on any property or asset of any Person that becomes a Subsidiary after
the date hereof prior to the time such Person becomes a Subsidiary; provided
that (i) such Lien is not created in

 44
 

 

 

contemplation of or in connection with such acquisi­tion or such Person
becoming a Subsidiary , as the case may be, (ii) such Lien shall not apply
to any other property or assets of the Borrower or any 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 Subsidiary, as the case may
be and extensions, renewals or replacements thereof that do not increase the
outstanding principal amount thereof;

(d)           Liens on fixed or
capital assets (together with receivables, intangibles and proceeds thereof)
acquired, constructed or improved by the Borrower or any Subsidiary; provided
that (i) such security interests secure Indebtedness permitted by Section 5.09(e),
(ii) such security interests and the Indebtedness secured thereby are
incurred prior to or within 180 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 assets and (iv) such security interests shall not apply
to any other property or assets of the Borrower or any Subsidiary;

(e)           Liens securing obligations and
liabilities of the Borrower and any Restricted Subsidiary under Swap Agreements
to the extent permitted hereunder; and

(f)            Liens granted to secure Non-Recourse
Debt permitted under Section 5.09(h).

SECTION 5.11.         Fundamental
Changes.

(a)           The Borrower will not, and will not permit any Restricted
Subsidiary 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
substantially all of its assets, or all or substantially all of the stock of
any of its Restricted Subsidiaries (in each case, whether now owned or
hereafter acquired), or liquidate or dissolve, except that, if at the time
thereof and immediately after giving effect thereto no Default shall have
occurred and be continuing (i) any Person may merge into the Borrower in a
transaction in which the Borrower is the surviving corporation, (ii) any
Person may merge into any Restricted Subsidiary in a transaction in which the
surviving entity is a Subsidiary, (iii) any Restricted Subsidiary may sell,
transfer, lease or otherwise dispose of its assets to the Borrower or to another
Restricted Subsidiary and (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; provided that any such merger involving
a Person that is not a wholly owned Subsidiary immediately prior to such merger
shall not be permitted unless also permitted by Section 5.12.

(b)           The Borrower will not, and will not 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 businesses
reasonably related thereto.

SECTION 5.12.         Investments,
Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not 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 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
obligations 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:

 45
 

 

 

(a)           Permitted Investments;

(b)           investments by the Borrower and its Subsidiaries in the
Equity Interests of its Restricted Subsidiaries;

(c)           loans or advances made by the Borrower to any Restricted
Subsidiary and made by any Subsidiary to the Borrower or any other Restricted
Subsidiary; and

(d)           Guarantees constituting Indebtedness permitted by Section
5.09;

(e)           investments
consisting of Swap Agreements to the extent permitted under Section 5.09(g);

(f)            loans or advances
to employees in the ordinary course of business in an aggregate amount for all
employees of the Borrower and its Subsidiaries not in excess of $750,000 at
anyone time outstanding;

(g)           trade credits and
accounts arising in the ordinary course of business;

(h)           investments made as
a result of the receipt of non-cash considerations from a disposition
that was made pursuant to and in compliance with this Agreement;

(i)            investments made in
any debtor of the Borrower or any Restricted Subsidiary as a result of the
receipt of stock, obligations or securities in settlement of debts created in
the ordinary course of business and owing to the Borrower or any Restricted
Subsidiary;

(j)            investments made
pursuant to the requirements of farm-out, farm-in, unit, joint operating,
unit operating, joint venture, area of mutual interest and other oil and gas
agreements, gathering systems, pipelines or other similar or customary
arrangements entered into the ordinary course of business (including advances
to operators under operating agreements entered into by the Borrower or any
Subsidiary in the ordinary course of business); provided that any such single
investment in excess of $3,000,000 shall be approved by the Board of Directors
of the Borrower;

(k)           investments made in
connection with the purchase, lease, or other acquisition of tangible assets of
any Person and investments made in connection with the purchase, lease or other
acquisition of all or substantially all of the business, of any Person, or all
of the capital stock or other equity interests of any Person, or any division,
line of business or business unit of any Person (including (i) by the
merger or consolidation of such Person into the Borrower or any Restricted
Subsidiary or by the merger of a Restricted Subsidiary into such Person and
(ii) the purchase of proved reserves);

(l)            repurchase of
Equity Interests deemed to occur upon exercise of stock options or warrants if
such Equity Interest represent a portion of the exercise price or such options
or warrants or the payment of withholding taxes through the issuance of Equity
Interests;

(m)          the purchase of
fractional shares arising out of stock dividends, splits or combinations or
business combinations;

(n)           any other investments in any Person having an aggregate
fair market value (measured on the date each such investment was made and
without giving effect to subsequent changes in value), when taken together will
all other investments made pursuant to this clause (n) do not exceed
$2,000,000 outstanding at any time;

(o)           investments outstanding as of the Effective Date in
Unrestricted Subsidiaries; and

 46
 

 

 

(p)           investments, loans, advances and acquisitions in exchange
for, or out of the net cash proceeds from the sale of, Equity Interests of the
Borrower.

SECTION 5.13.         Swap
Agreements. The Borrower will not, and will not permit
any of its Restricted Subsidiaries to, enter into any Swap Agreement, except
(a) Swap Agreements entered into to hedge or mitigate risks to which the
Borrower or any Restricted Subsidiary has actual exposure (other than those in
respect of Equity Interests of the Borrower or any of its Subsidiaries), and
(b) Swap Agreements entered into in order to 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 the Borrower or any Restricted Subsidiary.
Notwithstanding the foregoing to the contrary, Borrower shall be permitted to
enter into Swap Agreements so long as the aggregate notional amount of such
Swap Agreements (measured at the time each transaction under such Swap
Agreement is entered into) are not in excess of 75% of the “projected proved
developed producing” reserves for the current year for both crude oil and
natural gas, based on the Reserve Report most recently delivered to and
approved by the Administrative Agent.  As
used in this clause, “projected proved developed producing” 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 5.01,
after giving effect to any pro forma adjustments for the consummation of any
acquisitions or dispositions of Oil and Gas Properties and production from new
wells completed since the effective date of such Reserve Report.

SECTION 5.14.         Restricted
Payments. The Borrower will not, and will not permit
any of its Restricted Subsidiaries to, declare or make, or agree to pay or
make, directly or indirectly, any Restricted Payment, except (a) the Borrower
may declare and pay Restricted Payments with respect to its Equity Interests
payable solely in additional shares of its common stock, (b) Borrower may
declare and pay dividends in cash on its 8% Convertible Preferred Stock
outstanding on the Effective Date, provided that no Default or Event of Default
exists at the time of such payment and such payment will not cause a Default or
Event of Default, (c) Subsidiaries may declare and pay dividends ratably with
respect to their Equity Interests (or on a basis more favorable to the Borrower
and its Subsidiaries), (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 Subsidiaries, (e) the
Borrower may make cash payments in lieu of issuing fractional shares in an
aggregate amount not exceeding $200,000 during the term of this Agreement, provided that no Default or Event of
Default exists at the time of such payment, such payment will not cause a
Default or Event of Default and such payment is made only in respect of
Borrower’s 8% Convertible Preferred Stock outstanding on the Effective Date,
(f) the Borrower may declare and pay distributions effecting “poison pill”
rights plans provided that any securities or rights so distributed have a
nominal fair market value at the time of declaration and (g) the Borrower
or any Restricted Subsidiary may make any Restricted Payment out of the net
cash proceeds from the sale of Equity Interests of the Borrower or a Restricted
Subsidiary.

SECTION 5.15.         Transactions
with Affiliates. The Borrower will not, and will not 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 (excluding its subsidiaries), except (a) in the ordinary course of
business at prices and on terms and conditions not less favorable to the
Borrower or such Subsidiary than could be obtained on an arm’s-length basis
from unrelated third parties, (b) transactions between or among the Borrower
and its Subsidiaries not involving any other Affiliate, (c) any Restricted
Payment permitted by Section 5.14, (d) with respect to any Person
serving as an officer, director, employee or consultant of the Borrower or any
Restricted Subsidiary, (e) the payment of reasonable compensation,
benefits or indemnification liabilities in connection with his or her services
in such capacity provided that the payment of any such compensation, benefits
or indemnification liabilities are approved by a majority of the disinterested
members of the Board of Directors of the Borrower or by the compensation
committee of the Borrower,

 47
 

 

 

(f) the making of advances for travel or other business expenses
in the ordinary course of business or (g) such Person’s participation in
any benefit or compensation.

SECTION 5.16.         Restrictive
Agreements. The Borrower will not, and will not 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 (other than (1) Equity Interests in any Unrestricted
Subsidiary, (2) other investments in Equity Interests of joint ventures
permitted under Section 5.12, (3) investments permitted under Section 5.12(j)
if such restriction or conditions apply only to the property or assets that are
the subject of such investment), or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any shares of its capital
stock or to make or repay loans or advances to the Borrower or any other
Restricted Subsidiary or to Guarantee Indebtedness of the Borrower or any other
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 existing on the date
hereof identified on Schedule 5.16 (but shall apply to any extension or
renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary or other assets pending such sale, provided such restrictions and
conditions apply only to the Subsidiary or other assets that is to be sold and
such sale is permitted hereunder, (iv) paragraph (a) of the foregoing
shall not apply to restrictions or conditions imposed by any agreement relating
to secured Indebtedness permitted by this Agreement if such restrictions or
conditions apply only to the property or assets securing such Indebtedness, (v)
paragraph (a) of the foregoing shall not apply to customary provisions
in leases and other contracts restricting the assignment thereof (vi) existing
restrictions with respect to a Person acquired by the Borrower or any of its
Restricted Subsidiaries (except to the extent such restrictions were put in
place in connection with or in contemplation of such acquisition), which
restrictions are not applicable to any Person, or the properties or assets of
any Person other than the Person, or the property or assets of the Person, so
acquired and (vii) customary supermajority voting provisions and other
customary provisions with respect to the disposition or distribution of assets,
each contained in corporate charters, bylaws, stockholders’ agreements, limited
liability company agreements, partnership agreements, joint venture agreements
and other similar agreements entered into in the ordinary course of business of
the Borrower and its Restricted Subsidiaries.

SECTION 5.17.         Agreement
to Deliver Collateral Documents. The Borrower
agrees to deliver, and to cause each Restricted Subsidiary to deliver, to
further secure the Loans whenever requested by the Administrative Agent in its
sole and absolute discretion, deeds of trust, mortgages, chattel mortgages,
security agreements, financing statements and other Collateral Documents in
form and substance reasonably satisfactory to the Administrative Agent for the
purpose of granting, confirming, and perfecting first and prior liens or
security interests (subject to Section 5.10) in any real or personal
Property now owned or hereafter acquired by the Borrower or any Restricted
Subsidiary. The Borrower also agrees to deliver, and to cause each Restricted
Subsidiary to deliver, whenever requested by the Administrative Agent in its
sole and absolute discretion, title reports or summaries, other title
information or favorable title opinions from the Borrower or its legal counsel
reasonably acceptable to the Administrative Agent with respect to any of the
Oil and Gas Properties included in the Borrowing Base designated by the
Administrative Agent, based upon abstract, record, instruments, title reports
or photocopied information, examinations to dates reasonably acceptable to the
Administrative Agent necessary to verify that (i) such Person has Defensible
Title to up to 70% of the aggregate present worth of the proved reserves
included in the Borrowing Base free and clear of all Liens other than Liens permitted
under Section 5.10, (ii) up to 80% of the aggregate present worth of the
proved reserves included in the Borrowing Base are subject to Collateral
Documents securing the Loans that constitute and create legal, valid and duly
perfected first deed of trust or mortgage liens in such properties and

 48
 

 

 

interests
and first priority assignments of and security interests in the Hydrocarbons
attributable to such properties and interests and the proceeds thereof (subject
to Liens permitted under Section 5.10), and (iii) covering such other
matters as the Administrative Agent may reasonably request.

SECTION 5.18.         Deposit
of Production Proceeds. Notwithstanding that, by the terms of the
various Loan Documents, the Guarantor, the Borrower and their Restricted Subsidiaries
are and will be assigning to the Administrative Agent and the Lenders all of
the “Production Proceeds” (as defined therein) accruing to the Oil and Gas
Property constituting Collateral and covered thereby, so long as no Event of
Default has occurred the Borrower and each Restricted Subsidiary may continue
to receive from the purchasers of production all such Production Proceeds,
subject, however, to the Liens created under the Loan Documents, which Liens
are hereby affirmed and ratified and provided that to further secure the
Administrative Agent’s and Lenders’ Liens upon such Production Proceeds, the
Borrower shall, and shall cause each Restricted Subsidiary to, maintain their
operating accounts with the Administrative Agent and not to redirect the
payment of Production Proceeds from such operating accounts without the written
consent of the Administrative Agent. Upon the occurrence of a Event of Default,
the Administrative Agent and the Lenders may exercise all rights and remedies
granted under the Loan Documents, including the right to obtain possession of
all Production Proceeds then held by the Borrower or any Restricted Subsidiary
or to receive directly from the purchasers of production all Production
Proceeds. In no case shall any failure, whether purposed or inadvertent, by the
Administrative Agent or the Lenders to collect directly any such Production
Proceeds constitute in any way a waiver, remission or release of any of their
rights under the Loan Documents, nor shall any release of any Production
Proceeds by the Administrative Agent or the Lenders to the Borrower or any
Restricted Subsidiary constitute a waiver, remission, or release of any other
Production Proceeds or of any rights of the Administrative Agent or the Lenders
to collect other Production Proceeds thereafter.

SECTION 5.19.         Subsidiary
Guaranty. The
Borrower shall cause each Restricted Subsidiary, whether now existing or
created, acquired or coming into existence after the date hereof, to execute
and deliver to the Administrative Agent an absolute and unconditional Guaranty
of the timely repayment of the Loans and the due and punctual performance of
the obligations of Borrower hereunder, which Guaranty shall be reasonably
satisfactory to the Administrative Agent in form and substance. The Borrower
shall cause each Restricted Subsidiary existing on the date hereof to duly
execute and deliver such a Guaranty prior to the making of any Loan
hereunder.  The Borrower will cause each
of its Restricted Subsidiaries to deliver to the Administrative Agent,
simultaneously with its delivery of such a Guaranty, written evidence
reasonably satisfactory to the Administrative Agent and its counsel that such
Restricted Subsidiary has taken all company action necessary to duly approve
and authorize its execution, delivery and performance of such Guaranty and any
other documents that it is required to execute.

SECTION 5.20.         Patriot
Act. The
Borrower shall not, nor cause or permit any Guarantor to, (a) be or become
subject at any time to any law, regulation, or list of any government agency
(including, without limitation, the list maintained by OFAC and accessible
through the OFAC website) that prohibits or limits any Lender from making any
advance or extension of credit to Borrower or from otherwise conducting
business with the Borrower or any Guarantor, or (b) fail to provide documentary
and other evidence of Borrower’s identity as may be requested by any Lender at
any time to enable any Lender to verify Borrower’s identity or to comply with
any applicable law or regulation, including, without limitation, the Patriot
Act. In addition, the Borrower hereby agrees to provide to any Lender any
additional information that such Lender deems necessary from time to time in
order to ensure compliance with all applicable laws concerning money laundering
and similar activities.

SECTION 5.21.         Equity
Interests. The
Borrower shall not, nor cause or permit any Restricted Subsidiary to, permit a
Lien (other than a Lender Lien) to be placed on any of the Equity Interests owned
by Borrower or such Restricted Subsidiary in any other Person; provided that
Liens

 49
 

 

 

against
Equity Interests in an Unrestricted Subsidiary shall be permitted to the extent
such Lien is granted to secure Non-Recourse Debt permitted under Section
5.09(h).

ARTICLE
VI.

Financial
Covenants

Until the Commitments have
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, the
Borrower covenants and agrees with the Lenders that:

SECTION 6.01.         Minimum
Current Ratio.
Beginning with the fiscal quarter ending December 31, 2006, the Borrower will
not permit the ratio, determined as of the end of a fiscal quarter, of
(i) Consolidated Current Assets to (ii) Consolidated Current Liabilities
minus Current Maturities of Long Term Indebtedness to be less than 1.00:1.00.

SECTION 6.02.         Maximum
Indebtedness to EBITDAX. Beginning with the fiscal quarter ending December 31, 2006, the
Borrower will not permit the ratio, determined as of the end of a fiscal
quarter, of (i) Total Net Debt to (ii) EBITDAX to be greater than
3.50:1.00, for the twelve (12) months ending as of the last day of such fiscal
quarter.

ARTICLE
VII.

Events
of Default

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

(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 paragraph (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 Business 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 amendment
or modification hereof or waiver hereunder shall prove to have been incorrect
in any material respect when made or deemed made;

(d)           the Borrower shall
fail to observe or perform any covenant or agreement contained in Section 5.02,
5.03 (with respect to the Borrower’s existence), 5.08, 5.09,
5.10, 5.11, 5.12, 5.13, or 5.14, or in Article VI;

(e)           the Borrower shall
fail to observe or perform any covenant or agreement contained in this
Agreement (other than those specified in paragraph (a), (b) or (d)
of this Article), and such failure shall continue unremedied for a period of
30 days after notice thereof

 50
 

 

 

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 paragraph (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 seeking 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, (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
proceeding, (iii) make a general assignment for the benefit 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 paragraph (h) of this Article, (iii) apply for or
consent to 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, (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
$2,000,000 (exclusive of amounts fully covered by valid and collectible
insurance for which the issuer has not denied coverage) shall be rendered
against the Borrower, 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; or

(m)          a Change in Control
shall occur;

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(n)           (i) any Collateral
Document shall for any reason fail to create a valid and (to the extent
perfection is obtained by filing) perfected first priority security interest
(subject to Section 5.10) in any material portion of the Collateral
(as determined by the Administrative Agent in its reasonable judgment)
purported to be covered thereby, or any Collateral Document shall fail to
remain in full force or effect or any action shall be taken by the Borrower or
any Subsidiary to discontinue or to assert the invalidity or unenforceability
of any Collateral Document as to any material portion of the Collateral (as
determined by the Administrative Agent in its reasonable judgment), or (ii) the
Borrower shall fail to comply with any of the material terms or provisions of
any Collateral Document; and such failure shall continue unremedied for a
period of twenty (20) days after notice thereof from the Administrative Agent
to Borrower;

(o)           except to the extent
such Guaranty is terminated in accordance with the terms hereof, any Guaranty
shall fail to remain in full force or effect or any action shall be taken by
the Borrower or any Subsidiary to discontinue or to assert the invalidity or
unenforceability of any Guaranty, or any Guarantor shall fail to comply with
any of the terms or provisions of any Guaranty to which it is a party and such
failure could reasonably be expected to have a Material Adverse Effect, or any
Guarantor shall deny that it has any further liability under any Guaranty to
which it is a party, or shall give notice to such effect; or

(p)           any other Loan
Document shall fail to remain in full force or effect or any action shall be
taken by the Borrower or any Subsidiary to discontinue or to assert the
invalidity or unenforceability of any Loan Document;

then, and in every such
event (other than an event with respect to the Borrower described in paragraph
(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
Commitments, and thereupon the Commitments 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 paragraph
(h) or (i) of this Article, the Commitments 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.

ARTICLE
VIII.

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.

 52

 

 

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
the Borrower or any Subsidiary 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 9.02), 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 the Borrower or any of its Subsidiaries that is communicated to or obtained
by the bank serving as Administrative Agent or any of its Affiliates in any
capacity. The Administrative Agent shall 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 9.02) or in the absence of its
own gross negligence or willful midconduct. 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 IV 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 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 

 53
 

 

 

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 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 9.03
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.

ARTICLE
IX.

Miscellaneous

SECTION 9.01.         Notices.

(a)           Except as otherwise permitted by Article II with
respect to borrowing notices, all notices, requests and other communications to
any party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party:
(x) in the case of the Borrower, the Issuing Bank or the Administrative Agent,
at its address or facsimile number set forth on the signature pages hereof, (y)
in the case of any Lender, at its address or facsimile number set forth in its
Administrative Questionnaire or (z) in the case of any party, at such other
address or facsimile number as such party may hereafter specify for the purpose
by notice to the Administrative Agent and the Borrower in accordance with the
provisions of this Section 9.01. Each such notice, request or other
communication shall be effective (i) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, or (iii) if given by any other means, when delivered
(or, in the case of electronic transmission, received) at the address specified
in this Section; provided that
notices to the Administrative Agent under Article II shall not be
effective until received.

(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 its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such
procedures may be limited to particular notices or communications.

 54
 

 

 

(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 9.02.         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 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 Borrower and the Required Lenders or by the
Borrower and the Administrative Agent with the consent of the Required Lenders;
provided that no such agreement shall (i) increase the Commitment of any
Lender without the written consent of such Lender, (ii) 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, (iii) 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 Commitment,
without the written consent of each Lender affected thereby, (iv) change Section
2.18(b) or (c) in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender, or (v)
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,
the Issuing Bank hereunder without the prior written consent of the
Administrative Agent or the Issuing Bank, as the case may be. Notwithstanding
anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that
the Commitment of such Lender may not be increased or extended without the
consent of such Lender.

(c)           Notwithstanding anything to the contrary contained herein,
(i) the Guaranty shall be terminated as to one or more Guarantors and
Collateral (but not the proceeds thereof) shall be released from the Lenders
Lien of the Collateral Documents from time to time as necessary to effect any
sale of assets, including the sale of a Guarantor, permitted by the Loan
Documents, (ii) the Guaranty shall be terminated (and any Lenders Lien on
the assets of such Guarantor and the Equity Interests in such Guarantor shall
be terminated) as to any Guarantor at such time as such Guarantor shall have
been designated an Unrestricted Subsidiary pursuant to the Loan Documents, and
(iii) the Administrative Agent shall execute and deliver all release
documents reasonably requested to evidence such release. Any termination or
release under the terms and provision of this Section 9.02(c) to the
extent representing the 

 55
 

 

 

sale or disposition of any
Oil and Gas Properties of the Borrower or any Restricted Subsidiary (or the
sale, disposition, or designation as an Unrestricted Subsidiary, of any
Restricted Subsidiary owning such Oil and Gas Properties) representing in
excess of 5% of the Borrowing Base immediately prior to such event shall
automatically initiate a redetermination of the Borrowing Base in accordance
with Section 2.09(e).

SECTION 9.03.         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 or any amendments,
modifications or waivers of the provi­sions hereof (whether or not the
transactions contemplated hereby or 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 Borrower 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 of
its Subsidiaries, or any Environmental Liability related in any way to the
Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory 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 resulted from the gross negligence or
willful misconduct of such Indemnitee.

(c)           To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent, 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 (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, the Issuing Bank in its capacity as such.

(d)           To the extent permitted by applicable law, the Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, 

 56
 

 

 

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
promptly after written demand therefor.

SECTION 9.04.         Successors
and Assigns.

(a)           The provisions of this Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by the
Borrower without such consent shall be null and void) and (ii) no Lender may
assign or otherwise transfer its rights or obligations hereunder except in
accordance with this Section. Nothing in this Agreement, expressed or implied,
shall be construed to confer upon any Person (other than the Parties, 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, an Approved Fund or, if an Event of Default
has occurred and is continuing, any other assignee;

(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; and

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

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

 57
 

 

 

(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 9.04(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 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 but shall continue to be entitled to the benefits of Sections 2.15,
2.16, 2.17 and 9.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this Section 9.04 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.

(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 of, and principal
amount of the Loans and LC Disbursements owing to, each Lender pursuant to the
terms hereof from time to time (the “Register”). The entries in the
Register shall be conclusive, and the Borrower, the Administrative Agent, the
Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.

(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 and 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 2.06(d) or (e),
2.07(b), 2.18(d) or 9.03(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.

(c)(i)        Any Lender may, without the consent of
but with notice to the Borrower, the Administrative Agent, the Issuing Bank,
sell participations to one or more banks or other entities (a 

 58
 

 

 

“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 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 9.02(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 Sections
2.15, 2.16 and 2.17 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 9.08 as though it were a
Lender, provided such Participant agrees to be subject to Section 2.18(c)
as though it were a Lender.

(ii)           A
Participant shall not be entitled to receive any greater payment under Section 2.15
or 2.17 than the applicable Lender would have been entitled to receive
with respect to the participation sold to such Participant, unless the sale of
the participation to such Participant is made with the Borrower’s prior written
consent. A Participant that would be a Foreign Lender if it were a Lender shall
not be entitled to the benefits of Section 2.17 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 2.17(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 9.05.         Survival.
All covenants, agreements, representations and warranties made by the Borrower
herein and in the certificates or other instru­ments delivered in connection
with or pursuant to this Agreement shall be considered to have been relied upon
by the other Parties and shall survive the execution and delivery of this
Agreement and the making of any Loans and issuance of any Letters of Credit,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that the Administrative Agent, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstand­ing and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of Sections
2.15, 2.16, 2.17 and 9.03 and Article VIII
shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.

SECTION 9.06.         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 

 59
 

 

 

constitute the entire contract among the parties relating to the
subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, 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 9.07.         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 9.08.         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 the Borrower 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 are in addition to
other rights and remedies (including other rights of setoff) which such Lender
may have.

SECTION 9.09.         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)           The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
district courts of the State of Texas sitting in Harris County and of the
United States District Court of the Southern District of Texas, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such Texas State or, to the extent permitted by law, in such
Federal court. Each of the Parties 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 the Borrower or its properties in
the courts of any jurisdiction.

(c)           The Borrower 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.

 60
 

 

 

(d)           Each Party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01.
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 9.10.         WAIVER
OF JURY TRIAL. EACH PARTY 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, 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 9.11.         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 9.12.         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 required 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 Borrower and its 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 the Borrower.
For the purposes of this Section, “Information” means all information
received from the Borrower relating to the Borrower 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 the
Borrower. Any Person required to maintain the confidentiality of Information as
provided in this Section shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information.

SECTION 9.13.         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 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 

 61
 

 

 

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.

SECTION 9.14.         Patriot
Act. Each Lender that is subject to the requirements of the Patriot Act
hereby notifies the Borrower that pursuant to the requirements of the Patriot
Act, it is required to obtain, verify and record information that identifies
the Borrower, which information includes the name and address of the Borrower
and other information that will allow such Lender to identify the Borrower in
accordance with the Patriot Act.

[REMAINDER OF PAGE
INTENTIONALLY BLANK]

 62

 

 

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.

	
  

  	
  WARREN RESOURCES, INC., a Maryland corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Norman F. Swanton

  
	
   

  	
  Name:

  	
  Norman F. Swanton

  
	
   

  	
  Title:

  	
  Chairman & Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
  489 Fifth Avenue

  
	
   

  	
  New York, New York 10017

  
	
   

  	
  Attention: Timothy A. Larkin,

  
	
   

  	
   

  	
  Executive Vice President

  
	
   

  	
   

  	
  & Chief Financial Officer

  
	
   

  	
  Telephone: (212) 697-9660

  
	
   

  	
  Facsimile: (212) 697-9466

  
	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A., individually and as
  Administrative Agent,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles Kingswell-Smith

  
	
   

  	
   

  	
  Charles Kingswell-Smith, Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  600 Travis, 20th Floor

  
	
   

  	
  Houston, Texas 77002

  
	
   

  	
  Attention: Charles Kingswell-Smith

  
	
   

  	
  Telephone (713) 216-7720

  
	
   

  	
  Fax: (713) 216-7770

  
					

 

Signature
Page to Credit Agreement

 

 

PRICING
SCHEDULE

	
  APPLICABLE RATE

  	
   

  	
  Level I

  Status

  	
   

  	
  Level II

  Status

  	
   

  	
  Level III

  Status

  	
   

  	
  Level IV

  Status

  	
   

  
	
  Eurodollar Loan

  	
   

  	
  1.25

  	
  %

  	
  1.50

  	
  %

  	
  1.75

  	
  %

  	
  2.00

  	
  %

  
	
  ABR Loan

  	
   

  	
  0.25

  	
  %

  	
  0.50

  	
  %

  	
  0.75

  	
  %

  	
  1.00

  	
  %

  
	
  Facility Fee Rate

  	
   

  	
  0.20

  	
  %

  	
  0.25

  	
  %

  	
  0.375

  	
  %

  	
  0.50

  	
  %

  

 

For the purposes of this Schedule, the following
terms have the following meanings, subject to the final paragraph of this Schedule:

“Borrowing
Base Usage” means, as of any date, the percent of the Borrowing Base then in
effect represented by the sum of (i) the aggregate principal amount of all
loans then outstanding under the Facility, plus (ii) the aggregate face amount
of all Letters of Credit then outstanding under the Facility.

“Level
I Status” exists at any date if the Borrowing Base Usage as of such date is
less than 50%.

“Level
II Status” exists at any date if the Borrowing Base Usage as of such date is
less than 75% but equal to or more than 50%.

“Level
III Status” exists at any date if the Borrowing Base Usage as of such date is
less than 90% but equal to or more than 75%.

“Level
IV Status” exists at any date if the Borrower has not qualified for Level I
Status, Level II Status or Level III Status as of such date.

“Status”
means Level I Status, Level II Status, Level III Status or Level IV Status.

The Applicable Rate and Facility Fee Rate shall be
determined by the Administrative Agent from time to time in accordance with the
foregoing table.

 

 

SCHEDULE 2.01

Commitments

	
  Lender

  	
   

  	
  Commitment Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  JPMorgan Chase Bank,
  N.A.

  	
   

  	
  $

  	
  40,000,000

  	
   

  
					

 

 

EXHIBIT “A”

Form of Assignment and
Assumption

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

For
an agreed consideration, the Assignor hereby irrevocably sells and assigns to
the Assignee, and the Assignee hereby irrevocably purchases and assumes from
the Assignor, subject to and in accordance with the Standard Terms and
Conditions and the Credit Agreement, as of the Effective Date inserted by the
Administrative Agent as contemplated below (i) all of the Assignor’s rights and
obligations in its capacity as a Lender under the Credit Agreement and any
other documents or instruments delivered pursuant thereto to the extent related
to the amount and percentage interest identified below of all of such
outstanding rights and obligations of the Assignor under the respective
facilities identified below (including any letters of credit, guarantees, and
swingline loans 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:

  	
  The $150,000,000 Credit Agreement dated as of
  November      , 2006 among Warren Resources, Inc.,
  the Lenders parties thereto, JPMorgan Chase Bank, N.A., as Administrative
  Agent, and the other agents parties thereto

  

 

 A-1
 

 

6.                                       Assigned Interest:

	
  Facility Assigned

  	
   

  	
  Aggregate Amount of

  Commitment/Loans for

  all Lenders

  	
   

  	
  Amount of

  Commitment/Loans

  Assigned

  	
   

  	
  Percentage Assigned of

  Commitment/Loans

  	
   

  
	
  

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
  %

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
  %

  	
   

  
	
  

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
  %

  	
   

  

 

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

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

	
  

  	
  ASSIGNOR

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  

 

 A-2
 

 

[Consented
to and] Accepted:

JPMORGAN CHASE BANK, N.A., as Administrative Agent

	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  [Consented to:]

  	
   

  
	
   

  	
   

  
	
  [NAME OF RELEVANT PARTY]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  
							

 

 A-3

 

ANNEX 1

[                           ]

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and
Warranties.

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

1.2. Assignee. The
Assignee (a) represents and warrants that (i) it has full power and authority,
and has taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby and to become
a Lender under the Credit Agreement, (ii) it satisfies the requirements, if
any, specified in the Credit Agreement that are required to be satisfied by it
in order to acquire the Assigned Interest and become a Lender, (iii) from and
after the Effective Date, it shall be bound by the provisions of the Credit
Agreement as a Lender thereunder and, to the extent of the Assigned Interest,
shall have the obligations of a Lender thereunder, (iv) it has received a copy
of the Credit Agreement, together with copies of the most recent financial
statements delivered pursuant to Section       
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

Form of Note

PROMISSORY NOTE

	
  $

  	
  Houston, Texas

  	
  November 15, 2006

  

 

FOR VALUE RECEIVED, the undersigned, WARREN RESOURCES, INC., a Maryland
corporation (“Borrower”), hereby
promises to pay to the order of                     ,
a              
(herein called “Lender”), the principal sum of up to                   
DOLLARS ($                  ),
or such amount as may outstanding from time to time pursuant to the terms of
the Credit Agreement (as hereinafter defined), together with interest on the
unpaid principal balance thereof as hereinafter set forth, both principal and
interest payable as herein provided in lawful money of the United States of
America at the offices of the Administrative Agent under the Credit Agreement, 910
Travis, Houston, Texas 77002, or at such other place within Houston, Texas, as
from time to time may be designated by the holder of this Note.

This Note (a) is issued and delivered
under that certain Credit Agreement dated November    , 2006
among Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the
lenders (including Lender) referred to therein (herein, as from time to time
supplemented, amended or restated, called the “Credit Agreement”), and is a “Note”
as defined therein, (b) is subject to the terms and provisions of the
Credit Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of
certain Loan Documents (as identified and defined in the Credit Agreement).
Payments on this Note shall be made and applied as provided herein and in the
Credit Agreement. Reference is hereby made to the Credit Agreement for a
description of certain rights, limitations of rights, obligations and duties of
the parties hereto and for the meanings assigned to terms used and not defined
herein and to the Collateral Documents for a description of the nature and
extent of the security thereby provided and the rights of the parties thereto.

The principal amount of this Note, together
with all interest accrued hereon, shall be due and payable in full on the
Maturity Date.

So long as no Default has occurred and is
continuing, all ABR Loans (exclusive of any past due principal or interest)
from time to time outstanding shall bear interest on each day outstanding at
the Alternate Base Rate in effect on such day plus the Applicable Rate. If an
Event of Default has occurred and is continuing, all ABR Loans (exclusive of
any past due principal or interest) from time to time outstanding shall bear
interest on each day outstanding at the default rate in effect on such day as
may be specified pursuant to Section 2.13 of the Credit Agreement. On each
Interest Payment Date Borrower shall pay to the holder hereof all unpaid
interest which has accrued on the ABR Loans to but not including such Interest
Payment Date. So long as no Default has occurred and is continuing, each
Eurodollar Loan (exclusive of any past due principal or interest) shall bear
interest on each day during the related Interest Period at the related Adjusted
LIBO Rate in effect on such day plus the Applicable Rate. If a Default has
occurred and is continuing, all Eurodollar Loans (exclusive of any past due principal
or interest) from time to time outstanding shall bear interest on each day
outstanding at the default rate in effect on such day as may be specified
pursuant to Section 2.13 of the Credit Agreement. Borrower shall pay to the
holder hereof all unpaid interest which has accrued on each Eurodollar Loan on
the last day of its applicable Interest Period and, if such Interest Period is
longer than three months, on the last day of each three-month interval during
such Interest Period. All past due principal of and past due interest on

 B-1
 

 

the Loans shall bear interest on each day
outstanding at the default rate in effect on such day as may be specified
pursuant to Section 2.13, and such interest shall be due and payable daily as
it accrues. Notwithstanding the foregoing provisions of this paragraph:
(a) this Note shall never bear interest in excess of the Maximum Rate, and
(b) if at any time the rate at which interest is payable on this Note is
limited by the Maximum Rate (by the foregoing subsection (a) or otherwise),
this Note shall bear interest at the Maximum Rate and shall continue to bear
interest at the Maximum Rate until such time as the total amount of interest
accrued hereon equals (but does not exceed) the total amount of interest which
would have accrued hereon had there been no Maximum Rate applicable hereto.

Notwithstanding the foregoing paragraph and
all other provisions of this Note, in no event shall the interest payable
hereon, whether before or after maturity, exceed the maximum interest which,
under applicable Law, may be contracted for, charged, or received on this Note,
and this Note is expressly made subject to the provisions of the Credit
Agreement which more fully set out the limitations on how interest accrues
hereon.

If this Note is placed in the hands of an
attorney for collection after default, or if all or any part of the
indebtedness represented hereby is proved, established or collected in any
court or in any bankruptcy, receivership, debtor relief, probate or other court
proceedings, Borrower and all endorsers, sureties and guarantors of this Note
jointly and severally agree to pay reasonable attorneys’ fees and collection
costs to the holder hereof in addition to the principal and interest payable
hereunder.

Except as expressly provided in Article VII
of the Credit Agreement, Borrower and all endorsers, sureties and guarantors of
this Note hereby severally waive demand, presentment, notice of demand and of
dishonor and nonpayment of this Note, protest, notice of protest, notice of intention
to accelerate the maturity of this Note, declaration or notice of acceleration
of the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or substitutions of
any security, or any delay, indulgence or other act of any trustee or any
holder hereof, whether before or after maturity.

This Note is, at all times, subject to the
Credit Agreement; which shall control in the event of a conflict.

This Note and the rights and duties of the
parties hereto shall be governed by the Laws of the State of Texas.

	
  

  	
  WARREN RESOURCES, INC., a Maryland corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Norman F. Swanton

  
	
   

  	
  Title:

  	
  Chairman & Chief Executive Officer

  

 

 B-2

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