Document:

Unassociated Document

     

    Exhibit
10.1

     

    
      
        

      

    

     

    AMENDED
AND RESTATED CREDIT AGREEMENT

     

    AMONG

     

    GASTAR
EXPLORATION USA, INC.

     

    THE
GUARANTORS SIGNATORY HERETO

     

    AMEGY
BANK NATIONAL ASSOCIATION,

    AS
ADMINISTRATIVE AGENT

    AND
LETTER OF CREDIT ISSUER

    

    BMO
CAPITAL MARKETS CORP.

    AS
CO-LEAD ARRANGER AND

    JOINT
BOOKRUNNER

     

    AND

     

    THE
LENDERS SIGNATORY HERETO

     

    October
28, 2009

     

    
      

    

     

    REVOLVING
LINE OF CREDIT AND LETTER OF CREDIT FACILITY OF UP TO $250,000,000

     

    
      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    TABLE OF
CONTENTS

     

    
      
        
          	
                  ARTICLE
      I

                	
                  DEFINITIONS
      AND INTERPRETATION

                	
                  1

                
	 
      	 
      	 
      
	
                  1.1

                	
                  Terms
      Defined Above

                	
                  1

                
	
                  1.2

                	
                  Additional
      Defined Terms

                	
                  1

                
	
                  1.3

                	
                  Undefined
      Financial Accounting Terms

                	
                  15

                
	
                  1.4

                	
                  References

                	
                  15

                
	
                  1.5

                	
                  Articles
      and Sections

                	
                  15

                
	
                  1.6

                	
                  Number
      and Gender

                	
                  16

                
	
                  1.7

                	
                  Incorporation
      of Schedules and Exhibits

                	
                  16

                
	
                  1.8

                	
                  Negotiated
      Transaction

                	
                  16

                
	 
      	 
      	 
      
	
                  ARTICLE
      II

                	
                  TERMS
      OF FACILITY

                	
                  16

                
	 
      	 
      	 
      
	
                  2.1

                	
                  Revolving
      Line of Credit and Letter of Credit Facility

                	
                  16

                
	
                  2.2

                	
                  Limitations
      on Interest Periods

                	
                  18

                
	
                  2.3

                	
                  Limitation
      on Types of Loans

                	
                  18

                
	
                  2.4

                	
                  Use
      of Loan Proceeds and Letters of Credit

                	
                  19

                
	
                  2.5

                	
                  Interest

                	
                  19

                
	
                  2.6

                	
                  Repayment
      of Loans and Interest

                	
                  20

                
	
                  2.7

                	
                  Outstanding
      Amounts

                	
                  20

                
	
                  2.8

                	
                  Taxes
      and Time, Place, and Method of Payments

                	
                  20

                
	
                  2.9

                	
                  Pro
      Rata Treatment; Adjustments

                	
                  22

                
	
                  2.10

                	
                  Borrowing
      Base and Monthly Reduction Amount

                	
                  23

                
	
                  2.11

                	
                  Mandatory
      Prepayments

                	
                  24

                
	
                  2.12

                	
                  Voluntary
      Prepayments and Conversions of Loans

                	
                  24

                
	
                  2.13

                	
                  Commitment
      Fees

                	
                  24

                
	
                  2.14

                	
                  Engineering
      Fees

                	
                  24

                
	
                  2.15

                	
                  Additional
      Fees

                	
                  25

                
	
                  2.16

                	
                  Loans
      to Satisfy Obligations

                	
                  25

                
	
                  2.17

                	
                  General
      Provisions Relating to Interest

                	
                  25

                
	
                  2.18

                	
                  Yield
      Protection

                	
                  25

                
	
                  2.19

                	
                  Illegality

                	
                  27

                
	
                  2.20

                	
                  Replacement
      Lenders

                	
                  27

                
	
                  2.21

                	
                  Regulatory
      Change

                	
                  28

                
	
                  2.22

                	
                  Letters
      in Lieu of Transfer Orders or Division Orders

                	
                  28

                
	
                  2.23

                	
                  Power
      of Attorney

                	
                  28

                
	
                  2.24

                	
                  Security
      Interest in Accounts; Right of Offset

                	
                  28

                
	 
      	 
      	 
      
	
                  ARTICLE
      III

                	
                  CONDITIONS

                	
                  29

                
	 
      	 
      	 
      
	
                  3.1

                	
                  Receipt
      of Loan Documents and Other Items

                	
                  29

                
	
                  3.2

                	
                  Each
      Loan

                	
                  31

                
	
                  3.3

                	
                  Issuance
      of Letters of Credit

                	
                  32

                
	 
      	 
      	 
      
	
                  ARTICLE
      IV

                	
                  REPRESENTATIONS
      AND WARRANTIES

                	
                  33

                
	 
      	 
      	 
      
	
                  4.1

                	
                  Due
      Authorization

                	
                  33

                
	
                  4.2

                	
                  Existence

                	
                  33

                
	
                  4.3

                	
                  Valid
      and Binding Obligations

                	
                  33

                
	
                  4.4

                	
                  Security
      Documents

                	
                  33

                
	
                  4.5

                	
                  Title
      to Oil and Gas Properties

                	
                  33

                
	
                  4.6

                	
                  Scope
      and Accuracy of Financial Statements

                	
                  33

                
	
                  4.7

                	
                  No
      Material Misstatements

                	
                  34

                
	
                  4.8

                	
                  Liabilities
      and Litigation

                	
                  34

                

        

      

    

     

    
      
         

      

      
        -i-

        
          

        

      

      
         

      

    

     

    
      
        
          	
                  4.9

                	
                  Authorizations;
      Consents

                	
                  34

                
	
                  4.10

                	
                  Compliance
      with Laws

                	
                  34

                
	
                  4.11

                	
                  ERISA

                	
                  34

                
	
                  4.12

                	
                  Environmental
      Laws

                	
                  34

                
	
                  4.13

                	
                  Compliance
      with Federal Reserve Regulations

                	
                  34

                
	
                  4.14

                	
                  Investment
      Company Act Compliance

                	
                  35

                
	
                  4.15

                	
                  Proper
      Filing of Tax Returns; Payment of Taxes Due

                	
                  35

                
	
                  4.16

                	
                  Refunds

                	
                  35

                
	
                  4.17

                	
                  Gas
      Contracts

                	
                  35

                
	
                  4.18

                	
                  Intellectual
      Property

                	
                  35

                
	
                  4.19

                	
                  Casualties
      or Taking of Property

                	
                  35

                
	
                  4.20

                	
                  Principal
      Location

                	
                  35

                
	
                  4.21

                	
                  Subsidiaries

                	
                  35

                
	
                  4.22

                	
                  Compliance
      with Anti-Terrorism Laws

                	
                  35

                
	
                  4.23

                	
                  Identification
      Numbers

                	
                  36

                
	
                  4.24

                	
                  Solvency

                	
                  36

                
	 
      	 
      	 
      
	
                  ARTICLE
      V

                	
                  AFFIRMATIVE
      COVENANTS

                	
                  37

                
	 
      	 
      	 
      
	
                  5.1

                	
                  Maintenance
      and Access to Records

                	
                  37

                
	
                  5.2

                	
                  Quarterly
      Financial Statements and Compliance Certificates

                	
                  37

                
	
                  5.3

                	
                  Annual
      Financial Statements and Compliance Certificate

                	
                  37

                
	
                  5.4

                	
                  Oil
      and Gas Reserve Reports, Capital Budgets and Production
      Reports

                	
                  37

                
	
                  5.5

                	
                  Title
      Opinions; Title Defects; Mortgaged Properties

                	
                  38

                
	
                  5.6

                	
                  Notices
      of Certain Events

                	
                  38

                
	
                  5.7

                	
                  Letters
      in Lieu of Transfer Orders or Division Orders

                	
                  39

                
	
                  5.8

                	
                  Commodity
      Hedging

                	
                  39

                
	
                  5.9

                	
                  Additional
      Guaranties and Security Documents

                	
                  39

                
	
                  5.10

                	
                  Additional
      Information

                	
                  40

                
	
                  5.11

                	
                  Compliance
      with Laws

                	
                  40

                
	
                  5.12

                	
                  Payment
      of Assessments and Charges

                	
                  40

                
	
                  5.13

                	
                  Maintenance
      of Existence or Qualification and Good Standing

                	
                  40

                
	
                  5.14

                	
                  Payment
      of Notes; Performance of Obligations

                	
                  40

                
	
                  5.15

                	
                  Further
      Assurances

                	
                  40

                
	
                  5.16

                	
                  Initial
      Expenses of Agent

                	
                  40

                
	
                  5.17

                	
                  Subsequent
      Expenses of Agent and Lenders

                	
                  40

                
	
                  5.18

                	
                  Operation
      of Oil and Gas Properties

                	
                  41

                
	
                  5.19

                	
                  Maintenance
      and Inspection of Properties

                	
                  41

                
	
                  5.20

                	
                  Maintenance
      of Insurance

                	
                  41

                
	
                  5.21

                	
                  Environmental
      Indemnification

                	
                  42

                
	
                  5.22

                	
                  General
      Indemnification

                	
                  42

                
	
                  5.23

                	
                  Evidence
      of Compliance with Anti-Terrorism Laws

                	
                  42

                
	 
      	 
      	 
      
	
                  ARTICLE
      VI

                	
                  NEGATIVE
      COVENANTS

                	
                  42

                
	 
      	 
      	 
      
	
                  6.1

                	
                  Indebtedness

                	
                  42

                
	
                  6.2

                	
                  Contingent
      Obligations

                	
                  43

                
	
                  6.3

                	
                  Liens

                	
                  43

                
	
                  6.4

                	
                  Sales
      of Assets

                	
                  43

                
	
                  6.5

                	
                  Leasebacks

                	
                  43

                
	
                  6.6

                	
                  Sale
      or Discount of Receivables

                	
                  44

                
	
                  6.7

                	
                  Loans
      or Advances

                	
                  44

                
	
                  6.8

                	
                  Investments

                	
                  44

                
	
                  6.9

                	
                  Dividends,
      Distributions and Certain Payments

                	
                  44

                
	
                  6.10

                	
                  Issuance
      of Equity; Changes in Corporate Structure

                	
                  45

                
	
                  6.11

                	
                  Transactions
      with Affiliates

                	
                  45

                
	
                  6.12

                	
                  Lines
      of Business

                	
                  45

                

        

      

    

     

    
      
         

      

      
        -ii-

        
          

        

      

      
         

      

    

     

    
      
        
          	
                  6.13

                	
                  Plan
      Obligation

                	
                  45

                
	
                  6.14

                	
                  Current
      Ratio

                	
                  45

                
	
                  6.15

                	
                  Total
      Net Indebtedness to EBITDA Ratio

                	
                  45

                
	
                  6.16

                	
                  Interest
      Coverage Ratio

                	
                  45

                
	
                  6.17

                	
                  Anti-Terrorism
      Laws

                	
                  45

                
	 
      	 
      	 
      
	
                  ARTICLE
      VII

                	
                  EVENTS
      OF DEFAULT

                	
                  46

                
	
                   
      

                	 
      	 
      
	
                  7.1

                	
                  Enumeration
      of Events of Default

                	
                  46

                
	
                  7.2

                	
                  Remedies

                	
                  47

                
	 
      	 
      	 
      
	
                  ARTICLE
      VIII

                	
                  THE
      AGENT

                	
                  48

                
	 
      	 
      	 
      
	
                  8.1

                	
                  Appointment

                	
                  48

                
	
                  8.2

                	
                  Delegation
      of Duties

                	
                  48

                
	
                  8.3

                	
                  Exculpatory
      Provisions

                	
                  49

                
	
                  8.4

                	
                  Reliance
      by Agent

                	
                  49

                
	
                  8.5

                	
                  Notice
      of Default

                	
                  49

                
	
                  8.6

                	
                  Non-Reliance
      on Agent and Other Lenders

                	
                  49

                
	
                  8.7

                	
                  Indemnification

                	
                  50

                
	
                  8.8

                	
                  Restitution

                	
                  50

                
	
                  8.9

                	
                  Agent
      in Its Individual Capacity

                	
                  50

                
	
                  8.10

                	
                  Successor
      Agent

                	
                  51

                
	
                  8.11

                	
                  Applicable
      Parties

                	
                  51

                
	
                  8.12

                	
                  Releases

                	
                  51

                
	 
      	 
      	 
      
	
                  ARTICLE
      IX

                	
                  MISCELLANEOUS

                	
                  51

                
	 
      	 
      	 
      
	
                  9.1

                	
                  Assignments;
      Participations

                	
                  51

                
	
                  9.2

                	
                  Survival
      of Representations, Warranties, and Covenants

                	
                  52

                
	
                  9.3

                	
                  Notices
      and Other Communications

                	
                  52

                
	
                  9.4

                	
                  Parties
      in Interest

                	
                  53

                
	
                  9.5

                	
                  Renewals;
      Extensions

                	
                  53

                
	
                  9.6

                	
                  Rights
      of Third Parties

                	
                  53

                
	
                  9.7

                	
                  No
      Waiver; Rights Cumulative

                	
                  53

                
	
                  9.8

                	
                  Survival
      Upon Unenforceability

                	
                  53

                
	
                  9.9

                	
                  Amendments;
      Waivers

                	
                  53

                
	
                  9.10

                	
                  Controlling
      Agreement

                	
                  54

                
	
                  9.11

                	
                  Disposition
      of Collateral

                	
                  54

                
	
                  9.12

                	
                  Governing
      Law

                	
                  54

                
	
                  9.13

                	
                  Waiver
      of Right to Jury Trial

                	
                  54

                
	
                  9.14

                	
                  Waiver
      of Class Action

                	
                  54

                
	
                  9.15

                	
                  Jurisdiction
      and Venue

                	
                  54

                
	
                  9.16

                	
                  Integration

                	
                  54

                
	
                  9.17

                	
                  Waiver
      of Punitive and Consequential Damages

                	
                  55

                
	
                  9.18

                	
                  Counterparts

                	
                  55

                
	
                  9.19

                	
                  USA
      Patriot Act Notice

                	
                  55

                
	
                  9.20

                	
                  Tax
      Shelter Regulations

                	
                  55

                
	
                  9.21

                	
                  Contribution
      and Indemnification

                	
                  55

                

        

      

    

     

    
      
         

      

      
        -iii-

        
          

        

      

      
         

      

    

     

    LIST OF
SCHEDULES

     

    
      
        
          
            
              	
                      Section
      4.5

                    	
                      -

                    	
                      Certain
      Title Matters

                    
	
                      Schedule
      4.8

                    	
                      -

                    	
                      Liabilities
      and Litigation

                    
	
                      Schedule
      4.12

                    	
                      -

                    	
                      Environmental
      Matters

                    
	
                      Schedule
      4.16

                    	
                      -

                    	
                      Refunds

                    
	
                      Schedule
      4.17

                    	
                      -

                    	
                      Gas
      Contracts

                    
	
                      Schedule
      4.19

                    	
                      -

                    	
                      Casualties

                    
	
                      Schedule
      4.21

                    	
                      -

                    	
                      Subsidiaries

                    
	
                      Schedule
      4.23

                    	
                      -

                    	
                      Taxpayer
      Identification and Organization Numbers

                    
	
                      Schedule
      6.1

                    	
                      -

                    	
                      Certain
      Indebtedness

                    

            

          

        

      

    

     

    LIST OF
EXHIBITS

     

    
      
        
          
            	
                    Exhibit
      I

                  	
                    -

                  	
                    Form
      of Note

                  
	
                    Exhibit
      II

                  	
                    -

                  	
                    Form
      of Borrowing Request

                  
	
                    Exhibit
      III

                  	
                    -

                  	
                    Form
      of Compliance Certificate

                  
	
                    Exhibit
      IV

                  	
                    -

                  	
                    Facility
      Amounts

                  
	
                    Exhibit
      V

                  	
                    -

                  	
                    Form
      of Opinion of Warner, Norcross & Judd LLP

                  
	
                    Exhibit
      VI

                  	
                    -

                  	
                    Form
      of Opinion of Vinson & Elkins, LLP

                  
	
                    Exhibit
      VII

                  	
                    -

                  	
                    Form
      of Opinion of Burnet, Duckworth & Palmer

                  
	
                    Exhibit
      VIII

                  	
                    -

                  	
                    Form
      of Assignment
Agreement

                  

          

        

      

    

     

    
      
         

      

      
        -iv-

        
          

        

      

      
         

      

    

    AMENDED AND RESTATED CREDIT
AGREEMENT

     

    This
AMENDED AND RESTATED CREDIT AGREEMENT is made and entered into this 28th day of
October, 2009, by and among GASTAR EXPLORATION USA, INC., a Michigan corporation
(the “Borrower”), GASTAR
EXPLORATION, LTD., an Alberta, Canada corporation (the “Parent”), GASTAR
EXPLORATION NEW SOUTH WALES, INC., a Michigan corporation (“Gastar New South
Wales”), GASTAR EXPLORATION VICTORIA, INC., a Michigan corporation
(“Gastar
Victoria”), GASTAR EXPLORATION TEXAS, INC., a Michigan corporation
(“Gastar Texas
Inc.”), GASTAR EXPLORATION TEXAS, LP, a Delaware limited partnership
(“Gastar Texas LP”), and GASTAR EXPLORATION TEXAS LLC, a Delaware limited
liability company (“Gastar Texas LLC”,
and the Parent, Gastar New South Wales, Gastar Victoria, Gastar Texas Inc.,
Gastar Texas LP and Gastar Texas LLC, collectively, the “Initial Guarantors”),
each lender that is a signatory hereto or becomes a signatory hereto as provided
in Section 9.1
(individually, together with its successors and assigns, a “Lender” and
collectively, together with their respective successors and assigns, the “Lenders”), and AMEGY
BANK NATIONAL ASSOCIATION, a national banking association (“Amegy”), as
administrative agent for the Lenders, the issuing bank for letters of credit
issued hereunder and as collateral agent for the Lenders and any other Approved
Hedge Counterparties (as defined hereinafter) under certain circumstances
hereunder (in such capacities, together with its successors in such capacities
pursuant to the terms hereof, the “Agent”).

     

    WITNESSETH:

     

    WHEREAS,
the Borrower and each of the Initial Guarantors are affiliated entities;
and

     

    WHEREAS,
the directors, the partners, the managers or the members, as the case may be, of
each of the Initial Guarantors have determined that the relevant Initial
Guarantor will receive substantial direct and/or indirect benefits from
extensions of credit to the Borrower hereunder;

     

    WHEREAS,
the Borrower, the Initial Guarantors and the Agent are parties to that certain
Credit Agreement dated November 29, 2007 (as amended to the date first set forth
above, the “Existing
Credit Agreement”); and

     

    WHEREAS,
the Borrower, the Initial Guarantors, the Agent and Amegy desire to amend and
restate in its entirety the Existing Credit Agreement by entering into this
Amended and Restated Credit Agreement, and the Lenders other than Amegy desire
to enter into this Amended and Restated Credit Agreement;

     

    NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows,
restating in its entirety the Existing Credit Agreement:

     

    ARTICLE
I

     

    DEFINITIONS AND
INTERPRETATION

     

    1.1           Terms Defined
Above.  As used in this Credit Agreement, each of the terms
“Agent,” “Amegy,” “Borrower,” “Existing Credit
Agreement,” “Gastar New South
Wales,” “Gastar
Texas Inc.,” “Gastar Texas LLC,”
“Gastar Texas
LP,” “Gastar
Victoria,” “Initial Guarantors,”
“Lenders” and
“Parent” shall
have the meaning assigned to such term hereinabove.

     

    1.2           Additional Defined
Terms.  As used in this Credit Agreement, each of the following
terms shall have the meaning assigned thereto in this Section 1.2 or in
Sections referred to in this Section 1.2, unless the context otherwise
requires:

     

    “Additional Amount”
shall have the meaning assigned to such term in Section
2.8.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    “Additional Costs”
shall mean costs which are attributable to the obligation of the Agent or any
Lender to make or its making or maintaining any Loan, or any reduction in any
amount receivable by the Agent or such Lender in respect of any such obligation
or any LIBO Rate Loan, resulting from any Regulatory Change which (a) changes
the basis of taxation of any amounts payable to the Agent or such Lender under
this Agreement or any Note in respect of any LIBO Rate Loan (other than taxes
imposed on the overall net income of the Agent or such Lender or its Applicable
Lending Office (including franchise or similar taxes) for any such LIBO Rate
Loan), (b) imposes or modifies any reserve, special deposit, minimum capital,
capital ratio, or similar requirements (other than the Reserve Requirement
utilized in the determination of the Adjusted LIBO Rate for such Loan) relating
to any extensions of credit or other assets of, or any deposits with or other
liabilities of, the Agent or such Lender (including LIBO Rate Loans and Dollar
deposits in the London interbank market in connection with LIBO Rate Loans), or
the Commitment of the Agent or such Lender, or the London interbank market, or
(c) imposes any other condition affecting this Agreement or any Note or any of
such extensions of credit, liabilities, or Commitments.

     

    “Adjusted Base Rate”
shall mean, for any Base Rate Loan, an interest rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) determined by the Agent to be the
greater of (a) the Base Rate, (b) the sum of the Federal Funds Rate plus one
half of one percent (0.50%), and (c) the Adjusted LIBO Rate for an Interest
Period of one month plus one and one half percent (1.50%).

     

    “Adjusted LIBO Rate”
shall mean, for any Interest Period for any LIBO Rate Loan, an interest rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by
the Agent to be equal to the quotient of (a) the LIBO Rate for such Interest
Period for such Loan divided by (b) the remainder of 1.00 minus the Reserve
Requirement for such Loan for such Interest Period.

     

    “Affiliate” shall
mean, as to any Person, any other Person directly or indirectly, controlling, or
under common control with, such Person, and includes any “affiliate” of such
Person within the meaning of Rule 12b2 promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, with
“control,” as used in this definition, meaning possession, directly or
indirectly, of the power to direct or cause the direction of management,
policies or action through ownership of voting securities, contract, voting
trust, or membership in management or in the group appointing or electing
management or otherwise through formal or informal arrangements or business
relationships.

     

    “Agreement” shall mean
this Credit Agreement, as it may be amended, supplemented, restated, or
otherwise modified from time to time.

     

    “Anti-Terrorism Laws”
shall mean any laws relating to terrorism or money laundering, including
Executive Order No. 13224 and the USA Patriot Act.

     

    “Applicable Lending
Office” shall mean, for each Lender and type of Loan, the lending office
of such Lender (or an affiliate of such Lender) designated for such type of Loan
on the signature pages hereof or in an Assignment Agreement or such other office
of such Lender (or an affiliate of such Lender) as such Lender may from time to
time specify to the Agent and the Borrower as the office by which its Loans of
such type are to be made and maintained.

     

    “Applicable Margin”
shall mean (a) on any day and as to each LIBO Rate Loan or Base Rate Loan under
the Facility, as the case may be, outstanding on such day the amount determined
by reference to the following table:

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    
      
        
          
            	
                    Borrowing Base

                    Utilization

                  	 	
                    Applicable Margin

                  	 
	 
      	 	
                    LIBO Rate Loans

                  	 	 	
                    Base Rate Loans

                  	 
	 
      	 	 	 	 	 	 
	
                    ≥90%

                  	 	 	3.50	%	 	 	2.00	%
	 
      	 	 	 	 	 	 	 	 
	
                    ≥75%,
      but <90%

                  	 	 	3.25	%	 	 	1.75	%
	 
      	 	 	 	 	 	 	 	 
	
                    ≥50%,
      <75%

                  	 	 	3.00	%	 	 	1.50	%
	 
      	 	 	 	 	 	 	 	 
	
                    ≥25%,
      <50%

                  	 	 	2.75	%	 	 	1.25	%
	 
      	 	 	 	 	 	 	 	 
	
                    <25%

                  	 	 	2.50	%	 	 	1.00	%

          

        

      

    

     

    ;provided, however, during any
period while there exists any Deficiency, the relevant amount above shall be
increased by two percent (2.00%).

     

    “Approved Fund” shall
mean any (a) investment company, fund, trust, securitization vehicle or conduit
that is (or will be) engaged in making, purchasing, holding or otherwise
investing in commercial loans and similar extensions of credit in the ordinary
course of its business or (b) any Person (other than a natural person) which
temporarily warehouses loans for any Lender or any entity described in the
preceding clause (a) and that, with respect to each of the preceding clauses (a)
and (b), is administered or managed by (i) a Lender, (ii) an Affiliate of a
Lender or (iii) a Person (other than a natural person) or an Affiliate of a
Person (other than a natural person) that administers or manages a
Lender.

     

    “Approved Hedge
Counterparty” shall mean any Lender or an Affiliate of any
Lender.

     

    “Assignment Agreement”
shall mean each Assignment Agreement, substantially in the form of Exhibit VIII, with
appropriate insertions.

     

    “Available Commitment”
shall mean, at any time, an amount equal to the remainder, if any, of (a) the
Commitment Amount in effect at such time minus (b) the sum of
the Loan Balance at such time plus the L/C Exposure at such time.

     

    “Base Rate” shall mean
the “prime rate” published from time to time in the “Money Rates” table in The Wall Street Journal or
the highest “prime rate” so published if more than one “prime rate” is so
published, which rate shall change upon any change in such published “prime
rate”.

     

    “Base Rate Loan” shall
mean any Loan and any portion of the Loan Balance which the Borrower has
requested, in the initial Borrowing Request for such Loan or a subsequent
Borrowing Request for such portion of the Loan Balance, bear interest on the
basis of the Adjusted Base Rate, or which pursuant to the terms hereof is
otherwise required to bear interest on the basis of the Adjusted Base
Rate.

     

    “Benefited Lender”
shall have the meaning assigned to such term in Section
2.9(c).

     

    “Blocked Person” shall
have the meaning assigned to such term in Section
4.22.

     

    “Borrowing Base” shall
mean, at any time, the amount stated in Section 2.10(a) and each other amount
established and in effect from time to time in accordance with the provisions of
Section
2.10.

     

    “Borrowing Base
Utilization” shall mean (a) the sum of (i) the Loan Balance plus (ii) the
L/C Exposure divided by (b) the Borrowing Base then in effect.

    
      
         

      

      
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    “Borrowing Request”
shall mean each written request, substantially in the form attached hereto as
Exhibit II, by
the Borrower to the Agent for a borrowing or conversion pursuant to Section 2.1 or Section 2.12, each of
which shall:

     

    (a)           be
signed by a Responsible Officer of the Borrower;

     

    (b)           specify
the amount and type of the Loan requested or to be converted and the date of the
borrowing or conversion (which shall be a Business Day);

     

    (c)           when
requesting a Base Rate Loan, be delivered to the Agent no later than 11:00 a.m.,
Central Standard or Central Daylight Savings Time, as the case may be, on the
Business Day preceding the requested borrowing or conversion; and

     

    (d)           when
requesting a LIBO Rate Loan, be delivered to the Agent no later than 11:00 a.m.,
Central Standard or Central Daylight Savings Time, as the case may be, the third
Business Day preceding the requested borrowing or conversion and designate the
Interest Period requested with respect to such Loan.

     

    “Business Day” shall
mean a day other than a Saturday, Sunday, legal holiday for commercial banks
under the laws of the State of Texas, or any other day when banking is suspended
in the State of Texas and, with respect to all requests, notices, and
determinations in connection with, and payments of principal and interest on,
LIBO Rate Loans, which is also a day for trading by and between banks in Dollar
deposits in the London interbank market.

     

    “Business Entity”
shall mean a corporation, partnership, joint venture, limited liability company,
joint stock association, business trust, or other business entity.

     

    “Closing” shall mean
the establishment of the Facility.

     

    “Closing Date” shall
mean the date of this Agreement.

     

    “Collateral” shall
mean the Mortgaged Properties and any other Property now or at any time used or
intended as security for the payment or performance of all or any portion of the
Obligations, including any Property that was considered in determining or
redetermining the Borrowing Base and expressly including “as extracted
collateral” as defined in the UCC or the Uniform Commercial Code of any other
applicable state.

     

    “Collateral Agency
Agreement” shall mean the Collateral Agency and Intercreditor Agreement
dated February 16, 2009 initially by and among the Collateral Agent, the Agent,
the Wayzata Facility Agent, BP Corporation North America Inc., the Borrower and
the Initial Guarantors, but as of July 13, 2009 being by and among the
Collateral Agent, the Agent, BP Corporation North America Inc., the Borrower and
the Initial Guarantors.

     

    “Collateral Agent”
shall mean Amegy Bank National Association in its capacity as the Collateral
Agent under the Collateral Agency Agreement.

     

    “Commitment Amount”
shall mean, subject to the applicable provisions of this Agreement and the right
of the Borrower to reduce such amount on an irrevocable basis by written notice
to the Agent at any time (provided, however, the Borrower
shall not be entitled to any reduction to an amount less than the sum of the
then existing Loan Balance and L/C Exposure), the lesser of (a) the sum of the
Facility Amounts of the Lenders or (b) the Borrowing Base in effect at such
time.

     

    “Commitment Fees”
shall mean the fees payable to the Agent by the Borrower pursuant to the
provisions of Section
2.13.

    
      
         

      

      
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    “Commitment Letter”
shall mean that certain letter agreement dated September 11, 2009 between Amegy
and the Borrower.

     

    “Commitment Period”
shall mean the period from and including the Closing Date to, but not including,
the Commitment Termination Date.

     

    “Commitments” shall
mean the several obligations of the Lenders to make Loans to or for the benefit
of the Borrower and the obligation of the Agent to issue and the Lenders to
participate in Letters of Credit, all pursuant to Section
2.1.

     

    “Commitment Termination
Date” shall mean the earlier of (a) January 2, 2013 and (b) the date the
Commitments are terminated pursuant to the provisions of Section
7.2.

     

    “Commodity Hedge
Agreements” shall mean crude oil, natural gas or other hydrocarbon floor,
collar, cap, price protection or hedge agreements.

     

    “Commonly Controlled
Entity” shall mean any Person which is under common control with the
Borrower or any of the Guarantors within the meaning of Section 4001 of
ERISA.

     

    “Compliance
Certificate” shall mean each certificate, substantially in the form
attached hereto as Exhibit III, executed
by a Responsible Officer of the Parent and furnished to the Agent from time to
time in accordance with the provisions of Section 5.2 or Section 5.3, as the
case may be.

     

    “Contingent
Obligation” shall mean, as to any Person, any obligation of such Person
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends, or
other obligations of any other Person (for purposes of this definition, a “primary obligation”)
in any manner, whether directly or indirectly, including any obligation of such
Person, regardless of whether such obligation is contingent, (a) to purchase any
primary obligation or any Property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
primary obligation, or (ii) to maintain working or equity capital of any other
Person in respect of any primary obligation, or otherwise to maintain the net
worth or solvency of any other Person, (c) to purchase Property, securities or
services primarily for the purpose of assuring the owner of any primary
obligation of the ability of the Person primarily liable for such primary
obligation to make payment thereof, or (d) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect thereof, with
the amount of any Contingent Obligation being deemed to be equal to the stated
or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such Person
in good faith.

     

    “Contribution
Percentage” shall mean, for each party obligated to make a payment due
pursuant to the provisions of Section 9.20, the
percentage obtained by dividing such party’s Obtained Benefit by the aggregate
Obtained Benefits of all of the Guarantors.

     

    “Current Assets” shall
mean all assets which would, in accordance with GAAP, be included as current
assets on a consolidated balance sheet of the Parent and its consolidated
Subsidiaries as of the date of calculation, after deducting adequate reserves in
each case in which a reserve is proper in accordance with GAAP, plus the then
current Available Commitment, but excluding non-cash derivative current assets
arising from Commodity Hedge Agreements.

     

    “Current Liabilities”
shall mean all liabilities which would, in accordance with GAAP, be included as
current liabilities on a consolidated balance sheet of the Parent and its
consolidated Subsidiaries, but excluding current maturities in respect of the
Obligations, both principal and interest, and non-cash derivative current
liabilities arising from Commodity Hedge Agreements and current maturities of
the Indebtedness of the Parent listed on Schedule
6.1.

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    “Default” shall mean
any event or occurrence which with the lapse of time or the giving of notice or
both would become an Event of Default.

     

    “Default Rate” shall
mean a daily interest rate equal to the per annum interest rate equal to the
Adjusted Base Rate for each relevant day plus two percent (2%) converted to a
daily rate on the basis of a year of 365 or 366 days, as the case may be, and
the rate so determined for each relevant day being applied on the basis of
actual days elapsed (including the first day, but excluding the last day) during
the period for which interest is payable at the Default Rate, but in no event
shall the Default Rate exceed the Highest Lawful Rate.

     

    “Deficiency” shall
have the meaning assigned to such term in Section
2.11(a).

     

    “Dollars” and “$” shall mean dollars
in lawful currency of the United States of America.

     

    “Domestic Subsidiary”
shall mean any Subsidiary of the Parent that is organized under the laws of the
United States of America or any state thereof or the District of
Columbia.

     

    “EBITDA” shall mean,
for any period for which the amount thereof is to be determined and on a
consolidated basis for the Parent and its consolidated Subsidiaries, Net Income
for such period (but excluding (i) unrealized gains or losses or charges in
respect of Commodity Hedge Agreements (including those under GAAP arising from
the application of FAS 133), (ii) and extraordinary or non-recurring income
items and, to the extent reasonably acceptable to the Agent, expense items and
(iii) deferred financing costs written off, including equity discounts, and
premiums paid in connection with any early extinguishment of Indebtedness
permitted pursuant to this Agreement, including the retirement of the senior
secured Indebtedness of the Parent outstanding prior to the Closing Date), plus,
in each case to the extent deducted in the determination of Net Income for such
period and without duplication of any item in more than one category, each of
the following for such period:  (a) Interest Expense, (b) Taxes, (c)
depreciation and amortization expenses and (d) other non-cash expenses,
including write-downs of non-current assets and unrealized non-cash losses
resulting from foreign currency balance sheet adjustments required under GAAP,
and minus, to the extent credited in the determination of Net Income for such
period, non-cash credits for such period.

     

    “Environmental
Complaint” shall mean any written or oral complaint, order, directive,
claim, citation, notice of environmental report or investigation, or other
notice by any Governmental Authority or any other Person with respect to (a) air
emissions, (b) spills, releases, or discharges to soils, any improvements
located thereon, surface water, groundwater, or the sewer, septic, waste
treatment, storage, or disposal systems servicing any Property of the Borrower
or any of the Guarantors, (c) solid or liquid waste disposal, (d) the use,
generation, storage, transportation, or disposal of any Hazardous Substance, or
(e) other environmental, health or safety matters affecting any Property of the
Borrower or any of the Guarantors or the business conducted
thereon.

     

    “Environmental Laws”
shall mean (a) the following federal laws as they may be cited, referenced, and
amended from time to time:  the Clean Air Act, the Clean Water Act,
the Safe Drinking Water Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Endangered Species Act, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act, the
Occupational Safety and Health Act, the Oil Pollution Act, the Resource
Conservation and Recovery Act, the Superfund Amendments and Reauthorization Act,
and the Toxic Substances Control Act; (b) any and all equivalent environmental
statutes of any state in which Property of the Borrower or any of the Guarantors
is situated, as they may be cited, referenced and amended from time to time; (c)
any rules or regulations promulgated under or adopted pursuant to the above
federal and state laws; and (d) any other equivalent federal, state, or local
statute or any requirement, rule, regulation, code, ordinance, or order adopted
pursuant thereto, including those relating to the generation, transportation,
treatment, storage, recycling, disposal, handling, or release of Hazardous
Substances.

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    “ERISA” shall mean the
Employee Retirement Income Security Act of 1974, and the regulations thereunder
and interpretations thereof.

     

    “Event of Default”
shall mean any of the events specified in Section
7.1.

     

    “Excess Payments”
shall have the meaning assigned to such term in Section
9.20.

     

    “Excluded Taxes” shall
mean, with respect to any and all payments to the Agent, any Lender or any other
recipient of any payment to be made by or on account of any Obligation, net
income taxes, branch profits taxes, franchise and excise taxes (to the extent
imposed in lieu of net income taxes), and all interest, penalties and
liabilities with respect thereto, imposed on the Agent or any
Lender.

     

    “Executive Order No.
13224” shall mean Executive Order No. 13224 on Terrorist Financing,
effective September 24, 2001, as the same has been, or shall hereafter be,
renewed, extended, amended or replaced.

     

    “Facility” shall mean
the credit facility extended to the Borrower pursuant to this
Agreement.

     

    “Facility Amount”
shall mean, for each Lender and at any point in time, the amount set forth
opposite the name of such Lender on Exhibit IV under the
caption “Facility Amounts,” as modified from time to time to reflect assignments
permitted by Section
9.1 or otherwise pursuant to the terms hereof.

     

    “Federal Funds Rate”
shall mean, for any day, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers on such day, as published by the Federal Reserve Bank
of Dallas, Texas, on the Business Day next succeeding such day, provided that
(a) if the day for which such rate is to be determined is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if such rate is not so published for any day, the Federal Funds
Rate for such day shall be the average rate charged to Amegy on such day on such
transactions as determined by the Agent.

     

    “Fee Letter” shall
mean that certain letter agreement dated the Closing Date between Amegy and the
Borrower relating to certain fees to be paid by the Borrower to Amegy in
connection with the Facility.

     

    “Financial Statements”
shall mean consolidated financial statements of the Parent and its consolidated
Subsidiaries as at the point in time and for the period indicated, including all
notes thereto, and consisting of at least a balance sheet and related statements
of operations, shareholders’ equity, and cash flows and, when required by
applicable provisions of this Agreement to be audited, accompanied by the
unqualified certification of BDO Seidman LLC or another nationally-recognized or
regionally-recognized firm of independent certified public accountants or other
independent certified public accountants acceptable to the Agent and footnotes
to any of the foregoing, all of which, unless otherwise indicated, shall be
prepared in accordance with GAAP consistently applied and in comparative form
with respect to the corresponding period of the preceding fiscal
year.

     

    “Foreign Lender” shall
have the meaning assigned to such term in Section
2.8.

     

    “GAAP” shall mean
generally accepted accounting principles established by the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants and in
effect in the United States from time to time.

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    “Governmental
Authority” shall mean any nation, country, commonwealth, territory,
government, state, county, parish, municipality, or other political subdivision
and any entity exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.

     

    “Guaranties” shall
mean, collectively, the Guaranty dated November 29, 2007 by the Initial
Guarantors in favor of the Agent, and those certain agreements, each styled
“Guaranty”, entered into after the Closing Date by newly formed Domestic
Subsidiaries of the Parent or any of its Subsidiaries in favor of the Agent for
the benefit of the Lenders in substantially the form of the Guaranty executed by
the Initial Guarantors or in such other form as shall be reasonably satisfactory
to the Agent.

     

    “Guarantors” shall
mean the Initial Guarantors and any and all current or future Domestic
Subsidiaries of the Parent or any of its Subsidiaries.

     

    “Hazardous Substances”
shall mean flammables, explosives, radioactive materials, hazardous wastes,
asbestos, or any material containing asbestos, polychlorinated biphenyls (PCBs),
toxic substances or related materials, petroleum, petroleum products, associated
oil or natural gas exploration, production, and development wastes, or any
substances defined as “hazardous substances,” “hazardous materials,” “hazardous
wastes,” or “toxic substances” under the Comprehensive Environmental Response,
Compensation and Liability Act, the Superfund Amendments and Reauthorization
Act, the Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Toxic Substances Control Act, or any other Requirement of
Law.

     

    “Highest Lawful Rate”
shall mean, as to any Lender, the maximum non-usurious interest rate, if any
(or, if the context so requires, an amount calculated at such rate), that at any
time or from time to time may be contracted for, taken, reserved, charged, or
received under laws applicable to such Lender, as such laws are presently in
effect or, to the extent allowed by applicable law, as such laws may hereafter
be in effect and which allow a higher maximum non-usurious interest rate than
such laws now allow.

     

    “Indebtedness” shall
mean, as to any Person, without duplication, (a) all liabilities (excluding
capital, surplus, reserves for deferred income taxes, deferred compensation
liabilities, other deferred liabilities and credits and asset retirement
obligations) which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet, (b) all
obligations of such Person evidenced by bonds, debentures, promissory notes, or
similar evidences of indebtedness, (c) all other indebtedness of such Person for
borrowed money, and (d) all obligations of others, to the extent any such
obligation is secured by a Lien on the assets of such Person (whether or not
such Person has assumed or become liable for the obligation secured by such
Lien), (e) all direct or contingent obligations of such Person under letters of
credit, banker’s acceptances and similar instruments and (f) net obligations of
such Person under any Commodity Hedge Agreements or Interest Rate Hedge
Agreements.

     

    “Indemnified Taxes”
shall mean Taxes other than Excluded Taxes.

     

    “Indemnitee” shall
have the meaning assigned to such term in Section
5.21.

     

    “Insolvency
Proceeding” shall mean application (whether voluntary or instituted by
another Person) for or the consent to the appointment of a receiver, trustee,
conservator, custodian, or liquidator of any Person or of all or a substantial
part of the Property of such Person, or the filing of a petition (whether
voluntary or instituted by another Person) commencing a case under Title 11 of
the United States Code, seeking liquidation, reorganization, or rearrangement or
taking advantage of any bankruptcy, insolvency, debtor’s relief, or other
similar law of the United States, the State of Texas, or any other
jurisdiction.

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    “Intellectual
Property” shall mean patents, patent applications, trademarks,
tradenames, copyrights, technology, know-how, and processes.

     

    “Interest Expense”
shall mean, for any period for which the amount thereof is to be determined, any
and all expenses relating to the accrual of interest on Indebtedness of the
Parent on a consolidated basis with its consolidated Subsidiaries and including
interest expense attributable to capitalized leases.

     

    “Interest Period”
shall mean, subject to the limitations set forth in Section 2.2, with
respect to any LIBO Rate Loan, a period commencing on the date such Loan is made
or converted from a Loan of another type pursuant to this Agreement or the last
day of the next preceding Interest Period with respect to such Loan and ending
on the numerically corresponding day in the calendar month that is one, two,
three or six months thereafter, as the Borrower may request in the Borrowing
Request for such Loan.

     

    “Interest Rate Hedge
Agreements” shall mean interest rate floor, collar, cap, rate protection
or hedge agreements.

     

    “Investment” in any
Person shall mean any stock, bond, note, or other evidence of Indebtedness, or
any other security (other than current trade and customer accounts) of,
investment or partnership interest in or loan to, such Person.

     

    “Joinder Agreement”
shall mean each agreement, in form and substance reasonably acceptable to the
Agent, pursuant to which a Domestic Subsidiary of the Parent makes certain
representations and warranties to the Agent and the Lenders and agrees to be
bound by the covenants in Article V and Article VI as if such
were stated to be applicable to it and which agreement shall constitute a Loan
Document.

     

    “L/C Exposure” shall
mean, at any time, the then aggregate maximum amount available to be drawn under
outstanding Letters of Credit plus, prior to the making of any related Letter of
Credit Payments in respect of Letters of Credit, the aggregate of all unpaid
reimbursement obligations in respect of Letters of Credit.

     

    “L/C Sublimit” shall
mean $15,000,000.

     

    “Letter of Credit”
shall mean any standby letter of credit issued for the account of the Borrower
pursuant to Section
2.1(e).

     

    “Letter of Credit
Application” shall mean the standard letter of credit application
employed by Amegy, as the issuer of the Letters of Credit, from time to time in
connection with its issuance of letters of credit.

     

    “Letter of Credit
Payment” shall mean any payment made by the Agent on behalf of the
Lenders under a Letter of Credit, to the extent that such payment has not been
repaid by the Borrower.

     

    “LIBO Rate” shall
mean, with respect to any Interest Period for any LIBO Rate Loan, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) that appears
on Reuters Reference LIBOR01 (or any successor thereto) for Interest Periods of
one month, two months, three months or six months, respectively (or if such
shall not be available, any successor or similar service selected by the Agent
and the Borrower) as of approximately 11:00 a.m., Central Standard or Central
Daylight Savings Time, as the case may be, on the day two Business Days prior to
the first day of such Interest Period for Dollar deposits in an amount
comparable to the principal amount of such LIBO Rate Loan and having a term
comparable to the Interest Period for such LIBO Rate Loan.  If neither
Reuters nor any successor or similar service is available, the term “LIBO Rate”
shall mean, with respect to any Interest Period for any LIBO Rate Loan, the rate
per annum (rounded upwards if necessary, to the nearest 1/16 of 1%) quoted by
the Agent at approximately 11:00 a.m., London time (or as soon thereafter as
practicable) two Business Days prior to the first day of the Interest Period for
such LIBO Rate Loan for the offering to Amegy by leading banks in the London
interbank market of Dollar deposits in an amount comparable to the principal
amount of such LIBO Rate Loan and having a term comparable to the Interest
Period for such LIBO Rate Loan.

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    “LIBO Rate Loan” shall
mean any Loan and any portion of the Loan Balance which the Borrower has
requested, in the initial Borrowing Request for such Loan or a subsequent
Borrowing Request for such portion of the Loan Balance, bear interest on the
basis of the Adjusted LIBO Rate and which are permitted by the terms hereof to
bear interest on the basis of the Adjusted LIBO Rate.

     

    “Lien” shall mean any
interest in Property securing an obligation owed to, or a claim by, a Person
other than the owner of such Property, whether such interest is based on common
law, statute, or contract, and including, but not limited to, the lien or
security interest arising from a mortgage, ship mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt, or a lease, consignment,
or bailment for security purposes (other than true leases or true consignments),
liens of mechanics, materialmen, and artisans, maritime liens and reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting
Property which secure an obligation owed to, or a claim by, a Person other than
the owner of such Property (for the purpose of this Agreement, the Borrower and
each of the Guarantors shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement, financing lease,
or other arrangement pursuant to which title to the Property has been retained
by or vested in some other Person for security purposes).

     

    “Limitation Period”
shall mean, with respect to any Lender, any period while any amount remains
owing on the Note payable to such Lender and interest on such amount, calculated
at the applicable interest rate, plus any fees or other sums payable to such
Lender under any Loan Document and deemed to be interest under applicable law,
would exceed the amount of interest which would accrue at the Highest Lawful
Rate.

     

    “Loan” shall mean any
loan made by any Lender to or for the benefit of the Borrower pursuant to this
Agreement and any payment made by the Agent, on behalf of any Lender, under a
Letter of Credit.

     

    “Loan Balance” shall
mean, at any point in time, the aggregate outstanding principal balance of the
Notes at such time.

     

    “Loan Documents” shall
mean this Agreement, the Notes, the Letter of Credit Applications, the Letters
of Credit, the Security Documents, any Joinder Agreements, the Guaranties, the
Commitment Letter (other than the Summary of Terms and Conditions attached
thereto, which is superseded by the provisions of this Agreement), the Fee
Letter and all other documents and instruments now or hereafter delivered
pursuant to the terms of or in connection with this Agreement, the Notes, the
Letter of Credit Applications, the Letters of Credit or the Security Documents,
and all renewals and extensions of, amendments and supplements to, and
restatements of, any or all of the foregoing from time to time in
effect.

     

    “Material Adverse
Effect” shall mean (a) any adverse effect on the business, operations,
assets, properties, liabilities (actual or contingent) or financial condition of
the Parent on a consolidated basis with its consolidated Subsidiaries which
increases, in any material respect, the risk that any of the Obligations will
not be repaid as and when due, (b) any material and adverse effect upon the
Collateral, (c) any material adverse effect on the validity or enforceability of
any Loan Document or (d) any material adverse effect on the rights or remedies
of the Agent, the Lenders or any other Approved Hedge Counterparty under any
Loan Document.

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    “Monthly Reduction
Amount” shall mean, at any time, the amount determined as such by the
Agent (with the approval of the Lenders or any Approved Hedge Counterparty as
required by the provisions of Section 9.9) and then
in effect in accordance with the provisions of Section
2.10.

     

    “Mortgaged Properties”
shall mean all Oil and Gas Properties of the Borrower and other Domestic
Subsidiaries of the Parent subject to a perfected first priority Lien (subject
only to Permitted Liens) in favor of the Agent, as security for the
Obligations.

     

    “Net Income” shall
mean, for any relevant period, the net income of the Parent, on a consolidated
basis with its consolidated Subsidiaries, during such period, determined in
accordance with GAAP.

     

    “Notes” shall mean,
collectively, the promissory notes of the Borrower each payable to a Lender in
the face amount of up to the Facility Amount of the relevant Lender and in the
form attached hereto as Exhibit I with all blanks completed appropriately,
together with all renewals, extensions for any period, increases, and
rearrangements thereof.

     

    “Notice of
Termination” shall have the meaning assigned to such term in Section
2.20.

     

    “Obligations” shall
mean, without duplication of the same amount in more than one category, (a) all
Indebtedness of the Borrower evidenced by the Notes, (b) the obligation of the
Borrower to provide to or reimburse the Agent, as the issuer of the Letters of
Credit, as the case may be, for amounts payable, paid or incurred with respect
to Letters of Credit, (c) the undrawn, unexpired amount of all outstanding
Letters of Credit, (d) Indebtedness of the Borrower in respect of Commodity
Hedge Agreements or Interest Rate Hedge Agreements with Approved Hedge
Counterparties, so long as in compliance with the provisions of Section 6.1 (which it
is agreed shall rank pari passu with all other items listed in this definition),
(e) the obligation of the Borrower for the payment of Commitment Fees and other
fees pursuant to the provisions of this Agreement or the Fee Letter, (f) all
other obligations and liabilities of the Borrower to the Agent or the Lenders,
now existing or hereafter incurred, under, arising out of or in connection with
any Loan Document or any Commodity Hedge Agreement or Interest Rate Hedge
Agreement with an Approved Hedge Counterparty and in compliance with the
provisions of Section
6.1 and (g) all obligations and liabilities owing by the Borrower or any
Guarantor to any Lender under all treasury management arrangements between any
of the Borrower and the Guarantors and any Lender (which it is agreed shall rank
pari passu with all other items listed in this definition), and to the extent
that any of the foregoing includes or refers to the payment of amounts deemed or
constituting interest, only so much thereof as shall have accrued, been earned
and which remains unpaid at each relevant time of determination.

     

    “Obtained Benefit”
shall mean the aggregate amount of benefits, both direct and indirect, obtained
by any of the Borrower, and the Guarantors from the extension of credit to the
Borrower under this Agreement and not repaid by the Borrower or one of the
Guarantors.

     

    “OFAC” shall mean the
Office of Foreign Assets Control of the United States Department of the Treasury
or any successor Governmental Authority.

     

    “Oil and Gas
Properties” shall mean fee, leasehold, or other interests in or under
mineral estates or oil, gas, and other liquid or gaseous hydrocarbon leases,
including undivided interests in any such property rights owned jointly with
others, with respect to Properties situated in the United States or offshore
from any State of the United States, including overriding royalty and royalty
interests, leasehold estate interests, net profits interests, production payment
interests, and mineral fee interests, together with contracts executed in
connection therewith and all tenements, hereditaments, appurtenances, and
Properties appertaining, belonging, affixed, or incidental
thereto.

    
      
         

      

      
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    “Other Taxes” shall
mean any and all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies arising from any payment
made under any Loan Document or from the execution, delivery or enforcement of,
or otherwise with respect to, any Loan Document.

     

    “Percentage Share”
shall mean, as to each Lender, the percentage which such Lender’s Facility
Amount constitutes of the sum of the Facility Amounts of all
Lenders.

     

    “Permitted Liens”
shall mean (a) Liens for taxes, assessments, or other governmental charges or
levies not yet due or which (if foreclosure, distraint, sale, or other similar
proceedings shall not have been initiated) are being contested in good faith by
appropriate proceedings, and such reserve as may be required by GAAP shall have
been made therefor, (b) Liens in connection with workers’ compensation,
unemployment insurance or other social security (other than Liens created by
Section 4068 of ERISA), old age pension, employee benefits, or public liability
obligations which are not yet due or which are being contested in good faith by
appropriate proceedings, if such reserve as may be required by GAAP shall have
been made therefor, (c) Liens in favor of vendors, carriers, warehousemen,
repairmen, mechanics, workmen, materialmen, constructors, laborers, landlords or
similar Liens arising by operation of law in the ordinary course of business in
respect of obligations that are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by GAAP
shall have been made therefor, (d) Liens in favor of operators and non-operators
under joint operating agreements or similar contractual arrangements arising in
the ordinary course of the business of the Borrower to secure amounts owing,
which amounts are not yet due or are being contested in good faith by
appropriate proceedings, if such reserve as may be required by GAAP shall have
been made therefor, (e) Liens under production sales agreements, division
orders, operating agreements, and other agreements customary in the oil and gas
business for processing, producing, and selling hydrocarbons securing
obligations not constituting Indebtedness and provided that such Liens do not
secure obligations to deliver hydrocarbons at some future date without receiving
full payment therefor within 90 days of delivery, (f) covenants, liens, rights,
easements, rights of way, restrictions, and other similar encumbrances, and
minor defects in the chain of title which are customarily accepted in the oil
and gas financing industry, none of which interfere with the ordinary conduct of
the business of the Borrower or materially detract from the value or use of the
Property to which they apply, (g) Liens securing the purchase price of Property,
including vehicles and equipment, acquired by the Borrower in the ordinary
course of business (including Liens existing under conditional sale or title
retention contracts), provided that such
Liens cover only the acquired Property and the aggregate unpaid purchase price
secured by such Liens does not exceed $500,000, (h) Liens securing leases of
equipment, provided that, as to any particular lease, the Lien covers only the
relevant leased equipment and secures only amounts which are not yet due and
payable under the relevant lease or are being contested in good faith by
appropriate proceedings and such reserve as required by GAAP shall have been
made therefor, (i) Liens in favor or for the benefit of providers of such
Commodity Hedge Agreements and Interest Rate Hedge Agreements approved by the
Agent securing Indebtedness of the Borrower in respect of Commodity Hedge
Agreements and Interest Rate Hedge Agreements (other than such as constitute a
portion of the Obligations) permitted pursuant to the provisions of Section 6.1, and (j)
Liens in favor of the Agent and other Liens expressly permitted hereunder or in
the Security Documents.

     

    “Person” shall mean an
individual, corporation, partnership, limited liability company, trust,
unincorporated organization, government, any agency or political subdivision of
any government, or any other form of entity.

     

    “Plan” shall mean, at
any time, any employee benefit plan which is covered by Title IV of ERISA and in
respect of which the Borrower, any of the Guarantors or any Commonly Controlled
Entity of any is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5)
of ERISA.

    
      
         

      

      
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    “Principal Office”
shall mean the office of the Agent in Houston, Texas located at 4400 Post Oak
Parkway, 4th Floor, Houston, Texas 77027 or such other office as the Agent may
designate in writing to the Borrower and/or the Lenders from time to time, the
wiring instructions to such currently designated office being as
follows:

     

    Amegy
Bank National Association

    ABA No.
113011258

    Account
No. 696600-5771

    Reference:  Gastar
Exploration USA, Inc.

     

    “Projected Production”
shall mean, at any time, the volumes of proved developed producing and proved
developed non-producing reserves converted to proved developed producing
reserves since the effective date of such Reserve Report of each commodity
category reasonably projected by the Borrower, in the most recent Reserve Report
provided pursuant to the provisions of Section 5.4, but
adjusted as to such production for the current and subsequent calendar years
only, with the approval of the Agent based on information provided by the
Borrower in satisfaction of the requirements of Section 5.8, to
account for any increase (other than with respect to reserves reflected in such
Reserve Report as proved undeveloped and converted to proved developed producing
reserves since the effective date of such Reserve Report) or decrease in such
projection anticipated because of information obtained by the Borrower
subsequent to the publication of such Reserve Report (including the Borrower’s
internal forecasts of production decline rates for existing wells and additions
to or deletions from anticipated future production from wells and acquisitions
coming on stream or failing to come on stream), to be produced from the Oil and
Gas Properties of the Borrower and the Guarantors during the terms of then
existing Commodity Hedge Agreements to which the Borrower or any of the
Guarantors is a party.

     

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

     

    “Regulation D” shall
mean Regulation D of the Board of Governors of the Federal Reserve System (or
any successor).

     

    “Regulatory Change”
shall mean, with respect to any Lender, the passage, adoption, institution, or
amendment of any federal, state, local, or foreign Requirement of Law (including
Regulation D), or any interpretation, directive, or request (whether or not
having the force of law) of any Governmental Authority or monetary authority
charged with the enforcement, interpretation, or administration thereof,
occurring after the Closing Date and applying to a class of lenders including
such Lender or its Applicable Lending Office.

     

    “Release of Hazardous
Substances” shall mean any emission, spill, release, disposal, or
discharge, except in accordance with a valid permit, license, certificate, or
approval of the relevant Governmental Authority, of any Hazardous Substance into
or upon (a) the air, (b) soils or any improvements located thereon, (c) surface
water or groundwater, or (d) the sewer or septic system, or the waste treatment,
storage, or disposal system servicing any Property of the Borrower or any of the
Guarantors.

     

    “Replacement Lenders”
shall have the meaning assigned to such term in Section
2.20.

     

    “Required Lenders”
shall mean, at any time when no Loans or Letters of Credit are outstanding, two
or more Lenders holding in the aggregate Percentage Shares greater than fifty
percent (50%) of the Commitment Amount, and at any time when any Loans or
Letters of Credit are outstanding, two or more Lenders which in the aggregate
hold more than fifty percent (50%) of the sum of the Loan Balance (without
regard to any sale of a participation in any Loan) and the L/C
Exposure.

    
      
         

      

      
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     “Required Payment”
shall have the meaning assigned to such term in Section
2.7.

     

    “Requirement of Law”
shall mean, as to any Person, the certificate or articles of incorporation and
by-laws, the certificate or articles of organization and regulations, operating
agreement or limited liability company agreement, the agreement of limited
partnership or other organizational or governing documents of such Person, and
any applicable law, treaty, ordinance, order, judgment, rule, decree,
regulation, or determination of an arbitrator, court, or other Governmental
Authority, including rules, regulations, orders, and requirements for permits,
licenses, registrations, approvals, or authorizations, in each case as such now
exist or may be hereafter amended and are applicable to or binding upon such
Person or any of its Property or to which such Person or any of its Property is
subject.

     

    “Reserve Report” shall
mean each report delivered to the Agent pursuant to the provisions of Section
5.4.

     

    “Reserve Requirement”
shall mean, for any Interest Period for any LIBO Rate Loan, the average maximum
rate at which reserves (including any marginal, supplemental, or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D by member banks of the Federal Reserve System in Dallas, Texas,
with deposits exceeding one billion Dollars against “Eurocurrency liabilities”
(as such term is used in Regulation D) and any other reserves required by reason
of any Regulatory Change to be maintained by such member banks against (a) any
category of liabilities which includes deposits by reference to which the LIBO
Rate is to be determined as provided herein in the definition of the term “LIBO
Rate” or (b) any category of extensions of credit or other assets which include
a LIBO Rate Loan.

     

    “Responsible Officer”
shall mean, as to any Business Entity, its President, any Vice President or any
other Person duly authorized in accordance with the applicable organizational
documents, bylaws, regulations or resolutions to act on behalf of such Business
Entity.

     

    “Secured Creditors”
shall mean the Lenders, any other Approved Hedge Counterparties and any Secured
Third Party Hedge Counterparties.

     

    “Secured Third Party Hedge
Counterparty” shall mean any counterparty of the Parent, the Borrower or
any Domestic Subsidiary of the Parent to a Commodity Hedge Agreement or Interest
Rate Hedge Agreement that is party to an intercreditor agreement with the Agent,
in form and substance reasonably satisfactory to the Agent and such
counterparty.

     

    “Security Documents”
shall mean, collectively, the security documents in effect under the Existing
Credit Agreement, the security documents executed and delivered in satisfaction
of the condition set forth in Section 3.1(f), any
existing security document assigned or amended by any of such documents set
forth in Section
3.1(f), and all other documents and instruments at any time executed as
security for all or any portion of the Obligations, as such instruments may be
amended, supplemented, restated, or otherwise modified from time to
time.

     

    “Subsidiary” shall
mean, as to any Person, any Business Entity of which shares of stock or other
equity interests having ordinary voting power (other than stock or other equity
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other governing body or other
managers of such Business Entity are at the time owned, or the management of
which is otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.

    
      
         

      

      
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    “Subsidiary
Guarantors” shall mean Domestic Subsidiaries of the Parent which are
Guarantors.

     

    “Superfund Site” shall
mean those sites listed on the Environmental Protection Agency National Priority
List and eligible for remedial action or any comparable state registries or list
in any state of the United States.

     

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

     

    “Terminated Lender”
shall have the meaning assigned to such term in Section
2.20.

     

    “Termination Date”
shall have the meaning assigned to such term in Section
2.20.

     

    “Transferee” shall
mean any Person to which any Lender has sold, assigned, transferred, or granted
a participation in any of the Obligations, as authorized pursuant to the
provisions of Section
9.1, and any Person acquiring, by purchase, assignment, transfer, or
participation, from any such purchaser, assignee, transferee, or participant,
any part of such Obligations.

     

    “UCC” shall mean the
Uniform Commercial Code as from time to time in effect in the State of
Texas.

     

    “USA Patriot Act”
shall mean the Uniting and Strengthening America by Providing Appropriate Tools
required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107 56,
115 Stat. 272 (2001), as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.

     

    “Wayzata Facility
Agent” shall mean Wayzata Investment Partners LLC, in its capacity as
Administrative Agent for the lenders under the Credit Agreement dated as of
February 16, 2009 entered into by and among the Borrower, the Parent, the
lenders party thereto and Wayzata Investment Partners LLC, as Administrative
Agent.

     

    1.3           Undefined Financial
Accounting Terms.  Financial accounting terms used in this
Agreement without definition are used herein with the respective meanings
assigned thereto in accordance with GAAP at the time in effect.

     

    1.4           References.  References
in this Agreement to Schedules, Exhibits, Articles or Section numbers shall be
to Schedules, Exhibits, Articles or Sections of this Agreement, unless expressly
stated to the contrary.  References in this Agreement to “hereby,”
“herein,” “hereinafter,” “hereinabove,” “hereinbelow,” “hereof,” “hereunder” and
words of similar import shall be to this Agreement in its entirety and not only
to the particular Schedule, Exhibit, Article, or Section in which such reference
appears.  Specific enumeration herein shall not exclude the general
and, in such regard, the terms “includes” and “including” used herein shall mean
“includes, without limitation,” or “including, without limitation,” as the case
may be, where appropriate.  Except as otherwise indicated, references
in this Agreement to statutes, sections, or regulations are to be construed as
including all statutory or regulatory provisions consolidating, amending,
replacing, succeeding, or supplementing the statute, section, or regulation
referred to.  References in this Agreement to “writing” include
printing, typing, lithography, facsimile reproduction, and other means of
reproducing words in a tangible visible form.  References in this
Agreement to agreements and other contractual instruments shall be deemed to
include all exhibits and appendices attached thereto and all subsequent
amendments and other modifications to such instruments, but only to the extent
such amendments and other modifications are not prohibited by the terms of this
Agreement.  References in this Agreement to Persons include their
respective successors and permitted assigns.

     

    1.5           Articles and
Sections.  This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.

    
      
         

      

      
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    1.6           Number and
Gender.  Whenever the context requires, reference herein made
to the single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular.  Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise
indicated.  Words denoting sex shall be construed to include the
masculine, feminine and neuter, when such construction is appropriate; and
specific enumeration shall not exclude the general but shall be construed as
cumulative.

     

    1.7           Incorporation of Schedules
and Exhibits.  The Schedules and Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.

     

    1.8           Negotiated
Transaction.  Each party to this Agreement affirms to the
others that it has had the opportunity to consult, and discuss the provisions of
this Agreement with, independent counsel and fully understands the legal effect
of each provision.

     

    ARTICLE
II

     

    TERMS OF
FACILITY

     

    2.1           Revolving Line of Credit and
Letter of Credit Facility.  (a) Upon the terms and conditions
(including the right of the Lenders to decline to make any Loan, other than a
Letter of Credit Payment, so long as any condition to the making of such Loan
set forth in Section
3.2 has not been satisfied) and relying on the representations and
warranties contained in this Agreement, each Lender severally agrees to make
Loans during the Commitment Period to or for the benefit of the Borrower in an
aggregate outstanding principal amount not to exceed at any time the Percentage
Share of such Lender of the Commitment Amount then in effect (but such product
not to exceed, at any time, the Facility Amount of the relevant Lender then in
effect), minus the Percentage Share of such Lender of the then existing L/C
Exposure.  Loans shall be made from time to time on any Business Day
designated in a Borrowing Request.

     

    (b)           Subject
to the provisions of this Agreement, during the Commitment Period, the Borrower
may borrow, repay, and reborrow and convert Loans of one type or with one
Interest Period into Loans of another type or with a different Interest
Period.  Each borrowing or conversion of principal of (i) Base Rate
Loans shall be in an amount at least equal to $100,000 and a whole multiple of
$100,000 and (ii) LIBO Rate Loans shall be in an amount at least equal to
$100,000 and a whole multiple of $100,000 and, if any LIBO Rate Loan would
otherwise be in a lesser principal amount for any period, such Loan shall be a
Base Rate Loan during such period.  Except for prepayments made
pursuant to the provisions of Section 2.11, each
prepayment of principal shall be in an amount at least equal to $10,000 and a
whole multiple of $10,000.  Each borrowing, prepayment, or conversion
of or into a Loan of a different type or, in the case of a LIBO Rate Loan,
having a different Interest Period, shall be deemed a separate borrowing,
conversion, and prepayment for purposes of the foregoing, one for each type of
Loan or Interest Period.

     

    (c)           The
Agent shall notify each Lender of its receipt of a Borrowing Request as soon as
practicable following its receipt thereof, including in such notice the amount
of the requested Loan and the requested date for the making of the requested
Loan.  Not later than 11:00 a.m., Central Standard or Central Daylight
Savings Time, as the case may be, on the date specified for each borrowing, each
Lender shall make available to the Agent, at an account designated by the Agent,
an amount equal to the Percentage Share of such Lender of the borrowing to be
made on such date.  The amount so received by the Agent shall, subject
to the terms and conditions hereof, be made available to the Borrower in
immediately available funds at the Principal Office.  All Loans by
each Lender shall be maintained at the Applicable Lending Office of such Lender
and shall be evidenced by the Note of such Lender.

     

    (d)           The
failure of any Lender to make any Loan required to be made by it hereunder shall
not relieve any other Lender of its obligation to make any Loan required to be
made by it, and no Lender shall be responsible for the failure of any other
Lender to make any Loan.

    
      
         

      

      
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    (e)           Upon
the terms and conditions (including the right of the Agent to decline to issue
renew or extend any Letter of Credit so long as any condition to the issuance,
renewal or extension of such Letter of Credit set forth in Section 3.3 has not
been satisfied) and relying on the representations and warranties contained in
this Agreement, the Agent, as issuing bank for the Lenders, agrees, from the
date of this Agreement until the date which is 30 days prior to the Commitment
Termination Date, to issue, on behalf of the Lenders in their respective
Percentage Shares, Letters of Credit for the account of the Borrower and to
renew and extend such Letters of Credit.  Letters of Credit shall be
issued, renewed, or extended from time to time on any Business Day designated by
the Borrower following the receipt in accordance with the terms hereof by the
Agent of the written (or oral, confirmed promptly in writing) request by a
Responsible Officer of the Borrower therefor and a Letter of Credit
Application.  Letters of Credit shall be issued in such amounts as the
Borrower may request; provided, however, that (i) no
Letter of Credit shall have an expiration date which is less than 30 days prior
to the Commitment Termination Date, (ii) the Loan Balance plus the L/C Exposure,
including that under any then requested Letter of Credit, shall not exceed at
any time the Commitment Amount, (iii) the L/C Exposure, including that under any
then requested Letter of Credit, shall not exceed at any time the L/C Sublimit
and (iv) no Letter of Credit shall be issued in an amount less than
$10,000.

     

    (f)           In
connection with the issuance, renewal or extension by the Agent of any Letter of
Credit pursuant to Section 2.1(e), the
Borrower shall pay to the Agent, for the account of the Lenders, a letter of
credit fee in an amount equal to the greater of (i) the face amount of such
Letter of Credit multiplied by a per annum rate equal to the Applicable Margin
for LIBO Rate Loans in effect at the date of issuance, renewal or extension of
the relevant Letter of Credit, calculated on the basis of a year of 360 days,
and actual days elapsed (including the first day but excluding the last day), or
(ii) $300.  Such fee with respect to each Letter of Credit (other than
the minimum fee of $300 as to any Letter of Credit, which shall be payable on
the date issuance, renewal or extension of the relevant Letter of Credit) shall
be payable quarterly in arrears on the last Business Day of each calendar
quarter and at the expiry date of the relevant Letter of
Credit.  Neither the Agent nor any Lender shall have any obligation to
refund any portion of any such fee upon early cancellation of the relevant
Letter of Credit.   The Borrower also agrees to pay on demand to
the Agent, solely for its account as issuer of the relevant Letter of Credit,
its customary letter of credit transaction fees and expenses, including
amendment fees, payable with respect to each Letter of Credit.

     

    (g)           The
Borrower agrees that neither the Agent nor any Lender shall be responsible for,
nor shall the Obligations be affected by, among other things, (i) the validity
or genuineness of documents or any endorsements thereon presented in connection
with any Letter of Credit, even if such documents shall in fact prove to be in
any and all respects invalid, fraudulent or forged, so long as the Agent, as the
issuer of such Letter of Credit, has no actual knowledge of any such invalidity,
lack of genuineness, fraud, or forgery prior to the presentment for payment of a
corresponding Letter of Credit or any draft thereunder or (ii) any dispute
between or among the Borrower and any beneficiary of any Letter of Credit or any
other Person to which any Letter of Credit may be transferred, or any claims
whatsoever of the Borrower against any beneficiary of any Letter of Credit or
any such transferee.  The Borrower further acknowledges and agrees
that the Agent, as the issuer of Letters of Credit, shall be liable to the
Borrower to the extent, but only to the extent, of any direct, as opposed to
consequential or punitive, damages suffered by the Borrower as a result of the
willful misconduct or gross negligence of the Agent as the issuer of Letters of
Credit in determining whether documents presented under a Letter of Credit
complied with the terms of such Letter of Credit that resulted in either a
wrongful payment under such Letter of Credit or a wrongful dishonor of a claim
or draft properly presented under such Letter of Credit.  In the
absence of gross negligence or willful misconduct by the Agent as the issuer of
Letters of Credit, the Agent shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of
Credit.  The Agent, the Lenders, and the Borrower agree that any
action taken or omitted by the Agent, as issuer of any Letter of Credit, under
or in connection with any Letter of Credit or the related drafts or documents,
if done in the absence of gross negligence or willful misconduct, shall be
binding as among the Agent, as issuer of such Letter of Credit or otherwise, the
Lenders, and the Borrower shall not put the Agent, as issuer of such Letter of
Credit or otherwise, or any Lender under any liability to the
Borrower.

    
      
         

      

      
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    (h)           Unless
the Borrower provides to the Agent funds sufficient to allow the Agent to pay
any drawing by a beneficiary under a Letter of Credit prior to the Agent being
obligated to pay the relevant drawing under a Letter of Credit, the Agent shall
make a Letter of Credit Payment in payment of such drawing.  Prior to
any Letter of Credit Payment in respect of any Letter of Credit, each Lender
shall be deemed to be a participant, through the Agent with respect to the
relevant Letter of Credit, in the obligation of the Agent, as the issuer of such
Letter of Credit, in an amount equal to the Percentage Share of such Lender of
the maximum amount which is or at any time may become available to be drawn
thereunder.  Upon delivery by such Lender of funds requested pursuant
to Section
2.1(i), such Lender shall be treated as having purchased a participating
interest in an amount equal to such funds delivered by such Lender to the Agent
in the obligation of the Borrower to reimburse the Agent, as the issuer of such
Letter of Credit, for any amounts payable, paid, or incurred by the Agent, as
the issuer of such Letter of Credit, with respect to such Letter of
Credit.

     

    (i)           Each
Lender shall be unconditionally and irrevocably liable, without regard to the
occurrence of any Default or Event of Default, to the extent of the Percentage
Share of such Lender at the time of issuance of each Letter of Credit, to
reimburse, on demand, the Agent, as the issuer of such Letter of Credit, for the
amount of each Letter of Credit Payment under such Letter of
Credit.  Each Letter of Credit Payment shall be deemed to be a Loan by
each Lender to the extent of funds delivered by such Lender to the Agent with
respect to such Letter of Credit Payment and shall to such extent be deemed a
Loan under and shall be evidenced by the Note of such Lender and shall be
payable by the Borrower upon demand by the Agent.

     

    (j)           Each Lender
agrees to indemnify the Agent, as the issuer of each Letter of Credit, and the
officers, directors, employees, agents, attorneys in fact and Affiliates of the
Agent (to the extent not reimbursed by the Borrower and without limiting the
Obligation of the Borrower to do so), ratably according to the Percentage Share
of such Lender at the time of issuance of such Letter of Credit, from and
against any and all liabilities, claims, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind whatsoever which may at any time (including any time following the payment
and performance of all Obligations and the termination of this Agreement) be
imposed on, incurred by or asserted against the Agent as the issuer of such
Letter of Credit or any of its officers, directors, employees, agents, attorneys
in fact or affiliates in any way relating to or arising out of this Agreement or
such Letter of Credit or any action taken or omitted by the Agent as the issuer
of such Letter of Credit or any of its officers, directors, employees, agents,
attorneys in fact or Affiliates under or in connection with any of the
foregoing, including any liabilities, claims, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements imposed,
incurred or asserted as a result of the negligence, whether sole or concurrent,
of the Agent as the issuer of such Letter of Credit or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates; provided that no
Lender (other than the Agent as the issuer of a Letter of Credit) shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the Agent as the
issuer of a Letter of Credit.  The agreements in this Section
2.1(j) shall
survive the payment and performance of all Obligations and the termination of
this Agreement.

     

    2.2           Limitations on Interest
Periods.  Each Interest Period selected by the
Borrower  (a) which commences on the last Business Day of a calendar
month (or any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month, (b) which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day (or,
if such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day), (c) which would otherwise end after
the Commitment Termination Date shall end on the Commitment Termination Date and
(d) shall have a duration of not less than one month and, if any Interest Period
would otherwise be a shorter period, the relevant Loan shall be a Base Rate Loan
during such period.

     

    2.3           Limitation on Types of
Loans.  Anything herein to the contrary notwithstanding, no
more than six separate LIBO Rate Loans shall be outstanding at any one time,
with, for purposes of this Section, all LIBO Rate Loans for the same Interest
Period constituting one LIBO Rate Loan.  Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any interest
rate for any LIBO Rate Loan for any Interest Period therefor:

    
      
         

      

      
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    (a)           the
Agent determines (which determination shall be conclusive, absent manifest
error) that quotations of interest rates for the deposits referred to in the
definition of “LIBO Rate” in Section 1.2 are not being provided in the relevant
amounts or for the relevant maturities for purposes of determining the rate of
interest for such Loan as provided in this Agreement; or

     

    (b)           the
Agent determines (which determination shall be conclusive, absent manifest
error) that the rates of interest referred to in the definition of “LIBO Rate”
in Section 1.2 upon the basis of which the rate of interest for such Loan for
such Interest Period is to be determined do not adequately cover the cost to the
Lenders of making or maintaining such Loan for such Interest Period, then the
Agent shall give the Borrower and the Lenders prompt notice thereof; and so long
as such condition remains in effect, the Lenders shall be under no obligation to
make LIBO Rate Loans or to convert Base Rate Loans into LIBO Rate Loans, and the
Borrower shall, on the last day of the then current Interest Period for each
outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert such
Loan into a LIBO Rate Loan with amounts and maturities for which quotations are
provided, or convert such Loan into a Base Rate Loan in accordance with the
provisions of Section
2.12.

     

    2.4           Use of Loan Proceeds and
Letters of Credit.  (a) Proceeds of all Loans shall be used
solely by the Borrower (i) to acquire and develop Oil and Gas Properties, (ii)
to advance funds to the Subsidiary Guarantors for working capital and general
business purposes and capital expenditures not prohibited under the provisions
of this Agreement or to acquire and develop Oil and Gas Properties, (iii) to
advance funds to the Parent needed by the Parent for payment of its cash
operating expenses, including general and administrative expenses, Taxes and scheduled debt
service on the Indebtedness of the Parent listed on Schedule 6.1
(provided that scheduled debt service shall not include payment at maturity when
such maturity arises by way of acceleration following a default), (iv) for the
Borrower’s working capital and general business purposes and capital
expenditures not otherwise prohibited under applicable provisions of this
Agreement and (v) to pay fees and expenses incurred in connection with this
Agreement and for other general business purposes of the Borrower.

     

    (b)           Letters
of Credit shall be issued solely for the account of the Borrower for general
business purposes of the Borrower and the Subsidiary Guarantors not otherwise
prohibited under applicable provisions of this Agreement.

     

    2.5           Interest.  Subject
to applicable provisions of this Agreement (including those of Section 2.17), (a)
interest on Base Rate Loans shall accrue and be payable at a daily interest rate
based on the per annum rate equal to the sum of the Adjusted Base Rate for each
relevant day plus the Applicable Margin for Base Rate Loans on such day,
converted to a daily rate on the basis of a year of 365 or 366 days, as the case
may be; provided, however, in no event
shall such applicable rate exceed the Highest Lawful Rate, with such rate being
applied on the basis of actual days elapsed (including the first day, but
excluding the last day) during the period for which interest is payable at the
relevant rate, and (b) interest on LIBO Rate Loans shall accrue during each
relevant Interest Period and be payable at a daily interest rate based on the
per annum rate equal to the Adjusted LIBO Rate on the first day of the relevant
Interest Period plus the relevant Applicable Margin for LIBO Rate Loans on such
day, converted to a daily rate on the basis of a year of 360 days; provided, however, in no event
shall such applicable rate exceed the Highest Lawful Rate, with such rate being
applied on the basis of actual days elapsed (including the first day, but
excluding the last day) during the period for which interest is payable at the
relevant rate.  Notwithstanding the foregoing, interest on past due
principal and, to the extent permitted by applicable law, past due interest and
fees, shall accrue at the Default Rate and shall be payable upon demand by the
Agent at any time as to all or any portion of such interest.  Interest
provided for herein shall be calculated on unpaid sums actually advanced and
outstanding pursuant to the terms of this Agreement and only for the period from
the date or dates of such advances to, but not including, the date or dates of
repayment.  In the event that the Borrower fails to select the
duration of any Interest Period for any LIBO Rate Loan within the time period
and otherwise as provided herein, such Loan (if outstanding as a LIBO Rate Loan)
shall be automatically converted into a Base Rate Loan on the last day of the
then current Interest Period for such Loan or (if outstanding as a Base Rate
Loan) shall remain as, or (if not then outstanding) shall be made as, a Base
Rate Loan.

    
      
         

      

      
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    2.6           Repayment of Loans and
Interest.  Accrued and unpaid interest on each outstanding Base
Rate Loan shall be due and payable quarterly commencing on the first day of
January, 2010 and continuing on the first day of each calendar quarter
thereafter while any Base Rate Loan remains outstanding, the payment in each
instance to be the amount of interest which has accrued and remains unpaid in
respect of the relevant Loan.  Accrued and unpaid interest on each
outstanding LIBO Rate Loan shall be due and payable on the earlier of (a) the
last day of the Interest Period for such LIBO Rate Loan, or (b) if any Interest
Period is of a duration longer than three months, on the day of the third month
of the relevant Interest Period corresponding to the day preceding the initial
day of such Interest Period and on the last day of the relevant Interest Period,
the payment in each instance to be the amount of interest which has accrued and
remains unpaid in respect of the relevant Loan.  The Loan Balance,
together with all accrued and unpaid interest thereon, shall be due and payable
on the Commitment Termination Date.  At the time of making each
payment hereunder or under the Notes, the Borrower shall specify to the Agent
the Loans or other amounts payable by the Borrower hereunder to which such
payment is to be applied.  In the event the Borrower fails to so
specify, or if an Event of Default has occurred and is continuing, the Agent may
apply such payment as it may elect in its discretion and in accordance with the
terms hereof.

     

    2.7           Outstanding
Amounts.  (a) The outstanding principal balance of the Note of
each Lender reflected by the notations of such Lender on its records shall be
deemed rebuttably presumptive evidence of the principal amount owing on such
Note.  The liability for payment of principal and interest evidenced
by each Note shall be limited to principal amounts actually advanced and
outstanding pursuant to this Agreement and interest on such amounts calculated
in accordance with this Agreement.

     

    (b)           Unless
the Agent shall have been notified by a Lender or the Borrower prior to the date
on which any of them is scheduled to make payment to the Agent of (in the case
of a Lender) the proceeds of a Loan to be made by such Lender hereunder or (in
the case of the Borrower) a payment to the Agent for the account of the Agent or
one or more of the Lenders hereunder (such payment being herein called the
“Required
Payment”), which notice shall be effective upon receipt, that it does not
intend to make the Required Payment to the Agent, the Agent may assume that the
Required Payment has been made and, in reliance upon such assumption, may (but
shall not be required to) make the amount thereof available to the intended
recipient on such date.  If such Lender or the Borrower, as the case
may be, has not in fact made the Required Payment to the Agent, the recipient of
such payment shall, on demand, repay to the Agent solely for its account the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to, in the case of a Lender as recipient, the Federal Funds Rate or, in
the case of the Borrower as recipient, the Adjusted Base Rate plus the relevant
Applicable Margin.

     

    2.8           Taxes and Time, Place, and
Method of Payments.  (a) All payments required pursuant to this
Agreement or the Notes shall be made without set-off or counterclaim in Dollars
and in immediately available funds free and clear of, and without deduction for,
any Indemnified Taxes or Other Taxes; provided, however that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased by the amount (the
“Additional
Amount”) necessary so that after making all required deductions
(including deductions applicable to additional sums described in this paragraph)
the Agent or any Lender, as the case may be, receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant Governmental Authority in accordance with applicable
law.  In addition, to the extent not paid in accordance with the
preceding sentence, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.

     

    (b)           Subject to
the provisions of Section
2.20, the
Borrower shall indemnify the Agent and each Lender for Indemnified Taxes and
Other Taxes paid by such Person, including any Indemnified Taxes or Other Taxes
arising from the negligence, whether sole or concurrent, of the Agent or any
Lender; provided,
however, that the
Borrower shall not be obligated to make payment to the Agent or any Lender in
respect of penalties, interest and other similar liabilities attributable to
such Indemnified Taxes or Other Taxes if such penalties, interest or other
similar liabilities are attributable to the gross negligence or willful
misconduct of the Person seeking indemnification.

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

    (c)           If
a Lender or the Agent shall become aware that it is entitled to claim a refund
from a Governmental Authority in respect of Indemnified Taxes or Other Taxes
paid by the Borrower pursuant to this Section 2.8,
including Indemnified Taxes or Other Taxes as to which it has been indemnified
by the Borrower, or with respect to which the Borrower has paid Additional
Amounts pursuant to the Loan Documents, it shall promptly notify the Borrower of
the availability of such refund claim and, if the Lender or the Agent, as the
case may be, determines in good faith that making a claim for refund will not
have an adverse effect to its taxes or business operations, shall, within 10
days after receipt of a request by the Borrower, make a claim to such
Governmental Authority for such refund at the expense of the
Borrower.  If a Lender or the Agent receives a refund in respect of
any Indemnified Taxes or Other Taxes paid by the Borrower pursuant to the Loan
Documents, it shall within 30 days from the date of such receipt pay over such
refund to the Borrower (but only to the extent of Indemnified Taxes or Other
Taxes paid pursuant to the Loan Documents, including indemnity payments made or
Additional Amounts paid, by the Borrower under this Section 2.8 with respect to
the Indemnified Taxes or Other Taxes giving rise to such refund), net of all
reasonable out of pocket expenses of such Lender or the Agent, as the case may
be, and without interest (other than interest paid by the relevant Governmental
Authority with respect to such refund).

     

    (d)           If
any Lender or the Agent is or becomes eligible under any applicable law,
regulation, treaty or other rule to a reduced rate of taxation, or a complete
exemption from withholding, with respect to Indemnified Taxes or Other Taxes on
payments made to it or for its benefit by the Borrower, such Lender or the
Agent, as the case may be, shall, upon the request, and at the cost and expense,
of the Borrower, complete and deliver from time to time any certificate, form or
other document requested by the Borrower, the completion and delivery of which
are a precondition to obtaining the benefit of such reduced rate or exemption,
provided that the taking of such action by such Lender or the Agent, as the case
may be, would not, in the reasonable judgment of such Lender or the Agent, as
the case may be, be disadvantageous or prejudicial to such Lender or the Agent,
as the case may be, or inconsistent with its internal policies or legal or
regulatory restrictions.  For any period with respect to which a
Lender or the Agent, as the case may be, has failed to provide any such
certificate, form or other document requested by the Borrower, such Lender or
the Agent, as the case may be, shall not be entitled to any payment under this
Section 2.8 in
respect of any Indemnified Taxes or Other Taxes that would not have been imposed
but for such failure.

     

    (e)           Each
Lender organized under the laws of the United States, any State thereof or the
District of Columbia (other than Lenders that are corporations or otherwise
exempt from United States backup withholding Tax) shall (i) deliver to the
Borrower and the Agent, when such Lender first becomes a Lender, upon the
written request of the Borrower or the Agent, two original copies of United
States Internal Revenue Form W-9 or any successor form, properly completed and
duly executed by such Lender, certifying that such Lender is exempt from United
States backup withholding Tax on payments of interest made under the Loan
Documents and (ii) thereafter at each time it is so reasonably requested in
writing by the Borrower or the Agent, deliver within a reasonable time two
original copies of an updated United States Internal Revenue Service Form W-9 or
any successor form thereto.

     

    (f)           Each
Lender that is organized under the laws of a jurisdiction other than the United
States, any State thereof or the District of Columbia (each such Lender, a
“Foreign
Lender”) that is entitled to an exemption from or reduction of
withholding Tax under the laws of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under the Loan Documents shall deliver to the Borrower and the Agent,
but only at the written request of the Borrower or the Agent, such properly
completed and duly executed documentation prescribed by applicable law or
reasonably requested by the Borrower or the Agent as will permit such payments
to be made without withholding or at a reduced rate, unless in the good faith
opinion of the Foreign Lender such documentation would expose the Foreign Lender
to any material adverse consequence or risk.  Such documentation shall
be delivered by each Foreign Lender on or before the date it becomes a Lender
and, if required by law, on or before the date, if any, such Foreign Lender
changes its Applicable Lending Office by designating a different lending office
with respect to its Loans.  In addition, each Foreign Lender shall
deliver such forms promptly upon the obsolescence or invalidity of any form
previously delivered by such Foreign Lender.  Each Lender (and, in the
case of a Foreign Lender its lending office), represents that on the Closing
Date, payments made hereunder by the Borrower or the Agent to it would not be
subject to United States Federal withholding tax.

    
      
         

      

      
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    (g)           Notwithstanding
the provisions of subsection (a) above, the Borrower shall not be required to
indemnify any Foreign Lender or to pay any Additional Amounts to any Foreign
Lender, in respect of United States federal withholding Tax pursuant to
subsection (a) above, (i) to the extent that the obligation to withhold amounts
with respect to United States federal withholding tax existed on the date such
Foreign Lender became a Lender; (ii) with respect to payments to a new
Applicable Lending Office with respect to a Loan, but only to the extent that
such withholding tax exceeds any withholding tax that would have been imposed on
such Lender had it not designated such new Applicable Lending Office; (iii) with
respect to a change by such Foreign Lender of the jurisdiction in which it is
organized, incorporated, controlled or managed, or in which it is doing
business, from the date such Foreign Lender changed such jurisdiction, but only
to the extent that such withholding tax exceeds any withholding tax that would
have been imposed on such Lender had it not changed the jurisdiction in which it
is organized, incorporated, controlled or managed, or in which it is doing
business; or (iv) to the extent that the obligation to indemnify any Foreign
Lender or to pay such Additional Amounts would not have arisen but for a failure
by such Foreign Lender to comply with the provisions of Section
2.8(f).

     

    (h)           All
payments by the Borrower shall be deemed received on (i) receipt or (ii) the
next Business Day following receipt if such receipt is after 3:00 p.m., Central
Standard or Central Daylight Savings Time, as the case may be, on any Business
Day, and shall be made to the Agent at the Principal Office.  Except
as provided to the contrary herein, if the due date of any payment hereunder or
under any Note would otherwise fall on a day which is not a Business Day, such
date shall be extended to the next succeeding Business Day, and interest shall
be payable for any principal so extended for the period of such extension; provided, however, that in the
case of any LIBO Rate Loan, if the result of such extension would be to extend
such payment into another calendar month, then the relevant payment shall be due
on the immediately preceding Business Day.

     

    2.9           Pro Rata Treatment;
Adjustments.  (a) Except to the extent otherwise expressly
provided herein, (i) each borrowing pursuant to this Agreement shall be made
from the Lenders pro rata in accordance with their respective Percentage Shares,
(ii) each reduction of the sum of the Facility Amounts of the Lenders at the
request of the Borrower, as well as any subsequent increase in the sum of the
Facility Amounts of the Lenders at the request of the Borrower and with written
agreement of the Agent and all the Lenders, shall serve to adjust the Facility
Amounts of the Lenders pro rata in accordance with the Facility Amounts of the
Lenders in effect immediately prior to any such adjustment, (iii) each payment
of Commitment Fees shall be made to the Agent for the account of the Lenders pro
rata in accordance with their respective Percentage Shares, (iv) each payment by
the Borrower of fees pursuant to the Fee Letter shall be made to Amegy solely
for its account, except as agreed otherwise by Amegy and any other Lender, (v)
each payment of principal of Loans shall be made to the Agent for the account of
the Lenders pro rata in accordance with their respective shares of the Loan
Balance, (vi) each payment of interest on Loans shall be made to the Agent for
the account of the Lenders pro rata in accordance with their respective shares
of the aggregate amount of interest due and payable to the Lenders, and (vii)
each payment by the Borrower under Commodity Hedge Agreements and Interest Rate
Hedge Agreements with Approved Hedge Counterparties and under treasury
management arrangements with any Lender shall be made only to the Person or
Persons entitled thereto.

     

    (b)           The
Agent shall distribute all payments with respect to the Obligations under the
Loan Documents promptly upon receipt in like funds as received to the Lenders
and any Approved Hedge Counterparties entitled to participate in any relevant
payment.  In the event that any payments made hereunder by the
Borrower on the Obligations under the Loan Documents at any particular time are
insufficient to satisfy in full the Obligations under the Loan Documents due and
payable at such time, such payments shall be applied (i) first, to fees and
expenses due pursuant to the terms of this Agreement or any other Loan Document,
(ii) second, to accrued interest, (iii) third, to the Loan Balance and any other
Obligations under the Loan Documents pro rata on the basis of the ratio of the
amount of all such Obligations under the Loan Documents owing to the Agent or
the relevant Lender, as the case may be, to the total amount of the Obligations
under the Loan Documents then owing and (iv) fourth to cash collateralize the
L/C Exposure in the manner provided in Section
2.11(a).

     

    (c)           If
any Lender (for purposes of this Section, a “Benefited Lender”)
shall at any time receive any payment of all or part of its portion of the
Obligations under the Loan Documents, or receive any Collateral in respect
thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 7.1(f) or
Section 7.1(g),
or otherwise) in an amount greater than such Lender was entitled to receive
pursuant to the terms hereof, such Benefited Lender shall purchase for cash from
the other Lenders such portion of the Obligations under the Loan Documents of
such other Lenders, or shall provide such other Lenders with the benefits of any
such Collateral or the proceeds thereof, as shall be necessary to cause such
Benefited Lender to share the excess payment or benefits of such Collateral or
proceeds with each of the Lenders according to the terms hereof.  If
all or any portion of such excess payment or benefits is thereafter recovered
from such Benefited Lender, such purchase shall be rescinded and the purchase
price and benefits returned by such Lender, to the extent of such recovery, but
without interest.  The Borrower agrees that each such Lender so
purchasing a portion of the Obligations under the Loan Documents of another
Lender may exercise all rights of payment (including rights of set-off) with
respect to such portion as fully as if such Lender were the direct holder of
such portion.  If any Lender ever receives, by voluntary payment,
exercise of rights of set-off or banker’s lien, counterclaim, cross-action or
otherwise, any funds of the Borrower to be applied to the Obligations under the
Loan Documents, or receives any proceeds by realization on or with respect to
any Collateral, all such funds and proceeds shall be forwarded immediately to
the Agent for distribution in accordance with the terms of this
Agreement.

    
      
         

      

      
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    2.10           Borrowing Base and Monthly
Reduction Amount.  (a) The Borrowing Base as of the Closing
Date is acknowledged by the Borrower, the Agent and the Lenders to be
$47,500,000.  Commencing on the first day of December, 2009 and
continuing thereafter on the first day of each calendar month through the
Commitment Termination Date, the amount of the Borrowing Base then in effect
shall be reduced by the Monthly Reduction Amount, which Monthly Reduction Amount
as of the Closing Date is acknowledged to be $0.00.

     

    (b)           The
Borrowing Base and the Monthly Reduction Amount shall be redetermined, by the
Agent, with the approval of the Lenders as required pursuant to the provisions
of Section 9.9,
semi-annually (on each May 1 and November 1 prior to the Commitment Termination
Date, commencing on May 1, 2010) on the basis of information supplied by the
Borrower in compliance with the provisions of this Agreement, including Reserve
Reports, and all other information available to the Agent and the
Lenders.  In addition, the Agent, with the approval of the Lenders as
required pursuant to the provisions of Section 9.9, shall,
in the normal course of business following a request of the Borrower,
redetermine the Borrowing Base and the Monthly Reduction Amount; provided, however, the Agent
and the Lenders shall not be obligated to respond to more than one such request
annually.  Notwithstanding the foregoing, the Borrowing Base in effect
at any time shall be subject to reduction in accordance with applicable
provisions of Section
6.4 and the Agent, with the approval of the Lenders as required pursuant
to the provisions of Section 9.9, may at
its discretion and shall, upon request by the Required Lenders and with the
approval of the Lenders as required pursuant to the provisions of Section 9.9,
redetermine the Borrowing Base and the Monthly Reduction Amount at any time;
provided, however, the Agent
and the Lenders shall not be entitled to more than one such unscheduled
redetermination annually.

     

    (c)           Upon
each determination of the Borrowing Base and the Monthly Reduction Amount, the
Agent shall notify the Borrower orally (confirming such notice promptly in
writing) of such determination, and, subject to the operation of the Monthly
Reduction Amount, the Borrowing Base and the Monthly Reduction Amount so
communicated to the Borrower shall become effective upon such oral notification
and shall remain in effect until the next subsequent determination of the
Borrowing Base and the Monthly Reduction Amount.

     

    (d)           The
Borrowing Base shall represent the determination by the Agent and the Lenders,
in accordance with the applicable definitions and provisions herein contained
and the customary lending practices of the Agent and the Lenders for loans of
this nature (but taking into account floor and cap prices or other price
protection under Commodity Hedge Agreements), of the value, for loan purposes,
of the Mortgaged Properties and any other Oil and Gas Properties of the Borrower
and its Domestic Subsidiaries acceptable to the Agent and the Lenders, subject,
in the case of any increase in the Borrowing Base, to the credit approval
processes of the Agent and each of the Lenders.  Furthermore, the
Borrower and the Initial Guarantors acknowledge that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by the Borrower and the Initial Guarantors to be
essential for the adequate protection of the Agent and the
Lenders.

    
      
         

      

      
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    2.11           Mandatory
Prepayments.  (a) If at any time, as a result of the second
sentence of subsection (a) of Section 2.10, the sum
of the Loan Balance and the L/C Exposure exceeds the Commitment Amount then in
effect, the Borrower shall, within three Business Days of receipt of notice from
the Agent of such occurrence, prepay such portion of the Loan Balance and/or, as
provided below in this subsection (a), provide cash as Collateral so that the
sum of the Loan Balance and the L/C Exposure does not exceed the Commitment
Amount then in effect.  If at any time, other than as a result of the
second sentence of subsection (a) of Section 2.10, the sum
of the Loan Balance and the L/C Exposure exceeds the Commitment Amount then in
effect (such excess, a “Deficiency”), the
Borrower shall, at the option of the Borrower communicated to the Agent within
10 days of receipt of notice from the Agent of such occurrence, (i) prepay the
amount of the Deficiency in three substantially equal installment payments, each
for application on the Loan Balance and then to provide cash as Collateral for
the L/C Exposure in the manner provided below in this Section 2.11(a), the
first of which being due on the thirtieth day following receipt by the Borrower
of the relevant notice from the Agent and the second and third of which being
due on the sixtieth and ninetieth day, respectively, following receipt by the
Borrower of the relevant notice from the Agent, (ii) provide, within 30 days of
such election by the Borrower, additional Collateral, of character and value
satisfactory to the Required Lenders in their sole discretion, and/or cash as
Collateral to secure the Obligations, by way of the execution and delivery to
the Agent of Security Documents in form and substance reasonably satisfactory to
the Agent or (iii) affect any combination of the alternatives described in
clauses (i) and (ii) of this sentence and acceptable to the Required Lenders in
their sole discretion.  Any prepayment pursuant to the provisions of
this Section
2.11(a) shall be without premium or penalty, except as provided in Section 2.18, and the
amount of any such prepayment may be reborrowed if otherwise available to the
Borrower pursuant to the terms of this Agreement.  In the event that a
mandatory prepayment is to be made under this Section 2.11(a) or
under Section
6.4 and the Loan Balance is less than the amount required to be prepaid,
the Borrower shall repay the entire Loan Balance and, in accordance with the
provisions of the relevant Letter of Credit Applications executed by the
Borrower or otherwise to the satisfaction of the Agent, deposit with the Agent,
as additional collateral securing the Obligations, an amount of cash, in
immediately available funds, equal to the L/C Exposure minus the Commitment
Amount.  The cash deposited with the Agent in satisfaction of the
requirement provided in this Section 2.11(a) shall
be invested, at the express direction of the Borrower as to investment vehicle
and maturity (which shall be no later than the latest expiry date of any then
outstanding Letter of Credit), for the account of the Borrower in cash or cash
equivalent investments offered by or through Amegy.

     

    (b)           Net
proceeds (being gross proceeds minus reasonable and customary transaction costs)
from sales of Oil and Gas Properties of the Borrower or any of the Subsidiaries
or sales of Subsidiaries of the Parent permitted pursuant to the provisions of
Section 6.4 or
with the waiver of the prohibition of Section 6.4 by
the Agent and the Required Lenders shall be applied, substantially
contemporaneously with receipt of any such net proceeds, to reduce any then
existing Deficiency, notwithstanding any provision of Section 2.11(a)
regarding the elimination of any Deficiency.  Any prepayment pursuant
to the provisions of this Section 2.11(b)
shall be without premium or penalty, except as provided in Section 2.18.

     

    2.12           Voluntary Prepayments and
Conversions of Loans.  Subject to applicable provisions of this
Agreement, the Borrower shall have the right at any time or from time to time to
prepay Loans without prepayment penalty and to convert Loans of one type or with
one Interest Period into Loans of another type or with a different Interest
Period; provided, however, that (a) the
Borrower shall give the Agent notice of each such prepayment or conversion of
(i) all or any portion of a LIBO Rate Loan no less than three Business Days
prior to prepayment or conversion and (ii) all or any portion of a Base Rate
Loan no less than one Business Day prior to prepayment or conversion, (b) any
prepayment of any LIBO Rate Loan shall be in an amount of at least equal to
$10,000 and a whole multiple of $10,000, (c) the Borrower shall pay all accrued
and unpaid interest on the amounts prepaid or converted, (d) no such prepayment
or conversion shall serve to postpone the repayment when due of any Obligation
or any installments thereof and (e) the Borrower shall reimburse each Lender for
any losses, expenses or costs incurred by such Lender pursuant to prepayment or
conversion of a Loan, or the failure of the Borrower to make such prepayment or
conversion as provided in Section
2.18.  Except as provided in the immediately preceding
sentence, any prepayment pursuant to the provisions of this Section 2.12 shall be
without premium or penalty and the amount of any such prepayment may be
reborrowed if otherwise available to the Borrower pursuant to the terms of this
Agreement.

     

    2.13           Commitment
Fees.  In addition to interest on the Notes as provided herein
and other fees payable hereunder and under the Fee Letter, and to compensate the
Lenders for maintaining funds available under the Facility, the Borrower shall
pay to the Agent, for the account of the Lenders, in immediately available
funds, for the calendar quarter ending on the last day of December, 2009 and for
each calendar quarter thereafter during the Commitment Period and on the
Commitment Termination Date, a fee equal to one half of one percent (0.50%) per
annum, calculated on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day, but excluding the last day),
multiplied by the average daily amount of the Available Commitment during the
relevant quarterly or shorter period, as the case may be.  Commitment
Fees shall be payable by the Borrower upon receipt of an invoice therefor or
statement thereof delivered by the Agent and shall be past due if not paid
within ten (10) days of receipt of each such invoice or statement.

     

    2.14           Engineering
Fees.  The Borrower shall pay Amegy, solely for its account,
the engineering fees, if any, provided in the Fee Letter.

    
      
         

      

      
        -24-

        
          

        

      

      
         

      

    

    2.15           Additional
Fees.  Without duplication of any fees payable pursuant to
Section 2.14,
the Borrower shall pay to Amegy the fees provided in the Fee
Letter.

     

    2.16           Loans to Satisfy
Obligations.  Upon a Default, the Lenders may, but shall not be
obligated to, make Loans for the benefit of the Borrower and apply proceeds
thereof to the satisfaction of any condition, warranty, representation or
covenant of the Borrower or any of the Guarantors contained in this Agreement or
any other Loan Document.  Such Loans shall be evidenced by the Notes
and shall bear interest at the Adjusted Base Rate plus the relevant Applicable
Margin, subject, however, to the provisions of Section 2.5 regarding
the accrual of interest at the Default Rate in certain
circumstances.

     

    2.17           General Provisions Relating
to Interest.  (a) It is the intention of the parties hereto to
comply strictly with the usury laws of the State of Texas and the United States
of America.  In this connection, there shall never be collected,
charged, or received on the sums advanced hereunder interest in excess of that
which would accrue at the Highest Lawful Rate.  The Borrower agrees
that, to the extent the Highest Lawful Rate is determined with reference to the
laws of the State to Texas, the Highest Lawful Rate shall be the “weekly” rate
as defined in Chapter 303 of the Texas Finance Code, provided that the
Agent or any Lender may, at its election, substitute for the “weekly” rate the
“annualized” or “quarterly” rate, as such terms are defined in the aforesaid
statute, upon the giving of notices provided for in such statute and effective
upon the giving of such notices.  The Agent and each Lender may also
rely, to the extent permitted by applicable laws of the State of Texas or the
United States of America, on alternative maximum rates of interest under other
laws of the State of Texas or the United States of America applicable to the
Agent or the relevant Lender, if greater.

     

    (b)           Notwithstanding
anything herein or in the Notes to the contrary, during any Limitation Period,
the interest rate to be charged on amounts evidenced by the Notes held by any
affected Lenders shall be the Highest Lawful Rate, and the obligation, if any,
of the Borrower for the payment of fees or other charges deemed to be interest
under applicable law shall be suspended.  During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
laws of the State of Texas or the United States of America, the interest rate to
be charged hereunder on amounts evidenced by the Notes held by any affected
Lenders shall remain at the Highest Lawful Rate until such time as there has
been paid to each applicable Lender (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that such Lender would have received during
the Limitation Period had the interest rate remained at the otherwise applicable
rate, and (ii) all interest and fees otherwise payable to such Lender but for
the effect of such Limitation Period.

     

    (c)           If,
under any circumstances, the aggregate amounts paid on the Notes or under this
Agreement or any other Loan Document include amounts which by law are deemed
interest and which would exceed the amount permitted if the Highest Lawful Rate
were in effect, the Borrower stipulates that such payment and collection will
have been and will be deemed to have been, to the extent permitted by applicable
laws of the State of Texas or the United States of America, the result of
mathematical error on the part of the Borrower, the Agent, and the Lenders; and
the party receiving such excess shall promptly refund the amount of such excess
(to the extent only of such interest payments in excess of that which would have
accrued and been payable on the basis of the Highest Lawful Rate) upon discovery
of such error by such party or notice thereof from the Borrower.  In
the event that the maturity of any Obligation is accelerated, by reason of an
election by the Lenders or otherwise, or in the event of any required or
permitted prepayment, then the consideration constituting interest under
applicable laws may never exceed that payable on the basis of the Highest Lawful
Rate, and excess amounts paid which by law are deemed interest, if any, shall be
credited by the Agent and the Lenders on the principal amount of the
Obligations, or if the principal amount of the Obligations shall have been paid
in full, refunded to the Borrower.

     

    (d)           All
sums paid, or agreed to be paid, to the Agent and the Lenders for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term hereof until paid in full so that the actual
rate of interest is uniform but does not exceed the Highest Lawful Rate
throughout the full term hereof.

     

    2.18           Yield
Protection.  (a) Without limiting the effect of the other
provisions of this Section 2.18 (but
without duplication), the Borrower shall pay to the Agent and each Lender from
time to time such amounts as are necessary to compensate it for any actual and
reasonable Additional Costs incurred by the Agent or such
Lender.

    
      
         

      

      
        -25-

        
          

        

      

      
         

      

    

    (b)           Without
limiting the effect of the other provisions of this Section 2.18 (but without
duplication), the Borrower shall pay to each Lender from time to time on request
such amounts as are necessary to compensate such Lender or such Lender’s holding
company for any costs attributable to the maintenance by such Lender (or any
Applicable Lending Office), pursuant to any Regulatory Change, of capital in
respect of its Commitment, such compensation to include an amount equal to any
reduction of the rate of return on assets or equity of such Lender or such
Lender’s holding company (or any Applicable Lending Office) to a level below
that which such Lender or such Lender’s holding company (or any Applicable
Lending Office) could have achieved but for such Regulatory Change.

     

    (c)           Without
limiting the effect of the other provisions of this Section 2.18 (but
without duplication), in the event that any Requirement of Law or Regulatory
Change or the compliance by the Agent or any Lender therewith shall (i) impose,
modify, or hold applicable any reserve, special deposit, or similar requirement
against any Letter of Credit or obligation to issue Letters of Credit, or (ii)
impose upon the Agent or such Lender any other condition regarding any Letter of
Credit or obligation to issue Letters of Credit, and the result of any such
event shall be to increase the cost to the Agent or such Lender of issuing or
maintaining any Letter of Credit or obligation to issue Letters of Credit or any
liability with respect to Letter of Credit Payments, or to reduce any amount
receivable in connection therewith, then upon demand by the Agent or such
Lender, as the case may be, the Borrower shall pay to the Agent or such Lender,
from time to time as specified by the Agent or such Lender, additional amounts
which shall be sufficient to compensate the Agent or such Lender for such
increased cost or reduced amount receivable.

     

    (d)           Without
limiting the effect of the other provisions of this Section 2.18 (but
without duplication), the Borrower shall pay to the Agent and each Lender such
amounts as shall be sufficient in the reasonable opinion of the Agent and such
Lender to compensate them for any actual and reasonable loss, cost, or expense
incurred by and as a result of:

     

    
      	
               
      

            	
              (i)

            	
              any
      payment, prepayment, or conversion by the Borrower of a LIBO Rate Loan on
      a date other than the last day of an Interest Period for such Loan;
      or

            

    

     

    
      	
               
      

            	
              (ii)

            	
              any
      failure by the Borrower to borrow a LIBO Rate Loan or to convert a Base
      Rate Loan into a LIBO Rate Loan on the date for such borrowing or
      conversion specified in the relevant Borrowing
  Request,

            

    

     

    such
compensation to include with respect to any LIBO Rate Loan, an amount equal to
the excess, if any, of (A) the amount of interest which would have accrued on
the principal amount so paid, prepaid, converted, or not borrowed or converted
for the period from the date of such payment, prepayment, conversion, or failure
to borrow or convert to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow or convert, the Interest
Period for such Loan which would have commenced on the date of such failure to
borrow or convert) at the applicable rate of interest for such Loan provided for
herein over (B) the interest component of the amount the Agent or such Lender
would bid were it to bid at the commencement of such period in the London
interbank market for Dollar deposits of amounts comparable to such principal
amount and maturities comparable to such period, as reasonably determined by the
Agent or such Lender.

     

    (e)           Determinations
by the Agent or any Lender for purposes of this Section 2.18 of the
effect of any Regulatory Change on capital maintained, its costs or rate of
return, its obligation to make and maintain Loans, issuing or participating in
Letters of Credit, or on amounts receivable by it in respect of Loans, Letters
of Credit or such other obligations, and the additional amounts required to
compensate the Agent and such Lender under this Section 2.18 shall be
conclusive, absent manifest error, provided that such
determinations are made on a reasonable basis.  The Agent or the
relevant Lender shall furnish the Borrower with a certificate setting forth in
reasonable detail the basis and amount of Additional Costs or any other loss,
cost or expense incurred as a result of any such event, and the statements set
forth therein shall be conclusive, absent manifest error, provided that such
determinations are made on a reasonable basis.  The Agent or the
relevant Lender shall (i) notify the Borrower, as promptly as practicable after
the Agent or such Lender obtains knowledge of any Additional Costs or other sums
payable pursuant to this Section and determines to request compensation
therefor, of any event occurring after the Closing Date which will entitle the
Agent or such Lender to compensation pursuant to this Section 2.18; and
(ii) designate a different Applicable Lending Office for the Loans affected by
such event if such designation will avoid the need for or reduce the amount of
such compensation and will not, in the sole opinion of the Agent or such Lender,
be disadvantageous to the Agent or such Lender.  If any Lender
requests compensation from the Borrower under this Section 2.18, the
Borrower may, after payment of all compensation then accrued and by notice to
the Agent and such Lender, require that the Loans by such Lender of the type
with respect to which such compensation is requested be converted into Base Rate
Loans in accordance with Section
2.12.  Any compensation requested by the Agent or any Lender
pursuant to this Section 2.18 shall be
due and payable within 30 days of receipt by the Borrower of any such
notice.

    
      
         

      

      
        -26-

        
          

        

      

      
         

      

    

    (f)           The
Agent and the Lenders agree not to request, and the Borrower shall not be
obligated to pay, any Additional Costs or other sums payable pursuant to this
Section unless similar Additional Costs and other sums payable are also
generally assessed by the Agent or such Lender against other customers similarly
situated where such customers are subject to documents providing for such
assessment.

     

    2.19           Illegality.  Notwithstanding
any other provision of this Agreement, in the event that it becomes unlawful for
any Lender or its Applicable Lending Office to (a) honor its obligation to make
LIBO Rate Loans, or (b) maintain LIBO Rate Loans, then such Lender shall
promptly notify the Agent and the Borrower thereof.  The obligation of
such Lender to make LIBO Rate Loans and convert Base Rate Loans into LIBO Rate
Loans shall then be suspended until such time as such Lender may again make and
maintain LIBO Rate Loans, and the outstanding LIBO Rate Loans of such Lender
shall be converted into Base Rate Loans.

     

    2.20           Replacement
Lenders.  (a) If any Lender has notified the Borrower of its
incurring Additional Costs or any other loss, cost or expense under Section 2.18 or has
invoked the indemnification as to certain Taxes set forth in Section 2.8, the
Borrower may, unless such Lender has notified the Borrower that the
circumstances giving rise to such notice no longer apply, terminate, in whole
but not in part, the Commitment of such Lender (other than the Agent) (the
“Terminated
Lender”) at any time upon five Business Days’ prior written notice to the
Terminated Lender and the Agent (a “Notice of
Termination”).

     

    (b)           In
order to effect the termination of the Commitment of the Terminated Lender, the
Borrower shall (i) obtain an agreement with one or more Lenders to increase
their Commitments and/or (ii) request any one or more other banking institutions
to become a “Lender” in place and instead of such Terminated Lender and agree to
accept a Commitment; provided, however, that such one or more other banking
institutions are reasonably acceptable to the Agent and become parties hereto by
executing an Assignment Agreement (the Lenders or other banking institutions
that agree to accept in whole or in part the Commitment of the Terminated Lender
being referred to herein as the “Replacement
Lenders”), such that the aggregate increased and/or accepted Facility
Amounts of the Replacement Lenders under clauses (i) and (ii) above equal the
Facility Amount of the Terminated Lender.

     

    (c)           The
Notice of Termination shall include the name of the Terminated Lender, the date
the termination will occur (the “Termination Date”),
the Replacement Lender or Replacement Lenders to which the Terminated Lender
will assign its Commitment, and, if there will be more than one Replacement
Lender, the portion of the Terminated Lender’s Commitment to be assigned to each
Replacement Lender.

     

    (d)           On
the Termination Date, (i) the Terminated Lender shall by execution and delivery
of an Assignment Agreement assign its Commitment to the Replacement Lender or
Replacement Lenders (pro rata, if there is more than one Replacement Lender, in
proportion to the portion of the Terminated Lender’s Commitment to be assigned
to each Replacement Lender) indicated in the Notice of Termination and shall
assign to the Replacement Lender or Replacement Lenders its Loans (if any) then
outstanding pro rata as aforesaid, (ii) the Terminated Lender shall endorse its
Note, payable without recourse, representation or warranty to the order of the
Replacement Lender or Replacement Lenders (pro rata as aforesaid), (iii) the
Replacement Lender or Replacement Lenders shall purchase the Note held by the
Terminated Lender (pro rata as aforesaid) at a price equal to the unpaid
principal amount thereof plus interest and fees accrued and unpaid to the
Termination Date, (iv) the Replacement Lender or Replacement Lenders will
thereupon (pro rata as aforesaid) succeed to and be substituted in all respects
for the Terminated Lender with like effect as if becoming a Lender pursuant to
the terms of Section
9.1(b) and the Terminated Lender will have the rights and benefits of an
assignor under Section
9.1(b) and (v) the Terminated Lender shall have received payment of an
amount equal to its Percentage Share of the Loan Balance and accrued interest
thereon, accrued fees owed to it and all other amounts due and owing to it
hereunder and under the other Loan Documents (including any loss, cost or
expense under Section
2.18 incurred up to, but not including, the Termination
Date).  To the extent not in conflict, the terms of Section 9.1(b) shall
supplement the provisions of this Section
2.20.

    
      
         

      

      
        -27-

        
          

        

      

      
         

      

    

    (e)           Any
Terminated Lender (including the Agent in its capacity as a Lender and as Agent)
shall reimburse the Borrower for all reasonable and necessary fees and expenses
of counsel to the Borrower and, if required by the Replacement Lender or
Replacement Lenders, of counsel to the Replacement Lender or Replacement Lenders
in connection with replacing such Terminated Lender with a Replacement Lender or
Replacement Lenders.

     

    2.21           Regulatory
Change.  In the event that by reason of any Regulatory Change
or any other circumstance arising after the Closing Date affecting any Lender,
such Lender (a) incurs Additional Costs based on or measured by the excess above
a level, as prescribed from time to time by any Governmental Authority with
jurisdiction, of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
any LIBO Rate Loan is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes any LIBO Rate
Loan, or (b) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, at the election of such Lender
with notice to the Agent and the Borrower, the obligation of such Lender to make
LIBO Rate Loans and to convert Base Rate Loans into LIBO Rate Loans shall be
suspended until such time as such Regulatory Change or other circumstance ceases
to be in effect, and all such outstanding LIBO Rate Loans shall be converted
into Base Rate Loans.

     

    2.22           Letters in Lieu of Transfer
Orders or Division Orders.  The Agent agrees that none of the
letters in lieu of transfer or division orders provided pursuant to the
provisions of Section
3.1(f) or Section 5.7 will be
sent to the addressees thereof unless an Event of Default has occurred and is
continuing, at which time the Agent may, at its option and in addition to the
exercise of any of its other rights and remedies, send any or all of such
letters.

     

    2.23           Power of
Attorney.  The Borrower hereby designates the Agent as its
agent and attorney-in-fact, to act in its name, place, and stead solely for the
purpose of completing and, upon the occurrence and the continuance of an Event
of Default, delivering any and all of the letters in lieu of transfer or
division orders delivered by the Borrower pursuant to the provisions of Section 3.1(f) or
Section 5.7,
including completing any blanks contained in such letters and attaching exhibits
thereto describing the relevant Collateral.  The Borrower hereby
ratifies and confirms all that the Agent shall lawfully do or cause to be done
by virtue of this power of attorney and the rights granted with respect to such
power of attorney.  This power of attorney is coupled with the
interests of the Agent in the Collateral, shall commence and be in full force
and effect as of the Closing Date and shall remain in full force and effect and
shall be irrevocable so long as any Obligation remains outstanding or unpaid or
any Commitment exists.  The powers conferred on the Agent by this
appointment are solely to protect the interests of the Agent, the Lenders and
any other Secured Creditors under the Loan Documents with respect to the
assignment of production proceeds under certain of the Security Documents and
shall not impose any duty upon the Agent to exercise any such
powers.  The power of attorney under this Section 2.23 is
expressly limited to the rights and powers set forth herein and no additional
rights or powers are herein created or implied.  The Agent shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.

     

    2.24           Security Interest in
Accounts; Right of Offset.  As security for the payment and
performance of the Obligations, the Borrower hereby transfers, assigns, and
pledges to the Agent each Lender and each other Approved Hedge Counterparty (for
the pro rata benefit of such Persons) and grants to the Agent, each Lender and
each other Approved Hedge Counterparty (for the pro rata benefit of such
Persons) a security interest in all of its funds now or hereafter or from time
to time on deposit with the Agent, such Lender or such other Approved Hedge
Counterparty, with such interest of the Agent, the Lenders and the other
Approved Hedge Counterparties to be retransferred, reassigned, and/or released
at the expense of the Borrower upon payment in full and complete performance of
all Obligations.  All remedies as secured party or assignee of such
funds shall be exercisable upon the occurrence of any Event of Default,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity
thereof.  Furthermore, the Borrower hereby grants to the Agent, each
Lender and each other Approved Hedge Counterparty (for the pro rata benefit of
such Persons) the right, exercisable at such time as any Obligation shall
mature, whether by acceleration of maturity or otherwise, of offset or banker’s
lien against all of its funds now or hereafter or from time to time on deposit
with the Agent, such Lender or such other Approved Hedge Counterparty,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity
thereof.

    
      
         

      

      
        -28-

        
          

        

      

      
         

      

    

    ARTICLE
III

     

    CONDITIONS

     

    The
obligations of the Agent and the Lenders to enter into this Agreement and to
make Loans or issue or participate in, as the case may be, Letters of Credit are
subject to the satisfaction of the following conditions precedent:

     

    3.1           Receipt of Loan Documents
and Other Items.  Neither the Lenders nor the Agent shall have
any obligation under this Agreement unless and until all matters incident to the
consummation of the transactions contemplated herein shall be satisfactory to
the Agent and the Lenders, and the Agent and, upon request, any Lender shall
have received, reviewed and approved the following documents and other items,
appropriately executed when necessary and, where applicable, acknowledged by one
or more Responsible Officers of the Borrower or other Persons, as the case may
be, all in form and substance reasonably satisfactory to the Agent and dated,
where applicable, of even date herewith or a date prior thereto or thereafter
and reasonably acceptable to the Agent:

     

    (a)           multiple
counterparts of this Agreement as requested by the Agent;

     

    (b)           the
Notes to be in place on the Closing Date;

     

    (c)           copies
of the organizational documents of the Borrower and each of the Initial
Guarantors and all amendments to any thereof, accompanied by a certificate or
certificates dated the Closing Date issued by the secretary or an assistant
secretary or another authorized representative of the Borrower and each of the
Initial Guarantors to the effect that each such copy is correct and
complete;

     

    (d)           a
certificate or certificates of incumbency dated the Closing Date, including
specimen signatures of all officers or other representatives of the Borrower and
each of the Initial Guarantors who are authorized to execute Loan Documents on
behalf of the Borrower and each of the Initial Guarantors, respectively, each
such certificate being executed by the secretary or an assistant secretary or
another authorized representative of the Borrower or the relevant Initial
Guarantor, as the case may be;

     

    (e)           copies
of resolutions adopted by the governing body of the Borrower and each of the
Initial Guarantors approving the Loan Documents to which the relevant Person is
a party and authorizing the transactions contemplated herein and therein,
accompanied by a certificate dated the Closing Date issued by the secretary or
an assistant secretary or another authorized representative of the Borrower or
the relevant Initial Guarantor, as the case may be, to the effect that such
copies are true and correct copies of resolutions duly adopted and that such
resolutions constitute all the resolutions adopted with respect to such
transactions, have not been amended, modified or rescinded in any respect and
are in full force and effect as of the date of such certificate;

     

    (f)           if
requested by the Agent or any Lender, the following documents continuing in
effect or establishing Liens in favor or for the benefit of the Agent, for the
benefit of the Secured Creditors, in and to the Collateral, including Mortgaged
Properties constituting at least eighty five percent (85%) of the discounted
present value, determined by the Agent in its discretion, of the proved reserves
attributable to the Oil and Gas Properties of the Borrower and its Domestic
Subsidiaries:

     

    
      	
               
      

            	
              (i)

            	
              amendments
      to and ratifications of the security documents in effect under the terms
      of the Existing Credit Agreement;

            

    

     

    
      
         

      

      
        -29-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (ii)

            	
              additional
      security documents from the Borrower in favor of the Agent covering
      certain Property of the Borrower, including additional Oil and Gas
      Properties of the Borrower sufficient for the Borrower to be in compliance
      with the provisions of Section
      5.5;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              financing
      statement amendments and new financing statements, in each case
      constituent to the documents described in clauses (i) and (ii) above;
      and

            

    

     

    
      	
               
      

            	
              (iv)

            	
              undated
      letters, in form and substance reasonably satisfactory to the Agent, from
      the Borrower or the relevant Domestic Subsidiary to each purchaser of
      production and disburser of the proceeds of production from or
      attributable to the Mortgaged Properties, with the addressees left blank,
      authorizing and directing the addressees to make future payments
      attributable to production from the Mortgaged Properties directly to the
      Agent; and

            

    

     

    (g)           audited
consolidated Financial Statements of the Parent and its consolidated
Subsidiaries as of December 31, 2008 and unaudited quarterly consolidated
Financial Statements of the Parent and its consolidated Subsidiaries as of June
30, 2009, in each case certified by a Responsible Officer of the Parent as
having been prepared in accordance with GAAP consistently applied and as a fair
presentation of the condition of the Parent on a consolidated basis with its
consolidated Subsidiaries, subject, as to such unaudited Financial Statements,
to changes resulting from normal year-end audit adjustments;

     

    (h)           certificates
dated as of a recent date from the Secretary of State or other appropriate
Governmental Authority evidencing the existence or qualification and, if
applicable, good standing of the Borrower and each of the Initial Guarantors in
its jurisdiction of organization and in any other jurisdictions where it owns
property or does business;

     

    (i)           results
of a search of the uniform commercial code records of the Secretary of State of
the States of Michigan and Delaware, respectively in the names of the Borrower
and each of the Initial Guarantors organized under the laws of the relevant
state, respectively, such search reports to be from a source or sources
reasonably acceptable to the Agent and reflecting no Liens, other than Permitted
Liens, against any of the Collateral as to which perfection of a Lien is
accomplished by the filing of a financing statement;

     

    (j)           confirmation,
reasonably acceptable to the Agent, of the title of the Borrower and its
Domestic Subsidiaries, free and clear of Liens other than Permitted Liens, to
Mortgaged Properties constituting at least eighty five percent (85%) of the
discounted present value, as determined by the Agent in its discretion, of the
proved reserves attributable to such Mortgaged Properties;

     

    (k)           confirmation,
reasonably acceptable to the Agent, that the Oil and Gas Properties of the
Borrower and its Subsidiaries are in compliance, in all material respects, with
applicable Environmental Laws;

     

    (l)           copies
of executed counterparts of all operating, lease, sublease, royalty, sales,
exchange, processing, farmout, bidding, pooling, unitization, communitization
and other agreements relating to the Mortgaged Properties, as reasonably
requested by the Agent or any Lender;

     

    (m)           engineering
information regarding the Mortgaged Properties, as reasonably requested by the
Agent;

     

    (n)           the
opinion of Warner, Norcross & Judd LLP as Michigan counsel to the Borrower
and each of the Initial Guarantors incorporated or organized under the laws of
the State of Michigan, in connection with this Agreement and the other Loan
Documents to which any of such Persons is a party, substantially in the form
attached hereto as Exhibit
V;

    
      
         

      

      
        -30-

        
          

        

      

      
         

      

    

    (o)           the
opinion of Vinson & Elkins, LLP, as Texas counsel to the Borrower and each
of the Initial Guarantors and addressing applicable statutes of the State of
Delaware with respect to those of the Initial Guarantors formed or organized
under the laws of the State of Delaware, in connection with this Agreement and
the other Loan Documents to which any of such Persons is a party, substantially
in the form attached hereto as Exhibit
VI;

     

    (p)           the
opinion of Burnet, Duckworth & Palmer, as Alberta, Canada counsel to the
Parent, in connection with this Agreement and the other Loan Documents to which
the Parent is a party, substantially in the form attached hereto as Exhibit
VII;

     

    (q)           certificates
evidencing the insurance coverage required by the provisions of Section
5.20;

     

    (r)           payment
to Amegy of any fees due as of the Closing Date pursuant to the Fee
Letter;

     

    (s)           payment
from the Borrower for estimated fees charged by filing officers and other public
officials incurred or to be incurred in connection with the filing and
recordation of any Security Documents and for which invoices have been presented
as of the Closing Date;

     

    (t)           copies
of all Commodity Hedge Agreements, in form and substance and with counterparties
reasonably acceptable to the Agent, for purposes of determining the Borrowing
Base as of the Closing Date;

     

    (u)           certificates
of Responsible Officers of the Borrower and the Initial Guarantors,
respectively, to the effect that all representations and warranties made by the
Borrower or the relevant Initial Guarantor, as the case may be, in this
Agreement or any other Loan Document in place on the Closing Date are true and
correct as of the Closing Date and that no Default or Event of Default exists as
of the Closing Date;

     

    (v)           confirmation,
reasonably acceptable to the Agent, that no event or circumstance, including any
action, suit, investigation or proceeding pending, or, to the knowledge of the
Borrower, threatened in any court or before any arbitrator or Governmental
Authority, shall have occurred which could reasonably be expected to have a
Material Adverse Effect; and

     

    (w)           such
other agreements, documents, instruments, opinions, certificates, waivers,
consents and evidence as the Agent or any Lender may reasonably
request.

     

    3.2           Each
Loan.  In addition to the conditions precedent stated elsewhere
herein, the Lenders shall not be obligated to make any Loan, other than in
connection with a Letter of Credit Payment, unless:

     

    (a)           at
least the requisite time prior to the requested date for the relevant Loan, the
Borrower shall have delivered to the Agent a Borrowing Request and a funding
direction advising the Agent whether the requested Loan should be funded to an
account of the Borrower at Amegy or should be funded by wire transfer to an
account of another Person (in which case wire transfer instructions shall be
included) and each statement or certification made in such Borrowing Request
shall be true and correct in all material respects on the requested date for
such Loan;

     

    (b)           no
Event of Default, Default or Deficiency shall exist or will occur as a result of
the making of the requested Loan;

     

    (c)           if
requested by the Agent or any Lender, the Borrower shall have delivered evidence
satisfactory to the Agent or such Lender substantiating any of the matters
contained in this Agreement which are necessary to enable the Borrower to
qualify for such Loan;

     

    (d)           the
Agent shall have received, reviewed and approved such additional documents and
items as described in Section 3.1 as may be
reasonably requested by the Agent with respect to such Loan;

    
      
         

      

      
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    (e)           no
event shall have occurred which, in the reasonable opinion of the Agent or any
of the Lenders, could reasonably be expected to have a Material Adverse
Effect;

     

    (f)           each
of the representations and warranties of the Borrower or any of the Guarantors
contained in this Agreement and the other Loan Documents shall be true and
correct in all material respects and shall be deemed to be repeated by the
relevant entity as if made on the requested date for such Loan;

     

    (g)          all
of the Security Documents shall be in full force and effect and provide to the
Agent the security intended thereby;

     

    (h)          neither
the consummation of the transactions contemplated hereby nor the making of such
Loan shall contravene, violate or conflict with any Requirement of Law;
and

     

    (i)           
if the Parent or any of its Subsidiaries has formed, after the Closing Date, any
Subsidiary, such Subsidiary, if a Domestic Subsidiary, shall have executed and
delivered a Joinder Agreement and a Guaranty and, if requested by the Agent,
Security Documents covering the assets of such Domestic Subsidiary and the
Parent, the Borrower or the relevant Subsidiary of the Parent holding the equity
ownership shall have executed and delivered Security Documents covering all of
such equity ownership as to such newly formed Domestic Subsidiaries or sixty
five percent (65%) of such equity ownership as to such newly formed Subsidiaries
which are not Domestic Subsidiaries and taken all other action requested by the
Agent or any Lender to perfect the Lien of all such Security
Documents.

     

    3.3           Issuance of Letters of
Credit.  The obligation of the Agent, as the issuer of the
Letters of Credit, to issue, renew, or extend any Letter of Credit is subject to
the satisfaction of the following additional conditions precedent:

     

    (a)           the
Borrower shall have delivered to the Agent a written (or oral, confirmed
promptly in writing) request for the issuance, renewal or extension of a Letter
of Credit at least three Business Days prior to the requested issuance, renewal
or extension date and a Letter of Credit Application at least one Business Day
prior to the requested issuance date; and each statement or certification made
in such Letter of Credit Application shall be true and correct in all material
respects on the requested date for the issuance of such Letter of
Credit;

     

    (b)           no
Event of Default, Default or Deficiency shall exist or will occur as a result of
the issuance, renewal, or extension of such Letter of Credit;

     

    (c)           if
requested by the Agent or any Lender, the Borrower shall have delivered evidence
reasonably satisfactory to the Agent or such Lender substantiating any of the
matters contained in this Agreement which are necessary to enable the Borrower
to qualify for such Letter of Credit;

     

    (d)           the
Agent shall have received, reviewed, and approved such additional documents and
items as described in Section 3.1 as may be
reasonably requested by the Agent with respect to such Letter of
Credit;

     

    (e)           no
event shall have occurred which, in the reasonable opinion of the Agent or any
of the Lenders, could reasonably be expected to have a Material Adverse
Effect;

     

    (f)           each
of the representations and warranties of the Borrower contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects and shall be deemed to be repeated by the Borrower as if made on the
requested date for issuance, renewal or extension of such Letter of
Credit;

     

    (g)          all
of the Security Documents shall be in full force and effect and provide to the
Lender the security intended thereby;

     

    (h)          neither
the consummation of the transactions contemplated hereby nor the issuance,
renewal or extension of such Letter of Credit shall contravene, violate or
conflict with any Requirement of Law; and

    
      
         

      

      
        -32-

        
          

        

      

      
         

      

    

    (i)          
 the terms, provisions and beneficiary of the Letter of Credit or such
renewal or extension shall be satisfactory to the Agent, as the issuer of the
Letters of Credit, in its reasonable discretion.

     

    ARTICLE
IV

     

    REPRESENTATIONS AND
WARRANTIES

     

    To induce
the Agent and the Lenders to enter into this Agreement, to induce the Agent to
issue and renew Letters of Credit, and to induce the Lenders to make the Loans
and to participate in Letters of Credit, the Borrower and each of the Guarantors
represents and warrants to the Agent and each Lender (which representations and
warranties shall survive the delivery of the Notes) that:

     

    4.1           Due
Authorization.  The execution and delivery by it of this
Agreement and the borrowings by the Borrower hereunder, the execution and
delivery by the Borrower of the Notes, the repayment by the Borrower of the
Notes and interest and fees provided for in the Notes, this Agreement and the
Fee Letter, the execution and delivery of the Security Documents to which it is
a party and the performance by it of its obligations under the Loan Documents to
which it is a party are within the power of the Borrower or such Person as the
case may be, have been duly authorized by all necessary action by the Borrower
or such Person, as the case may be, and do not and will not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law, (c) contravene or conflict with any indenture, instrument or
other agreement to which it is a party or by which any of its Property may be
presently bound or encumbered or (d) result in or require the creation or
imposition of any Lien in, upon or on any of its Property under any such
indenture, instrument, or other agreement, other than under any of the Loan
Documents.

     

    4.2           Existence.  Each
of the Borrower and the Guarantors is a corporation, a limited partnership, a
limited liability company or other entity, as the case may be, duly organized,
legally existing and, if applicable, in good standing under the laws of the
state of its organization or formation and is duly qualified as a foreign
limited partnership or limited liability company and, if applicable, in good
standing in all jurisdictions wherein the ownership of its Property or the
operation of its business necessitates same, other than those jurisdictions
wherein the failure to so qualify would not have a Material Adverse
Effect.

     

    4.3           Valid and Binding
Obligations.  Each Loan Document to which it is a party, when
duly executed and delivered by it, constitutes its legal, valid and binding
obligation enforceable against it 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.

     

    4.4           Security
Documents.  The provisions of each Security Document executed
by it are effective to create, in favor or for the benefit of the Agent, a
legal, valid and enforceable Lien in all of its right, title and interest in the
Collateral described therein, which Lien, assuming the accomplishment of
recording and filing in accordance with applicable laws prior to the
intervention of rights of other Persons, constitutes a fully perfected
first-priority Lien (except as to Permitted Liens) on all of its right, title
and interest in the Collateral described therein.

     

    4.5           Title to Oil and Gas
Properties.  Except as set forth in Schedule 4.5, it has
good and defensible title to all of its Oil and Gas Properties referenced in the
most recent Reserve Report, free and clear of all Liens except Permitted
Liens.  Except as set forth in Schedule 4.5, no
Person other than it has any ownership interest, whether legal or beneficial, in
its interest in any of its Oil and Gas Properties referenced in the most recent
Reserve Report which could reasonably be expected to have a Material Adverse
Effect.

     

    4.6           Scope and Accuracy of
Financial Statements.  The consolidated Financial Statements of
the Parent and its consolidated Subsidiaries provided to the Agent in
satisfaction of the condition set forth in Section 3.1(h)
present fairly the financial position and results of operations and cash flows
of the Parent and its consolidated Subsidiaries in accordance with GAAP as at
the relevant point in time or for the period indicated, as
applicable.  No event or circumstance has occurred since September 30,
2007, which could reasonably be expected to have a Material Adverse Effect, and
no Default has occurred and is continuing.

    
      
         

      

      
        -33-

        
          

        

      

      
         

      

    

    4.7           No Material
Misstatements.  No information, exhibit, statement or report
furnished to the Agent or any Lender by it or at its direction in connection
with this Agreement or any other Loan Document contains any material
misstatement of fact or omits to state a material fact or  any fact
necessary to make the statements contained therein not misleading as of the date
made or deemed made; provided that, with respect to projected financial
information, it represents only that such information was prepared in good faith
based upon assumptions believed to be reasonable at the time; and provided,
further, that projections concerning volumes attributable to the Oil and Gas
Properties and production and cost estimates contained in each Reserve Report
are necessarily based upon professional opinions, estimates and projections and
that none of the Parent, the Borrower and the Subsidiary Guarantors represents
or warrant that such opinions, estimates and projections will ultimately prove
to have been accurate.

     

    4.8           Liabilities and
Litigation.  Other than as reflected in the Financial
Statements provided to the Agent in satisfaction of the condition set forth in
Section 3.1(h)
or listed on Schedule
4.8 under the heading “Liabilities”, neither the Borrower nor any of the
Guarantors has any liabilities, direct or contingent, which may materially and
adversely affect its business or operations or its ownership of the
Collateral.  Except as set forth under the heading “Litigation” on
Schedule 4.8,
no litigation or other action of any nature affecting the Borrower or any of the
Guarantors is pending before any Governmental Authority or, to the best of its
knowledge, threatened against or affecting it or any of its Subsidiaries which
might reasonably be expected to result in any impairment of its ownership of any
Collateral or have a Material Adverse Effect.

     

    4.9           Authorizations;
Consents.  Except as expressly contemplated by this Agreement,
no authorization, consent, approval, exemption, franchise, permit or license of,
or filing with, any Governmental Authority or any other Person is required to
authorize, or is otherwise required in connection with, the valid execution and
delivery by it of the Loan Documents to which it is a party or any instrument
contemplated hereby, the repayment by the Borrower of the Notes and interest and
fees provided in the Notes, this Agreement and the Fee Letter, or the
performance by the Borrower of the Obligations.

     

    4.10         Compliance with
Laws.  It and its Properties, including any Mortgaged
Properties and Oil and Gas Properties owned by it, are in compliance in all
material respects with all applicable Requirements of Law, including
Environmental Laws, except in each case as could not reasonably be expected to
have a Material Adverse Effect.

     

    4.11         ERISA.  It
does not maintain, nor has it maintained, any Plan.  It does not
currently contribute to or have any obligation to contribute to or otherwise
have any liability with respect to any Plan and ERISA.

     

    4.12         Environmental
Laws.  Except as would not have a Material Adverse Effect or as
described on Schedule
4.12:

     

    (a)           no
Property owned by it, or, to its knowledge, Property of others adjacent to
Property owned by it, is currently on or has ever been on any federal or state
list of Superfund Sites;

     

    (b)           no
Hazardous Substances have been generated, transported, and/or disposed of by it
at a site which was, at the time of such generation, transportation, and/or
disposal, or has since become, a Superfund Site;

     

    (c)           except
in accordance with applicable Requirements of Law or the terms of a valid
permit, license, certificate, or approval of the relevant Governmental
Authority, no Release of Hazardous Substances by it or from, affecting or
related to any Property owned by it has occurred; and

     

    (d)           no
Environmental Complaint has been received by it.

     

    4.13         Compliance with Federal
Reserve Regulations.  No transaction contemplated by the Loan
Documents is in violation of, and it has not taken any action that would result
in any transaction contemplated by the Loan Documents being in violation of, any
regulations promulgated by the Board of Governors of the Federal Reserve System,
including Regulations T, U or X.

    
      
         

      

      
        -34-

        
          

        

      

      
         

      

    

    4.14         Investment Company Act
Compliance.  It is not an “investment company” or subject to
regulation as an “investment company” within the meaning of the Investment
Company Act of 1940.

     

    4.15         Proper Filing of Tax
Returns; Payment of Taxes Due.  It has duly and properly filed
its United States income tax returns and all other tax returns which are
required to be filed and has paid all taxes shown as due from it thereon, except
such as are being contested in good faith and as to which adequate provisions
and disclosures have been made or as could not reasonably be expected to have a
Material Adverse Effect.  The respective charges and reserves on its
books with respect to taxes and other governmental charges are adequate, except
as could not reasonably be expected to have a Material Adverse
Effect.

     

    4.16         Refunds.  Except
as described on Schedule 4.16, no
orders of, proceedings pending before, or other requirements of, the Federal
Energy Regulatory Commission, the Texas Railroad Commission, or any other
Governmental Authority exist which could result in it being required to refund
any portion of the proceeds received or to be received from the sale of
hydrocarbons constituting part of the Mortgaged Property or other Oil and Gas
Properties owned by it, except as could not reasonably be expected to have a
Material Adverse Effect.

     

    4.17         Gas
Contracts.  Except as described on Schedule 4.17, (a) it
is not obligated in any material respect by virtue of any prepayment made under
any contract containing a “take-or-pay” or “prepayment” provision or under any
similar agreement to deliver hydrocarbons produced from or allocated to any of
the Mortgaged Property or other Oil and Gas Properties owned by it at some
future date without receiving full payment therefor within 90 days of delivery,
and (b) it has not produced gas, in any material amount, subject to, and neither
it nor any of the Mortgaged Properties  or other Oil and Gas
Properties owned by it is subject to, balancing rights of third parties or
subject to balancing duties under Requirements of Law, except as to such matters
for which it has established monetary reserves adequate in amount to satisfy
such obligations and has segregated such reserves from other accounts or as
could not reasonably be expected to have a Material Adverse Effect.

     

    4.18         Intellectual
Property.  Except as could not reasonably be expected to have a
Material Adverse Effect, it owns or is licensed to use all Intellectual Property
necessary to conduct its business as currently conducted.  Except as
could not reasonably be expected to have a Material Adverse Effect, no claim has
been asserted or is pending by any Person with respect to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any such Intellectual Property; and it knows of no valid basis
for any such claim.  Except as could not reasonably be expected to
have a Material Adverse Effect, the use of such Intellectual Property by it does
not infringe on the rights of any Person, except for such claims and
infringements as do not, in the aggregate, give rise to any material liability
on its part.

     

    4.19         Casualties or Taking of
Property.  Except as disclosed on Schedule 4.19, since
the later of (a) June 30, 2009, or (b) the date of the most recent
Financial Statements furnished to the Agent pursuant to either Section 5.2 or Section 5.3, neither
its business nor any of its Property has been affected as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other
labor disturbance, embargo, requisition or taking of Property, or cancellation
of contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God, except as could not reasonably be
expected to have a Material Adverse Effect.

     

    4.20         Principal
Location.  Its principal place of business and chief executive
office is located at its address set forth in Section 9.3 or at
such other location as it may have, by proper written notice hereunder, advised
the Agent.

     

    4.21         Subsidiaries.  Except
as set forth on Schedule 4.21,
neither the Borrower nor any of the Guarantors has any
Subsidiaries.

     

    4.22         Compliance with
Anti-Terrorism Laws.  (a) Neither the Borrower, any of the
Guarantors nor any Affiliate of any of them is in violation of any
Anti-Terrorism Law or knowingly engages in or conspires to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in any Anti-Terrorism
Law.

    
      
         

      

      
        -35-

        
          

        

      

      
         

      

    

    (b)           Neither
the Borrower, any of the Guarantors nor any Affiliate of any of them is any of
the following (each a “Blocked
Person”):

     

    
      	
               
      

            	
              (i)

            	
              a
      Person that is listed in the annex, to, or is otherwise subject to the
      provisions of, Executive Order No.
13224;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              a
      Person owned or controlled by, or acting for or on behalf of, any Person
      that is listed in the annex to, or is otherwise subject to the provisions
      of, Executive Order No. 13224;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              a
      Person with which any bank or other financial institution is prohibited
      from dealing or otherwise engaging in any transaction by any
      Anti-Terrorism Law;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              a
      Person that commits, threatens or conspires to commit or supports
      “terrorism” as defined in Executive Order No.
  13224;

            

    

     

    
      	
               
      

            	
              (v)

            	
              a
      Person that is named as a “specially designated national” on the most
      current list published by OFAC at its official website or any replacement
      website or other replacement official publication of such list;
      or

            

    

     

    
      	
               
      

            	
              (vi)

            	
              a
      Person who is affiliated with a Person listed
  above.

            

    

     

    (c)           Neither
the Borrower, any of the Guarantors nor any Affiliate of any of them (i)
conducts any business or engages in making or receiving any contribution of
funds, goods or services to or for the benefit of any Blocked Person or (ii)
deals in, or otherwise engages in any transaction relating to, any property or
interests in property blocked pursuant to Executive Order No.
13224.

     

    (d)           Neither
the Borrower, any of the Guarantors nor any Affiliate of any of them is in
violation of any rules or regulations promulgated by OFAC or of any economic or
trade sanctions administered and enforced by OFAC or engages in or conspires to
engage in any transaction that evades or avoids, or has the purpose of evading
or avoiding, or attempts to violate, any of the prohibitions set forth in any
rules or regulations promulgated by OFAC.

     

    4.23         Identification
Numbers.  The federal taxpayer identification number and the
organizational number with the Secretary of State of the state of its
organization or formation are as set out on Schedule
4.23.

     

    4.24         Solvency.  Immediately
after the Closing and immediately following the making of each Loan made on the
Closing Date and following the making of any Loan made after the Closing Date,
after giving effect to the application of the proceeds of each such Loan, (a)
the fair value of the assets of each of the Borrower, and the Guarantors, at a
fair valuation, will exceed its debts and liabilities, subordinated, contingent
or otherwise, at a fair valuation; (b) the present fair saleable value of the
property of each of the Borrower, and the Guarantors will be greater than the
amount that will be required to pay the probable liability of its debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (c) each of the Borrower and the
Guarantors will be able to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured; and (d) neither the Borrower, nor any of the Guarantors will have
unreasonably small capital with which to conduct the business in which it is
engaged as such businesses are now conducted and are proposed to be conducted
following the Closing Date.

    
      
         

      

      
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    ARTICLE
V

     

    AFFIRMATIVE
COVENANTS

     

    So long
as any Obligation remains outstanding or unpaid or any Commitment exists, each
of the Borrower and the other Guarantors shall (provided that Section 5.14 shall
apply only to the Borrower):

     

    5.1           Maintenance and Access to
Records.  Keep adequate records, in accordance with GAAP, of
all its transactions so that at any time, and from time to time, its true and
complete financial condition may be readily determined, and promptly following
the reasonable request of the Agent or any Lender, make such records available
for inspection by the Agent or any Lender and, at the expense of the Borrower,
allow the Agent or any Lender to make and take away copies thereof.

     

    5.2           Quarterly Financial
Statements and Compliance Certificates.  Deliver to the Agent
and, upon request, any Lender, on or before the 60th day after the close of each
quarterly period of each fiscal year of the Parent, (a) a copy of the unaudited
consolidated Financial Statements of the Parent and its consolidated
Subsidiaries as at the close of the relevant quarterly period and from the
beginning of the relevant fiscal year to the end of the relevant quarterly
period, such Financial Statements to be certified by a Responsible Officer of
the Parent as having been prepared in accordance with GAAP consistently applied
and as a fair presentation of the financial condition of the Parent on a
consolidated basis with its consolidated Subsidiaries, subject to changes
resulting from normal year end audit adjustments, and (b) a Compliance
Certificate prepared as of the close of such quarterly period.

     

    5.3           Annual Financial Statements
and Compliance Certificate.  Deliver to the Agent and, upon
request, any Lender, on or before the 90th day after the close of each fiscal
year of the Parent, commencing with that ending on December 31, 2009, (a) a copy
of the annual audited consolidated Financial Statements of the Parent and its
consolidated Subsidiaries, such Financial Statements to be certified by a
Responsible Officer of the Parent as having been prepared in accordance with
GAAP consistently applied and as a fair presentation of the financial condition
of the Parent on a consolidated basis with its consolidated Subsidiaries and
accompanied by an unqualified opinion from BDO Seidman LLP or another
nationally-recognized or regionally-recognized firm of independent certified
public accountants or other independent certified public accountants acceptable
to the Agent, and (b) a Compliance Certificate prepared as of the close of the
relevant fiscal year.

     

    5.4           Oil and Gas Reserve Reports,
Capital Budgets and Production Reports.  (a) Deliver to the
Agent and, upon request, any Lender, (i) no later than each February 28 during
the term of this Agreement, an engineering report, in form and substance
reasonably satisfactory to the Agent, prepared as of the preceding December 31
and certified by Netherland Sewell & Associates, Inc., or another
nationally-recognized or regionally-recognized firm of independent consulting
petroleum engineers or other firm of independent consulting petroleum engineers
acceptable to the Agent as fairly and accurately setting forth (A) the proved
developed producing and non-producing and proved undeveloped oil and gas
reserves (separately classified as such) attributable to the Mortgaged
Properties and other Oil and Gas Properties of the Borrower and its
Subsidiaries, (B) the aggregate present value of the future net income with
respect to proved and producing reserves attributable to the Mortgaged
Properties and other Oil and Gas Properties of the Borrower and its
Subsidiaries, discounted at a stated per annum discount rate, (C) projections of
the annual rate of production, gross income, and net income with respect to such
proved and producing reserves, (D) information with respect to the
“take-or-pay,” “prepayment,” and gas-balancing liabilities of the Borrower or
the relevant Subsidiary of the Borrower with respect to such reserves and (E)
general economic assumptions, and (ii) no later than the fifth Business Day
after their approval by the Board of Directors of the Parent, copies of the
capital budget of the Borrower and its Subsidiaries for each fiscal year of the
Borrower and each update thereof approved by the Board of Directors of the
Parent.

     

    (b)           Deliver
to the Agent and, upon request, any Lender, no later than each August 31 during
the term of this Agreement, an engineering report, in substantially the format
of and providing the information provided in the engineering reports provided
pursuant to Section
5.4(a), prepared as of the preceding June 30 and certified, at the
election of the Borrower, by either the chief operating officer or senior
reserve engineer of the Parent or Netherland Sewell & Associates, Inc., or
another nationally-recognized or regionally-recognized firm of independent
consulting petroleum engineers acceptable to the Agent as fairly and accurately
setting forth the information provided therein.

    
      
         

      

      
        -37-

        
          

        

      

      
         

      

    

    (c)           Deliver
to the Agent and, upon request, any Lender, in connection with each unscheduled
redetermination of the Borrowing Base, an engineering report, in substantially
the format of and providing the information provided in the engineering report
provided pursuant to Section 5.4(a),
prepared as of a date no more than 60 days prior to such redetermination date
(and in the case of an unscheduled redetermination requested by the Agent and
the Lenders, within 60 days of such request) and certified, at the election of
the Borrower, by either the chief operating officer or senior reserve engineer
of the Parent or Netherland Sewell & Associates, Inc., or another nationally
or regionally recognized firm of independent consulting petroleum engineers
acceptable to the Agent as fairly and accurately setting forth the information
provided therein.

     

    (d)           Deliver
to the Agent, no later than 30 days following the end of each calendar quarter,
a report, in form reasonably satisfactory to the Agent, setting forth
information as to quantities of production from the Mortgaged Properties and
other Oil and Gas Properties of the Borrower and its Subsidiaries, volumes of
production sold, volumes of production committed to Commodity Hedge Agreements,
pricing, gross revenues, lease operating expenses, and such other information as
the Agent may request with respect to the relevant quarterly
period.

     

    5.5           Title Opinions; Title
Defects; Mortgaged Properties.  Promptly upon the request of
the Agent, (a) furnish to the Agent title opinions, in form and substance and by
counsel reasonably satisfactory to the Agent, or other confirmation of title
reasonably acceptable to the Agent, covering Oil and Gas Properties of the
Borrower and its Subsidiaries the discounted present value of the proved
reserves attributable to which, in the aggregate, equals no less than eighty
five percent (85%) of the aggregate discounted present value of the proved
reserves attributable to the combined Oil and Gas Properties of the Borrower and
other Domestic Subsidiaries of the Parent used in the most recent
redetermination of the Borrowing Base as provided in Section 2.10;
promptly, but in any event within 60 days after notice by the Agent of any
defect having a material effect on the value of any material Oil and Gas
Property and resulting in the Borrower or the relevant Domestic Subsidiary not
having defensible title to its interest in such Oil and Gas Property, clear such
title defects; and promptly upon request of the Agent, execute and deliver to
the Agent additional Security Documents as necessary to maintain, as Mortgaged
Properties, Oil and Gas Properties of the Borrower and other Domestic
Subsidiaries of the Parent constituting no less than eighty five percent (85%)
of the aggregate discounted present value of the proved reserves attributable to
the combined Oil and Gas Properties of the Borrower and its Subsidiaries used in
the most recent redetermination of the Borrowing Base as provided in Section
2.10.

     

    5.6           Notices of Certain
Events.  Deliver to the Agent, promptly, but in no event later
than the fifth Business Day after having knowledge of the occurrence of any of
the following events or circumstances, a written statement with respect thereto,
signed by a Responsible Officer of the relevant Business Entity or its general
partner and setting forth the relevant event or circumstance and the steps being
taken by the relevant Business Entity with respect to such event or
circumstance:

     

    (a)           any
Default or Event of Default;

     

    (b)           any
default by it under any contractual obligation or any litigation, investigation,
or proceeding between it and any Governmental Authority which, in either case,
if not cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;

     

    (c)           any
litigation or proceeding involving it as a defendant or in which any of its
Property is subject to a claim and in which the amount involved is $1,000,000 or
more and which is not covered by insurance or in which injunctive or similar
relief is sought which injunctive or similar relief, if granted, could
reasonably be expected to have a Material Adverse Effect;

     

    (d)           the
receipt by it of any Environmental Complaint, which if adversely determined
could reasonably be expected to have a Material Adverse Effect;

     

    (e)           any
actual, proposed, or threatened testing or other investigation by any
Governmental Authority or other Person concerning the environmental condition
of, or relating to, any of its Property following any allegation of a violation
of any Requirement of Law which if adversely determined could reasonably be
expected to have a Material Adverse Effect;

    
      
         

      

      
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    (f)           any
Release of Hazardous Substances by it or from, affecting, or related to any of
its Property or Property of others adjacent to any of its Property which could
reasonably be expected to have a Material Adverse Effect, except in accordance
with applicable Requirements of Law or the terms of a valid permit, license,
certificate, or approval of the relevant Governmental Authority, or the
violation of any Environmental Law, or the revocation, suspension, or forfeiture
of or failure to renew, any permit, license, registration, approval, or
authorization which could reasonably be expected to have a Material Adverse
Effect;

     

    (g)           except
as to the Parent, any change in its ownership;

     

    (h)           any
change in its senior management; and

     

    (i)           any
other event or condition which could reasonably be expected to have a Material
Adverse Effect;

     

    and, at
least ten Business Days prior to the consummation of any such sale, written
notice of any proposed sale of Oil and Gas Properties of the Borrower, or any
Subsidiary of the Parent or of a Subsidiary of the Parent, including in such
written notice identification of the Oil and Gas Properties or the Subsidiary of
the Parent which is the subject of the proposed sale and a summary of the
principal terms of the proposed sale.

     

    5.7           Letters in Lieu of Transfer
Orders or Division Orders.  Promptly upon request by the Agent
at any time and from time to time, and without limitation on the rights of the
Agent pursuant to the provisions of Section 2.22 and
Section 2.23,
execute such letters in lieu of transfer or division orders, in addition to the
letters delivered to the Agent in satisfaction of the condition set forth in
Section 3.1(f),
as are necessary or appropriate to transfer and deliver to the Agent proceeds
from or attributable to any Mortgaged Property.

     

    5.8           Commodity
Hedging.  Except as could not reasonably be expected to have a
Material Adverse Effect, comply in all material respects with any Commodity
Hedge Agreements entered into by the Borrower or any Subsidiary of the Borrower
subsequent to the Closing Date and not in violation of the provisions of Section 6.1 and
provide to the Agent, (a) no later than the 30th day following the end of each
calendar month, a report, in form reasonably acceptable to the Agent, reflecting
(i) in the case of Oil and Gas Properties of the Borrower or any of the
Guarantors located in the State of Texas or, regardless of location, operated by
the Borrower or any of the Guarantors, the volumes of hydrocarbons produced from
such Oil and Gas Properties during the calendar month preceding the calendar
month in which such report is to be provided, (ii) in the case of Oil and Gas
Properties of the Borrower or any of the Guarantors located in the State of
Wyoming or, regardless of location, not operated by the Borrower or any of the
Guarantors, the volumes of hydrocarbons produced from such Oil and Gas
Properties during the period covered by the information most recently received
by the Borrower or the relevant Guarantor from the operator or operators of such
Oil and Gas Properties and (iii) the details of the notional amounts of
hydrocarbons, as of the end of the calendar month preceding the calendar month
in which such report is to be provided, under then existing Commodity Hedge
Agreements to which any of the Borrower and the Guarantors is a party and (b)
prior to the Borrower or any Guarantor entering into any Commodity Hedge
Agreement in reliance on adjustments to the volumes of reserves projected to be
produced in the most recent Reserve Report provided pursuant to the provisions
of Section 5.4
contemplated in the definition of Projected Production appearing in Section 1.2, a
statement of the adjustments made and the basis therefor.

     

    5.9           Additional Guaranties and
Security Documents.  Execute and deliver Security Documents
covering all of its equity ownership in each Domestic Subsidiary of the Parent
formed after the Closing Date or sixty five percent of the equity ownership in
any Subsidiary of the Parent formed after the Closing Date which is not a
Domestic Subsidiary of the Parent and take all other action requested by the
Agent or any Lender to perfect the Lien of all such Security Documents and cause
each Domestic Subsidiary of the Parent formed after the Closing Date to execute
and deliver a Joinder Agreement, a Guaranty in favor of the Agent, for the
benefit of the Lenders and the other Secured Creditors, and Security Documents,
as requested by the Agent, in favor or for the benefit of the Agent, for the
benefit of the Lenders and the other Secured Creditors, covering assets of such
Domestic Subsidiary and take all such other action requested by the Agent or any
Lender to perfect the Lien of such Security Documents.

    
      
         

      

      
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    5.10         Additional
Information.  Furnish to the Agent and any Lender, promptly
upon the request of the Agent or any Lender, such additional financial or other
information concerning its assets, liabilities, operations and transactions as
the Agent or any Lender may from time to time reasonably request; and notify the
Agent not less than ten Business Days prior to the occurrence of any condition
or event that may change the proper location for the filing of any financing
statement or other public notice or recording for the purpose of perfecting a
Lien in any Collateral, including any change in its name or jurisdiction of
organization; and upon the request of the Agent, execute such additional
Security Documents as may be necessary or appropriate in connection
therewith.

     

    5.11         Compliance with
Laws.  Comply with all applicable Requirements of Law,
including (a) ERISA, (b) Environmental Laws and (c) all permits, licenses,
registrations, approvals, and authorizations (i) related to any natural or
environmental resource or media located on, above, within, related to or
affected by any of its Property, (ii) required for the performance of its
operations, or (iii) applicable to the use, generation, handling, storage,
treatment, transport or disposal of any Hazardous Substances, except for any
noncompliance which could not reasonably be expected to have a Material Adverse
Effect; and use commercially reasonable efforts to cause all of its employees,
crew members, agents, contractors, subcontractors and future lessees (pursuant
to appropriate lease provisions), while such Persons are acting within the scope
of their relationship with it, to comply with all such Requirements of Law as
may be necessary or appropriate to enable it to so comply.

     

    5.12         Payment of Assessments and
Charges.  Pay all taxes, assessments, governmental charges,
rent and other Indebtedness which, if unpaid, might become a Lien against any of
its Property, except any of the foregoing being contested in good faith and as
to which an adequate reserve in accordance with GAAP has been established or
unless failure to pay would not have a Material Adverse Effect.

     

    5.13         Maintenance of Existence or
Qualification and Good Standing.  Maintain its separate
corporate, limited partnership or limited liability company existence and
identity, as the case may be (provided that the foregoing shall not prohibit a
transaction of the type described in clause (iii) of the proviso in Section 6.10),
and, if applicable, good standing and qualification in its jurisdiction of
organization and in all jurisdictions wherein the Property now owned or
hereafter acquired or business now or hereafter conducted by it necessitates
same.

     

    5.14         Payment of Notes;
Performance of Obligations.  Pay the Notes according to the
reading, tenor and effect thereof, as modified hereby, and do and perform every
act and discharge all of the other Obligations of the Borrower.

     

    5.15         Further
Assurances.  Promptly upon written request of the Agent cure
any defects in the execution and delivery of any of the Loan Documents to which
it is a party and all agreements contemplated thereby, and execute, acknowledge
and deliver to the Agent or any Lender such other assurances and instruments as
shall, in the reasonable opinion of the Agent or any Lender, be necessary to
fulfill the terms of the Loan Documents to which it is a party.

     

    5.16         Initial Expenses of
Agent.  Upon request by the Agent, promptly reimburse the Agent
for, or pay directly to such special counsel, all reasonable fees and expenses
of Jackson Walker L.L.P., special counsel to the Agent, in connection with the
preparation of this Agreement and all documentation contemplated hereby, the
satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Documents and the consummation of the transactions
contemplated in this Agreement.

     

    5.17         Subsequent Expenses of Agent
and Lenders.  Upon request by the Agent, promptly reimburse the
Agent (to the fullest extent permitted by law) for all third party, out of
pocket amounts reasonably expended, advanced or incurred by or on behalf of the
Agent or any Lender to evaluate the Mortgaged Properties or to satisfy any of
its obligations under any of the Loan Documents; to collect the Obligations; to
ratify, amend, restate or prepare additional Loan Documents, as the case may be;
for the filing and recordation of Security Documents; to enforce the rights of
the Agent or any of the Lenders under any of the Loan Documents; and to protect
its Properties or business, including the Collateral, which amounts shall be
deemed compensatory in nature and liquidated as to amount upon notice to the
relevant Person by the Agent and which amounts shall include (a) all court
costs, (b) reasonable attorneys’ fees, (c) reasonable fees and expenses of
auditors, accountants and independent petroleum engineers engaged by the Agent
as provided in the Fee Letter or incurred to protect the interests of the Agent,
the Lenders and any other Approved Hedge Counterparties, (d) fees and expenses
incurred in connection with the participation by the Agent and the Lenders as
members of the creditors’ committee in any Insolvency Proceeding, (e) fees and
expenses incurred in connection with lifting the automatic stay prescribed in
§362 Title 11 of the United States Code, and (f) fees and expenses incurred in
connection with any action pursuant to §1129 Title 11 of the United States Code
all reasonably incurred by the Agent and the Lenders in connection with the
collection of any sums due under the Loan Documents, together with interest at
the rate equal to the Adjusted Base Rate plus the relevant Applicable Margin on
each such amount from the date of notification that the same was expended,
advanced, or incurred by the Agent or any Lender until the date it is repaid to
the Agent or such Lender, with the obligations under this Section 5.17
surviving the non-assumption of this Agreement in any Insolvency Proceeding and
being binding upon it and/or a trustee, receiver, custodian, or liquidator of
it  appointed in any such case.

    
      
         

      

      
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    5.18         Operation of Oil and Gas
Properties.  Develop, maintain and operate or, to the extent
that the right or obligation to do so rests with another Person, exercise
commercially reasonable efforts to cause such other Person to develop, maintain
and operate its Oil and Gas Properties in a manner reasonably determined by it
to be prudent and workmanlike and in accordance with customary industry
standards.

     

    5.19         Maintenance and Inspection
of Properties.  Maintain or, to the extent that the right or
obligation to do so rests with another Person, exercise commercially reasonable
efforts to cause such other Person to maintain all of its material tangible
Properties in good repair and condition, ordinary wear and tear excepted; make
or, to the extent that the right or obligation to do so rests with another
Person, exercise commercially reasonable efforts to cause such other Person to
make all necessary replacements thereof and operate such Properties in a manner
reasonably determined by it to be good and workmanlike; and permit any
authorized representative of the Agent or any Lender, upon prior notice to visit
and inspect, at reasonable times, any of its tangible Property.

     

    5.20         Maintenance of
Insurance.  Maintain insurance with respect to its Properties
and businesses against such liabilities, casualties, risks, and contingencies as
is customary in the relevant industry and sufficient to prevent a Material
Adverse Effect, all such insurance to be in amounts and from insurers reasonably
acceptable to the Agent, name the Agent as an additional insured (in the case of
liability insurance) and co-loss payee (in the case of physical damage
insurance), and, upon any renewal of any such insurance and at other times upon
request by the Agent, furnish to the Agent evidence, reasonably satisfactory to
the Agent, of the maintenance of such insurance.  The Agent shall have
the right to collect, and each of the Borrower and the Guarantors hereby assigns
to the Agent, any and all monies that may become payable under any policies of
insurance relating to business interruption or by reason of damage, loss or
destruction of any of the Collateral.  In the event of any damage,
loss or destruction for which insurance proceeds relating to business
interruption or Collateral exceed $1,000,000, the Agent may, at its option,
apply all such sums or any part thereof received by it toward the payment of the
Obligations, whether matured or unmatured, application to be made first to
interest and then to principal, and shall deliver to the Borrower or the
relevant Guarantor, as the case may be, the balance, if any, after such
application has been made.  In the event of any such damage, loss or
destruction for which insurance proceeds are $1,000,000 or less, provided that no
Default or Event of Default has occurred and is continuing, the Agent shall
deliver any such proceeds received by it to the Borrower or the relevant
Guarantor, as the case may be, for use to repair or replace the damaged,
destroyed or lost property.  In the event the Agent receives insurance
proceeds not attributable to Collateral or business interruption, the Agent
shall deliver any such proceeds to the Borrower or the relevant Guarantor, as
the case may be.

    
      
         

      

      
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    5.21         Environmental
Indemnification.  Indemnify
and hold the Agent and each of the Lenders and their respective shareholders,
officers, directors, employees, agents, attorneys-in-fact and Affiliates and
each trustee for the benefit of the Agent or the Lenders under any Security
Document (each of the foregoing an “Indemnitee”) harmless
from and against any and all claims, losses, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial actions, requirements and enforcement actions of any kind,
and all reasonable costs and expenses incurred in connection therewith
(including attorneys’ fees and expenses), arising directly or indirectly, in
whole or in part, from (a) the presence of any Hazardous Substances on, under,
or from any of its Property, whether prior to or during the term hereof, (b) any
activity carried on or undertaken on any of its Property, whether prior to or
during the term hereof, and whether by it or any of its predecessors in title,
employees, agents, contractors or subcontractors or any other Person at any time
occupying or present on such Property, in connection with the handling,
treatment, removal, storage, decontamination, cleanup, transportation, or
disposal of any Hazardous
Substances at any time located or present on or under such Property, (c) any
residual contamination on or under any of its Property, (d) any contamination of
any Property or natural resources arising in connection with the generation,
use, handling, storage, transportation or disposal of any Hazardous
Substances by it or any of its employees, agents, contractors, or subcontractors
while such Persons are acting within the scope of their relationship with it,
irrespective of whether any of such activities were or will be undertaken in
accordance with applicable Requirements of Law, or (e) the performance and
enforcement of any Loan Document or any other act or omission in connection with
or related to any Loan Document or the transactions contemplated thereby,
including any such claim, loss, damage, liability, fine, penalty, charge,
administrative or judicial proceeding, order, judgment, remedial action,
requirement, enforcement action, cost or expense, arising from the negligence
(but not the gross negligence or willful misconduct), whether sole or
concurrent, of any Indemnitee; with the foregoing indemnity surviving
satisfaction of all Obligations and the termination of this Agreement, unless
all such Obligations have been satisfied wholly in cash and not by way of
realization against any Collateral or the conveyance of any Property in lieu
thereof, provided that such indemnity shall not extend to any act or omission by
the Agent or any Lender with respect to any Property subsequent to the Agent or
any Lender becoming the owner of such Property and with respect to which
Property such claim, loss, damage, liability, fine, penalty, charge, proceeding,
order, judgment, action or requirement arises subsequent to the acquisition of
title thereto by the Agent or any Lender.  All amounts due under this
Section
5.21 shall be
payable on written demand therefor.

     

    5.22         General
Indemnification.  Indemnify
and hold each Indemnitee harmless from and against any and all losses, claims,
damages, liabilities and related expenses, including reasonable counsel fees and
expenses (including the allocated cost of internal counsel), incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (a) the execution and delivery of this Agreement and the other Loan
Documents, the performance by the parties hereto and thereto of their respective
obligations hereunder and thereunder and consummation of the transactions
contemplated hereby and thereby, (b) the use of proceeds of the Loans or Letters
of Credit, or (c) any claim, litigation, investigation or proceeding relating to
any of the foregoing, whether or not any Indemnitee is a party thereto,
including any such loss, claim, damage, liability or expense arising from the
negligence (but not the gross negligence or willful misconduct), whether sole or
concurrent, of any Indemnitee; with the foregoing indemnity surviving
satisfaction of all Obligations and the termination of this
Agreement.  All amounts due under this Section
5.22 shall be
payable on written demand therefor.

     

    5.23         Evidence of Compliance with
Anti-Terrorism Laws.  Deliver to the Agent and any Lender any
certification or other evidence requested from time to time by the Agent or such
Lender, in their reasonable discretion, confirming its compliance with the
provisions of Section
6.17.

     

    ARTICLE
VI

     

    NEGATIVE
COVENANTS

     

    So long
as any Obligation remains outstanding or unpaid or any Commitment exists,
neither the Borrower nor any of the Guarantors will:

     

    6.1           Indebtedness.  Create,
incur, assume or suffer to exist any Indebtedness, whether by way of loan or
otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable, taxes and other assessments, in each case incurred in the
ordinary course of business and which are not unpaid in excess of 90 days beyond
invoice date or are being contested in good faith and as to which such reserve
as is required by GAAP has been made, (c) Indebtedness under Commodity Hedge
Agreements (other than those entered into on a speculative basis), including
reimbursement obligations under letters of credit securing or supporting such
Indebtedness, with any Approved Hedge Counterparty, Secured Third Party Hedge
Counterparty or, so long as each such Person is acceptable to the Agent, other
counterparties, provided that (i) such agreements shall not be for a term in
excess of three years, (ii) such agreements shall not be entered into with
respect to more than eighty five percent (85%), in the aggregate, of Projected
Production; provided that such agreements may cover up to one hundred percent
(100%) of Projected Production so long as such agreements covering in excess of
eighty five percent (85%) of Projected Production are floors and (iii) the floor
prices in such agreements are not less than the prices used by the Agent in its
most recent Borrowing Base determination as of the time the relevant agreements
are entered into, (d) Indebtedness under Interest Rate Hedge Agreements with any
Approved Hedge Counterparty, Secured Third Party Hedge Counterparty or, so long
as each such Person is acceptable to the Agent, other counterparties, provided
that such agreements shall not be entered into with respect to notional
principal amounts in excess of one hundred percent (100%) of the Loan Balance,
(e) Indebtedness incurred with respect to all or a portion of the purchase price
of Property acquired in the ordinary course of business not exceeding $500,000
in the aggregate for the Parent on a consolidated basis with its Subsidiaries,
(f) the Indebtedness listed on Schedule 6.1 (but
only until the maturity or prior redemption or payment thereof (g) Indebtedness
from time to time owing by any Subsidiary of the Parent to the Parent, the
Borrower or any other Subsidiary Guarantor, and (h) other unsecured Indebtedness
or Indebtedness secured by a Permitted Lien not exceeding, in the aggregate at
any time, $100,000 for the Parent on a consolidated basis with its consolidated
Subsidiaries.

    
      
         

      

      
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    6.2           Contingent
Obligations.  Create, incur, assume, or suffer to exist any
Contingent Obligation; provided, however, the foregoing restriction shall not
apply to (a) performance guarantees, performance surety or other bonds or
endorsements of items deposited for collection, in each case provided in the
ordinary course of business, (b) trade credit incurred or operating leases
entered into in the ordinary course of business or (c) the
Guaranties.

     

    6.3           Liens.  Create,
incur, assume or suffer to exist any Lien on any of its Oil and Gas Properties
or any other Property, whether now owned or hereafter acquired; provided, however, the
foregoing restriction shall not apply to Permitted Liens.

     

    6.4           Sales of
Assets.  Sell, transfer or otherwise dispose of, in one or any
series of transactions, any of its Property, whether now owned or hereafter
acquired, or enter into any agreement to do so; provided, however, the
foregoing restriction shall not apply to (a) the sale of hydrocarbons or
inventory in the ordinary course of business, provided that no
contract for the sale of hydrocarbons shall obligate the relevant Person to
deliver hydrocarbons produced from any of its Oil and Gas Properties at some
future date without receiving full payment therefor within 60 days of delivery,
(b) the sale or other disposition of Property destroyed, lost, worn out, damaged
or having only salvage value or no longer used or useful in the business in
which it is used, (c) the sale, transfer or other disposition of Property from
the Parent or the Borrower to the Borrower or the Domestic Subsidiaries of the
Parent or from the Subsidiaries of the Parent to the Borrower, (d) so long as no
Default or Event of Default exists, sales or other dispositions of Oil and Gas
Properties or of Subsidiaries of the Parent holding Oil and Gas Properties
between redeterminations of the Borrowing Base as provided in Section 2.10 the
aggregate loan value of which, as assigned thereto by the Agent in the most
recent setting of the Borrowing Base in accordance with the provisions of Section 2.10, equals
ten percent (10%) or less of the amount of the then existing Borrowing Base;
provided, however, in
connection with any such transaction, the then existing Borrowing Base shall be
automatically reduced by an amount equal to such loan value of the relevant
Mortgaged Properties and further provided, however, that, upon
consummation of any such transaction, if a Deficiency exists, the Borrower shall
proceed to cure such Deficiency in accordance with the provisions of Section 2.11(a) or
(e) so long as
no Default or Event of Default exists, sales or other dispositions of Oil and
Gas Properties or Subsidiaries of the Parent holding Oil and Gas Properties
between redeterminations of the Borrowing Base as provided in Section 2.10 the
aggregate loan value of which, as assigned thereto by the Agent in the most
recent setting of the Borrowing Base in accordance with the provisions of Section 2.10, exceeds
ten percent (10%) of the amount of the then existing Borrowing Base with the
consent of the Agent and the Required Lenders; provided, however, that the
Borrowing Base to be in effect immediately upon consummation of any such
transaction shall be established by the Agent, with the approval of the Lenders
as required pursuant to the provisions of Section 9.9, prior to
consummation of the transaction, and further provided, however, that upon
consummation of any such transaction, if a Deficiency exists, the Borrower shall
proceed to cure any such Deficiency in accordance with the provisions of Section
2.11(a).

     

    6.5           Leasebacks.  Enter
into any agreement to sell or transfer any Property and thereafter rent or lease
as lessee such Property or other Property intended for the same use or purpose
as the Property sold or transferred.

    
      
         

      

      
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    6.6           Sale or Discount of
Receivables.  Except to minimize losses on bona fide debts
previously contracted, discount or sell with recourse, or sell for less than the
greater of the face or market value thereof, any of its notes receivable or
accounts receivable.

     

    6.7           Loans or
Advances.  Make or agree to make or allow to remain outstanding
any loans or advances to any Person; provided, however, the
foregoing restriction shall not apply to (a) advances or extensions of credit in
the form of accounts receivable incurred in the ordinary course of business and
upon terms common in the industry for such accounts receivable, (b) advances to
employees for the payment of expenses in the ordinary course of business not
exceeding $50,000 in the aggregate for the Parent on a consolidated basis with
its consolidated Subsidiaries, (c) loans or advances by the Parent to the
Borrower or by the Borrower or any Domestic Subsidiary of the Parent to a
Subsidiary Guarantor or (d) loans or advances by the Parent, the Borrower or any
Domestic Subsidiary of the Parent to any Subsidiary of the Parent which is not a
Subsidiary Guarantor, so long as not exceeding, in the aggregate outstanding at
any time, $10,000,000 when taken with Investments permitted by clause (g) of the
proviso in Section
6.8.

     

    6.8           Investments.  Make
or acquire Investments in, or purchase or otherwise acquire all or substantially
all of the assets of, any Person; provided, however, the
foregoing restriction shall not apply to the purchase or acquisition of (a) Oil
and Gas Properties, (b) Investments in the form of (i) debt securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof, with maturities of no more than one year,
(ii) commercial paper of a domestic issuer rated at the date of acquisition at
least P-2 by Moody’s Investor Service, Inc. or A-2 by Standard & Poor’s
Corporation and with maturities of no more than one year from the date of
acquisition or (iii) repurchase agreements covering debt securities or
commercial paper of the type permitted in this Section, certificates of deposit,
demand deposits, eurodollar time deposits, overnight bank deposits and bankers’
acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through any Lender or any bank or
trust company organized under the laws of the United States of America or any
state thereof and having capital surplus and undivided profits aggregating at
least $100,000,000, (c) other short-term Investments similar in nature and
degree of risk to those described in clause (b) of this Section 6.8, (d)
Investments in money-market funds sponsored or administered by Persons
acceptable to the Agent and which funds invest in short-term Investments similar
in nature and degree of risk to those described in clause (b) of this Section 6.8, (e)
evidences of loans or advances not prohibited by the provisions of Section 6.7, (f)
Investments by the Parent in the Borrower or by the Borrower or any Domestic
Subsidiary of the Parent in a Subsidiary Guarantor or (g) other Investments made
by the Parent, the Borrower or any Domestic Subsidiary in any Subsidiary of the
Parent which is not a Subsidiary Guarantor, so long as not exceeding, in the
aggregate, $10,000,000 and (ii) the aggregate outstanding balance of loans and
advances permitted by clause (d) of the proviso in Section
6.7.

     

    6.9           Dividends, Distributions and
Certain Payments.  Declare, pay or make, whether in cash or
Property, any dividend or distribution on, or purchase redeem or otherwise
acquire for value, any of its equity interests; provided, however, that, so
long as no Default or Event of Default exists or would result therefrom, the
foregoing restriction shall not apply to (a) dividends paid in equity interests,
(b) dividends or distributions made to the Borrower or any of its Domestic
Subsidiaries by any of their respective Domestic Subsidiaries or purchases or
redemptions by the Borrower or any of its Domestic Subsidiaries of any equity
interests of any of its Domestic Subsidiaries, (c) dividends and distributions
made by the Borrower to the Parent or purchases or redemptions by the Borrower
of equity interests in the Borrower held by the Parent; provided, however, that such
dividends, distributions, purchases or redemptions made by the Borrower to the
Parent shall not exceed the amount necessary for the payment by the Parent of
its cash operating expenses, including general and administrative expenses
(including director fees and expenses, premiums for directors and officers
insurance, audit fees and expenses, fees and expenses in connection with the
preparation of tax returns and fees and expenses in connection with compliance
with securities laws applicable to the Parent, to the extent, as to all of the
foregoing, reasonable), Taxes and the Indebtedness of the Parent listed on Schedule 6.1, (d) the
purchase, redemption or other acquisition for value of any equity interests of
the Parent held by any current or former director or employee of the Parent
pursuant to any director or employee equity subscription agreement or plan,
stock option agreement or similar agreement or plan, provided that the aggregate
price paid for all such purchased, redeemed or acquired equity interests may not
exceed $500,000 in any calendar year, plus the amount of any such allowance not
used in any prior calendar year, or (e) the acquisition of equity interests in
the Parent by the Parent in connection with the exercise of stock options or
stock appreciation rights by way of cashless exercise.

    
      
         

      

      
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    6.10         Issuance of Equity; Changes
in Corporate Structure.  Except for issuances of common shares
by the Parent, issue or agree to issue any equity interests constituting
Indebtedness or any additional common equity interests to Persons other than its
current equity owners; enter into any transaction of consolidation, merger or
amalgamation; or liquidate, wind up or dissolve (or suffer any liquidation or
dissolution); provided, however, that the
foregoing shall not restrict (i) transactions of merger, consolidation or
amalgamation among any of the Domestic Subsidiaries of the Parent or, if the
Borrower is the surviving entity, between the Borrower and any Domestic
Subsidiary of the Parent, (ii) or any liquidation winding up or dissolution of a
Domestic Subsidiary of the Borrower, or (iii) any domestication, merger,
consolidation or amalgamation involving the Parent undertaken for the primary
purpose of causing the Parent to continue its existence as, or causing its
successor to be, a corporation formed and subject to the corporate laws of
either the State of Delaware or the State of Texas, provided that the effect of
such transaction is that all debts, liabilities and duties of Parent, or its
corporate successor, shall remain attached to Parent, or its corporate
successor, and may be enforced to the same extent as such debts, liabilities and
duties had originally been incurred or contracted by Parent in its capacity as a
corporation incorporated under the laws of the Province of Alberta, Canada, and
all rights of creditors of Parent and liens upon any property of Parent shall be
preserved unimpaired.

     

    6.11         Transactions with
Affiliates.  Directly or indirectly, enter into any transaction
(including the sale, lease or exchange of Property or the rendering of service)
with any of its Affiliates (other than transactions entered into in the normal
course of business between the Parent and the Borrower or between the Parent,
the Borrower or a Domestic Subsidiary of the Parent with another Domestic
Subsidiary of the Parent not otherwise prohibited hereunder), other than upon
fair and reasonable terms no less favorable than could be obtained in an arm’s
length transaction with a Person which was not an Affiliate.

     

    6.12         Lines of
Business.  Change its principal line of business from that in
which it is engaged as of the date hereof.  For the avoidance of
doubt, the acquisition of interests in power generation assets for the purpose
of converting natural gas production to electricity to facilitate the sale of
such natural gas shall not be prohibited.

     

    6.13         Plan
Obligation.  Assume or otherwise become subject to an
obligation to contribute to or maintain any Plan or acquire any Person which has
at any time had an obligation to contribute to or maintain any
Plan.

     

    6.14         Current
Ratio.  Permit the ratio, determined as of the end of each
quarter of each fiscal year of the Parent, commencing with that ending on
December 31, 2009, of Current Assets to Current Liabilities to be less than 1.00
to 1.00.

     

    6.15         Total Net Indebtedness to
EBITDA Ratio.  Permit the ratio, determined as of the end of
each quarter of each fiscal year of the Parent, commencing with that ending on
December 31, 2009, of (a) Indebtedness of the Parent, on a consolidated
basis with its consolidated Subsidiaries, for borrowed money (exclusive, for the
avoidance of doubt, of trade accounts payable and accrued liabilities, net
unrealized losses or charges in respect of Commodity Hedge Agreements or
Interest Rate Hedge Agreements and the undrawn, unexpired amount of all
outstanding Letters of Credit, if such would otherwise be included) in excess of
the amount of unrestricted (other than pursuant to applicable provisions of this
Agreement or any other Loan Document cash or cash equivalents of the Parent on a
consolidated basis with its consolidated Subsidiaries to (b) EBITDA for the
preceding four quarterly periods (including that ended on the date of
determination) to be more than 4.00 to 1.00.

     

    6.16         Interest Coverage
Ratio.  Permit the ratio, determined as of the end of each
quarter of each fiscal year of the Parent, commencing with that ending on
December 31, 2009, of (a) EBITDA for the preceding four quarterly periods
(including that ended on the date of determination) to (b) Interest Expense,
other than any cost arising from the extinguishment of any Indebtedness prior to
the maturity of such Indebtedness, for the preceding four quarterly periods
(including that ended on the date of determination) to be less than 2.50 to
1.00.

     

    6.17         Anti-Terrorism
Laws.  Conduct any business or engage in any transaction or
dealing with any Blocked Person, including the making or receiving of any
contribution of funds, goods or services to or for the benefit of any Blocked
Person; deal in, or otherwise engage in any transaction relating to, any
Property or interests in Property blocked pursuant to Executive Order No. 13224;
or engage in or conspire to engage in any transaction that evades or avoids, or
has the purpose of evading or avoiding, or attempts to violate, (i) any of the
prohibitions set forth in Executive Order No. 13224 or the USA Patriot Act, or
(ii) any prohibitions set forth in the rules or regulations issued by OFAC or
any sanctions against targeted foreign countries, terrorism sponsoring
organizations, and international narcotics traffickers based on United States
foreign policy.

    
      
         

      

      
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    ARTICLE
VII

     

    EVENTS OF
DEFAULT

     

    7.1           Enumeration of Events of
Default.  Any of the following events shall constitute an Event
of Default:

     

    (a)           default
shall be made in the payment when due of (i) any installment of principal or
interest under this Agreement or the Notes, (ii) in the payment when due of any
fee or other sum payable under any Loan Document, or (iii) any Indebtedness of
the Borrower under any Commodity Hedge Agreement or Interest Rate Hedge
Agreement with any Approved Hedge Counterparty permitted or required under
applicable provisions of this Agreement;

     

    (b)           default
shall be made by the Borrower or any of the Guarantors in the due observance or
performance of any of its obligations, covenants or agreements under the Loan
Documents, and, as to compliance with the obligations, covenants or agreements
under Article V
(other than Section
5.14), such default shall continue for 30 days after the earlier of
notice thereof by the Agent or knowledge thereof by the Borrower or the relevant
Guarantors, as the case may be;

     

    (c)           any
representation or warranty made by or on behalf of the Borrower or any of the
Guarantors in any of the Loan Documents proves to have been untrue in any
material respect or any representation, statement (including Financial
Statements), certificate or data furnished or made to the Agent or any Lender in
connection herewith proves to have been untrue in any material respect as of the
date the facts therein set forth were stated or certified;

     

    (d)           default
shall be made by the Borrower or any of the Guarantors (as principal or
guarantor or other surety) in the payment or performance of any bond, debenture,
note, or other Indebtedness in excess of $500,000 in the aggregate or under any
credit agreement, loan agreement, indenture, promissory note or similar
agreement or instrument executed in connection with any of the foregoing, and
such default shall remain unremedied for in excess of the period of grace, if
any, with respect thereto or there shall occur any event or condition in respect
of any such Indebtedness which would allow the holders thereof to require such
Indebtedness to be repaid, repurchased or redeemed;

     

    (e)           the
levy against any significant portion of the Property of the Borrower or any of
the Guarantors of any execution, garnishment, attachment, sequestration or other
writ or similar proceeding in an amount in excess of $1,000,000 which is not
permanently dismissed or discharged within 60 days after the levy;

     

    (f)           the
Borrower or any of the Guarantors shall (i) apply for or consent to the
appointment of a receiver, trustee, or liquidator of it or all or a substantial
part of its assets, (ii) file a voluntary petition commencing an Insolvency
Proceeding, (iii) make a general assignment for the benefit of creditors of all
or substantially all of its assets, (iv) be unable, or admit in writing its
inability, to pay its debts generally as they become due, or (v) file an answer
admitting the material allegations of a petition filed against it in any
Insolvency Proceeding;

     

    (g)          an
order, judgment or decree shall be entered against the Borrower or any of the
Guarantors by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise, granting
relief in any Insolvency Proceeding or approving a petition seeking
reorganization or an arrangement of its debts or appointing a receiver, trustee,
conservator, custodian, or liquidator of it or all or any substantial part of
its assets, and such order, judgment, or decree shall not be dismissed or stayed
within 60 days;

     

    (h)          a
final and non-appealable order, judgment or decree shall be entered against the
Borrower or any of the Guarantors for money damages and/or Indebtedness due in
an amount in excess of $1,000,000, and such order, judgment or decree shall not
be dismissed or stayed within 60 days or is not fully covered by
insurance;

    
      
         

      

      
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    (i)           any
charges are filed or any other action or proceeding is instituted by any
Governmental Authority against the Borrower or any of the Guarantors under the
Racketeering Influence and Corrupt Organizations Statute (18 U.S.C. §1961 et seq.), the result of
which could be the forfeiture or transfer of any material Property of the
Borrower or any of the Guarantors subject to a Lien in favor of the Agent
without (i) satisfaction or provision for satisfaction of such Lien or (ii) such
forfeiture or transfer of such Property being expressly made subject to such
Lien;

     

    (j)           the
Borrower or any of the Guarantors shall have (i) concealed, removed or diverted,
or permitted to be concealed, removed or diverted, any part of its Property,
with intent to hinder, delay or defraud its creditors or any of them, (ii) made
or suffered a transfer of any of its Property which is fraudulent under any
bankruptcy, fraudulent conveyance, or similar law with intent to hinder, delay
or defraud its creditors, (iii) made any transfer of its Property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid with intent to hinder, delay or defraud its creditors, or (iv) shall
have suffered or permitted, while insolvent, any creditor to obtain a Lien upon
any of its Property through legal proceedings or distraint which is not vacated
within 60 days from the date thereof;

     

    (k)           any
Security Document shall for any reason not, or cease to, create valid and
perfected first priority Liens (subject only to Permitted Liens) against the
Collateral purportedly covered thereby, except to the extent permitted by this
Agreement or cured or corrected on or before the tenth day after notice thereof
to the Borrower or the Borrower otherwise becoming aware thereof;

     

    (l)          
 the Parent shall cease to be the sole shareholder of the Borrower or the
Borrower or one of the Subsidiary Guarantors shall cease to be the sole
shareholder or member or the sole general partner of any Subsidiary
Guarantor;

     

    (m)          the
Borrower or any of the Guarantors contests in any manner the validity or
enforceability of any provision of any Loan Document, or denies that it has any
liability under any Loan Document;

     

    (n)          as
of the end of any calendar month during which the Borrower or any of the
Guarantors had Commodity Hedge Agreements (other than floors) in effect for
volumes in excess of the volumes of reserves projected to be produced in the
most recent Reserve Report provided pursuant to the provisions of Section 5.4, the
notional amount of hydrocarbon production for such calendar month under such
Commodity Hedge Agreements exceeds actual production from the Oil and Gas
Properties of the Borrower and the Guarantors for such calendar month; provided, however, that, for
the first 30 days only following any curtailment of production from any of the
Oil and Gas Properties of the Borrower or any of the Guarantors due to any
condition, event or occurrence downstream of a wellhead and not within the
reasonable control of the Borrower or the relevant Guarantor (including any
matter with respect to third party pipelines or processing facilities), for
purposes of this clause (p) each well so affected shall be deemed to have
continued to produce during such 30 day period at the level at which it was
producing immediately prior to the relevant curtailment; or

     

    (o)           the
Borrower or any of the Guarantors purports to revoke, terminate or rescind any
Loan Document or any provision of any Loan Document.

     

    7.2           Remedies.  (a)
Upon the occurrence of an Event of Default specified in Section 7.1(f) or
Section 7.1(g),
immediately and without notice, (i) all Obligations under the Loan Documents
shall automatically become immediately due and payable, without presentment,
demand, protest, notice of protest, default, or dishonor, notice of intent to
accelerate maturity, notice of acceleration of maturity, or other notice of any
kind, except as may be provided to the contrary elsewhere herein, all of which
are hereby expressly waived by the Borrower and the Guarantors and (ii) the
Commitments shall immediately cease and terminate unless and until reinstated by
the Agent and the Lenders in writing.

    
      
         

      

      
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    (b)           Upon
the occurrence of any Event of Default other than those specified in Section 7.1(f) or
Section 7.1(g),
(i) the Agent may and, upon the request of the Required Lenders, shall, by
notice in writing to the Borrower, declare all Obligations under the Loan
Documents immediately due and payable, without presentment, demand, protest,
notice of protest, default, or dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity, or other notice of any kind,
except as may be provided to the contrary elsewhere herein, all of which are
hereby expressly waived by the Borrower and the Guarantors and (ii) the Agent
may and, upon the request of the Required Lenders, shall declare the Commitments
terminated, whereupon the Commitments shall immediately cease and terminate
unless and until reinstated by the Agent and the Lenders in
writing.

    (c)           Upon
the occurrence of any Event of Default, the Agent may, in addition to the
foregoing in this Section 7.2, exercise
any or all of the rights and remedies provided by law or pursuant to the Loan
Documents.

     

    (d)           Should
the Obligations under the Loan Documents become immediately due and payable in
accordance with any of the preceding subsections of this Section 7.2, the
obligation of the Borrower with respect to the L/C Exposure shall be to provide
cash as Collateral therefor, to be held and administered by the Agent as
provided in Section
2.11(a) with respect to mandatory prepayments and, failing receipt by the
Agent of immediate payment in full of the Loan Balance, any additional
Obligations then due and payable, and all accrued and unpaid interest and fees
and such cash to serve as Collateral for the L/C Exposure, the Agent shall be
entitled to proceed against the Collateral, and proceeds from any realization
against any such Collateral, other than cash, in excess of the sum of the costs
of such realization, the Loan Balance, any additional Obligations then due and
payable, and accrued and unpaid interest and fees shall constitute cash
Collateral for the remaining L/C Exposure, if any, to be held and administered
by the Agent as provided in Section
2.11(a).

     

    (e)           Proceeds
from realization against the Collateral and any other funds received by the
Agent from the Borrower or any of the Guarantors when an Event of Default has
occurred and is continuing shall be applied (i) first, to fees and expenses due
pursuant to the terms of this Agreement, any other Loan Document or any
Commodity Hedge Agreement or Interest Rate Hedge Agreement with an Approved
Hedge Counterparty, (ii) second, to accrued interest on the Obligations under
the Loan Documents or any Commodity Hedge Agreement or Interest Rate Hedge
Agreement with an Approved Hedge Counterparty, (iii) third, to the Loan Balance,
in any manner elected by the Agent (with the consent of the Required Lenders),
and any other Obligations then due and payable, pro rata in accordance with the
ratio of the Loan Balance or such other Obligations, as the case may be, to the
sum of the Loan Balance and such other Obligations and (iv) as provided in
subsection (d) immediately above, if applicable

     

    ARTICLE
VIII

     

    THE
AGENT

     

    8.1           Appointment.  Each
Lender hereby designates and appoints the Agent as the agent of such Lender
under this Agreement and the other Loan Documents.  The Agent shall
also act hereunder as agent for all Approved Hedge
Counterparties.  Each Lender authorizes the Agent, as the agent for
such Lender, to take such action on behalf of such Lender under the provisions
of this Agreement and the other Loan Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto.  Notwithstanding any provision to the
contrary elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities except those expressly set forth
herein or in any other Loan Document or any fiduciary relationship with any
Lender; and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities on the part of the Agent shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Agent.

     

    8.2           Delegation of
Duties.  The Agent may execute any of its duties under this
Agreement and the other Loan Documents by or through agents or attorneys-in-fact
and shall be entitled to advice of counsel concerning all matters pertaining to
such duties.  The Agent shall not be responsible to any Lender for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.

    
      
         

      

      
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    8.3           Exculpatory
Provisions.  Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (a)
required to initiate or conduct any litigation or collection proceedings
hereunder, except with the contribution by each Lender of its Percentage Share
of costs reasonably expected by the Agent to be incurred in connection
therewith, (b) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for gross negligence or willful misconduct of the Agent or such
Person) or (c) responsible in any manner to any Lender or any other Approved
Hedge Counterparty for any recitals, statements, representations or warranties
made by the Borrower or any of the Guarantors or any officer or representative
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower or any of the Guarantors to perform its
obligations hereunder or thereunder.  The Agent shall not be under any
obligation to any Lender or any other Approved Hedge Counterparty to ascertain
or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of the Borrower or any of the
Guarantors.

     

    8.4           Reliance by
Agent.  The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including counsel to
the Borrower or any of the Guarantors), independent accountants and other
experts selected by the Agent.  The Agent may deem and treat the payee
of any Note as the owner thereof for all purposes unless and until a written
notice of assignment, negotiation, or transfer thereof shall have been received
by the Agent.  The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required Lenders
as it deems appropriate and contribution by each Lender of its Percentage Share
of costs reasonably expected by the Agent to be incurred in connection
therewith.  The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the other Loan Documents
in accordance with a request of the Required Lenders.  Such request
and any action taken or failure to act pursuant thereto shall be binding upon
the Lenders and all future holders of the Notes.  In no event shall
the Agent be required to take any action that exposes the Agent to personal
liability or that is contrary to any Loan Document or applicable Requirement of
Law.

     

    8.5           Notice of
Default.  The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default unless the Agent has
received notice from a Lender, the Borrower or any of the Guarantors referring
to this Agreement, describing such Default or Event of Default and stating that
such notice is a “notice of default.”  In the event that the Agent
receives such a notice, the Agent shall promptly give notice thereof to the
Lenders.  The Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided that unless and until the Agent shall have received such
directions, subject to the provisions of Section 7.2, the
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.  In the event
that the officer of the Agent primarily responsible for the lending relationship
with the Borrower or the officer of any Lender primarily responsible for the
lending relationship with the Borrower becomes aware that a Default or Event of
Default has occurred and is continuing, the Agent or such Lender, as the case
may be, shall use its good faith efforts to inform the other Lenders and/or the
Agent, as the case may be, promptly of such
occurrence.  Notwithstanding the preceding sentence, failure to comply
with the preceding sentence shall not result in any liability to the Agent or
any Lender.

     

    8.6           Non-Reliance on Agent and
Other Lenders.  Each Lender expressly acknowledges that neither
the Agent nor any other Lender nor any of their respective officers, directors,
employees, agents, attorneys-in-fact or affiliates has made any representation
or warranty to such Lender and that no act by the Agent or any other Lender
hereafter taken, including any review of the affairs of the Borrower or any of
the Guarantors, shall be deemed to constitute any representation or warranty by
the Agent or any Lender to any other Lender.  Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, condition (financial and otherwise) and creditworthiness
of the Borrower and the value of the Collateral and other Properties of the
Borrower or any other Person and has made its own decision to enter into this
Agreement.  Each Lender also represents that it will, independently
and without reliance upon the Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, condition (financial and otherwise) and creditworthiness
of the Borrower and the value of the Collateral and other Properties of the
Borrower or any other Person.  Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial and otherwise), or creditworthiness of the
Borrower or the value of the Collateral or other Properties of the Borrower or
any other Person which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or
affiliates.

    
      
         

      

      
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    8.7           Indemnification.  Each Lender
agrees to indemnify the Agent and its officers, directors, employees, agents,
attorneys-in-fact and Affiliates (to the extent not reimbursed by the Borrower
and without limiting the obligation of the Borrower to do so), ratably according
to the Percentage Share of such Lender, from and against any and all
liabilities, claims, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind whatsoever which
may at any time (including any time following the payment and performance of all
Obligations and the termination of this Agreement) be imposed on, incurred by or
asserted against the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates in any way relating to or arising out of this
Agreement or any other Loan Document, or any other document contemplated or
referred to herein or the transactions contemplated hereby or any action taken
or omitted by the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates under or in connection with any of the
foregoing, including any liabilities, claims, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements imposed,
incurred or asserted as a result of the negligence, whether sole or concurrent,
of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates; provided that no
Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the gross negligence or willful
misconduct of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.  The agreements in this Section
8.7 shall
survive the payment and performance of all Obligations and the termination of
this Agreement.

     

    8.8           Restitution.  Should
the right of the Agent or any Lender to realize funds with respect to the
Obligations be challenged and any application of such funds to the Obligations
be reversed, whether by Governmental Authority or otherwise, or should the
Borrower otherwise be entitled to a refund or return of funds distributed to the
Lenders in connection with the Obligations, the Agent or such Lender, as the
case may be, shall promptly notify the Lenders of such fact.  Not
later than noon, Central Standard or Central Daylight Savings Time, as the case
may be, of the Business Day following such notice, each Lender shall pay to the
Agent an amount equal to the ratable share of such Lender of the funds required
to be returned to the Borrower.  The ratable share of each Lender
shall be determined on the basis of the percentage of the payment all or a
portion of which is required to be refunded originally distributed to such
Lender, if such percentage can be determined, or, if such percentage cannot be
determined, on the basis of the Percentage Share of such Lender.  The
Agent shall forward such funds to the Borrower or to the Lender required to
return such funds.  If any such amount due to the Agent is made
available by any Lender after Noon, Central Standard or Central Daylight Savings
Time, as the case may be, of the Business Day following such notice, such Lender
shall pay to the Agent (or the Lender required to return funds to the Borrower,
as the case may be) for its own account interest on such amount at a rate equal
to the Federal Funds Rate for the period from and including the date on which
restitution to the Borrower is made by the Agent (or the Lender required to
return funds to the Borrower, as the case may be,) to, but not including, the
date on which such Lender failing to timely forward its share of funds required
to be returned to the Borrower shall have made its ratable share of such funds
available.

     

    8.9           Agent in Its Individual
Capacity.  The Agent and its Affiliates may make loans to,
accept deposits from, and generally engage in any kind of business with the
Borrower as though the Agent were not the agent hereunder.  With
respect to any Note issued to the Lender serving as the Agent, the Agent shall
have the same rights and powers under this Agreement as a Lender and may
exercise such rights and powers as though it were not the Agent.  The
terms “Lender”
and “Lenders”
shall include the Agent in its individual capacity.

    
      
         

      

      
        -50-

        
          

        

      

      
         

      

    

    8.10           Successor
Agent.  The Agent may resign as Agent upon ten days’ notice to
the Lenders, all Approved Hedge Counterparties under then existing Commodity
Hedge Agreements or Interest Rate Hedge Agreements and the
Borrower.  If the Agent shall resign as Agent under this Agreement and
the other Loan Documents, Lenders (other than the Agent in its capacity as a
Lender) for which the Percentage Shares aggregate at least fifty-one percent
(51%) of the Percentage Shares of all Lenders (other than the Agent in its
capacity as a Lender) shall appoint from among the Lenders a successor agent for
the Lenders and the Approved Hedge Counterparties, whereupon such successor
agent shall succeed to the rights, powers and duties of the Agent; provided,
however, should the Agent resign at a point when all Loans, accrued interest and
fees hereunder have been paid in full and the Commitments have terminated,
resulting in the only then existing Obligations being the liability of the
Borrower under Commodity Hedge Agreements and/or Interest Rate Hedge Agreements
with Approved Hedge Counterparties, the successor agent shall be selected from
among such Approved Hedge Counterparties by majority vote of such Approved Hedge
Counterparties.  The term “Agent” shall mean such successor agent
effective upon its appointment.  The rights, powers, and duties of the
former Agent as Agent shall be terminated, without any other or further act or
deed on the part of such former Agent or any of the parties to this Agreement or
any holders of the Notes.  After the removal or resignation of any
Agent hereunder as Agent, the provisions of this Article VIII and
those of any Section hereof relating to the Agent, including Section 5.16, Section 5.17, Section 5.21 and
Section 5.22
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the other Loan
Documents.

    

    8.11           Applicable
Parties.  The provisions of this Article are solely for the
benefit of the Agent and the Lenders, and neither the Borrower nor any Guarantor
shall have any rights as a third party beneficiary or otherwise under any of the
provisions of this Article.  In performing functions and duties
hereunder and under the other Loan Documents, the Agent shall act solely as the
agent of the Lenders and any other Approved Hedge Counterparties and does not
assume, nor shall it be deemed to have assumed, any obligation or relationship
of trust or agency with or for the Borrower or any of the Guarantors or any
legal representative, successor or assign of any such Person.

     

    8.12           Releases.  Each
Lender hereby authorizes the Agent to release any Collateral that is permitted
to be sold or released pursuant to the terms of the Loan
Documents.  Each Lender hereby authorizes the Agent to execute and
deliver to the Borrower, at the Borrower’s sole cost and expense, any and all
releases of Liens, termination statements, assignments or other documents
reasonably requested by the Borrower in connection with any sale or other
disposition of Property or any Domestic Subsidiary of the Parent to the extent
such sale or other disposition is permitted by the terms of the Loan
Documents.

     

    ARTICLE
IX

     

    MISCELLANEOUS

     

    9.1           Assignments;
Participations.  (a) Neither the Borrower nor any of the
Guarantors may assign any of its rights or delegate any of its obligations under
any Loan Document without the prior consent of the Agent and the
Lenders.

     

    (b)           With
the consent of the Agent and, except when a Default or an Event of Default shall
have occurred and is continuing, the Borrower (which shall not be unreasonably
withheld or delayed in either case), any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
pursuant to an Assignment Agreement; provided, however, (i) such
consents shall not be required with respect to an assignment from one Lender to
one or more other Lenders or Affiliates of Lenders, (ii) the consent of the
Borrower shall not be required with respect to an assignment from a Lender to
one or more Approved Funds or Affiliates of Approved Funds and (iii) any such
assignment shall be in the amount of at least $5,000,000 (or any whole multiple
of $100,000 in excess thereof), unless the relevant assignment is to an
Affiliate of the assigning Lender or is an assignment of the entire Commitment
of the assigning Lender.  The assignee shall pay to the Agent a
transfer fee in the amount of $3,500 for each such assignment.  Any
such assignment shall become effective upon the execution and delivery to the
Agent of an Assignment Agreement and, if required, the consent of the Agent and
the Borrower.  Promptly following receipt of an executed Assignment
Agreement, the Agent shall send to the Borrower a copy of such executed
Assignment Agreement.  Promptly following receipt of such executed
Assignment Agreement, the Borrower shall execute and deliver, at its own
expense, a new Note to the assignee, if such assignee is not then a
Lender.  Upon the effectiveness of any assignment pursuant to this
Section 9.1(b),
the assignee will become a “Lender,” if not already a “Lender,” for all purposes
of the Loan Documents, and the assignor shall be relieved of its obligations
hereunder to the extent of such assignment.  If the assignor no longer
holds any rights or obligations under this Agreement, such assignor shall cease
to be a “Lender” hereunder, except that its rights under Section 5.17, Section 5.21 and
Section 5.22,
shall not be affected.  On the last Business Day of each month during
which an assignment has become effective pursuant to this Section 9.1(b) or
sooner following an assignment, the Agent shall prepare a new Exhibit IV giving
effect to all such assignments effected during such month or any relevant
assignment, as the case may be, and will promptly provide a copy thereof to the
Borrower and each Lender.

    
      
         

      

      
        -51-

        
          

        

      

      
         

      

    

    

    (c)           Each
Lender may transfer, grant, or assign participations in all or any portion of
its interests hereunder to any Person pursuant to this Section 9.1(c), provided that such
Lender shall remain a “Lender” for all purposes of this Agreement and the
transferee of such participation shall not constitute a “Lender”
hereunder.  In the case of any such participation, the participant
shall not have any rights under any Loan Document, the rights of the participant
in respect of such participation to be against the granting Lender as set forth
in the agreement with such Lender creating such participation, and all amounts
payable by the Borrower hereunder shall be determined as if such Lender had not
sold such participation.  Each agreement creating a participation must
include an agreement by the participant to be bound by the provisions of Section 8.3, Section 8.6 and Section
8.7.

     

    (d)           The
Lenders may furnish any information concerning the Borrower or any of the
Guarantors in the possession of the Lenders from time to time to assignees and
participants and prospective assignees and participants.

     

    (e)           Notwithstanding
anything in this Section 9.1 to the
contrary, any Lender may assign and pledge all or any of its Notes or any
interest therein to any Federal Reserve Bank or the United States Treasury as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
System and/or such Federal Reserve Bank.  No such assignment or pledge
shall release the assigning or pledging Lender from its obligations
hereunder.

     

    (f)           Notwithstanding
any other provisions of this Section, no transfer or assignment of the interests
or obligations of any Lender or grant of participations therein shall be
permitted if such transfer, assignment, or grant would require the Borrower to
file a registration statement with the Securities and Exchange Commission or any
successor Governmental Authority or qualify the Loans under the “Blue Sky” laws
of any state.

     

    9.2           Survival of Representations,
Warranties, and Covenants.  All representations and warranties
of the Borrower and the Guarantors and all covenants and agreements of the
Borrower and the Guarantors herein made shall survive the execution and delivery
of the Notes and the Security Documents and shall remain in force and effect so
long as any Obligation is outstanding or any Commitment exists.

     

    9.3           Notices and Other
Communications.  Except as to oral notices expressly authorized
herein, which oral notices shall be confirmed in writing, all notices, requests,
and communications hereunder shall be in writing (including by facsimile,
electronic mail or other electronic form).  Unless otherwise expressly
provided herein, any such notice, request, demand, or other communication shall
be deemed to have been duly given or made when delivered by hand, or, in the
case of delivery by mail, five days after being deposited in the mail, certified
mail, return receipt requested, postage prepaid, or, in the case of facsimile
notice, when receipt thereof is acknowledged orally or by written confirmation
report, addressed as follows:

     

    
      	
            	
              (a)

            	
              if
      to the Agent, to:

            

    

     

    Amegy
Bank National Association

    4400 Post
Oak Parkway, 4th Floor

    Houston,
Texas  77027

    Attention:  Energy
Lending Dept.

    Facsimile:  (713)
561-0345

    
      
         

      

      
        -52-

        
          

        

      

      
         

      

    

    

    or for
notice by mail:

     

    Amegy
Bank National Association

    P.O. Box
27459

    Houston,
Texas  77227-7459

    Attention:  Energy
Lending Dept.

     

    (b)          if
to any Lender, to the address, including facsimile number, of such Lender
reflected on Exhibit
IV or any replacement thereof.

     

    
      	
            	
              (c)

            	
              if
      to the Borrower or any of the Guarantors,
to:

            

    

     

    1331
Lamar Street, Suite 1080

    Houston,
Texas  77010

    Attention:  Treasurer/Chief
Financial Officer

    Facsimile:  (713)
739-0458

     

    Any party
may, by proper written notice hereunder to the others, change the individuals or
addresses to which such notices to it shall thereafter be sent.

     

    9.4           Parties in
Interest.  Subject to the restrictions on changes in structure
set forth in Section
6.10 and other applicable restrictions contained herein, all covenants
and agreements herein contained by or on behalf of the Borrower, any of the
other Guarantors, the Agent or the Lenders shall be binding upon and inure to
the benefit of the Borrower, any of the other Guarantors, the Agent or the
Lenders, as the case may be, and their respective legal representatives,
successors, and permitted assigns.

     

    9.5           Renewals;
Extensions.  All provisions of this Agreement relating to the
Notes shall apply with equal force and effect to each promissory note hereafter
executed which in whole or in part represents a renewal or extension of any part
of the Indebtedness of the Borrower under this Agreement, the Notes, or any
other Loan Document.

     

    9.6           Rights of Third
Parties.  All provisions herein are imposed solely and
exclusively for the benefit of the Agent, the Lenders, any other Approved Hedge
Counterparties, the Borrower and the Guarantors.  No other Person
shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms.

     

    9.7           No Waiver; Rights
Cumulative.  No course of dealing on the part of the Agent or
the Lenders or their officers or employees, nor any failure or delay by the
Agent or the Lenders with respect to exercising any of their rights under any
Loan Document shall operate as a waiver thereof.  The rights of the
Agent and the Lenders under the Loan Documents shall be cumulative and the
exercise or partial exercise of any such right shall not preclude the exercise
of any other right.  Neither the making of any Loan nor the issuance
of any Letter of Credit shall constitute a waiver of any of the covenants,
warranties, or conditions of the Borrower contained herein.  In the
event the Borrower is unable to satisfy any such covenant, warranty, or
condition, neither the making of any Loan nor the issuance of any Letter of
Credit shall have the effect of precluding the Agent or the Lenders from
thereafter declaring such inability to be an Event of Default as hereinabove
provided.

     

    9.8           Survival Upon
Unenforceability.  In the event any one or more of the
provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.

    
      
         

      

      
        -53-

        
          

        

      

      
         

      

    

    9.9           Amendments;
Waivers.  Neither this Agreement nor any provision hereof may
be amended, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the amendment,
waiver, discharge or termination is sought.  Subject to the preceding
sentence, any provision of this Agreement or any other Loan Document may be
amended, modified or waived by the Borrower, the Guarantors and the Required
Lenders; provided that, notwithstanding any provision of this Agreement to the
contrary, (a) no amendment, modification or waiver which extends the final
maturity of the Loans, increases the Commitment Amount, increases, affirms or
reduces the Borrowing Base or the Monthly Reduction Amount, forgives the
principal amount of any Indebtedness of the Borrower outstanding under this
Agreement or interest thereon or fees owing under this Agreement or the Fee
Letter, releases any guarantor of such Indebtedness, releases all or
substantially all of the Collateral, reduces the interest rate applicable to the
Loans or the fees payable to the Lenders generally, affects Section 2.1, Section 2.2, Section 7.2(c) or
this Section
9.9, modifies the definition of “Required Lenders” or postpones the date
of payment of any amount due as a result of the Monthly Reduction Amount or any
fee payable hereunder or under the Fee Letter shall be effective without the
consent of each Lender effected thereby; (b) no amendment, modification or
waiver which increases the Facility Amount or the Percentage Share of any Lender
shall be effective without the consent of such Lender; and (c) no amendment,
modification or waiver which modifies the rights, duties or obligations of the
Agent shall be effective without the consent of the Agent.

     

    9.10           Controlling
Agreement.  In the event of a conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control.

     

    9.11           Disposition of
Collateral.  Notwithstanding any term or provision, express or
implied, in any of the Security Documents, but subject to applicable provisions
of this Agreement, the realization, liquidation, foreclosure or any other
disposition on or of any or all of the Collateral shall be in the order and
manner and determined in the sole discretion of the Agent; provided, however,
that in no event shall the Agent violate applicable law or exercise rights and
remedies other than those provided in such Security Documents or otherwise
existing at law or in equity.

     

    9.12           Governing
Law.  This
Agreement and the Notes shall be deemed to be contracts made under and shall be
construed in accordance with and governed by the laws of the State of Texas,
without giving effect to principles thereof relating to conflicts of
law.

     

    9.13           Waiver of Right to Jury
Trial.  The
Borrower and each of the Guarantors hereby knowingly, voluntarily,
intentionally, irrevocably and unconditionally waives all rights to trial by
jury in any action, suit, proceeding, counterclaim or other litigation that
relates to or arises out of this Agreement or any other Loan Document or the
acts or omissions of the Agent or any Lender in the enforcement of any of the
terms or provisions of this Agreement or any other Loan Document or otherwise
with respect thereto.  The provisions of this Section
9.13 are a
material inducement for the Agent and each of the Lenders to enter into this
Agreement.

     

    9.14           Waiver of Class
Action.  The
Borrower and each of the Guarantors waives the right to litigate any claim,
dispute or controversy with respect to this Agreement or any other Loan Document
as a class action, either as a member of a class or as a representative, or to
act as a private attorney general.

     

    9.15           Jurisdiction and
Venue.  All actions
or proceedings with respect to, arising directly or indirectly in connection
with, out of, related to or from this Agreement or any other Loan Document may
be litigated, at the sole discretion and election of the Agent, in courts having
situs in Houston, Harris County, Texas.  In such regard, the Borrower
and each of the Guarantors hereby submits to the jurisdiction of any local,
state or federal court located in Houston, Harris County, Texas, and hereby
waives any rights it may have to transfer or change the jurisdiction or venue of
any litigation brought against it by the Agent or any Lender in accordance with
this Section
9.15.

     

    9.16           Integration.  This
Agreement and the other Loan Documents constitute the entire agreement among the
parties hereto and thereto with respect to the subject hereof and thereof and
shall supersede any prior agreement among the parties hereto and thereto,
whether written or oral, relating to the subject hereof and thereof, including
any term sheet provided to the Borrower by the Agent or any
Lender.  Furthermore, in this regard, this Agreement and the other
written Loan Documents represent, collectively, the final agreement among the
parties thereto and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of such parties.  There
are no unwritten oral agreements among such parties.

    
      
         

      

      
        -54-

        
          

        

      

      
         

      

    

    

    9.17           Waiver of Punitive and
Consequential Damages.  Each of the
Borrower, the Guarantors, the Agent and the Lenders hereby knowingly,
voluntarily, intentionally and irrevocably (a) waives, to the maximum extent it
may lawfully and effectively do so, any right it may have to claim or recover,
in any dispute based hereon, or directly or indirectly at any time arising out
of, under or in connection with the Loan Documents or any transaction
contemplated thereby or associated therewith, before or after maturity, any
special, exemplary, punitive or consequential damages, or damages other than, or
in addition to, actual damages and (b) acknowledges that it has been induced to
enter into this Agreement, the other Loan Documents and the transactions
contemplated hereby and thereby by, among other things, the mutual waivers and
certifications contained in this Section
9.17.

     

    9.18           Counterparts.  For
the convenience of the parties, this Agreement may be executed in multiple
counterparts and by different parties hereto in separate counterparts, each of
which for all purposes shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same Agreement and shall
be enforceable as of the date hereof upon the execution of one or more
counterparts hereof by each of the parties hereto.  In this regard,
each of the parties hereto acknowledges that a counterpart of this Agreement
containing a set of counterpart execution pages reflecting the execution of each
party hereto shall be sufficient to reflect the execution of this Agreement by
each party hereto and shall constitute one instrument.

     

    9.19           USA Patriot Act
Notice.  Each Lender and the Agent (for itself and not on
behalf of any Lender) hereby notifies the Borrower that, pursuant to the
requirements of the USA Patriot Act, it is required to obtain, verify and record
information that identifies the Borrower, which information includes the name
and address of the Borrower and other information that will allow such Lender or
the Agent, as applicable, to identify the Borrower in accordance with the USA
Patriot Act.

     

    9.20           Tax Shelter
Regulations.  The Borrower does not intend to treat the Loans
and related transactions hereunder and under the other Loan Documents as a
“reportable transaction” (within the meanings under current Treasury Regulation
Section 1.6011-4 and Proposed Treasury Regulation Section 1.6011-4, promulgated
on November 1, 2006).  In the event the Borrower determines to take
any action inconsistent with the foregoing statement, it will promptly notify
the Agent thereof.  If the Borrower so notifies the Agent, the
Borrower acknowledges that one or more of the Lenders may treat its Loans and
related transactions hereunder and under the other Loan Documents as part of a
transaction that is subject to current Treasury Regulation Section 301.6112-1 or
Proposed Treasury Regulation Section 301.6112-1, promulgated on November 1,
2006, and, in such case, such Lender or Lenders, as applicable, will maintain
the lists and other records required, if any, by such Treasury
Regulations.

     

    9.21           Contribution and
Indemnification.  In the event that any Guarantor pays (whether
through direct payments or as a result of providing Collateral for the
Obligations) any amounts on the Obligations in excess of such Guarantor’s
Obtained Benefit (the “Excess Payments”),
such Guarantor shall be entitled to make demand on the Borrower for such Excess
Payments, and, to the extent not recovered from the Borrower, to receive from
each other Guarantor that received an Obtained Benefit, such Guarantor’s
Contribution Percentage of the Excess Payment.  If any party obligated
to make such a payment is unable to pay the Contribution Percentage of the
Excess Payment, each Guarantor agrees to make a contribution to the party
entitled to such payment to the extent necessary so that each Guarantor shares
equally the liability for such Excess Payment in relation to the relative
Obtained Benefit received by such Guarantor.  In such
regard, to the maximum extent permitted by law, each Guarantor shall indemnify,
defend and hold harmless the other Guarantors from and against any and all
liability, claims, costs and expenses (including reasonable attorneys’ fees and
expenses) arising with respect to the Obligations and exceeding such other
Guarantor’s Obtained Benefit or Contribution Percentage thereof as provided
herein.  Any amount due under this Section 9.20 shall be due
and payable within ten days of demand therefor by the party entitled to payment
and shall be made to the party entitled thereto at the Borrower’s address for
notices under this Agreement, in immediately available funds, not later than
2:00 p.m., Central Standard or Daylight Time, on the date on which such payment
shall come due.  The remedies available to any Guarantor pursuant to
the provisions of this Section 9.20 are not
exclusive.  All rights and claims of contribution, indemnification and
reimbursement under this Section 9.20 shall be
subordinate in right of payment to the prior payment in full of the
Obligations.  The provisions of this Section 9.20 shall,
to the extent expressly inconsistent with any provision in any Loan Document,
supersede such inconsistent provision.

    

    (Signatures
appear on following pages)

    
      
         

      

      
        -55-

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, this Agreement is executed as of the date first above
written.

     

    
      
        
          
            	 
      	
                    BORROWER:

                  
	 
      	 
      
	 
      	
                    GASTAR
      EXPLORATION USA, INC.

                  
	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ MICHAEL A. GERLICH

                  	 
      
	 
      	 
      	
                    Michael
      A. Gerlich

                  
	 
      	 
      	
                    Secretary
      and Treasurer

                  
	 
      	 
      	 
      
	 
      	
                    INITIAL
      GUARANTORS:

                  
	 
      	 
      	 
      
	 
      	
                    GASTAR
      EXPLORATION LTD.

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ MICHAEL A. GERLICH

                  	 
      
	 
      	 
      	
                    Michael
      A. Gerlich

                  
	 
      	 
      	
                    Vice
      President and

                  
	 
      	 
      	
                    Chief
      Financial Officer

                  
	 
      	 
      	 
      
	 
      	
                    GASTAR
      EXPLORATION NEW SOUTH

                    WALES,
      INC.

                  
	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ MICHAEL A. GERLICH

                  	 
      
	 
      	 
      	
                    Michael
      A. Gerlich

                  
	 
      	 
      	
                    Secretary
      and Treasurer

                  
	 
      	 
      	 
      
	 
      	
                    GASTAR
      EXPLORATION VICTORIA, INC.

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ MICHAEL A. GERLICH

                  	 
      
	 
      	 
      	
                    Michael
      A. Gerlich

                  
	 
      	 
      	
                    Secretary
      and Treasurer

                  
	 
      	 
      	 
      
	 
      	
                    GASTAR
      EXPLORATION TEXAS, INC.

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ MICHAEL A. GERLICH

                  	 
      
	 
      	 
      	
                    Michael
      A. Gerlich

                  
	 
      	 
      	
                    Secretary
      and Treasurer

                  
	 
      	 
      	 
      
	 
      	
                    GASTAR
      EXPLORATION TEXAS, LP

                  
	 
      	
                    By:

                  	
                    Gastar
      Exploration Texas LLC,

                  
	 
      	 
      	
                    its
      General Partner

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ MICHAEL A. GERLICH

                  	 
      
	 
      	 
      	
                    Michael
      A. Gerlich

                  
	 
      	 
      	
                    Secretary
      and Treasurer

                  
	 
      	 
      	 
      
	 
      	
                    GASTAR
      EXPLORATION TEXAS LLC

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ MICHAEL A. GERLICH

                  	 
      
	 
      	 
      	
                    Michael
      A. Gerlich

                  
	 
      	 
      	
                    Secretary
      and Treasurer

                  

          

        

      

    

    

    (Signatures
continue on following pages)

    
      
         

      

      
        -56-

        
          

        

      

      
         

      

    

     

    
      
        
          
            	 
      	
                    AGENT:

                  
	 	 
	 
      	
                    AMEGY
      BANK NATIONAL ASSOCIATION, as Agent

                  
	 
      	 
      
	 
      	
                    By:

                  	
                    /s/  MARK A
SERICE

                  	 
      
	 
      	 
      	
                    Mark
      A. Serice

                  
	 
      	 
      	
                    Vice
      President

                  
	 
      	 
      
	 
      	
                    LENDERS:

                  
	 
      	
                    AMEGY
      BANK NATIONAL ASSOCIATION

                  
	 
      	 
      
	 
      	
                    By:

                  	
                    /s/  MARK A
SERICE

                  	 
      
	 
      	 
      	
                    Mark
      A. Serice

                  
	 
      	 
      	
                    Vice
      President

                  
	 
      	 
      	 
      
	 
      	
                    Applicable
      Lending Office for

                  
	 
      	
                    Base
      Rate Loans and LIBO

                  
	 
      	
                    Rate
      Loans:

                  
	 	 
	 
      	
                    4400
      Post Oak Parkway, 4th Floor

                  
	 
      	
                    Houston,
      Texas  77207

                  

          

        

      

    

    

    (Signatures
continue on following pages)

    
      
         

      

      
        -57-

        
          

        

      

      
         

      

    

     

    
      
        
          	 
      	
                  BANK
      OF MONTREAL

                
	 
      	 
      
	 
      	
                  By:

                	
                  /s/  JAMES
    WHITMORE

                	 
      
	 
      	 
      	
                  James
      Whitmore

                
	 
      	 
      	
                  Managing
      Director

                
	 
      	 
      	 
      
	 
      	
                  Applicable
      Lending Office for

                
	 
      	
                  Base
      Rate Loans and LIBO

                
	 
      	
                  Rate
      Loans:

                
	 
      	 
      
	 
      	
                  115
      S. LaSalle St.

                
	 
      	
                  Chicago,
      Illinois  60603

                

        

      

    

    

    (Signatures
continue on following page)

    
      
         

      

      
        -58-

        
          

        

      

      
         

      

    

     

    
      
        	 
      	
                IBERIABANK
      FSB

              
	 
      	 
      
	 
      	
                By:

              	
                /s/  W. BRYAN
    CHAPMAN

              	 
      
	 
      	 
      	
                W.
      Bryan Chapman

              
	 
      	 
      	
                Executive
      Vice President

              
	 
      	 
      	 
      
	 
      	
                Applicable
      Lending Office for

              
	 
      	
                Base
      Rate Loans and LIBO

              
	 
      	
                Rate
      Loans:

              
	 
      	 
      
	 
      	
                1101
      Admiral Doyle Dr.

              
	 
      	
                Floor
      2

              
	 
      	
                New
      Iberia,
Louisiana  70560

              

      

    

     

    
      
         

      

      
        -59-Exhibit
4.8

    

    HANA
BIOSCIENCES, INC.

    

    [FORM
OF] SERIES A WARRANT

    

    NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY.

    

    THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS

    EXERCISE
ARE SUBJECT TO THE RESTRICTIONS ON

    TRANSFER SET FORTH IN
SECTION 5 OF
THIS WARRANT

    

    
      
        	
                Warrant
      No.
      [                 ]

              	
                Number
      of Shares (subject to adjustment): [                 ]

              
	 	 
	
                Date
      of Issuance: October 8,
      2009

                Original
      Issue Date: October 8,
      2009

              	 
      

      

    

    

    Hana
Biosciences, Inc.

    Common Stock Purchase
Warrant

    (Void
after October 8, 2016)

    

    Hana Biosciences, Inc., a Delaware
corporation (the “Company”), for value
received, hereby certifies that [                  
], or its
registered assigns (the “Registered Holder”),
is entitled, subject to the terms and conditions set forth below, to purchase
from the Company, at any time or from time to time on or before 5:00 p.m.
(Eastern time) on October 8, 2016 (the “Exercise Period”),
[                  
] shares of the
Company’s common stock, $0.001 par value per share
(“Common
Stock”), at a purchase price of One Cent ($0.01) per share.  The
shares purchasable upon exercise of this Warrant, and the purchase price per
share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the “Warrant Shares” and
the “Purchase
Price,” respectively.  This Warrant is one of a series of
Warrants issued by the Company in connection with a private placement of Common
Stock and of like tenor, except as to the number of shares of Common Stock
subject thereto (collectively, the “Company
Warrants”).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    1.          
  Exercise.

    

    (a)           Exercise for
Cash.  The Registered Holder may, at its option, elect to
exercise this Warrant, in whole or in part and at any time or from time to time
during the Exercise Period, by surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly
executed by or on behalf of the Registered Holder, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of Warrant Shares purchased upon
such exercise.  A facsimile signature of the Registered Holder on
the purchase form shall be sufficient for purposes of exercising this Warrant,
provided that the Registered Holder has surrendered this Warrant to the Company
and has tendered payment for the applicable Purchase Price in full.

     

    (b)           Cashless
Exercise.

    

    (i)           At
any time during the Exercise Period when the resale of the Warrant Shares by the
Registered Holder is not registered pursuant to an effective registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the “Securities Act”), the
Registered Holder may, at its option, elect to exercise this Warrant, in whole
or in part, on a cashless basis, by surrendering this Warrant, with the purchase
form appended hereto as Exhibit I duly
executed by or on behalf of the Registered Holder (the “Exercise Notice”), at
the principal office of the Company, or at such other office or agency as the
Company may designate, by canceling a portion of this Warrant in payment of the
Purchase Price payable in respect of the number of Warrant Shares purchased upon
such exercise.  In the event of an exercise pursuant to this Section
1(b), the
number of Warrant Shares issued to the Registered Holder shall be determined
according to the following formula:

    

    X = Y(A-B)

    A

    

    
      
        	
              	
                Where:

              	
                X
      =         the
      number of Warrant Shares that shall be issued to the Registered
      Holder;

              

      

    

    

    Y
=         the number of Warrant
Shares for which this Warrant is being exercised (which shall include both the
number of Warrant Shares issued to the Registered Holder and the number of
Warrant Shares subject to the portion of the Warrant being cancelled in payment
of the Purchase Price);

    

    
      A
=        the Fair
Market Value (as defined below) of one share of Common Stock;
and

    

    

    B
=         the Purchase Price then
in effect.

    

    (ii)          The
Fair Market Value per share of Common Stock shall be determined as
follows:

    
      
         

      

      
        - 2
-

        
          

        

      

      
         

      

    

    

    (1)           If
the Common Stock is listed on a national securities exchange or traded on another nationally recognized
trading system, including the OTC Bulletin Board, as of the Exercise Date, the
Fair Market Value per share of Common Stock shall be deemed to be the average of
the high and low reported sale prices per share of Common Stock thereon on the
trading day immediately preceding the Exercise Date (provided that if no
such price is reported on such day, the Fair Market Value per share of Common
Stock shall be determined pursuant to clause (2) below).

     

    (2)           If
the Common Stock is not listed on a national securities exchange or traded
on another nationally recognized trading system, including the OTC Bulletin
Board, as of the Exercise Date, the Fair Market Value per share of Common Stock
shall be deemed to be the amount most recently determined in good faith by the
Board of Directors of the Company (the “Board”) to represent
the fair market value per share of the Common Stock (including without
limitation a determination for purposes of granting Common Stock options or
issuing Common Stock under any plan, agreement or arrangement with employees of
the Company); and, upon request of the Registered Holder, the Board (or a
representative thereof) shall, as promptly as reasonably practicable but in any
event not later than ten (10) days after such request, notify the Registered
Holder of the Fair Market Value per share of Common Stock and furnish the
Registered Holder with reasonable documentation of the Board’s determination of
such Fair Market Value.  Notwithstanding the foregoing, if the Board
has not made such a determination within the three-month period prior to the
Exercise Date, then (A) the Board shall make, and shall provide or cause to be
provided to the Registered Holder notice of, a determination of the Fair Market
Value per share of the Common Stock within fifteen (15) days of a request by the
Registered Holder that it do so, and (B) the exercise of this Warrant pursuant
to this Section 1(b) shall
be delayed until such determination is made and notice thereof is provided to
the Registered Holder.

    

    (c)           Exercise
Date.  Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which
this Warrant shall have been surrendered to the Company as provided in Section
1(a) or 1(b) above
(the “Exercise
Date”).  At such time, the person or persons in whose name or
names any certificates for Warrant Shares shall be issuable upon such exercise
as provided in Section
1(d) below
shall be deemed to have become the holder or holders of record of the Warrant
Shares represented by such certificates.

    

    (d)           Issuance of
Certificates.  As soon as practicable after the exercise of
this Warrant in whole or in part, and in any event within three (3) trading days
thereafter (the “Delivery Date”), the
Company, at its expense, will cause to be issued in the name of the Registered
Holder, or as the Registered Holder (upon payment by the Registered Holder of
any applicable transfer taxes) may direct:

    

    (i)           a
certificate or certificates for the number of full Warrant Shares to which the
Registered Holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which the Registered Holder would otherwise be entitled,
cash in an amount determined pursuant to Section 3 hereof or at
the written request of the Registered Holder, the Company shall cause
certificates for Warrant Shares purchased hereunder to be transmitted by the
transfer agent of the Company to the Registered Holder by crediting the account
of the Registered Holder’s prime broker with the Depository Trust Company
through its Deposit Withdrawal Agent Commission system if the Company is a
participant in such system and provided such Warrant Shares are then subject to
an effective registration statement under the Securities Act or are otherwise
eligible for resale pursuant to Rule 144 thereunder; and

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

     

    (ii)           in
case such exercise is in part only, a new warrant or warrants (dated the date
hereof) of like tenor, calling in the aggregate on the face or faces thereof for
the number of Warrant Shares equal (without giving effect to any adjustment
therein) to the number of such shares called for on the face of this Warrant
minus the number of Warrant Shares for which this Warrant was so exercised
(which, in the case of an exercise pursuant to Section
1(b), shall
include both the number of Warrant Shares issued to the Registered Holder
pursuant to such partial exercise and the number of Warrant Shares subject to
the portion of the Warrant being cancelled in payment of the Purchase
Price).

     

    (iii)         In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as liquidated damages and not as a penalty, for
non-delivery by the Delivery Date, the difference between the closing price of
the Common Stock on Delivery Date and the closing price of the Common Stock on
the date the Common Stock is actually delivered times the number of Warrant
Shares so exercised.

     

    (e)           Restrictions
on Exercise.  The Registered Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section
1 or
otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Exercise Notice, such Registered Holder
(together with such Registered Holder’s “Affiliates”
(as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”)), and any other person or entity acting as a group together with
such Registered Holder or any of such Registered Holder’s Affiliates), would
beneficially own in excess of the Beneficial Ownership Limitation (as defined
below).  For purposes of the foregoing sentence, the number of shares
of Common Stock beneficially owned by such Registered Holder and its Affiliates
shall include the number of shares of Common Stock issuable upon exercise of
this Warrant with respect to which such determination is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (A)
exercise of the remaining, nonexercised portion of this Warrant beneficially
owned by such Registered Holder or any of its Affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Common Stock equivalents)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by such Registered Holder or any of its
Affiliates.  Except as set forth in the preceding sentence, for
purposes of this Section
1(e), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder, it being acknowledged
by the Registered Holder that the Company is not representing to such Registered
Holder that such calculation is in compliance with Section 13(d) of the Exchange
Act and such Registered Holder is solely responsible for any schedules required
to be filed in accordance therewith.   To the extent that the
limitation contained in this Section
1(e) applies,
the determination of whether this Warrant is exercisable (in relation to other
securities owned by such Registered Holder together with any Affiliates) and of
which portion of this Warrant is exercisable shall be in the sole discretion of
the Registered Holder, and the submission of a Exercise Notice shall be deemed
to be the Registered Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by such Registered Holder
together with any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject the Beneficial Ownership Limitation, and the
Company shall have no obligation to verify or confirm the accuracy of such
determination or any liability under this Section
1(e).  In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder.  For purposes of this Section
1(e), in
determining the number of outstanding shares of Common Stock, a Registered
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company’s most recent Annual Report on Form 10-K or Quarterly Report
on Form 10-Q, or such similar form, as the case may be, or (y) any other written
notice by the Company or the Company’s transfer agent setting forth the number
of shares of Common Stock outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by such Registered Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.  The “Beneficial
Ownership Limitation” shall be 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon exercise of this Warrant.  The
Beneficial Ownership Limitation provisions of this Section
1(e) may be
waived by such Registered Holder, at the election of such Registered Holder,
upon not less than 61 days’ prior notice to the Company to change the Beneficial
Ownership Limitation. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section
1(e) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.

    
      
         

      

      
        - 4
-

        
          

        

      

      
         

      

    

     

    2.           
 Adjustments.

     

    (a)           Adjustment for Stock Splits
and Combinations.  If the Company shall at any time or from
time to time after the Date of Issuance (as set forth above) effect a
subdivision of the outstanding Common Stock, the Purchase Price then in effect
immediately before that subdivision shall be proportionately
decreased.  If the Company shall at any time or from time to time
after the Date of Issuance combine the outstanding shares of Common Stock, the
Purchase Price then in effect immediately before the combination shall be
proportionately increased.  Any adjustment under this paragraph shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

     

    (b)           Adjustment for Certain
Dividends and Distributions.  In the event the Company at any
time, or from time to time after the Date of Issuance shall make or issue, or
fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Purchase Price then in effect immediately
before such event shall be decreased as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Purchase Price then in effect by a
fraction:

     

    
      
         

      

      
        - 5
-

        
          

        

      

      
         

      

    

     

    (1)           the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and

     

    (2)           the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution; provided, however, that if such
record date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Purchase Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Purchase Price shall be adjusted pursuant to this paragraph
as of the time of actual payment of such dividends or
distributions.

     

    Simultaneously with any adjustment to
the Purchase Price
pursuant to Sections
2(a) and
2(b), the number
of Warrant Shares which may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment, the
aggregate amount of the adjusted Purchase Price multiplied by the aggregate
adjusted amount of Warrant Shares shall equal the aggregate amount of the
unadjusted Purchase Price multiplied by the aggregate unadjusted amount of
Warrant Shares.

     

    (c)           Adjustments
for Other Dividends and Distributions.  In the event the
Company at any time or from time to time after the Date of Issuance shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company (other than shares of Common Stock) or in cash or other property
(other than regular cash dividends paid out of earnings or earned surplus,
determined in accordance with generally accepted accounting principles), then
and in each such event provision shall be made so that the Registered Holder
shall receive upon exercise hereof, in addition to the number of shares of
Common Stock issuable hereunder, the kind and amount of securities of the
Company, cash or other property which the Registered Holder would have been
entitled to receive had this Warrant been exercised on the date of such event
and had the Registered Holder thereafter, during the period from the date of
such event to and including the Exercise Date, retained any such securities
receivable during such period, giving application to all adjustments called for
during such period under this Section
2 with
respect to the rights of the Registered Holder.

     

    
      
         

      

      
        - 6
-

        
          

        

      

      
         

      

    

    (d)           Adjustment for
Reorganization.  If there shall occur any reorganization,
recapitalization, reclassification, consolidation or merger involving the
Company in which the Common Stock is converted into or exchanged for securities,
cash or other property  (collectively, a “Reorganization”),
then, following such Reorganization, the Registered Holder shall receive upon
exercise hereof the kind and amount of securities, cash or other property which
the Registered Holder would have been entitled to receive pursuant to such
Reorganization if such exercise had taken place immediately prior to such
Reorganization.  Notwithstanding the foregoing sentence, if (x) there
shall occur any Reorganization in which the Common Stock is converted into or
exchanged for anything other than solely equity securities, and (y) the common
stock of the acquiring or surviving company is publicly traded, then, as part of
such Reorganization, (i) the Registered Holder shall have the right thereafter
to receive upon the exercise hereof such number of shares of common stock of the
acquiring or
surviving company as is determined by multiplying (A) the number of shares of
Common Stock subject to this Warrant immediately prior to such
Reorganization by (B) a fraction, the numerator of which is the Fair Market
Value (as defined in Section
1(b)(ii) above)
per share of Common Stock as of the effective date of such Reorganization, and
the denominator of which is the fair market value per share of common stock of
the acquiring or surviving company as of the effective date of such transaction,
as determined in good faith by the Board (using the principles set forth in
Section 1(b)(ii) to the
extent applicable), and (ii) the exercise price per share of common stock of the
acquiring or surviving company shall be the Purchase Price divided by the
fraction referred to in clause (B) above.  In any such case,
appropriate adjustment (as determined in good faith by the Board) shall be made
in the application of the provisions set forth herein with respect to the rights
and interests thereafter of the Registered Holder, to the end that the
provisions set forth in this Section
2 (including
provisions with respect to changes in and other adjustments of the Purchase
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities, cash or other property thereafter deliverable upon
the exercise of this Warrant (the “Transaction
Consideration”). The aggregate Exercise Price for this Warrant will not
be affected by any such Reorganization, but the Company shall apportion such
aggregate Exercise Price among the Transaction Consideration in a reasonable
manner reflecting the relative value of any different components of the
Transaction Consideration, if applicable.  If holders of Common Stock
are given any choice as to the securities, cash or property to be received in a
Reorganization, then the Registered Holder shall be given the same choice as to
the Transaction Consideration it receives upon any exercise of this Warrant
following such Reorganization.  At the Registered Holder's request,
any successor to the Company or surviving or acquiring entity in such
Reorganization shall issue to the Registered Holder a new Warrant consistent
with the foregoing provisions and evidencing the Registered Holder's right to
purchase the Transaction Consideration for the aggregate Exercise Price upon
exercise thereof.  The terms of any agreement pursuant to which a
Reorganization is effected shall include terms requiring any such successor or
surviving or acquiring entity to comply with the provisions of this paragraph
(d) and insuring that the Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Reorganization.  Notwithstanding anything to the contrary, in the
event of a Reorganization that is (1) an all cash transaction, (2) a “Rule
13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or
(3) a Reorganization involving a person or entity not traded on a national
securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market,
or the Nasdaq Capital Market, the Company or any successor entity shall pay at
the Registered Holder’s option, exercisable at any time concurrently with
or within 30 days after the consummation of the Reorganization, in lieu of the
exercise of this Warrant, an amount of cash equal to the value of this Warrant
as determined in accordance with the Black Scholes Option Pricing Model obtained
from the “OV”
function on Bloomberg L.P. using (i) a price per share of Common Stock equal to
the VWAP of the Common Stock for the Trading Day immediately preceding the date
of consummation of the applicable  Reorganization, (ii) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of this Warrant as of the date of consummation of the applicable
Reorganization and (iii) an expected volatility equal to the 10 day volatility
obtained from the “HVT” function on
Bloomberg L.P. determined as of the Trading Day immediately following the public
announcement of the applicable Reorganization.

     

    
      
         

      

      
        - 7
-

        
          

        

      

      
         

      

    

    (e)           Certificate
as to Adjustments.  Upon the occurrence of each adjustment or
readjustment of the Purchase Price pursuant to
this Section
2, the
Company at its expense shall, as promptly as reasonably practicable but in any
event not later than ten (10) days thereafter, compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Registered
Holder a certificate setting forth such adjustment or readjustment (including
the kind and amount of securities, cash or other property for which this Warrant
shall be exercisable and the Purchase Price) and showing in detail the facts
upon which such adjustment or readjustment is based.  The Company
shall, as promptly as reasonably practicable after the written request at any
time of the Registered Holder (but in any event not later than ten (10) days
thereafter), furnish or cause to be furnished to the Registered Holder a
certificate setting forth (i) the Purchase Price then in effect and (ii) the
number of shares of Common Stock and the amount, if any, of other
securities, cash or property which then would be received upon the exercise of
this Warrant.

     

    3.           
Fractional
Shares.  The Company shall not be required
upon the exercise of this Warrant to issue any fractional shares, but shall pay
the value thereof to the Registered Holder in cash on the basis of the Fair
Market Value per share of Common Stock, as determined pursuant to Section
1(b)(ii) above.

     

    4.           
Adjustment
for Certain Dilutive Issuances.  In the event the Company at
any time, or from time to time after the Original Issue Date shall make or
issue, any equity Securities other than equity granted to employees, directors
or consultants of the Company pursuant to the Company’s stock plan,
at a price per share lower than the Purchase Price effective
immediately prior to such event, the Purchase Price hereunder shall be
immediately reduced to such lower price immediately upon the consummation of
such event.

     

    5.           
Transfers,
etc.

     

    (a)           Notwithstanding
anything to the contrary contained herein, this Warrant and the Warrant Shares
shall not be sold or transferred unless either (i) they first shall have been
registered under the Securities Act, or (ii) such sale or transfer shall be
exempt from the registration requirements of the Securities Act and the Company
shall have been furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer is exempt
from the registration requirements of the Securities
Act.  Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is an
entity to a wholly owned subsidiary of such entity, a transfer by a Registered
Holder which is a partnership to a partner of such partnership or a retired
partner of such partnership or to the estate of any such partner or retired
partner, or a transfer by a Registered Holder which is a limited liability
company to a member of such limited liability company or a retired member or to
the estate of any such member or retired member, provided
that the transferee in each case agrees in writing to be subject to the terms of
this Section
5, or
(ii) a transfer made in accordance with Rule 144 under the
Securities Act.

     

    (b)           The
Company will maintain a register containing the name and address of the
Registered Holder of this Warrant.  The Registered Holder may change
its address as shown on the warrant register by written notice to the Company
requesting such change.

     

    
      
         

      

      
        - 8
-

        
          

        

      

      
         

      

    

    (c)           Subject
to the provisions of this Section 5, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant with a properly executed assignment (in the form of Exhibit II hereto) at the
principal office of the Company (or, if another office or agency has been
designated by the Company for such purpose, then at such other office or
agency).

     

    6.           
No
Impairment.  The Company will not, by amendment of its charter
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Registered Holder against impairment.

     

    7.          
 Notices of
Record Date, etc.  In the event:

     

    (a)           the
Company shall take a record of the holders of its Common Stock (or other stock
or securities at the time deliverable upon the exercise of this Warrant) for the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares of
stock of any class or any other securities, or to receive any other right;
or

     

    (b)           of
any Reorganization; or

     

    (c)           of
the voluntary or involuntary dissolution, liquidation or winding-up of the
Company;

     

    (d)           then,
and in each such case, the Company will send or cause to be sent to the
Registered Holder a notice specifying, as the case may be, (i) the record date
for such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or such other stock or
securities at the time deliverable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
Reorganization, dissolution, liquidation or winding-up.  Such notice
shall be sent at least ten (10) days prior to the record date or effective date
for the event specified in such notice.

     

    8.          
 Reservation of
Stock.  The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other securities, cash and/or property, as
from time to time shall be issuable upon the exercise of this
Warrant.

     

    9.           
 Exchange or
Replacement of Warrants.

     

    (a)           Upon
the surrender by the Registered Holder, properly endorsed, to the Company at the
principal office of the Company, the Company will, subject to the provisions of
Section 5 hereof, issue
and deliver to or upon the order of the Registered Holder, at the Company’s
expense, a new Warrant or Warrants of like tenor, in the name of the Registered
Holder or as the Registered Holder (upon payment by the Registered Holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock (or other securities,
cash and/or property) then issuable upon exercise of this Warrant.

     

    
      
         

      

      
        - 9
-

        
          

        

      

      
         

      

    

     

    (b)           Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and (in the case of loss, theft or
destruction) upon delivery of an indemnity agreement (with surety if reasonably
required) in an amount reasonably satisfactory to the Company, or (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company will
issue, in lieu thereof, a new Warrant of like tenor.

     

    10.           Notices.  All
notices and other communications from the Company to the Registered Holder in
connection herewith shall be mailed by certified or registered mail, postage
prepaid, or sent via a reputable nationwide overnight courier service
guaranteeing next business day delivery, to the address last furnished to the
Company in writing by the Registered Holder.  All notices and other
communications from the Registered Holder to the Company in connection herewith
shall be mailed by certified or registered mail, postage prepaid, or sent via a
reputable nationwide overnight courier service guaranteeing next business day
delivery, to the Company at its principal office set forth below.  If
the Company should at any time change the location of its principal office to a
place other than as set forth below, it shall give prompt written notice to the
Registered Holder and thereafter all references in this Warrant to the location
of its principal office at the particular time shall be as so specified in such
notice. All such notices and communications shall be deemed delivered one
business day after being sent via a reputable international overnight courier
service guaranteeing next business day delivery.

     

    11.           No Rights as
Stockholder.  Until the exercise of this Warrant, the
Registered Holder shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.  Notwithstanding the foregoing, in the
event (i) the Company effects a split of the Common Stock by means of a stock
dividend and the Purchase Price of and the number of Warrant Shares are adjusted
as of the date of the distribution of the dividend (rather than as of the record
date for such dividend), and (ii) the Registered Holder exercises this Warrant
between the record date and the distribution date for such stock dividend, the
Registered Holder shall be entitled to receive, on the distribution date, the
stock dividend with respect to the shares of Common Stock acquired upon such
exercise, notwithstanding the fact that such shares were not outstanding as of
the close of business on the record date for such stock dividend.

     

    12.           Amendment or
Waiver.  This Warrant may only be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Registered Holder.

     

    13.           Section
Headings.  The section headings in this Warrant are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.

     

    14.           Governing
Law.  This Warrant will be governed by and construed in
accordance with the internal laws of the State of New York (without reference to
the conflicts of law provisions thereof).

     

    15.           Facsimile Signatures.
This Warrant may be executed by facsimile signature.

     

    * * * * *
* *

    
      
         

      

      
        - 10
-

        
          

        

      

      
         

      

    

    EXECUTED
as of the Date of Issuance indicated above.

     

    
      
        
          	
                  HANA
      BIOSCIENCES, INC.

                
	 
      	 
      
	
                  By:

                	 
      
	 
      	
                  Steven
      R. Deitcher

                
	 
      	
                  President
      and Chief Executive
Officer

                

        

      

    

     

    ATTEST:

    

    
      
        
          
            	
                     

                  
	
                    John
      P. Iparraguirre

                  
	
                    Secretary

                  

          

        

      

    

     

    
      
         

      

      
        - 11
-

        
          

        

      

      
         

      

    

    EXHIBIT
I

     

    PURCHASE
FORM

     

    
      
        
          	
                  To:

                	
                  Hana
      Biosciences, Inc.

                	
                  Dated:
      ____________

                
	 
      	
                  7000
      Shoreline Court, Suite 370

                	 
      
	 
      	
                  South
      San Francisco, CA 94080

                	 
      

        

      

    

    

    The
undersigned, pursuant to the provisions set forth in the attached Warrant (No.
A-__), hereby elects to purchase (check applicable
box):

     

    
      	
               
      

            	
              ·

            	
              ____
      shares of the Common Stock covered by such Warrant;
  or

            

    

     

    
      	
               
      

            	
              ·

            	
              ____
      the maximum number of shares of Common Stock covered by such Warrant
      pursuant to the cashless exercise procedure set forth in Section
      1(b).

            

    

     

    The
undersigned herewith makes payment of the full purchase price for such shares at
the price per share provided for in such Warrant.  Such payment takes
the form of (check applicable
box or boxes):

     

    
      	
               
      

            	
              ·

            	
              $______
      in lawful money of the United States;
and/or

            

    

     

    
      	
               
      

            	
              ·

            	
              the
      cancellation of such portion of the attached Warrant as is exercisable for
      a total of _____ Warrant Shares (using a Fair Market Value of $_____ per
      share for purposes of this calculation) ;
and/or

            

    

     

    
      	
               
      

            	
              ·

            	
              the
      cancellation of such number of Warrant Shares
      as is necessary, in accordance with the formula set forth in Section
      1(b), to
      exercise this Warrant with respect to the maximum number of Warrant Shares
      purchasable pursuant to the cashless exercise procedure set forth in Section
      1(b).

            

    

     

    
      
        	
                Signature:

              	
                ______________________

              
	
                Address:

              	
                _______________________

              
	 
      	
                _______________________

              

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
II

     

    ASSIGNMENT
FORM

     

    FOR VALUE
RECEIVED, ______________________________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant (No.
A-___) with respect to the number of shares of Common Stock of Hana Biosciences,
Inc. covered
thereby set forth below, unto:

     

    
      
        
          
            
              
                	
                        Name of Assignee

                      	 
      	
                        Address

                      	 
      	
                        No. of Shares

                      
	 
      	 
      	 
      	 
      	 
      
	 
      	
                          

                      	 
      	
                          

                      	 
      

              

            

          

        

      

    

     

    Dated:_____________________

     

    Signature:________________________________

     

    Signature
Guaranteed:

     

    By:
_______________________

     

    The
signature should be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00164-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00164-of-00352.parquet"}]]