Document:

Blueprint

 

 Exhibit 10.1

 

EXECUTION VERSION

AMENDED
AND RESTATED

CREDIT
AGREEMENT

 

dated
as of November 27, 2019 among

 

YUMA
ENERGY, INC.,

 

YUMA
EXPLORATION AND PRODUCTION COMPANY, INC.,

PYRAMID
OIL LLC,

 

And

 

DAVIS
PETROLEUM CORP.,

as
Borrowers

 

YE
INVESTMENT LLC,

as the
Lender

And

Administrative
Agent

 

 

 

 

TABLE
OF CONTENTS

 

	

PRELIMINARY
STATEMENT  

	
1 

	
ARTICLE
I

	
DEFINITIONS

	
2

	
Section 1.1

	
Defined
Terms

	
2

	
Section
1.2

	
[Reserved]

	
13

	
Section 1.3

	
Terms Generally; Rules of
Consttruction

	
13

	
Section 1.4

	
Accounting Terms and
Determinations; GAAP

	
13

	
Section
1.5

	
Oil and Gas
Definitions 

	
13

	
Section
1.6

	
Time of
Day 

	
13

	
Section
1.7

	
Amendment and Restatement;
Allocation of Loans at the Effective
Date 

	
13

	
ARTICLE
II

	
THE
CREDITS

	
14

	
Section 2.1

	
Commitments

	
14

	
Section 2.2

	
Loans and
Borrowings

	
14

	
Section 2.3

	
Requests for
Borrowings

	
14

	
Section
2.4

	
[Reserved] 

	
14

	
Section
2.5

	
Funding of
Borrowings 

	
14

	
Section
2.6

	
Repayment of Loans; Interest;
Evidence of Debt 

	
15

	
Section
2.7

	
Prepayment of
Loan 

	
15

	
Section
2.8

	
Tax 

	
15

	
Section
2.9

	
Disposition of Proceeds of
Production 

	
16

	
Section
2.10

	
Payments
Generally 

	
16

	
Section
2.11

	
Exchange of Purchased
Loans 

	
16

	
ARTICLE
III

	
REPRESENTATIONS
AND WARRANTIES

	
17

	
Section 3.1

	
Organization;
Powers

	
17

	
Section 3.2

	
Authorization;
Enforceability

	
17

	
Section 3.3

	
Approvals; No
Conflicts

	
17

	
Section 3.4

	
Financial
Condition

	
17

	
Section 3.5

	
Properties; Titles,
Etc.

	
17

	
Section 3.6

	
Litigation and
Environmental Matters

	
18

	
Section 3.7

	
Compliance with Laws and
Agreements

	
18

	
Section 3.8

	
Investment Company
Status; Other Laws

	
18

	
Section 3.9

	
Taxes

	
18

	
Section 3.10

	
ERISA
Compliance

	18

	
Section 3.11

	
Insurance

	19

	
Section 3.12

	
Margin
Regulations

	
19

	
Section 3.13

	
Subsidiaries; Equity
Interest

	
19

	
Section 3.14

	
Anti-Money Laundering
and Anti-Terrorism Finance Laws

	
19

	
Section 3.15

	
Disclosure

	
19

	
Section 3.16

	
Security
Documents

	
19

 

 

 

 

	
Section
3.17

	
[Reserved]

	
20

	
Section 3.18

	
Burdensome
Obligations

	
20

	
Section
3.19

	
Labor
Matters 

	
20

	
Section
3.20

	
[Reserved] 

	
20

	
Section
3.21

	
[Reserved] 

	
20

	
Section
3.22

	
Maintenance of
Properties 

	
20

	
Section
3.23

	
Gas Imbalances,
Prepayments 

	
20

	
Section
3.24

	
Marketing of
Production 

	
21

	
Section
3.25

	
[Reserved] 

	
21

	
Section
3.26

	
Location of Business and
Offices

	
21

	
Section
3.27

	
[Reserved]

	
21

	
Section
3.28

	
Anti-Corruption
Laws

	
21

	
Section
3.29

	
Sanctions
Laws

	
21

	
ARTICLE
IV

	
CONDITIONS

	
22

	
Section 4.1

	
Effective
Date

	
22

	
Section 4.2

	
Each Credit
Event

	
23

	
ARTICLE
V

	
AFFIRMATIVE
COVENANTS

	
24

	
Section 5.1

	
Financial Statements and
Other Information

	
24

	
Section 5.2

	
Notices of Material
Events

	
25

	
Section 5.3

	
Existence; Conduct of Buisness;
Governmental Approvals

	
25

	
Section 5.4

	
Payment of
Obligations

	
25

	
Section 5.5

	
Insurance

	
25

	
Section
5.6

	
Books and Records; Inspections
Rights 

	
25

	
Section 5.7
 

	
Compliance with
Laws 

	
26

	
Section 5.8
 

	
Use of
Proceeds 

	
26

	
Section 5.9
 

	
Environmental
Matters 

	
26

	
Section 5.10
 

	
Operation and Maintenance of
Properties 

	
26

	
Section
5.11

	
Reserve
Reports 

	
27

	
Section
5.12

	
Title
Information 

	
28

	
Section
5.13

	
[Reserved] 

	
28

	
Section
5.14

	
Keepwell 

	
28

	
Section
5.15

	
Deposit
Accounts 

	
28

	
Section
5.16

	
Further Assurances; Additional
Collateral or Guarantors 

	
28

	
ARTICLE
VI

	
NEGATIVE
COVENANTS

	
29

	
Section
6.1

	
Liens 

	
29

	
Section
6.2

	
Fundamental
Changes 

	
29

	
Section
6.3

	
Disposition of
Properties 

	
30

	
Section
6.4

	
Investments, Loans, Advances and
Guarantees 

	
31

	
Section
6.5

	
Marketing
Activities 

	
31

	
Section
6.6

	
Restricted
Payments 

	
31

	
Section
6.7

	
Transactions with
Affiliates 

	
32

	
Section
6.8

	
Changes in Nature of Business;
Nature of Business; International
Operations 

	
32

	
Section
6.9

	
Restrictive
Agreements 

	
32

	
Section
6.10

	
Restriction of Amendments to
Certain Documents 

	
32

	
Section
6.11

	
Limitation of
Leases 

	
32

	
Section
6.12

	
Gas Imbalances, Take-or-Pay or
Other Prepayments 

	
32

	
Section
6.13

	
Additional Deposit
Accounts 

	
32

 

 

 

 

	
ARTICLE
VII

	
EVENTS OF
DEFAULT

	
33

	
Section 7.1

	
Events of
Default

	
33

	
Section
7.2

	
Application of
Proceeds

	
34

	
ARTICLE
VIII

	
THE
ADMINISTRATIVE AGENT

	
35

	
Section 8.1

	
Appointment and
Authority

	
35

	
Section 8.2

	
Rights as the
Lender

	
35

	
Section 8.3

	
Exculpatory
Provisions

	
35

	
Section 8.4

	
Reliance by
Administrative Agent

	
36

	
Section 8.5

	

[Reserved]

	
36

	
Section 8.6

	
Resignation of
Administrative Agent

	
36

	
Section 8.7

	
Non-Reliance on
Administrative Agent

	
36

	
Section 8.8

	
[Reserved]

	
36

	
Section 8.9

	
Enforcement

	
36

	
Section 8.10

	
Administrative Agent May
File Proofs of Claim

	
37

	
Section 8.11

	
Collateral and Guaranty
Matters

	
37

	
Section
8.12

	
[Reserved]

	
37

	
Section
8.13

	
Credit
Bidding

	
37

	
ARTICLE
IX

	
MISCELLANEOUS

	
38

	
Section
9.1

	
Notices; Effectiveness; Electronic
Communication

	
38

	
Section
9.2

	
Waivers; Amendments

	
38

	
Section
9.3

	
Expenses; Indemnity; Damage Waiver

	
39

	
Section 9.4

	
Successors and
Assigns

	
39

	
Section 9.5

	
Survival

	
40

	
Section 9.6

	
Counterparts;
Integration; Effectiveness; Electronic Execution

	
40

	
Section 9.7

	
Severability

	
40

	
Section 9.8

	
Right of
Setoff

	
40

	
Section
9.9

	Governing Law;
Jurisdiction; Etc.	
41

	
Section 9.10

	
Waiver of Jury
Trial

	
41

	
Section 9.11

	
Headings

	
41

	
Section 9.12

	
Treatment of Certain
Information; Confidentiality

	
41

	
Section 9.13

	
Interest Rate
Limitation

	
42

	
Section 9.14

	
[Reserved]

	
42

	
Section 9.15

	
Flood Insurance
Provisions

	
42

	
Section 9.16

	
[Reserved]

	
42

	
Section
9.17

	
Final Agreement of the
Parties 

	
42

	
ARTICLE
X

	
BORROWING
AGENCY

	
43

	
Section
10.1

	
Borrowing Agency
Provisions 

	
43

	
Section
10.2

	
Waiver of
Subrogation 

	
43

 

 

 

 Schedules

 

	
Schedule 1.1(b)

	
Material
Subsidiaries

	

Schedule 3.5(a)

	
Properties;
Titles

	

Schedule 3.5(b)

	
Material Leases

	

Schedule 3.11

	
Insurance

	

Schedule 3.13

	
Subsidiaries; Equity
Interests

	

Schedule 3.22

	
Maintenance of
Properties

	

Schedule 3.23

	
Gas Imbalances

	

Schedule 3.24

	
Marketing Production
  

	

Schedule 3.26(a)

	
Location of Business and
Offices   

	

Schedule 3.26(b)

	
Subsidiary Locations of Business
and Offices   

	

Schedule 6.1

	
Existing Liens
  

	

Schedule 6.4

	
Permitted
Investments

	

Schedule 6.9

	
Restrictive Agreements
 

  

 Exhibits

 

	
 Exhibit A

	
Form of Note

	
 Exhibit
B 

	
Form of Borrowing
Request

	
 Exhibit
C      

	
Form of Compliance
Certificate

 

 

 

THIS
AMENDED AND RESTATED CREDIT AGREEMENT is dated as of November 27,
2019, among YUMA ENERGY, INC., a Delaware corporation
(“Yuma
Energy”), YUMA EXPLORATION AND PRODUCTION COMPANY,
INC., a Delaware corporation (“Yuma E&P”), PYRAMID
OIL LLC, a California limited liability company
(“Pyramid”),
and DAVIS PETROLEUM CORP., a Delaware corporation
(“Davis”, and together with
Yuma Energy, Yuma E&P and Pyramid, the “Borrowers”, and each a
“Borrower”) and YE
Investment LLC, a Delaware limited liability company
(“YE”
or the “Lender”), and as
administrative agent (in such capacity, the “Administrative
Agent”).

 

PRELIMINARY STATEMENT

 

WHEREAS, YE acquired as of September 10,
2019 all of the outstanding Loans and other Obligations of the
Borrowers (the “Purchased Loans”) under
that certain Credit Agreement, dated as of October 26, 2016 (the
“Original Credit
Agreement”) by and among the lenders party thereto,
Société Générale as administrative agent, and
the Borrowers, as amended or modified by (A) the First Amendment to
Credit Agreement and Borrowing Base Redetermination dated as of May
19, 2017, (B) the Second Amendment to Credit Agreement and
Borrowing Base Redetermination dated as of May 8, 2018, (C) the
Waiver and Third Amendment to Credit Agreement dated as of July 31,
2018, (D) the Limited Waiver dated as of August 30, 2018, in each
case among the lenders party thereto, the Administrative Agent and
the Borrowers, and (E) the Successor Agent and Issuing Bank
Agreement dated as of September 10, 2019, and (F) the Loan
Modification Agreement (the “Loan Modification
Agreement”) between YE and the Borrowers dated
September 30, 2019 (the agreements in (A) through (F), the
“Default
Documents”, and the Original Credit Agreement as so
amended or modified by the Default Documents, the
“Credit
Agreement”);

 

WHEREAS, on September 30, 2019, YE and
the Borrowers entered into the Loan Modification Agreement to,
among other things, reduce the principal amount of the Purchased
Loans to $1,400,0000;

 

WHEREAS, the Lender and the Borrowers
desire to amend and restate the Credit Agreement and its related
loan documents in the manner hereinafter set forth to, among other
things, add an additional senior secured delayed draw term loan
facility in the aggregate maximum principal amount of Two Million
Dollars ($2,000,000), with drawdowns subject to Lender’s sole
discretion, a maturity date of September 30, 2022, and an annual
interest rate of ten percent (10%) payable monthly on Borrowings as
set forth hereinafter.

 

 

1

 

 

Accordingly, in
consideration of the foregoing and the mutual covenants set forth
herein, the parties hereto agree as follows:

 

ARTICLE
I

 

Definitions

 

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

 

“Administrative Agent” is
defined in the preamble hereto.

 

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

 

“Advance Payment Contract”
means any contract whereby any Loan Party either (a) receives or
becomes entitled to receive (either directly or indirectly) any
payment (an “Advance
Payment”) to be applied toward payment of the purchase
price of Hydrocarbons produced or to be produced from Oil and Gas
Properties owned by any Loan Party and which Advance Payment is, or
is to be, paid in advance of actual delivery of such production to
or for the account of the purchaser regardless of whether such
Hydrocarbons are actually produced or actual delivery is required,
or (b) grants an option or right of refusal to the purchaser to
take delivery of such Hydrocarbons in lieu of payment, and, in
either of the foregoing instances, the Advance Payment is, or is to
be, applied as payment in full for such Hydrocarbons when sold and
delivered or is, or is to be, applied as payment for a portion only
of the purchase price thereof or of a percentage or share of such
Hydrocarbons; provided that inclusion of the
standard “take or pay” provisions in any gas sales or
purchase contract or any other similar contract shall not, in and
of itself, constitute such contract as an Advance Payment Contract
for the purposes hereof.

 

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

 

“Agents” means
collectively, the Administrative Agent and other agents
subsequently named; and “Agent” shall mean either
the Administrative Agent or such other agent, as the context
requires.

 

“Agreement” means on any
date, this Amended and Restated Credit Agreement as may from time
to time be amended, restated, supplemented or otherwise modified
and in effect on such date.

 

“Anti-Corruption Laws” is
defined in Section
3.28.

 

“Anti-Terrorism Laws” is
defined in Section
3.14.

 

“Applicable Law” means,
with respect to any Person, (x) all provisions of law, statute,
treaty, ordinance, rule, regulation, requirement, restriction,
permit, certificate, decision, directive or order of any
Governmental Authority applicable to such Person or any of its
property and (y) all judgments, injunctions, orders and decrees of
all courts and arbitrators in proceedings or actions in which such
Person is a party or by which any of its property is
bound.

 

“Assigning Lender” is
defined in Section
9.4(b).

 

“Availability Period”
means the period on and from the Effective Date until the Delayed
Draw Maturity Date.

 

“Base Rate,” when used in
reference to interest on a Loan or Borrowing is ten percent (10%)
per annum, except with respect to the principal amount of the
Convertible Note, which shall be five percent (5%) per annum, and
shall be payable on the respective Interest Payment
Dates.

 

 

2

 

 

“Borrower” and
“Borrowers” are defined in
the preamble
hereto.

 

“Borrowing” means Loans
made, converted or continued on the same date.

 

“Borrowing Agent” means
Yuma Energy.

 

“Borrowing Request” means
a request by the Borrowing Agent, on behalf of any Borrower, for a
Borrowing in accordance with Section 2.3.

 

“Business Day” means any
day that is not a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required by law to remain
closed.

 

“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.

 

“Capital Leases” means, in
respect of any Person, all leases that shall have been, or should
have been, in accordance with GAAP, recorded as capital leases on
the balance sheet of the Person liable (whether contingent or
otherwise) for the payment of rent thereunder.

 

“Casualty Event” means any
loss, casualty or other damage to, or any nationalization, taking
under power of eminent domain or by condemnation or similar
proceeding of, any Property of any Borrower or any Subsidiary
having a fair market value in excess of $500,000.

 

“Change in Control” means
the occurrence of any of the following: (a) any Borrower other than
Yuma Energy ceases to be a Wholly-Owned Subsidiary, directly or
indirectly, of Yuma Energy, (b) the Yuma Energy Holders cease to
beneficially own and control, directly or indirectly, at least 30%
of the issued and outstanding shares of Yuma Energy Common Stock,
(c) any Person or two or more Persons acting as a group (as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934), other
than the Lender and its Affiliates, who shall have acquired,
directly or indirectly, beneficial ownership (within the meaning of
Rule 13d-3 of the SEC under the Securities Exchange Act of 1934) of
30% or more of the outstanding Yuma Energy Common Stock on a
fully-diluted basis (and taking into account all such securities
that such Person or group has the right to acquire pursuant to any
option right) or (d) occupation of a majority of the seats (other
than vacant seats) on the board of directors of Yuma Energy by
Persons who were neither (i) directors on the Effective Date nor
(ii) nominated or appointed by the board of directors of Yuma
Energy.

 

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

 

“Collateral” means any
property of the Loan Party upon which a security interest in favor
of the Administrative Agent for the benefit of the holders of
Secured Obligations is purported to be granted pursuant to any
Security Document.

 

“Commitment” means the
commitment of the Lender to make the Purchased Loans up to an
aggregate principal amount of One Million Four Hundred Thousand
No/100 Dollars ($1,400,0000) and the Delayed Draw Term Loans, in
the Lender’s sole discretion, up to an aggregate principal
amount of Two Million Dollars ($2,000,000) (the “Delayed Term Loan
Commitment”).

 

“Commodity Exchange Act”
means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as
amended from time to time, and any successor statute.

 

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

 

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

 

 

3

 

 

“Control Agreement” means
one or more deposit account control agreements or securities
account control agreements (or similar agreement), as applicable,
in form and substance reasonably satisfactory to the Administrative
Agent, executed by the applicable Loan Party, the Administrative
Agent and the relevant financial institution with whom such account
is maintained. Such agreement shall provide a first priority
perfected Lien in favor of the Administrative Agent, for the
benefit of the Secured Parties, in the applicable Loan
Party’s deposit account and/or securities account (in each
case, other than an Excluded Account).

 

 “Controlled
Account” means each deposit account and securities
account that is subject to a Control Agreement.

 

“Convertible Loans” is
defined in Section
2.11.

 

“Convertible Note” is
defined in Section
2.11.

 

“Credit Agreement” is
defined in the Preliminary
Statement hereto.

 

“Credit Exposure” means
the aggregate principal amount at such time of Lender’s
outstanding Loans.

 

“Davis” is defined in the
preamble
hereto.

 

“Debtor Relief Laws” means
the Bankruptcy Code of the United States of America, and all other
liquidation, conservatorship, bankruptcy, assignment for the
benefit of creditors, moratorium, rearrangement, receivership,
insolvency, reorganization or similar debtor relief laws of the
United States or other applicable jurisdictions.

 

“Default” means any event
or condition that constitutes an Event of Default or that with
notice, lapse of time or both would become an Event of
Default.

 

“Delayed Draw Maturity
Date” means September 30, 2022 with respect to the
Delayed Draw Term Loan, or any earlier date on which the
Commitments are terminated pursuant to the terms
hereof.

 

“Delayed Draw Term Loan”
is defined in Section
2.1(a).

 

“Disclosed Matters” means
the actions, suits and proceedings and the environmental matters
disclosed in the SEC filings of Yuma Energy, Inc.

 

“Disposition,” with
respect to any property, means any sale, lease, sale and leaseback,
assignment, conveyance, transfer or other disposition thereof. The
terms “Dispose” and
“Disposed
of” have meanings correlative thereto.

 

“Disqualified Equity
Interests” means any Equity Interest that, by its
terms (or by the terms of any security or other Equity Interest
into which it is convertible or for which it is exchangeable), or
upon the happening of any event or condition (i) matures or is
mandatorily redeemable (other than solely for Equity Interests that
are not otherwise Disqualified Equity Interests), pursuant to a
sinking fund obligation or otherwise, (ii) is redeemable at the
option of the holder thereof (other than solely for Equity
Interests that are not otherwise Disqualified Equity Interests), in
whole or in part, (iii) provides for scheduled payments or
dividends in cash or other Property or (iv) is or becomes
convertible into or exchangeable for Indebtedness or any other
Equity Interests that would constitute Disqualified Equity
Interests, in each case, prior to the date that is one (1) year
after the Maturity Date. The amount of Disqualified Equity
Interests deemed to be outstanding at any time for purposes of this
Agreement will be the maximum amount that the Borrowers and their
Subsidiaries may become obligated to pay upon the maturity of, or
pursuant to any mandatory redemption provisions of, such
Disqualified Equity Interests, exclusive of accrued
dividends.

 

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

 

“DPAC” means Davis
Petroleum Acquisition Corp., a Delaware corporation.

 

 

4

 

 

“Effective Date” means the
date on which the conditions specified in Section 4.1 are satisfied (or
waived in accordance with Section 9.2).

 

“Environmental Laws” means
all Applicable Law 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, including the Oil Pollution Act of 1990
(“OPA”), as amended, the
Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980
(“CERCLA”), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976 (“RCRA”), as amended, the
Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act
of 1986, as amended, the Hazardous Materials Transportation Act, as
amended, and other environmental conservation or protection
Governmental Requirements. The term “oil” shall have the
meaning specified in OPA, the terms “hazardous substance” and
“release” (or
“threatened
release”) have the meanings specified in CERCLA, the
terms “solid
waste” and “disposal” (or
“disposed”) have the
meanings specified in RCRA and the term “oil and gas waste” shall
have the meaning specified in Section 91.1011 of the Texas Natural
Resources Code (“Section 91.1011”);
provided,
however, that (a)
in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended
so as to broaden the meaning of any term defined thereby, such
broader meaning shall apply subsequent to the effective date of
such amendment and (b) to the extent the laws of the state or other
jurisdiction in which any Property of a Loan Party is located
establish a meaning for “oil,” “hazardous
substance,” “release,” “solid waste,”
“disposal” or “oil and gas waste” that is
broader than that specified in either OPA, CERCLA, RCRA or Section
91.1011, such broader meaning shall apply.

 

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

 

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

 

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

 

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

 

“ERISA Event” means (a)
any “reportable event,” as defined in Section 4043 of
ERISA or the regulations issued thereunder with respect to a
Pension Plan (other than an event for which the 30-day notice
period is waived); (b) the determination that any Pension Plan is
considered an at-risk plan or that any Multiemployer Plan is
endangered or is in critical status within the meaning of Sections
430, 431 or 432 of the IRC or Sections 303, 304 or 305 of ERISA, as
applicable; (c) the incurrence by any Borrower or any ERISA
Affiliate of any liability under Title IV of ERISA, other than for
PBGC premiums not yet due; (d) the receipt by any Borrower or any
ERISA Affiliate from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Pension Plan or to
appoint a trustee to administer any Pension Plan or the occurrence
of any event or condition that constitutes grounds under Section
4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan; (e) the appointment of a
trustee to administer any Pension Plan; (f) the withdrawal of any
Borrower or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which such entity was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or
the cessation of operations by any Borrower or any ERISA Affiliate
that would be treated as a withdrawal from a Pension Plan under
Section 4062(e) of ERISA; (g) the partial or complete withdrawal by
any Borrower or any ERISA Affiliate from any Multiemployer Plan or
a notification that a Multiemployer Plan is insolvent; or (h) the
taking of any action to terminate any Pension Plan under Section
4041 or 4041A of ERISA.

 

“Events of Default” is
defined in Section
7.1.

 

“Excluded Accounts” means
depository accounts that are used solely for one or more of the
following purposes: (i) making payroll and withholding tax payments
related thereto and other employee wage and benefit payments and
accrued and unpaid employee compensation (including salaries,
wages, benefits and expense reimbursements), (ii) paying Taxes,
including sales taxes, or (iii) as escrow accounts or as fiduciary
or trust accounts for the benefit of Persons other than any
Borrower or its Subsidiaries; provided that in no event shall any
of the principal operating, revenue or collection accounts of any
Borrower or any Subsidiary constitute an Excluded
Account.

 

“Excluded Taxes” means any
of the following Taxes imposed on or with respect to a Recipient or
required to be withheld or deducted from a payment to a Recipient:
(a) Taxes imposed on or measured by net income (however
denominated), franchise Taxes, and branch profits Taxes, in each
case, (i) imposed as a result of such Recipient being organized
under the laws of, or having its principal office or, in the case
of the Lender, its applicable lending office located in, the
jurisdiction imposing such Tax (or any political subdivision
thereof) or (ii) that are Other Connection Taxes, (b) in the case
of the Lender, U.S. federal withholding Taxes imposed on amounts
payable to or for the account of the Lender with respect to an
applicable interest in a Loan or Commitment pursuant to a law in
effect on the date on which (i) the Lender acquires such interest
in such Loan or Commitment or (ii) the Lender changes its lending
office, except in each case to the extent that, pursuant to
Section 2.8,
amounts with respect to such Taxes were payable either to the
Lender’s assignor immediately before the Lender became a
party hereto or to the Lender immediately before it changed its
lending office, (c) Taxes attributable to such Recipient’s
failure to comply with Section 2.8(g) and (d) any U.S.
federal withholding Taxes imposed pursuant to FATCA.

 

“Executive Order” is
defined in Section
3.29.

 

“Facility” means the
Commitments and the extensions of credit made
thereunder.

 

 

5

 

 

“FATCA” means Sections
1471 through 1474 of the IRC, as of the date of this Agreement (or
any amended or successor version that is substantively comparable
and not materially more onerous to comply with), any current or
future U.S. Treasury regulations or official IRS interpretation
thereof, any agreement entered into pursuant to Section 1471(b)(1)
of the IRC and any intergovernmental agreement entered into in
connection with the implementation of such Sections.

 

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

 

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

 

“Foreign Official” is
defined in Section
3.28.

 

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

 

“Funding Rules” means the
requirements relating to the minimum required contributions
(including any installment payments) to Pension Plans and
Multiemployer Plans, as applicable, and set forth in Sections 412,
430, 431, 432 and 436 of the IRC and Sections 302, 303, 304 and 305
of ERISA.

 

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

 

“Governmental Approval”
shall mean any action, order, authorization, consent, approval,
right, franchise, license, lease, ruling, permit, tariff, rate,
certification, exemption, filing or registration by or with any
Governmental Authority.

 

“Governmental Authority”
means the government of the United States of America or of any
political subdivision thereof, whether state, regional 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.

 

“Governmental Requirement”
means any law, statute, code, ordinance, order, determination,
rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other directive or
requirement, whether now or hereinafter in effect, including,
without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls, of any
Governmental Authority.

 

“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 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 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.

 

“Guarantee and Collateral
Agreement” means the Guarantee and Collateral
Agreement executed by the Borrowers and the Guarantors in favor of
the Administrative Agent for the benefit of the holders of Secured
Obligations substantially in the form as existing on the Effective
Date.

 

“Guarantor” means (a) each
Material Subsidiary of Yuma Energy other than any Borrower and (b)
each Subsidiary that guarantees the Indebtedness pursuant to
Section
5.16.

 

“Hazardous Materials”
means all toxic, corrosive, flammable, explosive, carcinogenic,
mutagenic, infectious or radioactive substances or wastes and all
other hazardous or toxic substances, wastes or other pollutants,
including petroleum hydrocarbons, petroleum products, petroleum
substances, natural gas, oil, oil and gas waste, crude oil, and any
components, fractions, or derivatives thereof, 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.

 

“Hydrocarbon Interests”
means all rights, titles, interests and estates now or hereafter
acquired in and to oil and gas leases, oil, gas and mineral leases,
or other liquid or gaseous hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit
interests and production payment interests, including any reserved
or residual interests of whatever nature. Unless otherwise
indicated herein, each reference to the term “Hydrocarbon
Interests” shall mean Hydrocarbon Interests of any Borrower
and/or the Subsidiaries as the context requires.

 

 

6

 

 

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

 

“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 accounts
payable incurred in the ordinary course of business that are not
more than seventy-five (75) days past due), (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 (but if such
Indebtedness has not been assumed, limited to the lesser of the
amount of such Indebtedness and the fair market value of the
property securing such Indebtedness), (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 guaranty,
(j) all obligations, contingent or otherwise, of such Person in
respect of bankers’ acceptances, (k) all obligations or
undertakings of such Person to maintain or cause to be maintained
the financial position or covenants of others or to purchase the
Indebtedness of others; (l) obligations to deliver commodities,
goods or services, including Hydrocarbons, in consideration of one
or more Advance Payments, other than gas balancing arrangements in
the ordinary course of business (but only to the extent of such
Advance Payments); (m) obligations under “take or pay”
or similar agreements (other than obligations under firm
transportation or drilling contracts); and (n) the undischarged
balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received
payment. The Indebtedness of any Person shall include all
obligations of such Person of the character described above to the
extent such Person remains legally liable in respect thereof
notwithstanding that any such obligation is not included as a
liability of such Person under GAAP. The Indebtedness of any Person
shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such
Person’s ownership interest in or other relationship with
such other Person, except to the extent the terms of such
Indebtedness provide that such Person is not liable
therefor.

 

Notwithstanding the
preceding, “Indebtedness” of a Person shall not
include:

 

(1) any indebtedness
that has been defeased in accordance with GAAP or defeased pursuant
to the deposit of cash or Cash Equivalent Investments (in any
amount sufficient to satisfy all such indebtedness obligations at
maturity or redemption, as applicable, and all payments of interest
and premium, if any) in a trust or account created or pledged for
the sole benefit of the holders of such indebtedness, and subject
to no other Liens; and

 

(2) any obligation of
such Person in respect of a farm-in agreement or similar
arrangement whereby such Person agrees to pay all or a share of the
drilling, completion or other expenses of an exploratory or
development well (which agreement may be subject to a maximum
payment obligation, after which expenses are shared in accordance
with the working or participation interest therein or in accordance
with the agreement of the parties) or perform the drilling,
completion or other operation on such well in exchange for an
ownership interest in an oil or gas property.

 

“Indemnified Taxes” means
(a) Taxes, other than Excluded Taxes, imposed on or with respect to
any payment made by or on account of any obligation of the Loan
Party under the Loan Document and (b) to the extent not otherwise
described in clause
(a), Other Taxes.

 

“Indemnitee” is defined in
Section
9.3(b).

 

“Information” is defined
in Section
9.12(j).

 

“Initial Reserve Report”
means that certain reserve report relating to the Oil and Gas
Properties of the Borrowers and their Subsidiaries as of December
31, 2018, prepared by Netherland, Sewell and Associates,
Inc.

 

“Interest Expense” means,
for any period, the sum (determined without duplication) of the
gross interest expense of Yuma Energy and its Subsidiaries for such
period calculated in accordance with GAAP, and including in any
event: (a) amortization of debt discount to the extent included in
interest expense under GAAP, (b) capitalized interest, (c) the
portion of any payments or accruals under Capital Leases allocable
to interest expense to the extent included in interest expense
under GAAP, and (d) dividends and interest, if any, paid by Yuma
Energy (whether or not in cash, but excluding Equity Interests
other than Disqualified Equity Interests) in connection with any
preferred stock or other preferred equity interest of Yuma Energy,
minus the portion of any payments or accruals under Synthetic
Leases allocable to interest expense.

 

“Interest Payment Dates”
means, (a) with respect to the Purchased Loans, December 31, 2019
(for the period from September 30, 2019 to December 31, 2019) and
the last day of each calendar month thereafter, and (b) with
respect to the Delayed Draw Term Loans, the last day of the
calendar month.

 

“Investment” means, with
respect to any Person, all investments by such Person in other
Persons (including Affiliates) in the form of any direct or
indirect deposit with, advance, loan or other extension of credit
(including by way of Guarantee or similar arrangement (including
the deposit of any Equity Interests to be sold) with respect to,
Indebtedness or other liability of any other Person and (without
duplication) an amount committed to be advanced, loaned or extended
to such Person) or capital contribution to (by means of any
transfer of cash or other Property or any payment for Property or
services for the account or use of others), or assumption of
Indebtedness of, purchase or other acquisition of any other
Indebtedness or equity participation or interest in, or any
purchase or acquisition of Equity Interests, evidences of
Indebtedness or other securities (excluding any interest in an oil
or natural gas leasehold to the extent constituting a security
under applicable law) of, such other Person and all other items
that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP, and any purchase or other
acquisition (in one transaction or a series of transactions) of any
assets of any other Person constituting a business unit;
provided that the
endorsement of negotiable instruments and documents in the ordinary
course of business will not be deemed to be an Investment. If any
Borrower or any Subsidiary sells or otherwise Disposes of any
Equity Interests of any direct or indirect Subsidiary such that,
after giving effect to any such sale or Disposition, such Person is
no longer a Subsidiary, such Borrower will be deemed to have made
an Investment on the date of any such sale or Disposition equal to
the fair market value of such Borrower’s Investments in such
Subsidiary that were not sold or Disposed of. The acquisition by
any Borrower or any Subsidiary of a Person that holds an Investment
in a third Person will be deemed to be an Investment by such
Borrower or such Subsidiary in such third Person in an amount equal
to the fair market value of the Investments held by the acquired
Person in such third Person. Except as otherwise provided in this
Agreement, the amount of an Investment will be determined at the
time the Investment is made and without giving effect to the
subsequent changes in value.

 

 

7

 

 

“IRC” means the Internal
Revenue Code of 1986, as amended.

 

“IRS” means the United
States Internal Revenue Service.

 

“Joinder Agreement” means
a joinder agreement in form and substance satisfactory to the
Administrative Agent.

 

“Legal Requirement” means,
as to any Person, any law, statute, ordinance, decree, requirement,
order, judgment, rule, regulation (or official interpretation of
any of the foregoing) of, and the terms of any license or Permit
issued by, any Governmental Authority, including, but not limited
to, Regulations T, U, and X, that is applicable to such
Person.

 

“Lender” means YE
Investment LLC, a Delaware limited liability company, and any other
Person that shall have become a party hereto as the Lender pursuant
to an assignment and assumption.

 

“Lien” means, with respect
to any asset, (a) any mortgage, deed of trust, lien, pledge,
hypothecation, encumbrance, charge or security interest in, on or
of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same
economic effect as any of the foregoing) relating to such assets,
(c) production payments and the like payable out of Oil and Gas
Properties and (d) in the case of securities, any purchase option,
call or similar right of a third party with respect to such
securities; provided that in no event shall
an operating lease be deemed to be a Lien.

 

“Loan Document” means this
Agreement, the Security Documents, the Assignment Agreement, the
Notes and any other documents entered into in connection
herewith.

 

“Loan Modification
Agreement” is defined in the Preliminary Statement
hereto.

 

“Loan Party” means each
Borrower and each Guarantor.

 

“Loans” means the loans
made by the Lender to a Borrower pursuant to this Agreement,
including the Purchased Loans and the Delayed Draw Term
Loans.

 

“Material Adverse Effect”
means a material adverse effect on (a) the business, assets,
operations, prospects or condition, financial or otherwise, of any
Borrower or the Borrowers and the Subsidiaries taken as a whole,
(b) the ability of the Loan Party to perform any of its obligations
under the Loan Documents, (c) the validity or enforceability of any
of the Loan Documents, or (d) the rights of or benefits or remedies
available to the Administrative Agent and the Lender under the Loan
Documents.

 

“Material Indebtedness”
means Indebtedness (other than the Loans), or obligations in
respect of any one or more of each Borrower and its Subsidiaries in
an aggregate principal amount exceeding $1,000,000.

 

“Material Subsidiary”
means, at any time, (i) each Subsidiary of Yuma Energy that
represents (or to which is attributable) (a) 5% or more of Yuma
Energy’s EBITDAX, (b) 5% or more of the Yuma Energy’s
consolidated total assets or (c) 5% or more of Yuma Energy’s
consolidated total revenues, in each case, as determined at the end
of the most recent fiscal quarter of Yuma Energy based on the
financial statements of Yuma Energy delivered pursuant to
Sections 5.1(a) and
(b) and (ii) any
Subsidiary of Yuma Energy designated by notice in writing given by
Yuma Energy to the Administrative Agent to be a “Material
Subsidiary”; provided that any such
Subsidiary so designated as a “Material Subsidiary”
shall at all times thereafter remain a Material Subsidiary for the
purposes of this Agreement unless otherwise agreed to by the
Borrowing Agent and the Lender or unless such Material Subsidiary
ceases to be a Subsidiary in a transaction not prohibited
hereunder. Schedule
1.1(b) contains a list of all Material Subsidiaries as of
the Effective Date.

 

“Maturity Date” means
December 31, 2022, or any earlier date on which the Commitments are
terminated pursuant to the terms hereof.

 

“Mortgage” means a
mortgage or deed of trust made by the Loan Party in favor of, or
for the benefit of, the Administrative Agent for the benefit of the
holders of Secured Obligations, substantially in the form as
delivered on or before the Effective Date under Sections 4.1(b)(ii) and
(xi), with such
changes thereto acceptable to the Administrative Agent as shall be
advisable under the law of the jurisdiction in which such mortgage
or deed of trust is to be recorded.

 

“Mortgaged Property” means
any Property owned by any Borrower or any Guarantor that is subject
to the Liens existing and to exist under the terms of any
Mortgage.

 

 

8

 

 

“Multiemployer Plan” means
a multiemployer plan as defined in Section 4001(a)(3) of ERISA to
which any Borrower or any ERISA Affiliate contributes, is obligated
to contribute, or has any liability.

 

“New Lender” is defined in
Section
9.4(b).

 

“Note” is defined in
Section
2.2(ii).

 

“NYSE American” means the
NYSE American LLC.

 

“Obligations” means all
advances to, and debts, liabilities, obligations, covenants and
duties of, the Loan Party arising under the Loan Document, in each
case whether direct or indirect (including those acquired by
assumption), absolute or contingent, due or to become due, now
existing or hereafter arising and including interest and fees that
accrue after the commencement by or against the Loan Party or any
Affiliate thereof of any proceeding under any Debtor Relief Law
naming such Person as the debtor in such proceeding, regardless of
whether such interest and fees are allowed claims in such
proceeding.

 

“Oil and Gas Properties”
means (a) Hydrocarbon Interests; (b) the Properties now or
hereafter pooled or unitized with Hydrocarbon Interests; (c) all
presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby
(including all units created under orders, regulations and rules of
any Governmental Authority) that may affect all or any portion of
the Hydrocarbon Interests; (d) all operating agreements, contracts
and other agreements, including production sharing contracts and
agreements, that relate to any of the Hydrocarbon Interests or the
production, sale, purchase, exchange or processing of Hydrocarbons
from or attributable to such Hydrocarbon Interests; (e) all
Hydrocarbons in and under and that may be produced and saved or
attributable to the Hydrocarbon Interests, including all oil in
tanks, and all rents, issues, profits, proceeds, products, revenues
and other incomes from or attributable to the Hydrocarbon
Interests; (f) all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests and (g) all Properties,
rights, titles, interests and estates described or referred to
above, including any and all Property, real or personal, now owned
or hereinafter acquired and situated upon, used, held for use or
useful in connection with the operating, working or development of
any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment, rental equipment or other personal
Property that 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. Unless otherwise
indicated herein, each reference to the term “Oil and Gas
Properties” shall mean Oil and Gas Properties of the
Borrowers and/or the Subsidiaries as the context
requires.

 

“Organization Documents”
means, (a) with respect to any corporation, the certificate or
articles of incorporation and the bylaws; (b) with respect to any
limited liability company, the articles of formation and operating
agreement; and (c) with respect to any partnership, joint venture,
trust or other form of business entity, the partnership, joint
venture or other applicable agreement of formation and any
agreement, instrument, filing or notice with respect thereto filed
in connection with its formation with the secretary of state or
other department in the state of its formation, in each case as
amended from time to time.

 

“Other Connection Taxes”
means, with respect to any Recipient, Taxes imposed as a result of
a present or former connection between such Recipient and the
jurisdiction imposing such Tax (other than connections arising from
such Recipient having executed, delivered, become a party to,
performed its obligations under, received payments under, received
or perfected a security interest under, engaged in any other
transaction pursuant to or enforced any Loan Document, or sold or
assigned an interest in any Loan or Loan Document).

 

“Other Taxes” means all
present or future stamp, court or documentary, intangible,
recording, filing or similar Taxes that arise from any payment made
under, from the execution, delivery, performance, enforcement or
registration of, from the receipt or perfection of a security
interest under, or otherwise with respect to, the Loan
Document.

 

“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)).

 

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

 

“Pension Plan” means any
employee pension benefit plan as defined in Section 3(2) of ERISA
(other than a Multiemployer Plan) subject to the provisions of
Title IV of ERISA or Section 412 of the IRC or Section 302 of
ERISA, and in respect of which any 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.

 

 

9

 

 

“Permitted Encumbrances”
means:

 

(a) Liens for Taxes,
assessments or other governmental charges or levies that are not
delinquent or that are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in
accordance with GAAP;

 

(b) Liens in connection
with workers’ compensation, unemployment insurance or other
social security, old age pension or public liability obligations
that are not delinquent or that are being contested in good faith
by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP;

 

(c) statutory
landlord’s liens, operators’, vendors’,
carriers’, warehousemen’s, repairmen’s,
mechanics’, suppliers’, workers’,
materialmen’s, construction or other like Liens arising by
operation of law in the ordinary course of business or incident to
the exploration, development, operation and maintenance of Oil and
Gas Properties each of which is in respect of obligations that are
not delinquent or that are being contested in good faith by
appropriate action and for which adequate reserves have been
maintained in accordance with GAAP;

 

(d) contractual Liens
that arise in the ordinary course of business under operating
agreements, joint venture agreements, oil and gas partnership
agreements, oil and gas leases, farm-out agreements, division
orders, contracts for the sale, transportation or exchange of oil
and natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements, marketing
agreements, processing agreements, development agreements,
injection, repressuring and recycling agreements, salt water or
other disposal agreements, seismic or other geophysical permits or
agreements, and other agreements that are usual and customary in
the oil and gas business in each case, (i) that are customary in
the oil, gas and mineral production business, and (ii) that are
entered into by any Borrower or any Subsidiary in the ordinary
course of business; provided, that, in any event, (x) such Liens
secure amounts that are not yet due or are being diligently
contested in good faith by appropriate proceedings, and such
reserve as may be required by GAAP shall have been made therefor,
(y) such Liens are limited to the assets that are the subject of
such agreements, and (z) such Liens shall not be in favor of any
Person that is an Affiliate of a Loan Party;

 

(e) Liens arising
solely by virtue of any statutory or common law provision relating
to banker’s liens, rights of set-off or similar rights and
remedies and burdening only deposit accounts or other funds
maintained with a creditor depository institution, provided that no such deposit
account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set
forth by regulations promulgated by the FRB and no such deposit
account is intended by any Borrower or any of the Subsidiaries to
provide collateral to the depository institution;

 

(f) easements,
restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any Property of any Borrower or any
Subsidiary for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas,
oil, coal or other minerals or timber, and other like purposes, or
for the joint or common use of real estate, rights of way,
facilities and equipment, that in the aggregate do not materially
impair the use of such Property for the purposes of which such
Property is held by any Borrower or any Subsidiary or materially
impair the value of such Property subject thereto;

 

(g) Liens on cash or
securities pledged to secure performance of tenders, surety and
appeal bonds, government contracts, performance and return of money
bonds, bids, trade contracts, leases, statutory obligations,
regulatory obligations and other obligations of a like nature, in
each case incurred in the ordinary course of business;

 

(h) judgment and
attachment Liens not giving rise to an Event of Default,
provided that any
appropriate legal proceedings that may have been duly initiated for
the review of such judgment shall not have been finally terminated
or the period within which such proceeding may be initiated shall
not have expired and no action to enforce such Lien has been
commenced; and

 

(i) Liens arising from
Uniform Commercial Code financing statement filings regarding
operating leases entered into by any Borrower or any Subsidiaries
in the ordinary course of its business and covering only the
Property under lease;

 

provided, further that (1) Liens
described in clauses
(a) through (e) shall remain
“Permitted Encumbrances” only for so long as no action
to enforce such Lien has been commenced, (2) no intention to
subordinate the first priority Lien granted in favor of the
Administrative Agent and the Lender is to be hereby implied or
expressed by the permitted existence of any Permitted Encumbrance,
and (3) the term “Permitted Encumbrances” shall not
include any Lien securing Indebtedness.

 

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

 

“Plan” means any employee
benefit plan as defined in Section 3(3) of ERISA, including a
Pension Plan, maintained by, contributed to by or required to be
contributed to by the Loan Party or with respect to which the Loan
Party may have any liability.

 

“Property” means any
interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible, including cash, securities,
accounts and contract rights.

 

 

10

 

 

“Purchased Loans” is
defined in the Preliminary
Statement hereto.

 

“PV-10 Value” shall mean,
as of any date of determination, with respect to the Borrowers and
their Subsidiaries, the present value of estimated future revenues
less severance and ad valorem taxes, operating, gathering,
transportation and marketing expenses and capital expenditures from
the production of “proved” Oil and Gas Properties of
the Borrowers and their Subsidiaries as set forth in the most
recent Reserve Report delivered pursuant hereto, calculated in
accordance with the SEC guidelines and using the Five-Year Strip
Price for crude oil (WTI Cushing) and natural gas (Henry Hub), with
such price held flat for each subsequent year, quoted on the New
York Mercantile Exchange (or its successor) on such date of
determination, adjusted for any basis differential, quality and
gravity, using prices and costs as of the date of estimation
without future escalation, without giving effect to non-property
related expenses such as general and administrative expenses, debt
service, future income tax expense and depreciation, depletion and
amortization, and discounted using an annual discount rate of
10%.

 

“Pyramid” is defined in
the preamble.

 

“Recipient” means (a) the
Administrative Agent, and (b) the Lender, as
applicable.

 

“Redemption” means with
respect to any Indebtedness, the repurchase, redemption,
prepayment, repayment or defeasance (or the segregation of funds
with respect to any of the foregoing) of such Indebtedness.
“Redeem” has the
correlative meaning thereto.

 

“Regulation U” means
Regulation U of FRB.

 

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

 

“Reserve Report” means the
Initial Reserve Report and a report, in form and substance
reasonably satisfactory to the Administrative Agent, setting forth,
as of each December 31st thereafter, the oil
and gas reserves attributable to the Oil and Gas Properties of the
Borrowers and the Subsidiaries, together with a projection of the
rate of production and future net income, taxes, operating expenses
and capital expenditures with respect thereto as of such date,
consistent with SEC reporting requirements at the
time.

 

“Resignation Effective
Date” is defined in Section 8.6(a).

 

“Responsible Officer”
means the chief executive officer, chief operating officer,
president or Financial Officer of the Borrowers.

 

“Restricted Payment” means
any dividend or other distribution (whether in cash, securities or
other Property other than dividends payable solely in Equity
Interests of such Person) with respect to any Equity Interests in
any 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 any Borrower or any of its Subsidiaries or any
option, warrant or other right to acquire any such Equity Interests
in any Borrower or any of its Subsidiaries.

 

“Restructuring Agreement”
means the Restructuring and Exchange Agreement dated as of
September 30, 2019 and as such agreement may be amended from time
to time, by and among Yuma Energy, Yuma E&P, Pyramid, Davis,
Red Mountain Capital Partners, LLC, RMCP PIV DPC, LP, RMCP PIV DPC
II, LP, and YE.

 

“Sanctions” means economic
or financial sanctions, trade embargoes or similar measures
enacted, administered or enforced by any of the following (or by
any agency of any of the following): (a) the United Nations; (b)
the United States of America; (c) the United Kingdom; or (d) the
European Union or any present or future member state
thereof.

 

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

 

“Secured Obligations”
means, collectively, the Obligations, whether direct or indirect
(including those acquired by assumption), absolute or contingent,
due or to become due, now existing or hereafter arising and
including interest and fees that accrue after the commencement by
or against the Loan Party or any Affiliate thereof of any
proceeding under any Debtor Relief Law naming such Person as the
debtor in such proceeding, regardless of whether such interest and
fees are allowed claims in such proceeding.

 

“Secured Parties” means
the Administrative Agent and the Lender.

 

“Security Documents” means
the Guarantee and Collateral Agreement, the Mortgages, each Control
Agreement and all other security documents hereafter delivered to
the Administrative Agent granting a Lien on any property of any
Person to secure the Secured Obligations.

 

 

11

 

 

“Shareholders’
Equity” means, as of any date of determination,
consolidated shareholders’ equity of Yuma Energy and its
Subsidiaries as of that date determined in accordance with
GAAP.

 

“Subsidiary” means, with
respect to any Person at any time, any other Person the accounts of
which would be consolidated with those of such Person in such
Person’s consolidated financial statements if such financial
statements were prepared in accordance with GAAP as well as any
other Person (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, by such Person or (b) that is, as of
such date, otherwise Controlled by such Person. Unless the context
otherwise specifically requires, the term “Subsidiary”
shall refer to a Subsidiary of Yuma Energy.

 

“Subsidiary Guarantor”
means any Subsidiary that guarantees the Secured Obligations
(including pursuant to Section 4.1 and Section 5.16).

 

“Synthetic Lease” means,
as to any Person, any lease (including a lease that may be
terminated by the lessee at any time) of any Property (whether
real, personal or mixed) (a) that is accounted for as an operating
lease under GAAP and (b) in respect of which the lessee retains or
obtains ownership of the Property so leased for U.S. Federal income
tax purposes, other than any such lease under which such Person is
the lessor.

 

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

 

 “Termination
Date” means the first date on or before which all
Obligations (other than contingent indemnification obligations for
which no claim has been asserted have been indefeasibly paid in
full in cash and all Commitments shall have
terminated.

 

“Transactions” means the
execution, delivery and performance by the Loan Parties of the Loan
Documents, the borrowing of Loans, the use of the proceeds thereof,
the grant by the Loan Party of the Liens granted by it pursuant to
the Loan Documents to which it is a party, and the perfection or
maintenance of the Liens created under the Loan Documents to which
it is a party.

 

“U.S. Person” means any
Person that is a “United States Person” as defined in
Section 7701(a)(30) of the IRC.

 

“UCC” means the Uniform
Commercial Code of the State of New York or of any other state the
laws of which are required to be applied in connection with the
perfection of security interests in any Collateral.

 

“Wholly-Owned Subsidiary”
means (a) any Subsidiary of which all of the outstanding Equity
Interests, on a fully-diluted basis, are owned by a Borrower or one
or more of the Wholly- Owned Subsidiaries or are owned by the
Borrower and one or more of the Wholly-Owned Subsidiaries or (b) if
permitted by this Agreement, any Subsidiary that is organized in a
foreign jurisdiction and is required by the applicable laws and
regulations of such foreign jurisdiction to be partially owned by
the government of such foreign jurisdiction or individual or
corporate citizens of such foreign jurisdiction, provided that a Borrower, directly or
indirectly, owns the remaining Equity Interests in such Subsidiary
and, by contract or otherwise, controls the management and business
of such Subsidiary and derives economic benefits of ownership of
such Subsidiary to substantially the same extent as if such
Subsidiary were a Wholly-Owned Subsidiary.

 

“Wholly-Owned Subsidiary
Guarantor” means any Subsidiary Guarantor that is a
Wholly-Owned Subsidiary of a Borrower.

 

“Withholding Agent” means
the Loan Party and the Administrative Agent.

 

“YE” is defined in the
preamble
hereto.

 

“Yuma E&P” is defined
in the preamble
hereto.

 

“Yuma Energy” is defined
in the preamble
hereto.

 

“Yuma Energy Common Stock”
means the common stock, $0.001 par value per share, of Yuma
Energy.

 

“Yuma Energy Holders”
means Red Mountain Capital Partners LLC, and Sankaty Davis LLC, and
each of their Affiliates.

 

 

12

 

 

SECTION
1.2                                [Reserved].

 

SECTION
1.3                                Terms
Generally; Rules of Construction. The definitions of terms
herein shall apply equally to the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The
words “include,” “includes” and
“including” shall be deemed to be followed by the
phrase “without limitation.” The word
“will” shall be construed to have the same meaning and
effect as the word “shall.” Unless the context requires
otherwise, (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to
time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set
forth herein), (b) any reference herein to any Person shall be
construed to include such Person’s successors and assigns,
(c) the words “herein,” “hereof” and
“hereunder,” and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any
particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this
Agreement, (e) any reference to any law or regulation herein shall,
unless otherwise specified, refer to such law or regulation as
amended, modified or supplemented from time to time and (f) 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
1.4                                Accounting
Terms and Determinations; 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 Borrowing
Agent notifies the Administrative Agent that the Borrowing Agent,
on behalf of any 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
Borrowing Agent that the Lender request an amendment to any
provision hereof for such purpose), regardless of whether any such
notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on
the basis of GAAP as in effect and applied immediately before such
change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance
herewith.

 

SECTION
1.5                                Oil
and Gas Definitions. For purposes of this Agreement and the
other Loan Documents, the terms “proved reserves,”
“proved developed reserves,” “proved undeveloped
reserves,” “proved developed nonproducing
reserves” and “proved developed producing
reserves,” have the meaning given such terms from time to
time and at the time in question by the Society of Petroleum
Engineers of the American Institute of Mining
Engineers.

 

SECTION
1.6                                Time
of Day. Unless otherwise specified, all references herein to
time of day shall be references to Eastern time (daylight or
standard, as applicable).

 

SECTION
1.7                                           Amendment
and Restatement; Allocation of Loans at the Effective
Date.

 

(a) The parties hereto
agree that on the Effective Date, the following transactions shall
be deemed to occur automatically, without further action by any
party hereto:

 

(i) the Credit
Agreement shall be amended and restated in its entirety in the form
of this Agreement;

 

(ii) the
Loans shall serve to extend, renew, rearrange and continue, but not
to extinguish or novate, the Purchased Loans;

 

(iii) the
Liens in favor of Administrative Agent securing payment of the
Purchased Loans and certain other obligations shall remain in full
force and effect with respect to the Secured Obligations and are
hereby reaffirmed in accordance with the Security Documents;
and

 

(iv) the
parties acknowledge and agree that this Agreement and the other
Loan Documents do not constitute a novation, payment and
reborrowing or termination of the Purchased Loans and other
existing obligations under the Credit Agreement and that the
Purchased Loans and other existing obligations and loans under the
Credit Agreement, are in all respects continued and outstanding as
Obligations under this Agreement with only the terms being modified
from and after the Effective Date as provided in this Agreement and
the other Loan Documents.

 

(b) To facilitate the
allocation described in Section 1.7(a), on the
Effective Date, the Lender shall be deemed to have funded, in
accordance with the requirements of Section 2.5, its Loan to the
extent of its Purchased Loans and shall not be required to wire
transfer funds in such amounts as provided in such
Section.

 

 

13

 

 

ARTICLE
II

 

The Credits

 

SECTION
2.1                                Commitments.

 

(a)           Purchased
Loans. The Purchased Loans shall remain outstanding under
this Agreement and shall remain subject to the terms and conditions
of this Agreement. Any principal amount of the Purchased Loans that
is repaid or prepaid may not be reborrowed.

 

(b)           Delayed
Draw Term Loan. Subject to the terms and conditions set
forth herein, the Lender may, in its sole discretion, make loans
(each a “Delayed
Draw Term Loan” and collectively, the
“Delayed Draw Term
Loans”) to the Borrowers from time to time during the
Availability Period in an aggregate principal amount not to exceed
the undrawn portion of the Delayed Term Loan Commitment. The
aggregate principal amount of the Delayed Draw Term Loans (based on
initial principal amount) shall not exceed the Delayed Term Loan
Commitment. The Delayed Term Loan Commitment shall (x)
automatically be reduced to the extent that the Lender makes a
Delayed Draw Term Loan to the Borrowers, and (y) automatically and
permanently be reduced to zero on the Delayed Draw Maturity Date.
Any principal amount of the Delayed Draw Term Loans that is repaid
or prepaid may not be reborrowed.

 

 (c)           Lender’s
Discretion. The Borrowers acknowledge and agree that,
notwithstanding any other provision of this Agreement, the Delayed
Draw Term Loans, if any are made, shall be made at the
Lender’s sole and absolute discretion. The Lender may decline
to make any Delayed Draw Term Loan requested by the Borrowers
pursuant to any request for a Borrowing pursuant to Section 2.3 or otherwise,
without regard to any then unused Commitments, at any time and for
any reason without any prior notice to the Borrowers or the
Borrowing Agent.

 

SECTION
2.2                                Note.
Each Loan shall be evidenced by a Promissory Note in the form
attached hereto as Exhibit
A (the “Note”), or as otherwise
agreed between YE and the Borrowers, as the Borrowing Agent may
request in accordance with this Agreement.

 

SECTION
2.3                                Requests
for Borrowings. To request a Borrowing, the Borrowing Agent
shall notify the Administrative Agent of such request by telephone
not later than 11:00 a.m. one (1) Business Day before the date of
the proposed Borrowing. Each such telephonic Borrowing Request
shall be irrevocable and shall be confirmed promptly by hand
delivery, telecopy or (if arrangements for doing so have been
approved by the Administrative Agent) electronic communication to
the Administrative Agent of a written Borrowing Request in a form
approved by the Administrative Agent and signed by the Borrowing
Agent. Each such telephonic and written Borrowing Request shall
specify the following information:

 

(A) the aggregate
amount of the requested Borrowing;

 

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

 

(C) the amount of the
then unused Commitments, the current total Credit Exposure (without
regard to the requested Borrowing) and the pro forma total Credit
Exposure (giving effect to the requested Borrowing);
and

 

(D) the location and
number of the appropriate Borrower’s account to which funds
are to be disbursed, which shall comply with the requirements of
Section
2.6.

 

Promptly following
receipt of a Borrowing Request in accordance with this Section 2.3, the Administrative
Agent shall advise the Lender of the details thereof and of the
amount of the Lender’s Loan to be made (in Lender’s
sole discretion) as part of the requested Borrowing. Each Borrowing
Request shall constitute a representation that the amount of the
requested Borrowing shall not cause the total Credit Exposure to
exceed the total Commitment.

 

SECTION
2.4                                           [Reserved].

 

SECTION
2.5                                           Funding
of Borrowings. The Lender shall make each Loan to be made by
it in its sole discretion hereunder on the proposed date thereof by
wire transfer of immediately available funds by 1:00 p.m. to the
account of the Administrative Agent most recently designated by it
for such purpose by notice to the Lender. The Administrative Agent
will make such Loans available to the Borrowers by promptly
crediting the amounts so received, in like funds, to an account of
the Borrowing Agent maintained with the Administrative Agent and
designated by the Borrowing Agent in the applicable Borrowing
Request.

 

 

14

 

 

SECTION
2.6                                Repayment
of Loans; Interest; Evidence of Debt.

 

(a)           Each
Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of the Lender the then-unpaid
principal amount of each Loan on the Maturity Date or Delayed Draw
Maturity Date, as applicable, and interest within three (3)
Business Days of each applicable Interest Payment
Date.

 

(b) The Lender shall
maintain an account or accounts evidencing the Indebtedness of the
Borrowers to the Lender resulting from each Loan made by the
Lender, including the amounts of principal and interest payable and
paid to the Lender from time to time hereunder.

 

(c) The Loans shall
bear interest at the Base Rate.

 

SECTION
2.7                                           Prepayment
of Loan.

 

(a) Optional Prepayments. The
Borrowing Agent, on behalf of each Borrower, shall have the right
at any time and from time to time to prepay any Borrowing in whole
or in part, subject to prior notice in accordance with clause (b) of this Section 2.7, provided that,
upon any such prepayment of any principal of any Note other than
the Purchased Loans, Lender shall be entitled to a prepayment
penalty of ten percent (10%) of the principal amount prepaid.
Borrowers agree that all loan fees and other prepaid finance
charges are earned fully as of the date of any Loan and will not be
subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by
law.

 

(b) Notice and Terms of Optional
Prepayment. The Borrowing Agent shall notify the
Administrative Agent by telephone (confirmed by telecopy or, if
arrangements for doing so have been approved by the Administrative
Agent, electronic communication) of any prepayment hereunder, not
later than 11:00 a.m. one (1) Business Day before the date of
prepayment. Promptly following receipt of any such notice relating
to a Borrowing, the Administrative Agent shall advise the Lender of
the contents thereof.

 

SECTION
2.8                                           Taxes.

 

(a) Lender; FATCA. For purposes of
this Section 2.8,
the term “Applicable Law” includes FATCA.

 

(b) Payments Free of Taxes. Any and
all payments by or on account of any obligation of any Borrower
under the Loan Documents shall be made without deduction or
withholding for any Taxes, except as required by Applicable Law. If
any Applicable Law (as determined in the good faith discretion of
an applicable withholding agent) requires the deduction or
withholding of any Tax from any such payment by a withholding
agent, then the applicable withholding agent shall be entitled to
make such deduction or withholding and shall timely pay the full
amount deducted or withheld to the relevant Governmental Authority
in accordance with Applicable Law, and, if such Tax is an
Indemnified Tax, then the sum payable by the Borrowers shall be
increased as necessary so that after such deduction or withholding
has been made (including such deductions and withholdings
applicable to additional sums payable under this Section 2.8), the applicable
Recipient receives an amount equal to the sum it would have
received had no such deduction or withholding been
made.

 

(c) Payment of Other Taxes by the
Borrowers. Each Borrower shall timely pay to the relevant
Governmental Authority in accordance with Applicable Law, or, at
the option of the Administrative Agent, timely reimburse it for the
payment of, any Other Taxes.

 

(d) Indemnification by the
Borrower. Each Borrower hereby indemnifies each Recipient,
within ten days after demand therefor, for the full amount of any
Indemnified Taxes (including Indemnified Taxes imposed or asserted
on or attributable to amounts payable under this Section 2.8) payable or paid by
such Recipient or required to be withheld or deducted from a
payment to such Recipient and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority.
Promptly upon having knowledge that any such Indemnified Taxes have
been levied, imposed or assessed, and promptly upon notice by the
Administrative Agent or the Lender, the Borrowers shall pay such
Indemnified Taxes directly to the relevant taxing authority or
Governmental Authority, provided that neither the
Administrative Agent nor the Lender shall be under any obligation
to provide any such notice to any Borrower. A certificate as to the
amount of such payment or liability delivered to the Borrowing
Agent by the Lender (with a copy to the Administrative Agent), or
by the Administrative Agent on its own behalf or on behalf of the
Lender, shall be conclusive absent manifest error. Each Borrower
hereby indemnifies the Administrative Agent, and shall make payment
in respect thereof, within ten days after demand therefor, for any
amount that the Lender for any reason fails to pay indefeasibly to
the Administrative Agent as required by Section 2.8(e). The Lender
shall indemnify each Borrower, and shall make payment in respect
thereof, within ten days after demand therefore, for any amount
that any Borrower is required to pay to the Administrative Agent
pursuant to the immediately preceding sentence.

 

 

15

 

 

(e) Indemnification by the Lender.
The Lender shall indemnify the Administrative Agent, within ten
days after demand therefor, for (i) any Indemnified Taxes
attributable to the Lender (but only to the extent that the Loan
Parties have not already indemnified the Administrative Agent for
such Indemnified Taxes and without limiting the obligation of the
Loan Parties to do so), and (ii) any Excluded Taxes attributable to
the Lender, in each case, that are payable or paid by the
Administrative Agent in connection with any Loan Document, and any
reasonable expenses arising therefrom or with respect thereto,
whether or not such 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 Lender
by the Administrative Agent shall be conclusive absent manifest
error. The Lender hereby authorizes the Administrative Agent to set
off and apply any and all amounts at any time owing to the Lender
under any Loan Document or otherwise payable by the Administrative
Agent to the Lender from any other source against any amount due to
the Administrative Agent under this clause (e).

 

(f) Evidence of Payments. As soon
as practicable after any payment of Taxes by any Borrower to a
Governmental Authority pursuant to this Section 2.8, the Borrowing
Agent 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.

 

(g) Status of the
Lender.

 

(i)           If
the Lender is entitled to an exemption from or reduction of
withholding Tax with respect to payments made under the Loan
Document, it shall deliver to the Borrowing Agent and the
Administrative Agent, at the time or times reasonably requested by
the Borrowing Agent or the Administrative Agent, such properly
completed and executed documentation reasonably requested by the
Borrowing Agent or the Administrative Agent as will permit such
payments to be made without withholding or at a reduced rate of
withholding. In addition, the Lender, if reasonably requested by
the Borrowing Agent or the Administrative Agent, shall deliver such
other documentation prescribed by Applicable Law or reasonably
requested by the Borrowing Agent or the Administrative Agent as
will enable the Borrowing Agent or the Administrative Agent to
determine whether or not the Lender is subject to backup
withholding or information reporting requirements. Notwithstanding
anything to the contrary in the preceding two sentences, the
completion, execution and submission of such documentation shall
not be required if, in the Lender’s reasonable judgment, such
completion, execution or submission would subject the Lender to any
material unreimbursed cost or expense or would materially prejudice
the legal or commercial position of the Lender.

 

(ii)           Without
limiting the generality of the foregoing, the Lender shall deliver
to the Borrowing Agent and the Administrative Agent on or prior to
the date on which the Lender becomes the Lender under this
Agreement (and from time to time thereafter upon the reasonable
request of the Borrowing Agent or the Administrative Agent),
executed copies of IRS Form W-9 certifying that the Lender is
exempt from U.S. federal backup withholding tax.

 

(h) Treatment of Certain Refunds.
Unless required by Applicable Law, at no time shall the
Administrative Agent have any obligation to file for or otherwise
pursue on behalf of any Recipient, or have any obligation to pay to
any Recipient, any refund of Taxes withheld or deducted from funds
paid for the account of such Recipient, as the case may be. If any
Recipient determines, in its sole discretion, that it has received
a refund of any Taxes as to which it has been indemnified pursuant
to this Section 2.8
(including by the payment of additional amounts pursuant to this
Section 2.8), it
shall pay to the indemnifying party an amount equal to such refund
(but only to the extent of indemnity payments made under this
Section 2.8 with
respect to the Taxes giving rise to such refund), net of all
out-of-pocket expenses (including Taxes) of such indemnified party
and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund). Such
indemnifying party, upon the request of such Recipient, shall repay
to such Recipient the amount paid over pursuant to this
clause (h) (plus
any penalties, interest or other charges imposed by the relevant
Governmental Authority) in the event that such Recipient is
required to repay such refund to such Governmental Authority.
Notwithstanding anything to the contrary in this clause (h), in no event will a
Recipient be required to pay any amount to an indemnifying party
pursuant to this clause
(h) the payment of which would place such Recipient in a
less favorable net after-Tax position than such Recipient would
have been in if the Tax subject to indemnification and giving rise
to such refund had not been deducted, withheld or otherwise imposed
and the indemnification payments or additional amounts with respect
to such Tax had never been paid. This clause (h) shall not be
construed to require any Recipient to make available its Tax
returns (or any other information relating to its Taxes that it
deems confidential) to the indemnifying party or any other
Person.

 

(i) Survival. Each Party’s
obligations under this Section 2.8 shall survive the
resignation or replacement of the Administrative Agent or any
assignment of rights by, or the replacement of, the Lender, the
termination of the Commitments and the repayment, satisfaction or
discharge of all other Obligations.

 

(j) Updates. The Lender agrees that
if any form or certification it previously delivered pursuant to
this Section 2.8
expires or becomes obsolete or inaccurate in any respect, it shall
update such form or certification or promptly notify the Borrowing
Agent and the Administrative Agent in writing of its legal
inability to do so.

 

SECTION
2.9                                Disposition
of Proceeds of Production. The Security Documents contain an
assignment by each Borrower and/or the Guarantors unto and in favor
of the Administrative Agent for the benefit of the Lender of all of
each Borrower’s or each Guarantor’s interest in and to
production and all proceeds attributable thereto that may be
produced from or allocated to the Mortgaged Property. The Mortgages
further provide in general for the application of such proceeds to
the satisfaction of the Indebtedness and other obligations
described therein and secured thereby. Notwithstanding the
assignment contained in such Mortgages, until the occurrence of an
Event of Default, (a) the Administrative Agent and the Lender agree
that they will neither notify the purchaser or purchasers of such
production nor take any other action to cause such proceeds to be
remitted to the Administrative Agent or the Lender, but the Lender
will instead permit such proceeds to be paid to the Borrowers and
their respective Subsidiaries and (b) the Lender hereby authorizes
the Administrative Agent to take such actions as may be necessary
to cause such proceeds to be paid to such Borrower and/or such
Subsidiaries.

 

SECTION
2.10                                Payments
Generally. (i) Each Borrower shall make each payment
required to be made by it hereunder (whether of principal, interest
or fees or otherwise), directly to the Administrative Agent. 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.

 

SECTION
2.11                                Exchange
of Purchased Loans. Subject to approval of the stockholders
of Yuma Energy if required by the NYSE American for issuances of
Yuma Energy Common Stock, at any time after the date hereof until
the Purchased Loans are no longer outstanding, at the sole option
of the Lender, the Lender may exchange the Purchased Loans into
Loans that may, at the sole option of the Lender, be converted into
Yuma Energy Common Stock (the “Convertible Loans”) at
the conversion price, and in accordance with the terms and
conditions, set forth in the promissory note evidencing the
Convertible Loans (the “Convertible Note”). The
Convertible Note shall constitute a “Loan Document” and
all obligations of the Borrowers under the Convertible Note shall
constitute “Secured Obligations” under this Agreement
and the Guarantee and Collateral Agreement. In the event the
Purchased Loans have not been exchanged pursuant to this
Section 2.10 prior
to the Maturity Date, the Company shall make full cash repayment of
the outstanding Purchased Loans in accordance with Section 2.6.

 

 

16

 

 

ARTICLE
III

 

Representations and Warranties

 

Each
Borrower represents and warrants to the Administrative Agent, the
Lender that: 

 

SECTION
3.1                                           Organization;
Powers. Each Borrower and its 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
3.2                                Authorization;
Enforceability. The Transactions are within the powers of
each Loan Party and have been duly authorized by all necessary
action. This Agreement has been, and each other Loan Document, when
delivered hereunder, will have been, duly executed and delivered by
each Loan Party that is a party thereto and constitutes, or will
constitute, a legal, valid and binding obligation of such Loan
Party, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors’ rights generally and subject
to general principles of equity, regardless of whether considered
in a proceeding in equity or at law.

 

SECTION
3.3                                Approvals;
No Conflicts. The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other
action by, any Governmental Authority or any other Person, except
such as have been obtained or made and are in full force and effect
other than (i) the recording and filing of the Security Documents
as required by this Agreement and (ii) those third party approvals
or consents that, if not made or obtained, would not cause a
Default hereunder, could not reasonably be expected to have a
Material Adverse Effect or do not have an adverse effect on the
enforceability of the Loan Documents, (b) will not violate any
Applicable Law or the Organization Documents of any Borrower or any
Subsidiary or any order of any Governmental Authority, (c) will not
violate or result in a default under any indenture, agreement or
other instrument binding upon any Borrower or any Subsidiary or
their assets, or give rise to a right thereunder to require any
payment to be made by any Borrower or any Subsidiary, and (d) will
not result in the creation or imposition of any Lien on any asset
of any Borrower or any Subsidiary (except for Liens under the
Security Documents).

 

SECTION
3.4                                Financial
Condition.

 

(a)           Yuma
Energy has heretofore furnished to the Lender its consolidated
balance sheet and statements of income, stockholders’ equity
and cash flows (i) as of and for the fiscal year ended December 31,
2018, and (ii) as of and for the fiscal quarters and the portion of
the fiscal year ending December 31, 2019. Such financial statements
present fairly in all material respects the financial position and
results of operations and cash flows of Yuma Energy, Inc., and its
respective 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) No Borrower or any
Subsidiary has any material liabilities, contingent or otherwise,
or forward or long-term commitments that are not disclosed in the
financial statements referred to in Section 3.4(a) or in the notes
thereto.

 

SECTION
3.5                                           Properties;
Titles, Etc.

 

(a) Except (i) for the
Oil and Gas Properties disposed of since the delivery of the most
recently delivered Reserve Report or as set forth on Schedule 3.5(a), (ii) leases
that have expired in accordance with their terms, and (iii)
properties with title defects disclosed in writing to the
Administrative Agent: (y) each Borrower and their respective
Subsidiaries has good and defensible title to the Oil and Gas
Properties evaluated in the most recently delivered Reserve Report
and good title to all its personal Properties, in each case, free
and clear of all Liens except Liens permitted by Section 6.1 and (z) after
giving full effect to the Permitted Encumbrances, any Borrower or
the Subsidiary specified as the owner owns the net interests in
production attributable to the Hydrocarbon Interests as reflected
in the most recently delivered Reserve Report, and, except as
otherwise provided by statute, law, regulation or the standard and
customary provisions of any applicable joint operating agreement,
the ownership of such Properties shall not in any material respect
obligate such Borrower or such Subsidiary to bear the costs and
expenses relating to the maintenance, development and operations of
each such Property in an amount in excess of the working interest
of each Property set forth in the most recently delivered Reserve
Report that is not offset by a corresponding proportionate increase
in such Borrower’s or such Subsidiary’s net revenue
interest in such Property.

 

(b) All material leases
of Borrowers are set forth in Schedule 3.5(b) and agreements
necessary for the conduct of the business of each Borrower and its
respective Subsidiaries are valid and subsisting, in full force and
effect, and there exists no default or event or circumstance that
with the giving of notice or the passage of time or both would give
rise to a default under any such lease or leases, that could
reasonably be expected to result in a Material Adverse
Effect.

 

(c) The rights and
Properties presently owned, leased or licensed by each Borrower and
its respective Subsidiaries including all easements and rights of
way, include all rights and Properties necessary to permit such
Borrower and its respective Subsidiaries to conduct their business
in all material respects in the same manner as its business has
been conducted prior to the date hereof.

 

(d) All of the
Properties of the Borrowers and their respective Subsidiaries
(other than the Oil and Gas Properties, which are addressed in
Section 3.22) that
are reasonably necessary for the operation of their businesses are
in good working condition and are maintained in accordance with
prudent business standards.

 

 

17

 

 

(e) Each of the
Borrowers and their respective Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, patents, domain names
and other intellectual Property material to its business, and the
use thereof by such Borrower and its Subsidiaries does not infringe
upon the rights of any other Person, except for any such
infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. Each
Borrower and its respective Subsidiaries either own or have valid
licenses or other rights to use all databases, geological data,
geophysical data, engineering data, seismic data, maps,
interpretations and other technical information used in their
businesses as presently conducted, subject to the limitations
contained in the agreements governing the use of the same, which
limitations are customary for companies engaged in the business of
the exploration and production of Hydrocarbons, with such
exceptions as could not reasonably be expected to have a Material
Adverse Effect.

 

SECTION
3.6                                           Litigation
and Environmental Matters.

 

(a) Except for
Disclosed Matters, there are no actions, suits or proceedings by or
before any arbitrator or Governmental Authority pending against or,
to the knowledge of the Borrowing Agent, threatened against or
affecting any Borrower or any Subsidiary (i) as to which there is a
reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or
in the aggregate, to result in a Material Adverse Effect (other
than the Disclosed Matters) or (ii) that involve this Agreement,
any other Loan Document 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, no Borrower or any
Subsidiary (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) 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, with respect to
any real property owned or leased by any Borrower or any of its
Subsidiaries, (i) there has been no release of Hazardous Materials
at, from, or to the real property, including the soils, surface
waters, or ground waters thereof, and (ii) there are no conditions
at the real property that, with the passage of time, or giving of
notice, or both, would be reasonably likely to result in an
Environmental Liability.

 

(d) 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
3.7                                           Compliance
with Laws and Agreements.

 

(a) Each Borrower and
its respective Subsidiaries is in compliance in all material
respects with all Applicable Law. Each Borrower and its respective
Subsidiaries is in compliance with all indentures, agreements and
other instruments binding upon it or its property, except where the
failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No
Default has occurred and is continuing or would result from the
consummation of the Transactions.

 

(b) No Borrower or any
Subsidiary is in default nor has any event or circumstance occurred
that, but for the expiration of any applicable grace period or the
giving of notice, or both, would constitute a default or would
require a Borrower or a Subsidiary to Redeem or make any offer to
Redeem under any indenture, note, credit agreement or instrument
pursuant to which any Material Indebtedness is outstanding or by
which any Borrower or any Subsidiary or any of their Properties is
bound.

 

SECTION
3.8                                Investment
Company Status; Other Laws. No Borrower or any Subsidiary is
an “investment company” as defined in, or subject to
regulation under, the Investment Company Act of 1940 or is subject
to any other law restricting its ability to incur
Indebtedness.

 

SECTION
3.9                                Taxes.
Each Borrower and its respective Subsidiaries has timely filed or
caused to be filed all federal and other material Tax returns and
reports required to have been filed and has paid or caused to be
paid all federal and other material Taxes required to have been
paid by it, except Taxes that are being contested in good faith by
appropriate proceedings and for which such Borrower or such
Subsidiary, as applicable, has set aside on its books adequate
reserves.

 

SECTION
3.10                                ERISA
Compliance. Each Plan is in compliance in all material
respects with all applicable requirements of ERISA, the IRC and
other Applicable Law. 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. Each Borrower and each ERISA Affiliate has complied with
the Funding Rules with respect to each Pension Plan, and no waiver
of the minimum funding requirements under the Funding Rules has
been applied for or obtained. As of the most recent valuation date
for any Pension Plan, the funding target attainment percentage (as
defined in Section 430 of the IRC) is 60% or higher and no facts or
circumstances exist that could reasonably be expected to cause the
funding target attainment percentage to drop below such threshold
as of the most recent valuation date.

 

 

18

 

 

SECTION
3.11                                Insurance.
Set forth on Schedule
3.11 is a complete and accurate summary of the property and
casualty insurance program of the Loan Parties as of the Effective
Date (including the names of all insurers, policy numbers,
expiration dates, amounts and types of coverage, annual premiums,
exclusions, deductibles, self-insured retention and a description
in reasonable detail of any self-insurance program, retrospective
rating plan, fronting arrangement or other risk assumption
arrangement involving the Loan Party). The properties of each
Borrower and its Subsidiaries are insured with financially sound
and reputable insurance companies not Affiliates of any Borrower,
in such amounts, with such deductibles and covering such risks as
are customarily carried by companies engaged in similar businesses
and owning similar properties in localities where applicable
Borrower or the applicable Subsidiary operates.

 

SECTION
3.12                                Margin
Regulations. No Borrower or any Subsidiary is engaged or
will engage, principally or as one of its important activities, in
the business of purchasing or carrying margin stock (within the
meaning of Regulation U), or extending credit for the purpose of
purchasing or carrying margin stock.

 

SECTION
3.13                                Subsidiaries;
Equity Interests. No Borrower has Subsidiaries other than
those specifically disclosed in Part I of Schedule 3.13, and any
Subsidiaries that are permitted to have been organized or acquired
after the Effective Date in accordance with Section 6.4 and all of the
outstanding Equity Interests in such Subsidiaries have been validly
issued, are fully paid and nonassessable and, as of the Effective
Date, are owned by a Loan Party in the amounts specified on
Part I of
Schedule 3.13 free
and clear of all Liens (other than Liens under the Security
Documents). No Borrower has equity investments in any other Person
other than those specifically disclosed in Part II of Schedule 3.13 or permitted to
have been acquired after the Effective Date in accordance with
Section 6.4. All of
the outstanding Equity Interests in each Borrower have been validly
issued, are fully paid and nonassessable and are owned by the
Borrowers in the amounts specified on Part III of Schedule 3.13 free and clear of
all Liens. All of the outstanding Equity Interests in the Yuma
Energy have been validly issued and are fully paid and
nonassessable.

 

SECTION
3.14                                Anti-Money
Laundering and Anti-Terrorism Finance Laws. To the extent
applicable, each Loan Party and each Subsidiary thereof is in
compliance, in all material respects, with anti-money laundering
laws and anti-terrorism finance laws including the Bank Secrecy Act
and the PATRIOT Act (the “Anti-Terrorism
Laws”).

 

SECTION
3.15                                Disclosure.

 

(a) Each Borrower has
disclosed to the Lender all agreements, instruments and corporate
or other restrictions to which it or any Subsidiary is subject, and
all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material
Adverse Effect. None of the reports, financial statements,
certificates or other information furnished by or on behalf of the
Borrowers or any other Loan Party or Subsidiary thereof or any of
their respective authorized representatives to the Administrative
Agent or the Lender in connection with the negotiation of this
Agreement or delivered hereunder (as modified or supplemented by
other information so furnished) contains any material misstatement
of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; provided that, with respect to
projected financial information, each Borrower represents only that
such information was prepared in good faith based upon assumptions
believed to be reasonable at the time.

 

(b) All of the
information provided by the Borrowers to the Lender or the
Administrative Agent under this Agreement is true and complete, and
no Borrower is aware of any information that, if it had been
disclosed to the Lender, could have altered the decision of the
Lender to enter into this Agreement.

 

SECTION
3.16                                Security
Documents.

 

(a)           The
Guarantee and Collateral Agreement is effective to create in favor
of the Administrative Agent, for the benefit of the holders of
Secured Obligations, a legal, valid and enforceable security
interest in the Collateral described therein and proceeds thereof.
In the case of the pledged Equity Interests described in the
Guarantee and Collateral Agreement, when the Administrative Agent
obtains control of stock certificates representing such pledged
Equity Interests, and in the case of the Collateral described in
the Guarantee and Collateral Agreement, when financing statements
and other filings in appropriate form are or have been filed in the
appropriate offices, the Guarantee and Collateral Agreement shall
constitute a fully perfected Lien on, and security interest in, all
right, title and interest of the Loan Parties in such Collateral
and the proceeds thereof to the extent a security interest can be
perfected by filing or other action required thereunder as security
for the Secured Obligations, in each case prior and superior in
right to any other Person (except, in the case of Collateral other
than pledged Equity Interests with respect to which the
Administrative Agent has control, Liens permitted by Section 6.1).

 

(b)           Each
of the Mortgages is effective to create in favor of the
Administrative Agent, for the benefit of the holders of Secured
Obligations, a legal, valid and enforceable Lien on the mortgaged
properties described therein and proceeds thereof, contains all
remedies customarily afforded to a commercial lender in the
jurisdiction in which the applicable mortgaged property is located,
and when the Mortgages are or have been filed in the appropriate
offices, each such Mortgage shall constitute a fully perfected Lien
on, and security interest in, all right, title and interest of the
Loan Parties in such properties and the proceeds thereof, as
security for the Secured Obligations, in each case prior and
superior in right to any other Person (except for Liens permitted
by Section
6.1).

 

 

19

 

 

SECTION
3.17                                [Reserved].

 

SECTION
3.18                                Burdensome
Obligations. No Loan Party is a party to any agreement or
contract or subject to any restriction contained in its
organizational documents that could reasonably be expected to have
a Material Adverse Effect.

 

SECTION
3.19                                Labor
Matters. No Loan Party is subject to any labor or collective
bargaining agreement. There are no existing or threatened strikes,
lockouts or other labor disputes involving the Loan Party that
singly or in the aggregate could reasonably be expected to have a
Material Adverse Effect. Hours worked by and payment made to
employees of the Loan Parties are not in violation of the Fair
Labor Standards Act or any other Applicable Law dealing with such
matters.

 

SECTION
3.20                                [Reserved].

 

SECTION
3.21                                [Reserved].

 

SECTION
3.22                                Maintenance
of Properties. Except for such acts or failures to act as
could not be reasonably expected to have a Material Adverse Effect,
the Oil and Gas Properties (and Properties unitized therewith) have
been maintained, operated and developed in a good and workmanlike
manner and in conformity with all Applicable Laws and in conformity
with the provisions of all leases, subleases or other contracts
comprising a part of the Hydrocarbon Interests and other contracts
and agreements forming a part of the Oil and Gas Properties.
Specifically, in connection with the foregoing, except for those as
could not be reasonably expected to have a Material Adverse Effect,
(1) no Oil and Gas Property is subject to having allowable
production reduced below the full and regular allowable (including
the maximum permissible tolerance) because of any overproduction
(whether or not the same was permissible at the time), and (2) none
of the wells comprising a part of the Oil and Gas Properties (or
Properties unitized therewith) is deviated from the vertical more
than the maximum permitted by Applicable Laws, and such wells are,
in fact, bottomed under and are producing from, and the well bores
are wholly within, the Oil and Gas Properties (or in the case of
wells located on Properties unitized therewith, such unitized
Properties). The wells drilled in respect of Oil and Gas Properties
comprising proved developed producing reserves described in the
most recent Reserve Report (other than wells drilled in respect of
such Oil and Gas Properties comprising proved developed producing
reserves that have been subsequently Disposed of in accordance with
the terms of this Agreement) are capable of, and are presently,
either producing Hydrocarbons in commercially profitable quantities
or in the process of being worked over or enhanced, and, except as
set forth in Schedule
3.22, the Loan Party that owns such Oil and Gas Properties
comprising proved developed producing reserves is currently
receiving payments for its share of production, with no funds in
respect of any thereof being presently held in suspense, other than
any such funds being held in suspense pending delivery of
appropriate division orders. All pipelines, wells, gas processing
plants, platforms and other material improvements, fixtures and
equipment owned in whole or in part by any Borrower or any of its
Subsidiaries that are necessary to conduct normal operations are
being maintained in a state adequate to conduct normal operations,
and with respect to such of the foregoing that are operated by any
Borrower or any of its Subsidiaries, in a manner consistent with
each Borrower’s or its Subsidiaries’ past practices
(other than those the failure of which to maintain in accordance
with this Section
3.22 could not reasonably be expect to have a Material
Adverse Effect).

 

SECTION
3.23                                Gas
Imbalances, Prepayments. Except as set forth on Schedule 3.23 or on the most
recent certificate delivered pursuant to Section 5.11(c), on a net basis
there are no gas imbalances, take or pay or other prepayments
(including pursuant to an Advance Payment Contract) that would
require any Borrower or any Subsidiary to deliver Hydrocarbons
produced from the Oil and Gas Properties at some future time
without then or thereafter receiving full payment
therefor.

 

 

20

 

 

SECTION
3.24                                Marketing
of Production. Except for contracts listed and in effect on
the date hereof on Schedule 3.24, and thereafter
either disclosed in writing to the Administrative Agent or included
in the most recently delivered Reserve Report (with respect to all
of which contracts each Borrower represents that it or its
Subsidiaries are receiving a price for all production sold
thereunder that is computed substantially in accordance with the
terms of the relevant contract and are not having deliveries
curtailed substantially below the subject Property’s delivery
capacity), no agreements exist that are not cancelable by any
Borrower or any Subsidiary on 60 days’ notice or less without
penalty or detriment to any Borrower or any Subsidiary for the sale
of production from each Borrower’s or its Subsidiaries’
Hydrocarbons (including calls on or other rights to purchase,
production, whether or not the same are currently being exercised)
that (i) pertain to the sale of production at a fixed price and
(ii) have a maturity or expiry date of longer than six (6) months
from the date hereof (in the case of Schedule 3.24) or the date of
disclosure to the Administrative Agent in writing (in the case of
each other such agreement), as applicable.

 

SECTION
3.25                                [Reserved].

 

SECTION
3.26                                Location
of Business and Offices.

 

(a) Each
Borrower’s jurisdiction of organization, name as listed in
the public records of its jurisdiction of organization and the
location of its principal place of business and principal office is
stated on Schedule
3.26(a) (or as set forth in a notice delivered pursuant to
Section
9.1(c)).

 

(b) Each
Subsidiary’s jurisdiction of organization, name as listed in
the public records of its jurisdiction of organization,
organizational identification number in its jurisdiction of
organization, and the location of its principal place of business
and principal office is stated on Schedule 3.26(b) (or as set
forth in a notice delivered pursuant to Section 9.1(c)).

 

SECTION
3.27                                [Reserved].

 

SECTION
3.28                                Anti-Corruption
Laws. No part of the proceeds of the Loans shall be used,
directly or indirectly: (a) to offer or give anything of value to
any official or employee of any foreign government department or
agency or instrumentality or government- owned entity, to any
foreign political party or party official or political candidate or
to any official or employee of a public international organization,
or to anyone else acting in an official capacity (collectively,
“Foreign
Official”), in order to obtain, retain or direct
business by (i) influencing any act or decision of such Foreign
Official in his official capacity, (ii) inducing such Foreign
Official to do or omit to do any act in violation of the lawful
duty of such Foreign Official, (iii) securing any improper
advantage or (iv) inducing such Foreign Official to use his
influence with a foreign government or instrumentality to affect or
influence any act or decision of such government or
instrumentality; (b) to cause the Lender to violate the U.S.
Foreign Corrupt Practices Act of 1977; or (c) to cause the Lender
to violate any other anti-corruption law applicable to the Lender
(all laws referred to in clause (b) and (c) being “Anti-Corruption
Laws”).

 

SECTION
3.29                                Sanctions
Laws. No Loan Party, and to the knowledge of each Borrower,
no director, officer, agent employee or Affiliate or other agent of
the Loan Party acting or benefiting in any capacity in connection
with the Loans is any of the following (a “Restricted Person”): (a)
a Person that is listed in the annex to, or is otherwise subject to
the provisions of, Executive Order No. 13224 on Terrorist
Financing, effective September 24, 2001 (the “Executive Order”); (b) a
Person that is named as a “specially designated national and
blocked person” on the most current list published by the
U.S. Treasury Department Office of Foreign Assets Control
(“OFAC”) at its official
website or any replacement website or other replacement official
publication of such list or similarly named by any similar foreign
governmental authority; (c) a Person that is owned 50 percent or
more by any Person described in Section 3.29(b); (d) any other
Person with which the Lender is prohibited from dealing under any
Sanctions laws applicable to the Lender; or (e) a Person that
derives more than 10% of its annual revenue from investments in or
transactions with any Person described in Section 3.29(a), (b), (c) or (d). Further, none of the
proceeds from the Loans shall be used to finance or facilitate,
directly or indirectly, any transaction with, investment in, or any
dealing for the benefit of, any Restricted Person or any
transaction, investment or dealing in which the benefit is received
in a country for which such benefit is prohibited by any Sanctions
laws applicable to the Lender.

 

 

21

 

 

ARTICLE
IV

 

Conditions

 

SECTION
4.1                                Effective
Date. No Loan shall be made hereunder, other than the
Purchased Loans, until the date on which each of the following
conditions is satisfied (or waived in accordance with Section 9.2):

 

(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 following or waived
receipt thereof, each in form and substance satisfactory to the
Administrative Agent:

 

(i) a counterpart of
the Guarantee and Collateral Agreement executed by each Loan Party,
together with all certificates, instruments, transfer powers and
other items required to be delivered in connection
therewith;

 

(ii) each
document (including Uniform Commercial Code financing statements)
required by the Security Documents or under law or reasonably
requested by the Administrative Agent to be filed, registered or
recorded in order to create in favor of the Administrative Agent,
for the benefit of the holders of Secured Obligations, a perfected
Lien on the Collateral described therein, prior to all other Liens
(subject only to Liens permitted pursuant to Section 6.1), in proper form
for filing, registration or recording;

 

(iii) all
environmental site assessment reports requested by the
Administrative Agent;

 

(iv) certified
copies of Uniform Commercial Code and other Lien search reports
dated a date near to the Effective Date, listing all effective
financing statements and other Lien filings that name any Loan
Party (under their current names and any previous names) as
debtors, together with (A) copies of such financing statements or
other Lien filings and (B) such Uniform Commercial Code termination
statements or amendments or other Lien terminations as the
Administrative Agent may request;

 

(v) such documents and
certificates as the Administrative Agent or its counsel may
reasonably request relating to the organization, existence and good
standing of the Loan Parties, the authorization of the Transactions
and any other legal matters relating to the Loan Parties, this
Agreement or the Transactions;

 

(vi)  evidence
satisfactory to the Administrative Agent of the receipt of all
consents required to effect the Transactions, including all
regulatory approvals and licenses, if applicable;

 

(vii) evidence
of the existence of insurance required to be maintained pursuant to
Section 5.5,
together with evidence that the Administrative Agent and each
Lender has been named as a lender’s loss payee and an
additional insured on all related insurance policies;

 

(viii) [Reserved];

 

(ix) a
certificate, dated the Effective Date and signed by a Responsible
Officer of the Borrowing Agent, confirming compliance with the
conditions set forth in Section 4.2;

 

(x) a solvency
certificate as to each Borrower, executed by a Financial Officer of
each Borrower;

 

(xi) with
respect to the Oil and Gas Properties of any Loan Party, all
documents and instruments, including Uniform Commercial Code or
other applicable personal property financing statements and
Mortgages or assignments, amendments or supplements to existing
Mortgages, registered or recorded to create or continue, as
applicable, the Liens intended to be created by any Security
Document and perfect such Liens to the extent required by, and with
the priority required by such Security Document. In connection with
the execution and delivery of the Mortgages, the Administrative
Agent shall be reasonably satisfied that the Mortgages create first
priority, perfected Liens (subject only to Permitted Encumbrances)
on all material Oil and Gas Properties of the Borrowers which were
evaluated in the Initial Reserve Report;

 

 

22

 

 

(xii) duly
executed counterparts of all Control Agreements as requested by the
Administrative Agent and other Security Documents or assignments,
amendments or supplements to Control Agreement and other Security
Documents, executed by each applicable Loan Party; and

 

(xiii) duly
executed counterparts of an amendment and ratification of the
Hazardous Materials Indemnity and Environmental
Undertaking.

 

(c)           The
Lender shall have received payment of 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 Borrowers
hereunder.

 

(d)           The
Administrative Agent shall have received a Compliance Certificate,
evidencing pro forma compliance with Section 6.1.

 

(e)           The
Administrative Agent shall have received a certificate of each Loan
Party dated the Effective Date and executed by a Financial Officer,
its Secretary or Assistant Secretary, that shall (i) certify the
resolutions of its Board of Directors, members or other body
authorizing the execution, delivery and performance of the Loan
Documents to which it is a party, (ii) identify by name and title
and bear the signatures of the officers of each Loan Party
authorized to sign the Loan Documents to which it is a party, and
(iii) contain appropriate attachments, including the Organization
Documents of each Loan Party certified by the relevant authority of
the jurisdiction of organization of each Loan Party and a true and
correct copy of its operating agreement, or other organizational or
governing documents.

 

The
Administrative Agent shall notify the Borrowing Agent and the
Lender of the Effective Date, and such notice shall be conclusive
and binding.

 

SECTION
4.2                                Each
Credit Event. No Loan shall be made hereunder on the
occasion of any Borrowing until each of the following conditions is
satisfied (or waived in accordance with Section 9.2), it being
understood that the making of any additional Loan shall, at all
times, be subject to the Lender's sole discretion:

 

(a) The representations
and warranties of the Loan Parties set forth in the Loan Documents
shall be true and correct on and as of the date of such Borrowing,
except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be
true and correct as of such earlier date.

 

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

 

(c) At the time of and
immediately after giving effect to such Borrowing, the total Credit
Exposure shall not exceed the unused Commitments then in
effect.

 

Each
Borrowing shall be deemed to constitute a representation and
warranty by each Borrower on the date thereof as to the matters
specified in clauses
(a), (b),
and (c) of this
Section
4.2.

 

 

23

 

 

ARTICLE
V

 

Affirmative Covenants

 

Each
Borrower covenants and agrees with the Administrative Agent, the
Lender that, until the Termination Date:

 

SECTION
5.1                                           Financial
Statements and Other Information. The Borrowing Agent shall
furnish to the Administrative Agent and the Lender:

 

(a) Annual Financial Statements.
Within 120 days after the end of each fiscal year of Yuma Energy,
its audited consolidated balance sheet and related statements of
operations, Shareholders’ Equity and cash flows as of the end
of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by
independent public accountants of recognized national standing or
other independent auditor reasonably acceptable to the
Administrative Agent (without any qualification or exception that
relates to the limited scope of examination of matters relevant to
such financial statement) to the effect that such consolidated
financial statements present fairly in all material respects the
financial condition and results of operations of the Yuma Energy
and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied.

 

(b) Quarterly Financial Statements.
Within 60 days after the end of each of the first three fiscal
quarters of each fiscal year of Yuma Energy, its consolidated
balance sheet and related statements of operations,
Shareholders’ 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 Yuma Energy 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) Certificate of Financial Officer -
Compliance. Concurrently with any delivery of financial
statements under clause
(a) or (b)
above, a Compliance Certificate of a Financial Officer of the
Borrowing Agent (x) certifying as to whether a Default has occurred
and, if a Default has occurred, specifying the details thereof and
any action taken or proposed to be taken with respect thereto, and
(y) 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 3.4 and, if any such
change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate.

 

(d) Accounting Reports.
Concurrently with any delivery of financial statements under
clause (a) above, a
certificate of the accounting firm that reported on such financial
statements stating whether they obtained knowledge during the
course of their examination of such financial statements of any
Default (which certificate may be limited to the extent required by
accounting rules or guidelines).

 

(e) Management Reports. Promptly
upon receipt thereof, copies of all detailed financial and
management reports submitted to any Borrower by independent
auditors in connection with each annual or interim audit made by
such auditors of the books of such Borrower.

 

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

 

(g) Certificate of Insurer - Insurance
Coverage. Concurrently with any delivery of financial
statements under Section
5.1(a), a certificate of insurance coverage from each
insurer with respect to the insurance required by Section 5.5, in form and
substance satisfactory to the Administrative Agent, and, if
requested by the Administrative Agent or the Lender, all copies of
the applicable policies.

 

(h)  Notice of Dispositions of Oil and Gas
Properties. In the event any Borrower or any Subsidiary
intends to sell, transfer, assign or otherwise Dispose of any Oil
and Gas Properties or any Equity Interests in any Subsidiary in
accordance with Section
6.3(d) that will or could reasonably be expected to yield
gross proceeds in excess of $1,000,000, written notice of, as
applicable, such Disposition at least ten (10) Business Days prior
thereto, the price thereof and the anticipated date of closing and
any other details thereof requested by the Administrative Agent or
the Lender.

 

(i) Notice of Casualty Events.
Prompt written notice, and in any event within three Business Days,
of the occurrence of any Casualty Event or the commencement of any
action or proceeding that could reasonably be expected to result in
a Casualty Event.

 

(j) Information Regarding Borrower and
Subsidiary. Prompt written notice (and in any event within
thirty (30) days prior thereto) of any change (i) in any
Borrower’s or any Subsidiary’s corporate name or in any
trade name used to identify such Person in the conduct of its
business or in the ownership of its Properties, (ii) in the
location of any Borrower’s or any Subsidiary’s chief
executive office or principal place of business, (iii) in any
Borrower’s or any Subsidiary’s identity or corporate
structure or in the jurisdiction in which such Person is
incorporated or formed, (iv) in any Borrower’s or any
Subsidiary’s jurisdiction of organization, and (v) in any
Borrower’s or any Subsidiary’s federal taxpayer
identification number.

 

 

24

 

(k) Subsidiaries, etc. If any
Borrower or any Subsidiary has (subject to the requirements and
limitations of this Agreement and the other Loan Documents) formed
or acquired a new Subsidiary or Disposed of or dissolved a
Subsidiary, or made any additional equity investment in any Person
or Disposed of any equity investment in any Person, in each case,
since the date of the most recently delivered schedule, a
substitute (or supplement to) Schedule 3.13.

 

(l) Other Requested Information.
Promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition
of any Borrower or any Subsidiary, or compliance with the terms of
the Loan Documents, as the Administrative Agent or the Lender may
reasonably request.

 

SECTION
5.2                                           Notices
of Material Events. The Borrowing Agent shall furnish to the
Administrative Agent and the Lender written notice of the
following:

 

(a) as soon as possible
and in any event within three days after any Borrower or any other
Loan Party obtains knowledge thereof, the occurrence of any
Default;

 

(b) as soon as possible
and in any event within three days after any Borrower or any other
Loan Party obtains knowledge thereof, the filing or commencement of
any action, suit or proceeding by or before any arbitrator or
Governmental Authority against or affecting any Borrower or any
Affiliate thereof that, if adversely determined, could reasonably
be expected to result in a Material Adverse Effect;

 

(c) promptly upon any
Borrower or any other Loan Party obtaining knowledge thereof, 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 any Borrower, any Subsidiaries or its
ERISA Affiliates in an aggregate amount exceeding
$1,000,000;

 

(d) promptly, and in
any event within five Business Days after receipt thereof by the
Loan Party or any Subsidiary thereof, copies of each notice or
other correspondence received from the SEC (or comparable agency in
any applicable non-U.S. jurisdiction) concerning any investigation
or possible investigation or other inquiry by such agency regarding
financial or other operational results of the Loan Party or any
Subsidiary thereof; and

 

 

(e) promptly upon any
Borrower or any other Loan Party obtaining knowledge thereof, 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 Responsible Officer setting forth the details of
the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.

 

SECTION
5.3                                Existence;
Conduct of Business; Governmental Approvals. Each Borrower
shall, and shall cause each Subsidiary to, do, obtain and maintain,
or cause to be done, obtained and maintained, all Governmental
Approvals and other things necessary to preserve, renew and keep in
full force and effect its legal existence and the rights, licenses,
permits, privileges and franchises necessary or desirable in the
conduct of its business and maintain, if necessary, its
qualification to do business in each other jurisdiction in which
any of its Oil and Gas Properties is located or the ownership of
its Properties requires such qualification, except where the
failure to so satisfy the foregoing qualification requirements
could not reasonably be expected to have a Material Adverse Effect;
provided that the
foregoing shall not prohibit any merger, consolidation, liquidation
or dissolution permitted under Section 6.2.

 

SECTION
5.4                                Payment
of Obligations. Each Borrower shall, and shall cause each
Subsidiary to, pay its obligations, including Tax liabilities,
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) such 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.

 

SECTION
5.5                                Insurance.
Each Borrower shall, and shall cause each Subsidiary to, maintain,
with financially sound and reputable insurance companies, not
Affiliates of any Borrower, 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. Each Borrower shall cause each issuer of an insurance
policy to provide the Administrative Agent with an endorsement (i)
showing the Administrative Agent as Lender’s loss payee with
respect to each policy of property insurance and naming the
Administrative Agent and the Lender as an additional insured with
respect to each policy of liability insurance, (ii) providing that
30 days’ notice shall be given to the Administrative Agent
prior to any cancellation of, material reduction or change in
coverage provided by or other material modification to such policy,
and (iii) reasonably acceptable in all other respects to the
Administrative Agent. Each Borrower shall execute and deliver to
the Administrative Agent a collateral assignment, in form and
substance satisfactory to the Administrative Agent, of each
business interruption insurance policy maintained by each
Borrower.

 

SECTION
5.6                                Books
and Records; Inspection Rights. Each Borrower shall, and
shall cause each Subsidiary to, keep proper books of record and
account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and
activities. Each Borrower shall, and shall cause each Subsidiary
to, permit any representatives designated by the Administrative
Agent or the Lender, upon reasonable prior notice, to visit and
inspect its properties, to examine and make extracts from its books
and records, and to discuss its affairs, finances and condition
with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested; provided, that when a Default
exists the Administrative Agent or the Lender (or any of their
respective representatives) may do any of the foregoing at the
expense of the Borrowers at any time during normal business hours
and without advance notice. All such inspections or audits by the
Administrative Agent shall be at the Borrowers’ expense. Each
Borrower hereby authorizes and instructs its independent
accountants to discuss such Borrower’s affairs, finances and
condition with the Administrative Agent and the Lender, at the
Administrative Agent’s or the Lender’s
request.

 

 

25

 

 

SECTION
5.7                                Compliance
with Laws. Each Borrower shall, and shall cause each
Subsidiary to, comply in all material respects with Applicable Law.
Each Borrower will maintain in effect and enforce policies and
procedures designed to ensure compliance by each Borrower, its
Subsidiaries and their respective directors, officers, employees
and agents with Anti-Corruption Laws and applicable
Sanctions.

 

SECTION
5.8                                Use
of Proceeds. The proceeds of the Loans shall be used only to
provide working capital for general corporate
purposes.

 

SECTION
5.9                                           Environmental
Matters.

 

(a)           Each
Borrower shall at its sole expense (including such contribution
from third parties as may be available):

 

(i)           comply,
and shall cause its Properties and operations and each Subsidiary
and each Subsidiary’s Properties and operations to comply,
with all applicable Environmental Laws, the breach of which could
be reasonably expected to have a Material Adverse
Effect;

 

(ii)           not
dispose of or otherwise release, and shall cause each Subsidiary
not to dispose of or otherwise release, any oil, oil and gas waste,
hazardous substance, or solid waste on, under, about or from any
Borrower’s or any Subsidiaries’ Properties or any other
Property to the extent caused by any Borrower’s or any of its
Subsidiaries’ operations except in compliance with applicable
Environmental Laws, the disposal or release of which could
reasonably be expected to have a Material Adverse
Effect;

 

(iii)           timely
obtain or file, and shall cause each Subsidiary to timely obtain or
file, all notices, permits, licenses, exemptions, approvals,
registrations or other authorizations, if any, required under
applicable Environmental Laws to be obtained or filed in connection
with the operation or use of any Borrower’s or its
Subsidiaries’ Properties, which failure to obtain or file
could reasonably be expected to have a Material Adverse
Effect;

 

(iv)           promptly
commence and diligently prosecute to completion, and shall cause
each Subsidiary to promptly commence and diligently prosecute to
completion, any assessment, evaluation, investigation, monitoring,
containment, cleanup, removal, repair, restoration, remediation or
other remedial obligations (collectively, the “Remedial Work”) in the
event any Remedial Work is required or reasonably necessary under
applicable Environmental Laws because of or in connection with the
actual or suspected past, present or future disposal or other
release of any oil, oil and gas waste, hazardous substance or solid
waste on, under, about or from any Borrower’s or its
Subsidiaries’ Properties, which failure to commence and
diligently prosecute to completion could reasonably be expected to
have a Material Adverse Effect; and

 

(v)           establish
and implement, and shall cause each Subsidiary to establish and
implement, such reasonable policies of environmental audit and
compliance as may be reasonably necessary to continuously determine
and assure that each Borrower’s and its Subsidiaries’
obligations under this Section 5.9 are timely and
fully satisfied, which failure to establish and implement could
reasonably be expected to have a Material Adverse
Effect.

 

(b)           The
Borrowing Agent will promptly, but in any event within five (5)
Business Days thereof, notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or
inquiry by any Governmental Authority or any threatened demand or
lawsuit by any landowner or other third party against any Borrower
or its Subsidiaries or their Properties of which such Borrower has
knowledge in connection with any Environmental Laws (excluding
routine testing and corrective action) if such Borrower reasonably
anticipates that such action will result in liability (whether
individually or in the aggregate) in excess of $1,000,000, not
fully covered by insurance, subject to normal deductibles, or could
in any case be reasonably expected to have a Material Adverse
Effect.

 

(c)           Each
Borrower will, and will cause each Subsidiary to, provide such
environmental audits, studies and tests as may be reasonably
requested by the Administrative Agent and the Lenders, in
connection with any future acquisitions of material Oil and Gas
Properties or other material Properties.

 

SECTION
5.10                                Operation
and Maintenance of Properties. Each Borrower, at its own
expense, will, and will cause each Subsidiary to:

 

(a) operate its Oil and
Gas Properties and other material Properties or cause such Oil and
Gas Properties and other material Properties to be operated in
accordance with the practices of the industry and in compliance
with all applicable contracts and agreements and in compliance with
all Applicable Laws, including applicable pro ration requirements
and Environmental Laws, and all applicable laws, rules and
regulations of every other Governmental Authority from time to time
constituted to regulate the development and operation of its Oil
and Gas Properties and the production and sale of Hydrocarbons and
other minerals therefrom, except, in each case, where the failure
to comply could not reasonably be expected to have a Material
Adverse Effect;

 

(b)  keep and
maintain all Property material to the conduct of its business in
good working order and condition, ordinary wear and tear excepted,
and preserve, maintain and keep in good repair, working order and
efficiency (ordinary wear and tear excepted) all of its material
Oil and Gas Properties and other material Properties, including all
equipment, machinery and facilities, except to the extent a portion
of such Property is no longer capable of producing Hydrocarbons in
economically reasonable amounts; provided that the foregoing shall
not prohibit any Disposition of any assets permitted by
Section
6.3;

 

 

26

 

 

(c) promptly pay and
discharge, or make reasonable and customary efforts to cause to be
paid and discharged, all delay rentals, royalties, expenses and
Indebtedness accruing under the leases or other agreements
affecting or pertaining to its Oil and Gas Properties and will do
all other things necessary to keep unimpaired their rights with
respect thereto and prevent any forfeiture thereof or default
thereunder;

 

(d) promptly perform or
make reasonable and customary efforts to cause to be performed, in
accordance with industry standards, the obligations required by
each and all of the assignments, deeds, leases, sub-leases,
contracts and agreements affecting its interests in its Oil and Gas
Properties and other material Properties; and

 

(e) to the extent a
Borrower is not the operator of any Property, each Borrower shall
use commercially reasonable efforts to cause the operator to comply
with this Section
5.10.

 

SECTION
5.11                                Reserve
Reports.

 

(a)           On
or before March 1st of each year, commencing March 1, 2020, the
Borrowing Agent shall furnish to the Administrative Agent and the
Lender a Reserve Report evaluating the Oil and Gas Properties of
each Borrower and its Subsidiaries as of the immediately preceding
December 31st, and all other
Reserve Reports shall be prepared by or under the supervision of
the chief engineer of the Borrowing Agent and otherwise in a manner
consistent with the preceding December 31st Reserve Report. Each
Reserve Report prepared by or under the supervision of the chief
engineer of the Borrowing Agent shall be certified by the chief
engineer to be true and accurate in all material respects and to
have been prepared in accordance with the procedures used in the
immediately preceding December 31st Reserve Report.

 

(b)           In
the event of a request by the Lender, the Borrowing Agent shall
furnish to the Administrative Agent and the Lender an interim
Reserve Report prepared by or under the supervision of the chief
engineer of the Borrowing Agent who shall certify such Reserve
Report to be true and accurate in all material respects and to have
been prepared in accordance with the procedures used in the
immediately preceding December 31st Reserve Report. For any interim
Reserve Report requested by the Lender, the Borrowing Agent shall
provide such Reserve Report with an “as of” date as
required by the Lender as soon as possible, but in any event no
later than thirty (30) days following the receipt of such
request.

 

(c)           With
the delivery of each Reserve Report, the Borrowing Agent shall
provide to the Lender a certificate from a Responsible Officer
certifying that in all material respects:

 

(i)           the
information contained in the Reserve Report and any other
information delivered in connection therewith is true and correct,
except that, with respect to projections, the Borrowing Agent
represents only that such projections have been prepared in
accordance with SEC regulations in good faith based upon
assumptions believed by the Borrowing Agent to be reasonable,
subject to uncertainties inherent in all projections;

 

(ii)           the
representations and warranties contained in Section 3.5 and Section 3.16 remain true and
correct as of the date of such certificate;

 

(iii)           except
as set forth on an exhibit to the certificate, on a net basis there
are no gas imbalances, take or pay or other prepayments in excess
of the volume specified in Section 3.23 with respect to
its Oil and Gas Properties evaluated in such Reserve Report that
would require any Borrower or any Subsidiary to deliver
Hydrocarbons either generally or produced from such Oil and Gas
Properties at some future time without then or thereafter receiving
full payment therefor;

 

(iv)           none
of their Oil and Gas Properties having a fair market value in
excess of $1,000,000 in the aggregate have been sold since the date
of the last Reserve Report except as set forth on an exhibit to the
certificate, which certificate shall list all of its Oil and Gas
Properties sold (other than Hydrocarbons sold in the ordinary
course of business) and in such detail as reasonably required by
the Administrative Agent;

 

(v)           attached
to the certificate shall be a list of all marketing agreements
entered into subsequent to the most recently delivered Reserve
Report that any Borrower could reasonably be expected to have been
obligated to list on Schedule 3.24 had such
agreement been in effect on the date thereof;

 

(vi)           attached
thereto shall be a schedule of the Oil and Gas Properties evaluated
by such Reserve Report that are Mortgaged Properties;

 

(vii)           attached
thereto shall be a projection of its reasonably anticipated
projection of natural gas and crude oil (which shall reflect the
adjustments referred to above) for the 36-month period commencing
with the end of the calendar month during which the associated
Reserve Report is delivered;

 

(viii)           attached
to the certificate shall be a list of its Oil and Gas Properties
added to the immediately prior Reserve Report and a list showing
any change in working interest or net revenue interest in its Oil
and Gas Properties occurring and the reason for such change;
and

 

(ix)           
attached to the certificate shall be a list of all Persons
disbursing proceeds to any Borrower or to any Subsidiary, as
applicable, from its Oil and Gas Properties.

 

The
Borrowing Agent may supplement or update projections in
subsection (vii)
above at any time without any obligation to do so.

 

 

27

 

 

SECTION
5.12                                Title
Information.

 

(a) On or before the
delivery to the Administrative Agent and the Lender of each Reserve
Report required by Section
5.11, and from time to time upon the reasonable request of
the Administrative Agent, each Borrower will deliver title
information in form and substance reasonably acceptable to the
Administrative Agent covering enough of the Oil and Gas Properties
that were not included in the most recently delivered Reserve
Report, so that the Administrative Agent shall have received,
together with title information previously delivered to the
Administrative Agent, reasonably satisfactory title information on
the 90% of PV-10 of the Oil and Gas Properties evaluated by such
Reserve Report and together with any Oil and Gas Properties
acquired since the date of such Reserve Report.

 

(b)           If
any Borrower has provided title information for additional
Properties under Section
5.12(a), such Borrower shall, within 60 days of notice from
the Administrative Agent that title defects or exceptions exist
with respect to such additional Properties, either (1) cure any
such title defects or exceptions (including defects or exceptions
as to priority) that are not permitted by Section 6.1 raised by such
information, (2) substitute acceptable Mortgaged Properties (with
no title defects or exceptions except for Permitted Encumbrances)
having an equivalent value or (3) deliver title information in form
and substance reasonably acceptable to the Administrative Agent so
that the Administrative Agent shall have received, together with
title information previously delivered to the Administrative
Agent.

 

(c)           If
any Borrower is unable to cure any title defect requested by the
Administrative Agent or the Lender to be cured within the 60-day
period or such Borrower does not comply with requirements to
provide acceptable title information and together with any Oil and
Gas Properties acquired since the date of such Reserve Report, such
inability shall not be a Default, but instead the Administrative
Agent and/or the Lender shall have the right to exercise the
following remedy in its sole discretion from time to time, and any
failure to so exercise this remedy at any time shall not be a
waiver as to future exercise of the remedy by the Administrative
Agent or the Lender. To the extent that the Administrative Agent or
the Lender are not satisfied with title to any Mortgaged Property
after the 60-day period has elapsed, such unacceptable Mortgaged
Property shall not count towards the requirement, and the
Administrative Agent may send a notice to the Borrowing Agent and
the Lender that the then unused Commitments shall be reduced by an
amount as determined by the Lender to cause each Borrower to be in
compliance with the requirement to provide acceptable title
information.

 

SECTION
5.13                                [Reserved].

 

SECTION
5.14                                Keepwell.
Each Borrower hereby absolutely, unconditionally and irrevocably
undertakes to provide such funds or other support as may be needed
from time to time by each other Loan Party to honor all of its
obligations under each Loan Document (provided, however, that each Borrower
shall only be liable under this Section 5.14 for the maximum
amount of such liability that can be hereby incurred without
rendering its obligations under this Section 5.14 or otherwise under
this Agreement voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer, and not for any greater amount).
The obligations of each Borrower under this Section 5.14 shall remain in
full force and effect until all Obligations have been repaid in
full. Each Guarantor intends that this Section 5.14 constitute, and
this Section 5.14
shall be deemed to constitute, a “keepwell, support, or other
agreement” for the benefit of each other Loan Party for all
purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange
Act.

 

SECTION
5.15                                Deposit
Accounts. From and after the Effective Date, when requested
by the Administrative Agent, each Borrower shall, and shall cause
each of its Subsidiaries to, maintain all of its respective
operating, revenue, collection or other deposit accounts (other
than Excluded Accounts) with a financial institution reasonably
acceptable to the Administrative Agent and subject to the
Administrative Agent’s control pursuant to a Control
Agreement.

 

SECTION
5.16                                Further
Assurances; Additional Collateral or
Guarantors.

 

(a)           For
each Subsidiary of Yuma Energy (whether existing on the Effective
Date or newly formed or acquired after the Effective Date) that
becomes a Material Subsidiary after the Effective Date, within 15
days (or such longer period as the Administrative Agent may agree)
after such Subsidiary becomes a Material Subsidiary, Yuma Energy
shall (i) cause such Material Subsidiary to execute and deliver a
Joinder Agreement pursuant to which such Material Subsidiary
becomes a party to the Guarantee and Collateral
Agreement and becomes a
Guarantor and grants a first-priority security interest in
substantially all of its personal Property, and (ii) execute and
deliver a Joinder Agreement pursuant to which Yuma Energy will
grant a first- priority security interest in all of the Equity
Interests in such Material Subsidiary (and will, without
limitation, deliver original certificates (if any) evidencing the
Equity Interests of such Subsidiary, together with undated stock
powers (or the equivalent for any such Subsidiary that is not a
corporation) for each certificate duly executed in blank by the
registered owner thereof).

 

(b)           In
the event that any Borrower or any other Guarantor acquires any
material Property (other than any Oil and Gas Property and any
Property in which a security interest is already created under the
Security Documents) after the Effective Date, such Borrower shall,
or shall cause such other Guarantor to, promptly (and, in any
event, within 10 days (or such later date as agreed to by the
Administrative Agent in its sole discretion)) execute and delivery
any Security Documents reasonably required by the Administrative
Agent in order to create a first-priority security interest in such
Property.

 

(c)           In
the event that any Borrower makes any loans or advances to any
Subsidiary, or any Subsidiary makes any loans or advances to any
Borrower or any other Subsidiary, such Borrower, shall, and shall
cause each such Subsidiary, to (i) make such loans in the form of
an intercompany note and (ii) collaterally assign the applicable
Borrower’s or the applicable Subsidiary’s interests in
such intercompany note to the Administrative Agent for the benefit
of the Lenders to secure the Indebtedness as provided in the
Security Documents.

 

(d)           In
furtherance of the foregoing in this Section 5.16, each Loan Party
(including any newly created or acquired Subsidiary) shall promptly
(and, in any event, within 10 days (or such later date as agreed to
by the Administrative Agent in its sole discretion)) execute and
deliver (or otherwise provided, as applicable) to the
Administrative Agent such other additional Security Documents,
documents, certificates, legal opinions, title insurance policies,
surveys, abstracts, appraisals, and/or environmental assessments,
in each case, as may be reasonably requested by the Administrative
Agent and as reasonably satisfactory to the Administrative
Agent.

 

 

28

 

 

ARTICLE
VI

 

Negative Covenants

 

Each
Borrower covenants and agrees with the Administrative Agent, the
Lender that, until the Termination Date:

 

SECTION
6.1                                Liens.
Each Borrower shall not, and shall not permit any 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) Liens pursuant to
the Loan Documents;

 

(b)  Permitted
Encumbrances;

 

(c) any Lien on any
property or asset of any Borrower or any Subsidiary existing on the
date hereof and set forth in Schedule 6.1; provided that (i) such Lien
shall not apply to any other property or asset of any Borrower or
any Subsidiary and (ii) such Lien shall secure only those
obligations of any Borrower or any Subsidiary that it secures on
the date hereof;

 

(d) any Lien existing
on any property or asset prior to the acquisition thereof by any
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 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 any Borrower or any Subsidiary, and (iii) such Lien shall secure
only those obligations that it secures on the date of such
acquisition or the date such Person becomes a Subsidiary, as the
case may be;

 

(e) Liens on fixed or
capital assets acquired, constructed or improved by any Borrower or
any Subsidiary; provided that (i) such security
interests secure Indebtedness permitted, (ii) such security
interests and the Indebtedness secured thereby are incurred prior
to or within 90 days after such acquisition or the completion of
such construction or improvement, (iii) the Indebtedness secured
thereby does not exceed the cost or fair market value, whichever is
lower, of the fixed or capital assets being acquired, constructed
or improved, and (iv) such security interests shall not apply to
any other property or assets of any Borrower or any Subsidiary;
and

 

(f) Liens and rights of
setoff of banks and securities intermediaries in respect of deposit
accounts and securities accounts maintained in the ordinary course
of business.

 

Notwithstanding the
foregoing, none of the Liens permitted pursuant to this
Section 6.1 (other
than Liens described in Section 6.1(b)) may at any time
attach to any Oil and Gas Properties directly owned (whether in fee
or by leasehold) by any Borrower or any Subsidiary and evaluated in
the most recently delivered Reserve Report.

 

SECTION
6.2                                Fundamental
Changes. Each Borrower shall not, and shall not permit any
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 Equity Interests of any
Subsidiary (in each case, whether now owned or hereafter acquired),
or liquidate or dissolve, or purchase or otherwise acquire all or
substantially all of the assets or any Equity Interests of any
class of, or any partnership or joint venture interest in, any
other Person, or permit any Subsidiary to issue any Equity
Interests, except that, if at the time thereof and immediately
after giving effect thereto no Default shall have occurred and be
continuing (i) any Subsidiary may merge into a Borrower in a
transaction in which the Borrower is the surviving corporation,
(ii) any Subsidiary may merge into any Subsidiary in a transaction
in which the surviving entity is a Wholly-Owned Subsidiary, (iii)
any Subsidiary may sell, transfer, lease or otherwise dispose of
its assets to, or issue Equity Interests to, a Borrower or to a
Wholly-Owned Subsidiary, (iv) any Subsidiary may liquidate or
dissolve if the Borrowing Agent determines in good faith that such
liquidation or dissolution is in the best interests of the
Borrowers and is not materially disadvantageous to the Lender, (v)
any Borrower or any Subsidiary may make any Investment permitted by
Section 6.4, and
(vi) any Borrower or any Subsidiary may make any Disposition
permitted by Section
6.3; 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
6.4.

 

 

29

 

 

SECTION
6.3                                Disposition
of Properties. Each Borrower shall not, and shall not permit
any Subsidiary to, Dispose of any of its property, whether now
owned or hereafter acquired, or in the case of any Subsidiary,
issue or sell any shares of such Subsidiary’s Equity
Interests to any Person, except for:

 

(a) the sale of
Hydrocarbons in the ordinary course of business;

 

(b) farmouts of
undeveloped acreage, zones or depths with respect to which no
proved reserves are attributable and assignments in connection with
such farmouts;

 

(c) the sale or
transfer of obsolete or worn out equipment of such Borrower or such
Subsidiary or equipment that is replaced by equipment of at least
comparable value and use;

 

(d) if no Default
exists either before or after giving effect to such Disposition,
the Disposition of any Oil and Gas Property or any interest therein
or any Subsidiary owning Oil and Gas Properties; provided that:

 

(i) at least 85% of the
consideration received in respect of such Disposition shall be cash
or Cash Equivalent Investments;

 

(ii) any
non-cash consideration received (to the extent constituting an
Investment) is permitted by Section 6.4;

 

(iii) the
consideration received in respect of such Disposition shall be
equal to or greater than the fair market value of the Oil and Gas
Property, interest therein or Subsidiary that is the subject of
such Disposition (as reasonably determined by the board of
directors of the Borrowing Agent and, if requested by the
Administrative Agent, the Borrowing Agent shall deliver a
certificate of a Responsible Officer of the Borrowing Agent
certifying to that effect); and

 

(iv) if
any such Disposition is of a Subsidiary owning Oil and Gas
Properties, such Disposition shall include all the Equity Interests
of such Subsidiary.

 

 

(e) Dispositions among
the Borrowers and their Wholly-Owned Subsidiary Guarantors;
provided that both
before and after giving effect to such transfer or disposition, if
no Default exists or would exist;

 

(f) if no Default
exists either before or after giving effect to such Disposition,
sales and other Dispositions of Properties (other than Hydrocarbon
Interests and Equity Interests) to one or more Persons other than a
Loan Party or any Subsidiary thereof not regulated by this
Section 6.3 having
a fair market value not to exceed, in the aggregate, $1,000,000
during any 6- month period;

 

(g) Dispositions of Oil
and Gas Properties to one or more Persons other than a Loan Party
or any Subsidiary thereof that are not then classified as
“proved”, provided that no Default exists or would
result therefrom;

 

(h) the sale or
issuance of any Subsidiary’s Equity Interests to any Borrower
or any Wholly-Owned Subsidiary Guarantor;

 

(i) from a
non-Guarantor Subsidiary to a Loan Party;

 

(j) sales of Cash
Equivalent Investments in the ordinary course of business and for
fair market value;

 

(k) the Disposition of
other property not described in clauses (a) through
(j) above for not
less than fair market value as long as (i) at least 75% of the
consideration therefor consists of cash and Cash Equivalent
Investments, (ii) the aggregate fair market value of such property
so disposed of does not exceed $1,000,000, and (iii) no Default
exists or would result therefrom; provided, that neither any
Borrower nor any Subsidiary Guarantor shall make Dispositions, the
proceeds of which are reinvested in Subsidiaries that are not
Guarantors, with respect to property having an aggregate fair
market value in excess of $500,000;

 

provided, however, than any Disposition
pursuant to this Section
6.3 (other than clauses (c) and (e)) shall be for fair market
value.

 

 

30

 

 

SECTION
6.4                                Investments,
Loans, Advances and Guarantees. Each Borrower shall not, and
shall not permit any Subsidiary 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 Investment,
except:

 

(a) cash and Cash
Equivalent Investments;

 

(b) Investments by the
Borrowers and the Guarantors existing on the date hereof in the
Equity Interests of its Subsidiaries;

 

(c) Investments (i) by
any Borrower or any Guarantor in any Guarantor or by any Guarantor
in any Borrower, (ii) by any Subsidiary that is not a Guarantor in
any Borrower or any other Subsidiary (provided that loans by a
Subsidiary that is not a Guarantor to the Borrowing or a Guarantor
shall be subordinated in right of payment to the Obligations), and
(iii) by any Borrower or any Guarantor in any existing Subsidiary
(or in any newly-formed Subsidiary or any Person that as a result
of such transaction shall become a Subsidiary) that is not a
Guarantor, valued at the fair market value (determined by the
Borrowing Agent in good faith) of such Investment at the time each
such Investment is made in an aggregate amount pursuant to this
Section 6.4(c)(iii)
not to exceed $1,000,000; provided, however, that any Investment by
any Borrower or any Subsidiary constituting a Guarantee shall be
permitted only to the extent permitted by Section 6.4(d);

 

(d) advances to
officers, directors and employees of a Borrower and its
Subsidiaries in an aggregate amount not to exceed $100,000, at any
time outstanding, for travel, entertainment, relocation and
analogous ordinary business purposes;

 

(e) [Reserved];

 

(f)  Investments
consisting of extensions of credit in the nature of accounts
receivable or notes receivable arising from the grant of trade
credit in the ordinary course of business, and Investments received
in satisfaction or partial satisfaction thereof from financially
troubled account debtors to the extent reasonably necessary in
order to prevent or limit loss;

 

(g) non-cash
consideration received, to the extent permitted by the Loan
Documents, in connection with the Disposition of property permitted
by this Agreement, provided that any Oil and Gas
Properties received as non-cash consideration shall comply with
Section 6.3(d); and
any Equity Interests received as non-cash consideration shall
comply with Section
6.8 and the provision to this Section 6.4; and

 

(h) Investments listed
on Schedule 6.4 as
of the Effective Date;

 

provided (i) that any
Investment that when made complies with the requirements of the
definition of the term “Cash Equivalent
Investment” may continue to be held notwithstanding
that such Investment if made thereafter would not comply with such
requirements; and (ii) Investment in a Borrower through
redemptions, purchases, acquisitions or other retirements of Equity
Interests in such Borrower shall only be permitted to the extent
constituting a Restricted Payment permitted by Section 6.6.

 

SECTION
6.5                                Marketing
Activities. Each Borrower will not, and will not permit any
of its Subsidiaries to, engage in marketing activities for any
Hydrocarbons or enter into any contracts related thereto other than
(a) contracts for the sale of Hydrocarbons scheduled or reasonably
estimated to be produced from their Oil and Gas Properties
comprising proved reserves during the period of such contract, (b)
contracts for the sale of Hydrocarbons scheduled or reasonably
estimated to be produced from Oil and Gas Properties comprising
proved reserves of third parties during the period of such contract
associated with the Oil and Gas Properties of any Borrower and its
Subsidiaries that such Borrower or one of its Subsidiaries has the
right to market pursuant to joint operating agreements, unitization
agreements or other similar contracts that are usual and customary
in the oil and gas business, and (c) other contracts for the
purchase and/or sale of Hydrocarbons of third parties (i) that have
generally offsetting provisions (i.e., corresponding pricing
mechanics, delivery dates and points and volumes) such that no
“position” is taken and (ii) for which appropriate
credit support has been taken to alleviate the material credit
risks of the counterparty thereto.

 

SECTION
6.6                                Restricted
Payments. Each Borrower shall not, and shall not permit any
Subsidiary to, declare or make, or agree to pay or make, directly
or indirectly, any Restricted Payment, except (a) each Borrower may
declare and pay dividends with respect to its Equity Interests
payable solely in additional shares of Equity Interests (other than
Disqualified Equity Interests), (b) Subsidiaries may declare and
pay dividends ratably with respect to their Equity Interests, and
(c) the Yuma Energy may make Restricted Payments pursuant to and in
accordance with stock option plans or other benefit plans for
management or employees of Yuma Energy and its Subsidiaries in an
aggregate amount not exceeding $500,000 per calendar
year.

 

 

31

 

 

SECTION
6.7                                Transactions
with Affiliates. Each Borrower shall not, and shall not
permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) in the
ordinary course of business at prices and on terms and conditions
not less favorable to such Borrower or such Subsidiary than could
be obtained on an arm’s-length basis from unrelated third
parties, (b) transactions between or among any Borrower and its
Wholly-Owned Subsidiaries not involving any other Affiliate, and
(c) any Restricted Payment permitted by Section 6.6.

 

SECTION
6.8                                           Changes
in Nature of Business; Nature of Business; International
Operations. Neither any Borrower nor any Subsidiary will
allow any material change to be made in the character of its
business as an independent oil and gas exploration and production
company doing business within the geographical boundaries of the
United States (including the offshore area adjacent thereto). From
and after the date hereof, the Borrower and its Subsidiaries will
not acquire or make any other expenditure (whether such expenditure
is capital, operating or otherwise) in or related to, any Oil and
Gas Properties or businesses not located within the geographical
boundaries of the United States or in the offshore area adjacent
thereto. Notwithstanding anything herein to the contrary, in no
event shall any Borrower or any Subsidiary, create, acquire or own
any interest in (i) any Subsidiary organized under the laws of any
jurisdiction other than jurisdictions within the United States,
(ii) any foreign joint venture or (iii) any Subsidiary other than a
Wholly-Owned Subsidiary.

 

SECTION
6.9                                           Restrictive
Agreements. Each Borrower shall not, and shall not permit
any Subsidiary 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 any
Borrower or any Subsidiary to create, incur or permit to exist any
Lien upon any of its property, (b) the ability of any Subsidiary to
pay dividends or other distributions with respect to any shares of
its Equity Interests or to make or repay loans or advances to any
Borrower or any other Subsidiary or to Guarantee Indebtedness of
any Borrower or any other Subsidiary or transfer any of its
properties to the Loan Party or (c) the ability of the Loan Party
to amend or otherwise modify this Agreement or any other Loan
Document; provided
that (i) the foregoing shall not apply to restrictions and
conditions imposed by Applicable Law or by the Loan Documents,
(iii) the foregoing shall not apply to restrictions and conditions
existing on the date hereof identified on Schedule 6.9 (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 pending such sale, provided such restrictions and
conditions apply only to the Subsidiary that is to be sold and such
sale is permitted hereunder, (iv) clause (a) of the foregoing
shall not apply to restrictions or conditions imposed by any
agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the
property or assets securing such Indebtedness, and (v) clause (a) of the foregoing
shall not apply to customary provisions in leases and other
contracts restricting the assignment thereof.

 

SECTION
6.10                                Restriction
of Amendments to Certain Documents. Each Borrower shall not,
and shall not permit any Subsidiary to, amend or otherwise modify,
or waive any rights under, its Organization Documents if any such
amendment, modification or waiver could reasonably be expected to
be adverse to the interests of the Administrative Agent, or the
Lender.

 

SECTION
6.11                                Limitation
on Leases. Neither any Borrower nor any Subsidiary will
create, incur, assume or suffer to exist any obligation for the
payment of rent or hire of Property of any kind whatsoever (real or
personal but excluding Capital Leases and leases of Hydrocarbon
Interests), under leases or lease agreements that would cause the
aggregate amount of all payments made by the Borrowers and the
Subsidiaries pursuant to all such leases or lease agreements,
including any residual payments at the end of any lease, to exceed
$1,000,000 in any period of twelve consecutive calendar months
during the life of such leases.

 

SECTION
6.12                                Gas
Imbalances, Take-or-Pay or Other Prepayments. Each Borrower
will not, and will not permit any Subsidiary to, allow gas
imbalances, take-or-pay or other prepayments (including pursuant to
an Advance Payment Contract) with respect to the Oil and Gas
Properties of any Borrower or any Subsidiary that would require
such Borrower or such Subsidiary to deliver Hydrocarbons at some
future time without then or thereafter receiving full payment
therefor.

 

SECTION
6.13                                Additional
Deposit Accounts. From and after the Effective Date, each
Borrower shall not, and shall not permit any of its Subsidiaries
to, open, establish or maintain any operating, revenue, collection
or other deposit accounts (other than Excluded Accounts) with any
depositary bank other than those depositary banks with whom such
Borrower or such Subsidiary maintains its deposit accounts on and
as of the Effective Date unless (a) the Administrative Agent shall
have consented in writing to the opening or establishment of a new
deposit account and (b) when requested by the Administrative Agent,
such new deposit account shall be, concurrently with its opening or
establishment, subject to the Administrative Agent’s control
pursuant to a Control Agreement.

 

 

32

 

 

ARTICLE
VII

 

Events of Default

 

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

 

(a) any Borrower shall
fail to pay any principal of any Loan or any reimbursement
obligation in respect of any Loan 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) any Borrower shall
fail to pay any interest on any Loan or any fee or any other amount
(other than an amount referred to in Section 7.1(a)) 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
(3) Business Days;

 

(c) any representation
or warranty made or deemed made by or on behalf of any Borrower or
any other Loan Party in or in connection with this Agreement, any
other Loan Document or any amendment or modification hereof or
thereof or waiver hereunder or thereunder, or in any report,
certificate, financial statement or other document furnished
pursuant to or in connection with this Agreement, any other Loan
Document or any amendment or modification hereof or thereof or
waiver hereunder or thereunder, shall prove to have been incorrect
or misleading in any material respect when made or deemed
made;

 

(d) any Borrower shall
fail to observe or perform any covenant, condition or agreement
contained in Section
5.2(a), 5.3
(with respect to the existence of the Loan Party), 5.8, 5.10 or in Article VI;

 

(e) any Borrower or any
other Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement or any other
Loan Document (other than those specified in clause (a), (b) or (d) of this Section 7.1), and such failure
shall continue unremedied for a period of thirty (30) days after
the earlier of (x) notice thereof from the Administrative Agent to
the Borrowing Agent (which notice will be given at the request of
the Lender) and (y) the date a Responsible Officer of any Borrower
or such other Loan Party had actual knowledge of such
failure;

 

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

 

(g)  any event or
condition occurs that results in any Material Indebtedness becoming
due prior to its scheduled maturity or that enables or permits
(with or without the giving of notice, the lapse of time or both)
the holder or holders of any Material Indebtedness or any trustee
or agent on its or their behalf to cause any Material Indebtedness
to become due, or to require the prepayment, repurchase, redemption
or defeasance thereof, or require cash collateral in respect
thereof, prior to its scheduled maturity or (in the case of any
Material Indebtedness constituting a Guarantee) to become payable
or require cash collateral in respect thereof; provided that this clause (g) shall not apply to
secured Indebtedness that becomes due as a result of the voluntary
sale or transfer of the property or assets securing such
Indebtedness if such voluntary sale or transfer is permitted under
this Agreement;

 

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

 

(i) any Borrower or any
Subsidiary shall (i) voluntarily commence any proceeding or file
any petition seeking liquidation, reorganization or other relief
under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii)
consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in
Section 7.1(h) of
this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for any Borrower or any Subsidiary or for a substantial
part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or (vi)
take any action for the purpose of effecting any of the
foregoing;

 

(j) any Borrower or any
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 $1,000,000 shall be rendered against any Borrower, any
Subsidiary or any combination thereof and the same shall remain
undischarged for a period of thirty (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 any Borrower or any Subsidiary to enforce any
such judgment;

 

(l) an ERISA Event
shall have occurred that when taken together with all other ERISA
Events that have occurred, could reasonably be expected to result
in liability of any Borrower, its Subsidiaries or its ERISA
Affiliates in an aggregate amount exceeding
$1,000,000;

 

 

33

 

 

(m) any provision of
any Loan Document, at any time after its execution and delivery and
for any reason other than as expressly permitted hereunder or
thereunder or satisfaction in full of all the Obligations, shall
cease to be in full force and effect; or any Loan Party or any
other Person shall contest in any manner the validity or
enforceability of any provision of any Loan Document; or any Loan
Party shall deny that it has any or further liability or obligation
under any Loan Document, or shall purport to revoke, terminate or
rescind any provision of any Loan Document; or any Lien securing
any Obligation shall, in whole or in part, fail to be a perfected
Lien having first priority (subject only to such other Liens
permitted to have priority over it pursuant to the Loan
Documents);

 

(n) a Change in Control
shall occur; or

 

(o) the failure of all
of the Restructuring Transactions (as defined in the Restructuring
Agreement), including the Note Exchange and the COD Amendment (each
as defined in the Restructuring Agreement), to be consummated and
made effective on or before September 30, 2020 unless such
transactions have been waived in accordance with the Restructuring
Agreement;

 

then,
and in every such event (other than an event with respect to any
Borrower described in clause (h) or (i) of this Section 7.1), and at any time
thereafter during the continuance of such event, the Administrative
Agent may, and at the request of the Lender shall, by notice to the
Borrowing Agent, take any or all of the following actions, at the
same or different times: (i) terminate the Commitments, and
thereupon the Commitments (if not theretofore terminated) shall
terminate immediately, (ii) foreclose on the Collateral and (iii)
accelerate and 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 Borrowers 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 each Borrower; and in case of any event with
respect to any Borrower described in clause (h) or (i) of this Section 7.1, the Commitments
(if not theretofore terminated) shall automatically terminate and
the principal of the Loans then outstanding, together with accrued
interest thereon and all fees and other Obligations of each
Borrower and the other Loan Parties 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 each Borrower. In addition, the Administrative Agent may also
exercise on behalf of itself and the Lender all other rights and
remedies available to it and the Lender under the Loan Documents or
applicable law.

 

SECTION
7.2                                Application
of Proceeds. After
the exercise of remedies provided for in Section 7.1 (or after the
Commitments have automatically terminated and the principal of the
Loans then outstanding, together with accrued interest thereon and
all fees and other Obligations of each Borrower accrued hereunder,
have automatically become due and payable under Section 7.1), any amounts
received on account of the Obligations shall be applied by the
Administrative Agent in the following order:

 

 FIRST, to
payment of that portion of the Obligations constituting fees,
indemnities, expenses and other amounts (including fees, charges
and disbursements of counsel to the Administrative Agent incident
to the enforcement of any Loan Document and amounts payable under
Section 2.8)
payable to the Administrative Agent (or to the trustee under any
Mortgages) in its capacity as such;

 

SECOND,
to payment of that portion of the Obligations constituting fees,
indemnities and other amounts (other than principal and interest)
payable to the Lender (including fees, charges and disbursements of
counsel to the Lender;

 

THIRD,
to payment of that portion of the Obligations constituting accrued
and unpaid interest on the Loans, and other
Obligations;

 

FOURTH,
the unpaid principal of the Loans;

 

FIFTH,
the balance, if any, after all of the Obligations have been paid in
full, to the Borrowers or other Loan Party entitled thereto or as
otherwise required by Applicable Law.

 

 

34

 

 

ARTICLE
VIII

 

The Administrative Agent

 

SECTION
8.1                                Appointment
and Authority. The Lender hereby irrevocably affirms its
appointment of YE to act on its behalf as the Administrative Agent
hereunder and under the other Loan Documents and authorizes the
Administrative Agent to take such actions on its behalf and to
exercise such powers as are delegated to the Administrative Agent
by the terms hereof or thereof, together with such actions and
powers as are reasonably incidental thereto. The provisions of this
Article are solely for the benefit of the Administrative Agent, the
Lender, and neither any Borrower nor any other Loan Party shall
have any rights as a third-party beneficiary of any of such
provisions. It is understood and agreed that the use of the term
“agent” herein or in any other Loan Documents (or any
other similar term) with reference to the Administrative Agent is
not intended to connote any fiduciary or other implied (or express)
obligation arising under agency doctrine of any Applicable Law.
Instead such term is used as a matter of market custom, and is
intended to create or reflect only an administrative relationship
between contracting parties.

 

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

 

SECTION
8.3                                Exculpatory
Provisions.

 

(a)           The
Administrative Agent, solely in its capacity as Administrative
Agent, shall not have any duties or obligations except those
expressly set forth herein and in the other Loan Documents, and its
duties hereunder shall be administrative in nature. Without
limiting the generality of the foregoing, the Administrative
Agent:

 

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

 

(ii) shall
not have any duty to take any discretionary action or exercise any
discretionary power, except discretionary rights and powers
expressly contemplated hereby or by the other Loan Documents that
the Administrative Agent is required to exercise as directed in
writing by the Lender (or such other number or percentage of the
Lender as shall be expressly provided for herein or in the other
Loan Documents); provided that the
Administrative Agent shall not be required to take any action that,
in its opinion or the opinion of its counsel, may expose the
Administrative Agent to liability or that is contrary to the Loan
Document or Applicable Law, including for the avoidance of doubt
any action that may be in violation of the automatic stay under any
Debtor Relief Law; and

 

(iii) shall
not, except as expressly set forth herein and in the other Loan
Documents, have any duty to disclose, and shall not be liable for
the failure to disclose, any information relating to any Borrower
or any of its Affiliates that is communicated to or obtained by the
Person serving as the Administrative Agent or any of its Affiliates
in any capacity.

 

(b) The Administrative
Agent shall not be liable for any action taken or not taken by it
(i) with the consent or at the request of the Lender or (ii) in the
absence of its own gross negligence or willful misconduct as
determined by a court of competent jurisdiction by final and
nonappealable judgment. The Administrative Agent shall be deemed
not to have knowledge of any Default unless and until notice
describing such Default is given to the Administrative Agent in
writing by the Borrowing Agent, or the Lender.

 

(c)           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 or any
other Loan Document, (ii) the contents of any certificate, report
or other document delivered hereunder or thereunder or in
connection herewith or therewith, the performance or observance of
any covenant, agreement or other term or condition set forth herein
or therein or the occurrence of any Default, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any
other Loan Document 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.

 

 

35

 

 

SECTION
8.4                                Reliance
by Administrative Agent. The Administrative Agent shall be
entitled to rely upon, and shall not incur any liability for
relying upon, any notice, request, certificate, consent, statement,
instrument, document or other writing (including any electronic
message, Internet or intranet website posting or other
distribution) believed by it to be genuine and to have been signed,
sent or otherwise authenticated by the proper Person. The
Administrative Agent also may rely upon any statement made to it
orally or by telephone and believed by it to have been made by the
proper Person, and shall not incur any liability for relying
thereon. The Administrative Agent may consult with legal counsel,
independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance
with the advice of any such counsel, accountants or
experts.

 

SECTION
8.5                                [Reserved].

 

SECTION
8.6                                Resignation
of Administrative Agent.

 

(a)           The
Administrative Agent may at any time give notice of its resignation
to the Lender and the Borrowers. Upon receipt of any such notice of
resignation, the Lender shall have the right, in consultation with
the Borrowing Agent, to appoint a successor. If no such successor
shall have been so appointed by the Lender and shall have accepted
such appointment within thirty (30) days after the retiring
Administrative Agent gives notice of its resignation (or such
earlier day as shall be agreed by the Lender) (the
“Resignation
Effective Date”), then the retiring Administrative
Agent may (but shall not be obligated to), on behalf of the Lender,
appoint a successor Administrative Agent meeting the qualifications
set forth above. Whether or not a successor has been appointed,
such resignation shall become effective in accordance with such
notice on the Resignation Effective Date.

 

(b) [Reserved].

 

(c) With effect from
the Resignation Effective Date (1) the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder
and under the other Loan Documents (except that in the case of any
Collateral held by the Administrative Agent on behalf of the Lender
under the Loan Document, the retiring Administrative Agent shall
continue to hold such Collateral until such time as a successor
Administrative Agent is appointed) and (2) except for any indemnity
payments owed to the retiring Administrative Agent, all payments,
communications and determinations provided to be made by, to or
through the Administrative Agent shall instead be made by or to
Lender directly, until such time, if any, as the Lender appoint a
successor Administrative Agent as provided for above. Upon the
acceptance of a successor’s appointment as Administrative
Agent hereunder, such successor shall succeed to and become vested
with all of the rights, powers, privileges and duties of the
retiring Administrative Agent (other than any rights to indemnity
payments owed to the retiring Administrative Agent), and the
retiring Administrative Agent shall be discharged from all of its
duties and obligations hereunder or under the other Loan Documents.
The fees payable by the Borrowers to a successor Administrative
Agent shall be the same as those payable to its predecessor unless
otherwise agreed between the Borrowing Agent and such successor.
After the retiring Administrative Agent’s resignation or
removal hereunder and under the other Loan Documents, the
provisions of this Article and Section 9.3 shall continue in
effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any
action taken or omitted to be taken by any of them while the
retiring Administrative Agent was acting as Administrative
Agent.

 

SECTION
8.7                                Non-Reliance
on Administrative Agent. Lender acknowledges and agrees that
the extensions of credit made hereunder are commercial loans and
not investments in a business enterprise or securities. Lender
represents that it has, independently and without reliance upon the
Administrative Agent or its Related Parties and based on such
documents and information (which may contain material, non-public
information within the meaning of the United States securities laws
concerning any Borrower and its respective Affiliates) as it has
deemed appropriate, made its own credit analysis and decision to
enter into this Agreement. Lender also acknowledges that it will,
independently and without reliance upon the Administrative Agent or
any of its Related Parties and based on such documents and
information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or any
related agreement or any document furnished hereunder or
thereunder.

 

SECTION
8.8                                [Reserved].

 

SECTION
8.9                                Enforcement.
Notwithstanding anything to the contrary contained herein or in any
other Loan Document, the authority to enforce rights and remedies
hereunder and under the other Loan Documents against the Loan Party
shall be vested exclusively in, and all actions and proceedings at
law in connection with such enforcement shall be instituted and
maintained exclusively by, the Administrative Agent in accordance
with Section 8.1
for the benefit of all the Lender; provided that the foregoing
shall not prohibit (a) the Administrative Agent from exercising on
its own behalf the rights and remedies that inure to its benefit
(solely in its capacity as Administrative Agent) hereunder and
under the other Loan Documents, (b) the Lender from exercising the
rights and remedies that inure to its benefit hereunder and under
the other Loan Documents, (c) the Lender from enforcing its right
to payment when due of the principal of and interest on its Loans,
fees and other amounts owing to the Lender under the Loan
Documents, (d) the Lender from exercising setoff rights in
accordance with Section
9.8 or (e) the Lender from filing proofs of claim or
appearing and filing pleadings on its own behalf during the
pendency of a proceeding relative to the Loan Party under any
Debtor Relief Law; and provided, further, that if at any time
there is no Person acting as Administrative Agent hereunder and
under the other Loan Documents, then (i) the Lender shall have the
rights otherwise ascribed to the Administrative Agent pursuant to
this Article VIII
and (ii) in addition to the matters set forth in clauses (b), (c) , (d) and (e) of the preceding
proviso, the Lender
may enforce any rights and remedies available to it.

 

 

36

 

 

SECTION
8.10                                Administrative
Agent May File Proofs of Claim. In case of the pendency of
any proceeding under any Debtor Relief Law or any other judicial
proceeding relative to the Loan Party, the Administrative Agent
(irrespective of whether the principal of the Loan shall then be
due and payable as herein expressed or by declaration or otherwise
and irrespective of whether the Administrative Agent shall have
made any demand on the Borrowing Agent) shall be entitled and
empowered (but not obligated) by intervention in such proceeding or
otherwise:

 

(a) to file and prove a
claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans and all other Obligations that are
owing and unpaid and to file such other documents as may be
necessary or advisable in order to have the claims of the Lender
and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of
the Lender and the Administrative Agent and their respective agents
and counsel and all other amounts due the Lender and the
Administrative Agent under Section 9.3) allowed in such
judicial proceeding; and

 

(b) to collect and
receive any monies or other property payable or deliverable on any
such claims and to distribute the same;

 

and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby
authorized by the Lender to make such payments to the
Administrative Agent and, in the event that the Administrative
Agent shall consent to the making of such payments directly to the
Lender, to pay to the Administrative Agent any amount due for the
reasonable compensation, expenses, disbursements and advances of
the Administrative Agent and its agents and counsel, and any other
amounts due the Administrative Agent under Section 9.3.

 

SECTION
8.11                                Collateral
and Guaranty Matters. The Administrative Agent shall not be
responsible for or have a duty to ascertain or inquire into any
representation or warranty regarding the existence, value or
collectability of any Collateral, the existence, priority or
perfection of the Administrative Agent’s Lien thereon, or any
certificate prepared by the Loan Party in connection therewith, nor
shall the Administrative Agent be responsible or liable to the
Lender for any failure to monitor or maintain any portion of the
Collateral.

 

SECTION
8.12                                [Reserved].

 

SECTION
8.13                                Credit
Bidding. The Administrative Agent, on behalf of itself and
the Secured Parties, shall have the right, at the direction of the
Lender, to credit bid and purchase for the benefit of the
Administrative Agent and the Secured Parties all or any portion of
Collateral at any sale thereof conducted by the Administrative
Agent under the provisions of the UCC, including pursuant to
Sections 9-610 or 9-620 of the UCC, at any sale thereof conducted
under the provisions of the United States Bankruptcy Code,
including Section 363 thereof, or a sale under a plan of
reorganization, or at any other sale or foreclosure conducted by
the Administrative Agent (whether by judicial action or otherwise)
in accordance with Legal Requirements.

 

 

37

 

 

ARTICLE
IX

 

Miscellaneous

 

SECTION
9.1                                           Notices;
Effectiveness; Electronic Communication.

 

(a) Notices Generally. Except in
the case of notices and other communications expressly permitted to
be given by telephone (and except as provided in clause (b) below), all notices
and other communications provided for herein shall be in writing
and shall be delivered by hand or overnight courier service, mailed
by certified or registered mail, sent by telecopy or (if
arrangements for doing so have been approved by the Administrative
Agent) electronic communication as follows:

 

(i) if to the Borrowing
Agent, on behalf of any Borrower, to it at 1177 West Loop South,
Suite 1825, Houston, Texas 77027, Attention of Anthony C. Schnur
(Telecopy No. 713-968-7016; Telephone No. 713-768-7068; E-mail:
tschnur@yumacompanies.com; or

 

(ii) if
to the Administrative Agent or the Lender, to YE Investment LLC at
10250 Constellation Blvd, Suite 2300, Los Angeles, California
90067, Attention of Willem Mesdag (Telecopy No. 310-432-0200;
Telephone 310-432-0201, E-mail:
wmesdag@redmtncap.com).

 

Notices
and other communications sent by hand or overnight courier service,
or mailed by certified or registered mail, shall be deemed to have
been given when received; notices and other communications sent by
telecopy shall be deemed to have been given when sent (except that,
if not given during normal business hours for the recipient, shall
be deemed to have been given at the opening of business on the next
business day for the recipient). Notices and other communications
delivered through electronic communications, to the extent provided
in clause (b)
below, shall be effective as provided in said clause (b).

 

(b)  Electronic Communications.
Notices and other communications to the Lender hereunder may be
delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures
approved by the Administrative Agent. The Administrative Agent or
the Borrowing Agent may, in its discretion, agree to accept notices
and other communications to it hereunder by electronic
communications pursuant to procedures approved by it; provided that approval of such
procedures may be limited to particular notices or
communications.

 

Unless
the Administrative Agent otherwise prescribes, (i) notices and
other communications sent to an e-mail address shall be deemed
received upon the sender’s receipt of an acknowledgement from
the intended recipient (such as by the “return receipt
requested” function, as available, return e-mail or other
written acknowledgement) and (ii) notices or communications posted
to an Internet or intranet website shall be deemed received upon
the deemed receipt by the intended recipient, at its e-mail address
as described in the foregoing clause (i), of notification
that such notice or communication is available and identifying the
website address therefor; provided that, for both
clauses (i) and
(ii) above, if such
notice, e-mail or other communication is not sent during the normal
business hours of the recipient, such notice or communication shall
be deemed to have been sent at the opening of business on the next
business day for the recipient.

 

(c) Change of Address, etc. Any
party hereto may change its address, telecopy number or e-mail
address for notices and other communications hereunder by notice to
the other parties hereto.

 

SECTION
9.2                                Waivers;
Amendments.

 

(a)           No
failure or delay by the Administrative Agent or the 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 Lender 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 any Borrower therefrom
shall in any event be effective unless the same shall be permitted
by clause (b) of
this Section 9.2,
and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.

 

(b)  No Loan
Document nor any provision thereof may be waived, amended or
modified except, by an agreement in writing entered into with the
consent of the Lender.

 

(c) Notwithstanding
anything to the contrary contained in any Loan Document, the
Administrative Agent and the Borrowers may amend, modify or
supplement the Loan Document without the consent of the Lender in
order to (i) correct, amend, cure or resolve any ambiguity,
omission, defect, typographical error, inconsistency or other
manifest error therein that is not adverse to the Lender, (ii) add
a guarantor or collateral or otherwise enhance the rights and
benefits of the Lender, (iii) make administrative or operational
changes not adverse to the Lender or (iv) adhere to any local
Governmental Requirement or advice of local counsel.

 

 

38

 

 

SECTION
9.3                                           Expenses;
Indemnity; Damage Waiver.

 

(a)           Costs
and Expenses. The Borrowing Agent, on behalf of each
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), the preparation, negotiation, execution,
delivery and administration of this Agreement and the other Loan
Documents, or any amendment, modification or waiver of the
provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all
out-of-pocket expenses incurred by the Administrative Agent, or the
Lender (including the fees, charges and disbursements of any
counsel or any financial advisor for the Administrative Agent or
the Lender), incurred during any workout, restructuring or
negotiations in respect thereof, or in connection with the
enforcement or protection of its rights (A) in connection with this
Agreement and the other Loan Documents, including its rights under
this Section 9.3 or
(B) in connection with the Loan, including all such out-of-pocket
expenses incurred during any workout, restructuring or negotiations
in respect of such Loans, whether before or after the occurrence of
an Event of Default.

 

(b)           Indemnification
by each Borrower. Each Borrower shall indemnify the
Administrative Agent (and any sub-agent thereof), the Lender, and
each Related Party of each 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 or any financial advisor
for any Indemnitee), and shall indemnify and hold harmless each
Indemnitee from all fees and disbursements for counsel, incurred by
any Indemnitee or asserted against any Indemnitee by any Person
(including any Borrower or any other Loan Party) arising out of, in
connection with, or as a result of (i) the execution or delivery of
this Agreement, any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the
parties hereto of their respective obligations hereunder or
thereunder or the consummation of the transactions contemplated
hereby or thereby, (ii) the Loan or the use or proposed use of the
proceeds therefrom, (iii) any actual or alleged presence or release
of Hazardous Materials on or from any property owned or operated by
any Borrower or any Subsidiary, or any Environmental Liability
related in any way to any Borrower or any Subsidiary or (iv) any
actual or prospective claim, litigation, investigation or
proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory, whether brought by a third
party or by any Borrower or any other Loan Party, and regardless of
whether any Indemnitee is a party thereto; and such indemnity shall
extend to each Indemnitee notwithstanding the sole or concurrent
negligence of every kind or character whatsoever, whether active or
passive, whether an affirmative act or an omission, including all
types of negligent conduct identified in the Restatement (Second)
of Torts of one or more of the Indemnitees or by reason of strict
liability imposed without fault on any one or more of the
Indemnitees; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses (x)
are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence
or willful misconduct of such Indemnitee or (y) result from a claim
brought by any Borrower or any other Loan Party against an
Indemnitee for breach in bad faith of such Indemnitee’s
obligations hereunder or under any other Loan Document, if such
Borrower or such Loan Party has obtained a final and nonappealable
judgment in its favor on such claim as determined by a court of
competent jurisdiction. This Section 9.3(b) shall not apply
with respect to Taxes other than any Taxes that represent losses,
claims, damages, liabilities and related expenses arising from any
non-Tax claim.

 

(c)           Reimbursement
by Lender. To the extent that any Borrower for any reason
fails to indefeasibly pay any amount required under clause (a) or (b) of this Section 9.3 to be paid by it to
the Administrative Agent (or any sub-agent thereof), the Lender or
any Related Party of any of the foregoing, the Lender agrees to pay
to the Administrative Agent (or any such sub-agent) or such Related
Party, as the case may be, such unpaid amount (including any such
unpaid amount in respect of a claim asserted by the
Lender).

 

(d)           Waiver
of Consequential Damages, etc. To the fullest extent
permitted by Applicable Law, each Borrower shall not assert, and
hereby waives, any claim against any Indemnitee, on any theory of
liability, for indirect, special, punitive, consequential or
exemplary damages (as opposed to direct or actual damages) arising
out of, in connection with, or as a result of, this Agreement, any
other Loan Document or any agreement or instrument contemplated
hereby or thereby, the transactions contemplated hereby or thereby,
the Loan, or the use of the proceeds thereof. No Indemnitee
referred to in clause
(b) above shall be liable for any damages arising from the
use by unintended recipients of any information or other materials
distributed by it through telecommunications, electronic or other
information transmission systems in connection with this Agreement
or the other Loan Documents or the transactions contemplated hereby
or thereby.

 

(e)           Payments.
All amounts due under this Section 9.3 shall be payable
not later three (3) Business Days after demand
therefor.

 

(f)           Survival.
Each party’s obligations under this Section 9.3 shall survive the
termination of the Loan Documents and payment of the other
Obligations.

 

SECTION
9.4                                           Successors
and Assigns.

 

(a) Successors and Assigns
Generally. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that no
Borrower may assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of the
Administrative Agent and the Lender, and the Lender may not assign
or otherwise transfer any of its rights or obligations hereunder
except (i) to an assignee in accordance with the provisions of
clause (b) of this
Section 9.4, or
(ii) by way of pledge or assignment of a security interest subject
to the restrictions of clause (e) of this Section 9.4 (and any other
attempted assignment or transfer by any party hereto shall be null
and void). Nothing in this Agreement, expressed or implied, shall
be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby,
and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent and the Lender) any
legal or equitable right, remedy or claim under or by reason of
this Agreement.

 

(b) Assignments by Lender. The
Lender (“Assigning
Lender”) may at any time assign to one or more
assignees (“New
Lender”) all or a portion of its rights and
obligations under this Agreement (including all or a portion of its
Commitments and the Loans at the time owing to it).

 

From
and after the effective date specified by Lender, the assignee
thereunder shall be a party to this Agreement and shall have the
rights and obligations of the Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest
assigned, be released from its obligations under this Agreement but
shall continue to be entitled to the benefits of Section 9.3 with respect to
facts and circumstances occurring prior to the effective date of
such assignment.

 

(c) [Reserved].

 

(d) [Reserved].

 

 

39

 

 

(e) Certain Pledges. The 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
the Lender, and this Section 9.4 shall not apply to
any such pledge or assignment of a security interest; provided that no such pledge or
assignment shall release the Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for the Lender
as a party hereto.

 

(f) [Reserved].

 

SECTION
9.5                                Survival.
All covenants, agreements, representations and warranties made by
each 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 hereto and
shall survive the execution and delivery of this Agreement and the
making of the Loans, regardless of any investigation made by any
such other party or on its behalf and notwithstanding that the
Administrative Agent or the 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 until the Termination Date. The provisions of
Sections 2.8 and
9.3 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 Obligations, or the termination of this Agreement or any
provision hereof.

 

SECTION
9.6                                           Counterparts;
Integration; Effectiveness; Electronic
Execution.

 

(a) Counterparts; Integration;
Effectiveness. This Agreement may be executed in
counterparts (and by different parties hereto in different
counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract.
This Agreement and the other Loan Documents, and any separate
letter agreements with respect to fees payable to the
Administrative Agent, constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and
all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Except as provided in
Section 4.1, this
Agreement shall become effective when it shall have been executed
by the Administrative Agent and when the Administrative Agent shall
have received counterparts hereof that, when taken together, bear
the signatures of each of the other parties hereto. Delivery of an
executed counterpart of a signature page of this Agreement by
telecopy or in electronic (i.e., “pdf” or
“tif”) format shall be effective as delivery of a
manually executed counterpart of this Agreement.

 

(b) Electronic Execution of
Assignments. The words “execution,”
“signed,” “signature,” and words of like
import shall be deemed to include electronic signatures or the
keeping of records in electronic form, each of which shall be of
the same legal effect, validity or enforceability as a manually
executed signature or the use of a paper-based recordkeeping
system, as the case may be, to the extent and as provided for in
any Applicable Law, including the Federal Electronic Signatures in
Global and National Commerce Act, the New York State Electronic
Signatures and Records Act, or any other similar state laws based
on the Uniform Electronic Transactions Act.

 

SECTION
9.7                                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
9.8                                           Right
of Setoff.

 

(a) If an Event of
Default shall have occurred and be continuing, the Lender and its
Affiliates are hereby authorized at any time and from time to time,
after obtaining the prior written consent of the Administrative
Agent, to the fullest extent permitted by Applicable Law, to set
off and apply any and all deposits (general or special, time or
demand, provisional or final, in whatever currency) at any time
held, and other obligations (in whatever currency) at any time
owing, by the Lender, the Lender or any such Affiliate, to or for
the credit or the account of any Borrower or any other Loan Party
against any and all of the obligations of such Borrower or such
Loan Party now or hereafter existing under this Agreement or any
other Loan Document to the Lender or its Affiliates, irrespective
of whether or not the Lender or Affiliate shall have made any
demand under this Agreement or any other Loan Document and although
such obligations of such Borrower or such Loan Party may be
contingent. The rights of the Lender and its Affiliates under this
Section 9.8 are in
addition to other rights and remedies (including other rights of
setoff) that the Lender or its Affiliates may have. The Lender
agrees to notify the Borrowing Agent and the Administrative Agent
promptly after any such setoff and application; provided that the failure to
give such notice shall not affect the validity of such setoff and
application.

 

(b) [Reserved].

 

 

40

 

 

SECTION
9.9                                           Governing
Law; Jurisdiction; Etc.

 

(a) Governing Law. This Agreement
and the other Loan Documents and any claim, controversy, dispute or
cause of action (whether in contract or tort or otherwise) based
upon, arising out of or relating to this Agreement or any other
Loan Document (except, as to any other Loan Document, as expressly
set forth therein) and the transactions contemplated hereby and
thereby shall be governed by, and construed in accordance with, the
law of the State of New York.

 

(b) Jurisdiction. Each Borrower
irrevocably and unconditionally agrees that it will not commence
any action, litigation or proceeding of any kind or description,
whether in law or equity, whether in contract or in tort or
otherwise, against the Administrative Agent, the Lender or any
Related Party of the foregoing in any way relating to this
Agreement or any other Loan Document or the transactions relating
hereto or thereto, in any forum other than the courts of the State
of New York sitting in New York County, and of the United States
District Court for the Southern District of New York, and any
appellate court from any thereof, and each of the parties hereto
irrevocably and unconditionally submits to the jurisdiction of such
courts in any action or proceeding arising out of or relating to
this Agreement, or for recognition or enforcement of any judgment,
and agrees that all claims in respect of any action, litigation or
proceeding of any kind or description, whether in law or equity,
whether in contract or in tort or otherwise, in any way relating to
this Agreement or any other Loan Document or the transactions
relating hereto or thereto may be heard and determined in such New
York State court or, to the fullest extent permitted by Applicable
Law, in such federal court. Each of the parties hereto agrees that
a final judgment in any such action, litigation or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by Applicable Law.
Nothing in this Agreement or in any other Loan Document shall
affect any right that the Administrative Agent, or the Lender may
otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document against any Borrower, any
other Loan Party or their properties in the courts of any
jurisdiction.

 

(c) Waiver of Venue. Each Borrower
irrevocably and unconditionally waives, to the fullest extent
permitted by Applicable Law, any objection that it may now or
hereafter have to the laying of venue of any action or proceeding
arising out of or relating to this Agreement or any other Loan
Document in any court referred to in clause (b) of this Section 9.9. Each of the
parties hereto hereby irrevocably waives, to the fullest extent
permitted by Applicable Law, the defense of an inconvenient forum
to the maintenance of such action or proceeding in any such
court.

 

(d) Service of Process. Each party
hereto irrevocably consents to service of process in the manner
provided for notices in Section 9.1. Nothing in this
Agreement will affect the right of any party hereto to serve
process in any other manner permitted by Applicable
Law.

 

SECTION
9.10                                Waiver
of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED
TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION
9.10.

 

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                                Treatment
of Certain Information; Confidentiality.

 

Each of
the Administrative Agent and the Lender agree to maintain the
confidentiality of the Information (as defined below), except that
Information may be disclosed:

 

(a)           to
its Affiliates and to its Related Parties (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 or requested by any regulatory authority
purporting to have jurisdiction over such Person or its Related
Parties (including any self-regulatory authority, such as the
National Association of Insurance Commissioners);

 

(c)           to
the extent required by Applicable Law or by any subpoena or similar
legal process;

 

(d)           to
any other Party hereto;

 

(e)           in
connection with the exercise of any remedy hereunder or under any
other Loan Document or any action or proceeding relating to this
Agreement or any other Loan Document or the enforcement of rights
hereunder or thereunder;

 

(f)           subject
to an agreement containing provisions substantially the same as
those of this Section
9.12, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights and
obligations under this Agreement;

 

 

41

 

 

(g)           on
a confidential basis to the Lender’s or the Administrative
Agent’s, the Lender’s or such other Agent’s
attorneys, advisors, financial or business consultants,
accountants, independent auditors, trustees or Affiliates, in each
case who need to know such information in connection with the
administration of the Loan Documents;

 

(h)           with
the consent of the Borrowing Agent;

 

(i)           to
the extent such Information (x) becomes publicly available other
than as a result of a breach of this Section 9.12 or (y) becomes
available to the Administrative Agent, the Lender or any of their
respective Affiliates on a nonconfidential basis from a source
other than any Borrower or any Subsidiary or

 

(j)           to
any Person with (or through) whom it enters into (or may
potentially enter into), whether directly or indirectly, any
transaction under which payments are to be made or may be made by
reference to, one or more Loan Documents and/or one or more Loan
Parties and to any of that Person’s Affiliates, related
funds, representatives and professional advisers. In addition, the
Administrative Agent and the Lender may disclose the existence of
this Agreement and information about this Agreement to market data
collectors, similar service providers to the lending industry and
service providers to the Administrative Agent and the Lender in
connection with the administration of this Agreement, the other
Loan Documents and the Commitments. For purposes of this Article,
“Information” means all
information received from any Borrower or any Subsidiary relating
to any Borrower or any Subsidiary or any of their respective
businesses, other than any such information that is available to
the Administrative Agent, the Lender on a nonconfidential basis
prior to disclosure by any Borrower or any Subsidiary; provided that, in the case of
information received from any Borrower or any Subsidiary after the
date hereof, such information is clearly identified at the time of
delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section 9.12 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 the Loan,
together with all fees, charges and other amounts that are treated
as interest on such Loan under Applicable Law (collectively the
“Charges”), shall exceed
the maximum lawful rate (the “Maximum Rate”) that 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
Section 9.13 shall
be cumulated and the interest and Charges payable to the 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 the
Lender.

 

SECTION
9.14                                [Reserved].

 

SECTION
9.15                                Flood
Insurance Provisions. Notwithstanding any provision in this
Agreement or any other Loan Document to the contrary, in no event
is any Building (as defined in the applicable Flood Insurance
Regulation) or Manufactured (Mobile) Home (as defined in the
applicable Flood Insurance Regulation) included in the definition
of “Mortgaged Property” and no Building or Manufactured
(Mobile) Home is hereby encumbered by this Agreement or any other
Loan Document. As used herein, “Flood Insurance
Regulations” means (a) the National Flood Insurance Act of
1968 as now or hereafter in effect or any successor statute
thereto, (b) the Flood Disaster Protection Act of 1973 as now or
hereafter in effect or any successor statue thereto, (c) the
National Flood Insurance Reform Act of 1994 (amending 42 USC 4001,
et seq.), as the same may be amended or recodified from time to
time and (d) the Flood Insurance Reform Act of 2004 and any
regulations promulgated thereunder.

 

SECTION
9.16                                [Reserved].

 

SECTION
9.17                                Final
Agreement of the Parties. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THIS AGREEMENT AMENDS AND RESTATES
IN ITS ENTIRETY THE EXISTING AGREEMENTS.

 

THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

 

42

 

 

ARTICLE
X

 

Borrowing Agency

 

SECTION
10.1                                Borrowing
Agency Provisions. Each Borrower hereby irrevocably
designates Borrowing Agent to be its attorney and agent and in such
capacity to (i) borrow, (ii) sign and endorse notes, (iii) make
elections regarding interest rates, and (iv) otherwise take action
under and in connection with this Agreement and the Loan Documents,
all on behalf of and in the name of such Borrower or Borrowers, and
hereby authorizes the Administrative Agent to pay over or credit
all loan proceeds hereunder in accordance with the request of
Borrowing Agent.

 

SECTION
10.2                                Waiver
of Subrogation. Each Borrower expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration,
contribution of any other claim that such Borrower may now or
hereafter have against the other Borrowers or any other Person
directly or contingently liable for the Obligations hereunder, or
against or with respect to any other Borrowers’ property
(including any property that is Collateral for the Obligations),
arising from the existence or performance of this Agreement, until
termination of this Agreement and repayment in full of the
Obligations.

 

 

43

 

 

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.

 

BORROWERS

 

	

 

	
YUMA ENERGY,
INC.

	

 

	

 

	

 

	

 

	

 

	
Date: December 2,
2019

	
By:  

	
/s/ Anthony C.
Schnur

	

 

	

 

	

 

	
Anthony C.
Schnur

	

 

	

 

	

 

	

Interim Chief
Executive Officer, Interim Chief Financial Officer and Chief
Restructuring Officer

	

 

 

	

 

	
YUMA EXPLORATION
AND PRODUCTION COMPANY, INC.

	

 

	

 

	

 

	

 

	

 

	
Date: December 2,
2019

	
By:  

	
/s/ Anthony C.
Schnur

	

 

	

 

	

 

	
Anthony C.
Schnur

	

 

	

 

	

 

	

Interim Chief
Executive Officer, Interim Chief Financial Officer and Chief
Restructuring Officer

	

 

 

 

	

 

	
PYRAMID OIL
LLC

	

 

	

 

	

 

	

 

	

 

	
Date: December 2,
2019

	
By:  

	
/s/ Anthony C.
Schnur

	

 

	

 

	

 

	
Anthony C.
Schnur

	

 

	

 

	

 

	

Interim Chief
Executive Officer, Interim Chief Financial Officer and Chief
Restructuring Officer

	

 

 

  

	

 

	
DAVIS PETROLEUM
CORP.

	

 

	

 

	

 

	

 

	

 

	
Date: December 2,
2019

	
By:  

	
/s/ Anthony C.
Schnur

	

 

	

 

	

 

	
Anthony C.
Schnur

	

 

	

 

	

 

	

Interim Chief
Executive Officer, Interim Chief Financial Officer and Chief
Restructuring Officer

	

 

 

ADMINISTRATIVE AGENT AND LENDER

 

	

 

	
YE INVESTMENT
LLC

By: Red Mountain
Capital Partners, LLC, its Managing
Member 

	

 

	

 

	

 

	

 

	

 

	
Date: December 2,
2019

	
By:  

	
/s/ 
Willem
Mesdag

	

 

	

 

	

 

	
Willem
Mesdag  

	

 

	

 

	

 

	

Managing
Partner

	

 

 

 

 

44WELLS FARGO & COMPANY 8-K

 

Exhibit 4.1 

 

[Face of Note]

 

Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to the Company or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

 

	CUSIP NO. 95001HCM1	FACE AMOUNT:  $____________
	REGISTERED NO. __	 

 

WELLS FARGO FINANCE LLC

 

MEDIUM-TERM NOTE, SERIES A

 

Fully and Unconditionally Guaranteed by Wells Fargo & Company

 

Principal at Risk Securities Linked to the Russell 2000® Index

 

WELLS FARGO FINANCE LLC, a limited liability company duly organized and existing under the laws of the State of Delaware (hereinafter called the “Company,” which term includes any successor corporation under and as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, an amount equal to the Cash Settlement Amount (as defined below), in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, on the Stated Maturity Date.  The “Stated Maturity Date” shall be November 24, 2021.  If the Determination Date (as defined below) is postponed, the Stated Maturity Date will be postponed to the second Business Day (as defined below) after the Determination Date as postponed.  This Security shall not bear any interest. 

 

Any payments on this Security at Maturity will be made against presentation of this Security at the office or agency of the Company maintained for that purpose in the City of Minneapolis, Minnesota and at any other office or agency maintained by the Company for such purpose. 

 

“Face Amount” shall mean, when used with respect to this Security, the amount set forth on the face of this Security as its “Face Amount.”

 

Determination of Cash Settlement Amount and Certain Definitions

 

The “Cash Settlement Amount” of this Security will equal:

 

	
 

	
●

	
if the Final Underlier Level is greater than or equal to the Cap Level, the Maximum Settlement Amount;

 

     

     

    
	
 

	
●

	
if the Final Underlier Level is greater than the Initial Underlier Level but less than the Cap Level, the sum of (i) the Face Amount plus (ii) the product of (a) the Face Amount times (b) the Upside Participation Rate times (c) the Underlier Return;

 

	
 

	
●

	
if the Final Underlier Level is equal to or less than the Initial Underlier Level but greater than or equal to the Buffer Level, the Face Amount; or

 

	
 

	
●

	
if the Final Underlier Level is less than the Buffer Level, the sum of (i) the Face Amount plus (ii) the product of (a) the Buffer Rate times (b) the sum of the Underlier Return plus the Buffer Amount times (c) the Face Amount.

 

All calculations with respect to the Cash Settlement Amount will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., 0.000005 would be rounded to 0.00001); and the Cash Settlement Amount will be rounded to the nearest cent, with one-half cent rounded upward.

 

The “Underlier” shall mean the Russell 2000® Index.

 

The “Trade Date” shall mean November 22, 2019.

 

The “Initial Underlier Level” is 1,588.943, the Closing Level of the Underlier on the Trade Date.

 

The “Closing Level” of the Underlier on any Trading Day means the official closing level of the Underlier reported by the Underlier Sponsor on such Trading Day, as obtained by the Calculation Agent on such Trading Day from the licensed third-party market data vendor contracted by the Calculation Agent at such time; in particular, taking into account the decimal precision and/or rounding convention employed by such licensed third-party market data vendor on such date, subject to the provisions set forth below under “Adjustments to the Underlier,” “Discontinuance of the Underlier” and “Market Disruption Events.”

 

The “Final Underlier Level” will be the Closing Level of the Underlier on the Determination Date.

 

The “Underlier Return” will be the quotient of (i) the Final Underlier Level minus the Initial Underlier Level divided by (ii) the Initial Underlier Level, expressed as a percentage.

 

The “Cap Level” is 1,685.59840269, which is 106.083% of the Initial Underlier Level.

 

The “Buffer Level” is 1,430.0487, which is equal to 90% of the Initial Underlier Level.

 

The “Maximum Settlement Amount” is 118.249% of the Face Amount of this Security.

 

The “Buffer Amount” is 10%.

 

    2

     

    
The “Buffer Rate” is equal to the Initial Underlier Level divided by the Buffer Level.

 

The “Upside Participation Rate” is 3.

 

“Underlier Sponsor” shall mean FTSE Russell.

 

“Business Day” shall mean a day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York.

 

A “Trading Day” means a day, as determined by the Calculation Agent, on which (i) the Relevant Stock Exchanges with respect to each security underlying the Underlier are scheduled to be open for trading for their respective regular trading sessions and (ii) each Related Futures or Options Exchange is scheduled to be open for trading for its regular trading session.

 

The “Related Futures or Options Exchange” for the Underlier means an exchange or quotation system where trading has a material effect (as determined by the Calculation Agent) on the overall market for futures or options contracts relating to the Underlier.

 

The “Relevant Stock Exchange” for any security underlying the Underlier means the primary exchange or quotation system on which such security is traded, as determined by the Calculation Agent.

 

The “Determination Date” shall be November 22, 2021. If the originally scheduled Determination Date is not a Trading Day, the Determination Date will be postponed to the next succeeding Trading Day.  The Determination Date is also subject to postponement due to the occurrence of a Market Disruption Event (as defined below).  See “–Market Disruption Events.”

 

“Calculation Agent Agreement” shall mean the Calculation Agent Agreement dated as of May 18, 2018 between the Company and the Calculation Agent, as amended from time to time.

 

“Calculation Agent” shall mean the Person that has entered into the Calculation Agent Agreement with the Company providing for, among other things, the determination of the Final Underlier Level and the Cash Settlement Amount, which term shall, unless the context otherwise requires, include its successors under such Calculation Agent Agreement.  The initial Calculation Agent shall be Wells Fargo Securities, LLC.  Pursuant to the Calculation Agent Agreement, the Company may appoint a different Calculation Agent from time to time after the initial issuance of this Security without the consent of the Holder of this Security and without notifying the Holder of this Security.

 

Adjustments to the Underlier

 

If at any time the method of calculating the Underlier or a Successor Underlier, or the closing level thereof, is changed in a material respect, or if the Underlier or a Successor Underlier is in any other way modified so that such underlier does not, in the opinion of the Calculation Agent, fairly represent the level of such underlier had those changes or modifications not been made, then the Calculation Agent will, at the close of business in New York, New

 

    3

     

    
York, on each date that the closing level of such underlier is to be calculated, make such calculations and adjustments as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a level of an underlier comparable to the Underlier or Successor Underlier as if those changes or modifications had not been made, and the Calculation Agent will calculate the closing level of the Underlier or Successor Underlier with reference to such underlier, as so adjusted.  Accordingly, if the method of calculating the Underlier or Successor Underlier is modified so that the level of such underlier is a fraction or a multiple of what it would have been if it had not been modified (e.g., due to a split or reverse split in such equity underlier), then the Calculation Agent will adjust the Underlier or Successor Underlier in order to arrive at a level of such underlier as if it had not been modified (e.g., as if the split or reverse split had not occurred).

 

Discontinuance of the Underlier

 

If the Underlier Sponsor discontinues publication of the Underlier, and the Underlier Sponsor or another entity publishes a successor or substitute equity index that the Calculation Agent determines, in its sole discretion, to be comparable to the Underlier (a “Successor Underlier”), then, upon the Calculation Agent’s notification of that determination to the Trustee and the Company, the Calculation Agent will substitute the Successor Underlier as calculated by the relevant Underlier Sponsor or any other entity and calculate the Final Underlier Level as described above. Upon any selection by the Calculation Agent of a Successor Underlier, the Company will cause notice to be given to the Holder of this Security.

 

In the event that the Underlier Sponsor discontinues publication of the Underlier prior to, and the discontinuance is continuing on, the Determination Date and the Calculation Agent determines that no Successor Underlier is available at such time, the Calculation Agent will calculate a substitute Closing Level for the Underlier in accordance with the formula for and method of calculating the Underlier last in effect prior to the discontinuance, but using only those securities that comprised the Underlier immediately prior to that discontinuance.  If a Successor Underlier is selected or the Calculation Agent calculates a level as a substitute for the Underlier, the Successor Underlier or level will be used as a substitute for the Underlier for all purposes, including the purpose of determining whether a Market Disruption Event exists.

 

If on the Determination Date the Underlier Sponsor fails to calculate and announce the level of the Underlier, the Calculation Agent will calculate a substitute Closing Level of the Underlier in accordance with the formula for and method of calculating the Underlier last in effect prior to the failure, but using only those securities that comprised the Underlier immediately prior to that failure; provided that, if a Market Disruption Event occurs or is continuing on such day, then the provisions set forth below under “Market Disruption Events” shall apply in lieu of the foregoing.

 

    4

     

    
Market Disruption Events 

 

A “Market Disruption Event” means any of the following events as determined by the Calculation Agent in its sole discretion:

 

	
 

	
(A)

	
The occurrence or existence of a material suspension of or limitation imposed on trading by the Relevant Stock Exchanges or otherwise relating to securities which then comprise 20% or more of the level of the Underlier or any Successor Underlier at any time during the one-hour period that ends at the Close of Trading on that day, whether by reason of movements in price exceeding limits permitted by those Relevant Stock Exchanges or otherwise.

 

	
 

	
(B)

	
The occurrence or existence of a material suspension of or limitation imposed on trading by any Related Futures or Options Exchange or otherwise in futures or options contracts relating to the Underlier or any Successor Underlier on any Related Futures or Options Exchange at any time during the one-hour period that ends at the Close of Trading on that day, whether by reason of movements in price exceeding limits permitted by the Related Futures or Options Exchange or otherwise. 

 

	
 

	
(C)

	
The occurrence or existence of any event, other than an early closure, that materially disrupts or impairs the ability of market participants in general to effect transactions in, or obtain market values for, securities that then comprise 20% or more of the level of the Underlier or any Successor Underlier on their Relevant Stock Exchanges at any time during the one-hour period that ends at the Close of Trading on that day.

 

	
 

	
(D)

	
The occurrence or existence of any event, other than an early closure, that materially disrupts or impairs the ability of market participants in general to effect transactions in, or obtain market values for, futures or options contracts relating to the Underlier or any Successor Underlier on any Related Futures or Options Exchange at any time during the one-hour period that ends at the Close of Trading on that day.

 

	
 

	
(E)

	
The closure on any Exchange Business Day of the Relevant Stock Exchanges on which securities that then comprise 20% or more of the level of the Underlier or any Successor Underlier are traded or any Related Futures or Options Exchange prior to its Scheduled Closing Time unless the earlier closing time is announced by the Relevant Stock Exchange or Related Futures or Options Exchange, as applicable, at least one hour prior to the earlier of (1) the actual closing time for the regular trading session on such Relevant Stock Exchange or Related Futures or Options Exchange, as applicable, and (2) the submission deadline for orders to be entered into the Relevant Stock Exchange or Related Futures or Options Exchange, as applicable, system for execution at such actual closing time on that day.

 

    5

     

    
	
 

	
(F)

	
The Relevant Stock Exchange for any security underlying the Underlier or Successor Underlier or any Related Futures or Options Exchange fails to open for trading during its regular trading session.

 

For purposes of determining whether a Market Disruption Event has occurred:

 

	
 

	
(1)

	
the relevant percentage contribution of a security to the level of the Underlier or any Successor Underlier will be based on a comparison of (x) the portion of the level of such underlier attributable to that security and (y) the overall level of the Underlier or Successor Underlier, in each case immediately before the occurrence of the Market Disruption Event;

 

	
 

	
(2)

	
the “Close of Trading” on any Trading Day for the Underlier or any Successor Underlier means the Scheduled Closing Time of the Relevant Stock Exchanges with respect to the securities underlying the Underlier or Successor Underlier on such Trading Day; provided that, if the actual closing time of the regular trading session of any such Relevant Stock Exchange is earlier than its Scheduled Closing Time on such Trading Day, then (x) for purposes of clauses (A) and (C) of the definition of “Market Disruption Event” above, with respect to any security underlying the Underlier or Successor Underlier for which such Relevant Stock Exchange is its Relevant Stock Exchange, the “Close of Trading” means such actual closing time and (y) for purposes of clauses (B) and (D) of the definition of “Market Disruption Event” above, with respect to any futures or options contract relating to the Underlier or Successor Underlier, the “close of trading” means the latest actual closing time of the regular trading session of any of the Relevant Stock Exchanges, but in no event later than the Scheduled Closing Time of the Relevant Stock Exchanges;

 

	
 

	
(3)

	
the “Scheduled Closing Time” of any Relevant Stock Exchange or Related Futures or Options Exchange on any Trading Day for the Underlier or any Successor Underlier means the scheduled weekday closing time of such Relevant Stock Exchange or Related Futures or Options Exchange on such Trading Day, without regard to after hours or any other trading outside the regular trading session hours; and

 

	
 

	
(4)

	
an “Exchange Business Day” means any Trading Day for the Underlier or any Successor Underlier on which each Relevant Stock Exchange for the securities underlying the Underlier or any Successor Underlier and each Related Futures or Options Exchange are open for trading during their respective regular trading sessions, notwithstanding any such Relevant Stock Exchange or Related Futures or Options Exchange closing prior to its Scheduled Closing Time.

 

If a Market Disruption Event occurs or is continuing on the Determination Date, then the Determination Date will be postponed to the first succeeding Trading Day on which a Market Disruption Event has not occurred and is not continuing; however, if such first succeeding Trading Day has not occurred as of the eighth Trading Day after the originally scheduled Determination Date, that eighth Trading Day shall be deemed to be the Determination Date. If

 

    6

     

    
the Determination Date has been postponed eight Trading Days after the originally scheduled Determination Date and a Market Disruption Event occurs or is continuing on such eighth Trading Day, the Calculation Agent will determine the Closing Level of the Underlier on such eighth Trading Day in accordance with the formula for and method of calculating the Closing Level of the Underlier last in effect prior to commencement of the Market Disruption Event, using the closing price (or, with respect to any relevant security, if a Market Disruption Event has occurred with respect to such security, its good faith estimate of the value of such security at the Scheduled Closing Time of the Relevant Stock Exchange for such security or, if earlier, the actual closing time of the regular trading session of such Relevant Stock Exchange) on such date of each security included in the Underlier. As used herein, “closing price” means, with respect to any security on any date, the Relevant Stock Exchange traded or quoted price of such security as of the Scheduled Closing Time of the Relevant Stock Exchange for such security or, if earlier, the actual closing time of the regular trading session of such Relevant Stock Exchange.  

 

Calculation Agent

 

The Calculation Agent will determine the Cash Settlement Amount and the Final Underlier Level.  In addition, the Calculation Agent will (i) determine if adjustments are required to the Closing Level of the Underlier under the circumstances described in this Security, (ii) if publication of the Underlier is discontinued, select a Successor Underlier or, if no Successor Underlier is available, determine the Closing Level of the Underlier under the circumstances described in this Security, and (iii) determine whether a Market Disruption Event or non-Trading Day has occurred. 

 

The Company covenants that, so long as this Security is Outstanding, there shall at all times be a Calculation Agent (which shall be a broker-dealer, bank or other financial institution) with respect to this Security.

 

All determinations made by the Calculation Agent with respect to this Security will be at the sole discretion of the Calculation Agent and, in the absence of manifest error, will be conclusive for all purposes and binding on the Company and the Holder of this Security.

 

Tax Considerations

 

The Company agrees, and by acceptance of a beneficial ownership interest in this Security each Holder of this Security will be deemed to have agreed (in the absence of a statutory, regulatory, administrative or judicial ruling to the contrary), for United States federal income tax purposes to characterize and treat this Security as a prepaid derivative contract that is an “open transaction.”

 

Redemption and Repayment

 

This Security is not subject to redemption at the option of the Company or repayment at the option of the Holder hereof prior to November 24, 2021.  This Security is not entitled to any sinking fund.

 

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Acceleration

 

If an Event of Default, as defined in the Indenture, with respect to this Security shall occur and be continuing, the Cash Settlement Amount (calculated as set forth in the next sentence) of this Security may be declared due and payable in the manner and with the effect provided in the Indenture.  The amount payable to the Holder hereof upon any acceleration permitted under the Indenture will be equal to the Cash Settlement Amount hereof calculated as provided herein as though the date of acceleration was the Determination Date.  

 

 

 

Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

 

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature or its duly authorized agent under the Indenture referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

 

[The
remainder of this page has been left intentionally blank]

 

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IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

 

DATED: 

 

	 	WELLS FARGO FINANCE LLC
	 	 	 
	 	By:	 	 
	 	 	 	 
	 	 	 	Its:
	 	 	 
	 	 	Attest:	 
	 	 	 
	 	 	Its:

 

	TRUSTEE’S
                    CERTIFICATE OF AUTHENTICATION

This
is one of the Securities of the series designated therein described in the within-mentioned Indenture.

	 
	 	 	 
	CITIBANK,
    N.A.,	 
	 	as
    Trustee	 
	 	 	 
	By:	 	 
	 	Authorized
    Signature	 
	 	 	 
	 	OR	 
	 	 	 
	WELLS
    FARGO BANK, N.A.,	 
	as
    Authenticating Agent for the Trustee	 
	 	 	 
	By:	 	 
	 	Authorized
    Signature	 

 

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[Reverse of Note]

 

WELLS FARGO FINANCE LLC

 

MEDIUM-TERM NOTE, SERIES A

 

Fully and Unconditionally Guaranteed by Wells Fargo & Company

 

Principal at Risk Securities Linked to the Russell 2000® Index

 

This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities”), issued and to be issued in one or more series under an indenture dated as of April 25, 2018, as amended or supplemented from time to time (herein called the “Indenture”), among the Company, as issuer, Wells Fargo & Company, as guarantor (the “Guarantor”) and Citibank, N.A., as trustee (herein called the “Trustee,” which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Guarantor, the Trustee and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered.  This Security is one of the series of the Securities designated as Medium-Term Notes, Series A, of the Company.  The amount payable on the Securities of this series may be determined by reference to the performance of one or more equity-, commodity- or currency-based indices, exchange traded funds, securities, commodities, currencies, statistical measures of economic or financial performance, or a basket comprised of two or more of the foregoing, or any other market measure or may bear interest at a fixed rate or a floating rate.  The Securities of this series may mature at different times, be redeemable at different times or not at all, be repayable at the option of the Holder at different times or not at all and be denominated in different currencies.

 

The Securities are issuable only in registered form without coupons and will be either (a) book-entry securities represented by one or more Global Securities recorded in the book-entry system maintained by the Depositary or (b) certificated securities issued to and registered in the names of, the beneficial owners or their nominees.

 

The Company agrees, to the extent permitted by law, not to voluntarily claim the benefits of any laws concerning usurious rates of interest against a Holder of this Security.

 

Guarantee

 

The Securities of this series are fully and unconditionally guaranteed by the Guarantor as and to the extent set forth in the Indenture.

 

Modification and Waivers 

 

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the Guarantor and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the

 

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Company, the Guarantor and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of all series to be affected, acting together as a class.  The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of all series at the time Outstanding affected by certain provisions of the Indenture, acting together as a class, on behalf of the Holders of all Securities of such series, to waive compliance by the Company or the Guarantor with those provisions of the Indenture.  Certain past defaults under the Indenture and their consequences may be waived under the Indenture by the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series.  Solely for the purpose of determining whether any consent, waiver, notice or other action or Act to be taken or given by the Holders of Securities pursuant to the Indenture has been given or taken by the Holders of Outstanding Securities in the requisite aggregate principal amount, the principal amount of this Security will be deemed to be equal to the amount set forth on the face hereof as the “Face Amount” hereof.  Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

 

Defeasance

 

Section 403 and Article Fifteen of the Indenture and the provisions of clause (ii) of Section 401(1)(B) of the Indenture, relating to defeasance at any time of (a) the entire indebtedness on this Security and (b) certain restrictive covenants, upon compliance by the Company or the Guarantor with certain conditions set forth therein, shall not apply to this Security.  The remaining provisions of Section 401 of the Indenture shall apply to this Security.

 

Authorized Denominations

 

This Security is issuable only in registered form without coupons in denominations of $1,000 or any amount in excess thereof which is an integral multiple of $1,000.

 

Registration of Transfer

 

Upon due presentment for registration of transfer of this Security at the office or agency of the Company in the City of Minneapolis, Minnesota, a new Security or Securities of this series, with the same terms as this Security, in authorized denominations for an equal aggregate Face Amount will be issued to the transferee in exchange herefor, as provided in the Indenture and subject to the limitations provided therein and to the limitations described below, without charge except for any tax or other governmental charge imposed in connection therewith.

 

This Security is exchangeable for definitive Securities in registered form only if (x) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for this Security or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and a successor depositary is not appointed within 90 days after the Company receives such notice or becomes aware of such ineligibility, (y) the Company in its sole discretion determines that this Security shall be exchangeable for definitive Securities in registered form and notifies the Trustee thereof or (z) an Event of Default with respect

 

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to the Securities represented hereby has occurred and is continuing.  If this Security is exchangeable pursuant to the preceding sentence, it shall be exchangeable for definitive Securities in registered form, having the same date of issuance, Stated Maturity Date and other terms and of authorized denominations aggregating a like amount. 

 

This Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor of the Depositary or a nominee of such successor.  Except as provided above, owners of beneficial interests in this Global Security will not be entitled to receive physical delivery of Securities in definitive form and will not be considered the Holders hereof for any purpose under the Indenture.

 

Prior to due presentment of this Security for registration of transfer, the Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Guarantor, the Trustee nor any such agent shall be affected by notice to the contrary.

 

Obligation of the Company Absolute

 

No reference herein to the Indenture and no provision of this Security or the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the Cash Settlement Amount at the times, place and rate, and in the coin or currency, herein prescribed, except as otherwise provided in this Security.

 

No Personal Recourse

 

No recourse shall be had for the payment of the Cash Settlement Amount, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or any successor corporation or of the Guarantor or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released.

 

Defined Terms

 

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture unless otherwise defined in this Security.

 

Governing Law

 

This Security shall be governed by and construed in accordance with the law of the State of New York, without regard to principles of conflicts of laws.

 

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ABBREVIATIONS

 

The
following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written
out in full according to applicable laws or regulations: 

 

	TEN COM	--	as tenants in common
	 	 	 
	TEN ENT	--	as tenants by the entireties
	 	 	 
	JT TEN	--	as joint tenants with right
	 	 	of survivorship and not
	 	 	as tenants in common

 

	UNIF GIFT MIN ACT

	--

	 

	 

	Custodian 

	 

	 

	 

	(Cust)

	 

	 

	(Minor)

  

Under
Uniform Gifts to Minors Act

 

	 	 
	(State)	 

 

Additional abbreviations
may also be used though not in the above list.

 

FOR VALUE RECEIVED,
the undersigned hereby sell(s) and transfer(s) unto

 

Please Insert Social Security or

Other Identifying Number of Assignee

 

	 	 
	 	 
	 	 

	(Please
print or type name and address including postal zip code of Assignee)

 

    13

     

    
the within Security of WELLS FARGO FINANCE LLC and does hereby irrevocably constitute and appoint __________________ attorney to transfer the said Security on the books of the Company, with full power of substitution in the premises.

 

	Dated: _________________________	 
	 	 
	 	 
	 	 
	 	 
	 	 

NOTICE:  The signature to this assignment
must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement
or any change whatever.

 

    14

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