Document:

Unassociated Document

    EXHIBIT
      10.2

     

    CREDIT
      AND GUARANTY AGREEMENT

    

    dated
      as of September 8, 2006

    

    among

    

    FOOTHILLS
      RESOURCES, INC.,

    

    CERTAIN
      SUBSIDIARIES OF FOOTHILLS RESOURCES, INC.,

    

    VARIOUS
      LENDERS,

    

    J.
      ARON & COMPANY,

    as
      Lead Arranger and Syndication Agent,

    

    and

    

    J.
      ARON & COMPANY,

    as
      Administrative Agent

    ________________________________________________________

    

    $50,000,000
      Second Lien Secured Credit Facility

    ________________________________________________________

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    TABLE
      OF CONTENTS

    

    
      	 	 	 	
              Page 

            	 
	
              SECTION
                1 DEFINITIONS AND INTERPRETATION

            	 	 	
              1

            	 
	
              1.1
                Definitions

            	 	 	
              1

            	 
	
              1.2
                Accounting Terms

            	 	 	
              24

            	 
	
              1.3
                Interpretation, etc

            	 	 	
              24

            	 
	
              1.4
                Joint Preparation; Construction of Indemnities and
                Releases

            	 	 	
              24

            	 
	 	 	 	 	 
	
              SECTION
                2 LOANS

            	 	 	
              24

            	 
	
              2.1
                Loans

            	 	 	
              24

            	 
	
              2.2
                Borrowing Mechanics

            	 	 	
              25

            	 
	
              2.3
                Pro Rata Shares; Availability of Funds

            	 	 	
              25

            	 
	
              2.4
                Use of Proceeds

            	 	 	
              26

            	 
	
              2.5
                Evidence of Liabilities; Register; Lenders’ Books and Records;
                Notes

            	 	 	
              26

            	 
	
              2.6
                Interest on Loans

            	 	 	
              27

            	 
	
              2.7
                [Reserved]

            	 	 	
              27

            	 
	
              2.8
                Default Interest

            	 	 	
              27

            	 
	
              2.9
                Fees

            	 	 	
              27

            	 
	
              2.10
                ANCF Calculation

            	 	 	
              27

            	 
	
              2.11
                ANCF Payment of Principal

            	 	 	
              28

            	 
	
              2.12
                Voluntary Prepayments

            	 	 	
              28

            	 
	
              2.13
                Mandatory Prepayments

            	 	 	
              30

            	 
	
              2.14
                General Provisions Regarding Payments

            	 	 	
              30

            	 
	
              2.15
                Ratable Sharing

            	 	 	
              31

            	 
	
              2.16
                Increased Costs; Capital Adequacy

            	 	 	
              31

            	 
	
              2.17
                Taxes; Withholding, etc

            	 	 	
              33

            	 
	
              2.18
                Measures to Mitigate

            	 	 	
              34

            	 
	 	 	 	 	 
	
              SECTION
                3 CONDITIONS PRECEDENT

            	 	 	
              35

            	 
	
              3.1
                Closing Date

            	 	 	
              35

            	 
	
              3.2
                Conditions to Each Credit Extension

            	 	 	
              39

            	 
	 	 	 	 	 
	
              SECTION
                4 REPRESENTATIONS AND WARRANTIES

            	 	 	
              39

            	 
	
              4.1
                No Default

            	 	 	
              40

            	 
	
              4.2
                Organization and Good Standing

            	 	 	
              40

            	 
	
              4.3
                Authorization

            	 	 	
              40

            	 
	
              4.4
                No Conflicts or Consents

            	 	 	
              40

            	 
	
              4.5
                Enforceable Obligations

            	 	 	
              40

            	 
	
              4.6
                Current Financial Statements

            	 	 	
              40

            	 
	
              4.7
                Other Obligations and Restrictions

            	 	 	
              41

            	 
	
              4.8
                Full Disclosure

            	 	 	
              41

            	 
	
              4.9
                Litigation

            	 	 	
              41

            	 
	
              4.10
                Labor Disputes and Acts of God

            	 	 	
              41

            	 
	
              4.11
                ERISA Plans and Liabilities

            	 	 	
              41

            	 
	
              4.12
                Environmental and Other Laws

            	 	 	
              42

            	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              4.13
                Names and Places of Business

            	 	 	
              42

            	 
	
              4.14
                Subsidiaries

            	 	 	
              43

            	 
	
              4.15
                Licenses

            	 	 	
              43

            	 
	
              4.16
                Government Regulation

            	 	 	
              43

            	 
	
              4.17
                Solvency

            	 	 	
              43

            	 
	
              4.18
                Taxes

            	 	 	
              43

            	 
	
              4.19
                Projections

            	 	 	
              43

            	 
	
              4.20
                No Distributions

            	 	 	
              44

            	 
	
              4.21
                Title to Properties

            	 	 	
              44

            	 
	
              4.22
                No Defaults

            	 	 	
              44

            	 
	
              4.23
                Margin Stock

            	 	 	
              44

            	 
	
              4.24
                Certain Fees

            	 	 	
              44

            	 
	
              4.25
                Leases and Contracts; Performance of Obligations

            	 	 	
              44

            	 
	
              4.26
                Marketing Arrangements

            	 	 	
              45

            	 
	
              4.27
                Right to Receive Payment for Future Production

            	 	 	
              45

            	 
	
              4.28
                Operation of Oil and Gas Properties

            	 	 	
              46

            	 
	
              4.29
                Ad Valorem and Severance Taxes; Litigation

            	 	 	
              46

            	 
	
              4.30
                Acquisition Closing

            	 	 	
              46

            	 
	 	 	 	 	 
	
              SECTION
                5 AFFIRMATIVE COVENANTS

            	 	 	
              47

            	 
	
              5.1
                Payment and Performance

            	 	 	
              47

            	 
	
              5.2
                Books, Financial Statements and Reports

            	 	 	
              47

            	 
	
              5.3
                Other Information and Inspections

            	 	 	
              49

            	 
	
              5.4
                Notice of Material Events and Change of Name

            	 	 	
              50

            	 
	
              5.5
                Maintenance of Properties and Professional Staff

            	 	 	
              51

            	 
	
              5.6
                Maintenance of Existence and Qualifications

            	 	 	
              51

            	 
	
              5.7
                Payment of Taxes, etc

            	 	 	
              51

            	 
	
              5.8
                Bonding and Insurance

            	 	 	
              51

            	 
	
              5.9
                Performance on Company’s Behalf

            	 	 	
              53

            	 
	
              5.10
                Interest

            	 	 	
              53

            	 
	
              5.11
                Compliance with Agreements and Law

            	 	 	
              53

            	 
	
              5.12
                Environmental Matters: Environmental Reviews

            	 	 	
              53

            	 
	
              5.13
                Evidence of Compliance

            	 	 	
              54

            	 
	
              5.14
                Agreement to Deliver Guaranty and Security Documents

            	 	 	
              54

            	 
	
              5.15
                Perfection and Protection of Security Interests and Liens

            	 	 	
              55

            	 
	
              5.16
                Bank Accounts; Offset

            	 	 	
              55

            	 
	
              5.17
                Production Proceeds

            	 	 	
              55

            	 
	
              5.18
                Approved Plan of Development; Texas Project Area

            	 	 	
              56

            	 
	
              5.19
                Reviews

            	 	 	
              56

            	 
	
              5.20
                Hedging Contracts

            	 	 	
              56

            	 
	
              5.21
                Non-Consolidation

            	 	 	
              57

            	 
	
              5.22
                ORRI Conveyance

            	 	 	
              57

            	 
	
              5.23
                Leases and Contracts; Performance of Obligations

            	 	 	
              57

            	 
	
              5.24
                Representation to Continue to be True

            	 	 	
              57

            	 
	
              5.25
                Non-Voting Representative

            	 	 	
              58

            	 
	
              5.26
                SEC and Other Filings

            	 	 	
              58

            	 
	
              5.27
                Post Closing Items

            	 	 	
              58

            	 

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

     

    
      	
              SECTION
                6 NEGATIVE COVENANTS

            	 	 	
              59

            	 
	
              6.1
                Indebtedness

            	 	 	
              59

            	 
	
              6.2
                Limitation on Liens and Negative Pledges; Equitable Lien

            	 	 	
              60

            	 
	
              6.3
                Hedging Contracts

            	 	 	
              60

            	 
	
              6.4
                Subsidiaries; Mergers; Capital Stock Transactions

            	 	 	
              61

            	 
	
              6.5
                Limitation on Sales of Property

            	 	 	
              61

            	 
	
              6.6
                Limitation on Dividends and Redemptions

            	 	 	
              62

            	 
	
              6.7
                Limitation on Investments and Deposit Accounts

            	 	 	
              62

            	 
	
              6.8
                Transactions with Affiliates

            	 	 	
              63

            	 
	
              6.9
                Certain Contracts; Multiemployer ERISA Plans

            	 	 	
              63

            	 
	
              6.10
                Current Ratio

            	 	 	
              63

            	 
	
              6.11
                Debt to EBITDA Ratio

            	 	 	
              63

            	 
	
              6.12
                Collateral Coverage Ratios

            	 	 	
              64

            	 
	
              6.13
                Conduct of Business

            	 	 	
              64

            	 
	
              6.14
                Fiscal Year

            	 	 	
              64

            	 
	
              6.15
                General and Administrative Expenses

            	 	 	
              64

            	 
	
              6.16
                Capital Expenditures

            	 	 	
              64

            	 
	
              6.17
                Amendments to Organizational Documents

            	 	 	
              64

            	 
	
              6.18
                Amendments to Revolving Indebtedness

            	 	 	
              65

            	 
	
              6.19
                Additional Financial Covenants

            	 	 	
              65

            	 
	 	 	 	 	 
	
              SECTION
                7 GUARANTY

            	 	 	
              66

            	 
	
              7.1
                Guaranty of the Obligations

            	 	 	
              66

            	 
	
              7.2
                Contribution by Guarantors

            	 	 	
              66

            	 
	
              7.3
                Payment by Guarantors

            	 	 	
              67

            	 
	
              7.4
                Liability of Guarantors Absolute

            	 	 	
              67

            	 
	
              7.5
                Waivers by Guarantors

            	 	 	
              69

            	 
	
              7.6
                Guarantors’ Rights of Subrogation, Contribution, etc.

            	 	 	
              69

            	 
	
              7.7
                Subordination of Other Obligations

            	 	 	
              70

            	 
	
              7.8
                Continuing Guaranty

            	 	 	
              70

            	 
	
              7.9
                Authority of Guarantors or Company

            	 	 	
              70

            	 
	
              7.10
                Financial Condition of Company

            	 	 	
              70

            	 
	
              7.11
                Bankruptcy, etc.

            	 	 	
              71

            	 
	
              7.12
                California Waivers

            	 	 	
              72

            	 
	
              7.13
                Collateral Subject to Intercreditor Agreement

            	 	 	
              73

            	 
	 	 	 	 	 
	
              SECTION
                8 EVENTS OF DEFAULT

            	 	 	
              73

            	 
	
              8.1
                Events of Default

            	 	 	
              73

            	 
	
              8.2
                Application of Funds

            	 	 	
              76

            	 
	 	 	 	 	 
	
              SECTION
                9 AGENTS

            	 	 	
              77

            	 
	
              9.1
                Appointment of Agents

            	 	 	
              77

            	 
	
              9.2
                Powers and Duties

            	 	 	
              77

            	 
	
              9.3
                General Immunity

            	 	 	
              78

            	 
	
              9.4
                Agents Entitled to Act as Lender

            	 	 	
              78

            	 
	
              9.5
                Lenders’ Representations, Warranties and Acknowledgment

            	 	 	
              79

            	 
	
              9.6
                Right to Indemnity

            	 	 	
              79

            	 

    

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    
      	
              9.7
                Successor Administrative Agent

            	 	 	
              79

            	 
	
              9.8
                Security Documents and Guaranty

            	 	 	
              80

            	 
	 	 	 	 	 
	
              SECTION
                10 MISCELLANEOUS

            	 	 	
              81

            	 
	
              10.1
                Notices

            	 	 	
              81

            	 
	
              10.2
                Expenses

            	 	 	
              81

            	 
	
              10.3
                Indemnity, WAIVER OF PUNITIVE DAMAGES

            	 	 	
              82

            	 
	
              10.4
                ISDA Agreement

            	 	 	
              83

            	 
	
              10.5
                Amendments and Waivers

            	 	 	
              83

            	 
	
              10.6
                Successors and Assigns; Participations

            	 	 	
              84

            	 
	
              10.7
                Independence of Covenants

            	 	 	
              87

            	 
	
              10.8
                Survival of Representations, Warranties and Agreements;
                Termination

            	 	 	
              87

            	 
	
              10.9
                No Waiver; Remedies Cumulative

            	 	 	
              88

            	 
	
              10.10
                Marshalling; Payments Set Aside

            	 	 	
              88

            	 
	
              10.11
                Severability

            	 	 	
              88

            	 
	
              10.12
                Obligations Several; Independent Nature of Lenders’ Rights

            	 	 	
              89

            	 
	
              10.13
                Headings

            	 	 	
              89

            	 
	
              10.14
                APPLICABLE LAW

            	 	 	
              89

            	 
	
              10.15
                CONSENT TO EXCLUSIVE JURISDICTION

            	 	 	
              89

            	 
	
              10.16
                WAIVER OF JURY TRIAL

            	 	 	
              89

            	 
	
              10.17
                Confidentiality

            	 	 	
              90

            	 
	
              10.18
                Usury Savings Clause

            	 	 	
              91

            	 
	
              10.19
                Counterparts

            	 	 	
              91

            	 
	
              10.20
                Effectiveness

            	 	 	
              91

            	 
	
              10.21
                USA Patriot Act Notice

            	 	 	
              91

            	 
	
              10.22
                Third Party Beneficiaries

            	 	 	
              91

            	 

    

     

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

     

    
      	
              APPENDICES:

            	
              A

            	
              Commitments

            
	 	
              B

            	
              Notice
                Addresses

            
	 	 	 
	
              SCHEDULES:

            	
              1.1

            	
              Security
                Schedule

            
	 	
              2.2

            	
              Wire
                Transfer Instructions

            
	 	
              2.12

            	
              Make
                Whole Computation

            
	 	
              3.1
                

            	
              Organizational
                and Capital Structure

            
	 	
              4.7

            	
              Other
                Obligations and Restrictions

            
	 	
              4.9

            	
              Litigation

            
	 	
              4.10

            	
              Labor
                Disputes

            
	 	
              4.11

            	
              ERISA
                Plans and Liabilities

            
	 	
              4.12

            	
              Environmental
                Matters

            
	 	
              4.13

            	
              Names
                and Places of Business

            
	 	
              4.14

            	
              Subsidiaries
                of Company

            
	 	
              4.18

            	
              Taxes

            
	 	
              4.20

            	
              Distributions

            
	 	
              4.22

            	
              Material
                Contracts

            
	 	
              4.24

            	
              Certain
                Fees

            
	 	
              4.26

            	
              Sale
                of Production

            
	 	 	 
	
              EXHIBITS:

            	
              A

            	
              Funding
                Notice

            
	 	
              B

            	
              Note

            
	 	
              C-1

            	
              Compliance
                Certificate

            
	 	
              C-2

            	
              Environmental
                Compliance Certificate

            
	 	
              D

            	
              Opinion
                of Counsel

            
	 	
              E

            	
              Assignment
                Agreement

            
	 	
              F

            	
              Certificate
                Re Non-bank Status

            
	 	
              G-1

            	
              Closing
                Date Certificate

            
	 	
              G-2

            	
              Solvency
                Certificate

            
	 	
              H

            	
              Approval
                Letter

            
	 	
              I

            	
              Approved
                Plan of Development

            
	 	
              J

            	
              Monthly
                Production Report

            
	 	
              K

            	
              Intercreditor
                and Control Agreement

            

    

     

    
      
        
        

      

      
        v

        
          

        

      

       

    

     

    
      CREDIT
        AND GUARANTY AGREEMENT

       

      This
        Credit
        and Guaranty Agreement,
        dated
        as of September 8, 2006, is entered into by and among Foothills
        Resources, Inc.,
        a
        Nevada corporation (“Company”),
        certain Subsidiaries of Company, the Lenders (as defined below) party hereto
        from time to time,
        J. Aron & Company (“J.
        Aron”),
        as
        Lead Arranger and as Syndication Agent (in such capacities, “Syndication
        Agent”),
        J.
        Aron & Company,
        as
        Administrative Agent for such Lenders (together with its permitted successor
        in
        such capacity, “Administrative
        Agent”).

       

      RECITALS:

       

      WHEREAS,
        capitalized terms used in these Recitals shall have the respective meanings
        set
        forth for such terms in Section 1.1 hereof;

       

      WHEREAS,
        Lenders
        have agreed to extend Loans to Company, the proceeds of which will be used
        as
        provided in Section 2.4; 

       

      WHEREAS,
        Company
        and Guarantors have agreed to secure all of the Obligations by granting to
        Administrative Agent, for the benefit of Secured Parties, an Acceptable Priority
        on its assets, as provided herein;

       

      WHEREAS,
        to
        further induce Lenders to enter into this Agreement, Company has agreed to
        convey the ORRI to Royalty Owner and Company has agreed to issue the Warrants
        to
        Warrant Owner; and

       

      WHEREAS,
        Guarantors have agreed to guarantee the Obligations of Company hereunder
        and to
        secure their respective Obligations by granting to Administrative Agent, for the
        benefit of Secured Parties, an Acceptable Priority on their respective
        assets.

       

      NOW,
        THEREFORE,
        in
        consideration of the premises and the agreements, provisions and covenants
        herein contained, the parties hereto agree as follows:

       

      SECTION
        1 DEFINITIONS
        AND INTERPRETATION

       

      1.1
        Definitions.
        The
        following terms used herein, including in the preamble, recitals, exhibits
        and
        schedules hereto, shall have the following meanings:

       

      “Acceptable
        Priority”
        means,
        with respect to any Lien purported to be created in any Collateral pursuant
        to
        any Security Document, a Lien that is the only Lien to which such Collateral
        is
        subject, other than Permitted Liens and subject to the terms of the
        Intercreditor Agreement; provided that the existence of such Permitted Liens
        shall not be deemed or construed to evidence Administrative Agent’s or any
        Lender’s intention to subordinate any of the Obligations to such Permitted
        Liens, except as expressly provided by the Intercreditor
        Agreement.

       

      
        
          
          

        

        
          1
            

          
            

          

        

        
          
          

        

      

       

      “Acquisition”
        means
        the purchase by Company of the properties and assets described in the
        Acquisition Documents. 

       

      “Acquisition
        Agreements”
        means
        collectively, (a) that certain Purchase and Sale Agreement, dated June 21,
        2006,
        between Assignor and Foothills Texas, (b) that certain Purchase and Sale
        Agreement, dated June 21, 2006, between Assignor and Foothills Texas, (c)
        that
        certain letter agreement, dated June 21, 2006, between Assignor and Foothills
        Texas, relating to the agreements referred to in (a) and (b) above, (d) that
        certain letter agreement, dated -August 14, 2006, between Assignor and Foothills
        Texas, relating to the agreements referred to in (a) and (b) above, and (e)
        that
        certain letter agreement, dated August 25, 2006, between Assignor and Foothills
        Texas, relating to the agreements referred to in (a) and (b) above.

       

      “Acquisition
        Documents”
        means
        (a) the Acquisition Agreements, and (b) all other agreements, assignments,
        deeds, conveyances, certificates and other documents and instruments now
        or
        hereafter executed and delivered pursuant to the Acquisition Agreements or
        in
        connection with the Acquisition.

       

      “Adjusted
        Eurodollar Rate”
        means,
        for any Interest Period, (i) the rate per annum (rounded to the nearest 1/100
        of
        1%) equal to the rate determined by Administrative Agent to be the offered
        rate
        which appears on the page of the Telerate Screen which displays an average
        British Bankers Association Interest Settlement Rate (such page currently
        being
        page number 3740 or 3750, as applicable) for deposits in Dollars (for delivery
        on the first day of such Interest Period) with a term equivalent to such
        Interest Period, determined as of approximately 11:00 a.m. (London, England
        time) on the date that is two Business Days prior to the first day of such
        Interest Period, or (ii) in the event the rate referenced in the preceding
        clause (i) does not appear on such page or service or if such page or service
        shall cease to be available, the rate per annum (rounded to the nearest 1/100
        of
        1%) equal to the rate determined by Administrative Agent to be the offered
        rate
        on such other page or other service which displays an average British Bankers
        Association Interest Settlement Rate for deposits in Dollars (for delivery
        on
        the first day of such Interest Period) with a term equivalent to such Interest
        Period, determined as of approximately 11:00 a.m. (London, England time)
        on the
        date that is two Business Days prior to the first day of such Interest Period,
        or (iii) in the event the rates referenced in the preceding clauses (i) and
        (ii)
        are not available, the rate per annum (rounded to the nearest 1/100 of 1%)
        equal
        to the offered quotation rate to first class banks in the London interbank
        market by J. Aron for deposits in Dollars (for delivery on the first day
        of such
        Interest Period) of amounts in same day funds comparable to the average
        principal amount of the applicable Loan of Administrative Agent (in its capacity
        as a Lender, during such Interest Period) with maturities comparable to such
        Interest Period as of approximately 11:00 a.m. (London, England time) on
        the
        date that is two Business Days prior to the first day of such Interest
        Period.

       

      “Administrative
        Agent”
        as
        defined in the preamble hereto.

       

      “Affiliate”
        means,
        as applied to any Person, any other Person directly or indirectly controlling,
        controlled by, or under common control with, that Person. For the purposes
        of
        this definition, “control” (including, with correlative meanings, the terms
“controlling”, “controlled by” and “under common control with”), as applied to
        any Person, means the possession, directly or indirectly, of the power (through
        the ownership of voting securities or by contract or otherwise) (i) to vote
        10%
        or more of the Securities having ordinary voting power for the election of
        directors of such Person or (ii) to direct or cause the direction of the
        management and policies of that Person.

       

      
        
          
          

        

        
          2
            

          
            

          

        

        
          
          

        

      

       

      “Agent”
        means
        each of Syndication Agent and Administrative Agent.

       

      “Agreed
        Pricing”
        means:

       

      (i) for
        anticipated sales of Hydrocarbons that are fixed in a firm fixed price sales
        contract with an investment grade counterparty or a counterparty with an
        investment grade guarantor (or another counterparty approved by Administrative
        Agent), the fixed price or prices provided for in such sales contract during
        the
        term thereof; and 

       

      (ii) for
        anticipated sales of Hydrocarbons that are hedged by a fixed price Hedging
        Contract with an investment grade counterparty or a counterparty with an
        investment grade guarantor, the fixed price or prices provided for in such
        Hedging Contract during the term thereof, as modified by any necessary
        adjustment specified by Administrative Agent for quality and geographical
        differentials; and 

       

      (iii) for
        anticipated sales of Hydrocarbons that are hedged by a Hedging Contract with
        an
        investment grade counterparty or a counterparty with an investment grade
        guarantor which Hedging Contract provides for a range of prices between a
        floor
        and a ceiling, the prices provided for in subsection (iv) below, provided
        that
        during the term of such Hedging Contract such prices shall in no event be
        less
        than such floor or exceed such ceiling, as such floor and ceiling are modified
        by any necessary adjustment specified by Administrative Agent for quality
        and
        geographical differentials; and 

       

      (iv) for
        anticipated sales of Hydrocarbons, if such sales are not hedged by a Hedging
        Contract or sales contract that is described in paragraphs (i), (ii), or
        (iii)
        above, for the date of calculation (or, if such date is not a Business Day,
        for
        the first Business Day thereafter), and with any necessary adjustment specified
        by Administrative Agent for quality and geographical differentials:

       

      (a) For
        the
        remainder of the current calendar year, the average NYMEX Pricing for the
        remaining contracts in the current calendar year,

       

      (b) For
        each
        of the succeeding four complete calendar years, the average NYMEX Pricing
        for
        the twelve months in each such calendar year,

       

      (c) For
        the
        succeeding fifth complete calendar year, and for each calendar year thereafter,
        the average NYMEX Pricing for the twelve months in such fifth calendar
        year.

       

      “Agreement”
        means
        this Credit and Guaranty Agreement, as it may be amended, supplemented or
        otherwise modified from time to time.

       

      
        
          
          

        

        
          3
            

          
            

          

        

        
          
          

        

      

       

      “AMI
        Violation” means
        the
        acquisition of any interest (including the acquisition of any interests or
        rights described in the definition of Oil and Gas Properties) in the Texas
        Project Area directly or indirectly by any director, officer, or employee
        of any
        Credit Party.

       

      “ANCF”
        (or
“Adjusted
        Net Cash Flow”)
        means
        the remainder of:

       

      (i) the
        sum,
        without duplication, of all cash revenues and cash receipts of Company and
        its
        Subsidiaries attributable to the Properties in the Texas Project Area (excluding
        only (a) funds received from Loans hereunder, (b) funds received from
        Loans under the Revolving Credit Agreement, (c) funds received from capital
        contributions made to Company, including sales of new Capital Stock and funds
        received for options or warrants to acquire such Capital Stock, and
        (d) funds belonging to or received for the credit of third parties, such as
        royalty, working interest or other interest owners, that are received for
        transfer or payment to such third parties) during any Calculation Quarter,
        beginning with the Calculation Quarter which starts September 1, 2006, but
        effective as of the Closing Date, minus 

       

      (ii) the
        sum,
        without duplication, of all cash payments, net to the interests of Company
        and
        its Subsidiaries, made during such Calculation Quarter (excluding any payments
        financed by funds described in clause (a) or (b) of subparagraph (i) above)
        for:

       

      (a) Direct
        Taxes paid on Properties or production of Hydrocarbons in the Texas Project
        Area
        during such Calculation Quarter,

       

      (b) delay
        rentals and lease bonuses payable during such Calculation Quarter that are
        included in the Approved Plan of Development,

       

      (c) ANCF
        Capital Expenditures made during such Calculation Quarter,

       

      (d) ANCF
        LOE
        during such Calculation Quarter, 

       

      (e) ANCF
        Overhead Costs during such Calculation Quarter,

       

      (f) ANCF
        Transportation Costs during such Calculation Quarter, 

       

      (g) interest,
        fees, expense and principal, if any, paid during such Calculation Quarter
        in
        respect of Revolving Indebtedness allowed under Section 6.1(f);

       

      (h) payments
        owing during such Calculation Quarter under Hedging Contracts permitted
        hereunder; and

       

      (i) interest
        payable during such Calculation Quarter on the Loans, together with the amount
        of payments, if any, due to Agents and Lenders under Sections 2.9, 5.9,
        10.2 or 10.3 hereof or under any similar sections of any other Transaction
        Documents.

       

      This
        definition of “ANCF” is to be used for the purpose of determining the payments
        that Company is required to make under Section 2.11 below; neither this
        definition nor Section 2.11 affects or restricts Lenders’ rights or ability
        to apply amounts that they receive from the enforcement of their Liens and
        remedies against Collateral or Lenders’ right to require a different application
        of funds as a condition to any waiver of or amendment to the Transaction
        Documents by Lenders (such as any consent to a sale by Company of all or
        substantially all of its assets).

       

      
        
          
          

        

        
          4
            

          
            

          

        

        
          
          

        

      

       

      “ANCF
        Capital Expenditures”
        means
        (i) capital expenditures made or to be made by Company in the Texas Project
        Area, to the extent the same either (a) have been approved by Required Lenders
        at the time in question by means of an Approval Letter, or (b) are included
        in
        the Approved Plan of Development, as then in effect; (ii) other capital
        expenditures not included in the Approved Plan of Development that do not
        in the
        aggregate exceed $50,000 in any Calculation Quarter, and (iii) payments on
        capital leases that are permitted under Section 6.1(d).

       

      “ANCF
        LOE”
        means
        (i) leasehold operating expenses with respect to the Texas Project Area in
        the
        ordinary course of business of the kind chargeable as direct charges under
        an
        Onshore COPAS Accounting Procedure for Joint Operations (1989 form published
        by
        the Council of Petroleum Accountants Societies), but in no event shall such
        leasehold operating expenses exceed those set forth in the Operating Expense
        Budget and (ii) other field level or lease level charges for operations in
        the
        Texas Project Area (excluding ANCF Capital Expenditures and other capital
        expenditures) that have been approved by Required Lenders at the time in
        question by means of an Approval Letter. 

       

      “ANCF
        Overhead Costs”
        means
        (i) Permitted G&A Expense Amounts, and (ii) other costs of Company to the
        extent such other costs have been approved as ANCF Overhead Costs by Required
        Lenders at the time in question by means of an Approval Letter.

       

      “ANCF
        Transportation Costs”
        means
        (i) the actual costs of gathering, processing and transporting production
        from
        the Texas Project Area from the wellhead to the point of sale, provided that
        all
        such costs are negotiated with, and paid to, third parties in arms-length
        transactions on terms which are reasonable in the area of operations for
        the
        quality and quantity of such production for the time period negotiated, at
        the
        time such prices are agreed to, or (ii) other transportation or marketing
        costs,
        to the extent such other transportation and marketing costs have been approved
        by Required Lenders at the time in question by means of an Approval Letter.
        

       

      “Approval
        Letter”
        means a
        letter given by Administrative Agent on behalf of Required Lenders in the
        form
        of Exhibit H.

       

      “Approved
        Plan of Development”
        or
“APOD”
        means
        Company’s written plan of development with respect to budgeted capital
        expenditures (including maximum annual expenditures) and other development
        activities with respect to the Texas Project Area as described in Exhibit
        I, as
        amended and supplemented from time to time with the consent of Required Lenders;
        provided that no such consent shall be required for amendments, modifications
        or
        supplements to the extent, but only to the extent, that any such amendments,
        modifications or supplements (a) either (i) are administrative or
        ministerial in nature, or (ii) would make non-material amendments to the
        timing for the completion of any such development (other than an amendment
        extending the timing of the substantial completion of the APOD), and (b) do
        not increase the aggregate permitted budgeted capital expenditures of Company
        and its Subsidiaries under such written plan.

       

      
        
          
          

        

        
          5
            

          
            

          

        

        
          
          

        

      

       

      “Assignment
        Agreement”
        means an
        Assignment and Assumption Agreement substantially in the form of Exhibit E,
        with such amendments or modifications as may be approved by Administrative
        Agent.

       

      “Assignor”
        means
        TARH E&P Holdings, L.P., a Texas limited partnership.

       

      “Authorized
        Officer”
        means,
        as applied to any Person, any individual holding the position of chairman
        of the
        board (if an officer), chief executive officer, president or one of its vice
        presidents (or the equivalent thereof), manager, and such Person’s chief
        financial officer or treasurer.

       

      “Bankruptcy Code”
        means
        Title 11 of the United States Code entitled “Bank-ruptcy,” as now and
        hereafter in effect, or any successor statute.

       

      “Beneficiary”
        means
        each Agent, each Lender, Royalty Owner and Warrant Owner.

       

      “Business
        Day”
        means
        (i) any day excluding Saturday, Sunday and any day which is a legal holiday
        under the laws of the State of New York or is a day on which banking
        institutions located in such state are authorized or required by law or other
        governmental action to close and (ii) as used in the definitions of
“Adjusted Eurodollar Rate” and “Quarterly Payment Date”, the term “Business
        Day”
        shall
        mean any day which is a Business Day described in clause (i) and which is
        also a
        day for trading by and between banks in Dollar deposits in the London interbank
        market.

       

      “Calculation
        Quarter”
        means
        the three calendar month period commencing on the first day of March, June,
        September, and December of each year.

       

      “Capital
        Stock”
        means
        any and all shares, interests, participations or other equivalents (however
        designated) of capital stock of a corporation, any and all equivalent ownership
        interests in a Person (other than a corporation), including, without limitation,
        partnership interests and membership interests, and any and all warrants,
        rights
        or options to purchase or other arrangements or rights to acquire any of
        the
        foregoing.

       

      “Ceiling
        Amount”
        means
        the aggregate amount of Revolving Indebtedness that may be drawn or incurred
        by
        Company under the Revolving Credit Agreement in an amount approved from time
        to
        time in sole discretion of the Required Lenders. As of the Closing Date,
        the
        Ceiling Amount is $0.

       

      “Certificate
        re Non-Bank Status”
        means a
        certificate substantially in the form of Exhibit F.

       

      “Change
        of Control”
        means
        the occurrence of any of the following events: 

       

      
        
          
          

        

        
          6
            

          
            

          

        

        
          
          

        

      

       

      (a) any
        “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the
        Exchange Act), shall become, or obtain rights (whether by means or warrants,
        options or otherwise) to become, the “beneficial owner” (as defined in Rules
        13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more
        than 50% of the outstanding common stock of the Company or 

       

      (b) the
        board
        of directors of the Company shall cease to consist of a majority of Continuing
        Directors.

       

      “Closing
        Date”
        means
        the date on which the first Loans are made.

       

      “Closing
        Date Certificate”
        means a
        Closing Date Certificate substantially in the form of
        Exhibit G-1.

       

      “Closing
        Date Transactions”
        means
        the consummation of the Acquisition on the Closing Date.

       

      “Collateral”
        means,
        collectively, all of the real, personal and mixed property (including Capital
        Stock) in which Liens are purported to be granted pursuant to the Security
        Documents as security for the Obligations.

       

      “Commitment”
means,
        as to each Lender, its obligation to make Loans to Company pursuant to Section
        2.1 in an aggregate principal amount at any one time outstanding not to exceed
        the amount set forth opposite such Lender’s
        name on
        Annex A or in the Assignment Agreement pursuant to which such Lender becomes
        a
        party hereto, as applicable, as such amount may be adjusted from time to
        time in
        accordance with this Agreement. It is expressly understood and agreed that
        Lenders have no obligation to increase the amount of the commitments set
        forth
        on Annex A or such Assignment Agreement, as applicable, and that Lenders’
commitments to make Loans hereunder is determined by reference to such
        Annex A or such Assignment Agreement, as applicable.

       

      “Company”
        as
        defined in the preamble hereto.

       

      “Compliance
        Certificate”
        means a
        Compliance Certificate substantially in the form of
        Exhibit C-1.

       

      “Consolidated”
        refers
        to the consolidation of Company or any other Credit Party, in accordance
        with
        GAAP, with its properly consolidated subsidiaries. References herein to a
        Person’s Consolidated financial statements, financial position, financial
        condition, liabilities, etc. refer to the consolidated financial statements,
        financial position, financial condition, liabilities, etc. of such Person
        and
        its properly consolidated subsidiaries. 

       

      “Consolidated
        Current Assets”
        as
        defined in Section 6.10.

       

      “Consolidated
        Current Liabilities”
        as
        defined in Section 6.10.

       

      “Consolidated
        Net Income”
        means,
        as to any Person or Persons for any period, the gross revenues of such Person
        or
        Persons for such period, plus any cash dividends or distributions actually
        received by such Person or Persons from any other business entity, minus
        all
        expenses and other proper charges (including provision for federal, state,
        local
        and foreign taxes and franchise taxes but excluding charges for accrued unpaid
        dividends on preferred stock of such Person or Persons for such period),
        determined on a Consolidated basis but excluding income (or loss) for such
        period of any Person if such Person is not a Subsidiary of the Company or
        any
        other Credit Party.

       

      
        
          
          

        

        
          7
            

          
            

          

        

        
          
          

        

      

       

      “Continuing
        Directors” means
        the
        directors of the Company on the Closing Date, and each other director, if,
        in
        each case, such other director’s nomination for election to the board of
        directors of the Company is recommended by at least 50% of the then Continuing
        Directors.

       

      “Contractual
        Obligation”
        means,
        as applied to any Person, any provision of any Security issued by that Person
        or
        of any indenture, mortgage, deed of trust, contract, undertaking, agreement
        or
        other instrument to which that Person is a party or by which it or any of
        its
        properties is bound or to which it or any of its properties is
        subject.

       

      “Contributing
        Guarantors”
        as
        defined in Section 7.2.

       

      “Counterpart
        Agreement”
        means a
        Counterpart Agreement substantially in the form of Exhibit K delivered by a
        Credit Party pursuant to Section 5.14.

       

      “Credit
        Date”
        means
        the date of a Credit Extension.

       

      “Credit
        Extension”
        means
        the making of a Loan.

       

      “Credit
        Party”
        means
        Company and each Subsidiary of Company. 

       

      “Current
        Financial Statements”
        means
        (a) the financial statements of Company dated as of June 30, 2006 and (b)
        the
        pro forma balance sheet of Company as of the Closing Date (after giving effect
        to the Closing Date Transactions).

       

      “Default”
        means a
        condition or event that, after notice or lapse of time or both, would constitute
        an Event of Default.

       

      “Deposit
        Account”
        means a
        demand, time, savings, passbook or like account with a bank, savings and
        loan
        association, credit union or like organization, other than an account evidenced
        by a negotiable certificate of deposit, and any other deposit account, as
        defined in the UCC.

       

      “Direct
        Taxes”
        means
        any severance, ad valorem, or other direct taxes on properties owned by any
        Credit Party or the production therefrom or the proceeds of such production;
        provided that federal, state, or local income or franchise taxes shall in
        no
        event be considered Direct Taxes.

       

      “Distribution”
        means
        (i) any dividend or other distribution made by a Credit Party on or in respect
        of any Capital Stock in such Credit Party, or (ii) any payment made by a
        Credit
        Party to purchase, redeem, acquire or retire any Capital Stock in such Credit
        Party.

       

      
        
          
          

        

        
          8
            

          
            

          

        

        
          
          

        

      

       

      “Dollars”
        and the
        sign “$”
        mean the
        lawful money of the United States of America.

       

      “EBITDA”
        means,
        for each trailing four Fiscal Quarter period, the sum of (i) the Consolidated
        Net Income of Company during such period, plus (ii) all interest paid during
        such period on Indebtedness (including amortization of original issue discount
        and the interest component of any deferred payment obligations and capital
        lease
        obligations) which was deducted in determining such Consolidated Net Income,
        plus (iii) all provisions for federal, state, local or foreign income or
        franchise taxes, if any which were deducted in determining such Consolidated
        Net
        Income, plus (iv) all depreciation, amortization (including amortization
        of good
        will and debt issuance costs), depletion, and other non-cash charges (including
        any provision for the reduction in the carrying value of assets recorded
        in
        accordance with GAAP and including those resulting from the requirements
        of FASB
        133 or 143) which were deducted in determining such Consolidated Net Income,
        minus (v) all non-cash items of income or gain (including those resulting
        from
        the requirements of FASB 133 or 143) which were included in determining such
        Consolidated Net Income.

       

      “Eel
        River Basin Test Date” means
        the
        date on which Foothills California has successfully drilled and completed
        two
        wells on the Eel River Properties, in each case (i) with a 90-day sustained
        daily production rate of at least 400 mcf per day in the Anderson formation
        or
        with a 90-day sustained daily production rate of at least 1,000 mcf per day
        in
        the Lower Rio Dell formation, and (ii) as confirmed in writing by Required
        Lenders in their sole discretion. 

       

      “Eel
        River Properties” means
        the
        Anderson formation and the Lower Rio Dell formation located in Humboldt County,
        California.

       

      “Effective
        Rate”
        means,
        at any time of determination, the per annum rate equal to the Adjusted
        Eurodollar Rate plus seven percent (7%); provided that such per annum rate
        shall
        be automatically increased (a) by one percent (1.0%) per annum on September
        22,
        2006 if the Required Equity Date has not occurred prior to such date, (b)
        by an
        additional one percent (1.0%) per annum on October 23, 2006 if the Required
        Equity Date has not occurred prior to such date, and (c) by an additional
        one
        percent (1.0%) per annum on November 22, 2006 if the Required Equity Date
        has
        not occurred prior to such date.

       

      “Eligible
        Assignee”
        means
        (i) any Lender or any Affiliate of any Lender, and (ii) any Related
        Fund (any two or more Related Funds being treated as a single Eligible Assignee
        for all purposes hereof) or any commercial bank, insurance company, investment
        or mutual fund or other entity that is an “accredited investor” (as defined in
        Regulation D under the Securities Act) and which extends credit or buys
        loans as one of its businesses; provided,
        no
        Affiliate of Company shall be an Eligible Assignee.

       

      “Eligible
        Mortgaged Properties”
        means,
        collectively, those oil and gas Properties (a) which are owned by Company
        or any other Credit Party and mortgaged to Administrative Agent to secure
        the
        Obligations, (b) for which Administrative Agent has received title opinions
        or
        other title information concerning such interests in form, substance and
        authorship satisfactory to Administrative Agent, (c) are free and clear of
        all
        Liens other than Permitted Liens and (d) which are subject to an ORRI
        Conveyance.

       

      
        
          
          

        

        
          9
            

          
            

          

        

        
          
          

        

      

       

      “Engineering
        Report”
        means
        the Initial Engineering Report and each engineering report hereafter delivered
        by Company pursuant to Section 5.2(e), provided that each such report hereafter
        delivered must (a) separately report on Proved Producing Reserves, Proved
        Developed Nonproducing Reserves, Proved Undeveloped Reserves and probable
        reserves and separately calculate the NPV of each such category of Proved
        Reserves for Company’s interest, (b) use Agreed Pricing and a 10% discount
        factor (or any other pricing assumptions to which Company and Administrative
        Agent may agree), (c) take into account Company’s actual experiences with
        leasehold operating expenses and other costs in determining projected leasehold
        operating expenses and other costs, (d) identify and take into account any
        “over-produced” or “under-produced” status under gas balancing arrangements, (e)
        contain information and analysis comparable in scope to that contained in
        the
        Initial Engineering Report, and (f) otherwise be in form and substance
        satisfactory to Administrative Agent.

       

      “Environmental
        Claim”
        means
        any investigation, notice, notice of violation, claim, action, suit, proceeding,
        demand, abatement order or other order or directive (conditional or otherwise),
        by any Governmental Authority or any other Person, arising (i) pursuant to
        or in
        connection with any actual or alleged violation of any Environmental Law;
        (ii)
        in connection with any Hazardous Material or any actual or alleged Hazardous
        Materials Activity; or (iii) in connection with any actual or alleged damage,
        injury, threat or harm to health, safety, natural resources or the
        environment.

       

      “Environmental
        Laws”
        means
        any and all current or future foreign or domestic, federal or state (or any
        subdivision of either of them), statutes, ordinances, orders, rules,
        regulations, judgments, Governmental Authorizations, or any other requirements
        of Governmental Authorities relating to (i) environmental matters,
        including those relating to any Hazardous Materials Activity; (ii) the
        generation, use, storage, transportation or disposal of Hazardous Materials;
        or
        (iii) occupational safety and health, industrial hygiene, land use or the
        protection of human, plant or animal health or welfare, in any manner applicable
        to Company or any of its Subsidiaries or any of their respective
        properties.

       

      “ERISA”
        means
        the Employee Retirement Income Security Act of 1974, as amended from time
        to
        time, and any successor thereto, together with all rules and regulations
        promulgated with respect thereto.

       

      “ERISA
        Affiliate”
        means
        Company and all members of a controlled group of corporations and all trades
        or
        businesses (whether or not incorporated) under common control that, together
        with Company, are treated as a single employer under Section 414 of the Internal
        Revenue Code.

       

      “ERISA
        Plan”
        means
        any employee pension benefit plan subject to Title IV of ERISA maintained
        by any
        ERISA Affiliate with respect to which any Credit Party has a fixed or contingent
        liability.

       

      “Event
        of Default”
        as
        defined in Section 8.1.

       

      “Excepted
        Liens”
        means
        (i) Liens for taxes, assessments or other governmental charges or levies
        not yet delinquent or which are being contested as provided in Section 5.7
        by appropriate proceedings; (ii) Liens arising in connection with workmen’s
        compensation, unemployment insurance or other social security, old age pension
        or public liability obligations not yet due or which are being contested
        as
        provided in Section 5.7; (iii) Liens under operating agreements,
        pooling orders and unitization agreements, and mechanics’, materialmen’s,
        repairmen’s or other like Liens, with respect to obligations which are not yet
        due or which are being contested as provided in Section 5.7; (iv) deposits
        of cash or cash equivalents securing the performance of bids, tenders, surety
        and appeal bonds, statutory or regulatory obligations, or securing letters
        of
        credit which in turn secure such performance, in each case made in the ordinary
        course of business; (v) minor defects and irregularities in title to any
        Property, so long as such defects and irregularities neither (A) are Liens
        which secure Indebtedness or obligations nor (B) materially impair the
        value of such Property or the use thereof for the purposes for which such
        Property is held; (vi)  rights of collecting banks having rights of
        setoff, revocation, refund or chargeback with respect to money or instruments
        of
        any Credit Party or on deposit with or in the possession of such banks,
        (vii) judgment and attachment Liens not giving rise to an Event of Default
        or inchoate Liens created by or existing from any litigation or legal
        proceedings that are currently being contested in good faith by appropriate
        proceedings, promptly utilized and diligently conducted, and for which adequate
        reserves have been made to the extent required by GAAP, and (viii) Liens
        arising
        under the INNEX Farmout Agreement.

       

      
        
          
          

        

        
          10
            

          
            

          

        

        
          
          

        

      

       

      “Exchange
        Act”
        means
        the Securities Exchange Act of 1934, as amended from time to time, and any
        successor statute.

       

      “First
        Lien Counterparty”
        means
        each of (i) J. Aron & Company and (ii) the Revolving Lenders (or, if
        applicable, their affiliates), together with their respective successors
        and
        assigns under the First Lien Hedging Contracts.

       

      “First
        Lien Hedging Contracts”
        means
        each of (i) that certain ISDA Master Agreement dated as of September 8, 2006
        by
        and between Company and J. Aron & Company and the confirmations from time to
        time executed and delivered thereunder, and (ii) the ISDA Master Agreements,
        in
        form and substance and upon such terms as are satisfactory to Required Lenders
        in all respects, by and between Company and Revolving Lenders (or, if
        applicable, their affiliates) and the confirmations from time to time executed
        and delivered thereunder, in each case together with all certificates,
        documents, instruments or agreements executed and delivered by Company, Parent,
        or any other Credit Party for the benefit of the respective First Lien
        Counterparty in connection therewith.

       

      “First
        Lien Hedging Obligations”
        means
        all obligations of Company or any Guarantor arising from time to time under
        the
        First Lien Hedging Contracts entered into with the First Lien
        Counterparties.

       

      “Fiscal
        Quarter”
        means a
        three-month period ending on the last day of March, June, September, and
        December of any year.

       

      “Fiscal
        Year”
        means
        the fiscal year of Company and its Subsidiaries ending on December 31 of
        each
        calendar year.

       

      “Foothills
        California”
        means
        Foothills California, Inc., a Delaware corporation.

       

      
        
          
          

        

        
          11
            

          
            

          

        

        
          
          

        

      

       

      “Foothills
        Oklahoma”
        means
        Foothills Oklahoma, Inc., a Delaware corporation.

       

      “Foothills
        Texas”
        means
        Foothills Texas, Inc., a Delaware corporation.

       

      “Funding
        Guarantors”
        as
        defined in Section 7.2.

       

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

       

      “GAAP”
        means
        those generally accepted accounting principles and practices which are
        recognized as such by the Financial Accounting Standards Board (or any generally
        recognized successor) and which, in the case of Company and its Consolidated
        Subsidiaries, are applied for all periods after the date hereof in a consistent
        manner. If any change in any accounting principle or practice is required
        by the
        Financial Accounting Standards Board (or any such successor) in order for
        such
        principle or practice to continue as a generally accepted accounting principle
        or practice, all reports and financial statements required hereunder with
        respect to Company or with respect to Company and its Consolidated Subsidiaries
        may be prepared in accordance with such change, but all calculations and
        determinations to be made hereunder may be made in accordance with such change
        only after notice of such change is given to each Lender and Required Lenders
        agree to such change insofar as it affects the accounting of Company or of
        Company and its Consolidated Subsidiaries.

       

      “Governmental
        Authority”
        means
        any federal, state, municipal, national, tribal, Indian nation, or other
        government, governmental department, commission, board, bureau, court, agency
        or
        instrumentality or political subdivision thereof or any entity or officer
        exercising executive, legislative, judicial, regulatory or administrative
        functions of or pertaining to any government or any court, in each case whether
        associated with a state of the United States, the United States, an Indian
        nation, or a foreign entity or government. 

       

      “Governmental
        Authorization”
        means
        any permit, license, authorization, plan, directive, consent order or consent
        decree of or from any Governmental Authority. 

       

      “Guaranteed
        Obligations” as
        defined in Section 7.1.

       

      “Guarantor”
        means
        each present and future Subsidiary of Company.

       

      “Guaranty”
        means
        the guaranty of each Guarantor set forth in Section 7.

       

      “Hazardous
        Materials”
        means
        any substances regulated under any Environmental Law, whether as pollutants,
        contaminants, or chemicals, or as industrial, toxic or hazardous substances
        or
        wastes, or otherwise.

       

      “Hazardous
        Materials Activity”
        means
        any past, current, proposed or threatened activity, event or occurrence
        involving any Hazardous Materials, including the use, manufacture, possession,
        storage, holding, presence, existence, location, Release, threatened Release,
        discharge, placement, generation, transportation, processing, construction,
        treatment, abatement, removal, remediation, disposal, disposition or handling
        of
        any Hazardous Materials, and any corrective action or response action with
        respect to any of the foregoing.

       

      
        
          
          

        

        
          12
            

          
            

          

        

        
          
          

        

      

       

      “Hedging
        Contract”
        means
        (a) any agreement providing for options, swaps, floors, caps, collars, forward
        sales or forward purchases involving interest rates, commodities or commodity
        prices, equities, currencies, bonds, or indexes based on any of the foregoing,
        (b) any option, futures or forward contract traded on an exchange, and (c)
        any
        other derivative agreement or other similar agreement or
        arrangement.

       

      “Highest
        Lawful Rate”
        means
        the maximum lawful interest rate, if any, that at any time or from time to
        time
        may be contracted for, charged, or received under the laws applicable to
        any
        Lender which are presently in effect or, to the extent allowed by law, under
        such applicable laws which may hereafter be in effect and which allow a higher
        maximum nonusurious interest rate than applicable laws now allow.

       

      “Hydrocarbons”
        means
        crude oil, natural gas or other liquid or gaseous hydrocarbons.

       

      “Indebtedness”
        of any
        Person means Liabilities in any of the following categories:

       

      (a) Liabilities
        for borrowed money,

       

      (b) Liabilities
        constituting an obligation to pay the deferred purchase price of property
        or
        services,

       

      (c) Liabilities
        evidenced by a bond, debenture, note or similar instrument,

       

      (d) Liabilities
        arising under Hedging Contracts,

       

      (e) Liabilities
        constituting principal under leases capitalized in accordance with
        GAAP,

       

      (f) Liabilities
        arising under conditional sales or other title retention
        agreements,

       

      (g) Liabilities
        owing under direct or indirect guaranties of Liabilities of any other Person
        (other than a Credit Party) or otherwise constituting obligations to purchase
        or
        acquire or to otherwise protect or insure a creditor against loss in respect
        of
        Liabilities of any such Person (such as obligations under working capital
        maintenance agreements, agreements to keep well, or agreements to purchase
        Liabilities, assets, goods, securities or services), but excluding endorsements
        in the ordinary course of business of negotiable instruments in the course
        of
        collection,

       

      (h) Liabilities
        (for example, repurchase agreements, mandatorily redeemable preferred stock
        and
        sale/leaseback agreements) consisting of an obligation to purchase or redeem
        securities or other property, if such Liabilities arises out of or in connection
        with the sale or issuance of the same or similar securities or
        property,

       

      (i) Liabilities
        with respect to letters of credit or applications or reimbursement agreements
        therefor,

       

      
        
          
          

        

        
          13
            

          
            

          

        

        
          
          

        

      

       

      (j) Liabilities
        with respect to payments received in consideration of oil, gas, or other
        minerals yet to be acquired or produced at the time of payment (including
        obligations under “take-or-pay” contracts to deliver gas in return for payments
        already received and the undischarged balance of any production payment created
        by such Person or for the creation of which such Person directly or indirectly
        received payment), or

       

      (k) Liabilities
        with respect to other obligations to deliver goods or services in consideration
        of advance payments therefor;

       

      provided
        however, that the “Indebtedness” of any Person shall not include Liabilities
        that were incurred by such Person on ordinary trade terms to vendors, suppliers,
        or other Persons providing goods and services for use by such Person in the
        ordinary course of its business, unless and until such Liabilities are
        outstanding more than 90 days past the incurrence thereof, or if earlier,
        when
        due in accordance with its terms.

       

      “Indemnified
        Liabilities”
        means,
        collectively, any and all liabilities, obligations, losses, damages (including
        natural resource damages), penalties, claims (including Environmental Claims),
        costs (including the costs of any investigation, study, sampling, testing,
        abatement, cleanup, removal, remediation or other response action necessary
        to
        remove, remediate, clean up or abate any Hazardous Materials Activity), expenses
        and disbursements of any kind or nature whatsoever (including the reasonable
        and
        documented fees and disbursements of counsel for Indemnitees in connection
        with
        any investigative, administrative or judicial proceeding commenced or threatened
        by any Person, whether or not any such Indemnitee shall be designated as
        a party
        or a potential party thereto, and any fees or expenses incurred by Indemnitees
        in enforcing this indemnity), whether direct, indirect or consequential and
        whether based on any federal, state or foreign laws, statutes, rules or
        regulations (including securities and commercial laws, statutes, rules or
        regulations and Environmental Laws), on common law or equitable cause or
        on
        contract or otherwise, that may be imposed on, incurred by, or asserted against
        any Indemnitee, in any manner relating to or arising out of (i) this Agreement
        or the other Transaction Documents or the transactions contemplated hereby
        or
        thereby (including any grant of Collateral or Lenders’ agreement to make Credit
        Extensions or the use or intended use of the proceeds thereof, or any
        enforcement of any of the Transaction Documents (including any sale of,
        collection from, or other realization upon any of the Collateral or the
        enforcement of the Guaranty) or any defense against allegations of misconduct
        by
        any Indemnitee); (ii) the statements contained in any commitment letter
        delivered by any Indemnitee to Company with respect to the transactions
        contemplated by this Agreement; or (iii) any Environmental Claim or any
        Hazardous Materials Activity relating to or arising from, directly or
        indirectly, any past or present activity, operation, land ownership, or practice
        of Company or any of its Subsidiaries.

       

      “Indemnitee”
        as
        defined in Section 10.3.

       

      “Initial
        Engineering Report”
        means
        the reserve engineering report with respect to Company’s Properties prepared as
        of July 1, 2006 by Cawley, Gillespie & Associates, Inc., a copy of which has
        been delivered to Administrative Agent.

       

      “INNEX
        Farmout Agreement” means
        that certain Farmout and Participation Agreement dated as of January 3, 2006
        between Foothills California and INNEX California, Inc.

       

      
        
          
          

        

        
          14
            

          
            

          

        

        
          
          

        

      

       

      “Intercreditor
        Agreement” means
        the
        Intercreditor and Control Agreement substantially in the form of Exhibit
        K (or
        such other form as may be satisfactory to Required Lenders) among Revolving
        Agent, Revolving Lenders, First Lien Counterparty, Administrative Agent,
        Lenders, and Company, as the same may be amended, restated or otherwise modified
        from time to time.

       

      “Interest
        Expense”
        means,
        for each trailing four Fiscal Quarter period, the sum of cash interest payments
        made on the Loans and cash interest payments made under the Revolving Credit
        Agreement.

       

      “Interest
        Period”
        means
        (a) the period beginning on and including the Closing Date and ending on
        but not
        including December 26, 2006, and (b) each subsequent three-month period from
        and
        including one Quarterly Payment Date to but not including the next Quarterly
        Payment Date.

       

      “Internal
        Revenue Code”
        means
        the Internal Revenue Code of 1986, as amended to the date hereof and from
        time
        to time hereafter, and any successor statute.

       

      “Investment”
        means,
        with respect to any Person, any direct or indirect advance, loan, guarantee
        of
        Liabilities or other extension of credit or capital contribution to (by means
        of
        any transfer of cash or other property to others or any payment for property
        or
        services for the account or use of others), or any purchase or acquisition
        by
        such Person of any capital stock, bonds, notes, debentures or other securities
        or evidences of Indebtedness issued by, any other Person. 

       

      “Law”
        means
        any statute, law, regulation, ordinance, rule, treaty, judgment, order, decree,
        permit, concession, franchise, license, agreement or other governmental
        restriction of the United States or any state or political subdivision thereof
        or of any foreign country or any department, province or other political
        subdivision thereof.

       

      “Lender”
        means
        each Person listed on the signature pages hereto as a Lender, and any other
        Person that becomes a party hereto pursuant to an Assignment
        Agreement.

       

      “Liabilities”
        means,
        as to any Person, all indebtedness, liabilities and obligations of such Person,
        whether matured or unmatured, liquidated or unliquidated, primary or secondary,
        direct or indirect, absolute, fixed or contingent, and whether or not required
        to be considered pursuant to GAAP.

       

      “Lien”
        means,
        with respect to any property or assets, any right or interest therein of
        a
        creditor to secure Liabilities owed to it or any other arrangement with such
        creditor which provides for the payment of such Liabilities out of such property
        or assets or which allows such creditor to have such Liabilities satisfied
        out
        of such property or assets prior to the general creditors of any owner thereof,
        including any lien, mortgage, security interest, pledge, deposit, production
        payment, rights of a vendor under any title retention or conditional sale
        agreement or lease substantially equivalent thereto, tax lien, mechanic’s or
        materialman’s lien, or any other charge or encumbrance for security purposes,
        whether arising by Law or agreement or otherwise, but excluding any right
        of
        offset which arises without agreement in the ordinary course of business.
“Lien”
also means any filed financing statement, any registration of a pledge (such
        as
        with an issuer of uncertificated securities), or any other arrangement or
        action
        which would serve to perfect a Lien described in the preceding sentence,
        regardless of whether such financing statement is filed, such registration
        is
        made, or such arrangement or action is undertaken before or after such Lien
        exists.

       

      
        
          
          

        

        
          15
            

          
            

          

        

        
          
          

        

      

       

      “Loan”
        means
        any Loan made by a Lender to Company pursuant to Section 2.1.

       

      “Loan
        Exposure”
        means,
        with respect to any Lender, as of any date of determination, the outstanding
        principal amount of the Loans of such Lender; provided,
        at any
        time prior to the making of the initial Loans, the Loan Exposure of any Lender
        shall be equal to such Lender’s Commitments.

       

      “Make-Whole
        Amount”,
        as well
        as certain other terms used in determining the Make-Whole Amount, have the
        meanings given to such terms in Section 2.12(e).

       

      “Margin
        Stock”
        as
        defined in Regulation U of the Board of Governors of the Federal Reserve
        System as in effect from time to time. 

       

      “Material
        Adverse Effect”
        means a
        material adverse effect on or material adverse development with respect to
        (i) the business, operations, properties, assets, financial condition or
        prospects of Company and its Subsidiaries taken as a whole; (ii) the
        ability of any Credit Party to fully and timely perform its Obligations;
        (iii) the legality, validity, binding effect or enforceability against a
        Credit Party of a Transaction Document to which it is a party; or (iv) the
        rights, remedies and benefits available to, or conferred upon, any Agent,
        any
        Lender or any Secured Party under any Transaction Document.

       

      “Material
        Contract”
        means
        (a) the Revolving Credit Agreement and all loan documents related thereto,
        (b)
        the First Lien Hedging Contract, (c) the Acquisition Documents, (d) the INNEX
        Farmout Agreement, and (e) any other any contract or other arrangement to
        which
        Company or any of its Subsidiaries is a party (other than the Transaction
        Documents) for which breach, nonperformance, cancellation or failure to renew
        could reasonably be expected to have a Material Adverse Effect. 

       

      “Maturity
        Date”
        means
        the earlier of (i) September 7, 2010, and (ii) the date that all
        Loans shall become due and payable in full hereunder, whether by acceleration
        or
        otherwise.

       

      “Modified
        PDNP NPV”
        means,
        at any time in question, a percentage, selected by Administrative Agent in
        its
        sole discretion from sixty percent (60%) to seventy-five percent (75%) of
        the
        NPV of all Proved Developed Nonproducing Reserves attributed to the Eligible
        Mortgaged Properties in the then most recent Engineering Report, provided
        that
        (i) the capital expenditures necessary to bring such reserves into production
        (as contemplated in such Engineering Report) have actually been scheduled
        by
        Company to be made at or prior to the time contemplated in such Engineering
        Report, and (ii) Company reasonably expects that it will have funds available
        to
        make such capital expenditures.

       

      “Modified
        PDP NPV”
        means,
        at any time in question, a percentage, selected by Administrative Agent in
        its
        sole discretion from seventy-five percent (75%) to one hundred percent (100%)
        of
        the NPV of all Proved Developed Producing Reserves attributed to the Eligible
        Mortgaged Properties in the most recent Engineering Report.

       

      
        
          
          

        

        
          16
            

          
            

          

        

        
          
          

        

      

       

      “Modified
        Proved NPV”
        means,
        at any time in question, the sum of Modified PDP NPV, Modified PDNP NPV,
        and
        Modified PUD NPV as each has been most recently determined. No category of
        reserves other than Proved Reserves shall be taken into account in determining
        Modified Proved NPV.

       

      “Modified
        PUD NPV”
        means,
        at any time in question, a percentage, selected by Administrative Agent in
        its
        sole discretion from fifty percent (50%) to seventy percent (70%), of the
        NPV of
        all Proved Undeveloped Reserves attributed to the Eligible Mortgaged Properties
        in the then most recent Engineering Report, provided that (i) the capital
        expenditures necessary to bring such reserves into production (as contemplated
        in such Engineering Report) have actually been scheduled by Company to be
        made
        at or prior to the time contemplated in such Engineering Report, and (ii)
        Company reasonably expects that it will have funds available to make such
        capital expenditures. 

       

      “Moody’s”
        means
        Moody’s Investor Services, Inc., or its successor.

       

      “Mortgage”
        means
        each deed of trust or mortgage from time to time given by Company or any
        Guarantor to secure any of the Obligations hereunder or under any of the
        Security Documents, as each may be amended, supplemented or otherwise modified
        from time to time.

       

      “NAIC”
        means
        The National Association of Insurance Commissioners, and any successor
        thereto.

       

      “Non-US
        Lender”
        as
        defined in Section 2.17(c).

       

      “Note”
        means a
        promissory note in the form of Exhibit B evidencing one or more Loans, as
        such note may be amended, supplemented or otherwise modified from time to
        time.

       

      “NPV”
        means,
        with respect to any Proved Reserves expected to be produced from any undivided
        interests in oil and gas properties, the net present value, discounted at
        10%
        per annum, of the future net revenues expected to accrue to Company’s or any of
        its Subsidiary’s interests in such Proved Reserves (after deducting all existing
        burdens) during the remaining expected economic lives of such Proved Reserves.
        Each calculation of such expected future net revenues shall be made in
        accordance with the then existing standards of the Society of Petroleum
        Engineers, provided that in any event (a) appropriate deductions shall be
        made for severance and ad valorem taxes, and for operating (including purchasing
        and injecting water), gathering, transportation and marketing costs required
        for
        the production and sale of such reserves, (b) the pricing assumptions and
        escalations used in determining the NPV for any particular reserves shall
        be the
        Agreed Pricing (or any other pricing assumptions to which Company and Required
        Lenders may agree), and (c) deductions shall be made for capital
        expenditures (including plugging and abandonment costs) that are included
        in the
        Approved Plan of Development or that have otherwise approved in writing by
        Required Lenders. NPV shall be calculated hereunder in connection with each
        Engineering Report, either by Company, by Administrative Agent, or by the
        engineering firm who prepares such Engineering Report; in the event of any
        conflict, Administrative Agent’s calculation shall be conclusive and final,
        absent manifest error.

       

      
        
          
          

        

        
          17
            

          
            

          

        

        
          
          

        

      

       

      “NYMEX
        Pricing”
        means,
        as of any date of determination with respect to any month:

       

      (i) for
        crude
        oil, the closing settlement price for the Light, Sweet Crude Oil futures
        contract for the first nearby month, and 

       

      (ii) for
        natural gas, the closing settlement price for the Henry Hub Natural Gas futures
        contract for the first nearby month,

       

      in
        each
        case as published by New York Mercantile Exchange (NYMEX) on its website
        currently located at www.nymex.com,
        or any
        successor thereto (as such price may be corrected or revised from time to
        time
        by the NYMEX in accordance with its rules and regulations).

       

      “Obligations”
        means
        all obligations of every nature of each Credit Party from time to time owed
        to
        any Agent (including any former Agent), any Lender, Warrant Owner, Royalty
        Owner, or any Indemnitee under any Transaction Document, whether for principal,
        interest (including interest which, but for the filing of a petition in
        bankruptcy with respect to such Credit Party, would have accrued on any
        Obligation, whether or not a claim is allowed against such Credit Party for
        such
        interest in the related bankruptcy proceeding), fees, expenses, indemnification
        or otherwise.

       

      “Obligee
        Guarantor”
        as
        defined in Section 7.7.

       

      “Oil
        and Gas Properties”
        means
        all of the following which are, at the time in question, owned by Company
        or any
        of its Subsidiaries: oil, gas and/or mineral leases, oil, gas or mineral
        properties, mineral servitudes and/or mineral rights of any kind (including,
        without limitation, mineral fee interests, lease interests, farmout interests,
        overriding royalty and royalty interests, net profits interests, oil payment
        interests, production payment interests and other types of mineral interests),
        and all oil and gas gathering, treating, storage, processing and handling
        assets.

       

      “Operating
        Expense Budget” means
        lease operating expenses as set forth in the Initial Engineering Report or
        such
        other lease operating expenses as agreed to in writing by Required Lenders
        after
        the Closing Date.

       

      “Organizational
        Documents”
        means
        (i) with respect to any corporation, its certificate or articles of
        incorporation or organization, as amended, and its by-laws, as amended,
        (ii) with respect to any limited partnership, its certificate of limited
        partnership, as amended, and its partnership agreement, as amended,
        (iii) with respect to any general partnership, its partnership agreement,
        as amended, and (iv) with respect to any limited liability company, its articles
        of organization, as amended, and its operating agreement, as amended. In
        the
        event any term or condition of this Agreement or any other Transaction Document
        requires any Organizational Document to be certified by a secretary of state
        or
        similar governmental official, the reference to any such “Organizational
        Document” shall only be to a document of a type customarily certified by such
        governmental official.

       

      
        
          
          

        

        
          18
            

          
            

          

        

        
          
          

        

      

       

      “ORRI”
        means
        the overriding royalty interest in the Properties conveyed by Company to
        Royalty
        Owner pursuant to the ORRI Conveyance.

       

      “ORRI
        Conveyance”
        means,
        collectively, the Conveyance of Overriding Royalty Interest executed by Company
        in favor of Royalty Owner on the Closing Date and the additional conveyances,
        if
        any, executed by Company in favor of Royalty Owner pursuant to
        Section 5.22, in each case, as amended or supplemented from time to
        time.

       

      “PBGC”
        means
        the Pension Benefit Guaranty Corporation or any successor thereto.

       

      “PDP
        Collateral Coverage Ratio”
        means,
        as of any date of determination, the quotient obtained by dividing the Modified
        PDP NPV as determined for such day in an Engineering Report, by all Indebtedness
        of the Credit Parties outstanding at the end of such day, exclusive of any
        Indebtedness resulting from the application of FASB Statement 133 or
        143.

       

      “Permitted
        G&A Expense Amount”
        means
        the amount of $125,000 per calendar month; provided that such amount shall
        be
        reduced to $62,500 for any month during which a Default or Event of Default
        exists or existed.

       

      “Permitted
        Investments”
        means
        Investments:

       

      (a) in
        open
        market commercial paper, maturing within 270 days after acquisition thereof,
        which is rated at least A-1 by S&P or P-1 by Moody’s.

       

      (b) in
        marketable obligations, maturing within 12 months after acquisition thereof,
        issued or unconditionally guaranteed by the United States of America or an
        instrumentality or- agency thereof and entitled to the full faith and credit
        of
        the United States of America.

       

      (c) in
        demand
        deposits, and time deposits (including certificates of deposit) maturing
        within
        12 months from the date of deposit thereof, with any office of any national
        or
        state bank or trust company which is organized under the Laws of the United
        States of America or any state therein, which has capital, surplus and undivided
        profits of at least $500,000,000, and whose certificates of deposit are rated
        at
        least Aa3 by Moody’s or AA- by S&P.

       

      (d) in
        repurchase obligations with a term of not more than seven days for underlying
        securities of the types described in clause (b) above entered into with any
        commercial bank meeting the specifications of clause (c)
        above.

       

      (e) in
        money
        market or other mutual funds substantially all of whose assets comprise
        securities of the types described in clauses (a) through (d)
        above.

       

      “Permitted
        Liens”
        means
        each of the Liens permitted pursuant to Section 6.2.

       

      “Person”
        means
        and includes natural persons, corporations, limited partnerships, general
        partnerships, limited liability companies, limited liability partnerships,
        joint
        stock companies, joint ventures, associations, companies, trusts, banks,
        trust
        companies, land trusts, business trusts or other organizations, whether or
        not
        legal entities, and Governmental Authorities.

       

      
        
          
          

        

        
          19
            

          
            

          

        

        
          
          

        

      

       

      “Post-Default
        Rate”
        as
        defined in Section 2.8.

       

      “Principal
        Office”
        means,
        for Administrative Agent, its “Principal Office” as set forth on Appendix B, or
        such other office as such Person may from time to time designate in writing
        to
        Company, Administrative Agent and each Lender.

       

      “Pro
        Rata Share”
        means,
        with respect to each Lender, the percentage obtained by dividing (a) the
        Loan Exposure of that Lender by (b) the aggregate Loan Exposure of all
        Lenders.

       

      “Project”
        means
        all drilling and reserve acquisition activities in or relating to the Texas
        Project Area.

       

      “Projected
        Oil and Gas Production”
        means
        the projected production of oil or gas (measured by volume unit or BTU
        equivalent, not sales price) for the term of a Hedging Contract or a particular
        month, as applicable, from properties and interests owned by any Credit Party
        which are located in or offshore of the United States and which have
        attributable to them Proved Developed Producing Reserves, as such production
        is
        projected in the most recent Engineering Report delivered pursuant to
        Section 5.2(e), after deducting projected production from any properties or
        interests sold or under contract for sale that had been included in such
        report
        and after adding projected production from any properties or interests that
        had
        not been reflected in such report but that are reflected in a separate or
        supplemental reports meeting the requirements of Section 5.2(e) and otherwise
        are satisfactory to Administrative Agent. 

       

      “Projections”
        as
        defined in Section 4.19.

       

      “Properties”
        means,
        collectively, those undivided interests in oil and gas properties and interests
        in other real and personal property (including, without limitation, mineral
        fee
        interests, lease interests, farmout interests, overriding royalty and royalty
        interests, net profit interests, oil payment interests, production payment
        interests and other types of mineral interests) which are, at the time in
        question, owned by Company or any of its Subsidiaries.

       

      “Proved
        Collateral Coverage Ratio”
        means,
        as of any date of determination, the quotient obtained by dividing the Modified
        Proved NPV as determined for such day in an Engineering Report, by all
        Indebtedness of the Credit Parties outstanding at the end of such day, exclusive
        of any Indebtedness resulting from the application of FASB Statement 133
        or
        143.

       

      “Proved
        Reserves”
        means
“Proved Reserves” as defined in the Definitions for Oil and Gas Reserves (in
        this paragraph, the “Definitions”) promulgated by the Society of Petroleum
        Engineers (or any generally recognized successor) as in effect at the time
        in
        question. “Proved
        Developed Producing Reserves”
means
        Proved Reserves which are categorized as both “Developed” and “Producing” in the
        Definitions, “Proved
        Developed Nonproducing Reserves”
means
        Proved Reserves which are categorized as both “Developed” and “Nonproducing” in
        the Definitions, and “Proved
        Undeveloped Reserves”
means
        Proved Reserves which are categorized as “Undeveloped” in the Definitions,
        provided that the following criteria shall also apply to Proved Developed
        Producing Reserves: (a) no reserves shall be classified as Proved Developed
        Producing Reserves until a minimum of forty-five (45) days of production
        have
        occurred in at least one consecutive period of sixty (60) days following
        any
        operation, workover or capital expenditure, and (b) during such forty-five
        (45) days of production, the well relating to such reserves must be tested
        a
        minimum of three (3) times for at least twenty-four (24) hours of continuous
        duration.

       

      
        
          
          

        

        
          20
            

          
            

          

        

        
          
          

        

      

       

      “Quarterly
        Payment Date”
        means
        the twenty-sixth (26th)
        day of
        each March, June, September and December. 

       

      “Register”
        as
        defined in Section 2.5(b).

       

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

       

      “Release”
        means
        any release, spill, emission, leaking, pumping, pouring, injection, escaping,
        deposit, disposal, discharge, dispersal, dumping, leaching or migration of
        any
        Hazardous Material into the indoor or outdoor environment (including the
        abandonment or disposal of any barrels, containers or other closed receptacles
        containing any Hazardous Material), including the movement of any Hazardous
        Material through the air, soil, surface water or groundwater.

       

      “Required
        Equity Date”
        means
        the date on which Company receives cash proceeds from the sale of its Capital
        Stock made after the Closing Date in an aggregate amount at least equal to
        $5,000,000 on terms satisfactory to Required Lenders in all
        respects.

       

      “Required
        Lenders”
        means
        one or more Lenders having or holding Loan Exposure and representing more
        than
        fifty percent (50%) of the aggregate Loan Exposure of all Lenders.

       

      “Revolving
        Agent”
        means a
        Revolving Lender that is satisfactory to Required Lenders in all
        respects.

       

      “Revolving
        Credit Agreement”
        means a
        credit agreement by and among, Company, the Guarantors, Revolving Agent,
        and
        Revolving Lenders, in form and substance and upon such terms as are satisfactory
        to Required Lenders in all respects, as amended, restated or otherwise modified
        from time to time in accordance with Section 6.18 hereof.

       

      “Revolving
        Indebtedness”
        means
        all Indebtedness owing by Company to Revolving Agent and the Revolving Lenders
        pursuant to the terms of the Revolving Credit Agreement, together with all
        interest, fees, and other amounts payable by Company pursuant to the terms
        thereof.

       

      “Revolving
        Lenders”
        shall
        mean the lenders from time to time party to the Revolving Credit
        Agreement.

       

      
        
          
          

        

        
          21
            

          
            

          

        

        
          
          

        

      

       

      “Royalty
        Owner”
        means
        MTGLQ Investors, L.P., a Delaware limited partnership, together with its
        successors and assigns.

       

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

       

      “Secured
        Parties”
        means
        the Persons to whom any Obligations are at any time owed.

       

      “Securities”
        means
        any stock, shares, partnership interests, voting trust certificates,
        certificates of interest or participation in any profit-sharing agreement
        or
        arrangement, options, warrants, bonds, debentures, notes, or other evidences
        of
        indebtedness, secured or unsecured, convertible, subordinated or otherwise,
        or
        in general any instruments commonly known as “securities” or any certificates of
        interest, shares or participations in temporary or interim certificates for
        the
        purchase or acquisition of, or any right to subscribe to, purchase or acquire,
        any of the foregoing.

       

      “Securities
        Act”
        means
        the Securities Act of 1933, as amended from time to time, and any successor
        statute.

       

      “Security
        Documents”
        means
        the instruments listed in the Security Schedule and all other security
        agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties,
        financing statements, continuation statements, extension agreements and other
        agreements or instruments now, heretofore, or hereafter delivered by any
        Credit
        Party to Administrative Agent in connection with this Agreement or any
        transaction contemplated hereby to secure or guarantee the payment of any
        part
        of the Obligations.

       

      “Security
        Schedule”
        means
        Schedule 1.1 hereto.

       

      “Solvency
        Certificate” means
        a
        Solvency Certificate of the chief financial officer of Company substantially
        in
        the form of Exhibit G-2.

       

      “Solvent”
        means,
        with respect to any Credit Party, that as of the date of determination both
        (i)
        (a) the sum of such Credit Party’s debt (including contingent liabilities) does
        not exceed the present fair saleable value of such Credit Party’s present
        assets; (b) such Credit Party’s capital is not unreasonably small in relation to
        its business as contemplated on the Closing Date and reflected in the
        Projections or as contemplated with respect to any transaction contemplated
        or
        undertaken after the Closing Date; and (c) such Credit Party has not incurred
        and does not intend to incur, or believe (nor should it reasonably believe)
        that
        it will incur, debts beyond its ability to pay such debts as they become
        due
        (whether at maturity or otherwise); and (ii) such Credit Party is “solvent”
within the meaning given that term and similar terms under applicable laws
        relating to fraudulent transfers and conveyances. For purposes of this
        definition, the amount of any contingent liability at any time shall be computed
        as the amount that, in light of all of the facts and circumstances existing
        at
        such time, represents the amount that can reasonably be expected to become
        an
        actual or matured liability (irrespective of whether such contingent liabilities
        meet the criteria for accrual under Statement of Financial Accounting Standard
        No. 5). 

       

      
        
          
          

        

        
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      “Subsidiary”
        means,
        with respect to any Person, any corporation, association, partnership, limited
        liability company, joint venture, or other business or corporate entity,
        enterprise or organization which is directly or indirectly (through one or
        more
        intermediaries) controlled by or owned fifty percent (50%) or more by such
        Person.

       

      “Syndication
        Agent”
        as
        defined in the preamble hereto.

       

      “Tax”
        means
        any present or future tax, levy, impost, duty, assessment, charge, fee,
        deduction or withholding of any nature and whatever called, by whomsoever,
        on
        whomsoever and wherever imposed, levied, collected, withheld or assessed;
        provided,
“Tax
        on
        the overall net income” or “income Tax” of a Person shall be construed as a
        reference to a tax imposed by the jurisdiction in which that Person is organized
        or in which that Person’s applicable principal office (and/or, in the case of a
        Lender, its lending office) is located or in which that Person (and/or, in
        the
        case of a Lender, its lending office) is deemed to be doing business on all
        or
        part of the net income, profits or gains (whether worldwide, or only insofar
        as
        such income, profits or gains are considered to arise in or to relate to
        a
        particular jurisdiction, or otherwise) of that Person (and/or, in the case
        of a
        Lender, its applicable lending office).

       

      “Termination
        Event”
        means
        (a) the occurrence with respect to any ERISA Plan of (i) a reportable event
        described in Sections 4043(c)(5) or (6) of ERISA or (ii) any other reportable
        event described in Section 4043(c) of ERISA other than a reportable event
        not
        subject to the provision for 30-day notice to the PBGC pursuant to a waiver
        by
        such corporation, or (b) the requirements of Section 4043(b) of ERISA
        apply with respect to a contributing sponsor, as defined in
        Section 4001(a)(13) of ERISA, of an ERISA Plan, and an event described in
        paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is
        reasonably expected to occur with respect to such ERISA Plan within the
        following 30 days, or (c) the withdrawal of any ERISA Affiliate from an
        ERISA Plan during a plan year in which it was a “substantial employer” as
        defined in Section 4001(a)(2) of ERISA, or (d) the filing of a notice of
        intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
        as a termination under Section 4041 of ERISA, or (e) the institution of
        proceedings to terminate any ERISA Plan by the PBGC under Section 4042 of
        ERISA, or (f) any other event or condition which might constitute grounds
        under Section 4042 of ERISA for the termination of, or the appointment of
        a
        trustee to administer, any ERISA Plan.

       

      “Texas
        Project Area”
means
        (i) the Goose Creek Field and Goose Creek East Field in Harris County, Texas,
        (ii) the Cleveland Field in Liberty County, Texas, and (iii) the Saratoga
        Field
        in Hardin County, Texas.

       

      “Transaction
        Document”
        means
        any of this Agreement, the Notes (if any), the Guaranty (if any), the Security
        Documents, the Intercreditor Agreement, the ORRI Conveyance, the Warrants,
        and
        all other certificates, documents, instruments or agreements executed and
        delivered by a Credit Party for the benefit of any Agent, any Lender, Royalty
        Owner, or Warrant Owner in connection herewith.

       

      “UCC”
        means
        the Uniform Commercial Code (or any similar or equivalent legislation) as
        in
        effect in any applicable jurisdiction.

       

      
        
          
          

        

        
          23
            

          
            

          

        

        
          
          

        

      

       

      “Warrant
        Owner”
        means
        Goldman, Sachs & Co., together with its respective successors and
        assigns.

       

      “Warrants”
        means
        the warrants to purchase shares of Company’s Common Stock, $0.001 par value per
        share issued by Company to Warrant Owner pursuant to that certain Stock Purchase
        Warrant No. 158 of even date herewith, together with all warrants issued
        upon
        transfer, exchange or in replacement thereof.

       

           
    1.2
        Accounting
        Terms.
        Except
        as otherwise expressly provided herein, all accounting terms not otherwise
        defined herein shall have the meanings assigned to them in conformity with
        GAAP.
        Financial statements and other information required to be delivered by Company
        to Lenders pursuant to Section 5.2(a), 5.2(b) and 5.2(c) shall be prepared
        in accordance with GAAP as in effect at the time of such preparation (and
        delivered together with the reconciliation statements provided for in
        Section 5.2(e), if applicable). 

       

                
        1.3 Interpretation,
        etc.
        Any of
        the terms defined herein may, unless the context otherwise requires, be used
        in
        the singular or the plural, depending on the reference. References herein
        to any
        Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix,
        a
        Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically
        provided. The word “or” is not exclusive. The use herein of the word “include”
or “including”, when following any general statement, term or matter, shall not
        be construed to limit such statement, term or matter to the specific items
        or
        matters set forth immediately following such word or to similar items or
        matters, whether or not nonlimiting language (such as “without limitation” or
“but not limited to” or words of similar import) is used with reference thereto,
        but rather shall be deemed to refer to all other items or matters that fall
        within the broadest possible scope of such general statement, term or
        matter.

       

                
        1.4 Joint
        Preparation; Construction of Indemnities and Releases.
        This
        Agreement and the other Transaction Documents have been reviewed and negotiated
        by sophisticated parties with access to legal counsel and no rule of
        construction shall apply hereto or thereto which would require or allow any
        Transaction Document to be construed against any party because of its role
        in
        drafting such Transaction Document. All indemnification and release provisions
        of this Agreement shall be construed broadly (and not narrowly) in favor
        of the
        Persons receiving indemnification or being released.

       

      SECTION
        2 LOANS

       

                 
        2.1 Loans. Subject
        to the terms and conditions hereof, each Lender severally agrees to make,
        on the
        Closing Date, a Loan to Company in an amount less than or equal to such Lender’s
        Commitment. Subject to the terms and conditions hereof, Company may make
        additional borrowings under the Commitments after the Closing Date, pro rata
        from each Lender, until the entire Commitment of each Lender has been borrowed,
        provided that (a) each such borrowing must equal or exceed $1,000,000 in
        the
        aggregate and (b) no such borrowing may be made after September 7, 2009.
        Any amount borrowed under this Section 2.1 and subsequently repaid or prepaid
        may not be reborrowed. Subject to Sections 2.11 and 2.13, all amounts owed
        hereunder with respect to the Loans shall be paid in full no later than the
        Maturity Date.

       

      
        
          
          

        

        
          24
            

          
            

          

        

        
          
          

        

         

      

                
        2.2 Borrowing
        Mechanics.
        Company
        shall deliver to Administrative Agent a fully executed Funding Notice as
        of the
        Closing Date or five (5) Business Days prior to any subsequent borrowing
        of
        Loans. Promptly upon receipt by Administrative Agent of such Funding Notice,
        Administrative Agent shall notify each Lender of the proposed borrowing.
        Each
        Lender shall make its Loan available to Administrative Agent not later than
        12:00 p.m. (New York City time) on the date specified in such Funding Notice,
        by
        wire transfer of same day funds in Dollars, at Administrative Agent’s Principal
        Office. Upon satisfaction or waiver of the conditions precedent specified
        herein, Administrative Agent shall make the proceeds of the Loans available to
        Company on such date by causing an amount of same day funds in Dollars equal
        to
        the proceeds of all such Loans received by Administrative Agent from Lenders
        to
        be credited to the account of Company at Administrative Agent’s Principal Office
        or to such other account as may be designated in writing to Administrative
        Agent
        by Company; provided that the proceeds of the Loans available to Company
        on the
        Closing Date shall be paid to the order of Company by wire transfer of
        immediately available funds in the amounts and to the accounts set out on
        Schedule 2.2. Such wire transfers shall include the payment to Thompson &
Knight L.L.P., Administrative Agent’s attorneys, of their reasonable and
        documented attorneys’ fees, recording costs, and other out-of-pocket transaction
        costs and expenses incurred on behalf of Administrative Agent in connection
        with
        the transactions contemplated hereby.

       

      2.3
        Pro
        Rata Shares; Availability of Funds.

       

      (a) Pro
        Rata Shares.
        All
        Loans shall be made, and all participations purchased, by Lenders simultaneously
        and proportionately to their respective Pro Rata Shares, it being understood
        that no Lender shall be responsible for any default by any other Lender in
        such
        other Lender’s obligation to make a Loan requested hereunder or purchase a
        participation required hereby nor shall any Commitment of any Lender be
        increased or decreased as a result of a default by any other Lender in such
        other Lender’s obligation to make a Loan requested hereunder or purchase a
        participation required hereby.

       

      (b) Availability
        of Funds.
        Unless
        Administrative Agent shall have been notified by any Lender prior to the
        applicable Credit Date that such Lender does not intend to make available
        to
        Administrative Agent the amount of such Lender’s Loan requested on such Credit
        Date, Administrative Agent may assume that such Lender has made such amount
        available to Administrative Agent on such Credit Date and Administrative
        Agent
        may, in its sole discretion, but shall not be obligated to, make available
        to
        Company a corresponding amount on such Credit Date. If such corresponding
        amount
        is not in fact made available to Administrative Agent by such Lender,
        Administrative Agent shall be entitled to recover such corresponding amount
        on
        demand from such Lender together with interest thereon, for each day from
        such
        Credit Date until the date such amount is paid to Administrative Agent, at
        the
        customary rate set by Administrative Agent for the correction of errors among
        banks for three Business Days and thereafter at a rate equal to the sum of
        the
        Effective Rate. If such Lender does not pay such corresponding amount forthwith
        upon Administrative Agent’s demand therefor, Administrative Agent shall promptly
        notify Company who shall immediately pay such corresponding amount to
        Administrative Agent together with interest thereon, for each day from such
        Credit Date until the date such amount is paid to Administrative Agent, at
        the
        Effective Rate. Nothing in this Section 2.5(b) shall be deemed to relieve
        any
        Lender from its obligation to fulfill its Commitments hereunder or to prejudice
        any rights that Company may have against any Lender as a result of any default
        by such Lender hereunder.

       

      
        
          
          

        

        
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        2.4 Use
        of Proceeds.
        Company
        will use the proceeds of the Loans made on the Closing Date: (a) to acquire
        working interests in the Texas Project Area from the Assignors as part of
        the
        Closing Date Transactions, (b) to fund the Approved Plan of Development,
        (c) to pay closing expenses, costs and fees, and (d) for Company’s
        working capital. The proceeds of the Loans made after the Closing Date shall
        be
        applied by Company to implement the Approved Plan of Development and to make
        other expenditures from time to time approved by Required Lenders. No portion
        of
        the proceeds of any Credit Extension shall be used in any manner that causes
        or
        might cause such Credit Extension or the application of such proceeds to
        violate
        Regulation T, Regulation U or Regulation X of the Board of
        Governors of the Federal Reserve System or any other regulation thereof or
        to
        violate the Exchange Act. 

       

      2.5
        Evidence
        of Liabilities; Register; Lenders’ Books and Records; Notes. 

       

      (a) Lenders’
        Evidence of Liabilities.
        Each
        Lender shall maintain on its internal records an account or accounts evidencing
        the Liabilities of Company to such Lender, including the amounts of the Loans
        made by it and each repayment and prepayment in respect thereof. Any such
        recordation shall be conclusive and binding on Company, absent manifest error;
        provided,
        failure
        to make any such recordation, or any error in such recordation, shall not
        affect
        any Lender’s Commitments or Company’s Obligations in respect of any applicable
        Loans; and provided further,
        in the
        event of any inconsistency between the Register and any Lender’s records, the
        recordations in the Register shall govern.

       

      (b) Register.
        Administrative Agent shall maintain at its Principal Office a register for
        the
        recordation of the names and addresses of Lenders and the Commitments and
        Loans
        of each Lender from time to time (the “Register”).
        The
        Register shall be available for inspection by Company or any Lender at any
        reasonable time and from time to time upon reasonable prior notice.
        Administrative Agent shall record in the Register the Commitments and the
        Loans,
        and each repayment or prepayment in respect of the principal amount of the
        Loans, and any such recordation shall be conclusive and binding on Company
        and
        each Lender, absent manifest error; provided,
        failure
        to make any such recordation, or any error in such recordation, shall not
        affect
        any Lender’s Commitments or Company’s Obligations in respect of any Loan.
        Company hereby designates J. Aron to serve as Company’s agent solely for
        purposes of maintaining the Register as provided in this Section 2.5, and
        Company hereby agrees that, to the extent J. Aron serves in such capacity,
        J.
        Aron and its officers, directors, employees, agents and affiliates shall
        constitute “Indemnitees.”

       

      (c) Notes.
        If so
        requested by any Lender by written notice to Company (with a copy to
        Administrative Agent) at least two Business Days prior to the Closing Date,
        or
        at any time thereafter, Company shall execute and deliver to such Lender
        (and/or, if applicable and if so specified in such notice, to any Person
        who is
        an assignee of such Lender pursuant to Section 10.6) on the Closing Date
        (or, if
        such notice is delivered after the Closing Date, promptly after Company’s
        receipt of such notice) a Note or Notes to evidence such Lender’s Loans. Any
        such Note evidencing Loans under the Commitment or the Commitment shall be
        in
        the form of Exhibit B.

       

      
        
          
          

        

        
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      2.6
        Interest
        on Loans. 

       

      (a) Except
        as
        otherwise set forth herein, each Loan shall bear interest on the unpaid
        principal amount thereof at the Effective Rate from the date made through
        repayment thereof (whether by acceleration or otherwise).

       

      (b) Interest
        payable on all Loans shall be computed on the basis of a 360-day year, in
        each
        case for the actual number of days elapsed in the period during which it
        accrues. In computing interest on any Loan, the date of the making of such
        Loan
        shall be included, and the date of payment of such Loan shall be excluded;
        provided,
        if a
        Loan is repaid on the same day on which it is made, one day’s interest shall be
        paid on that Loan.

       

      (c) Interest
        on each Loan shall be payable in arrears (i) on and to each Quarterly
        Payment Date applicable to that Loan; (ii) upon any prepayment of that
        Loan, whether voluntary or mandatory, to the extent accrued on the amount
        being
        prepaid; and (iii) at maturity, including the Maturity Date.

       

      (d) On
        each
        Quarterly Payment Date, Company shall pay the interest then accrued on the
        Loans
        in full in immediately available funds.

       

      2.7
        [Reserved].
         

       

                
        2.8 Default
        Interest.
        Upon the
        occurrence and during the continuance of an Event of Default, the principal
        amount of all Loans outstanding and, to the extent permitted by applicable
        law,
        any interest payments on the Loans or any fees or other amounts owed hereunder,
        shall thereafter bear interest (including post-petition interest in any
        proceeding under the Bankruptcy Code or other applicable bankruptcy laws)
        payable on demand at a rate that is 2% per annum in excess of the interest
        rate
        otherwise payable hereunder with respect to the applicable Loans (the
“Post-Default
        Rate”).
        Payment of interest at the Post-Default Rate is not, however, a permitted
        alternative to timely payment, and acceptance of interest at the Post-Default
        Rate shall not constitute a waiver of any Event of Default or otherwise
        prejudice or limit any rights or remedies of Administrative Agent or any
        Lender.

       

                
        2.9 Fees.
        Pursuant
        to a letter agreement between Company and Administrative Agent, Company has
        promised to pay to Agents certain fees in the amounts and at the times agreed
        upon, and Company hereby repeats its promise to pay such fees.

       

                
        2.10 ANCF
        Calculation.
        At least
        five (5) Business Days prior to each Quarterly Payment Date, Company shall
        furnish or cause to be furnished to Administrative Agent a schedule (reasonably
        supported, if requested, by supporting documentation) as of the end of the
        immediately preceding Calculation Quarter in which Company:

       

      (a) calculates
        the cash revenues and cash receipts received by Company and its Subsidiaries
        during such Calculation Quarter, determined in accordance with clause (i)
        of the
        definition of ANCF;

       

      
        
          
          

        

        
          27
            

          
            

          

        

        
          
          

        

      

       

      (b) calculates
        the cash payments made by Company and its Subsidiaries during such Calculation
        Quarter for the expenses described in clauses (ii)(a) through (ii)(h) of
        the
        definition of ANCF;

       

      (c) calculates
        the interest in respect of the Loans that will be due on such Quarterly Payment
        Date; and

       

      (d) determines
        the resulting ANCF.

       

                
        2.11 ANCF
        Payment of Principal.
        On each
        Quarterly Payment Date, Company will use all Adjusted Net Cash Flow, to the
        extent thereof, to pay (or prepay) the principal of the Loans, without premium
        or penalty. 

       

      2.12
        Voluntary
        Prepayments. 

       

      (a) Company
        may, at its option, upon notice as provided below, prepay at any time and
        from
        time to time all of the Loans, or prepay on any Quarterly Payment Date any
        part
        of the Loans, at 100% of the principal amount so prepaid plus the Make-Whole
        Amount determined for the prepayment date with respect to such principal
        amount,
        provided that any partial payment on the Loans must not be less than $2,500,000
        in the aggregate. Company will give each Lender written notice of each optional
        prepayment under this Section 2.12 not less than 10 days and not more than
        90 days prior to the date fixed for such prepayment. Each such notice shall
        specify such date (which shall be a Business Day), the aggregate principal
        amount of the Loans to be prepaid on such date, and the interest to be paid
        on
        the prepayment date with respect to such principal amount being prepaid,
        and
        shall be accompanied by a certificate of an executive officer of Company
        as to
        the estimated Make-Whole Amount due in connection with such prepayment
        (calculated as if the date of such notice were the date of the prepayment),
        setting forth the details of such computation. Two Business Days prior to
        such
        prepayment, Company shall deliver to each Lender a certificate of an executive
        officer of Company specifying the Company’s calculation of such Make-Whole
        Amount as of the specified prepayment date. In the case of each partial
        prepayment of the Loans, the principal amount of the Loans to be prepaid
        shall
        be allocated among all of the Loans at the time outstanding in proportion,
        as
        nearly as practicable, to the respective unpaid principal amounts thereof
        not
        theretofore called for prepayment.
        An
        illustration of the computation of the Make-Whole Amount is reflected in
        Schedule 2.12.

       

      (b) The
        provisions of Section 2.12(a) shall not apply to any scheduled principal
        payment under Section 2.11 or to any principal prepayment made with
        Collateral insurance proceeds pursuant to any mandatory prepayment provision
        hereof or any Security Document. 

       

      (c) In
        the
        case of each prepayment of Loans pursuant to this Section 2.12, the
        principal amount of each Loan to be prepaid shall mature and become due and
        payable on the date fixed for such prepayment (which shall be a Business
        Day),
        together with interest on such principal amount accrued to such date and
        the
        applicable Make-Whole Amount, if any. From and after such date, unless Company
        shall fail to pay such principal amount when so due and payable, together
        with
        the interest and Make-Whole Amount, if any, as aforesaid, interest on such
        principal amount shall cease to accrue. 

       

      
        
          
          

        

        
          28
            

          
            

          

        

        
          
          

        

      

       

      (d) Any
        principal prepaid pursuant to Section 2.12(a), (c) or (f) hereof shall be
        in addition to, and not in lieu of, all payments otherwise required to be
        paid
        under the Transaction Documents at the time of such prepayment. Any such
        prepayments hereof shall be applied first, to any Make-Whole Amount payable
        under Section 2.12(a), second, to accrued but unpaid interest on the Loans,
        and third, to outstanding principal on the Loans until paid in full. No
        prepayment on the Loans shall, until the Loans have been paid in full, have
        the
        effect of reducing the mandatory prepayments required under Section 2.121
        or Section 2.13.

       

      (e) In
        determining any Make-Whole Amount, the following terms shall have the following
        meanings: 

       

      “Make-Whole
        Amount”
        means,
        with respect to any Loan, an amount equal to the excess, if any, of the
        Discounted Value of the Remaining Scheduled Interest Payments with respect
        to
        the Called Principal of such Loan, provided that the Make-Whole Amount shall
        in
        no event be less than zero.

       

      “Called
        Principal”
        means,
        with respect to any Loan, the principal of such Loan that is to be prepaid
        pursuant to Section 2.12(a).

       

      “Discount
        Rate”
        means,
        as of any Settlement Date, the Adjusted Eurodollar Rate determined by using
        the
        rate with a three month interest period available two Business Days prior
        to
        such Settlement Date.

       

      “Discounted
        Value”
        means,
        with respect to any Remaining Scheduled Interest Payments related to the
        Called
        Principal of any Loan, the amount obtained by discounting such Remaining
        Scheduled Interest Payments from their respective scheduled due dates to
        the
        Settlement Date with respect to such Called Principal, in accordance with
        accepted financial practice and at a discount factor (applied on the same
        periodic basis as that on which interest on the Loans is payable) equal to
        the
        Discount Rate.

       

      “Remaining
        Scheduled Interest Payments”
        means,
        with respect to the Called Principal of any Loan, all payments of interest
        that
        otherwise would be due after the Settlement Date with respect to such Called
        Principal if no payment of such Called Principal were made prior to September
        8,
        2009, provided that (i) the applicable interest rate for all such interest
        payments shall be assumed to be the Effective Rate or, if in effect at the
        applicable time of determination, the Post Default Rate as of the Settlement
        Date and (ii) if such Settlement Date is not a Quarterly Payment Date then
        the
        amount of the next succeeding scheduled interest payment will be reduced
        by the
        amount of interest accrued to such Settlement Date and required to be paid
        on
        such Settlement Date pursuant to Section 2.12(a).

       

      “Settlement
        Date”
        means,
        with respect to the Called Principal of any Loan, the date on which such
        Called
        Principal is to be prepaid pursuant to Section 2.12(a).

       

      (f) The
        provisions of Section 2.12(a) shall not apply to any principal prepaid from
        time to time with proceeds of revolving loans received by Company under the
        Revolving Credit Agreement in an aggregate amount not to exceed $10,000,000;
        provided that (i) such prepayments may only be made after the Eel River
        Basin Test Date and before March 31, 2007 and (ii) Company may only
        make any such prepayment contemporaneously with its receipt of such
        proceeds. 

       

      
        
          
          

        

        
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        2.13 Mandatory
        Prepayments.
        In the
        event that a Change of Control occurs, Company shall give prompt written
        notice
        thereof to Lenders. Lenders may at any time, during the period beginning
        on the
        date of such Change of Control and ending sixty (60) days after such notice
        of
        such Change of Control has been given to Lenders, demand that Company prepay
        the
        Loans in full. Any prepayment of principal under this Section 2.13 shall
        be
        accompanied by a prepayment premium equal to the greater of (a) the prepayment
        premium amount that would be due pursuant to Section 2.12 and (b) one
        percent (1%) times the amount so prepaid.

       

      2.14
        General
        Provisions Regarding Payments.
        

       

      (a) All
        payments by Company of principal, interest, fees and other Obligations shall
        be
        made in Dollars in same day funds, without defense, setoff or counterclaim,
        free
        of any restriction or condition, and delivered to Administrative Agent not
        later
        than 12:00 p.m. (New York City time) on the date due at Administrative Agent’s
        Principal Office for the account of Lenders; funds received by Administrative
        Agent after that time on such due date shall be deemed to have been paid
        by
        Company on the next succeeding Business Day.

       

      (b) All
        payments in respect of the principal amount of any Loan shall include payment
        of
        accrued interest on the principal amount being repaid or prepaid, and all
        such
        payments (and, in any event, any payments in respect of any Loan on a date
        when
        interest is due and payable with respect to such Loan) shall be applied to
        the
        payment of interest before application to principal.

       

      (c) Administrative
        Agent shall promptly distribute to each Lender at such address as such Lender
        shall indicate in writing, such Lender’s applicable Pro Rata Share of all
        payments and prepayments of principal and interest due hereunder, together
        with
        all other amounts due thereto, including, without limitation, all fees payable
        with respect thereto, to the extent received by Administrative
        Agent.

       

      (d) Whenever
        any payment to be made hereunder shall be stated to be due on a day that
        is not
        a Business Day, such payment shall be made on the next succeeding Business
        Day
        and such extension of time shall be included in the computation of the payment
        of interest or fees hereunder.

       

      (e) Company
        hereby authorizes Administrative Agent to charge Company’s accounts with
        Administrative Agent in order to cause timely payment to be made to
        Administrative Agent of all principal, interest, fees and expenses due hereunder
        (subject to sufficient funds being available in its accounts for that
        purpose).

       

      (f) Administrative
        Agent shall deem any payment by or on behalf of Company hereunder that is
        not
        made in same day funds prior to 12:00 p.m. (New York City time) on the due
        date
        therefore to be a non-conforming payment. Any such payment shall not be deemed
        to have been received by Administrative Agent until the later of (i) the
        time
        such funds become available funds, and (ii) the applicable next Business
        Day
        after such funds become available if not available during the preceding Business
        Day. Administrative Agent shall give prompt telephonic notice to Company
        and
        each applicable Lender (confirmed in writing) if any payment is non-conforming.
        Any non-conforming payment may constitute or become a Default or Event of
        Default in accordance with the terms of Section 8.1(a). Interest shall continue
        to accrue on any principal as to which a non-conforming payment is made until
        such funds become available funds (but in no event less than the period from
        the
        date of such payment to the next succeeding applicable Business Day) at the
        rate
        determined pursuant to Section 2.8 from the date such amount was due and
        payable until the date such amount is paid in full.

       

      
        
          
          

        

        
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        2.15 Ratable
        Sharing.
        As used
        in this section, “Obligation
        Category”
        means
        the following groups of Obligations: (a) payments due and owing to Lenders
        under
        Sections 5.9, 10.2 or 10.3 hereof or under any similar sections of any
        other Transaction Documents, (b) interest due and payable in respect of the
        Loans and payment due and owing to Lenders under Section 2.9, and
        (c) the outstanding principal amount of the Loans. Lenders hereby agree
        among themselves that if any of them shall, whether by voluntary payment,
        through the exercise of any right of set-off or banker’s lien, by counterclaim
        or cross action or by the enforcement of any right under the Transaction
        Documents or otherwise, or as adequate protection of a deposit treated as
        cash
        collateral under the Bankruptcy Code, receive payment or reduction of a
        proportion of any Obligations in an Obligation Category that are then due
        and
        owing to such Lender hereunder or under the other Transaction Documents which
        is
        greater than the proportion received by any other Lender in respect of the
        Obligations in such Obligation Category that are then due and owing to such
        other Lender, then the Lender receiving such proportionately greater payment
        shall (a) notify Administrative Agent and each other Lender of the receipt
        of such payment and (b) apply a portion of such payment to purchase
        participations (which it shall be deemed to have purchased from each seller
        of a
        participation simultaneously upon the receipt by such seller of its portion
        of
        such payment) in the Obligations in such Obligation Category then due and
        owing
        to the other Lenders so that all such recoveries of Obligations in any
        Obligation Category shall be shared by all Lenders in proportion to the
        aggregate Obligations in such Obligation Category that are then due and owing
        to
        all of them; provided,
        if all
        or part of such proportionately greater payment received by such purchasing
        Lender is thereafter recovered from such Lender upon the bankruptcy or
        reorganization of Company or otherwise, those purchases shall be rescinded
        and
        the purchase prices paid for such participations shall be returned to such
        purchasing Lender ratably to the extent of such recovery, but without interest.
        Company expressly consents to the foregoing arrangement and agrees that any
        holder of a participation so purchased may exercise any and all rights of
        banker’s lien, set-off or counterclaim with respect to any and all monies owing
        by Company to that holder with respect thereto as fully as if that holder
        were
        owed the amount of the participation held by that holder.

       

      2.16
        Increased
        Costs; Capital Adequacy. 

       

      (a) Compensation
        For Increased Costs and Taxes.
        Subject
        to the provisions of Section 2.18 (which shall be controlling with respect
        to the matters covered thereby), in the event that any Lender shall determine
        (which determination shall, absent manifest error, be final and conclusive
        and
        binding upon all parties hereto) that any law, treaty or governmental rule,
        regulation or order, or any change therein or in the interpretation,
        administration or application thereof (including the introduction of any
        new
        law, treaty or governmental rule, regulation or order), or any determination
        of
        a court or Governmental Authority, in each case that becomes effective after
        the
        date hereof, or compliance by such Lender with any guideline, request or
        directive issued or made after the date hereof by any central bank or other
        governmental or quasi-governmental authority (whether or not having the force
        of
        law): (i) subjects such Lender (or its applicable lending office) to any
        additional Tax (other than any Tax on the overall net income of such Lender)
        with respect to this Agreement or any of the other Transaction Documents
        or any
        of its obligations hereunder or thereunder or any payments to such Lender
        (or
        its applicable lending office) of principal, interest, fees or any other
        amount
        payable hereunder; (ii) imposes, modifies or holds applicable any reserve
        (including any marginal, emergency, supplemental, special or other reserve),
        special deposit, compulsory loan, FDIC insurance or similar requirement against
        assets held by, or deposits or other liabilities in or for the account of,
        or
        advances or loans by, or other credit extended by, or any other acquisition
        of
        funds by, any office of such Lender; or (iii) imposes any other condition
        (other
        than with respect to a Tax matter) on or affecting such Lender (or its
        applicable lending office) or its obligations hereunder or the London interbank
        market; and the result of any of the foregoing is to increase the cost to
        such
        Lender of agreeing to make, making or maintaining Loans hereunder or to reduce
        any amount received or receivable by such Lender (or its applicable lending
        office) with respect thereto; then, in any such case, Company shall promptly
        pay
        to such Lender, upon receipt of the statement referred to in the next sentence,
        such additional amount or amounts (in the form of an increased rate of, or
        a
        different method of calculating, interest or otherwise as such Lender in
        its
        sole discretion shall determine) as may be necessary to compensate such Lender
        for any such increased cost or reduction in amounts received or receivable
        hereunder. Such Lender shall deliver to Company (with a copy to Administrative
        Agent) a written statement, setting forth in reasonable detail the basis
        for
        calculating the additional amounts owed to such Lender under this
        Section 2.16, which statement shall be conclusive and binding upon all
        parties hereto absent manifest error.

       

      
        
          
          

        

        
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      (b) Capital
        Adequacy Adjustment.
        In the
        event that any Lender shall have determined that the adoption, effectiveness,
        phase-in or applicability after the Closing Date of any law, rule or regulation
        (or any provision thereof) regarding capital adequacy, or any change therein
        or
        in the interpretation or administration thereof by any Governmental Authority,
        central bank or comparable agency charged with the interpretation or
        administration thereof, or compliance by any Lender (or its applicable lending
        office) with any guideline, request or directive regarding capital adequacy
        (whether or not having the force of law) of any such Governmental Authority,
        central bank or comparable agency, has or would have the effect of reducing
        the
        rate of return on the capital of such Lender or any corporation controlling
        such
        Lender as a consequence of, or with reference to, such Lender’s Loans or
        Commitment, or participations therein or other obligations hereunder with
        respect to the Loans to a level below that which such Lender or such controlling
        corporation could have achieved but for such adoption, effectiveness, phase-in,
        applicability, change or compliance (taking into consideration the policies
        of
        such Lender or such controlling corporation with regard to capital adequacy),
        then from time to time, within five Business Days after receipt by Company
        from
        such Lender of the statement referred to in the next sentence, Company shall
        pay
        to such Lender such additional amount or amounts as will compensate such
        Lender
        or such controlling corporation on an after-tax basis for such reduction.
        Such
        Lender shall deliver to Company (with a copy to Administrative Agent) a written
        statement, setting forth in reasonable detail the basis for calculating the
        additional amounts owed to Lender under this Section 2.16(b), which
        statement shall be conclusive and binding upon all parties hereto absent
        manifest error.

       

      
        
          
          

        

        
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      2.17
        Taxes;
        Withholding, etc. 

       

      (a) Payments
        to Be Free and Clear.
        All
        sums payable by any Credit Party hereunder and under the other Transaction
        Documents shall (except to the extent required by law or permitted by the
        last
        sentence of Section 2.17(c)) be paid free and clear of, and without any
        deduction or withholding on account of, any Tax (other than a Tax on the
        overall
        net income of any Lender) imposed, levied, collected, withheld or assessed
        by or
        within the United States of America or any political subdivision in or of
        the
        United States of America or any other jurisdiction from or to which a payment
        is
        made by or on behalf of any Credit Party or by any federation or organization
        of
        which the United States of America or any such jurisdiction is a member at
        the
        time of payment.

       

      (b) Withholding
        of Taxes.
        If any
        Credit Party or any other Person is required by law to make any deduction
        or
        withholding on account of any such Tax from any sum paid or payable by any
        Credit Party to Administrative Agent or any Lender under any of the Transaction
        Documents: (i) Company shall notify Administrative Agent of any such
        requirement or any change in any such requirement as soon as Company becomes
        aware of it; (ii) Company shall pay any such Tax before the date on which
        penalties attach thereto, such payment to be made (if the liability to pay
        is
        imposed on any Credit Party) for its own account or (if that liability is
        imposed on Administrative Agent or such Lender, as the case may be) on behalf
        of
        and in the name of Administrative Agent or such Lender; (iii) the sum
        payable by such Credit Party in respect of which the relevant deduction,
        withholding or payment is required shall be increased to the extent necessary
        to
        ensure that, after the making of that deduction, withholding or payment,
        Administrative Agent or such Lender, as the case may be, receives on the
        due
        date a net sum equal to what it would have received had no such deduction,
        withholding or payment been required or made; and (iv) within thirty (30)
        days after paying any sum from which it is required by law to make any deduction
        or withholding, and within thirty (30) days after the due date of payment
        of any
        Tax which it is required by clause (ii) above to pay, Company shall deliver
        to Administrative Agent evidence satisfactory to the other affected parties
        of
        such deduction, withholding or payment and of the remittance thereof to the
        relevant taxing or other authority; provided, no such additional amount shall
        be
        required to be paid to any Lender under clause (iii) above except to the
        extent that any change after the date hereof (in the case of each Lender
        listed
        on the signature pages hereof on the Closing Date) or after the effective
        date
        of the Assignment Agreement pursuant to which such Lender became a Lender
        (in
        the case of each other Lender) in any such requirement for a deduction,
        withholding or payment as is mentioned therein shall result in an increase
        in
        the rate of such deduction, withholding or payment from that in effect at
        the
        date hereof or at the date of such Assignment Agreement, as the case may
        be, in
        respect of payments to such Lender.

       

      (c) Evidence
        of Exemption From U.S. Withholding Tax.
        Each
        Lender that is not a United States Person (as such term is defined in Section
        7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes
        (a “Non-US
        Lender”)
        shall
        deliver to Administrative Agent for transmission to Company, on or prior
        to the
        Closing Date (in the case of each Lender listed on the signature pages hereof
        on
        the Closing Date) or on or prior to the date of the Assignment Agreement
        pursuant to which it becomes a Lender (in the case of each other Lender),
        and at
        such other times as may be necessary in the determination of Company or
        Administrative Agent (each in the reasonable exercise of its discretion),
        (i)
        two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or
        any
        successor forms), properly completed and duly executed by such Lender, and
        such
        other documentation required under the Internal Revenue Code and reasonably
        requested by Company to establish that such Lender is not subject to deduction
        or withholding of United States federal income tax with respect to any payments
        to such Lender of principal, interest, fees or other amounts payable under
        any
        of the Transaction Documents, or (ii) if such Lender is not a “bank” or other
        Person described in Section 881(c)(3) of the Internal Revenue Code and
        cannot deliver either Internal Revenue Service Form W-8BEN or W-8ECI pursuant
        to
        clause (i) above, a Certificate re Non-Bank Status together with two original
        copies of Internal Revenue Service Form W-8 (or any successor form), properly
        completed and duly executed by such Lender, and such other documentation
        required under the Internal Revenue Code and reasonably requested by Company
        to
        establish that such Lender is not subject to deduction or withholding of
        United
        States federal income tax with respect to any payments to such Lender of
        interest payable under any of the Transaction Documents. Each Lender required
        to
        deliver any forms, certificates or other evidence with respect to United
        States
        federal income tax withholding matters pursuant to this Section 2.17(c)
        hereby agrees, from time to time after the initial delivery by such Lender
        of
        such forms, certificates or other evidence, whenever a lapse in time or change
        in circumstances renders such forms, certificates or other evidence obsolete
        or
        inaccurate in any material respect, that such Lender shall promptly deliver
        to
        Administrative Agent for transmission to Company two new original copies
        of
        Internal Revenue Service Form W-8BEN or W-8ECI, or a Certificate re Non-Bank
        Status and two original copies of Internal Revenue Service Form W-8, as the
        case
        may be, properly completed and duly executed by such Lender, and such other
        documentation required under the Internal Revenue Code and reasonably requested
        by Company to confirm or establish that such Lender is not subject to deduction
        or withholding of United States federal income tax with respect to payments
        to
        such Lender under the Transaction Documents, or notify Administrative Agent
        and
        Company of its inability to deliver any such forms, certificates or other
        evidence. Company shall not be required to pay any additional amount to any
        Non-US Lender under Section 2.17(b)(iii) if such Lender shall have failed
        (1) to deliver the forms, certificates or other evidence referred to in the
        second sentence of this Section 2.17(c), or (2) to notify
        Administrative Agent and Company of its inability to deliver any such forms,
        certificates or other evidence, as the case may be; provided,
        if such
        Lender shall have satisfied the requirements of the first sentence of this
        Section 2.17(c) on the Closing Date or on the date of the Assignment
        Agreement pursuant to which it became a Lender, as applicable, nothing in
        this
        last sentence of Section 2.17(c) shall relieve Company of its obligation to
        pay any additional amounts pursuant to Section 2.17(b)(iii) in the event
        that, as a result of any change in any applicable law, treaty or governmental
        rule, regulation or order, or any change in the interpretation, administration
        or application thereof, such Lender is no longer properly entitled to deliver
        forms, certificates or other evidence at a subsequent date establishing the
        fact
        that such Lender is not subject to withholding as described herein.

       

      
        
          
          

        

        
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        2.18 Measures
        to Mitigate.
        Each
        Lender agrees that, as promptly as practicable after the officer of such
        Lender
        responsible for administering its Loans becomes aware of the occurrence of
        an
        event or the existence of a condition that would cause such Lender to become
        entitled to receive payments under Section 2.16 or 2.17, it will, to the
        extent not inconsistent with the internal policies of such Lender and any
        applicable legal or regulatory restrictions, use reasonable efforts to
        (a) make, fund or maintain its Credit Extensions through another office of
        such Lender, or (b) take such other measures as such Lender may deem
        reasonable, if as a result thereof the circumstances which would cause the
        additional amounts which would otherwise be required to be paid to such Lender
        pursuant to Section 2.16 or 2.17 would be materially reduced and if, as
        determined by such Lender in its sole discretion, the making, issuing, funding
        or maintaining of such Commitments or Loans through such other office or
        in
        accordance with such other measures, as the case may be, would not otherwise
        adversely affect such Commitments or Loans or the interests of such Lender;
        provided,
        such
        Lender will not be obligated to utilize such other office pursuant to this
        Section 2.18 unless Company agrees to pay all incremental expenses incurred
        by such Lender as a result of utilizing such other office as described in
        clause (a) above. A certificate as to the amount of any such expenses
        payable by Company pursuant to this Section 2.18 (setting forth in
        reasonable detail the basis for requesting such amount) submitted by such
        Lender
        to Company (with a copy to Administrative Agent) shall be conclusive absent
        manifest error.

       

      
        
          
          

        

        
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      SECTION
        3 CONDITIONS
        PRECEDENT

       

                
        3.1 Closing
        Date.
        The
        obligation of any Lender to make a Credit Extension on the Closing Date is
        subject to the satisfaction, or waiver in accordance with Section 10.5, of
        the
        following conditions on or before the Closing Date: 

       

      (a) Transaction
        Documents.
        Administrative Agent shall have received counterparts of each Transaction
        Document originally executed and delivered by each applicable Credit Party
        and
        in such numbers as Administrative Agent or its counsel may reasonably
        request.

       

      (b) Organizational
        Documents; Incumbency.
        Administrative Agent shall have received (i) copies of each Organizational
        Document delivered by each Credit Party, as applicable, and, to the extent
        applicable, certified as of a recent date by the appropriate governmental
        official; (ii) signature and incumbency certificates of the officers of such
        Person executing the Transaction Documents to which it is a party; (iii)
        resolutions of the Board of Directors or similar governing body of each Credit
        Party approving and authorizing the execution, delivery and performance of
        this
        Agreement and the other Transaction Documents to which it is a party or by
        which
        it or its assets may be bound as of the Closing Date, certified as of the
        Closing Date by its secretary or an assistant secretary as being in full
        force
        and effect without modification or amendment; (iv) a good standing certificate
        from the applicable Governmental Authority of each Credit Party’s jurisdiction
        of incorporation, organization or formation and in each jurisdiction in which
        it
        owns real property Collateral, each dated a recent date prior to the Closing
        Date; and (v) such other documents as Administrative Agent may reasonably
        request.

       

      (c) Organizational
        and Capital Structure.
        The
        organizational structure and capital structure of Company and its Subsidiaries
        shall be as set forth on Schedule 3.1.

       

      (d) Application
        of Loan Proceeds.
        On the
        Closing Date, Company shall have arranged for appropriate portions of the
        Loans
        then to be funded to be paid directly to the Persons who are to receive the
        Loan
        proceeds described in clause (a) of Section 2.4.

       

      (e) Initial
        Hedging Contracts.
        On or
        prior to the Closing Date, Company shall, on terms satisfactory to
        Administrative Agent and Syndication Agent, have entered into Hedging Contracts
        with a counterparty who is rated (or whose credit support provider is rated)
        at
        least A by S&P or A2 by Moody’s as specified below:

       

      
        
          
          

        

        
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      Hedging
        Contracts under which Company will receive, for notional barrels of West
        Texas
        Intermediate light sweet crude oil in at least the number of barrels specified
        in the following table, a swap price of at least the amount specified
        below:

      

        
          	
                  Year

                	 	
                  Barrels
                    per year

                	 	 	
                  Minimum
                    Price

                
	
                  2006

                	 	
                  50,000

                	 	 	
                  
                    $67.50

                  

                
	
                  2007

                	 	
                  135,000

                	 	 	
                  
                    $70.00

                  

                
	
                  2008

                	 	
                  120,000

                	 	 	
                  
                    $70.00

                  

                
	
                  2009

                	 	
                  105,000

                	 	 	
                  
                    $67.50

                  

                
	
                  2010

                	 	
                  70,000

                	 	 	
                  
                    $65.00

                  

                

        

      

      

      (f) Governmental
        Authorizations and Consents.
        Each
        Credit Party shall have obtained all Governmental Authorizations and all
        consents of other Persons, in each case that are necessary or advisable in
        connection with the transactions contemplated by the Transaction Documents
        and
        each of the foregoing shall be in full force and effect and in form and
        substance reasonably satisfactory to Syndication Agent and Administrative
        Agent.
        All applicable waiting periods shall have expired without any action being
        taken
        or threatened by any competent authority which would restrain, prevent or
        otherwise impose adverse conditions on the transactions contemplated by the
        Transaction Documents or the financing thereof and no action, request for
        stay,
        petition for review or rehearing, reconsideration, or appeal with respect
        to any
        of the foregoing shall be pending, and the time for any applicable agency
        to
        take action to set aside its consent on its own motion shall have
        expired.

       

      (g) Acceptable
        Priority on Oil and Gas Properties.
        In
        order to create in favor of Administrative Agent, for the benefit of Secured
        Parties, a valid and (subject to any filing or recording referred to herein)
        perfected Acceptable Priority Lien on such Oil and Gas Properties as
        Administrative Agent might request, Administrative Agent shall have received
        from Company:

       

      (i)
        fully
        executed and notarized Mortgages, in proper form for recording in all
        appropriate places in all applicable jurisdictions, encumbering such Properties;
        and

       

      (ii)
        an
        amount
        necessary to cover all recording and stamp taxes (including mortgage recording
        and intangible taxes) payable in connection with recording the Mortgages
        for
        such Properties in the appropriate real estate records.

       

      (h) Personal
        Property Collateral.
        In
        order to create in favor of Administrative Agent, for the benefit of Secured
        Parties, a valid and (subject to any filing or recording referred to herein)
        perfected Acceptable Priority security interest in all personal property
        of the
        Credit Parties subject to Article 9 of the UCC, Administrative Agent shall
        have
        received from Company evidence that each Credit Party shall have taken or
        caused
        to be taken any action, executed and delivered or caused to be executed and
        delivered any agreement, document and instrument and made or caused to be
        made
        any other filing and recording (other than as set forth herein) reasonably
        required by Administrative Agent. 

       

      
        
          
          

        

        
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      (i) Environmental
        Reports.
        Syndication Agent and Administrative Agent shall have received reports and
        other
        information, in form, scope and substance reasonably satisfactory to Syndication
        Agent and Administrative Agent, regarding environmental matters relating
        to
        Company’s material real property assets, which reports shall include a
        Phase I environmental assessment dated August 1, 2006 prepared by Pilko
& Associates, L.P.

       

      (j) Financial
        Statements; Projections; Approved Plan of Development.
        Lenders
        shall have received from Company (i) the Current Financial Statements, which
        shall be in form and substance reasonably satisfactory to Administrative
        Agent
        and Syndication Agent, (ii) the Projections, and (iii) the Approved Plan of
        Development, in form and substance reasonably satisfactory to Administrative
        Agent and Syndication Agent.

       

      (k) Evidence
        of Insurance.
        Syndication Agent and Administrative Agent shall have received a certificate
        from Company’s insurance broker or other evidence reasonably satisfactory to
        them that all insurance required to be maintained pursuant to Section 5.8
        is in
        full force and effect and that Administrative Agent have been named as
        additional insured and loss payee thereunder as its interests may appear
        and to
        the extent required under Section 5.8.

       

      (l) Opinions
        of Counsel to Credit Parties.
        Syndication Agent and Administrative Agent shall have received originally
        executed copies of (i) the favorable written opinions of McGuireWoods LLP,
        McGinnis, Lochridge & Kilgore, LLP, and Kummer Kaempfer Bonner Renshaw &
Farrario, each opining as to such other matters as Administrative Agent or
        Syndication Agent may reasonably request, dated as of the Closing Date and
        otherwise in form and substance reasonably satisfactory to Administrative
        Agent
        and Syndication Agent (and each Credit Party hereby instructs such counsel
        to
        deliver such opinions to Agents and Lenders).

       

      (m) Fees.
        Company
        shall have paid to Syndication Agent and Administrative Agent the fees payable
        on the Closing Date that are referred to in Section 2.9.

       

      (n) Solvency
        Certificate.
        On the
        Closing Date, Syndication Agent and Administrative Agent shall have received
        a
        Solvency Certificate from Company dated the Closing Date and addressed to
        Syndication Agent, Administrative Agent and Lenders, and in the form of
        Exhibit G-2 appropriately completed, with appropriate attachments and
        demonstrating that after giving effect to the consummation of this Agreement
        and
        the Acquisition, Company and its Subsidiaries (other than Foothills Oklahoma)
        are Solvent.

       

      (o) Closing
        Date Certificate.
        Company
        shall have delivered to Syndication Agent and Administrative Agent an originally
        executed Closing Date Certificate, together with all attachments
        thereto.

       

      (p) No
        Litigation.
        There
        shall not exist any action, suit, investigation, litigation or proceeding
        or
        other legal or regulatory developments, pending or threatened in any court
        or
        before any arbitrator or Governmental Authority that, in the reasonable opinion
        of Administrative Agent and Syndication Agent, singly or in the aggregate,
        materially impairs the financing hereunder or any of the other transactions
        contemplated by the Transaction Documents, or that could have a Material
        Adverse
        Effect.

       

      
        
          
          

        

        
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      (q) Completion
        of Proceedings.
        All
        partnership, corporate and other proceedings taken or to be taken in connection
        with the transactions contemplated hereby and all documents incidental thereto
        not previously found acceptable by Administrative Agent or Syndication Agent
        and
        its counsel shall be reasonably satisfactory in form and substance to
        Administrative Agent and Syndication Agent and such counsel, and Administrative
        Agent, Syndication Agent and such counsel shall have received all such
        counterpart originals or certified copies of such documents as Administrative
        Agent or Syndication Agent may reasonably request. Each Lender, by delivering
        its signature page to this Agreement and funding a Loan on the Closing Date,
        shall be deemed to have acknowledged receipt of, and consented to and approved,
        each Transaction Document and each other document required to be approved
        by any
        Agent, Required Lenders or Lenders, as applicable on the Closing
        Date.

       

      (r) Reserved.

       

      (s) Closing
        Date Transactions.
        Administrative Agent shall have received (i) a certificate of an Authorized
        Officer of Company certifying that Company is concurrently consummating the
        Closing Date Transactions (with all of the material conditions precedent
        thereto
        having been satisfied in all material respects by the parties thereto) and
        acquiring all of the Oil and Gas Properties contemplated thereby;
        (ii) copies of the assignments, deeds and leases for all of such Oil and
        Gas Properties; and (iii) such other related documents and information as
        Administrative Agent shall have reasonably requested. Company hereby
        acknowledges and agrees that (i) the consummation of the transactions
        contemplated under this Agreement and the Closing Date Transactions, including
        the making of the Loans, are intended to be simultaneous for all intents
        and
        purposes, and (ii) each Company shall be deemed to have executed and
        delivered each Credit Document as set forth in this Section 3.1, including
        each Security Document, immediately prior to or simultaneously with the making
        of the Loans hereunder.

       

      (t) Equity
        Contributions.
        Since
        August 24, 2006, Company shall have received at least the amount of $22,500,000
        from the issuance and sale of new Capital Stock on terms and conditions
        satisfactory to Administrative Agent in all respects. 

       

      (u) Due
        Diligence.
        Administrative Agent and Lenders shall have completed satisfactory due diligence
        review of the assets, liabilities, business, operations and condition (financial
        or otherwise) of Company and its Subsidiaries, including, a review of their
        Oil
        and Gas Properties and all legal, financial, accounting, governmental,
        environmental, tax and regulatory matters, and fiduciary aspects of the proposed
        financing.

       

      (v) Reserved.
        

       

      (w) Acquisition
        Documents.
        Each of
        the representations and warranties made by any party in the Acquisition
        Documents shall be true and correct in all material respects; and none of
        such
        parties shall have failed to perform any obligation or covenant required
        by the
        Acquisition Documents to be performed or complied with by it on or before
        the
        Closing Date. Simultaneously with making of the Loans on the Closing Date,
        all
        transactions under the Acquisition Documents shall have been consummated
        in
        compliance with the terms and conditions thereof and all conditions precedent
        to
        such consummation shall be fully satisfied.

       

      
        
          
          

        

        
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      (x) Other
        Documentation.
        Administrative Agent shall have received all documents and instruments which
        Administrative Agent has then reasonably requested, in addition to those
        described in this Section 3.1. All such additional documents and
        instruments shall be reasonably satisfactory to Administrative Agent in form,
        substance and date.

       

      3.2
        Conditions
        to Each Credit Extension.
        

       

      (a) Conditions
        Precedent.
        The
        obligation of each Lender to make any Loan, on any Credit Date, including
        the
        Closing Date, are subject to the satisfaction, or waiver in accordance with
        Section 10.5, of the following conditions precedent:

       

      (i)
        Administrative
        Agent shall have received a fully executed and delivered Funding
        Notice;

       

      (ii)
        as
        of
        such Credit Date, the representations and warranties contained herein and
        in the
        other Transaction Documents shall be true and correct in all respects on
        and as
        of that Credit Date to the same extent as though made on and as of that date,
        except to the extent such representations and warranties specifically relate
        to
        an earlier date, in which case such representations and warranties shall
        have
        been true and correct in all respects on and as of such earlier date;
        and

       

      (iii)
        as
        of
        such Credit Date, no event shall have occurred and be continuing or would
        result
        from the consummation of the applicable Credit Extension that would constitute
        an Event of Default or a Default.

       

      Any
        Agent
        or Required Lenders shall be entitled, but not obligated to, request and
        receive, prior to the making of any Credit Extension, additional information
        reasonably satisfactory to the requesting party confirming the satisfaction
        of
        any of the foregoing if, in the good faith judgment of such Agent or Required
        Lender such request is warranted under the circumstances.

       

      (b) Funding
        Notices.
        Any
        Funding Notice shall be executed by an Authorized Officer in a writing delivered
        to Administrative Agent. In lieu of delivering a Funding Notice, Company
        may
        give Administrative Agent telephonic notice by the required time of any proposed
        borrowing, conversion/continuation; provided
        each
        such notice shall be promptly confirmed in writing by delivery of the applicable
        Funding Notice to Administrative Agent on or before the applicable date of
        borrowing. Neither Administrative Agent nor any Lender shall incur any liability
        to Company in acting upon any telephonic notice referred to above that
        Administrative Agent believes in good faith to have been given by a duly
        authorized officer or other person authorized on behalf of Company or for
        otherwise acting in good faith.

       

      SECTION
        4 REPRESENTATIONS
        AND WARRANTIES

       

      In
        order
        to induce Lenders to enter into this Agreement and to make each Credit Extension
        to be made thereby, each Credit Party represents and warrants to each Agent,
        Royalty Owner, Warrant Owner and each Lender, on the Closing Date (both
        immediately prior to and immediately after giving effect to the Closing Date
        Transactions) and on each Credit Date, that the following statements are
        true
        and correct:

       

      
        
          
          

        

        
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      4.1
        No
        Default.
        No event
        has occurred and is continuing which constitutes a Default.

       

                
        4.2 Organization
        and Good Standing.
        Each
        Credit Party is duly organized, validly existing and in good standing under
        the
        Laws of its jurisdiction of organization, having all powers required to carry
        on
        its business and enter into and carry out the transactions contemplated hereby.
        Each Credit Party is duly qualified, in good standing, and authorized to
        do
        business in all other jurisdictions within the United States wherein the
        character of the properties owned or held by it or the nature of the business
        transacted by it makes such qualification necessary. No Credit Party owns
        or
        holds any properties or transacts any business in any jurisdiction outside
        the
        United States.

       

                
        4.3 Authorization.
        Each
        Credit Party has duly taken all action necessary to authorize the execution
        and
        delivery by it of the Transaction Documents to which it is a party and to
        authorize the consummation of the transactions contemplated thereby and the
        performance of its obligations thereunder. Company is duly authorized to
        borrow
        funds hereunder. 

       

                
        4.4 No
        Conflicts or Consents.
        The
        execution and delivery by the various Credit Parties of the Transaction
        Documents to which each is a party, the performance by each of its obligations
        under such Transaction Documents, and the consummation of the transactions
        contemplated by the various Transaction Documents, do not and will not (a)
        conflict with any provision of (i) any Law, (ii) the Organizational Documents
        of
        any Credit Party, or (iii) any agreement, judgment, license, order or permit
        applicable to or binding upon any Credit Party, (b) result in the acceleration
        of any Indebtedness owed by any Credit Party, or (c) result in or require
        the
        creation of any Lien upon any assets or properties of any Credit Party except
        as
        expressly contemplated in the Transaction Documents. Except as expressly
        contemplated in the Transaction Documents no consent, approval, authorization
        or
        order of, and no notice to or filing with, any Governmental Authority or
        third
        party is required in connection with the execution, delivery or performance
        by
        any Credit Party of any Transaction Document or any Acquisition Document
        or to
        consummate any transactions contemplated hereby and thereby.

       

                
        4.5 Enforceable
        Obligations.
        This
        Agreement is, and the other Transaction Documents when duly executed and
        delivered will be, legal, valid and binding obligations of each Credit Party
        which is a party hereto or thereto, enforceable in accordance with their
        terms
        except as such enforcement may be limited by bankruptcy, insolvency or similar
        Laws of general application relating to the enforcement of creditors’ rights and
        by general principles of equity.

       

            4.6
Current
        Financial Statements.
        Company
        has heretofore delivered to each Lender true, correct and complete copies
        of the
        Current Financial Statements. The Current Financial Statements fairly present
        Company’s Consolidated financial position at the date thereof in all material
        respects. Since the date of the Current Financial Statements no Material
        Adverse
        Effect has occurred. The Current Financial Statements were prepared in
        accordance with GAAP. 

       

      
        
          
          

        

        
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        4.7 Other
        Obligations and Restrictions.
        As of
        the date hereof, no Credit Party has any outstanding Liabilities of any kind
        (including obligations under farm-in agreements, other obligations to make
        capital expenditures, contingent obligations, tax assessments, and unusual
        forward or long-term commitments) which is, in the aggregate, material to
        Company or material with respect to Company’s Consolidated financial condition
        and not shown in the Current Financial Statements or disclosed in Schedule
        4.7.
        All obligations of any Credit Party to make capital expenditures to drill
        or
        otherwise develop any oil, gas or mineral properties are specified in
        Schedule 4.7 (by well or project, describing the dollar amount of each such
        obligation) or in the APOD. Except as shown in the Current Financial Statements
        or disclosed in Schedule 4.7, no Credit Party is subject to or restricted
        by any franchise, contract, deed, charter restriction, or other instrument
        or
        restriction which is materially likely to cause a Material Adverse
        Effect.

       

                
        4.8 Full
        Disclosure.
        As of
        the date of delivery, no certificate, statement or other information delivered
        herewith or heretofore by any Credit Party to any Lender in connection with
        the
        negotiation of this Agreement or in connection with any transaction contemplated
        hereby contains any untrue statement of a material fact or omits to state
        any
        material fact known to any Credit Party (other than industry-wide risks normally
        associated with the types of businesses conducted by the Credit Parties)
        necessary to make the statements contained herein or therein not misleading
        as
        of the date made or deemed made. There is no fact known to any Credit Party
        (other than industry-wide risks normally associated with the types of businesses
        conducted by the Credit Parties) that has not been disclosed to each Lender
        in
        writing which is materially likely to cause a Material Adverse Effect. There
        are
        no statements or conclusions in any Engineering Report which are based upon
        or
        include misleading information or fail to take into account material information
        regarding the matters reported therein, it being understood that each
        Engineering Report is necessarily based upon professional opinions, estimates
        and projections and that Company does not warrant that such opinions, estimates
        and projections will ultimately prove to have been accurate. Company has
        heretofore delivered to each Lender true, correct and complete copies of
        the
        Initial Engineering Report. 

       

                
        4.9 Litigation.
        Except
        as disclosed in the Current Financial Statements or in Schedule 4.9: (a)
        there
        are no actions, suits or legal, equitable, arbitrative or administrative
        proceedings pending, or to the knowledge of any Credit Party threatened,
        against
        any Credit Party before any Governmental Authority (i) which could cause
        a
        Material Adverse Effect or (ii) purport to affect or pertain to this Agreement
        or any other Transaction Document, or any of the transactions contemplated
        hereby or purport to affect or pertain to the Acquisition or any Acquisition
        Document, and (b) there are no outstanding judgments, injunctions, writs,
        rulings or orders by any such Governmental Authority against any Credit Party
        or
        any Credit party’s partners, directors or officers which could cause a Material
        Adverse Effect.

       

                
        4.10 Labor
        Disputes and Acts of God.
        Except
        as disclosed in Schedule 4.10, neither the business nor the properties of
        any
        Credit Party has been affected by any fire, explosion, accident, strike,
        lockout
        or other labor dispute, drought; storm, hail, earthquake, embargo, act of
        God or
        of the public enemy or other casualty (whether or not covered by insurance),
        which could cause a Material Adverse Effect.

       

                
        4.11 ERISA
        Plans and Liabilities.
        All
        currently existing ERISA Plans are listed in Schedule 4.11. Except as disclosed
        in the Current Financial Statements or in Schedule 4.11, no Termination Event
        has occurred or is reasonably expected to occur with respect to any ERISA
        Plan
        and all ERISA Affiliates are in compliance with ERISA and other applicable
        Laws
        in all material respects. No ERISA Affiliate is required to contribute to,
        or
        has any other absolute or contingent liability in respect of, any “multiemployer
        plan” as defined in Section 4001 of ERISA. Except as set forth in
        Schedule 4.11: (a) no “accumulated funding deficiency” (as defined in
        Section 412(a) of the Internal Revenue Code) exists with respect to any
        ERISA Plan, whether or not waived by the Secretary of the Treasury or his
        delegate, and (b) the current value of each ERISA Plan’s benefits does not
        exceed the current value of such ERISA Plan’s assets available for the payment
        of such benefits by more than $500,000.

       

      
        
          
          

        

        
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        4.12 Environmental
        and Other Laws.
        Except
        as disclosed in Schedule 4.12: (a) Credit Parties are conducting their
        businesses in material compliance with all applicable Laws, including
        Environmental Laws, and have and are in compliance with all licenses and
        permits
        required under any such Laws; (b) none of the operations or properties of
        any Credit Party is the subject of federal, state or local investigation
        evaluating whether any material remedial action is needed to respond to a
        release of any Hazardous Materials into the environment or to the improper
        storage or disposal (including storage or disposal at offsite locations)
        of any
        Hazardous Materials; (c) no Credit Party (and to the best knowledge of
        Company, no other Person) has filed any notice under any Law indicating that
        any
        Credit Party is responsible for the improper release into the environment,
        or
        the improper storage or disposal, of any material amount of any Hazardous
        Materials or that any Hazardous Materials have been improperly released,
        or are
        improperly stored or disposed of, upon any property of any Credit Party;
        (d) no Credit Party has transported or arranged for the transportation of
        any Hazardous Material to any location which is (i) listed on the National
        Priorities List under the Comprehensive Environmental Response, Compensation
        and
        Liability Act of 1980, as amended, listed for possible inclusion on such
        National Priorities List by the Environmental Protection Agency in its
        Comprehensive Environmental Response, Compensation and Liability Information
        System List, or listed on any similar state list or (ii) the subject of federal,
        state or local enforcement actions or other investigations which may lead
        to
        claims against any Credit Party for clean-up costs, remedial work, damages
        to
        natural resources or for personal injury claims (whether under Environmental
        Laws or otherwise); and (e) no Credit Party otherwise has any known material
        contingent liability under any Environmental Laws or in connection with the
        release into the environment, or the storage or disposal, of any Hazardous
        Materials. Each Credit Party undertook, at the time of its acquisition of
        each
        of its material properties, all appropriate inquiry into the previous ownership
        and uses of the Property and any potential environmental liabilities associated
        therewith. Each
        Credit Party’s liability for future plugging and abandonment costs is properly
        reflected in the Current Financial Statements or in the most recently delivered
        financial statements pursuant to Section 5.2(b).

       

                
        4.13 Names
        and Places of Business.
        No
        Credit Party has, during the preceding five years, had, been known by, or
        used
        any other trade or fictitious name, except as disclosed in Schedule 4.13.
        Except
        as otherwise indicated in Schedule 4.13, the chief executive office and
        principal place of business of each Credit Party are (and for the preceding
        five
        years have been) located at the address of Company set out in Appendix B.
        Except as indicated in Schedule 4.13, no Credit Party has any other office
        or place of business. Company has obtained from the Assignors a complete
        list of
        all prior names and places of organization or residence during the preceding
        five years.

       

      
        
          
          

        

        
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        4.14 Subsidiaries.
        Schedule 4.14 correctly sets forth the ownership interest of Company and
        each of its Subsidiaries in their respective Subsidiaries as of the Closing
        Date
        both before and after giving effect to the transactions contemplated herein.
        Company owns, directly or indirectly, the Capital Stock in each of its
        Subsidiaries which is indicated in Schedule 4.14 and Company has no other
        Subsidiary or owns no other Capital Stock in any corporation or other Person.
        Except as set forth in Schedule 4.14, there is no existing option, warrant,
        call, right, commitment or other agreement to which Company or any of its
        Subsidiaries is a party requiring, and there is no Capital Stock of Company
        or
        any of its Subsidiaries outstanding which upon conversion or exchange would
        require, the issuance by Company or any of its Subsidiaries of any other
        Capital
        Stock of Company or any of its Subsidiaries or other Securities convertible
        into, exchangeable for or evidencing the right to subscribe for or purchase,
        any
        Capital Stock of Company or any of its Subsidiaries.

       

                
        4.15 Licenses.
        Each
        Credit Party possesses all licenses, permits, franchises, patents, copyrights,
        trademarks and trade names, and other intellectual property (or otherwise
        possesses the right to use such intellectual property without violation of
        the
        rights of any other Person) which are necessary to carry out its business
        as
        presently conducted and as presently proposed to be conducted hereafter,
        and no
        Credit Party is in violation in any material respect of the terms under which
        it
        possesses such intellectual property or the right to use such intellectual
        property.

       

                
        4.16 Government
        Regulation.
        Neither
        Company nor any other Credit Party owing Obligations is subject to regulation
        under the Federal Power Act, the Investment Company Act of 1940 (as any of
        the
        preceding acts have been amended) or any other Law which regulates the incurring
        by such Person of Indebtedness, including Laws relating to common contract
        carriers or the sale of electricity, gas, steam, water or other public utility
        services.

       

                
        4.17 Solvency.
        Upon
        giving effect to the issuance of the Notes and the making of the Loans, the
        execution of this Agreement, the other Transaction Documents, and the
        Acquisition Documents by Company and each applicable Credit Party and the
        consummation of the transactions contemplated hereby and thereby, Company
        and
        each other Credit Party (other than Foothills Oklahoma) will be Solvent.
        

       

                
        4.18 Taxes.
        Each
        Credit Party has filed all United States Federal income tax returns and all
        other material tax returns that are required to be filed by it and have paid
        all
        taxes due pursuant to such returns or pursuant to any assessment received
        by any
        Credit Party and all other penalties or charges, other than those being
        contested in good faith by appropriate proceedings for which adequate reserves
        have been established in accordance with GAAP. The charges, accruals and
        revenues on the books of each Credit Party in respect of taxes and other
        governmental charges are, in the opinion of Company, adequate. No Credit
        Party
        has not given or been requested to give a waiver of the statute of limitations
        relating to the payment of any federal or other taxes, except as listed in
        Schedule 4.18.

       

                
        4.19 Projections.
        On and
        as of the Closing Date, the Projections of Company and its Subsidiaries for
        the
        period Fiscal Year 2006 through and including Fiscal Year 2014 (the “Projections”)
        are
        based on good faith estimates and assumptions made by the management of Company;
        provided,
        the
        Projections are not to be viewed as facts and that actual results during
        the
        period or periods covered by the Projections may differ from such Projections
        and that the differences may be material; provided
        further,
        as of
        the Closing Date, management of Company believed that the Projections were
        reasonable and attainable.

       

      
        
          
          

        

        
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        4.20 No
        Distributions.
        Since
        December 31, 2005, neither Company nor any of its Subsidiaries has directly
        or
        indirectly declared, ordered, paid or made, or set apart any sum or property
        for, any Distribution or agreed to do so except as permitted pursuant to
        Section
        6.6 or as disclosed in Schedule 4.20 attached hereto.

       

                
        4.21 Title
        to Properties.
        Each of
        Company and its Subsidiaries has (i) good and defensible title to (in the
        case of fee interests in real property and leasehold interests in Oil and
        Gas
        Properties), (ii) valid leasehold interests in (in the case of leasehold
        interests in other real or personal property), and (iii) good title to (in
        the case of all other personal property), all of their respective properties
        and
        assets purported to be subject to the Mortgages and in the most recent financial
        statements delivered pursuant to Section 5.2, in each case except for
        assets disposed of since the date of such financial statements in the ordinary
        course of business or as otherwise permitted under Section 6.5. Except as
        permitted by this Agreement, all such properties and assets are free and
        clear
        of Liens. The ORRI will be conveyed to Royalty Owner by Company, free and
        clear
        of any Lien. No Credit Party has granted control over any Deposit Accounts
        to
        any Person, other than pursuant to the Revolving Credit Agreement or the
        First
        Lien Hedging Contracts, Administrative Agent and the bank with which any
        Deposit
        Account is maintained. No Credit Party has any “securities accounts” as defined
        and described in the UCC. 

       

                
        4.22 No
        Defaults.
        Neither
        Company nor any of its Subsidiaries is in default in the performance, observance
        or fulfillment of any of the obligations, covenants or conditions contained
        in
        any of its Contractual Obligations, and no condition exists which, with the
        giving of notice or the lapse of time or both, could constitute such a default,
        except where the consequences, direct or indirect, of such default or defaults,
        if any, could not reasonably be expected to have a Material Adverse Effect.
        Schedule 4.22 contains a true, correct and complete list of all the Material
        Contracts (other than oil and gas leases) in effect on the Closing Date,
        and
        except as described thereon, all such Material Contracts (other than oil
        and gas
        leases) are in full force and effect and no defaults currently exist
        thereunder.

       

                
        4.23 Margin
        Stock.
        Neither
        Company nor any of its Subsidiaries is engaged principally, or as one of
        its
        important activities, in the business of extending credit for the purpose
        of
        purchasing or carrying any Margin Stock. No part of the proceeds of the Loans
        made to such Credit Party will be used to purchase or carry any such margin
        stock or to extend credit to others for the purpose of purchasing or carrying
        any such margin stock or for any purpose that violates, or is inconsistent
        with,
        the provisions of Regulation T, U or X of such Board of Governors.

       

                
        4.24 Certain
        Fees.
        No
        broker’s or finder’s fee or commission will be payable with respect hereto or
        any of the actions contemplated hereby, other than the fees identified in
        Schedule 4.24 attached hereto. 

       

                
        4.25 Leases
        and Contracts; Performance of Obligations.
        The
        leases, deeds, and other agreements forming a part of the Oil and Gas Properties
        of the Credit Parties to which Proved Reserves are attributed in the Initial
        Engineering Report and each subsequent Engineering Report are in full force
        and
        effect. All rents, royalties and other payments due and payable under such
        leases, deeds, and other agreements have been properly and timely paid other
        than to the extent such could not reasonably be expected to cause the loss
        or
        forfeiture of any such Proved Reserves. No Credit Party is in default with
        respect to its obligations (and no Credit Party is aware of any default by
        any
        third party with respect to such third party’s obligations) under any such
        leases, deeds, and other agreements, or under any Permitted Liens, or otherwise
        attendant to the ownership or operation of any part of the Oil and Gas
        Properties, where such default could adversely affect the ownership or operation
        of any Oil and Gas Properties to which any such Proved Reserves are attributed.
        No Credit Party is currently accounting for any royalties, or overriding
        royalties or other payments out of production, on a basis (other than delivery
        in kind) less favorable to such Credit Party than proceeds received by such
        Credit Party (calculated at the well) from sale of production, and no Credit
        Party has any liability (or alleged liability) to account for the same on
        any
        such less favorable basis.

       

      
        
          
          

        

        
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        4.26  Marketing
        Arrangements.
        Except
        as set forth in Schedule 4.26, no Oil and Gas Property is subject to any
        contractual or other arrangement (i) whereby payment for production is or
        can be deferred for a substantial period after the month in which such
        production is delivered (in the case of oil, not in excess of 60 days, and
        in
        the case of gas, not in excess of 90 days) or (ii) whereby payments are
        made to a Credit Party other than by checks, drafts, wire transfer advises
        or
        other similar writings, instruments or communications for the immediate payment
        of money. Except for production sales contracts, processing agreements,
        transportation agreements and other agreements relating to the marketing
        of
        production that are listed in Schedule 4.26 in connection with the Oil and
        Gas Properties to which such contract or agreement relates: (i) no Oil and
        Gas Property is subject to any contractual or other arrangement for the sale,
        processing or transportation of production (or otherwise related to the
        marketing of production) which cannot be canceled on 120 days’ (or less) notice
        and (ii) all contractual or other arrangements for the sale, processing or
        transportation of production (or otherwise related to the marketing of
        production) are bona fide arm’s length transactions made on the best terms
        reasonably available with third parties not affiliated with Credit Parties.
        Each
        Credit Party is presently receiving a price for all production from (or
        attributable to) each Oil and Gas Property covered by a production sales
        contract or marketing contract listed in Schedule 4.26 that is computed in
        accordance with the terms of such contract, and no Credit Party is having
        deliveries of production from such Oil and Gas Property curtailed by any
        purchaser or transporter of production substantially below such property’s
        delivery capacity, except for curtailments caused (a) by an act or event
        of
        force majeure not reasonably within the control of and not caused by the
        fault
        or negligence of a Credit Party and which by the exercise of reasonable
        diligence such Credit Party is unable to prevent or overcome, and (b) by
        routine
        maintenance requirements in the ordinary course of business. 

       

                
        4.27 Right
        to Receive Payment for Future Production.
        Except
        as set forth in Schedule 4.27, no Credit Party, nor any Credit Party’s
        predecessors in title, has received prepayments (including payments for gas
        not
        taken pursuant to “take or pay” or other similar arrangements) for any oil, gas
        or other hydrocarbons produced or to be produced from any Oil and Gas Properties
        after the date hereof. Except as set forth in Schedule 4.27, no Oil and Gas
        Property is subject to any “take or pay”, gas imbalances or other similar
        arrangement (i) which can be satisfied in whole or in part by the
        production or transportation of gas from other properties or (ii) as a
        result of which production from any Oil and Gas Property may be required
        to be
        delivered to one or more third parties without payment (or without full payment)
        therefor as a result of payments made, or other actions taken, with respect
        to
        other properties. Except as set forth in Schedule 4.27, there is no Oil and
        Gas Property with respect to which any Credit Party, or any Credit Party’s
        predecessors in title, has, prior to the date hereof, taken more
        (“overproduced”), or less (“underproduced”), gas from the lands covered thereby
        (or pooled or unitized therewith) than its ownership interest in such Oil
        and
        Gas Property would entitle it to take; and Schedule 4.27 accurately
        reflects, for each well or unit with respect to which such an imbalance is
        shown
        thereon to exist, (i) whether such Credit Party is overproduced or
        underproduced and (ii) the volumes (in cubic feet or British thermal units)
        of such overproduction or underproduction and the effective date of such
        information. No Oil and Gas Property is subject at the present time to any
        regulatory refund obligation and, to the best of Credit Party’s knowledge, no
        facts exist which might cause the same to be imposed.

       

      
        
          
          

        

        
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        4.28 Operation
        of Oil and Gas Properties.
        The Oil
        and Gas Properties (and all properties unitized therewith) are being (and,
        to
        the extent the same could adversely affect the ownership or operation of
        the Oil
        and Gas Properties after the date hereof, have in the past been) maintained,
        operated and developed in a good and workmanlike manner, in accordance with
        prudent industry standards and in conformity with all applicable Laws and
        in
        conformity with all oil, gas or other mineral leases and other contracts
        and
        agreements forming a part of the Oil and Gas Property and in conformity with
        the
        Permitted Liens. No Oil and Gas Property is subject to having allowable
        production after the date hereof reduced below the full and regular allowable
        (including the maximum permissible tolerance) because of any overproduction
        (whether or not the same was permissible at the time) prior to the date hereof
        and none of the wells located on the Oil and Gas Properties (or properties
        unitized therewith) are or will be deviated from the vertical more than the
        maximum permitted by applicable laws, regulations, rules and orders, and
        such
        wells are bottomed under and producing from, with the well bores wholly within,
        the Oil and Gas Properties (or, in the case of wells located on properties
        unitized therewith, such unitized properties). Each Credit Party has all
        governmental licenses and permits necessary or appropriate to own and operate
        its Oil and Gas Property, and no Credit Party has received notice of any
        violations in respect of any such licenses or permits.

       

                
        4.29 Ad
        Valorem and Severance Taxes; Litigation.
        Each
        Credit Party has paid and discharged all ad valorem taxes assessed against
        its
        Oil and Gas Property or any part thereof and all production, severance and
        other
        taxes assessed against, or measured by, the production or the value, or
        proceeds, of the production therefrom. There are no suits, actions, claims,
        investigations, inquiries, proceedings or demands pending (or, to any Credit
        Party’s knowledge, threatened) which might affect the Oil and Gas Property,
        including any which challenge or otherwise pertain to any Credit Party’s title
        to any Oil and Gas Property or rights to produce and sell oil and gas
        therefrom.

       

                
        4.30 Acquisition
        Closing.
        After
        giving effect to each of the transactions under the Acquisition Documents,
        all
        representations and warranties made by any Credit Party in any Transaction
        Document will be true and correct in all respects on and as of the date of
        consummation of such transactions.  

       

      
        
          
          

        

        
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      SECTION
        5 AFFIRMATIVE
        COVENANTS

       

      Each
        Credit Party covenants and agrees that so long as any Commitment is in effect
        and until payment in full of all Obligations hereunder and under any Security
        Documents, each Credit Party shall perform, and shall cause each of its
        Subsidiaries to perform, all covenants in this Section 5.

       

                
        5.1 Payment
        and Performance.
        Company
        will pay all amounts due under the Transaction Documents in accordance with
        the
        terms thereof and will observe, perform and comply with every covenant, term
        and
        condition expressed in the Transaction Documents. Company will cause each
        other
        Credit Party to observe, perform and comply with every such term, covenant
        and
        condition in any Transaction Document.

       

                
        5.2 Books,
        Financial Statements and Reports.
        Company,
        acting through or on behalf of the Credit Parties, will at all times maintain
        full and accurate books of account and records and a standard system of
        accounting, will maintain its Fiscal Year, and will furnish the following
        statements and reports to each Lender at Company’s expense:

       

      (a) As
        soon
        as available, and in any event within one-hundred twenty (120) days after
        the
        end of each Fiscal Year, complete Consolidated financial statements of Company
        together with all notes thereto, prepared in reasonable detail in accordance
        with GAAP, together with an unqualified opinion, based on an audit using
        generally accepted auditing standards, by independent certified public
        accountants selected by Company and acceptable to Required Lenders, stating
        that
        such Consolidated financial statements have been so prepared. These financial
        statements shall contain a Consolidated balance sheet as of the end of such
        Fiscal Year and Consolidated statements of earnings, of cash flows, and of
        changes in owners’ equity for such Fiscal Year, each setting forth in
        comparative form the corresponding figures for the preceding Fiscal Year.
        In
        addition, within one-hundred twenty (120) days after the end of each Fiscal
        Year, Company will furnish a report signed by such accountants
        (i) containing calculations showing compliance (or non-compliance) at the
        end of such Fiscal Year with the requirements of Sections 6.10-6.12,
        inclusive, and Section 6.19, and (ii) further stating that in making their
        examination and reporting on the Consolidated financial statements described
        above they did not conclude that any Default existed at the end of such Fiscal
        Year or at the time of their report, or, if they did conclude that a Default
        existed, specifying its nature and period of existence. 

       

      (b) As
        soon
        as available, and in any event within sixty (60) days after the end of each
        Fiscal Quarter, Company’s Consolidated balance sheet as of the end of such
        Fiscal Quarter and Consolidated statements of earnings and cash flows for
        the
        period from the beginning of the then current Fiscal Year to the end of such
        Fiscal Quarter, all in reasonable detail and prepared in accordance with
        GAAP,
        subject to changes resulting from normal year-end adjustments. In addition,
        Company will, together with each such set of financial statements and each
        set
        of financial statements furnished under subsection (b) of this section,
        furnish a Compliance Certificate signed by the chief financial officer of
        Company stating that such financial statements are accurate and complete
        (subject to normal year-end adjustments), stating that he has reviewed the
        Transaction Documents, containing calculations showing compliance (or
        non-compliance) at the end of such Fiscal Quarter with the requirements of
        Sections 6.10-6.12, inclusive, and Section 6.19, and stating that no
        Default exists at the end of such Fiscal Quarter or at the time of such
        certificate or specifying the nature and period of existence of any such
        Default.

       

      
        
          
          

        

        
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    (c) Promptly
      upon their becoming available, copies of all financial statements, reports,
      notices and proxy statements sent by any Credit Party to its stockholders and
      all registration statements, periodic reports and other statements and schedules
      filed by any Credit Party with any securities exchange, the Securities and
      Exchange Commission or any similar governmental authority.

     

    (d) If,
      as a
      result of any change in accounting principles and policies from those used
      in
      the preparation of Company’s audited Consolidated financial statements as of
      December 31, 2006, the Consolidated financial statements of Company and its
      Subsidiaries delivered pursuant to Section 5.2(a) or 5.2(b) will differ in
      any material respect from the Consolidated financial statements that would
      have
      been delivered pursuant to such subsections had no such change in accounting
      principles and policies been made, then, together with the first delivery of
      such financial statements after such change, one or more statements of
      reconciliation for such changes in form and substance satisfactory to
      Administrative Agent.

     

    (e) By
      February 1 and August 1 of each year, beginning February 1, 2006,
      an Engineering Report prepared as of the preceding January 1 or
      July 1, respectively, concerning the Properties. Each Engineering Report
      prepared as of any January 1 must be prepared or audited by Cawley,
      Gillespie & Associates, Inc. or other independent petroleum engineers chosen
      by Company and acceptable to Required Lenders; each Engineering Report prepared
      as of any July 1 may, at Company’s option, be prepared by Company’s
      in-house engineering staff or prepared or audited by such independent petroleum
      engineers. In addition,  Administrative Agent or Required Lenders may (at
      their expense so long as no Default or Event of Default then exists) request
      additional Engineering Reports from time to time prepared by such independent
      petroleum engineers. Each Engineering Report shall distinguish (or shall be
      delivered together with a certificate from an appropriate officer of Company
      which distinguishes) those Properties treated in the report which are Eligible
      Mortgaged Properties from those properties treated in the report which are
      not
      Eligible Mortgaged Properties. 

     

    (f) Within
      sixty (60) days after the end of each calendar month, a monthly production
      report in the form of Exhibit J in detail acceptable to Required Lenders with
      respect to the Properties during such month. 

     

    (g) As
      soon
      as available, and in any event within forty-five (45) days after the end of
      each
      Fiscal Quarter, a report (i) describing aggregate volume of production and
      sales attributable to production during such Fiscal Quarter from the Properties
      and describing the related severance taxes, leasehold operating expenses and
      capital costs attributable thereto and incurred during such Fiscal Quarter
      and
      (ii) describing any Properties acquired during such Fiscal Quarter that are
      leased by an Indian tribe, the Bureau of Indian Affairs, or the U.S. Bureau
      of
      Land Management to a Credit Party.

     

    (h) As
      soon
      as available, and in any event within thirty (30) days after the end of each
      Fiscal Year, Company shall deliver to Administrative Agent an environmental
      compliance certificate signed by the president or chief executive officer of
      Company in the form attached hereto as Exhibit C-2. 

    
      
        
        

      

      
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    (i) Concurrently
      with the annual renewal of Company’s insurance policies, Company shall, if
      requested by Administrative Agent in writing, cause a certificate or report
      to
      be issued by Administrative Agent’s professional insurance consultants or other
      insurance consultants reasonably satisfactory to Administrative Agent certifying
      that Company’s insurance for the next succeeding year after such renewal (or for
      such longer period for which such insurance is in effect) complies with the
      provisions of this Agreement and the Security Documents. 

     

    (j) By
      November 1 of each year, a proposed business plan for Company and its
      Consolidated Subsidiaries, including proposed budgets and plans of development
      of oil and gas properties, in form and detail reasonably satisfactory to
      Required Lenders for the next succeeding year.

     

    (k) As
      soon
      as practicable and in any event by the last day of each Fiscal Year, a report
      in
      form and substance satisfactory to Administrative Agent outlining all material
      insurance coverage maintained as of the date of such report by Company and
      its
      Subsidiaries and all material insurance coverage planned to be maintained by
      Company and its Subsidiaries in the immediately succeeding Fiscal
      Year.

     

    (l) With
      reasonable promptness, written notice of any change in the board of directors
      (or similar governing body) of Company.

     

    (m) Promptly,
      and in any event within five (5) Business Days (i) after any Material Contract
      of Company or any of its Subsidiaries is terminated or amended in a manner
      that
      is materially adverse to Company or such Subsidiary, as the case may be, or
      (ii)
      any new Material Contract is entered into, a written statement describing such
      event, with copies of such material amendments or new contracts, delivered
      to
      Administrative Agent (to the extent such delivery is permitted by the terms
      of
      any such Material Contract, provided, no such prohibition on delivery shall
      be
      effective if it were bargained for by Company or its applicable Subsidiary
      with
      the intent of avoiding compliance with this Section 5.2(m)), and an
      explanation of any actions being taken with respect thereto.

     

    (n) Promptly
      upon receipt thereof, all demands or material notices in connection with the
      Revolving Indebtedness either received by Company or on its behalf.

     

    (o) Promptly
      after the furnishing thereof, copies of any statement, report or notice
      furnished to any Person pursuant to Revolving Credit Agreement and not otherwise
      required to be furnished to Administrative Agent or Lenders pursuant to any
      other provision of the Transaction Documents.

     

    5.3
      Other
      Information and Inspections.
      Each
      Credit Party will furnish to each Lender any information which Administrative
      Agent may from time to time reasonably request in writing concerning any
      covenant, provision or condition of the Transaction Documents or any matter
      in
      connection with the Credit Parties’ businesses and operations. Each Credit Party
      will permit representatives appointed by Administrative Agent (including
      independent accountants, auditors, agents, attorneys, appraisers and any other
      Persons) to visit and inspect during normal business hours any of such Credit
      Party’s property, including its books of account, other books and records, and
      any facilities or other business assets, and to make extra copies therefrom
      and
      photocopies and photographs thereof, and to write down and record any
      information such representatives obtain, and each Credit Party shall permit
      Administrative Agent or its representatives to investigate and verify the
      accuracy of the information furnished to Administrative Agent or any Lender
      in
      connection with the Transaction Documents and to discuss all such matters with
      its officers, employees and representatives.

    
      
        
        

      

      
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    5.4
      Notice
      of Material Events and Change of Name
      Company
      will promptly and in any event within five days notify each Lender in writing,
      stating that such notice is being given pursuant to this Agreement,
      of:

     

    (a) the
      occurrence of any Material Adverse Effect,

     

    (b) the
      occurrence of any Default,

     

    (c) the
      acceleration of the maturity of any Indebtedness owed by any Credit Party or
      of
      any default by any Credit Party under any indenture, mortgage, agreement,
      contract or other instrument to which any of them is a party or by which any
      of
      them or any of their properties is bound, if such acceleration or default could
      cause Material Adverse Effect,

     

    (d) the
      occurrence of any Termination Event,

     

    (e) any
      claim
      of $500,000 or more, any notice of potential liability under any Environmental
      Laws which might exceed such amount, or any other material adverse claim
      asserted against any Credit Party or with respect to any Credit Party’s
      properties, 

     

    (f) the
      filing of any suit or proceeding against any Credit Party in which an adverse
      decision could cause a Material Adverse Effect, 

     

    (g) the
      damage or destruction of any material part of the Collateral, and 

     

    (h) the
      occurrence of any “default” or “event of default” under the Revolving Credit
      Agreement.

     

    Upon
      the
      occurrence of any of the foregoing the Credit Parties will take all necessary
      or
      appropriate steps to remedy promptly any such Material Adverse Effect, Default,
      acceleration, default or Termination Event, to protect against any such adverse
      claim, to defend any such suit or proceeding, and to resolve all controversies
      on account of any of the foregoing. Company will also furnish to Administrative
      Agent prompt written notice of any change (i) in any Credit Party’s name,
      (ii) in any Credit Party’s identity or company structure or (iii) in
      any Credit Party’s Federal Taxpayer Identification Number. Company agrees not to
      effect or permit any change referred to in the preceding sentence unless all
      filings have been made under the Uniform Commercial Code or otherwise that
      are
      required in order for Administrative Agent to continue at all times following
      such change to have a valid, legal and perfected security interest in all the
      Collateral and for the Collateral at all times following such change to have
      a
      valid, legal and perfected security interest as contemplated in the Security
      Documents. Company also agrees promptly to notify Administrative Agent if any
      material portion of the Collateral is damaged or destroyed.

    
      
        
        

      

      
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    5.5
      Maintenance
      of Properties and Professional Staff.
      Except
      as expressly permitted by Section 6.5, each Credit Party will maintain,
      preserve, protect, and keep all Collateral and all other property used or useful
      in the conduct of its business in good condition and in compliance with all
      applicable Laws, and will from time to time make all repairs, renewals and
      replacements needed to enable the business and operations carried on in
      connection therewith to be conducted at all times consistent with prudent
      industry practices. Company will engage (and provide appropriate compensation
      and incentives to retain) all engineering and professional staff needed to
      prudently execute the Approved Plan of Development and in order to continue
      its
      business as an upstream oil and gas exploration and production
      company.

     

    5.6
      Maintenance
      of Existence and Qualifications.
      Except
      as expressly permitted by Section 6.4, each Credit Party will maintain and
      preserve its existence and its rights and franchises in full force and effect
      and will qualify to do business in all states or jurisdictions (a) where
      Collateral is located and (b) where required by applicable Law, except where
      the
      failure so to qualify will not cause a Material Adverse Effect.

     

    5.7
      Payment
      of Taxes, etc.
      Each
      Credit Party will (a) timely file all required tax returns; (b) timely pay
      all
      taxes, assessments, and other governmental charges or levies imposed upon it
      or
      upon its income, profits or property, except to the extent such taxes,
      assessments or other governmental charges or levies are being contested in
      good
      faith by appropriate proceedings for which adequate reserves have been
      established in accordance with GAAP; (c) within 90 days past the original
      invoice or billing date thereof, or, if earlier, when due in accordance with
      its
      terms, pay and discharge all Liabilities owed by it on ordinary trade terms
      to
      vendors, suppliers and other Persons providing goods and services used by it
      in
      the ordinary course of its business; (d) pay and discharge when due all
      other Liabilities now or hereafter owed by it; and (e) maintain appropriate
      accruals and reserves for all of the foregoing in accordance with GAAP. Each
      Credit Party may, however, delay paying or discharging any of the foregoing
      so
      long as it is in good faith contesting the validity thereof by appropriate
      proceedings and has set aside on its books adequate reserves therefor. No Credit
      Party will, nor will it permit any of its Subsidiaries to, file or consent
      to
      the filing of any consolidated income tax return with any Person (other than
      Company or any of its Subsidiaries).

     

    5.8
      Bonding
      and Insurance.
      The Credit Parties will maintain all bonds and letters of credit in lieu of
      bonds which they are required to maintain (by law, lease terms, or consistent
      with prudent industry practices) in order to carry out development and
      production operations on the Properties. With respect to the Collateral, the
      Credit Parties will maintain, with financially sound and reputable insurance
      companies, insurance, in such amounts and against such risks as are customarily
      maintained by companies engaged in the same or similar business operating in
      the
      same or similar locations. Each Credit Party shall at all times maintain
      adequate insurance against its liability for injury to persons or property,
      in
      such amounts and against such risks as are customarily maintained by companies
      engaged in the same or similar business operating in the same or similar
      locations. Each Credit Party shall be insured by insurers with a financial
      strength rating of A or better by AM Best, Standard & Poor’s or an
      equivalent recognized rating agency. With regard to any applicable insurance
      policies obtained by any Credit Party, the loss payable clauses or provisions
      in
      said insurance policy or policies insuring any of the Collateral shall be
      endorsed in favor of and made payable to Administrative Agent (on behalf of
      Lenders) as its interests may appear and such policies shall name Administrative
      Agent as an “additional insured” and provide that the insurer will endeavor to
      give at least 30 days prior notice of any cancellation to Administrative Agent.
      (To the extent that the Mortgages or any other Security Document contains other
      additional requirements for such endorsement, each Credit Party shall also
      comply with such additional requirements.) Company shall make a payment in
      respect of the Loans, without premium or penalty, in an aggregate amount equal
      to the gross proceeds received by any Credit Party relating to insurance in
      respect of casualty to property (which payment shall be made immediately upon
      receipt thereof and for purposes of this Section only, the minimum prepayment
      amount specified in Section 2.12 shall not apply), except to the extent
      that Required Lenders consent in writing to the applicable Credit Party applying
      such proceeds to the repair or replacement of such property. Notwithstanding
      the
      foregoing provisions of this Section 5.8, all insurance carried pursuant to
      this
      Section shall provide for the following minimum coverages:

     

    
      
        
        

      

      
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    (a) The
      Credit Parties shall maintain or cause to be maintained All Risk Property and
      Boiler & Machinery insurance, covering physical loss or damage to the
      Collateral. Such insurance shall cover all property of the Collateral. Coverage
      shall be written on a replacement cost basis and in amount acceptable to
      Administrative Agent, but in no event less than the replacement cost of the
      Collateral. The policy may be subject to deductibles not to exceed $500,000
      per
      occurrence.

     

    (b) The
      Credit Parties shall maintain or cause to be maintained comprehensive (or
      commercial) general liability insurance written on an occurrence basis and
      with
      a combined single limit of not less than $1,000,000. Administrative Agent shall
      be named an additional insured on such policy.

     

    (c) The
      Credit Parties shall maintain (i) Workers’ Compensation insurance with statutory
      limits and (ii) Employers Liability with limits of not less than $1,000,000
      including occupational disease coverage.

     

    (d) The
      Credit Parties shall maintain comprehensive or business automobile liability
      insurance for owned (if any), non-owned and hired vehicles with combined single
      limits of not less than $1,000,000.

     

    (e) The
      Credit Parties shall maintain insurance covering (i) control of well, and (ii)
      redrilling/extra expense, with a minimum limit of $10,000,000 per occurrence.
      Coverage shall include costs for making wells safe; underground control of
      wells, extended re-drilling and restoration costs and care, custody or control,
      and, in addition to covering wells being drilled and completed, shall also
      cover
      all existing producing wells. A maximum deductible of $200,000 per occurrence
      shall be allowed. 

     

    The
      Credit Parties shall maintain or cause to be maintained excess (or umbrella)
      liability insurance written on an occurrence basis providing coverage in excess
      of the limits set forth in subparagraphs (b), (c) (ii), (d) and (e) above.
      The
      limits of the insurance set forth in subparagraphs (b), (c) (ii), (d) and (e)
      above and such excess or umbrella coverage, when combined, shall not be less
      than $25,000,000. Administrative Agent shall be named an additional insured
      on
      such policy. 

     

    
      
        
        

      

      
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    5.9
      Performance
      on Company’s Behalf.
      If any
      Credit Party fails to pay any taxes, insurance premiums, expenses, attorneys’
fees or other amounts it is required to pay under any Transaction Document,
      Administrative Agent may pay the same; provided that so long as no Default
      or
      Event of Default has occurred and is continuing, Administrative Agent shall
      provide such Credit Party with at least five (5) Business Days prior notice
      of
      its intent to make any such payment. Company shall immediately reimburse
      Administrative Agent for any such payments and each amount paid by
      Administrative Agent shall constitute an Obligation owed hereunder which is
      due
      and payable on the date such amount is paid by Administrative
      Agent.

     

    5.10
      Interest.
      Company
      hereby promises to each Agent and Lender to pay interest at the Post-Default
      Rate on all Obligations (including Obligations to pay fees or to reimburse
      or
      indemnify any Agent or Lender) which Company has in this Agreement promised
      to
      pay to such Agent or Lender and which are not paid when due. Such interest
      shall
      accrue from the date such Obligations become due until they are
      paid.

     

    5.11
      Compliance
      with Agreements and Law.
      Each
      Credit Party will perform all material obligations it is required to perform
      under the terms of each indenture, mortgage, deed of trust, security agreement,
      lease, franchise, agreement, contract or other instrument or obligation to
      which
      it is a party or by which it or any of its properties is bound. Each Credit
      Party will conduct its business and affairs in compliance with all Laws
      applicable thereto.

     

    5.12
      Environmental
      Matters: Environmental Reviews. 

     

    (a) Each
      Credit Party will comply in all material respects with all Environmental Laws
      now or hereafter applicable to such Credit Party and shall obtain, at or prior
      to, the time required by applicable Environmental Laws, all environmental,
      health and safety permits, licenses and other authorizations necessary for
      its
      operations and will maintain such authorizations in full force and effect.
      Each
      Credit Party shall promptly take any and all actions necessary to (i) cure
      any
      material violation of applicable Environmental Laws by such Credit Party or
      its
      Subsidiaries, and (ii) make an appropriate response to any Environmental Claim
      against such Credit Party or any of its Subsidiaries and discharge any material
      obligations it may have to any Person thereunder. 

     

    (b) Company
      will promptly furnish to Administrative Agent all written notices of violation,
      orders, claims, citations, complaints, penalty assessments, suits or other
      proceedings received by Company or any of its Subsidiaries, or of which it
      has
      notice, pending or threatened against Company, by any Governmental Authority
      with respect to any alleged material violation of or material non-compliance
      with any Environmental Laws or any permits, licenses or authorizations in
      connection with its ownership or use of its properties or the operation of
      its
      business. Company will promptly furnish to Administrative Agent copies of all
      environmental audits and reports with respect to material environmental matters
      at any property of Company or any of its Subsidiaries or which relate to any
      material environmental liabilities of Company or its Subsidiaries.

     

    
      
        
        

      

      
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    (c) Company
      will promptly furnish to Administrative Agent all requests for information,
      notices of claim, demand letters, and other notifications, received by Company
      or any of its Subsidiaries in connection with its ownership or use of its
      properties or the conduct of its business, relating to potential responsibility
      with respect to any investigation or clean-up of Hazardous Material at any
      location.

     

    (d) Company
      will promptly furnish to Administrative Agent written notice describing in
      reasonable detail (1) any proposed acquisition of stock, assets, or property
      by
      Company or any of its Subsidiaries that could reasonably be expected to (A)
      expose Company or any of its Subsidiaries to, or result in, material
      Environmental Claims or (B) affect the ability of Company or any of its
      Subsidiaries to maintain in full force and effect all material Governmental
      Authorizations required under any Environmental Laws for their respective
      operations and (2) any proposed action to be taken by Company or any of its
      Subsidiaries to modify current operations in a manner that could reasonably
      be
      expected to subject Company or any of its Subsidiaries to any additional
      material obligations or requirements under any Environmental Laws.

     

    5.13
      Evidence
      of Compliance.
      Each
      Credit Party will furnish to each Lender at such Credit Party’s or Company’s
      expense all evidence which Administrative Agent from time to time reasonably
      requests in writing as to the accuracy and validity of or compliance with all
      representations, warranties and covenants made by any Credit Party in the
      Transaction Documents, the satisfaction of all conditions contained therein,
      and
      all other matters pertaining thereto.

     

    5.14
      Agreement
      to Deliver Guaranty and Security Documents.
      Company
      agrees to have any Subsidiary of Company formed or acquired after the date
      hereof become a Guarantor by executing and delivering a Counterpart Agreement
      within 15 days of the formation or acquisition of such Subsidiary. In addition,
      Company agrees to deliver and to cause each other Credit Party to deliver,
      to
      further secure the Obligations whenever requested by Administrative Agent in
      its
      sole and absolute discretion, deeds of trust, mortgages, chattel mortgages,
      security agreements, financing statements and other Security Documents in form
      and substance satisfactory to Administrative Agent for the purpose of granting,
      confirming, and perfecting liens or security interests having Acceptable
      Priority in any real or personal property now owned or hereafter acquired by
      any
      Credit Party, subject to the Intercreditor Agreement. Furthermore, Company
      agrees to deliver and to cause each other Credit Party to deliver whenever
      requested by Administrative Agent in its sole and absolute discretion, an
      intercompany subordination agreement in form and substance satisfactory to
      Administrative Agent. Company also agrees to deliver, whenever requested by
      Administrative Agent in its sole and absolute discretion, and in any case before
      drilling any well on property not previously the subject of a delivered title
      opinion, favorable title opinions or updates of title opinions from legal
      counsel acceptable to Administrative Agent with respect to any Credit Party’s
      properties and interests designated by Administrative Agent, based upon abstract
      or record examinations to dates acceptable to Administrative Agent and
      (a) stating that such Credit Party has good and defensible title to such
      properties and interests, free and clear of all Liens other than Permitted
      Liens, (b) confirming that such properties and interests are subject to
      Security Documents securing the Obligations that constitute and create legal,
      valid and duly perfected deed of trust or mortgage liens having Acceptable
      Priority in such properties and interests and assignments of and security
      interests in the oil and gas attributable to such properties and interests
      and
      the proceeds thereof, and (c) covering such other matters as Administrative
      Agent may request. Company shall deliver duly executed control agreements from
      each institution holding any Credit Party’s Deposit Accounts pursuant to which
      such institution recognizes Administrative Agent’s Lien in such Deposit Accounts
      and, upon the occurrence and during the continuance of an Event of Default,
      agrees to transfer collected balances in all such Deposit Accounts to
      Administrative Agent pursuant to its instructions from time to time (subject,
      however, to the terms of the Intercreditor Agreement); provided that no such
      control agreement shall be required with respect to Deposit Accounts that are
      designated solely as (a) payroll funding accounts or (b) royalty or
      joint interest owner accounts.

     

    
      
        
        

      

      
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    5.15
      Perfection
      and Protection of Security Interests and Liens.
      Company
      will from time to time deliver, and will cause each other Credit Party from
      time
      to time to deliver, to Administrative Agent any financing statements,
      continuation statements, extension agreements and other documents, properly
      completed and executed (and acknowledged when required) by the Credit Parties
      in
      form and substance satisfactory to Administrative Agent, which Administrative
      Agent requests for the purpose of (a) perfecting, confirming, or protecting
      any Liens or other rights in Collateral securing any Obligations and
      (b) maintaining compliance with all applicable Laws, including those of any
      applicable Indian tribe, the Bureau of Indian Affairs, and the U.S. Bureau
      of
      Land Management. Each Credit Party hereby authorizes Administrative Agent to
      file one or more financing or continuation statements, and amendments thereto,
      relative to all or any part of the Collateral describing the Collateral as
“all
      assets” without the signature of any Credit Party.

     

    5.16
      Bank
      Accounts; Offset.
      To
      secure the repayment of the Obligations, each Credit Party hereby grants to
      each
      Lender a security interest, a lien, and a right of offset, each of which shall
      be in addition to all other interests, liens, and rights of any Lender at common
      Law, under the Transaction Documents, or otherwise, and each of which shall
      be
      upon and against (a) any and all moneys, securities or other property (and
      the
      proceeds therefrom) of such Credit Party now or hereafter held or received
      by or
      in transit to any Lender from or for the account of Company, whether for
      safekeeping, custody, pledge, transmission, collection or otherwise, (b) any
      and
      all deposit accounts and deposits (general or special, time or demand,
      provisional or final) therein of such Credit Party with any Lender, and (c)
      any
      other credits and claims of such Credit Party at any time existing against
      any
      Lender, including claims under certificates of deposit. At any time and from
      time to time after the occurrence of any Default, each Lender is hereby
      authorized to foreclose upon, or to offset against the Obligations then due
      and
      payable (in either case without notice to such Credit Party), any and all items
      hereinabove referred to. The remedies of foreclosure and offset are separate
      and
      cumulative, and either may be exercised independently of the other without
      regard to procedures or restrictions applicable to the other. 

     

    5.17
      Production
      Proceeds.
      Notwithstanding that, by the terms of the various Security Documents, the Credit
      Parties are and will be assigning to Administrative Agent and Lenders all of
      the
“Production Proceeds” (as defined therein) accruing to the property covered
      thereby, so long as no Event of Default has occurred the Credit Parties may
      continue to receive from the purchasers of production all such Production
      Proceeds, subject, however, to the Liens created under the Security Documents,
      which Liens are hereby affirmed and ratified. Upon the occurrence of a an Event
      of Default, Administrative Agent and Lenders may exercise all rights and
      remedies granted under the Security Documents, including the right to obtain
      possession of all Production Proceeds then held by the Credit Parties or to
      receive directly from the purchasers of production all other Production
      Proceeds. In no case shall any failure, whether proposed or inadvertent, by
      Administrative Agent or Lenders to collect directly any such Production Proceeds
      constitute in any way a waiver, remission or release of any of their rights
      under the Security Documents, nor shall any release of any Production Proceeds
      by Administrative Agent or Lenders to the Credit Parties constitute a waiver,
      remission, or release of any other Production Proceeds or of any rights of
      Administrative Agent or Lenders to collect other Production Proceeds thereafter.
      

     

    
      
        
        

      

      
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    5.18
      Approved
      Plan of Development;
      Texas Project Area.
      Company
      will (a) timely develop the Properties, and make capital expenditures on
      the Properties, in accordance with the Approved Plan of Development, and
      (b) except to the extent regulatory approval has not yet been obtained,
      have each producing and injection well which is hereafter completed put into
      normal operation. All interests of any kind (including all interests or rights
      described in the definition of Oil and Gas Properties) in the Texas Project
      Area
      directly or indirectly owned or acquired by Affiliates of Foothills Texas shall
      be transferred to and owned by Foothills Texas and no Affiliate of Foothills
      Texas shall own or acquire any interest of any kind in the Texas Project Area
      (including any interests or rights described in the definition of Oil and Gas
      Properties).

     

    5.19
      Reviews.
      Company
      will meet with Administrative Agent from time to time as reasonably requested
      by
      Administrative Agent or Required Lenders (which, as of the Closing Date, is
      anticipated to be on a quarterly basis), at the offices of Administrative Agent
      or at such other location as Agent and Company may agree, to review all
      operational activities of Company with respect to the Eligible Mortgaged
      Properties and all financial reports of the Credit Parties since the date of
      the
      prior review. Each review shall be in scope reasonably satisfactory to
      Administrative Agent, but will include at a minimum, an update by Company on
      the
      development activities made pursuant to Company’s business plan, any requests by
      Company that changes be made to Company’s business plan, any cost or expense
      overruns or underruns, any mechanical problems incurred, and any differences
      in
      reserves or production estimates.

     

    5.20
      Hedging
      Contracts.
      Upon
      the
      substantial completion of the APOD (but in no event later than January 1, 2007),
      if, as of any date of determination, the PDP Collateral Coverage Ratio is less
      than 1.5 to 1.0 and upon Administrative Agent’s request, Company shall enter
      into additional Hedging Contracts in compliance with Section 6.3
      such that, when combined with Company’s then existing Hedging Contracts, no less
      than 80% of Company’s aggregate Projected Oil and Gas Production through the
      Maturity Date (converting gas to oil at a ratio of six MMBtus of gas per barrel
      of oil) will be subject to Hedging Contracts with the purpose and effect of
      fixing prices on such production. The Credit Parties shall maintain in effect
      for their full term (and will not sell, assign, transfer or novate) the Hedging
      Contracts that are required as a condition to the initial closing hereunder
      pursuant to Section 3.1(e) or required under this Section 5.20 or to
      restrict Liens permitted under Section 6.2(a)(i); provided that the provisions
      of this sentence shall not be deemed to restrict assignments of Hedging
      Contracts permitted pursuant to Part 1(i)(ii)(5) of the ISDA Master Agreement
      described in clause (i) of the definition of First Lien Hedging
      Contract.

     

    
      
        
        

      

      
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    5.21
      Non-Consolidation.
      Unless
      otherwise consented to by Administrative Agents or Required Lenders, Company
      will and will cause each of its Subsidiaries to: (a) maintain entity records
      and
      books of account separate from those of any other entity which is an Affiliate
      of such entity; (b) not commingle its funds or assets with those of any other
      entity which is an Affiliate of such entity; and (c) provide that its board
      of
      directors or other analogous governing body will hold all appropriate meetings
      to authorize and approve such entity’s actions, which meetings will be separate
      from those of other entities. 

     

    5.22
      ORRI
      Conveyance.
      Until the Loans have been paid in full, each Credit Party will, as it acquires
      new Properties in the Texas Project Area (or earns new Properties in the Texas
      Project Area pursuant to farmout or exploration agreements), amend and
      supplement the Security Documents and the ORRI Conveyance to make such new
      Properties in the Texas Project Area subject thereto (or, alternatively, if
      requested by Royalty Owner, such Credit Party will deliver a new ORRI Conveyance
      conveying a net profits interest in and to such Properties in the form of,
      and
      upon the same terms as, the ORRI Conveyance executed and delivered to Royalty
      Owner on the Closing Date). Such Credit Party will deliver such amendment and
      supplement (or, if applicable, such separate ORRI Conveyance) to Royalty Owner
      (a) within ten (10) days after such Credit Party acquires or earns any
      Properties in the Texas Project Area, (b) prior to drilling any new well, and
      (c) within ten (10) days after delivery of each Engineering Report, with respect
      to any Properties in the Texas Project Area to which Proved Reserves are
      attributed but not properly covered by an ORRI Conveyance previously delivered
      to Royalty Owner. If (i) any Credit Party drills a well in the Texas Project
      Area to a formation that is deeper than those formations to which Proved
      Reserves or probable reserves are attributed in the Initial Engineering Report,
      (ii) such well is completed as a producing well at such deeper formation, and
      (iii) the drilling of such well is entirely funded with proceeds from the sale
      of the Company’s equity received on or after the Closing Date or from sources
      other than ANCF, then Royalty Owner will promptly reconvey the drilling unit
      with respect to such formation, and as any well is drilled on adjacent drilling
      units to the same formation and completed as a producing well, at such Credit
      Party’s request, Royalty Owner will similarly reconvey such adjacent drilling
      unit with respect to such formation.

     

    5.23
      Leases
      and Contracts; Performance of Obligations.
      Each Credit Party will maintain in full force and effect all oil, gas or mineral
      leases, contracts, servitudes and other agreements forming a part of any Oil
      and
      Gas Property, to the extent the same cover or otherwise relate to such Oil
      and
      Gas Property, and each Credit Party will timely perform all of its obligations
      thereunder. Each Credit Party will properly and timely pay all rents, royalties
      and other payments due and payable under any such leases, contracts, servitudes
      and other agreements, or under the Permitted Liens, or otherwise attendant
      to
      its ownership or operation of any Oil and Gas Property. Each Credit Party will
      promptly notify Administrative Agent of any claim (or any conclusion by such
      Credit Party) that such Credit Party is obligated to account for any royalties,
      or overriding royalties or other payments out of production, on a basis (other
      than delivery in kind) less favorable to such Credit Party than proceeds
      received by Credit Party (calculated at the well) from sale of production.
      

     

    5.24
      Representation
      to Continue to be True.
      Each Credit Party will carry out its sales of production, will operate the
      Oil
      and Gas Properties, and will otherwise deal with the Oil and Gas Properties
      and
      the production, to cause the representations and warranties in Sections 4.25
      through 4.28 to remain true and correct at, and as of, all times that this
      Agreement is in effect (and not just at, and as of, the times such
      representations and warranties are made).

     

    
      
        
        

      

      
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    5.25
      Non-Voting
      Representative.
      Administrative Agent may in its discretion from time to time designate an
      employee or advisor to act as its non-voting representative to attend meetings
      of the board of directors of Company or any other Credit Party, which
      designation shall be made by written notice to Company. After receipt of each
      such designation, Company will, and will cause each Credit Party to, (a) give
      timely advance notice to such representative of all such meetings of such Credit
      Party and all proposals to such body for action without a meeting, (b) allow
      such Credit Party to attend all such meetings, and (c) provide such
      representative with copies of all written materials distributed to such
      directors (or similar body) in connection with such meetings or proposals for
      action without a meeting, including all minutes of previous actions and
      proceedings.

     

    5.26
      SEC
      and Other Filings.
      Company
      shall timely file all reports required to be filed with the Securities and
      Exchange Commission pursuant to the Exchange Act, any stock exchange or any
      other Governmental Authority. 

     

    5.27
      Post
      Closing Items.
      Company
      shall cause the post closing items identified below to be completed on or before
      the due dates reflected below:

     

    (a) Company
      and Foothills California shall use their commercially reasonable efforts to
      obtain the consent from INNEX California, Inc. (“INNEX”)
      to the
      INNEX Farmout Agreement being subject to the Security Documents on or before
      September 25, 2006.

     

    (b) Foothills
      California shall obtain the assignment from Maverick Petroleum, Inc.
      (“Maverick”)
      of all
      oil and gas leases representing at least 3,500 net mineral acres that Maverick
      Petroleum, Inc. has acquired on behalf of Foothills California in Humboldt
      County, California on or before September 25, 2006. Promptly upon receipt of
      such assignments, Foothills California shall deliver, to further secure the
      Obligations, deeds of trust, mortgages, chattel mortgages, security agreements,
      financing statements and other Security Documents in form and substance
      satisfactory to Administrative Agent for the purpose of granting, confirming,
      and perfecting liens or security interests having Acceptable Priority in such
      oil and gas leases.

     

    (c) Foothills
      California shall obtain the Drill Site Acreage Assignment to be delivered by
      INNEX pursuant to Section 2.3(b) of the INNEX Farmout Agreement on or before
      October 9, 2006.

     

    (d) Foothills
      California shall comply with all of its covenants and obligations pursuant
      to
      Section 3 of the INNEX Farmout Agreement with respect to the “Phase II Earning
      Well” on or before December 15, 2006 or, if later, the date that is fifteen (15)
      days prior the deadline specified for such activities in such Section 3, as
      such
      deadline may be extended by INNEX.

     

    (e) The
      Credit Parties shall deliver control agreements with respect to all of their
      Deposit Accounts on or before September 13, 2006, in form and substance
      satisfactory to Administrative Agent in all respects; provided that no such
      control agreement shall be required with respect to Deposit Accounts that are
      designated solely as (i) payroll funding accounts or (ii) royalty or
      joint interest owner accounts.

     

    
      
        
        

      

      
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    SECTION
      6 NEGATIVE
      COVENANTS

     

    Each
      Credit Party covenants and agrees that, so long as any Commitment is in effect
      and until payment in full of all Obligations, such Credit Party shall perform,
      and shall cause each of its Subsidiaries to perform, all covenants in this
      Section 6.

     

    6.1
      Indebtedness.
      No
      Credit Party will in any manner incur, owe or be liable for Indebtedness
      except:

     

    (a) the
      Obligations.

     

    (b) Hedging
      Contracts permitted under Section 6.3. 

     

    (c) unsecured
      intercompany Indebtedness among Company and any future Subsidiary of Company
      that is in compliance with Section 5.14.

     

    (d) purchase
      money Indebtedness (including capital leases) for trucks, trailers and other
      motor vehicles in an aggregate amount not in excess of $250,000 at any time
      outstanding.

     

    (e) purchase
      money Indebtedness (including capital leases) for equipment, inventory and
      other
      tangible personal property (including compressors, but excluding fixtures)
      in an
      aggregate amount not in excess of $500,000 at any time outstanding.

     

    (f) On
      or
      after the Eel River Basin Test Date, Revolving Indebtedness of Company and
      Parent to Revolving Agent and the Revolving Lenders evidenced by or arising
      under the Revolving Credit Agreement (as in effect on the date hereof or as
      amended in accordance with this Agreement), provided that (i) the principal
      amount of the loans and letter of credit obligations comprising such Revolving
      Indebtedness at any time outstanding shall not in the aggregate exceed the
      Ceiling Amount and (ii) the sum of (x) the total Loans under this Agreement
      plus
      (y) the principal amount of the loans and letter of credit obligations
      comprising such Revolving Indebtedness shall not exceed $55,000,000 at any
      time
      outstanding.

     

    (g) miscellaneous
      items of Indebtedness not described in subsections (a) through (f) which do
      not in the aggregate (taking into account all such Indebtedness of all Credit
      Parties) exceed $1,000,000 at any one time outstanding. 

     

    After
      the
      Eel River Basin Test Date, Company may from time to time, but in no event more
      than once during each Fiscal Quarter, request that Required Lenders increase
      the
      Ceiling Amount. Upon receipt of such written request, Required Lenders will,
      in
      their sole discretion, determine a new Ceiling Amount and Administrative Agent
      will notify Company in writing of such new Ceiling Amount, which Ceiling Amount
      may be lower than the requested Ceiling Amount but not lower than the then
      existing Ceiling Amount.

     

    
      
        
        

      

      
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    6.2
      Limitation
      on Liens and Negative Pledges; Equitable Lien. 

     

    (a) No
      Credit
      Party will create, assume or permit to exist any Lien upon any of the properties
      or assets which it now owns or hereafter acquires, except the following
      (“Permitted
      Liens”).

     

    (i)
      Liens
      that secure Obligations herunder or under the Security Documents.

     

    (ii)
      Liens
      that secure only Indebtedness allowed under Sections 6.1(d) or (e) (plus
      associated interest, prepayment penalties, fees and reimbursements), provided
      that such Liens encumber only the personal property purchased with the proceeds
      of such Indebtedness (plus accessions and attachments to such purchased assets)
      and that the encumbered assets are not attached to any Eligible Mortgaged
      Properties in such a way that removal of such assets would damage any Eligible
      Mortgaged Property.

     

    (iii)
      Excepted
      Liens.

     

    (iv)
      First
      priority Liens that secure only Revolving Indebtedness allowed under Section
      6.1(f); provided that such Liens are at all times subject to the terms of the
      Intercreditor Agreement.

     

    (v)
      Liens
      that secure First Lien Hedging Obligations.

     

    (b) No
      Credit
      Party nor any of its Subsidiaries shall enter into any agreement prohibiting
      the
      creation or assumption of any Lien in favor of Beneficiaries upon any of its
      properties or assets, whether now owned or hereafter acquired. 

     

    (c) If
      any
      Credit Party or any of its Subsidiaries shall create or assume any Lien upon
      any
      of its properties or assets, whether now owned or hereafter acquired, other
      than
      Permitted Liens, it shall make or cause to be made effective provisions whereby
      the Obligations will be secured by such Lien equally and ratably (except
      pursuant to the operation of the Intercreditor Agreement) with any and all
      other
      Indebtedness secured thereby as long as any such Indebtedness shall be so
      secured; provided, notwithstanding the foregoing, this covenant shall not be
      construed as a consent by Required Lenders to the creation or assumption of
      any
      such Lien not otherwise permitted hereby.

     

    6.3
      Hedging
      Contracts.
      No
      Credit Party will be a party to or in any manner be liable on any Hedging
      Contract except:

     

    (a) contracts
      entered into with the purpose and effect of fixing prices on oil or gas expected
      to be produced by Company, provided that at all times: (i) no such contract
      fixes a price for a term of more than the Maturity Date; (ii) the aggregate
      monthly production covered by all such contracts (determined, in the case of
      contracts that are not settled on a monthly basis, by a monthly proration
      acceptable to Administrative Agent) for any single month does not in the
      aggregate exceed ninety percent (90%) at any time of Company’s aggregate
      Projected Oil and Gas Production anticipated (at the time such Hedging Contract
      is entered into) to be sold in the ordinary course of the Credit Parties’
businesses for such month, (iii) no such contract requires any Credit Party
      to put up money, assets or other security (excluding unsecured letters of credit
      and, in the case of First Lien Hedging Obligations only, collateral under the
      documents securing Revolving Indebtedness and the First Lien Hedging
      Obligations) against the event of its nonperformance prior to actual default
      by
      such Credit Party in performing its obligations thereunder, and (iv) each
      such contract is with a counterparty or has a guarantor of the obligation of
      the
      counterparty who (unless such counterparty is a Lender or one of its Affiliates)
      at the time the contract is made is rated at least A by S & P or A2 by
      Moody’s; and 

     

    
      
        
        

      

      
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    (b) contracts
      entered into by a Credit Party with the purpose and effect of fixing interest
      rates on a principal amount of indebtedness of such Credit Party that is
      accruing interest at a variable rate, provided that (i) the aggregate
      notional amount of such contracts never exceeds one hundred percent (100%)
      of
      the anticipated outstanding principal balance of the indebtedness to be hedged
      by such contracts or an average of such principal balances calculated using
      a
      generally accepted method of matching interest swap contracts to declining
      principal balances, (ii) the floating rate index of each such contract
      generally matches the index used to determine the floating rates of interest
      on
      the corresponding indebtedness to be hedged by such contract, (iii) no such
      contract requires any Credit Party to put up money, assets or other security
      (excluding unsecured letters of credit and, in the case of First Lien Hedging
      Obligations only, collateral under the documents securing Revolving Indebtedness
      and the First Lien Hedging Obligations) against the event of its nonperformance
      prior to actual default by such Credit Party in performing its obligations
      thereunder, and (iv) each such contract is with a counterparty or has a
      guarantor of the obligation of the counterparty who (unless such counterparty
      is
      a Lender or one of its Affiliates) at the time the contract is made is rated
      at
      least A by S & P or A2 by Moody’s.

     

    6.4
      Subsidiaries;
      Mergers; Capital Stock Transactions.
      No
      Credit Party shall create or own any Subsidiary without notifying Administrative
      Agent in writing at least thirty (30) days in advance. No Credit Party will
      merge or consolidate with or into any other business entity unless such Credit
      Party is the surviving entity. No Credit Party will issue any additional Capital
      Stock except to Company or another wholly-owned Subsidiary of Company; provided,
      however that Company may issue additional shares of its common stock, or options
      or warrants to acquire such common stock and the proceeds derived from the
      issuance of such shares, option or warrants shall be excluded from ANCF. No
      Subsidiary of Company will allow any diminution of Company’s interest (direct or
      indirect) therein. 

     

    6.5
      Limitation
      on Sales of Property.
      No
      Credit Party will sell, transfer, lease, exchange, alienate or dispose of any
      of
      its material assets or properties or any material interest therein (including
      any stock or other equity interests in any of its Subsidiaries)
      except:

     

    (a) equipment
      which is worthless or obsolete or not used or usable which is replaced by
      equipment of equal suitability and value.

     

    (b) personal
      property inventory (including oil and gas sold as produced) which is sold in
      the
      ordinary course of business on ordinary trade terms.

     

    
      
        
        

      

      
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    (c) any
      property or asset for fair consideration not in the aggregate in excess of
      $250,000, the sale of which shall not materially impair or diminish the value
      of
      the Collateral or any Credit Party’s financial condition, business or
      operations.

     

    (d) ORRI
      to
      Royalty Owner pursuant to the ORRI Conveyance.

     

    (e) Permitted
      Liens.

     

    (f) working
      interests and overriding royalty interests conveyed pursuant to the terms of
      the
      INNEX Farmout Agreement.

     

    Neither
      Company nor any of Company’s Subsidiaries will sell, transfer or otherwise
      dispose of Capital Stock of any of Company’s Subsidiaries except that any
      Subsidiary of Company may sell or issue its own Capital Stock to the extent
      not
      otherwise prohibited hereunder. No Credit Party will discount, sell, pledge
      or
      assign any notes payable to it, accounts receivable or future income except
      to
      the extent expressly permitted under the Transaction Documents.

     

    6.6
      Limitation
      on Dividends and Redemptions. 

     

    (a) No
      Credit
      Party will declare or make any Distribution in respect of any class of its
      Capital Stock, nor will any Credit Party directly or indirectly declare or
      make
      any Distribution in respect of any Capital Stock of any other Credit Party
      (in
      each case, whether such Capital Stock is now or hereafter issued, outstanding
      or
      created), or cause or permit any reduction or retirement of the Capital Stock
      of
      any Credit Party, provided that Company’s Subsidiaries may make Distributions
      directly or indirectly to Company or another Subsidiary that is a Guarantor.
      Company shall not issue any Capital Stock other than common stock and options
      and warrants to acquire such common stock.

     

    (b) Except
      as
      provided herein, no Credit Party shall, nor shall it permit any of its
      Subsidiaries to, create or otherwise cause or suffer to exist or become
      effective any consensual encumbrance or restriction of any kind on the ability
      of any Subsidiary of Company to (i) pay dividends or make any other
      Distributions on any of such Subsidiary’s Capital Stock owned by Company or any
      other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by
      such
      Subsidiary to Company or any other Subsidiary of Company, (iii) make loans
      or
      advances to Company or any other Subsidiary of Company, or (iv) transfer any
      of
      its property or assets to Company or any other Subsidiary of Company other
      than
      restrictions on such transfer or property or assets (1) in agreements evidencing
      (or secured by) Permitted Liens described in Section 6.2(a)(iii) that impose
      restrictions on the property encumbered by such Permitted Liens, and (2) by
      reason of customary provisions restricting assignments, subletting or other
      transfers contained in leases, licenses, joint operating agreements,
      farmin/farmout agreements, joint venture agreements and similar agreements
      entered into in the ordinary course of business, and (3) that are or were
      created by virtue of any transfer of, agreement to transfer or option or right
      with respect to any property, assets or Capital Stock not otherwise prohibited
      under this Agreement.

     

    6.7
      Limitation
      on Investments and Deposit Accounts.
      No
      Credit Party will make any Investment other than (a) Permitted Investments,
      (b)
      normal and prudent extensions of credit to customers buying goods and services
      in the ordinary course of business, which extensions shall not be for longer
      periods than those extended by similar businesses operated in a normal and
      prudent manner, (c) obligations under Hedging Contracts that are permitted
      under Section 6.3, and (d) endorsements of negotiable instruments in the
      ordinary course of business. No Credit Party shall open any new deposit,
      commodity or security account or otherwise utilize any such account other than
      the accounts existing on the Closing Date unless it shall have given
      Administrative Agent thirty (30) days prior written notice thereof and shall
      have taken all action deemed necessary or desirable by Administrative Agent
      to
      cause its security interest therein to be perfected with the priority required
      hereby. No Credit Party will give control over any Deposit Account to any Person
      except Administrative Agent and the applicable bank with whom such account
      is
      maintained.

     

    
      
        
        

      

      
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    6.8
      Transactions
      with Affiliates.
      No
      Credit Party will engage in any material transaction with any of its Affiliates
      other than (i) for customary director or officer compensation paid to any
      of such Affiliates who serves as a director or officer of a Credit Party,
      (ii) for issuances of equity to Affiliates for fair value, provided that
      such issuances are permitted by Section 6.6, (iii) transactions
      between Company or any Guarantor and any Affiliate, the terms of which are
      no
      less favorable than those which would have been obtainable at the time in
      arm’s-length dealings with Persons other than an Affiliate, and
      (iv) transactions among Company and Guarantors or between Guarantors (and
      no other Affiliates).

     

    6.9
      Certain
      Contracts; Multiemployer ERISA Plans.
      No
      Credit Party will enter into any “take-or-pay” contract or other contract or
      arrangement for the purchase of goods or services which obligates it to pay
      for
      such goods or service regardless of whether they are delivered or furnished
      to
      it. No Credit Party will amend or permit any amendment to any material contract
      or lease which releases, qualifies, limits, makes contingent or otherwise
      materially and detrimentally affects the rights and benefits of any Lender
      under
      or acquired pursuant to any Security Documents. No ERISA Affiliate will incur
      any obligation to contribute to any “multiemployer plan” as defined in Section
      4001 of ERISA.

     

    6.10
      Current
      Ratio.
      At the
      end of each Fiscal Quarter, beginning with the Fiscal Quarter ending September
      30, 2006, the ratio of Company’s Consolidated Current Assets to Company’s
      Consolidated Current Liabilities will not be less than 1.0 to 1.0. For purposes
      of this Agreement, “Consolidated
      Current Assets”
      and
“Consolidated
      Current Liabilities”
      shall be
      determined in accordance with GAAP, except that (a) Consolidated Current
      Assets and Consolidated Current Liabilities will be calculated without including
      any amounts resulting from the application of FASB Statement 133 or 143,
      (b) the unused portions of the Commitments shall be treated as a
      Consolidated Current Asset to the extent that such unused portions can be
      borrowed by Company without causing a Default after giving effect thereto,
      and
      (c) Consolidated Current Liabilities will exclude current maturities of
      long-term debt. 

     

    6.11
      Debt
      to EBITDA Ratio.
      At the
      end of any Fiscal Quarter ending on or after December 31, 2006, the ratio of
      (i)
      Company’s Consolidated Indebtedness at the end of such Fiscal Quarter (plus,
      without duplication, all Consolidated balance sheet liabilities of Company
      for
      plugging, abandonment, remediation, and similar liabilities, but excluding
      any
      Indebtedness resulting from the application of FASB Statement 133 or 143),
      to
      (ii) Company’s EBITDA for such Fiscal Quarter annualized, will be equal to or
      less than 3.75 to 1.0. 

     

    
      
        
        

      

      
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    6.12
      Collateral
      Coverage Ratios.
      Company
      will not allow the PDP Collateral Coverage Ratio, (a) determined as of April
      1,
      2007 or as of the effective date of any other Engineering Report required to
      be
      delivered pursuant to Section 5.2(e) with an effective date prior to such date,
      to be less than 1.0 to 1.0, (b) determined as of January 1, 2008 or as of the
      effective date of any other Engineering Report required to be delivered pursuant
      to Section 5.2(e) with an effective date prior to such date, to be less than
      1.25 to 1.0 or (c) determined as of the end of each July 1 and January 1
      thereafter or as of the effective date of any other Engineering Report required
      to be delivered pursuant to Section 5.2(e) to be less than 1.5 to 1.0. Company
      will not allow the Proved Collateral Coverage Ratio, (a) determined as of April
      1, 2007 or as of the effective date of any other Engineering Report required
      to
      be delivered pursuant to Section 5.2(e) with an effective date prior to such
      date, to be less than 1.75 to 1.0, (b) determined as of January 1, 2008 or
      as of
      the effective date of any other Engineering Report required to be delivered
      pursuant to Section 5.2(e) with an effective date prior to such date to be
      less
      than 2.0 to 1.0 or (c) determined as of the end of each July 1 and
      January 1 thereafter or as of the effective date of any other Engineering
      Report required to be delivered pursuant to Section 5.2(e) to be less than
      2.25
      to 1.0. 

     

    6.13
      Conduct
      of Business.
      From and
      after the Closing Date, no Credit Party shall, nor shall it permit any of its
      Subsidiaries to, engage in any business other than (a) the businesses engaged
      in
      by such Credit Party on the Closing Date and similar or related businesses
      and
      (b) such other lines of business as may be consented to by Required
      Lenders.

     

    6.14
      Fiscal
      Year.
      No
      Credit Party shall, nor shall it permit any of its Subsidiaries to, change
      its
      Fiscal Year end from December 31.

     

    6.15
      General
      and Administrative Expenses.
      The
      Credit Parties will not permit their monthly aggregate general and
      administrative expenditures, as determined by the average of the current month
      and the eleven preceding months, to exceed an amount that is equal to the
      Permitted G&A Expense Amount multiplied by four (4), provided,
      however,
      that
      after January 1, 2009, the Credit Parties will not permit their monthly
      aggregate general and administrative expenditures, as determined by the average
      of the current month and the eleven preceding months, to exceed an amount equal
      to (x) $0.40 per mcfe, multiplied by (y) the average of the Credit
      Parties’ net sales volumes for oil and natural gas sold during the applicable
      month and the eleven preceding calendar months. The Credit Parties will not
      incur or otherwise become liable for the payment of management or consulting
      fees exceeding, in the aggregate, $1,000,000 annually.

     

    6.16
      Capital
      Expenditures.
      Prior to
      the Required Equity Date and the Eel River Basin Test Date, the Credit Parties
      will not make capital expenditures or acquisitions of oil and gas properties
      relating to the Eel River Properties which, in the aggregate, exceed the amount
      of $7,000,000; provided that on and after the Required Equity Date such amount
      shall be increased to the aggregate amount of $12,000,000.

     

    6.17
      Amendments
      to Organizational Documents.
      Company
      will not and will not permit any of its Subsidiaries to, enter into or permit
      any modification of, or waive any material right or obligation of any Person
      under its, Organizational Documents.

     

    
      
        
        

      

      
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    6.18
      Amendments
      to Revolving Indebtedness.
      No
      Credit Party will amend, modify or otherwise change (or permit the amendment,
      modification or other change in any manner of) any of the provisions of the
      Revolving Credit Agreement or of any loan document related thereto if such
      amendment, modification or change would (a) shorten the final maturity or
      average life to maturity of, or require any payment to be made earlier than
      the
      date originally scheduled on, such Indebtedness, (b) increase the interest
      rate
      applicable to such Indebtedness, (c) otherwise be adverse to the Lenders or
      the
      issuer of the Revolving Indebtedness in any respect.

     

    6.19
      Additional
      Financial Covenants.
      Company
      shall maintain the following financial covenants, calculated on a consolidated
      basis:

     

    (a) Maintain
      at the end of each Fiscal Quarter ending on or after December 31, 2006 a
      Revolving Debt Interest Coverage Ratio greater than or equal to 2.75 to 1.0.
      “Revolving
      Debt Interest Coverage Ratio”
      is
      defined as the ratio of (i) the sum of Borrower’s most recent quarter’s net
      income, plus
      interest
      expense on the Revolving Indebtedness for the same period, plus
      income
      taxes for the same period, plus
      depreciation, depletion, amortization, and other non-cash charges for the same
      period, plus
      costs
      associated with Full Cost or Successful Efforts accounting methodologies for
      the
      same period, divided
      by
      (ii) interest expense on the Revolving Loan for the same
      period.

     

    (b) Maintain
      at the end of each Fiscal Quarter ending on or after December 31, 2006 an
      Interest Coverage Ratio greater than or equal to 2.25 to 1.0. “Interest
      Coverage Ratio”
      is
      defined as the ratio of (i) the sum of Borrower’s most recent quarter’s net
      income, plus
      cash
      interest expense for the same period, including cash interest expense on the
      Revolving Indebtedness and the Indebtedness under this Agreement, plus
      income
      taxes for the same period, plus
      depreciation, depletion, amortization, and other non-cash charges for the same
      period,
      plus
      costs
      associated with Full Cost or Successful Efforts accounting methodologies for
      the
      same period, divided
      by
      (ii) cash interest expense for the same period, including cash interest
      expense on the Revolving Indebtedness and the Indebtedness under this
      Agreement.

     

    (c) Maintain
      at the end of each Fiscal Quarter ending on or after December 31, 2006 a Debt
      Service Coverage Ratio greater than or equal to 1.15 to 1.0. “Debt
      Service Coverage Ratio”
      is
      defined as the ratio of (i) the sum of Borrower’s most recent quarter’s net
      income, plus
      depletion, depreciation, amortization, and other non-cash charges for the same
      period, plus
      non-cash
      income taxes for the same period, plus
      costs
      associated with Full Cost or Successful Efforts accounting methodologies for
      the
      same period, minus
      gains
      from the sale of assets (or plus
      losses
      from the sale of assets), divided by (ii) the sum of the current maturities
      of long term debt (excluding the Revolving Indebtedness) for the same period,
      plus
      the
      monthly commitment reductions for the same period as required by Revolving
      Lender under the Revolving Credit Agreement.

     

    Unless
      otherwise specified, all accounting and financial terms and covenants set forth
      above are to be determined according to GAAP, consistently applied.

     

    
      
        
        

      

      
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    SECTION
      7 GUARANTY

     

    7.1
      Guaranty
      of the Obligations. Subject
      to the provisions of Section 7.2, Guarantors jointly and severally hereby
      irrevocably and unconditionally guarantee to Administrative Agent for the
      ratable benefit of the Beneficiaries the due and punctual payment in full of
      all
      Obligations when the same shall become due, whether at stated maturity, by
      required prepayment, declaration, acceleration, demand or otherwise (including
      amounts that would become due but for the operation of the automatic stay under
      Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a))
      (collectively, the “Guaranteed Obligations”).

     

    7.2
      Contribution
      by Guarantors.
      All Guarantors desire to allocate among themselves (collectively, the
“Contributing Guarantors”), in a fair and equitable manner, their obligations
      arising under this Guaranty. Accordingly, in the event any payment or
      distribution is made on any date by a Guarantor (a “Funding Guarantor”) under
      this Guaranty that exceeds its Fair Share as of such date, such Funding
      Guarantor shall be entitled to a contribution from each of the other
      Contributing Guarantors in the amount of such other Contributing Guarantor’s
      Fair Share Shortfall as of such date, with the result that all such
      contributions will cause each Contributing Guarantor’s Aggregate Payments to
      equal its Fair Share as of such date. “Fair Share” means, with respect to a
      Contributing Guarantor as of any date of determination, an amount equal to
      (a) the ratio of (i) the Fair Share Contribution Amount with respect to
      such Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution
      Amounts with respect to all Contributing Guarantors multiplied by (b) the
      aggregate amount paid or distributed on or before such date by all Funding
      Guarantors under this Guaranty in respect of the obligations Guaranteed. “Fair
      Share Shortfall” means, with respect to a Contributing Guarantor as of any date
      of determination, the excess, if any, of the Fair Share of such Contributing
      Guarantor over the Aggregate Payments of such Contributing Guarantor. “Fair
      Share Contribution Amount” means, with respect to a Contributing Guarantor as of
      any date of determination, the maximum aggregate amount of the obligations
      of
      such Contributing Guarantor under this Guaranty that would not render its
      obligations hereunder or thereunder subject to avoidance as a fraudulent
      transfer or conveyance under Section 548 of Title 11 of the United States Code
      or any comparable applicable provisions of state law; provided, solely for
      purposes of calculating the “Fair Share Contribution Amount” with respect to any
      Contributing Guarantor for purposes of this Section 7.2, any assets or
      liabilities of such Contributing Guarantor arising by virtue of any rights
      to
      subrogation, reimbursement or indemnification or any rights to or obligations of
      contribution hereunder shall not be considered as assets or liabilities of
      such
      Contributing Guarantor. “Aggregate Payments” means, with respect to a
      Contributing Guarantor as of any date of determination, an amount equal to
      (1) the aggregate amount of all payments and distributions made on or
      before such date by such Contributing Guarantor in respect of this Guaranty
      (including, without limitation, in respect of this Section 7.2), minus
      (2) the aggregate amount of all payments received on or before such date by
      such Contributing Guarantor from the other Contributing Guarantors as
      contributions under this Section 7.2. The amounts payable as contributions
      hereunder shall be determined as of the date on which the related payment or
      distribution is made by the applicable Funding Guarantor. The allocation among
      Contributing Guarantors of their obligations as set forth in this Section 7.2
      shall not be construed in any way to limit the liability of any Contributing
      Guarantor hereunder. Each Guarantor is a third party beneficiary to the
      contribution agreement set forth in this Section 7.2.

     

    
      
        
        

      

      
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    7.3
      Payment
      by Guarantors.
      Subject
      to Section 7.2, Guarantors hereby jointly and severally agree, in
      furtherance of the foregoing and not in limitation of any other right which
      any
      Beneficiary may have at law or in equity against any Guarantor by virtue hereof,
      that upon the failure of Company to pay any of the Guaranteed Obligations when
      and as the same shall become due, whether at stated maturity, by required
      prepayment, declaration, acceleration, demand or otherwise (including amounts
      that would become due but for the operation of the automatic stay under
      Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)),
      Guarantors will upon demand pay, or cause to be paid, in immediately available
      funds, to Administrative Agent for the ratable benefit of Beneficiaries, an
      amount equal to the sum of the unpaid principal amount of all Guaranteed
      Obligations then due as aforesaid, all accrued and unpaid interest on such
      Guaranteed Obligations (including interest which, but for Company’s becoming the
      subject of a case under the Bankruptcy Code, would have accrued on such
      Guaranteed Obligations, whether or not a claim is allowed against Company for
      such interest in the related bankruptcy case) and all other Guaranteed
      Obligations then owed to Beneficiaries as aforesaid.

     

    7.4
      Liability
      of Guarantors Absolute.
      Each
      Guarantor agrees that its obligations hereunder are irrevocable, absolute,
      independent and unconditional and shall not be affected by any circumstance
      which constitutes a legal or equitable discharge of a guarantor or surety other
      than payment in full of the Guaranteed Obligations. In furtherance of the
      foregoing and without limiting the generality thereof, each Guarantor agrees
      as
      follows:

     

    (a) this
      Guaranty is a guaranty of payment when due and not of collectability. This
      Guaranty is a primary obligation of each Guarantor and not merely a contract
      of
      surety;

     

    (b) Administrative
      Agent may enforce this Guaranty upon the occurrence of an Event of Default
      notwithstanding the existence of any dispute between Company and any Beneficiary
      with respect to the existence of such Event of Default;

     

    (c) the
      obligations of each Guarantor hereunder are independent of the obligations
      of
      Company and the obligations of any other guarantor (including any other
      Guarantor) of the obligations of Company, and a separate action or actions
      may
      be brought and prosecuted against such Guarantor whether or not any action
      is
      brought against Company or any of such other guarantors and whether or not
      Company is joined in any such action or actions;

     

    (d) payment
      by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall
      in no way limit, affect, modify or abridge any Guarantor’s liability for any
      portion of the Guaranteed Obligations which has not been paid. Without limiting
      the generality of the foregoing, if Administrative Agent is awarded a judgment
      in any suit brought to enforce any Guarantor’s covenant to pay a portion of the
      Guaranteed Obligations, such judgment shall not be deemed to release such
      Guarantor from its covenant to pay the portion of the Guaranteed Obligations
      that is not the subject of such suit, and such judgment shall not, except to
      the
      extent satisfied by such Guarantor, limit, affect, modify or abridge any other
      Guarantor’s liability hereunder in respect of the Guaranteed
      Obligations;

     

    
      
        
        

      

      
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    (e) any
      Beneficiary, upon such terms as it deems appropriate, without notice or demand
      and without affecting the validity or enforceability hereof or giving rise
      to
      any reduction, limitation, impairment, discharge or termination of any
      Guarantor’s liability hereunder, from time to time may (i) renew, extend,
      accelerate, increase the rate of interest on, or otherwise change the time,
      place, manner or terms of payment of the Guaranteed Obligations;
      (ii) settle, compromise, release or discharge, or accept or refuse any
      offer of performance with respect to, or substitutions for, the Guaranteed
      Obligations or any agreement relating thereto, or subordinate the payment of
      the
      same to the payment of any other obligations; (iii) request and accept
      other guaranties of the Guaranteed Obligations and take and hold security for
      the payment hereof or the Guaranteed Obligations; (iv) release, surrender,
      exchange, substitute, compromise, settle, rescind, waive, alter, subordinate
      or
      modify, with or without consideration, any security for payment of the
      Guaranteed Obligations, any other guaranties of the Guaranteed Obligations,
      or
      any other obligation of any Person (including any other Guarantor) with respect
      to the Guaranteed Obligations; (v) direct Administrative Agent to enforce
      and apply any security now or hereafter held by or for the benefit of such
      Beneficiary in respect hereof or the Guaranteed Obligations and direct the
      order
      or manner of sale thereof, or exercise any other right or remedy that such
      Beneficiary may have against any such security, in each case as such Beneficiary
      in its discretion may determine consistent herewith or the applicable Hedging
      Contract and any applicable security agreement, including foreclosure on any
      such security pursuant to one or more judicial or nonjudicial sales, whether
      or
      not every aspect of any such sale is commercially reasonable, and even though
      such action operates to impair or extinguish any right of reimbursement or
      subrogation or other right or remedy of any Guarantor against Company or any
      security for the Guaranteed Obligations; and (vi) exercise any other rights
      available to it under the Transaction Documents or the Hedging Contracts;
      and

     

    (f) this
      Guaranty and the obligations of Guarantors hereunder shall be valid and
      enforceable and shall not be subject to any reduction, limitation, impairment,
      discharge or termination for any reason (other than payment in full of the
      Guaranteed Obligations), including the occurrence of any of the following,
      whether or not any Guarantor shall have had notice or knowledge of any of them:
      (i) any failure or omission to assert or enforce or agreement or election
      not to assert or enforce, or the stay or enjoining, by order of court, by
      operation of law or otherwise, of the exercise or enforcement of, any claim
      or
      demand or any right, power or remedy (whether arising under the Transactions
      Documents or the Hedging Contracts, at law, in equity or otherwise) with respect
      to the Guaranteed Obligations or any agreement relating thereto, or with respect
      to any other guaranty of or security for the payment of the Guaranteed
      Obligations; (ii) any rescission, waiver, amendment or modification of, or
      any consent to departure from, any of the terms or provisions (including
      provisions relating to events of default) hereof, any of the other Transactions
      Documents, any of the Hedging Contracts or any agreement or instrument executed
      pursuant thereto, or of any other guaranty or security for the Guaranteed
      Obligations, in each case whether or not in accordance with the terms hereof
      or
      such Transaction Document, such Hedging Contract or any agreement relating
      to
      such other guaranty or security; (iii) the Guaranteed Obligations, or any
      agreement relating thereto, at any time being found to be illegal, invalid
      or
      unenforceable in any respect; (iv) the application of payments received
      from any source (other than payments received pursuant to the other Transaction
      Documents or any of the Hedging Contracts or from the proceeds of any security
      for the Guaranteed Obligations, except to the extent such security also serves
      as collateral for indebtedness other than the Guaranteed Obligations) to the
      payment of indebtedness other than the Guaranteed Obligations, even though
      any
      Beneficiary might have elected to apply such payment to any part or all of
      the
      Guaranteed Obligations; (v) any Beneficiary’s consent to the change,
      reorganization or termination of the corporate structure or existence of Company
      or any of its Subsidiaries and to any corresponding restructuring of the
      Guaranteed Obligations; (vi) any failure to perfect or continue perfection
      of a security interest in any collateral which secures any of the Guaranteed
      Obligations; (vii) any defenses, set-offs or counterclaims which Company
      may allege or assert against any Beneficiary in respect of the Guaranteed
      Obligations, including failure of consideration, breach of warranty, payment,
      statute of frauds, statute of limitations, accord and satisfaction and usury;
      and (viii) any other act or thing or omission, or delay to do any other act
      or thing, which may or might in any manner or to any extent vary the risk of
      any
      Guarantor as an obligor in respect of the Guaranteed
      Obligations.

    
      
        
        

      

      
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    7.5
      Waivers
      by Guarantors.
      Each
      Guarantor hereby waives, for the benefit of Beneficiaries: (a) any right to
      require any Beneficiary, as a condition of payment or performance by such
      Guarantor, to (i) proceed against Company, any other guarantor (including
      any other Guarantor) of the Guaranteed Obligations or any other Person,
      (ii) proceed against or exhaust any security held from Company, any such
      other guarantor or any other Person, (iii) proceed against or have resort
      to any balance of any Deposit Account or credit on the books of any Beneficiary
      in favor of Company or any other Person, or (iv) pursue any other remedy in
      the
      power of any Beneficiary whatsoever; (b) any defense arising by reason of the
      incapacity, lack of authority or any disability or other defense of Company
      or
      any other Guarantor including any defense based on or arising out of the lack
      of
      validity or the unenforceability of the Guaranteed Obligations or any agreement
      or instrument relating thereto or by reason of the cessation of the liability
      of
      Company or any other Guarantor from any cause other than payment in full of
      the
      Guaranteed Obligations; (c) any defense based upon any statute or rule of law
      which provides that the obligation of a surety must be neither larger in amount
      nor in other respects more burdensome than that of the principal; (d) any
      defense based upon any Beneficiary’s errors or omissions in the administration
      of the Guaranteed Obligations, except behavior which amounts to bad faith;
      (e)
      (i) any principles or provisions of law, statutory or otherwise, which are
      or
      might be in conflict with the terms hereof and any legal or equitable discharge
      of such Guarantor’s obligations hereunder, (ii) the benefit of any statute of
      limitations affecting such Guarantor’s liability hereunder or the enforcement
      hereof, (iii) any rights to set-offs, recoupments and counterclaims, and
      (iv) promptness, diligence and any requirement that any Beneficiary
      protect, secure, perfect or insure any security interest or lien or any property
      subject thereto; (f) notices, demands, presentments, protests, notices of
      protest, notices of dishonor and notices of any action or inaction, including
      acceptance hereof, notices of default hereunder, the Hedging Contracts or any
      agreement or instrument related thereto, notices of any renewal, extension
      or
      modification of the Guaranteed Obligations or any agreement related thereto,
      notices of any extension of credit to Company and notices of any of the matters
      referred to in Section 7.4 and any right to consent to any thereof; and (g)
      any defenses or benefits that may be derived from or afforded by law which
      limit
      the liability of or exonerate guarantors or sureties, or which may conflict
      with
      the terms hereof.

     

    7.6
      Guarantors’
      Rights of Subrogation, Contribution, etc. Until
      the
      Guaranteed Obligations shall have been indefeasibly paid in full and the
      Commitments shall have terminated, each Guarantor hereby waives any claim,
      right
      or remedy, direct or indirect, that such Guarantor now has or may hereafter
      have
      against Company or any other Guarantor or any of its assets in connection with
      this Guaranty or the performance by such Guarantor of its obligations hereunder,
      in each case whether such claim, right or remedy arises in equity, under
      contract, by statute, under common law or otherwise and including without
      limitation (a) any right of subrogation, reimbursement or indemnification
      that such Guarantor now has or may hereafter have against Company with respect
      to the Guaranteed Obligations, (b) any right to enforce, or to participate
      in, any claim, right or remedy that any Beneficiary now has or may hereafter
      have against Company, and (c) any benefit of, and any right to participate
      in, any collateral or security now or hereafter held by any Beneficiary. In
      addition, until the Guaranteed Obligations shall have been indefeasibly paid
      in
      full and the Commitments shall have terminated, each Guarantor shall withhold
      exercise of any right of contribution such Guarantor may have against any other
      guarantor (including any other Guarantor) of the Guaranteed Obligations,
      including, without limitation, any such right of contribution as contemplated
      by
      Section 7.2. Each Guarantor further agrees that, to the extent the waiver
      or agreement to withhold the exercise of its rights of subrogation,
      reimbursement, indemnification and contribution as set forth herein is found
      by
      a court of competent jurisdiction to be void or voidable for any reason, any
      rights of subrogation, reimbursement or indemnification such Guarantor may
      have
      against Company or against any collateral or security, and any rights of
      contribution such Guarantor may have against any such other guarantor, shall
      be
      junior and subordinate to any rights any Beneficiary may have against Company,
      to all right, title and interest any Beneficiary may have in any such collateral
      or security, and to any right any Beneficiary may have against such other
      guarantor. If any amount shall be paid to any Guarantor on account of any such
      subrogation, reimbursement, indemnification or contribution rights at any time
      when all Guaranteed Obligations shall not have been finally and indefeasibly
      paid in full, such amount shall be held in trust for Administrative Agent on
      behalf of Beneficiaries and shall forthwith be paid over to Administrative
      Agent
      for the benefit of Beneficiaries to be credited and applied against the
      Guaranteed Obligations, whether matured or unmatured, in accordance with the
      terms hereof.

     

    
      
        
        

      

      
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    7.7
      Subordination
      of Other Obligations.
      Any
      Indebtedness of Company or any Guarantor now or hereafter held by any Guarantor
      (the “Obligee
      Guarantor”)
      is
      hereby subordinated in right of payment to the Guaranteed Obligations, and
      any
      such indebtedness collected or received by the Obligee Guarantor after an Event
      of Default has occurred and is continuing shall be held in trust for
      Administrative Agent on behalf of Beneficiaries and shall forthwith be paid
      over
      to Administrative Agent for the benefit of Beneficiaries to be credited and
      applied against the Guaranteed Obligations but without affecting, impairing
      or
      limiting in any manner the liability of the Obligee Guarantor under any other
      provision hereof.

     

    7.8
      Continuing
      Guaranty.
      This
      Guaranty is a continuing guaranty and shall remain in effect until all of the
      Guaranteed Obligations shall have been paid in full and the Commitments shall
      have terminated. Each Guarantor hereby irrevocably waives any right to revoke
      this Guaranty as to future transactions giving rise to any Guaranteed
      Obligations.

     

    7.9
      Authority
      of Guarantors or Company.
      It is
      not necessary for any Beneficiary to inquire into the capacity or powers of
      any
      Guarantor or Company or the officers, directors or any agents acting or
      purporting to act on behalf of any of them.

     

    7.10
      Financial
      Condition of Company.
      Any
      Credit Extension may be made to Company or continued from time to time, and
      any
      Hedging Contracts may be entered into from time to time, in each case without
      notice to or authorization from any Guarantor regardless of the financial or
      other condition of Company at the time of any such grant or continuation or
      at
      the time such Hedging Contract is entered into, as the case may be. No
      Beneficiary shall have any obligation to disclose or discuss with any Guarantor
      its assessment, or any Guarantor’s assessment, of the financial condition of
      Company. Each Guarantor acknowledges that it has adequate means to obtain
      information from Company on a continuing basis concerning the financial
      condition of Company and its ability to perform its obligations under the
      Transaction Documents and the Hedging Contracts, and each Guarantor assumes
      the
      responsibility for being and keeping informed of the financial condition of
      Company and of all circumstances bearing upon the risk of nonpayment of the
      Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty
      on the part of any Beneficiary to disclose any matter, fact or thing relating
      to
      the business, operations or conditions of Company now known or hereafter known
      by any Beneficiary.

    
      
        
        

      

      
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    7.11
      Bankruptcy,
      etc.

     

    (a) So
      long
      as any Guaranteed Obligations remain outstanding, no Guarantor shall, without
      the prior written consent of Administrative Agent acting pursuant to the
      instructions of Required Lenders, commence or join with any other Person in
      commencing any bankruptcy, reorganization or insolvency case or proceeding
      of or
      against Company or any other Guarantor. The obligations of Guarantors hereunder
      shall not be reduced, limited, impaired, discharged, deferred, suspended or
      terminated by any case or proceeding, voluntary or involuntary, involving the
      bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement
      of Company or any other Guarantor or by any defense which Company or any other
      Guarantor may have by reason of the order, decree or decision of any court
      or
      administrative body resulting from any such proceeding.

     

    (b) Each
      Guarantor acknowledges and agrees that any interest on any portion of the
      Guaranteed Obligations which accrues after the commencement of any case or
      proceeding referred to in clause (a) above (or, if interest on any portion
      of the Guaranteed Obligations ceases to accrue by operation of law by reason
      of
      the commencement of such case or proceeding, such interest as would have accrued
      on such portion of the Guaranteed Obligations if such case or proceeding had
      not
      been commenced) shall be included in the Guaranteed Obligations because it
      is
      the intention of Guarantors and Beneficiaries that the Guaranteed Obligations
      which are guaranteed by Guarantors pursuant hereto should be determined without
      regard to any rule of law or order which may relieve Company of any portion
      of
      such Guaranteed Obligations. Guarantors will permit any trustee in bankruptcy,
      receiver, debtor in possession, assignee for the benefit of creditors or similar
      person to pay Administrative Agent, or allow the claim of Administrative Agent
      in respect of, any such interest accruing after the date on which such case
      or
      proceeding is commenced.

     

    (c) In
      the
      event that all or any portion of the Guaranteed Obligations are paid by Company,
      the obligations of Guarantors hereunder shall continue and remain in full force
      and effect or be reinstated, as the case may be, in the event that all or any
      part of such payment(s) are rescinded or recovered directly or indirectly from
      any Beneficiary as a preference, fraudulent transfer or otherwise, and any
      such
      payments which are so rescinded or recovered shall constitute Guaranteed
      Obligations for all purposes hereunder.

    
      
        
        

      

      
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    7.12
      California
      Waivers.
      Guarantors hereby waive and agree not to assert or take advantage
      of:

     

    (a) any
      suretyship defenses and suretyship rights of every nature otherwise available
      under California law and the laws of any other state, including, without
      limitation, all defenses and rights arising under Sections 2787 through 2855
      (the “Suretyship
      Provisions”)
      of the
      California Civil Code (the “Civil
      Code”)
      and any
      successor provisions to those Sections. Without limiting the generality of
      the
      foregoing, each Guarantor hereby acknowledges its understanding that the
      Suretyship Provisions provide various partial or complete defenses to the
      recovery by Lender from such Guarantor and/or grant such Guarantor rights the
      enforcement of which could reduce or eliminate entirely such Guarantor’s
      liability hereunder to Lender. Among the defenses and rights contained in the
      Suretyship Provisions are the following:

     

    (i)
      Section
      2809 of the Civil Code, which provides, in part, that the obligation of a surety
      must not be either larger in amount or in other respects more burdensome than
      that of the principal;

     

    (ii)
      Section
      2810 of the Civil Code, which provides, in part, that a surety is not liable
      if
      for any reason other than the mere personal disability of the principal there
      is
      no liability upon the part of the principal at the time of execution of the
      contract, or the liability of the principal thereafter ceases;

     

    (iii)
      Section
      2819 of the Civil Code, which provides, in part, that a surety is exonerated
      if
      the creditor alters the original obligation of the principal without the consent
      of the surety;

     

    (iv)
      Section
      2845 of the Civil Code, which provides, in part, that a surety is exonerated
      to
      the extent that the creditor fails to proceed against the principal, or to
      pursue any other remedy in the creditor’s power which the surety cannot pursue
      and which would lighten the surety’s burden;

     

    (v)
      Section
      2846 of the Civil Code, which provides that a surety may compel his principal
      to
      perform the obligation when due;

     

    (vi)
      Section
      2847 of the Civil Code, which provides, in part, that if a surety satisfies
      the
      principal obligation, or any part thereof, the principal is obligated to
      reimburse the surety for the amounts paid by the surety;

     

    (vii)
      Section
      2848 of the Civil Code, which provides, in part, that a surety, upon
      satisfaction of the obligation of the principal is entitled to enforce remedies
      which the creditor then has against the principal;

     

    (viii)
      Section
      2849 of the Civil Code, which provides, in part, that a surety is entitled
      to
      the benefit of security held by the creditor for the performance of the
      principal obligation held by the creditor;

     

    (ix)
      Section
      2850 of the Civil Code, which provides, in part, that whenever the property
      of a
      surety is hypothecated with property of the principal, the surety is entitled
      to
      have the property of the principal first applied to the discharge of the
      obligation; and

     

    
      
        
        

      

      
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    (x)
      Section
      2822 of the Civil Code, which provides, in part, for a right to have the
      principal designate the portion of any obligation to be satisfied by the surety
      in the event that the principal provides partial satisfaction of such
      obligation.

     

    (b) all
      rights and defenses that any Guarantor may have because the Borrower’s debt is
      secured by real property. This means among other things: 

     

    (i)
      Lender
      may collect from any Guarantor without first foreclosing on any real or personal
      property collateral pledged by Borrower.

     

    (ii)
      If
      Lender
      forecloses on any real property collateral pledged by Borrower:

     

    (A) The
      amount of the debt may be reduced only by the price for which that collateral
      is
      sold at the foreclosure sale, even if the collateral is worth more than the
      sale
      price.

     

    (B) Lender
      may collect from any Guarantor even if Lender, by foreclosing on the real
      property collateral, has destroyed any right such Guarantor may have to collect
      from Borrower.

     

    This
      is
      an unconditional and irrevocable waiver of any rights and defenses any Guarantor
      may have because the Borrower’s debt is secured by real property. These rights
      and defenses include, but are not limited to, any rights or defenses based
      upon
      Section 580a, 580b, 580d or 726 of the California
      Code of Civil Procedure.

     

    (c) all
      rights and defenses arising out of an election of remedies by Lender, even
      though that election of remedies, such as nonjudicial foreclosure with respect
      to security for a guaranteed obligation, has destroyed the Guarantor’s rights of
      subrogation and reimbursement against the principal by the operation of Section
      580d of the Code of Civil Procedure or otherwise.

     

    7.13
      Collateral
      Subject to Intercreditor Agreement.
      All
      Collateral granted by a Guarantor to pursuant to the Security Documents is
      subject to the terms of the Intercreditor Agreement.

     

    SECTION
      8 EVENTS
      OF DEFAULT

     

    8.1
      Events
      of Default.
      If any
      one or more of the following conditions or events (each herein called an
“Event
      of Default”)
      shall
      occur:

     

    (a) Any
      Credit Party fails to pay the principal amount of any Loan when due and payable,
      whether at a date for the payment of a fixed installment or as a contingent
      or
      other payment becomes due and payable or as a result of acceleration or
      otherwise, and such failure is not remedied in full within one (1) Business
      Day
      thereafter;

     

    
      
        
        

      

      
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    (b) Any
      Credit Party fails to pay any Obligation (other than the Obligations described
      in subsection (a) above) when due and payable, whether at a date for the payment
      of a fixed installment or as a contingent or other payment becomes due and
      payable or as a result of acceleration or otherwise, within two (2) Business
      Days after the same becomes due in the case of interest or fifteen (15) days
      thereafter in the case of any other Obligation;

     

    (c) Any
      “default” or “event of default” occurs under any Transaction Document which
      defines either such term, and the same is not remedied within the applicable
      period of grace (if any) provided in such Transaction Document; 

     

    (d) Any
      Credit Party fails to duly observe, perform or comply with any covenant,
      agreement or provision of Section 5.4, 5.22, 5.27, or any part of Section 6;
      

     

    (e) Any
      Credit Party fails (other than as referred to in subsections (a), (b), (c)
      or
      (d) above) to duly observe, perform or comply with any covenant, agreement,
      condition or provision of any Transaction Document, and such failure remains
      unremedied for a period of thirty (30) days after notice of such failure is
      given by Administrative Agent to Company; 

     

    (f) Any
      certification, representation or warranty previously, presently or hereafter
      made in writing by or on behalf of any Credit Party in connection with any
      Transaction Document shall prove to have been false or incorrect in any material
      respect on any date on or as of which made;

     

    (g) Any
      Credit Party fails to duly observe, perform or comply with any agreement with
      any Person or any term or condition of any instrument, if such agreement or
      instrument is materially significant to Company or to Company and its
      Subsidiaries on a Consolidated basis or materially significant to any Guarantor,
      and such failure is not remedied within the applicable period of grace (if
      any)
      provided in such agreement or instrument;

     

    (h) Any
      Credit Party (i) fails to pay any portion, when such portion is due, of any
      of
      its Revolving Indebtedness or any of its other Indebtedness in excess of $50,000
      (other than (i) the Obligations under the Loan Documents, and (ii) Liabilities
      described in Section 5.7 that are not required to be paid so long as the
      Credit Party is in good faith contesting the validity thereof by appropriate
      proceedings), or (ii) breaches or defaults in the performance of any agreement
      or instrument by which the Revolving Indebtedness or any such Indebtedness
      is
      issued, evidenced, governed, or secured, and any such failure, breach or default
      continues beyond any applicable period of grace provided therefor;

     

    (i) Either
      (i) any “accumulated funding deficiency” (as defined in Section 412(a) of the
      Internal Revenue Code) in excess of $50,000 exists with respect to any ERISA
      Plan, whether or not waived by the Secretary of the Treasury or his delegate,
      or
      (ii) any Termination Event occurs with respect to any ERISA Plan and the then
      current value of such ERISA Plan’s benefit liabilities exceeds the then current
      value of such ERISA Plan’s assets available for the payment of such benefit
      liabilities by more than $50,000 (or in the case of a Termination Event
      involving the withdrawal of a substantial employer, the withdrawing employer’s
      proportionate share of such excess exceeds such amount);

     

    
      
        
        

      

      
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    (j) Any
      Credit Party:

     

    (i)
      suffers
      the entry against it of a judgment, decree or order for relief by a Governmental
      Authority of competent jurisdiction in an involuntary proceeding commenced
      under
      any applicable bankruptcy, insolvency or other similar Law of any jurisdiction
      now or hereafter in effect, including the federal Bankruptcy Code, as from
      time
      to time amended, or has any such proceeding commenced against it which remains
      undismissed for a period of sixty (60) days; or

     

    (ii)
      commences
      a voluntary case under any applicable bankruptcy, insolvency or similar Law
      now
      or hereafter in effect, including the federal Bankruptcy Code, as from time
      to
      time amended; or applies for or consents to the entry of an order for relief
      in
      an involuntary case under any such Law; or makes a general assignment for the
      benefit of creditors; or fails generally to pay (or admits in writing its
      inability to pay) its debts as such debts become due; or takes corporate or
      other action to authorize any of the foregoing; or 

     

    (iii)
      suffers
      the appointment of or taking possession by a receiver, liquidator, assignee,
      custodian, trustee, sequestrator or similar official of all or a substantial
      part of its assets or of any part of the Collateral in a proceeding brought
      against or initiated by it, and such appointment or taking possession is neither
      made ineffective nor discharged within thirty days after the making thereof,
      or
      such appointment or taking possession is at any time consented to, requested
      by,
      or acquiesced to by it; or

     

    (iv)
      suffers
      the entry against it of a final judgment for the payment of money in excess
      of
      $250,000 (not covered by insurance satisfactory to Administrative Agent in
      its
      discretion), unless (A) the same is discharged within the period ending on
      the
      earlier of the thirtieth day after the date of entry thereof or the fifth day
      prior to any scheduled execution thereon, or (B) an appeal or appropriate
      proceeding for review thereof is taken within such period and a stay of
      execution pending such appeal is obtained; or 

     

    (v)
      suffers
      a
      writ or warrant of attachment or any similar process to be issued by any
      Governmental Authority for an amount in excess of $50,000 against all or any
      substantial part of its assets or any part of the Collateral, and such writ
      or
      warrant of attachment or any similar process is not stayed or released within
      the fifth day prior to any scheduled execution thereon, or after any stay is
      vacated or set aside or the fifth day prior to any scheduled execution
      thereon;

     

    (k) At
      any
      time after the execution and delivery thereof, (i) the Guaranty for any reason,
      other than the satisfaction in full of all Obligations, shall cease to be in
      full force and effect with respect to every Guarantor (other than in accordance
      with its terms) or shall be declared to be null and void or any Guarantor shall
      repudiate its obligations thereunder, (ii) this Agreement or any Security
      Document ceases to be in full force and effect (other than by reason of a
      release of Collateral in accordance with the terms hereof or thereof or the
      satisfaction in full of the Obligations in accordance with the terms hereof)
      or
      shall be declared null and void, or Administrative Agent shall not have or
      shall
      cease to have a valid and perfected Lien in any Collateral purported to be
      covered by the Security Documents with the priority required by the relevant
      Security Document, in each case for any reason other than the failure of
      Administrative Agent or any Secured Party to take any action within its control,
      or (iii) any Credit Party shall contest the validity or enforceability of any
      Transaction Document in writing or deny in writing that it has any further
      liability, including with respect to future advances by Lenders, under any
      Transaction Document to which it is a party, 

    
      
        
        

      

      
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    (l) The
      occurrence of any Material Adverse Effect, 

     

    (m) The
      occurrence of any “Event of Default” or “Termination Event” under the First Lien
      Hedging Contract by or with respect to Company or any Affiliate of Company,
      or

     

    (n) The
      occurrence of any AMI Violation;

     

    THEN,
      (1)
      upon the occurrence of any Event of Default described in Section 8.1(j)
      (i), (ii) or (iii), automatically, and (2) upon the occurrence of any other
      Event of Default, at the request of (or with the consent of) Required Lenders,
      upon notice to Company by Administrative Agent, (A) the Commitments, if
      any, shall immediately terminate; (B) all Obligations, including the unpaid
      principal amount of and accrued interest on the Loans, shall immediately become
      due and payable, in each case without presentment, demand, protest or other
      requirements of any kind, all of which are hereby expressly waived by each
      Credit Party; (C) subject to the terms of the Intercreditor Agreement,
      Administrative Agent may enforce any and all Liens and security interests
      created pursuant to Security Documents; and (D) subject to the terms of the
      Intercreditor Agreement, Administrative Agent may enforce its other rights
      and
      remedies under the Transaction Documents or applicable Law.

     

    8.2
      Application
      of Funds.
      After the exercise of remedies provided for in Section 8.1 (or after the Loans
      have automatically become immediately due and payable as set forth in Section
      8.1) and subject to the terms of the Intercreditor Agreement, any amounts
      received on account of the Obligations shall be applied by Administrative Agent
      in the following order:

     

    First,
      to
      payment of that portion of the Obligations constituting fees, indemnities,
      expenses and other amounts (including reasonable and documented fees, charges
      and disbursements of counsel to Administrative Agent and amounts payable under
      Section 2.17) payable to Administrative Agent in its capacity as
      such;

     

    Second,
      to
      payment of that portion of the Obligations constituting fees, indemnities and
      other amounts (other than principal and interest) payable to Lenders (including
      reasonable and documented fees, charges and disbursements of counsel to the
      respective Lenders and amounts payable under Sections 2.16 and 2.17),
      ratably among them in proportion to the amounts described in this clause Second
      payable to them;

     

    Third,
      to the
      payment of all obligations in respect of the First Lien Hedging Obligations
      payable to J. Aron & Company (or its successors and assigns);

     

    
      
        
        

      

      
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    Fourth,
      to
      payment of accrued and unpaid interest on the Loans and the other Obligations,
      ratably among Lenders in proportion to the respective amounts described in
      this
      clause Fourth payable to them;

     

    Fifth,
      to
      payment of unpaid principal of the Loans and the other Obligations, ratably
      among Lenders in proportion to the respective amounts described in this clause
      Fifth held by them; and

     

    Last,
      the
      balance, if any, after all of the Obligations have been indefeasibly paid in
      full, to Company or as otherwise required by Law.

     

    Upon
      the
      execution and delivery of the Intercreditor Agreement, the provisions of clause
      Third above shall cease to be of any force or effect.

     

    SECTION
      9 AGENTS

     

    9.1
      Appointment
      of Agents. 
J.
      Aron is hereby appointed Syndication Agent hereunder, and each Lender hereby
      authorizes Syndication Agent to act as its agent in accordance with the terms
      hereof and the other Transaction Documents. J. Aron is hereby appointed
      Administrative Agent hereunder and under the other Transaction Documents and
      each Lender hereby authorizes Administrative Agent to act as its agent in
      accordance with the terms hereof and the other Transaction Documents. Each
      Agent
      hereby agrees to act upon the express conditions contained herein and the other
      Transaction Documents, as applicable. The provisions of this Section 9 are
      solely for the benefit of Agents and Lenders and no Credit Party shall have
      any
      rights as a third party beneficiary of any of the provisions thereof. In
      performing its functions and duties hereunder, each Agent shall act solely
      as an
      agent of Lenders and does not assume and shall not be deemed to have assumed
      any
      obligation towards or relationship of agency or trust with or for Company or
      any
      of its Subsidiaries. Syndication Agent, without consent of or notice to any
      party hereto, may assign any and all of its rights or obligations hereunder
      to
      any of its Affiliates. As of the Closing Date, J. Aron, in its capacity as
      Syndication Agent, shall not have any obligations hereunder but shall be
      entitled to all benefits of this Section 9.

     

    9.2
      Powers
      and Duties.
      Each
      Lender irrevocably authorizes each Agent to take such action on such Lender’s
      behalf and to exercise such powers, rights and remedies hereunder and under
      the
      other Transaction Documents as are specifically delegated or granted to such
      Agent by the terms hereof and thereof, together with such powers, rights and
      remedies as are reasonably incidental thereto. Each Agent shall have only those
      duties and responsibilities that are expressly specified herein and the other
      Transaction Documents. Each Agent may exercise such powers, rights and remedies
      and perform such duties by or through its agents or employees. No Agent shall
      have, by reason hereof or any of the other Transaction Documents, a fiduciary
      relationship in respect of any Lender; and nothing herein or any of the other
      Transaction Documents, expressed or implied, is intended to or shall be so
      construed as to impose upon any Agent any obligations in respect hereof or
      any
      of the other Transaction Documents except as expressly set forth herein or
      therein.

     

    
      
        
        

      

      
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    9.3
      General
      Immunity.
      

     

    (a) No
      Responsibility for Certain Matters.
      No
      Agent shall be responsible to any Lender for the execution, effectiveness,
      genuineness, validity, enforceability, collectability or sufficiency hereof
      or
      any other Transaction Document or for any representations, warranties, recitals
      or statements made herein or therein or made in any written or oral statements
      or in any financial or other statements, instruments, reports or certificates
      or
      any other documents furnished or made by any Agent to Lenders or by or on behalf
      of any Credit Party to any Agent or any Lender in connection with the
      Transaction Documents and the transactions contemplated thereby or for the
      financial condition or business affairs of any Credit Party or any other Person
      liable for the payment of any Obligations, nor shall any Agent be required
      to
      ascertain or inquire as to the performance or observance of any of the terms,
      conditions, provisions, covenants or agreements contained in any of the
      Transaction Documents or as to the use of the proceeds of the Loans or as to
      the
      existence or possible existence of any Event of Default or Default or to make
      any disclosures with respect to the foregoing. Anything contained herein to
      the
      contrary notwithstanding, Administrative Agent shall not have any liability
      arising from confirmations of the amount of outstanding Loans or the component
      amounts thereof.

     

    (b) Exculpatory
      Provisions.
      No
      Agent nor any of its officers, partners, directors, employees or agents shall
      be
      liable to any Lender or any Credit Party for any action taken or omitted by
      any
      Agent under or in connection with any of the Transaction Documents except to
      the
      extent caused by such Agent’s gross negligence or willful
      misconduct.
      Each
      Agent shall be entitled to refrain from any act or the taking of any action
      (including the failure to take an action) in connection herewith or any of
      the
      other Transaction Documents or from the exercise of any power, discretion or
      authority vested in it hereunder or thereunder unless and until such Agent
      shall
      have received instructions in respect thereof from Required Lenders (or such
      other Lenders as may be required to give such instructions under Section 10.5)
      and, upon receipt of such instructions from Required Lenders (or such other
      Lenders, as the case may be), such Agent shall be entitled to act or (where
      so
      instructed) refrain from acting, or to exercise such power, discretion or
      authority, in accordance with such instructions. Without prejudice to the
      generality of the foregoing, (i) each Agent shall be entitled to rely, and
      shall be fully protected in relying, upon any communication, instrument or
      document believed by it to be genuine and correct and to have been signed or
      sent by the proper Person or Persons, and shall be entitled to rely and shall
      be
      protected in relying on opinions and judgments of attorneys (who may be
      attorneys for Company and its Subsidiaries), accountants, experts and other
      professional advisors selected by it; and (ii) no Lender shall have any
      right of action whatsoever against any Agent as a result of such Agent acting
      or
      (where so instructed) refraining from acting hereunder or any of the other
      Transaction Documents in accordance with the instructions of Required Lenders
      (or such other Lenders as may be required to give such instructions under
      Section 10.5).

     

    9.4
      Agents
      Entitled to Act as Lender.
      The
      agency hereby created shall in no way impair or affect any of the rights and
      powers of, or impose any duties or obligations upon, any Agent in its individual
      capacity as a Lender hereunder. With respect to its participation in the Loans
      and the Letters of Credit, each Agent shall have the same rights and powers
      hereunder as any other Lender and may exercise the same as if it were not
      performing the duties and functions delegated to it hereunder, and the term
      “Lender” shall, unless the context clearly otherwise indicates, include each
      Agent in its individual capacity. Any Agent and its Affiliates may accept
      deposits from, lend money to, own securities of, and generally engage in any
      kind of banking, trust, financial advisory or other business with Company or
      any
      of its Affiliates as if it were not performing the duties specified herein,
      and
      may accept fees and other consideration from Company for services in connection
      herewith and otherwise without having to account for the same to
      Lenders.

     

    
      
        
        

      

      
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    9.5
      Lenders’
      Representations, Warranties and Acknowledgment. 

     

    (a) Each
      Lender represents and warrants that it has made its own independent
      investigation of the financial condition and affairs of Company and its
      Subsidiaries in connection with Credit Extensions hereunder and that it has
      made
      and shall continue to make its own appraisal of the creditworthiness of Company
      and its Subsidiaries. No Agent shall have any duty or responsibility, either
      initially or on a continuing basis, to make any such investigation or any such
      appraisal on behalf of Lenders or to provide any Lender with any credit or
      other
      information with respect thereto, whether coming into its possession before
      the
      making of the Loans or at any time or times thereafter, and no Agent shall
      have
      any responsibility with respect to the accuracy of or the completeness of any
      information provided to Lenders.

     

    (b) Each
      Lender, by delivering its signature page to this Agreement and funding its
      Loan
      on the Closing Date, shall be deemed to have acknowledged receipt of, and
      consented to and approved, each Transaction Document and each other document
      required to be approved by any Agent, Required Lenders or Lenders, as applicable
      on the Closing Date.

     

    9.6
      Right
      to Indemnity.
      Each
      Lender, in proportion to its Pro Rata Share, severally agrees to indemnify
      each
      Agent, to the extent that such Agent shall not have been reimbursed by any
      Credit Party, for and against any and all liabilities, obligations, losses,
      damages, penalties, actions, judgments, suits, costs, expenses (including
      counsel fees and disbursements) or disbursements of any kind or nature
      whatsoever which may be imposed on, incurred by or asserted against such Agent
      in exercising its powers, rights and remedies or performing its duties hereunder
      or under the other Transaction Documents or otherwise in its capacity as such
      Agent in any way relating to or arising out of this Agreement or the other
      Transaction Documents, INCLUDING
      WITHOUT LIMITATION ANY OF THE FOREGOING CAUSED, IN WHOLE OR IN PART, BY THE
      NEGLIGENCE OF SUCH AGENT,
      provided,
      no
      Lender shall be liable for any portion of such liabilities, obligations, losses,
      damages, penalties, actions, judgments, suits, costs, expenses or disbursements
      resulting from such Agent’s gross negligence or willful misconduct. If any
      indemnity furnished to any Agent for any purpose shall, in the opinion of such
      Agent, be insufficient or become impaired, such Agent may call for additional
      indemnity and cease, or not commence, to do the acts indemnified against until
      such additional indemnity is furnished; provided,
      in no
      event shall this sentence require any Lender to indemnify any Agent against
      any
      liability, obligation, loss, damage, penalty, action, judgment, suit, cost,
      expense or disbursement in excess of such Lender’s Pro Rata Share thereof; and
provided further,
      this
      sentence shall not be deemed to require any Lender to indemnify any Agent
      against any liability, obligation, loss, damage, penalty, action, judgment,
      suit, cost, expense or disbursement described in the proviso in the immediately
      preceding sentence.

     

    9.7
      Successor
      Administrative Agent.
      Administrative Agent may resign at any time by giving thirty (30) days’ prior
      written notice thereof to Lenders and Company, and Administrative Agent may
      be
      removed at any time with or without cause by an instrument or concurrent
      instruments in writing delivered to Company and Administrative Agent and signed
      by Required Lenders. Upon any such notice of resignation or any such removal,
      Required Lenders shall have the right, upon five Business Days’ notice to
      Company, to appoint a successor Administrative Agent. Upon the acceptance of
      any
      appointment as Administrative Agent hereunder by a successor Administrative
      Agent, that successor Administrative Agent shall thereupon succeed to and become
      vested with all the rights, powers, privileges and duties of the retiring or
      removed Administrative Agent and the retiring or removed Administrative Agent
      shall promptly (i) transfer to such successor Administrative Agent all
      sums, Securities and other items of Collateral held under the Security
      Documents, together with all records and other documents necessary or
      appropriate in connection with the performance of the duties of the successor
      Administrative Agent under the Transaction Documents, and (ii) execute and
      deliver to such successor Administrative Agent such amendments to financing
      statements, and take such other actions, as may be necessary or appropriate
      in
      connection with the assignment to such successor Administrative Agent of the
      security interests created under the Security Documents, whereupon such retiring
      or removed Administrative Agent shall be discharged from its duties and
      obligations hereunder.

     

    
      
        
        

      

      
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    9.8
      Security
      Documents and Guaranty. 

     

    (a) Agents
      under Security Documents and Guaranty.
      Each
      Lender hereby further authorizes Administrative Agent on behalf of and for
      the
      benefit of Lenders, to be the agent for and representative of Lenders with
      respect to the Intercreditor Agreement, the Guaranty, the Collateral and the
      Security Documents. Subject to Section 10.5, without further written consent
      or
      authorization from Lenders, Administrative Agent may execute any documents
      or
      instruments necessary to (i) release any Lien encumbering any item of
      Collateral that is the subject of a sale or other disposition of assets
      permitted hereby or to which Required Lenders (or such other Lenders as may
      be
      required to give such consent under Section 10.5) have otherwise consented
      or
      (ii) release any Guarantor from the Guaranty pursuant to Section 7.12 or
      with respect to which Required Lenders (or such other Lenders as may be required
      to give such consent under Section 10.5) have otherwise consented.

     

    (b) Right
      to Realize on Collateral and Enforce Guaranty.
      Anything contained in any of the Transaction Documents to the contrary
      notwithstanding, Company, Administrative Agent and each Lender hereby agree
      that
      (i) no Lender shall have any right individually to realize upon any of the
      Collateral or to enforce the Guaranty, it being understood and agreed that
      all
      powers, rights and remedies hereunder may be exercised solely by Administrative
      Agent, on behalf of Lenders in accordance with the terms hereof and all powers,
      rights and remedies under the Security Documents may be exercised solely by
      Administrative Agent, and (ii) in the event of a foreclosure by Administrative
      Agent on any of the Collateral pursuant to a public or private sale,
      Administrative Agent or any Lender may be the purchaser of any or all of such
      Collateral at any such sale and Administrative Agent, as agent for and
      representative of Secured Parties (but not any Lender or Lenders in its or
      their
      respective individual capacities unless Required Lenders shall otherwise agree
      in writing) shall be entitled, for the purpose of bidding and making settlement
      or payment of the purchase price for all or any portion of the Collateral sold
      at any such public sale, to use and apply any of the Obligations as a credit
      on
      account of the purchase price for any collateral payable by Administrative
      Agent
      at such sale.

     

    
      
        
        

      

      
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    (c) Each
      Lender hereby further authorizes Administrative Agent, on behalf of Lenders
      to
      subordinate any Lien on any property granted to or held by the Administrative
      Agent under any Transaction Document to the holder of any Lien on such property
      that is permitted by Section 6.2(a)(iv) or (v).

     

    SECTION
      10 MISCELLANEOUS

     

    10.1
      Notices.
      Unless
      otherwise specifically provided herein, any notice or other communication herein
      required or permitted to be given to a Credit Party, Syndication Agent or
      Administrative Agent shall be sent to such Person’s address as set forth on
      Appendix B or in the other relevant Transaction Document, and in the case of
      any
      Lender, the address as indicated on Appendix B or otherwise indicated to
      Administrative Agent in writing. Each notice hereunder shall be in writing
      and
      may be personally served, telexed or sent by telefacsimile or United States
      mail
      or courier service and shall be deemed to have been given when delivered in
      person or by courier service and signed for against receipt thereof, upon
      receipt of telefacsimile or telex, or three Business Days after depositing
      it in
      the United States mail with postage prepaid and properly addressed; provided,
      no
      notice to any Agent shall be effective until received by such
      Agent.

     

    10.2
      Expenses.
      Whether
      or not the transactions contemplated hereby shall be consummated, Company agrees
      to pay promptly (and in any event within 30 days after receipt of invoice or
      other demand therefor): (a) all the actual and reasonable costs and
      expenses of preparation of the Transaction Documents and any proposed or
      completed consents, amendments, waivers or other modifications thereto;
      (b) all the costs of furnishing all opinions by counsel for Company and the
      other Credit Parties; (c) the reasonable and documented fees, expenses and
      disbursements of counsel to Agents, Royalty Owner, and Warrant Owner (in each
      case including allocated costs of internal counsel and reasonable and documented
      travel costs and expenses) in connection with the negotiation, preparation,
      execution and administration of the Transaction Documents and any proposed
      or
      completed consents, amendments, waivers or other modifications thereto and
      any
      other documents or matters requested by Company; (d) all the actual costs
      and reasonable expenses of creating and perfecting Liens in favor of
      Administrative Agent, for the benefit of Lenders pursuant hereto, including
      filing and recording fees, expenses and taxes, stamp or documentary taxes,
      search fees, and reasonable and documented fees, expenses and disbursements
      of
      counsel to each Agent and of counsel providing any opinions that any Agent
      or
      Required Lenders may request in respect of the Collateral or the Liens created
      pursuant to the Security Documents; (e) all the actual costs and reasonable
      fees, expenses and disbursements of any auditors, accountants, consultants
      or
      appraisers; (f) all the actual costs and reasonable expenses (including the
      reasonable and documented fees, expenses and disbursements of any appraisers,
      consultants, advisors and agents employed or retained by Administrative Agent,
      Royalty Owner, Warrant Owner, and their counsel) in connection with the custody
      or preservation of the ORRI or any of the Collateral; (g) all other actual
      and reasonable costs and expenses incurred by Royalty Owner, Warrant Owner,
      or
      each Agent in connection with the syndication of the Loans and Commitments
      and
      the negotiation, preparation and execution of the Transaction Documents and
      any
      consents, amendments, waivers or other modifications thereto and the
      transactions contemplated thereby; and (h) after the occurrence of a Default
      or
      an Event of Default, all costs and expenses, including reasonable and documented
      attorneys’ fees (including allocated costs of internal counsel) and costs of
      settlement, incurred by Royalty Owner, Warrant Owner or any Agent or Lender
      in
      enforcing any Obligations of or in collecting any payments due from any Credit
      Party hereunder or under the other Transaction Documents by reason of such
      Default or Event of Default (including in connection with the sale of,
      collection from, or other realization upon any of the Collateral or the
      enforcement of the Guaranty) or in connection with any refinancing or
      restructuring of the credit arrangements provided hereunder in the nature of
      a
“work-out” or pursuant to any insolvency or bankruptcy cases or
      proceedings.

     

    
      
        
        

      

      
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    10.3
      Indemnity,
      WAIVER OF PUNITIVE DAMAGES. 

     

    (a) In
      addition to the payment of expenses pursuant to Section 10.2, whether or
      not the transactions contemplated hereby shall be consummated, each Credit
      Party
      agrees to defend (subject to Indemnitees’ selection of counsel), indemnify, pay
      and hold harmless, Royalty Owner, Warrant Owner and each Agent and Lender and
      the officers, partners, directors, trustees, employees, agents and Affiliates
      of
      each Agent and each Lender (each, an “Indemnitee”),
      from
      and against any and all Indemnified Liabilities, INCLUDING
      WITHOUT LIMITATION ANY INDEMNIFIED LIABILITIES CAUSED, IN WHOLE OR IN PART,
      BY
      THE NEGLIGENCE OF SUCH INDEMNIFIED PARTY (IN EACH CASE WHETHER ALLEGED, ARISING
      OR IMPOSED IN A LEGAL PROCEEDING BROUGHT BY OR AGAINST ANY CREDIT PARTY, ANY
      INDEMNITEE, OR ANY OTHER PERSON),
      provided,
      no
      Credit Party shall have any obligation to any Indemnitee hereunder with respect
      to any Indemnified Liabilities to the extent such Indemnified Liabilities arise
      from the gross negligence or willful misconduct of that Indemnitee. To the
      extent that the undertakings to defend, indemnify, pay and hold harmless set
      forth in this Section 10.3 may be unenforceable in whole or in part because
      they are violative of any law or public policy, the applicable Credit Party
      shall contribute the maximum portion that it is permitted to pay and satisfy
      under applicable law to the payment and satisfaction of all Indemnified
      Liabilities incurred by Indemnitees or any of them.

     

    (b) TO
      THE EXTENT PERMITTED BY APPLICABLE LAW, NO CREDIT PARTY SHALL ASSERT, AND EACH
      HEREBY WAIVES, ANY CLAIM AGAINST ANY AGENT, ANY LENDER OR ANY OF THEIR
      AFFILIATES, DIRECTORS, EMPLOYEES, ATTORNEYS OR AGENTS, ON ANY THEORY OF
      LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED
      TO DIRECT OR ACTUAL DAMAGES) (WHETHER OR NOT THE CLAIM THEREFOR IS BASED ON
      CONTRACT, TORT OR DUTY IMPOSED BY ANY APPLICABLE LEGAL REQUIREMENT) ARISING
      OUT
      OF, IN CONNECTION WITH, ARISING OUT OF, AS A RESULT OF, OR IN ANY WAY RELATED
      TO, THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY AGREEMENT OR INSTRUMENT
      CONTEMPLATED HEREBY OR THEREBY, THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
      ANY LOAN OR THE USE OF THE PROCEEDS THEREOF OR ANY ACT OR OMISSION OR EVENT
      FROM
      TIME TO TIME OCCURRING IN CONNECTION THEREWITH, AND EACH CREDIT PARTY HEREBY
      WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM OR ANY SUCH DAMAGES,
      WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS
      FAVOR. EACH CREDIT PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS
      REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
      VOLUNTARILY GIVES THIS WAIVER FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS
      WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
      IN
      WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS
      SECTION 10.3 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL
      APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
      HERETO OR TO ANY OF THE OTHER TRANSACTION DOCUMENTS OR TO ANY OTHER DOCUMENTS
      OR
      AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. 

     

    
      
        
        

      

      
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    10.4
      ISDA
      Agreement.
      Notwithstanding any other provision herein to the contrary, the provisions
      of
      Part 5(l) of the ISDA Master Agreement described in clause (i) of the definition
      of First Lien Hedging Contracts shall be deemed to be permitted by the terms
      of
      this Agreement and shall not be deemed to be in conflict with this
      Agreement.

     

    10.5
      Amendments
      and Waivers. 

     

    (a) Required
      Lenders’ Consent.
      Subject
      to Section 10.5(b) and 10.5(c), no amendment, modification, termination or
      waiver of any provision of the Transaction Documents (other than the ORRI
      Conveyance and the Warrant), or consent to any departure by any Credit Party
      therefrom, shall in any event be effective without the written concurrence
      of
      the Required Lenders.

     

    (b) Affected
      Lenders’ Consent.
      Without
      the written consent of each Lender that would be affected thereby, no amendment,
      modification, termination, or consent shall be effective if the effect thereof
      would:

     

    (i)
      extend
      the scheduled final maturity of any Loan or Note;

     

    (ii)
      waive,
      reduce or postpone any scheduled repayment (but not prepayment) of
      principal;

     

    (iii)
      reduce
      the rate of interest on any Loan (other than any waiver of any increase in
      the
      interest rate applicable to any Loan pursuant to Section 2.10) or any fee
      payable hereunder;

     

    (iv)
      extend
      the time for payment of any such interest or fees;

     

    (v)
      reduce
      the principal amount of any Loan;

     

    (vi)
      amend,
      modify, terminate or waive any provision of this Section 10.5(b) or Section
      10.5(c);

     

    (vii)
      amend
      the
      definition of “Required Lenders” or “Pro Rata Share”;

     

    
      
        
        

      

      
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    (viii)
      release
      all or substantially all of the Collateral or all or substantially all of the
      Guarantors from the Guaranty except as expressly provided in the Transaction
      Documents; or

     

    (ix)
      consent
      to the assignment or transfer by any Credit Party of any of its rights and
      obligations under any Transaction Document (other than the ORRI Conveyance
      and
      the Warrants).

     

    (c) Other
      Consents.
      No
      amendment, modification, termination or waiver of any provision of the
      Transaction Documents, or consent to any departure by any Credit Party
      therefrom, shall:

     

    (i)
      increase
      any Commitment of any Lender over the amount thereof then in effect without
      the
      consent of such Lender; provided,
      no
      amendment, modification or waiver of any condition precedent, covenant, Default
      or Event of Default shall be deemed to constitute an increase in any Commitment
      of any Lender; or

     

    (ii)
      amend,
      modify, terminate or waive any provision of Section 9 as the same applies to
      any
      Agent, or any other provision hereof as the same applies to the rights or
      obligations of any Agent, in each case without the consent of such
      Agent.

     

    (d) Execution
      of Amendments, etc.
      Administrative Agent may, but shall have no obligation to, with the concurrence
      of any Lender, execute amendments, modifications, waivers or consents on behalf
      of such Lender. Any waiver or consent shall be effective only in the specific
      instance and for the specific purpose for which it was given. No notice to
      or
      demand on any Credit Party in any case shall entitle any Credit Party to any
      other or further notice or demand in similar or other circumstances. Any
      amendment, modification, termination, waiver or consent effected in accordance
      with this Section 10.5 shall be binding upon each Lender at the time
      outstanding, each future Lender and, if signed by a Credit Party, on such Credit
      Party.

     

    10.6
      Successors
      and Assigns; Participations. 

     

    (a) Generally.
      This
      Agreement shall be binding upon the parties hereto and their respective
      successors and assigns and shall inure to the benefit of the parties hereto
      and
      the successors and assigns of Agents and Lenders. No Credit Party’s rights or
      obligations hereunder nor any interest therein may be assigned or delegated
      by
      any Credit Party without the prior written consent of all Lenders. Nothing
      in
      this Agreement, expressed or implied, shall be construed to confer upon any
      Person (other than the parties hereto, their respective successors and assigns
      permitted hereby and, to the extent expressly contemplated hereby, Affiliates
      and Indemnitees of each of the Agents and Lenders) any legal or equitable right,
      remedy or claim under or by reason of this Agreement.

     

    (b) Register.
      Company, Administrative Agent and Lenders shall deem and treat the Persons
      listed as Lenders in the Register as the holders and owners of the corresponding
      Commitments and Loans listed therein for all purposes hereof, and no assignment
      or transfer of any such Commitment or Loan shall be effective, in each case,
      unless and until an Assignment Agreement effecting the assignment or transfer
      thereof shall have been delivered to and accepted by Administrative Agent and
      recorded in the Register as provided in Section 10.6(e). Prior to such
      recordation, all amounts owed with respect to the applicable Commitment or
      Loan
      shall be owed to the Lender listed in the Register as the owner thereof, and
      any
      request, authority or consent of any Person who, at the time of making such
      request or giving such authority or consent, is listed in the Register as a
      Lender shall be conclusive and binding on any subsequent holder, assignee or
      transferee of the corresponding Commitments or Loans.

     

    
      
        
        

      

      
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    (c) Right
      to Assign.
      Each
      Lender shall have the right at any time to sell, assign or transfer all or
      a
      portion of its rights and obligations under this Agreement, including, without
      limitation, all or a portion of its Commitment or Loans owing to it or other
      Obligation (provided,
      however,
      that
      each such assignment shall be of a uniform, and not varying, percentage of
      all
      rights and obligations under and in respect of any Loan and any related
      Commitments):

     

    (i)
      to
      any
      Person meeting the criteria of clause (i) of the definition of the term of
      “Eligible Assignee” upon the giving of notice to Company and Administrative
      Agent; and

     

    (ii)
      to
      any
      Person meeting the criteria of clause (ii) of the definition of the term of
      “Eligible Assignee” and, in the case of assignments of Loans or Commitments to
      any such Person (except in the case of assignments made by or to J. Aron),
      consented to by each of Company and Administrative Agent (such consent not
      to be
      (x) unreasonably withheld or delayed or, (y) in the case of Company, required
      at
      any time an Event of Default shall have occurred and then be continuing);
provided,
      further
      each such assignment pursuant to this Section 10.6(c)(ii) shall be in an
      aggregate amount of not less than (A) $5,000,000 (or such lesser amount as
      may
      be agreed to by Company and Administrative Agent or as shall constitute the
      aggregate amount of the Commitments and Loans of the assigning Lender) with
      respect to the assignment of the Commitments and Loans and (B) $1,000,000 (or
      such lesser amount as may be agreed to by Company and Administrative Agent
      or as
      shall constitute the aggregate amount of the Loans of the assigning Lender)
      with
      respect to the assignment of Loans.

     

    (d) Mechanics.
      The
      assigning Lender and the assignee thereof shall execute and deliver to
      Administrative Agent an Assignment Agreement, together with (i) a processing
      and
      recordation fee of $500 in the case of assignments pursuant to Section
      10.6(c)(i) or made by or to J. Aron, and $2,000, in the case of all other
      assignments (except that only one fee shall be payable in the case of
      contemporaneous assignments to Related Funds), and (ii) such forms, certificates
      or other evidence, if any, with respect to United States federal income tax
      withholding matters as the assignee under such Assignment Agreement may be
      required to deliver to Administrative Agent pursuant to Section
      2.20(c).

     

    (e) Notice
      of Assignment.
      Upon
      its receipt of a duly executed and completed Assignment Agreement, together
      with
      the processing and recordation fee referred to in Section 10.6(d) (and any
      forms, certificates or other evidence required by this Agreement in connection
      therewith), Administrative Agent shall record the information contained in
      such
      Assignment Agreement in the Register, shall give prompt notice thereof to
      Company and shall maintain a copy of such Assignment Agreement.

     

    
      
        
        

      

      
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    (f) Representations
      and Warranties of Assignee.
      Each
      Lender, upon execution and delivery hereof or upon executing and delivering
      an
      Assignment Agreement, as the case may be, represents and warrants as of the
      Closing Date or as of the applicable Effective Date (as defined in the
      applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii)
      it
      has experience and expertise in the making of or investing in commitments or
      loans such as the applicable Commitments or Loans, as the case may be; and
      (iii)
      it will make or invest in, as the case may be, its Commitments or Loans for
      its
      own account in the ordinary course of its business and without a view to
      distribution of such Commitments or Loans within the meaning of the Securities
      Act or the Exchange Act or other federal securities laws (it being understood
      that, subject to the provisions of this Section 10.6, the disposition of such
      Commitments or Loans or any interests therein shall at all times remain within
      its exclusive control).

     

    (g) Effect
      of Assignment.
      Subject
      to the terms and conditions of this Section 10.6, as of the “Effective Date”
specified in the applicable Assignment Agreement: (i) the assignee thereunder
      shall have the rights and obligations of a “Lender” hereunder to the extent such
      rights and obligations hereunder have been assigned to it pursuant to such
      Assignment Agreement and shall thereafter be a party hereto and a “Lender” for
      all purposes hereof; (ii) the assigning Lender thereunder shall, to the extent
      that rights and obligations hereunder have been assigned thereby pursuant to
      such Assignment Agreement, relinquish its rights (other than any rights which
      survive the termination hereof under Section 10.8) and be released from its
      obligations hereunder (and, in the case of an Assignment Agreement covering
      all
      or the remaining portion of an assigning Lender’s rights and obligations
      hereunder, such Lender shall cease to be a party hereto; provided,
      anything contained in any of the Transaction Documents to the contrary
      notwithstanding, such assigning Lender shall continue to be entitled to the
      benefit of all indemnities hereunder as specified herein with respect to matters
      arising out of the prior involvement of such assigning Lender as a Lender
      hereunder); (iii) the Commitments shall be modified to reflect the Commitment
      of
      such assignee and any Commitment of such assigning Lender, if any; and (iv)
      if
      any such assignment occurs after the issuance of any Note hereunder, the
      assigning Lender shall, upon the effectiveness of such assignment or as promptly
      thereafter as practicable, surrender its applicable Notes to Administrative
      Agent for cancellation, and thereupon Company shall issue and deliver new Notes,
      if so requested by the assignee and/or assigning Lender, to such assignee and/or
      to such assigning Lender, with appropriate insertions, to reflect the new
      Commitments and/or outstanding Loans of the assignee and/or the assigning
      Lender.

     

    (h) Participations.
      Each
      Lender shall have the right at any time to sell one or more participations
      to
      any Person (other than Company, any of its Subsidiaries or any of its
      Affiliates) in all or any part of its Commitments, Loans or in any other
      Obligation. The holder of any such participation, other than an Affiliate of
      the
      Lender granting such participation, shall not be entitled to require such Lender
      to take or omit to take any action hereunder except with respect to any
      amendment, modification or waiver that would (i) extend the final scheduled
      maturity of any Loan or Note or reduce the rate or extend the time of payment
      of
      interest or fees thereon (except in connection with a waiver of applicability
      of
      any post-default increase in interest rates) or reduce the principal amount
      thereof, or increase the amount of the participant’s participation over the
      amount thereof then in effect (it being understood that a waiver of any Default
      or Event of Default or of a mandatory reduction in the Commitment shall not
      be
      deemed to constitute a change in the terms of such participation, and that
      an
      increase in any Commitment or Loan shall be permitted without the consent of
      any
      participant if the participant’s participation is not increased as a result
      thereof), (ii) consent to the assignment or transfer by any Credit Party of
      any of its rights and obligations under this Agreement or (iii) release all
      or substantially all of the Collateral under the Security Documents (except
      as
      expressly provided in the Transaction Documents) supporting the Loans hereunder
      in which such participant is participating. The Company agrees that each
      participant shall be entitled to the benefits of Sections 2.16 and 2.17 to
      the same extent as if it were a Lender and had acquired its interest by
      assignment pursuant to paragraph (c) of this Section; provided,
      (i) a
      participant shall not be entitled to receive any greater payment under
      Section 2.16 and 2.17 than the applicable Lender would have been entitled
      to receive with respect to the participation sold to such participant, unless
      the sale of the participation to such participant is made with Company’s prior
      written consent and (ii) a participant that would be a Non-US Lender if it
      were
      a Lender shall not be entitled to the benefits of Section 2.17 unless
      Company is notified of the participation sold to such participant and such
      participant agrees, for the benefit of Company, to comply with Section 2.17
      as though it were a Lender. To the extent permitted by law, each participant
      also shall be entitled to the benefits of Section 10.4 as though it were a
      Lender, provided such Participant agrees to be subject to Section 2.15 as
      though it were a Lender.

     

    
      
        
        

      

      
        86
          

        
          

        

      

      
        
        

      

       

    

    (i) Certain
      Other Assignments.
      In
      addition to any other assignment permitted pursuant to this Section 10.6, (i)
      any Lender may assign and/or pledge all or any portion of its Loans, the other
      Obligations owed by or to such Lender, and its Notes, if any, to secure
      obligations of such Lender including, without limitation, any Federal Reserve
      Bank 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 Bank; provided,
      no
      Lender, as between Company and such Lender, shall be relieved of any of its
      obligations hereunder as a result of any such assignment and pledge, and
provided further,
      in no
      event shall the applicable Federal Reserve Bank or trustee be considered to
      be a
“Lender” or be entitled to require the assigning Lender to take or omit to take
      any action hereunder.

     

    10.7
      Independence
      of Covenants.
      All
      covenants hereunder shall be given independent effect so that if a particular
      action or condition is not permitted by any of such covenants, the fact that
      it
      would be permitted by an exception to, or would otherwise be within the
      limitations of, another covenant shall not avoid the occurrence of a Default
      or
      an Event of Default if such action is taken or condition exists.

     

    10.8
      Survival
      of Representations, Warranties and Agreements; Termination. 

     

    (a) All
      representations, warranties and agreements made herein shall survive the
      execution and delivery hereof and the making of any Credit Extension.
      Notwithstanding anything herein or implied by law to the contrary, the
      agreements of each Credit Party set forth in Sections 2.16, 2.17, 10.2,
      10.3, and 10.22 and the agreements of Lenders set forth in Sections 2.15,
      9.3 and 9.6 shall survive the payment of the Loans and the termination
      hereof.

     

    (b) If
      the
      Closing Date does not occur within ten days after the date of execution hereof
      by Company, or at any time after the Closing Date when no Obligations are owing
      (other than Obligations under the ORRI Conveyance or the Warrants that arise
      after the Loans have been paid in full), Company may elect in a written notice
      delivered to Administrative Agent to terminate this Agreement. Upon the proper
      receipt by Administrative Agent of such a notice at such a time, then this
      Agreement and all Security Documents shall thereupon be terminated, except
      to
      the extent provided otherwise in Section 10.8(a) of this Agreement or in any
      similar provision of any Security Document that expressly provides for the
      survival of specified provisions thereof. At the request and expense of Company,
      Administrative Agent shall prepare and execute all necessary instruments to
      reflect and effect such termination and the release of the Collateral.
      Administrative Agent is hereby authorized to execute all such instruments on
      behalf of all Lenders, without the joinder of or further action by any Lender.
      The obligations of the Credit Parties under the ORRI Conveyance and the Warrants
      shall survive the termination of this Agreement and the release of the
      Collateral and, notwithstanding any of the foregoing provisions of this
      subsection, Administrative Agent shall not release any Collateral until the
      applicable Credit Parties have amended the ORRI Conveyance (or, if applicable,
      provided new ORRI Conveyances) to the extent required under Section
      5.22.

     

    
      
        
        

      

      
        87
          

        
          

        

      

      
        
        

      

    

     

    10.9
      No
      Waiver; Remedies Cumulative. No
      failure or delay on the part of any Agent or any Lender in the exercise of
      any
      power, right or privilege hereunder or under any other Transaction Document
      shall impair such power, right or privilege or be construed to be a waiver
      of
      any default or acquiescence therein, nor shall any single or partial exercise
      of
      any such power, right or privilege preclude other or further exercise thereof
      or
      of any other power, right or privilege. The rights, powers and remedies given
      to
      each Agent and each Lender hereby are cumulative and shall be in addition to
      and
      independent of all rights, powers and remedies existing by virtue of any statute
      or rule of law or in any of the other Transaction Documents or any of the
      Hedging Contracts. Any forbearance or failure to exercise, and any delay in
      exercising, any right, power or remedy hereunder shall not impair any such
      right, power or remedy or be construed to be a waiver thereof, nor shall it
      preclude the further exercise of any such right, power or remedy.

     

    10.10
      Marshalling;
      Payments Set Aside.
      Neither
      any Agent nor any Lender shall be under any obligation to marshal any assets
      in
      favor of any Credit Party or any other Person or against or in payment of any
      or
      all of the Obligations. To the extent that any Credit Party makes a payment
      or
      payments to Administrative Agent or Lenders (or to Administrative Agent, on
      behalf of Lenders), or Administrative Agent or Lenders enforce any security
      interests or exercise their rights of setoff, and such payment or payments
      or
      the proceeds of such enforcement or setoff or any part thereof are subsequently
      invalidated, declared to be fraudulent or preferential, set aside and/or
      required to be repaid to a trustee, receiver or any other party under any
      bankruptcy law, any other state or federal law, common law or any equitable
      cause, then, to the extent of such recovery, the obligation or part thereof
      originally intended to be satisfied, and all Liens, rights and remedies therefor
      or related thereto, shall be revived and continued in full force and effect
      as
      if such payment or payments had not been made or such enforcement or setoff
      had
      not occurred.

     

    10.11
      Severability.
      In case
      any provision in or obligation hereunder or any Note shall be invalid, illegal
      or unenforceable in any jurisdiction, the validity, legality and enforceability
      of the remaining provisions or obligations, or of such provision or obligation
      in any other jurisdiction, shall not in any way be affected or impaired
      thereby.

     

    
      
        
        

      

      
        88
          

        
          

        

      

      
        
        

      

    

     

    10.12
      Obligations
      Several; Independent Nature of Lenders’ Rights.
      The
      obligations of Lenders hereunder are several and no Lender shall be responsible
      for the obligations or Commitment of any other Lender hereunder. Nothing
      contained herein or in any other Transaction Document, and no action taken
      by
      Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as
      a
      partnership, an association, a joint venture or any other kind of entity. The
      amounts payable at any time hereunder to each Lender shall be a separate and
      independent debt, and each Lender shall be entitled to protect and enforce
      its
      rights arising out hereof and it shall not be necessary for any other Lender
      to
      be joined as an additional party in any proceeding for such
      purpose.

     

    10.13
      Headings.
      Section headings herein are included herein for convenience of reference
      only and shall not constitute a part hereof for any other purpose or be given
      any substantive effect.

     

    10.14
      APPLICABLE
      LAW. THIS
      AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
      GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS
      OF
      THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES
      THEREOF.

     

    10.15
      CONSENT
      TO EXCLUSIVE JURISDICTION. ALL
      JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY ARISING OUT OF OR RELATING
      HERETO OR ANY OTHER TRANSACTION DOCUMENT, OR ANY OF THE OBLIGATIONS, SHALL
      BE
      BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE,
      COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH
      CREDIT PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
      (a)
      ACCEPTS GENERALLY AND UNCONDITIONALLY THE EXCLUSIVE JURISDICTION AND VENUE
      OF
      SUCH COURTS; (b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (c) AGREES THAT
      SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE
      BY
      REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT
      PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1; (d) AGREES THAT
      SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL
      JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY
      SUCH
      COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
      AND (e) AGREES AGENTS AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
      OTHER
      MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN
      THE
      COURTS OF ANY OTHER JURISDICTION.

     

    10.16
      WAIVER
      OF JURY TRIAL.
      EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO
      A
      JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER
      OR
      UNDER ANY OF THE OTHER TRANSACTION DOCUMENTS OR ANY DEALINGS BETWEEN THEM
      RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY
      RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED
      TO
      BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
      AND
      THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT
      CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND
      STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
      INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP THAT EACH HAS ALREADY RELIED
      ON
      THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO
      RELY
      ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER
      WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL
      AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
      CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
      MAY
      NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
      WAIVER SPECIFICALLY REFERRING TO THIS SECTION 10.16 AND EXECUTED BY EACH OF
      THE
      PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
      RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER TRANSACTION
      DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE
      HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
      CONSENT TO A TRIAL BY THE COURT.

     

    
      
        
        

      

      
        89
          

        
          

        

      

      
        
        

      

    

     

    10.17
      Confidentiality.
      Each
      Lender and each Agent agrees that it will take all reasonable steps to keep
      confidential any proprietary information regarding Company and its business
      identified as confidential by Company and obtained by such Lender pursuant
      to
      the requirements hereof, it being understood and agreed by Company that, in
      any
      event, a Lender may make (i) disclosures of such information to Affiliates
      of
      such Lender and to their agents and advisors (and to other persons authorized
      by
      a Lender or Agent to organize, present or disseminate such information in
      connection with disclosures otherwise made in accordance with this Section
      10.17), (ii) disclosures of such information reasonably required by any bona
      fide or potential assignee, transferee or participant in connection with the
      contemplated assignment, transfer or participation by such Lender of any Loans
      or any participations therein or by any direct or indirect contractual
      counterparties (or the professional advisors thereto) in Hedging Contracts
      (provided, such counterparties and advisors are advised of and agree to be
      bound
      by the provisions of this Section 10.17), (iii) disclosure to any rating agency
      when required by it, provided that, prior to any disclosure, such rating agency
      shall undertake in writing to preserve the confidentiality of any confidential
      information relating to the Credit Parties received by it from any of the Agents
      or any Lender, and (iv) disclosures required or requested by any Governmental
      Authority or representative thereof or by the NAIC or pursuant to legal or
      judicial process; provided,
      unless
      specifically prohibited by applicable law or court order, each Lender shall
      make
      reasonable efforts to notify Company of any request by any Governmental
      Authority or representative thereof (other than any such request in connection
      with any examination of the financial condition or other routine examination
      of
      such Lender by such governmental agency) for disclosure of any such non-public
      information prior to disclosure of such information.

     

    
      
        
        

      

      
        90
          

        
          

        

      

      
        
        

      

    

     

    10.18
      Usury
      Savings Clause.
      Notwithstanding any other provision herein, the aggregate interest rate charged
      with respect to any of the Obligations, including all charges or fees in
      connection therewith deemed in the nature of interest under applicable law,
      shall not exceed the Highest Lawful Rate. If the rate of interest (determined
      without regard to the preceding sentence) under this Agreement at any time
      exceeds the Highest Lawful Rate, the outstanding amount of the Loans made
      hereunder shall bear interest at the Highest Lawful Rate until the total amount
      of interest due hereunder equals the amount of interest which would have been
      due hereunder if the stated rates of interest set forth in this Agreement had
      at
      all times been in effect. In addition, if when the Loans made hereunder are
      repaid in full the total interest due hereunder (taking into account the
      increase provided for above) is less than the total amount of interest which
      would have been due hereunder if the stated rates of interest set forth in
      this
      Agreement had at all times been in effect, then to the extent permitted by
      law,
      Company shall pay to Administrative Agent an amount equal to the difference
      between the amount of interest paid and the amount of interest which would
      have
      been paid if the Highest Lawful Rate had at all times been in effect.
      Notwithstanding the foregoing, it is the intention of Lenders and Company to
      conform strictly to any applicable usury laws. Accordingly, if any Lender
      contracts for, charges, or receives any consideration which constitutes interest
      in excess of the Highest Lawful Rate, then any such excess shall be cancelled
      automatically and, if previously paid, shall at such Lender’s option be applied
      to the outstanding amount of the Loans made hereunder or be refunded to
      Company. 

     

    10.19
      Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed and delivered shall be deemed an original, but all such counterparts
      together shall constitute but one and the same instrument.

     

    10.20
      Effectiveness.
      This
      Agreement shall become effective upon the execution of a counterpart hereof
      by
      each of the parties hereto and receipt by Company and Administrative Agent
      of
      written or telephonic notification of such execution and authorization of
      delivery thereof.

     

    10.21
      USA
      Patriot Act Notice.
      Each
      Lender that is subject to the Act (as hereinafter defined) and Administrative
      Agent (for itself and not on behalf of any Lender) hereby notifies Company
      and
      each other Credit Party that pursuant to the requirements of the USA Patriot
      Act
      (Title III of Pub. L. 107-56 (signed into law October 26, 2001))
      (the “Act”),
      it is
      required to obtain, verify and record information that identifies Company and
      the other Credit Parties, which information includes the name and address of
      such Persons and other information that will allow such Lender or Administrative
      Agent, as applicable, to identify such Persons in accordance with the
      Act.

     

    10.22
      Third
      Party Beneficiaries.
      The
      Credit Parties agree that Royalty Owner (the “Third
      Party Beneficiary”)
      (a) is
      an express and intended third party beneficiary of the representations,
      agreements and promises made in this Agreement, which are made for the benefit
      of Lenders, Administrative Agent and the Third Party Beneficiary (which benefits
      are immediate and not incidental), (b) shall have and be vested with the right
      to enforce the provisions hereof on its own behalf and to sue for non-compliance
      with the provisions hereof, and (c) has acted in reliance upon its status as
      a
      third party beneficiary as set forth above (including entering into the
      Transaction Documents to which it is a party). Without limiting the foregoing,
      the Credit Parties agree that they intend to give the Third Party Beneficiary
      the benefits of the representations, agreements, and promises set forth in
      this
      Agreement, and that such intent is sufficient to make reliance by such Third
      Party Beneficiary both reasonable and probable.

     

    [Remainder
      of page intentionally left blank.]

    

    
      
        
        

      

      
        91
          

        
          

        

      

      
        
        

      

    

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

     

    
      	 	 	 
	 	COMPANY: 
	 	 
	 	FOOTHILLS
              RESOURCES, INC.
	 
 	 
 	 
 
	 	By:  	/s/
              W. Kirk Bosche
	 	
              
W.
              Kirk Bosche
	 	Assistant
              Secretary and Chief Financial Officer

    

     

    
       

      
        	 	 	 
	 	GUARANTORS:
	 	 
	 	FOOTHILLS
                CALIFORNIA, INC.
	 
 	 
 	 
 
	 	By:  	/s/
                W. Kirk Bosche
	 	
                
W.
                Kirk Bosche
	 	Assistant
                Secretary and Chief Financial Officer

      

       

      
         

        
          	 	 	 
	 	FOOTHILLS
                  OKLAHOMA, INC.
	 
 	 
 	 
 
	 	By:  	/s/
                  W. Kirk Bosche
	 	
                  
W.
                  Kirk Bosche
	 	Assistant
                  Secretary and Chief Financial Officer

        

         

        
           

          
            	 	 	 
	 	FOOTHILLS
                    TEXAS, INC.
	 
 	 
 	 
 
	 	By:  	/s/
                    W. Kirk Bosche
	 	
                    
W.
                    Kirk Bosche
	 	Assistant
                    Secretary and Chief Financial
                    Officer

          

        

      

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	
              J.
                ARON & COMPANY,

              as
                Lead Arranger, Syndication Agent,

              Administrative Agent and a Lender

            
	 
 	 
 	 
 
	 	By:  	/s/
              Colleen Foster
	 	
              
Authorized
              Signatory
	 	 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
      undersigned Royalty Owner hereby executes and delivers this Agreement to
      evidence its approvals, consents and agreements as set out in Section 5.22
      above.

    
      	 	 	 
	 	MTGLQ
              INVESTORS, L.P.
	 	 
	 	By: MLQ,
              L.L.C., its general partner 
	 
 	 
 	 
 
	 	By:  	/s/
              Alex Waxman
	 	
              
Authorized
              SignatoryUnassociated Document

    
      EXHIBIT
        10.3

       

      PLEDGE
        AND SECURITY AGREEMENT

       

      dated
        as of September 8, 2006

       

      between

       

      EACH
        OF THE GRANTORS PARTY HERETO

       

      and

       

      J.
        ARON & COMPANY,

       

      as
        the Secured Party

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      TABLE
        OF CONTENTS

      

      
        	 	 	 	
                Page

              
	 	 	 	 
	
                SECTION
                  1

              	
                DEFINITIONS

              	 	
                1

              
	 	 	 	 
	
                1.1

              	
                General
                  Definitions

              	 	
                1

              
	
                1.2
                  

              	
                Definitions;
                  Interpretation

              	 	
                7

              
	 	 	 	 
	
                SECTION
                  2 

              	
                GRANT
                  OF SECURITY

              	 	
                8

              
	 	 	 	 
	
                2.1

              	
                Grant
                  of Security

              	 	
                8

              
	
                2.2
                  

              	
                Certain
                  Limited Exclusions

              	 	
                9

              
	 	 	 	 
	
                SECTION
                  3 

              	
                SECURITY
                  FOR OBLIGATIONS; GRANTORS REMAIN LIABLE

              	 	
                9

              
	 	 	 	 
	
                3.1

              	
                Security
                  for Obligations

              	 	
                9

              
	
                3.2

              	
                Continuing
                  Liability Under Collateral

              	 	
                10

              
	 	 	 	 
	
                SECTION
                  4

              	
                REPRESENTATIONS
                  AND WARRANTIES AND COVENANTS

              	 	
                10

              
	 	 	 	 
	
                4.1

              	
                Generally

              	 	
                10

              
	
                4.2
                  

              	
                Investment
                  Related Property; Investment Related Property Generally

              	 	
                13

              
	
                4.3

              	
                Pledged
                  Equity Interests

              	 	
                15

              
	
                4.4

              	
                Investment
                  Accounts

              	 	
                16

              
	
                4.5
                  

              	
                Letter
                  of Credit Rights

              	 	
                17

              
	
                4.6

              	
                Commercial
                  Tort Claims

              	 	
                18

              
	 	 	 	 
	
                SECTION
                  5

              	
                FURTHER
                  ASSURANCES; ADDITIONAL GRANTORS

              	 	
                18

              
	 	 	 	 
	
                5.1

              	
                [Reserved]

              	 	
                18

              
	
                5.2
                  

              	
                Further
                  Assurances

              	 	
                18

              
	
                5.3
                  

              	
                Additional
                  Grantors

              	 	
                19

              
	 	 	 	 
	
                SECTION
                  6 

              	
                SECURED
                  PARTY APPOINTED ATTORNEY-IN-FACT

              	 	
                19

              
	 	 	 	 
	
                6.1

              	
                Power
                  of Attorney

              	 	
                19

              
	
                6.2
                  

              	
                No
                  Duty on the Part of Secured Party

              	 	
                20

              
	 	 	 	 
	
                SECTION
                  7 

              	
                REMEDIES

              	 	
                20

              
	 	 	 	 
	
                7.1

              	
                Generally

              	 	
                20

              
	
                7.2
                  

              	
                Application
                  of Proceeds

              	 	
                22

              
	
                7.3
                  

              	
                Sales
                  on Credit

              	 	
                22

              
	
                7.4
                  

              	
                Deposit
                  Accounts

              	 	
                22

              
	
                7.5
                  

              	
                Investment
                  Related Property

              	 	
                22

              
	
                7.6
                  

              	
                Intellectual
                  Property

              	 	
                23

              
	
                7.7
                  

              	
                Cash
                  Proceeds

              	 	
                25

              
	 	 	 	 
	
                SECTION
                  8

              	
                [RESERVED]

              	 	
                25

              
	 	 	 	 
	
                SECTION
                  9 

              	
                CONTINUING
                  SECURITY INTEREST

              	 	
                25

              
	 	 	 	 
	
                SECTION
                  10 

              	
                STANDARD
                  OF CARE; SECURED PARTY MAY PERFORM

              	 	
                25

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      
        	
                SECTION
                  11 

              	
                MISCELLANEOUS

              	 	
                26

              

      

       

      
        	
                SCHEDULES:

              	
                4.1
                  — General Information

              
	 	
                4.3
                  — Investment Related Property

              
	 	
                4.5
                  — Description of Letters of Credit

              
	 	
                4.6
                  — Commercial Tort Claims

              
	 	 
	
                EXHIBITS:

              	
                A
—
                  Pledge Supplement

              
	 	
                B
—
                  Deposit Account Control Agreement

              

      

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

       

      PLEDGE
        AND SECURITY AGREEMENT

      
         

        This
          PLEDGE
          AND SECURITY AGREEMENT,
          dated
          as of September 8, 2006 (this “Agreement”),
          between EACH
          OF THE UNDERSIGNED,
          whether
          as an original signatory hereto or as an Additional Grantor (as herein
          defined)
          (each, a “Grantor”),
          and
J. ARON
          & COMPANY (the
          “Secured
          Party”).

         

        RECITALS:

         

        WHEREAS,
          reference is made to the ISDA Agreement (defined below); and

        

        WHEREAS,
          in consideration of the accommodations of Secured Party as set forth in
          the ISDA
          Agreement each Grantor has agreed to secure such Grantor’s obligations under the
          ISDA Agreement or its guaranty delivered in connection therewith as set
          forth
          herein; and

        

        NOW,
          THEREFORE,
          in
          consideration of the premises and the agreements, provisions and covenants
          herein contained, each Grantor and the Secured Party agree as
          follows:

         

        SECTION
          1 DEFINITIONS

         

        1.1
          General Definitions.
          In this
          Agreement, the following terms shall have the following meanings:

         

        “Account
          Debtor”
          shall
          mean each Person who is obligated on a Receivable or any Supporting Obligation
          related thereto.

         

        “Accounts”
          shall
          mean all “accounts” as defined in Article 9 of the UCC.

         

        “Agreement”
          shall
          have the meaning set forth in the preamble.

         

        “Additional
          Grantors”
          shall
          have the meaning assigned in Section 5.3. 

         

        “Assigned
          Agreements”
          shall
          mean all agreements and contracts to which such Grantor is a party as of
          the
          date hereof, or to which such Grantor becomes a party after the date hereof,
          including each Material Contract, as each such agreement may be amended,
          supplemented or otherwise modified from time to time.

         

        “Cash
          Proceeds”
          shall
          have the meaning assigned in Section 7.7.

         

        “Chattel
          Paper”
          shall
          mean all “chattel paper” as defined in Article 9 of the UCC, including
“electronic chattel paper” or “tangible chattel paper”, as each term is defined
          in Article 9 of the UCC.

         

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

         

        “Collateral”
          shall
          have the meaning assigned in Section 2.1.

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        “Collateral
          Records”
          shall
          mean books, records, ledger cards, files, correspondence, customer lists,
          blueprints, technical specifications, manuals, computer software, computer
          printouts, tapes, disks and related data processing software and similar
          items
          that at any time evidence or contain information relating to any of the
          Collateral or are otherwise necessary or helpful in the collection thereof
          or
          realization thereupon.

         

        “Collateral
          Support”
          shall
          mean all property (real or personal) assigned, hypothecated or otherwise
          securing any Collateral and shall include any security agreement or other
          agreement granting a lien or security interest in such real or personal
          property.

         

        “Commercial
          Tort Claims”
          shall
          mean all “commercial tort claims” as defined in Article 9 of the UCC,
          including all commercial tort claims listed on Schedule 4.6 (as such schedule
          may be amended or supplemented from time to time).

         

        “Commodities
          Accounts”
          shall
          mean all “commodity accounts” as defined in Article 9 of the UCC.

         

        “Company”
          shall
          mean Foothills Resources, Inc., a Nevada corporation.

         

        “Copyright
          Licenses”
          shall
          mean any and all agreements providing for the granting of any right in
          or to
          Copyrights (whether such Grantor is licensee or licensor
          thereunder).

         

        “Copyrights”
          shall
          mean all United States and foreign copyrights, all mask works fixed in
          semi-conductor chip products (as defined under 17 U.S.C. 901 of the U.S.
          Copyright Act), whether registered or unregistered, now or hereafter in
          force
          throughout the world, all registrations and applications therefor, all
          rights
          corresponding thereto throughout the world, all extensions and renewals
          of any
          thereof, the right to sue for past, present and future infringements of
          any of
          the foregoing, and all proceeds of the foregoing, including licenses, royalties,
          income, payments, claims, damages, and proceeds of suit.

         

        “Deposit
          Accounts”
          (i)
          shall mean all “deposit accounts” as defined in Article 9 of the UCC and (ii)
          shall include, without limitation, all of the accounts listed on Schedule
          4.3
          under the heading “Deposit Accounts” (as such schedule may be amended or
          supplemented from time to time).

         

        “Documents”
          shall
          mean all “documents” as defined in Article 9 of the UCC.

         

        “Equipment”
          shall
          mean: (i) all “equipment” as defined in Article 9 of the UCC, (ii) all
          machinery, manufacturing equipment, data processing equipment, computers,
          office
          equipment, furnishings, furniture, appliances, fixtures and tools (in each
          case,
          regardless of whether characterized as equipment under the UCC) and (iii)
          all
          accessions or additions thereto, all parts thereof, whether or not at any
          time
          of determination incorporated or installed therein or attached thereto,
          and all
          replacements therefor, wherever located, now or hereafter existing, including
          any fixtures.

         

        “General
          Intangibles”
          (i)
          shall mean all “general intangibles” as defined in Article 9 of the UCC,
          including “payment intangibles” also as defined in Article 9 of the UCC and (ii)
          shall include, without limitation, all interest rate or currency protection
          or
          hedging arrangements, all tax refunds, all licenses, permits, concessions
          and
          authorizations, all Assigned Agreements and all Intellectual Property (in
          each
          case, regardless of whether characterized as general intangibles under
          the
          UCC).

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

        

        “Goods”
          (i)
          shall mean all “goods” as defined in Article 9 of the UCC and (ii) shall
          include, without limitation, all Inventory and Equipment (in each case,
          regardless of whether characterized as goods under the UCC).

         

        “Grantors”
          shall
          have the meaning set forth in the preamble.

         

        “Instruments”
          shall
          mean all “instruments” as defined in Article 9 of the UCC.

         

        “Insurance”
          shall
          mean: (i) all insurance policies covering any or all of the Collateral
          (regardless of whether the Secured Party is the loss payee thereof) and
          (ii) any
          key man life insurance policies.

         

        “Intellectual
          Property”
          shall
          mean, collectively, the Copyrights, the Copyright Licenses, the Patents,
          the
          Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets,
          and
          the Trade Secret Licenses.

         

        “Inventory”
          shall
          mean: (i) all “inventory” as defined in Article 9 of the UCC and (ii) all goods
          held for sale or lease or to be furnished under contracts of service or
          so
          leased or furnished, all raw materials, work in process, finished goods,
          and
          materials used or consumed in the manufacture, packing, shipping, advertising,
          selling, leasing, furnishing or production of such inventory or otherwise
          used
          or consumed in any Grantor’s business; all goods in which any Grantor has an
          interest in mass or a joint or other interest or right of any kind; and
          all
          goods which are returned to or repossessed by any Grantor, all computer
          programs
          embedded in any goods and all accessions thereto and products thereof (in
          each
          case, regardless of whether characterized as inventory under the
          UCC).

         

        “Investment
          Accounts”
          shall
          mean the Securities Accounts, Commodities Accounts and Deposit
          Accounts.

         

        “Investment
          Related Property”
          shall
          mean: (i) all “investment property” (as such term is defined in Article 9 of the
          UCC) and (ii) all of the following (regardless of whether classified as
          investment property under the UCC): all Pledged Equity Interests, the Investment
          Accounts, and certificates of deposit.

         

        “ISDA
          Agreement”
          shall
          mean, collectively, (i) that certain ISDA Master Agreement dated as of
          September
          8, 2006 between Company and J. Aron & Company, a New York general
          partnership, (ii) all transactions and transaction confirmations entered
          into in
          connection with such ISDA Master Agreement, (iii) all supplements, amendments
          or
          modifications of or to such ISDA Master Agreement, any such transaction,
          or any
          such transaction confirmation, and (iv) all agreements given in substitution
          for
          any of the foregoing or in restatement, renewal or extension of any of
          the
          foregoing, in whole or in part.

         

        “Letter
          of Credit Right”
          shall
          mean “letter-of-credit right” as defined in Article 9 of the
          UCC.

        
          
            
            

          

          
            3

            
              

            

          

          
            
            

          

        

        “Lien”
          means,
          with respect to any property or assets, any right or interest therein of
          a
          creditor to secure liabilities owed to it or any other arrangement with
          such
          creditor which provides for the payment of such liabilities out of such
          property
          or assets or which allows such creditor to have such liabilities satisfied
          out
          of such property or assets prior to the general creditors of any owner
          thereof,
          including any lien, mortgage, security interest, pledge, deposit, production
          payment, rights of a vendor under any title retention or conditional sale
          agreement or lease substantially equivalent thereto, tax lien, mechanic’s or
          materialman’s lien, or any other charge or encumbrance for security purposes,
          whether arising by Law or agreement or otherwise, but excluding any right
          of
          offset which arises without agreement in the ordinary course of business.
“Lien”
also means any filed financing statement, any registration of a pledge
          (such as
          with an issuer of uncertificated securities), or any other arrangement
          or action
          which would serve to perfect a Lien described in the preceding sentence,
          regardless of whether such financing statement is filed, such registration
          is
          made, or such arrangement or action is undertaken before or after such
          Lien
          exists.

         

        “Material
          Adverse Effect”
          means a
          material adverse effect on or material adverse development with respect
          to
          (i) the business, operations, properties, assets, financial condition or
          prospects of Company and its Subsidiaries taken as a whole; (ii) the
          ability of any Grantor to fully and timely perform its Secured Obligations;
          (iii) the legality, validity, binding effect or enforceability against a
          Grantor of a Transaction Document to which it is a party; or (iv) the
          rights, remedies and benefits available to, or conferred upon, Secured
          Party
          under any Transaction Document.

         

        “Money”
          shall
          mean “money” as defined in the UCC.

         

        “Patent
          Licenses”
          shall
          mean all agreements providing for the granting of any right in or to Patents
          (whether such Grantor is licensee or licensor thereunder).

         

        “Patents”
          shall
          mean all United States and foreign patents and applications for letters
          patent
          throughout the world, all reissues, divisions, continuations,
          continuations-in-part, extensions, renewals, and reexaminations of any
          of the
          foregoing, all rights corresponding thereto throughout the world, and all
          proceeds of the foregoing, including licenses, royalties, income, payments,
          claims, damages, and proceeds of suit and the right to sue for past, present
          and
          future infringements of any of the foregoing.

         

        “Payment
          Intangible”
          shall
          have the meaning specified in Article 9 of the UCC.

         

        “Person”
          means
          and includes natural persons, corporations, limited partnerships, general
          partnerships, limited liability companies, limited liability partnerships,
          joint
          stock companies, joint ventures, associations, companies, trusts, banks,
          trust
          companies, land trusts, business trusts or other organizations, whether
          or not
          legal entities, and governmental authorities.

         

        “Pledge
          Supplement”
          shall
          mean any supplement to this agreement in substantially the form of Exhibit
          A.

         

        “Pledged
          Debt”
          shall
          mean all indebtedness owed to each Grantor issued by the obligors named
          thereunder, the instruments evidencing such indebtedness, and all interest,
          cash, instruments and other property or proceeds from time to time received,
          receivable or otherwise distributed in respect of or in exchange for any
          or all
          of such indebtedness.

        
          
            
            

          

          
            4

            
              

            

          

          
            
            

          

        

        “Pledged
          Equity Interests”
          shall
          mean all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests
          and
          Pledged Trust Interests.

         

        “Pledged
          LLC Interests”
          shall
          mean all interests in any limited liability company, including all limited
          liability company interests listed on Schedule 4.3 under the heading “Pledged
          LLC Interests” (as such schedule may be amended or supplemented from time to
          time) and the certificates, if any, representing such limited liability
          company
          interests and any interest of such Grantor on the books and records of
          such
          limited liability company or on the books and records of any securities
          intermediary pertaining to such interest and all dividends, distributions,
          cash,
          warrants, rights, options, instruments, securities and other property or
          proceeds from time to time received, receivable or otherwise distributed
          in
          respect of or in exchange for any or all of such limited liability company
          interests.

         

        “Pledged
          Partnership Interests”
          shall
          mean all interests in any general partnership, limited partnership, limited
          liability partnership or other partnership, including all partnership interests
          listed on Schedule 4.3 under the heading “Pledged Partnership Interests” (as
          such schedule may be amended or supplemented from time to time) and the
          certificates, if any, representing such partnership interests and any interest
          of such Grantor on the books and records of such partnership or on the
          books and
          records of any securities intermediary pertaining to such interest and
          all
          dividends, distributions, cash, warrants, rights, options, instruments,
          securities and other property or proceeds from time to time received, receivable
          or otherwise distributed in respect of or in exchange for any or all of
          such
          partnership interests.

         

        “Pledged
          Stock”
          shall
          mean all shares of capital stock owned by such Grantor, including all shares
          of
          capital stock described on Schedule 4.3 under the heading “Pledged Stock” (as
          such schedule may be amended or supplemented from time to time), and the
          certificates, if any, representing such shares and any interest of such
          Grantor
          in the entries on the books of the issuer of such shares or on the books
          of any
          securities intermediary pertaining to such shares, and all dividends,
          distributions, cash, warrants, rights, options, instruments, securities
          and
          other property or proceeds from time to time received, receivable or otherwise
          distributed in respect of or in exchange for any or all of such shares.
          

         

        “Pledged
          Trust Interests”
          shall
          mean all interests in a Delaware statutory trust or other trust, including
          all
          trust interests listed on Schedule 4.3 under the heading “Pledged Trust
          Interests” (as such schedule may be amended or supplemented from time to time)
          and the certificates, if any, representing such trust interests and any
          interest
          of such Grantor on the books and records of such trust or on the books
          and
          records of any securities intermediary pertaining to such interest and
          all
          dividends, distributions, cash, warrants, rights, options, instruments,
          securities and other property or proceeds from time to time received, receivable
          or otherwise distributed in respect of or in exchange for any or all of
          such
          trust interests.

         

        “Proceeds”
          shall
          mean: (i) all “proceeds” as defined in Article 9 of the UCC, (ii) payments
          or distributions arising from any Investment Related Property and
          (iii) whatever is receivable or received when Collateral or proceeds are
          sold, exchanged, collected or otherwise disposed of, whether such disposition
          is
          voluntary or involuntary.

        
          
            
            

          

          
            5

            
              

            

          

          
            
            

          

        

        “Receivables”
          shall
          mean all rights to payment, whether or not earned by performance, for goods
          or
          other property sold, leased, licensed, assigned or otherwise disposed of,
          or
          services rendered or to be rendered, including all such rights constituting
          or
          evidenced by any Account, Chattel Paper, Instrument, General Intangible
          or
          Investment Related Property, together with all of Grantor’s rights, if any, in
          any goods or other property giving rise to such right to payment and all
          Collateral Support and Supporting Obligations related thereto and all
          Receivables Records.

         

        “Receivables
          Records”
          shall
          mean (i) all original copies of all documents, instruments or other
          writings or electronic records or other Records evidencing the Receivables,
          (ii) all books, correspondence, credit or other files, Records, ledger
          sheets or cards, invoices, and other papers relating to Receivables, including
          all tapes, cards, computer tapes, computer discs, computer runs, record
          keeping
          systems and other papers and documents relating to the Receivables, whether
          in
          the possession or under the control of Grantor or any computer bureau or
          agent
          from time to time acting for Grantor or otherwise, (iii) all evidences of
          the filing of financing statements and the registration of other instruments
          in
          connection therewith, and amendments, supplements or other modifications
          thereto, notices to other creditors, and certificates, acknowledgments,
          or other
          writings, including lien search reports, from filing or other registration
          officers, (iv) all credit information, reports and memoranda relating
          thereto and (v) all other written or nonwritten forms of information
          related in any way to the foregoing or any Receivable.

         

        “Record”
          shall
          have the meaning specified in Article 9 of the UCC.

         

        “Secured
          Obligations”
          shall
          have the meaning assigned in Section 3.1.

         

        “Secured
          Party”
          shall
          have the meaning set forth in the preamble.

         

        “Securities”
          shall
          mean any stock, shares, partnership interests, voting trust certificates,
          certificates of interest or participation in any profit-sharing agreement
          or
          arrangement, options, warrants, bonds, debentures, notes, or other evidences
          of
          indebtedness, secured or unsecured, convertible, subordinated or otherwise,
          or
          in general any instruments commonly known as “securities” or any certificates of
          interest, shares or participations in temporary or interim certificates
          for the
          purchase or acquisition of, or any right to subscribe to, purchase or acquire,
          any of the foregoing.

         

        “Securities
          Accounts”
          shall
          mean all “securities accounts” as defined in Article 8 of the
          UCC.

         

        “Securities
          Act”
          means
          the Securities Act of 1933, as amended from time to time, and any successor
          statute.

         

        “Subsidiary”
          means,
          with respect to any Person, any corporation, association, partnership,
          limited
          liability company, joint venture, or other business or corporate entity,
          enterprise or organization which is directly or indirectly (through one
          or more
          intermediaries) controlled by or owned fifty percent (50%) or more by such
          Person.

        
          
            
            

          

          
            6

            
              

            

          

          
            
            

          

        

        “Supporting
          Obligation”
          shall
          mean all “supporting obligations” as defined in Article 9 of the
          UCC.

         

        “Trade
          Secret Licenses”
          shall
          mean any and all agreements providing for the granting of any right in
          or to
          Trade Secrets (whether such Grantor is licensee or licensor thereunder).
          

         

        “Trade
          Secrets”
          shall
          mean all trade secrets and all other confidential or proprietary information
          and
          know-how now or hereafter owned or used in, or contemplated at any time
          for use
          in, the business of such Grantor (all of the foregoing being collectively
          called
          a “Trade Secret”), whether or not such Trade Secret has been reduced to a
          writing or other tangible form, including all documents and things embodying,
          incorporating, or referring in any way to such Trade Secret, the right
          to sue
          for past, present and future infringement of any Trade Secret, and all
          proceeds
          of the foregoing, including licenses, royalties, income, payments, claims,
          damages, and proceeds of suit.

         

        “Trademark
          Licenses”
          shall
          mean any and all agreements providing for the granting of any right in
          or to
          Trademarks (whether such Grantor is licensee or licensor
          thereunder).

         

        “Trademarks”
          shall
          mean all United States, state and foreign trademarks, trade names, corporate
          names, company names, business names, fictitious business names, internet
          domain
          names, trade styles, service marks, certification marks, collective marks,
          logos, other source or business identifiers, designs and general intangibles
          of
          a like nature, all registrations and applications for any of the foregoing,
          all
          extensions or renewals of any of the foregoing, all of the goodwill of
          the
          business connected with the use of and symbolized by the foregoing, the
          right to
          sue for past, present and future infringement or dilution of any of the
          foregoing or for any injury to goodwill, and all proceeds of the foregoing,
          including licenses, royalties, income, payments, claims, damages, and proceeds
          of suit.

         

        “Transaction
          Document”
          means
          any of this Agreement, the ISDA Agreement, the Credit Support Documents,
          and all
          other certificates, documents, instruments or agreements executed and delivered
          by a Grantor for the benefit of Secured Party in connection
          herewith.

         

        “UCC”
          shall
          mean the Uniform Commercial Code as in effect from time to time in the
          State of
          New York or, when the context implies, the Uniform Commercial Code as in
          effect
          from time to time in any other applicable jurisdiction.

         

        “United
          States”
          shall
          mean the United States of America.

         

        1.2
          Definitions; Interpretation.
          All
          capitalized terms used herein (including the preamble and recitals hereto)
          and
          not otherwise defined herein shall have the meanings ascribed thereto in
          the
          ISDA Agreement or, if not defined therein or incorporated therein, in the
          UCC.
          References to “Sections,” “Exhibits” and “Schedules” shall be to Sections,
          Exhibits and Schedules, as the case may be, of this Agreement unless otherwise
          specifically provided. Section headings in this Agreement are included
          herein
          for convenience of reference only and shall not constitute a part of this
          Agreement for any other purpose or be given any substantive effect. Any
          of the
          terms defined herein may, unless the context otherwise requires, be used
          in the
          singular or the plural, depending on the reference. The use herein of the
          word
“include” or “including”, when following any general statement, term or matter,
          shall not be construed to limit such statement, term or matter to the specific
          items or matters set forth immediately following such word or to similar
          items
          or matters, whether or not nonlimiting language (such as “without limitation” or
“but not limited to” or words of similar import) is used with reference thereto,
          but rather shall be deemed to refer to all other items or matters that
          fall
          within the broadest possible scope of such general statement, term or matter.
          If
          any conflict or inconsistency exists between this Agreement and the ISDA
          Agreement, the ISDA Agreement shall govern. All references herein to provisions
          of the UCC shall include all successor provisions under any subsequent
          version
          or amendment to any article of the UCC.

        
          
            
            

          

          
            7

            
              

            

          

          
            
            

          

        

         

        SECTION
          2 GRANT
          OF SECURITY

         

        2.1
          Grant of Security.
          Each
          Grantor hereby grants to the Secured Party a security interest and continuing
          lien on all of such Grantor’s right, title and interest in, to and under all
          personal property of such Grantor including, but not limited to the following,
          in each case whether now owned or existing or hereafter acquired or arising
          and
          wherever located (all of which being hereinafter collectively referred
          to as the
“Collateral”):

         

        (a) Accounts;

         

        (b) Chattel
          Paper;

         

        (c) Documents;

         

        (d) General
          Intangibles;

         

        (e) Goods;

         

        (f) Instruments;

         

        (g) Insurance;

         

        (h) Intellectual
          Property;

         

        (i) Investment
          Related Property;

         

        (j) Letter
          of
          Credit Rights;

         

        (k) Money;

         

        (l) Receivables
          and Receivable Records;

         

        (m) Commercial
          Tort Claims;

         

        (n) to
          the
          extent not otherwise included above, all Collateral Records, Collateral
          Support
          and Supporting Obligations relating to any of the foregoing; and

        
          
            
            

          

          
            8

            
              

            

          

          
            
            

          

        

         

        (o) to
          the
          extent not otherwise included above, all Proceeds, products, accessions,
          rents
          and profits of or in respect of any of the foregoing.

         

        Notwithstanding
          the preceding provisions of this Section 2.1, the Collateral shall not
          include
          any rights and interests of any Grantor under the ISDA Agreement or any
          Specified Transaction (as defined below).

        

        2.2
          Certain Limited Exclusions.
          Notwithstanding anything herein to the contrary, in no event shall the
          security
          interest granted under Section 2.1 hereof attach to any lease, license,
          contract, property rights or agreement to which any Grantor is a party
          or any of
          its rights or interests thereunder if and for so long as the grant of such
          security interest shall constitute or result in (i) the abandonment,
          invalidation or unenforceability of any right, title or interest of any
          Grantor
          therein or (ii) in a breach or termination pursuant to the terms of, or
          a
          default under, any such lease, license, contract, property rights or agreement
          (other than to the extent that any such term would be rendered ineffective
          pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor
          provision or provisions) of any relevant jurisdiction or any other applicable
          law (including the Bankruptcy Code) or principles of equity), provided
          however
          that such security interest shall attach immediately at such time as the
          condition causing such abandonment, invalidation or unenforceability shall
          be
          remedied and to the extent severable, shall attach immediately to any portion
          of
          such Lease, license, contract, property rights or agreement that does not
          result
          in any of the consequences specified in (i) or (ii) above. It is the intention
          of Grantors (other than Company) and Secured Party that this Agreement
          not
          constitute a fraudulent transfer or fraudulent conveyance under any state
          or
          federal law that may be applied hereto. Each Grantor (other than Company)
          and,
          by its acceptance hereof, Secured Party hereby acknowledges and agrees
          that,
          notwithstanding any other provision of this Agreement: (a) the indebtedness
          secured hereby shall be limited to the maximum amount of indebtedness that
          can
          be incurred or secured by such Grantor without rendering this Agreement
          subject
          to avoidance under Section 548 of the United States Bankruptcy Code or
          any
          comparable provisions of any applicable state or federal law, and (b) the
          Collateral pledged by such Grantor hereunder shall be limited to the maximum
          amount of Collateral that can be pledged by such Grantor without rendering
          this
          Agreement subject to avoidance under Section 548 of the United States Bankruptcy
          Code or any comparable provisions of any applicable state or federal
          law.

         

        SECTION
          3 SECURITY
          FOR OBLIGATIONS; GRANTORS REMAIN LIABLE

         

        3.1
          Security for Obligations.
          This
          Agreement secures, and the Collateral is collateral security for, the prompt
          and
          complete payment or performance in full when due, whether at stated maturity,
          by
          required prepayment, declaration, acceleration, demand or otherwise (including
          the payment of amounts that would become due but for the operation of the
          automatic stay under Section 362(a) of the Bankruptcy Code (and any
          successor provision thereof)), of all of the following obligations (the
          “Secured
          Obligations”):

         

        (a) All
          indebtedness and other obligations of Company, now or hereafter incurred
          or
          arising pursuant to the ISDA Agreement and all indebtedness and obligations
          of
          the other Grantors now or hereafter incurred or arising under any guaranty
          now
          or hereafter given by such Grantors of the ISDA Agreement or the indebtedness
          and obligations thereunder.

         

        
          
            
            

          

          
            9

            
              

            

          

          
            
            

          

        

         

        (b) All
          indebtedness and other obligations of Company, any other Grantor, or any
          subsidiary of Company now or hereafter incurred or arising pursuant to
          any
          Specified Transaction. As used herein, “Specified
          Transaction”
          means
          (i) any transaction (including any agreement with respect thereto) now
          existing
          or hereafter entered into between Company, any other Grantor, or any subsidiary
          of Company with J. Aron & Company or any subsidiary of J. Aron & Company
          that (1) is a rate swap transaction, swap option, basis swap, forward rate
          transaction, commodity swap, commodity option, commodity spot transaction,
          equity or equity index swap, equity or equity index option, bond option,
          interest rate option, foreign exchange transaction, cap transaction, floor
          transaction, collar transaction, currency swap transaction, cross-currency
          rate
          swap transaction, currency option, weather swap, weather derivative, weather
          option, credit protection transaction, credit swap, credit default swap,
          credit
          default option, total return swap, credit spread transaction, repurchase
          transaction, reverse repurchase transaction, buy/sell-back transaction,
          securities lending transaction, or forward purchase or sale of a security,
          commodity or other financial instrument or interest (including any option
          with
          respect to any of these transactions) or (2) is a type of transaction that
          is
          similar to any transaction referred to in clause (1) that is currently,
          or in
          the future becomes, recurrently entered into the financial markets (including
          terms and conditions incorporated by reference in such agreement) and that
          is a
          forward, swap, future, option or other derivative on one or more rates,
          currencies, commodities, equity securities or other equity instruments,
          debt
          securities or other debt instruments, or economic indices or measures of
          economic risk or value, or (ii) any combination of any of the foregoing
          transactions.

         

        3.2
          Continuing Liability Under Collateral.
          Notwithstanding anything herein to the contrary, (i) each Grantor shall
          remain liable for all obligations under the Collateral and nothing contained
          herein is intended or shall be a delegation of duties to the Secured Party
          and
          (ii) each Grantor shall remain liable under each of the agreements included
          in the Collateral, including any agreements relating to Pledged Partnership
          Interests or Pledged LLC Interests, to perform all of the obligations undertaken
          by it thereunder all in accordance with and pursuant to the terms and provisions
          thereof and the Secured Party shall not have any obligation or liability
          under
          any of such agreements by reason of or arising out of this Agreement or
          any
          other document related thereto nor shall the Secured Party have any obligation
          to make any inquiry as to the nature or sufficiency of any payment received
          by
          it or have any obligation to take any action to collect or enforce any
          rights
          under any agreement included in the Collateral, including any agreements
          relating to Pledged Partnership Interests or Pledged LLC Interests, and
          (iii) the exercise by the Secured Party of any of its rights hereunder
          shall not release any Grantor from any of its duties or obligations under
          the
          contracts and agreements included in the Collateral. 

         

        SECTION
          4 REPRESENTATIONS
          AND WARRANTIES AND COVENANTS

         

        4.1
          Generally.
          

         

        (a) Representations
          and Warranties.
          Each
          Grantor hereby represents and warrants that:

         

        (i)
          it
          owns
          the Collateral purported to be owned by it or otherwise has the rights
          it
          purports to have in each item of Collateral and, as to all Collateral whether
          now existing or hereafter acquired, in each case free and clear of any
          and all
          Liens, rights or claims of all other Persons other than Permitted
          Liens;

        
          
            
            

          

          
            10

            
              

            

          

          
            
            

          

        

         

        (ii)
          it
          has
          indicated on Schedule 4.1(A)(as such schedule may be amended or supplemented
          from time to time): (w) the type of organization of such Grantor, (x) the
          jurisdiction of organization of such Grantor, (y) its organizational
          identification number, if any, and (z) the jurisdiction where the chief
          executive office or its sole place of business is (or the principal residence
          if
          such Grantor is a natural person), and for the one-year period preceding
          the
          date hereof has been, located.

         

        (iii)
          the
          full
          legal name of such Grantor is as set forth on Schedule 4.1(A) and it has
          not
          done in the last five (5) years, and does not do, business under any other
          name
          (including any trade-name or fictitious business name) except for those
          names
          set forth on Schedule 4.1(B) (as such schedule may be amended or supplemented
          from time to time);

         

        (iv)
          except
          as
          provided on Schedule 4.1(C), it has not changed its name, jurisdiction
          of
          organization, chief executive office or sole place of business (or principal
          residence if such Grantor is a natural person) or its corporate structure
          in any
          way (e.g, by merger, consolidation, change in corporate form or otherwise)
          within the past five (5) years;

         

        (v)
          it
          has
          not within the last five (5) years become bound (whether as a result of
          merger
          or otherwise) as debtor under a security agreement entered into by another
          Person, which has not heretofore or contemporaneously herewith been
          terminated;

         

        (vi)
          upon
          the
          filing of all UCC financing statements naming each Grantor as “debtor” and the
          Secured Party as “secured party” and describing the Collateral in the filing
          offices set forth opposite such Grantor’s name on Schedule 4.1(D) hereof (as
          such schedule may be amended or supplemented from time to time) and other
          filings delivered by each Grantor, upon execution of a control agreement
          in the
          form of Exhibit B hereto with respect to any Deposit Account, and upon
          consent of the issuer with respect to Letter of Credit Rights, the security
          interests granted to the Secured Party hereunder constitute valid and perfected
          Liens (subject in the case of priority only to Permitted Liens) on all
          of the
          Collateral;

         

        (vii)
          all
          actions and consents, including all filings, notices, registrations and
          recordings necessary for the exercise by the Secured Party of the voting
          or
          other rights provided for in this Agreement or the exercise of remedies
          in
          respect of the Collateral have been made or obtained;

         

        (viii)
          other
          than the financing statements filed in favor of the Secured Party and financing
          statements perfecting indebtedness permitted by the ISDA Agreement, no
          effective
          UCC financing statement, fixture filing or other instrument similar in
          effect
          under any applicable law covering all or any part of the Collateral is
          on file
          in any filing or recording office except for financing statements for which
          proper termination statements have been delivered to the Secured Party
          for
          filing;

        
          
            
            

          

          
            11

            
              

            

          

          
            
            

          

        

         

        (ix)
          no
          authorization, approval or other action by, and no notice to or filing
          with, any
          Governmental Authority or regulatory body is required for either (i) the
          pledge
          or grant by any Grantor of the Liens purported to be created in favor of
          the
          Secured Party hereunder or (ii) the exercise by Secured Party of any rights
          or
          remedies in respect of any Collateral (whether specifically granted or
          created
          hereunder or created or provided for by applicable law), except (A) for
          the
          filings contemplated by clause (vii) above, (B) with respect to voting
          rights, such proxies and other instruments as may be delivered in accordance
          with Section 4.2(c)(3), and (C) as may be required, in connection with
          the disposition of any Investment Related Property, by laws generally affecting
          the offering and sale of Securities;

         

        (x)
          each
          material Receivable (a) is and will be the legal, valid and binding obligation
          of the Account Debtor in respect thereof, representing an unsatisfied obligation
          of such Account Debtor, (b) is enforceable in accordance with its terms,
          (c) is not subject to any setoffs, defenses, taxes, counterclaims (except
          with respect to refunds, returns and allowances in the ordinary course
          of
          business with respect to damaged merchandise) and (d) is in compliance with
          all applicable laws, whether federal, state, local or foreign;

         

        (xi)
          none
          of
          the Account Debtors in respect of any material Receivable is the government
          of
          the United States, any agency or instrumentality thereof, any state or
          municipality or any foreign sovereign; and

         

        (xii)
          no
          material Receivable is evidenced by, or constitutes, an Instrument or Chattel
          Paper which has not been delivered to, or otherwise subjected to the control
          of,
          the Secured Party.

         

        (b) Covenants
          and Agreements.
          Each
          Grantor hereby covenants and agrees that:

         

        (i)
          except
          for the security interest created by this Agreement, it shall not create
          or
          suffer to exist any Lien upon or with respect to any of the Collateral,
          except
          Permitted Liens, and such Grantor shall defend the Collateral against all
          Persons at any time claiming any interest therein;

         

        (ii)
          it
          shall
          not produce or use and will use commercially reasonable efforts to prevent
          any
          Collateral to be used, unlawfully or in violation of any provision of this
          Agreement or any applicable statute, regulation or ordinance or any policy
          of
          insurance covering the Collateral;

         

        (iii)
          it
          shall
          not take or permit any action which could impair the Secured Party’s rights in
          the Collateral; and

         

        (iv)
          it
          shall
          keep and maintain at its own cost and expense satisfactory and complete
          records
          of the Collateral in accordance with its ordinary business
          practices.

        
          
            
            

          

          
            12

            
              

            

          

          
            
            

          

        

         

        4.2
          Investment Related Property; Investment Related Property
          Generally. 

         

        (a) Covenants
          and Agreements.
          Each
          Grantor hereby covenants and agrees that:

         

        (i)
          in
          the
          event it acquires rights in any Investment Related Property after the date
          hereof, it shall deliver to the Secured Party a completed Pledge Supplement,
          substantially in the form of Exhibit A attached hereto, together with all
          Supplements to Schedules thereto, reflecting such new Investment Related
          Property and all other Investment Related Property. Notwithstanding the
          foregoing, it is understood and agreed that the security interest of the
          Secured
          Party shall attach to all Investment Related Property immediately upon
          any
          Grantor’s acquisition of rights therein and shall not be affected by the failure
          of any Grantor to deliver a supplement as required hereby;

         

        (ii)
          except
          as
          provided in the next sentence of this clause (ii), in the event such
          Grantor receives any dividends, interest or distributions arising from
          any
          Investment Related Property, or any securities or other property upon the
          merger, consolidation, liquidation or dissolution of any issuer of any
          Investment Related Property, then (a) such dividends, interest or distributions
          and securities or other property shall be included in the definition of
          Collateral without further action and (b) such Grantor shall immediately
          take
          all steps, if any, necessary or advisable to ensure the validity, perfection,
          priority and, if applicable, control of the Secured Party over such Investment
          Related Property (including delivery thereof to the Secured Party) and
          pending
          any such action such Grantor shall be deemed to hold such dividends, interest,
          distributions, securities or other property in trust for the benefit of
          the
          Secured Party and shall be segregated from all other property of such Grantor.
          Notwithstanding the foregoing, so long as no Event of Default shall have
          occurred and be continuing, the Secured Party authorizes each Grantor to
          retain
          all ordinary cash dividends and distributions paid in the normal course
          of the
          business of the issuer and consistent with the past practice of the issuer
          and
          all scheduled payments of interest;

         

        (iii)
          each
          Grantor consents to the grant by each other Grantor of a Security Interest
          in
          all Investment Related Property to the Secured Party.

         

        (b) Delivery
          and Control.
          Each
          Grantor agrees that with respect to any Investment Related Property in
          which it
          currently has rights it shall comply with the provisions of this Section
          on or
          before the Closing Date and with respect to any Investment Related Property
          hereafter acquired by such Grantor it shall comply with the provisions
          of this
          Section immediately upon acquiring rights therein, in each case in form
          and
          substance satisfactory to the Secured Party. With respect to any Investment
          Related Property that is represented by a certificate or that is an “instrument”
(other than any Investment Related Property credited to a Securities Account)
          it
          shall cause such certificate or instrument to be delivered to the Secured
          Party,
          indorsed in blank by an “effective indorsement” (as defined in
          Section 8-107 of the UCC), regardless of whether such certificate
          constitutes a “certificated security” for purposes of the UCC. With respect to
          any Investment Related Property that is an “uncertificated security” for
          purposes of the UCC (other than any “uncertificated securities” credited to a
          Securities Account), it shall cause the issuer of such uncertificated security
          to either (i) register the Secured Party as the registered owner thereof
          on the
          books and records of the issuer or (ii) execute an agreement in form and
          substance satisfactory to the Secured Party, pursuant to which such issuer
          agrees to comply with the Secured Party’s instructions with respect to such
          uncertificated security upon and during the continuation of an Event of
          Default
          without further consent by such Grantor. 

        
          
            
            

          

          
            13

            
              

            

          

          
            
            

          

        

         

        (c) Voting
          and Distributions.
          So long
          as no Event of Default shall have occurred and be continuing: 

         

        (i)
          except
          as
          otherwise provided under the covenants and agreements relating to Investment
          Related Property in this Agreement or elsewhere herein or in the ISDA Agreement,
          each Grantor shall be entitled to exercise or refrain from exercising any
          and
          all voting and other consensual rights pertaining to the Investment Related
          Property or any part thereof for any purpose not inconsistent with the
          terms of
          this Agreement or the ISDA Agreement; provided, no Grantor shall exercise
          or
          refrain from exercising any such right if the Secured Party shall have
          notified
          such Grantor that, in the Secured Party’s reasonable judgment, such action would
          have a Material Adverse Effect on the value of the Investment Related Property
          or any part thereof; and provided further, such Grantor shall give the
          Secured
          Party at least five (5) Business Days prior written notice of the manner
          in
          which it intends to exercise, or the reasons for refraining from exercising,
          any
          such right; it being understood, however, that neither the voting by such
          Grantor of any Pledged Stock for, or such Grantor’s consent to, the election of
          directors (or similar governing body) at a regularly scheduled annual or
          other
          meeting of stockholders or with respect to incidental matters at any such
          meeting, nor such Grantor’s consent to or approval of any action otherwise
          permitted under this Agreement and the ISDA Agreement, shall be deemed
          inconsistent with the terms of this Agreement or the ISDA Agreement within
          the
          meaning of this Section 4.2(c)(i)(1), and no notice of any such voting
          or
          consent need be given to the Secured Party; and

         

        (ii)
          the
          Secured Party shall promptly execute and deliver (or cause to be executed
          and
          delivered) to each Grantor all proxies, and other instruments as such Grantor
          may from time to time reasonably request for the purpose of enabling such
          Grantor to exercise the voting and other consensual rights when and to
          the
          extent which it is entitled to exercise pursuant to clause (1)
          above;

         

        (iii)
          Upon
          the
          occurrence and during the continuation of an Event of Default: 

         

        (A)
          upon
          the
          written notice of Secured Party, all rights of each Grantor to exercise
          or
          refrain from exercising the voting and other consensual rights which it
          would
          otherwise be entitled to exercise pursuant hereto shall cease and all such
          rights shall thereupon become vested in the Secured Party who shall thereupon
          have the sole right to exercise such voting and other consensual rights;
          and

         

        (B)
          in
          order
          to permit the Secured Party to exercise the voting and other consensual
          rights
          which it may be entitled to exercise pursuant hereto and to receive all
          dividends and other distributions which it may be entitled to receive hereunder:
          (1) each Grantor shall promptly execute and deliver (or cause to be executed
          and
          delivered) to the Secured Party all proxies, dividend payment orders and
          other
          instruments as the Secured Party may from time to time reasonably request
          and
          (2) the each Grantor acknowledges that the Secured Party may utilize the
          power
          of attorney set forth in Section 6.

        
          
            
            

          

          
            14

            
              

            

          

          
            
            

          

        

         

        4.3
          Pledged Equity Interests. 

         

        (a) Representations
          and Warranties.
          Each
          Grantor hereby represents and warrants that:

         

        (i)
          Schedule
          4.3 (as such schedule may be amended or supplemented from time to time)
          sets
          forth under the headings “Pledged Stock”, “Pledged LLC Interests,” “Pledged
          Partnership Interests” and “Pledged Trust Interests,” respectively, all of the
          Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and
          Pledged
          Trust Interests, if any, owned by any Grantor and such Pledged Equity Interests
          constitute the percentage of issued and outstanding shares of stock, percentage
          of membership interests, percentage of partnership interests or percentage
          of
          beneficial interest of the respective issuers thereof indicated on such
          Schedule;

         

        (ii)
          it
          has
          not acquired any equity interests of another entity or substantially all
          the
          assets of another entity within the past five (5) years;

         

        (iii)
          it
          is the
          record and beneficial owner of the Pledged Equity Interests free of all
          Liens,
          rights or claims of other Persons other than Permitted Liens and there
          are no
          outstanding warrants, options or other rights to purchase, or shareholder,
          voting trust or similar agreements outstanding with respect to, or property
          that
          is convertible into, or that requires the issuance or sale of, any Pledged
          Equity Interests;

         

        (iv)
          without
          limiting any other provision hereof, no consent of any Person including
          any
          other general or limited partner, any other member of a limited liability
          company, any other shareholder or any other trust beneficiary is necessary
          or
          desirable in connection with the creation, perfection or first priority
          status
          of the security interest of the Secured Party in any Pledged Equity Interests
          or, except any proxies or other instruments that may be delivered in accordance
          with Section 4.2(c)(3), the exercise by the Secured Party of the voting or
          other rights provided for in this Agreement or the exercise of remedies
          in
          respect thereof; 

         

        (v)
          none
          of
          the Pledged LLC Interests nor Pledged Partnership Interests are or represent
          interests in issuers that are: (a) registered as investment companies,
          (b) are
          dealt in or traded on securities exchanges or markets or (c) have opted
          to be
          treated as securities under the uniform commercial code of any
          jurisdiction;

         

        (b) Covenants
          and Agreements.
          Each
          Grantor hereby covenants and agrees that:

        
          
            
            

          

          
            15

            
              

            

          

          
            
            

          

        

         

        (i)
          without
          the prior written consent of the Secured Party, it shall not vote to enable
          or
          take any other action to: (a) amend or terminate any partnership agreement,
          limited liability company agreement, certificate of incorporation, by-laws
          or
          other organizational documents in any way that materially changes the rights
          of
          such Grantor with respect to any Investment Related Property or adversely
          affects the validity, perfection or priority of the Secured Party’s security
          interest, (b) permit any issuer of any Pledged Equity Interest to issue
          any
          additional stock, partnership interests, limited liability company interests
          or
          other equity interests of any nature or to issue securities convertible
          into or
          granting the right of purchase or exchange for any stock or other equity
          interest of any nature of such issuer unless such equity interest is subject
          to
          this Agreement and is permitted by the ISDA Agreement, (c) other than as
          permitted under the ISDA Agreement, permit any issuer of any Pledged Equity
          Interest to dispose of all or a material portion of their assets, (d) waive
          any
          material default under or breach of any material terms of organizational
          document relating to the issuer of any Pledged Equity Interest or the terms
          of
          any Pledged Debt, or (e) cause any issuer of any Pledged Partnership Interests
          or Pledged LLC Interests which are not securities (for purposes of the
          UCC) on
          the date hereof to elect or otherwise take any action to cause such Pledged
          Partnership Interests or Pledged LLC Interests to be treated as securities
          for
          purposes of the UCC; provided, however, notwithstanding the foregoing,
          if any
          issuer of any Pledged Partnership Interests or Pledged LLC Interests takes
          any
          such action in violation of the foregoing in this clause (e), such Grantor
          shall
          promptly notify the Secured Party in writing of any such election or action
          and,
          in such event, shall take all steps necessary or advisable to establish
          the
          Secured Party’s “control” thereof;

         

        (ii)
          it
          shall
          comply with all of its obligations under any partnership agreement or limited
          liability company agreement relating to Pledged Partnership Interests or
          Pledged
          LLC Interests and shall use commercially reasonable efforts to enforce
          all of
          its rights with respect to any Investment Related Property;

         

        (iii)
          each
          Grantor consents to the grant by each other Grantor of a security interest
          in
          all Investment Related Property to the Secured Party and, without limiting
          the
          foregoing, consents to the transfer of any Pledged Partnership Interest
          and any
          Pledged LLC Interest to the Secured Party or its nominee following an Event
          of
          Default and to the substitution of the Secured Party or its nominee as
          a partner
          in any partnership or as a member in any limited liability company with
          all the
          rights and powers related thereto; and

         

        (iv)
          it
          shall
          notify the Secured Party of any default under any Pledged Debt that has
          caused,
          either in any case or in the aggregate, a Material Adverse Effect.

         

        4.4
          Investment Accounts. 

         

        (a) Covenants
          and Agreements.
          Each
          Grantor hereby covenants and agrees that:

         

        (i)
          With
          respect to any Investment Related Property consisting of Securities Accounts
          or
          Securities Entitlements, it shall cause the securities intermediary maintaining
          such Securities Account or Securities Entitlement to enter into an agreement
          substantially in form and substance satisfactory to the Secured Party pursuant
          to which it shall agree to comply with the Secured Party’s “entitlement orders”
without further consent by such Grantor. With respect to any Investment
          Related
          Property that is a “Deposit Account,” it shall cause the depositary institution
          maintaining such account to enter into an agreement substantially in the
          form of
          Exhibit B hereto (or such other form satisfactory to the Secured Party),
          pursuant to which the Secured Party shall have “control” (within the meaning of
          Section 9-104 of the UCC) over such Deposit Account. 

         

        
          
            
            

          

          
            16

            
              

            

          

          
            
            

          

        

         

        (ii)
          In
          addition to the foregoing, if any issuer of any Investment Related Property
          is
          located in a jurisdiction outside of the United States, each Grantor shall
          take
          such additional, commercially reasonable actions, including causing the
          issuer
          to register the pledge on its books and records or making such filings
          or
          recordings, in each case as may be necessary or advisable, under the laws
          of
          such issuer’s jurisdiction to insure the validity, perfection and priority of
          the security interest of the Secured Party. Upon the occurrence of an Event
          of
          Default, the Secured Party shall have the right, without notice to any
          Grantor,
          to transfer all or any portion of the Investment Related Property to its
          name or
          the name of its nominee or agent. In addition, the Secured Party shall
          have the
          right at any time, without notice to any Grantor, to exchange any certificates
          or instruments representing any Investment Related Property for certificates
          or
          instruments of smaller or larger denominations. 

         

        4.5
          Letter of Credit Rights. 

         

        (a) Representations
          and Warranties.
          Each
          Grantor hereby represents and warrants that:

         

        (i)
          all
          material letters of credit to which such Grantor has rights is listed on
          Schedule 4.5 (as such schedule may be amended or supplemented from time
          to time)
          hereto; and

         

        (ii)
          it
          has
          obtained the consent of each issuer of any material letter of credit to
          the
          assignment of the proceeds of the letter of credit to the Secured
          Party.

         

        (b) Covenants
          and Agreements.
          Each
          Grantor hereby covenants and agrees that with respect to any material letter
          of
          credit hereafter arising it shall obtain the consent of the issuer thereof
          to
          the assignment of the proceeds of the letter of credit to the Secured Party
          and
          shall deliver to the Secured Party a completed Pledge Supplement, substantially
          in the form of Exhibit A attached hereto, together with all Supplements
          to
          Schedules thereto.

         

        4.6
          Commercial Tort Claims. 

         

        (a) Representations
          and Warranties.
          Each
          Grantor hereby represents and warrants that Schedule 4.6 (as such schedule
          may
          be amended or supplemented from time to time) sets forth all Commercial
          Tort
          Claims of each Grantor; and

         

        (b) Covenants
          and Agreements.
          Each
          Grantor hereby covenants and agrees that with respect to any Commercial
          Tort
          Claim hereafter arising it shall deliver to the Secured Party a completed
          Pledge
          Supplement, substantially in the form of Exhibit A attached hereto, together
          with all Supplements to Schedules thereto, identifying such new Commercial
          Tort
          Claims.

        
          
            
            

          

          
            17

            
              

            

          

          
            
            

          

        

         

        SECTION
          5  FURTHER
          ASSURANCES; ADDITIONAL GRANTORS

         

        5.1
          [Reserved]. 

         

        5.2
          Further Assurances. 

         

        (a) Each
          Grantor agrees that from time to time, at the expense of such Grantor,
          that it
          shall promptly execute and deliver all further instruments and documents,
          and
          take all further action, that may be necessary or desirable, or that the
          Secured
          Party may reasonably request, in order to create and/or maintain the validity,
          perfection or priority of and protect any security interest granted or
          purported
          to be granted hereby or to enable the Secured Party to exercise and enforce
          its
          rights and remedies hereunder with respect to any Collateral. Without limiting
          the generality of the foregoing, each Grantor shall:

         

        (i)
          file
          such
          financing or continuation statements, or amendments thereto, and execute
          and
          deliver such other agreements, instruments, endorsements, powers of attorney
          or
          notices, as may be necessary or desirable, or as the Secured Party may
          reasonably request, in order to perfect and preserve the security interests
          granted or purported to be granted hereby;

         

        (ii)
          take
          all
          actions necessary to ensure the recordation of appropriate evidence of
          the liens
          and security interest granted hereunder in the Intellectual Property with
          any
          intellectual property registry in which said Intellectual Property is registered
          or in which an application for registration is pending, including the United
          States Patent and Trademark Office, the United States Copyright Office,
          the
          various Secretaries of State, and the foreign counterparts on any of the
          foregoing;

         

        (iii)
          at
          any
          reasonable time, upon request by the Secured Party, allow inspection of
          the
          Collateral by the Secured Party, or persons designated by the Secured Party;
          and

         

        (iv)
          at
          the
          Secured Party’s request, appear in and defend any action or proceeding that may
          affect such Grantor’s title to or the Secured Party’s security interest in all
          or any part of the Collateral. 

         

        (b) Each
          Grantor hereby authorizes the Secured Party to file a Record or Records,
          including financing or continuation statements, and amendments thereto,
          in any
          jurisdictions and with any filing offices as the Secured Party may determine,
          in
          its sole discretion, are necessary or advisable to perfect the security
          interest
          granted to the Secured Party herein. Such financing statements may describe
          the
          Collateral in the same manner as described herein or may contain an indication
          or description of collateral that describes such property in any other
          manner as
          the Secured Party may determine, in its sole discretion, is necessary,
          advisable
          or prudent to ensure the perfection of the security interest in the Collateral
          granted to the Secured Party herein, including describing such property
          as “all
          assets” or “all personal property, whether now owned or hereafter acquired.”
Each Grantor shall furnish to the Secured Party from time to time statements
          and
          schedules further identifying and describing the Collateral and such other
          reports in connection with the Collateral as the Secured Party may reasonably
          request, all in reasonable detail.

        
          
            
            

          

          
            18

            
              

            

          

          
            
            

          

        

         

        5.3
          Additional Grantors.
          From
          time to time subsequent to the date hereof, additional Persons may become
          parties hereto as additional Grantors (each, an “Additional
          Grantor”),
          by
          executing a Counterpart Agreement. Upon delivery of any such counterpart
          agreement to the Secured Party, notice of which is hereby waived by Grantors,
          each Additional Grantor shall be a Grantor and shall be as fully a party
          hereto
          as if Additional Grantor were an original signatory hereto. Each Grantor
          expressly agrees that its obligations arising hereunder shall not be affected
          or
          diminished by the addition or release of any other Grantor hereunder, nor
          by any
          election of Secured Party not to cause any Subsidiary of Company to become
          an
          Additional Grantor hereunder. This Agreement shall be fully effective as
          to any
          Grantor that is or becomes a party hereto regardless of whether any other
          Person
          becomes or fails to become or ceases to be a Grantor hereunder.

         

        SECTION
          6 SECURED
          PARTY APPOINTED ATTORNEY-IN-FACT

         

        6.1
          Power of Attorney. Each
          Grantor hereby irrevocably appoints the Secured Party (such appointment
          being
          coupled with an interest) as such Grantor’s attorney-in-fact, with full
          authority in the place and stead of such Grantor and in the name of such
          Grantor, the Secured Party or otherwise, from time to time in the Secured
          Party’s discretion to take any action and to execute any instrument that the
          Secured Party may deem reasonably necessary or advisable to accomplish
          the
          purposes of this Agreement, including the following: 

         

        (a) upon
          the
          occurrence and during the continuance of any Event of Default, to obtain
          and
          adjust insurance required to be maintained by such Grantor or paid to the
          Secured Party pursuant to the ISDA Agreement; 

         

        (b) upon
          the
          occurrence and during the continuance of any Event of Default, to ask for,
          demand, collect, sue for, recover, compound, receive and give acquittance
          and
          receipts for moneys due and to become due under or in respect of any of
          the
          Collateral; 

         

        (c) upon
          the
          occurrence and during the continuance of any Event of Default, to receive,
          endorse and collect any drafts or other instruments, documents and chattel
          paper
          in connection with clause (b) above; 

         

        (d) upon
          the
          occurrence and during the continuance of any Event of Default, to file
          any
          claims or take any action or institute any proceedings that the Secured
          Party
          may deem necessary or desirable for the collection of any of the Collateral
          or
          otherwise to enforce the rights of the Secured Party with respect to any
          of the
          Collateral; 

         

        (e) to
          prepare and file any UCC financing statements against such Grantor as
          debtor;

        
          
            
            

          

          
            19

            
              

            

          

          
            
            

          

        

         

        (f) to
          prepare, sign, and file for recordation in any intellectual property registry,
          appropriate evidence of the lien and security interest granted herein in
          the
          Intellectual Property in the name of such Grantor as assignor;

         

        (g) to
          take
          or cause to be taken all actions necessary to perform or comply or cause
          performance or compliance with the terms of this Agreement, including access
          to
          pay or discharge taxes or Liens (other than Permitted Liens) levied or
          placed
          upon or threatened against the Collateral (except to the extent such taxes
          or
          liens are being contested by any Grantor in good faith by appropriate
          proceedings and for which adequate reserves have been established in accordance
          with GAAP), the legality or validity thereof and the amounts necessary
          to
          discharge the same to be determined by the Secured Party in its sole discretion,
          any such payments made by the Secured Party to become obligations of such
          Grantor to the Secured Party, due and payable immediately without demand;
          

         

        (h) upon
          the
          occurrence and during the continuance of any Event of Default, generally
          to
          sell, transfer, pledge, make any agreement with respect to or otherwise
          deal
          with any of the Collateral as fully and completely as though the Secured
          Party
          were the absolute owner thereof for all purposes; and 

         

        (i) to
          do, at
          the Secured Party’s option and such Grantor’s expense, at any time or from time
          to time, all acts and things that the Secured Party deems reasonably necessary
          to protect, preserve or realize upon the Collateral and the Secured Party’s
          security interest therein in order to effect the intent of this Agreement,
          all
          as fully and effectively as such Grantor might do.

         

        6.2
          No Duty on the Part of Secured Party.
          The
          powers conferred on the Secured Party hereunder are solely to protect the
          interests of the Secured Party in the Collateral and shall not impose any
          duty
          upon the Secured Party to exercise any such powers. The Secured Party shall
          be
          accountable only for amounts that they actually receive as a result of
          the
          exercise of such powers, and neither they nor any of their officers, directors,
          employees or agents shall be responsible to any Grantor for any act or
          failure
          to act hereunder, except for their own gross negligence or willful
          misconduct.

         

        SECTION
          7 REMEDIES

         

        7.1
          Generally.
          

         

        (a) If
          any
          Event of Default shall have occurred and be continuing, the Secured Party
          may
          exercise in respect of the Collateral, in addition to all other rights
          and
          remedies provided for herein or otherwise available to it at law or in
          equity,
          all the rights and remedies of the Secured Party on default under the UCC
          (whether or not the UCC applies to the affected Collateral) to collect,
          enforce
          or satisfy any Secured Obligations then owing, whether by acceleration
          or
          otherwise, and also may pursue any of the following separately, successively
          or
          simultaneously:

         

        (i)
          require
          any Grantor to, and each Grantor hereby agrees that it shall at its expense
          and
          promptly upon request of the Secured Party forthwith, assemble all or part
          of
          the Collateral as directed by the Secured Party and make it available to
          the
          Secured Party at a place to be designated by the Secured Party that is
          reasonably convenient to both parties; 

        
          
            
            

          

          
            20

            
              

            

          

          
            
            

          

        

         

        (ii)
          enter
          onto the property where any Collateral is located and take possession thereof
          with or without judicial process;

         

        (iii)
          prior
          to
          the disposition of the Collateral, store, process, repair or recondition
          the
          Collateral or otherwise prepare the Collateral for disposition in any manner
          to
          the extent the Secured Party deems appropriate; and

         

        (iv)
          without
          notice except as specified below or under the UCC, sell, assign, lease,
          license
          (on an exclusive or nonexclusive basis) or otherwise dispose of the Collateral
          or any part thereof in one or more parcels at public or private sale, at
          any of
          the Secured Party’s offices or elsewhere, for cash, on credit or for future
          delivery, at such time or times and at such price or prices and upon such
          other
          terms as the Secured Party may deem commercially reasonable.

         

        (b) The
          Secured Party may be the purchaser of any or all of the Collateral at any
          public
          or private (to the extent to portion of the Collateral being privately
          sold is
          of a kind that is customarily sold on a recognized market or the subject
          of
          widely distributed standard price quotations) sale in accordance with the
          UCC
          and the Secured Party, shall be entitled, for the purpose of bidding and
          making
          settlement or payment of the purchase price for all or any portion of the
          Collateral sold at any such sale made in accordance with the UCC, to use
          and
          apply any of the Secured Obligations as a credit on account of the purchase
          price for any Collateral payable by the Secured Party at such sale. Each
          purchaser at any such sale shall hold the property sold absolutely free
          from any
          claim or right on the part of any Grantor, and each Grantor hereby waives
          (to
          the extent permitted by applicable law) all rights of redemption, stay
          and/or
          appraisal which it now has or may at any time in the future have under
          any rule
          of law or statute now existing or hereafter enacted. Each Grantor agrees
          that,
          to the extent notice of sale shall be required by law, at least ten (10)
          days
          notice to such Grantor of the time and place of any public sale or the
          time
          after which any private sale is to be made shall constitute reasonable
          notification. The Secured Party shall not be obligated to make any sale
          of
          Collateral regardless of notice of sale having been given. The Secured
          Party may
          adjourn any public or private sale from time to time by announcement at
          the time
          and place fixed therefor, and such sale may, without further notice, be
          made at
          the time and place to which it was so adjourned. Each Grantor agrees that
          it
          would not be commercially unreasonable for the Secured Party to dispose
          of the
          Collateral or any portion thereof by using Internet sites that provide
          for the
          auction of assets of the types included in the Collateral or that have
          the
          reasonable capability of doing so, or that match buyers and sellers of
          assets.
          Each Grantor hereby waives any claims against the Secured Party arising
          by
          reason of the fact that the price at which any Collateral may have been
          sold at
          such a private sale was less than the price which might have been obtained
          at a
          public sale, even if the Secured Party accepts the first offer received
          and does
          not offer such Collateral to more than one offeree. If the proceeds of
          any sale
          or other disposition of the Collateral are insufficient to pay all the
          Secured
          Obligations, Grantors shall be liable for the deficiency and the fees of
          any
          attorneys employed by the Secured Party to collect such deficiency. Each
          Grantor
          further agrees that a breach of any of the covenants contained in this
          Section
          will cause irreparable injury to the Secured Party, that the Secured Party
          has
          no adequate remedy at law in respect of such breach and, as a consequence,
          that
          each and every covenant contained in this Section shall be specifically
          enforceable against such Grantor, and such Grantor hereby waives and agrees
          not
          to assert any defenses against an action for specific performance of such
          covenants except for a defense that no default has occurred giving rise
          to the
          Secured Obligations becoming due and payable prior to their stated maturities.
          Nothing in this Section shall in any way alter the rights of the Secured
          Party
          hereunder. 

        
          
            
            

          

          
            21

            
              

            

          

          
            
            

          

        

         

        (c) The
          Secured Party may sell the Collateral without giving any warranties as
          to the
          Collateral. The Secured Party may specifically disclaim or modify any warranties
          of title or the like. This procedure will not be considered to adversely
          effect
          the commercial reasonableness of any sale of the Collateral.

         

        (d) The
          Secured Party shall have no obligation to marshall any of the Collateral.
          

         

        7.2
          Application of Proceeds.
          Except
          as expressly provided elsewhere in this Agreement, all proceeds received
          by the
          Secured Party in respect of any sale, any collection from, or other realization
          upon all or any part of the Collateral shall be applied in full or in part
          by
          the Secured Party against, the Secured Obligations in the following order
          of
          priority: first, to the payment of all costs and expenses of such sale,
          collection or other realization, including reasonable compensation to the
          Secured Party and its agents and counsel, and all other expenses, liabilities
          and advances made or incurred by the Secured Party in connection therewith,
          and
          all amounts for which the Secured Party is entitled to indemnification
          hereunder
          and all advances made by the Secured Party hereunder for the account of
          the
          applicable Grantor, and to the payment of all costs and expenses paid or
          incurred by the Secured Party in connection with the exercise of any right
          or
          remedy hereunder or under the ISDA Agreement, all in accordance with the
          terms
          hereof or thereof; second, to the extent of any excess of such proceeds,
          to the
          payment of all other Secured Obligations; and third, to the extent of any
          excess
          of such proceeds, to the payment to or upon the order of such Grantor or
          to
          whosoever may be lawfully entitled to receive the same or as a court of
          competent jurisdiction may direct.

         

        7.3
          Sales on Credit.
          If
          Secured Party sells any of the Collateral upon credit, Grantor will be
          credited
          only with payments actually made by purchaser and received by Secured Party
          and
          applied to indebtedness of the Purchaser. In the event the purchaser fails
          to
          pay for the Collateral, Secured Party may resell the Collateral and Grantor
          shall be credited with proceeds of the sale.

         

        7.4
          Deposit Accounts.
          If any
          Event of Default shall have occurred and be continuing, the Secured Party
          may
          apply the balance from any Deposit Account or instruct the bank at which
          any
          Deposit Account is maintained to pay the balance of any Deposit Account
          to or
          for the benefit of the Secured Party.

         

        7.5
          Investment Related Property.
          Each
          Grantor recognizes that, by reason of certain prohibitions contained in
          the
          Securities Act and applicable state securities laws, the Secured Party
          may be
          compelled, with respect to any sale of all or any part of the Investment
          Related
          Property conducted without prior registration or qualification of such
          Investment Related Property under the Securities Act and/or such state
          securities laws, to limit purchasers to those who will agree, among other
          things, to acquire the Investment Related Property for their own account,
          for
          investment and not with a view to the distribution or resale thereof. Each
          Grantor acknowledges that any such private sale may be at prices and on
          terms
          less favorable than those obtainable through a public sale without such
          restrictions (including a public offering made pursuant to a registration
          statement under the Securities Act) and, notwithstanding such circumstances,
          each Grantor agrees that any such private sale shall be deemed to have
          been made
          in a commercially reasonable manner and that the Secured Party shall have
          no
          obligation to engage in public sales and no obligation to delay the sale
          of any
          Investment Related Property for the period of time necessary to permit
          the
          issuer thereof to register it for a form of public sale requiring registration
          under the Securities Act or under applicable state securities laws, even
          if such
          issuer would, or should, agree to so register it. If the Secured Party
          determines to exercise its right to sell any or all of the Investment Related
          Property, upon written request, each Grantor shall and shall cause each
          issuer
          of any Pledged Stock to be sold hereunder, each partnership and each limited
          liability company from time to time to furnish to the Secured Party all
          such
          information as the Secured Party may request in order to determine the
          number
          and nature of interest, shares or other instruments included in the Investment
          Related Property which may be sold by the Secured Party in exempt transactions
          under the Securities Act and the rules and regulations of the Securities
          and
          Exchange Commission thereunder, as the same are from time to time in
          effect.

         

        
          
            
            

          

          
            22

            
              

            

          

          
            
            

          

        

         

        7.6
          Intellectual Property.
          

         

        (a) Anything
          contained herein to the contrary notwithstanding, upon the occurrence and
          during
          the continuation of an Event of Default: 

         

        (i)
          the
          Secured Party shall have the right (but not the obligation) to bring suit
          or
          otherwise commence any action or proceeding in the name of any Grantor,
          the
          Secured Party or otherwise, in the Secured Party’s sole discretion, to enforce
          any Intellectual Property, in which event such Grantor shall, at the request
          of
          the Secured Party, do any and all lawful acts and execute any and all documents
          required by the Secured Party in aid of such enforcement and such Grantor
          shall
          promptly, upon demand, reimburse and indemnify the Secured Party as provided
          in
          the ISDA Agreement in connection with the exercise of its rights under
          this
          Section, and, to the extent that the Secured Party shall elect not to bring
          suit
          to enforce any Intellectual Property as provided in this Section, each
          Grantor
          agrees to use all reasonable measures, whether by action, suit, proceeding
          or
          otherwise, to prevent the infringement of any of the Intellectual Property
          by
          others and for that purpose agrees to diligently maintain any action, suit
          or
          proceeding against any Person so infringing as shall be necessary to prevent
          such infringement;

         

        (ii)
          upon
          written demand from the Secured Party, each Grantor shall grant, assign,
          convey
          or otherwise transfer to the Secured Party an absolute assignment of all
          of such
          Grantor’s right, title and interest in and to the Intellectual Property and
          shall execute and deliver to the Secured Party such documents as are necessary
          or appropriate to carry out the intent and purposes of this Agreement;
          

        
          
            
            

          

          
            23

            
              

            

          

          
            
            

          

        

         

        (iii)
          each
          Grantor agrees that such an assignment and/or recording shall be applied
          to
          reduce the Secured Obligations outstanding only to the extent that the
          Secured
          Party receives Cash Proceeds in respect of the sale of, or other realization
          upon, the Intellectual Property; 

         

        (iv)
          within
          five (5) Business Days after written notice from the Secured Party, each
          Grantor
          shall make available to the Secured Party, to the extent within such Grantor’s
          power and authority, such personnel in such Grantor’s employ on the date of such
          Event of Default as the Secured Party may reasonably designate, by name,
          title
          or job responsibility, to permit such Grantor to continue, directly or
          indirectly, to produce, advertise and sell the products and services sold
          or
          delivered by such Grantor under or in connection with the Trademarks, Trademark
          Licenses, such persons to be available to perform their prior functions
          on the
          Secured Party’s behalf and to be compensated by the Secured Party at such
          Grantor’s expense on a per diem, pro-rata basis consistent with the salary and
          benefit structure applicable to each as of the date of such Event of Default;
          and

         

        (v)
          the
          Secured Party shall have the right to notify, or require each Grantor to
          notify,
          any obligors with respect to amounts due or to become due to such Grantor
          in
          respect of the Intellectual Property, of the existence of the security
          interest
          created herein, to direct such obligors to make payment of all such amounts
          directly to the Secured Party, and, upon such notification and at the expense
          of
          such Grantor, to enforce collection of any such amounts and to adjust,
          settle or
          compromise the amount or payment thereof, in the same manner and to the
          same
          extent as such Grantor might have done;

         

        (A)
          all
          amounts and proceeds (including checks and other instruments) received
          by
          Grantor in respect of amounts due to such Grantor in respect of the Collateral
          or any portion thereof shall be received in trust for the benefit of the
          Secured
          Party hereunder, shall be segregated from other funds of such Grantor and
          shall
          be forthwith paid over or delivered to the Secured Party in the same form
          as so
          received (with any necessary endorsement) to be held as cash Collateral
          and
          applied as provided by Section 7.7 hereof; and

         

        (B)
          Grantor
          shall not adjust, settle or compromise the amount or payment of any such
          amount
          or release wholly or partly any obligor with respect thereto or allow any
          credit
          or discount thereon.

         

        (b) If
          (i) an
          Event of Default shall have occurred and, by reason of cure, waiver,
          modification, amendment or otherwise, no longer be continuing, (ii) no
          other
          Event of Default shall have occurred and be continuing, (iii) an assignment
          or
          other transfer to the Secured Party of any rights, title and interests
          in and to
          the Intellectual Property shall have been previously made and shall have
          become
          absolute and effective, and (iv) the Secured Obligations shall not have
          become
          immediately due and payable, upon the written request of any Grantor, the
          Secured Party shall promptly execute and deliver to such Grantor, at such
          Grantor’s sole cost and expense, such assignments or other transfer as may be
          necessary to reassign to such Grantor any such rights, title and interests
          as
          may have been assigned to the Secured Party as aforesaid, subject to any
          disposition thereof that may have been made by the Secured Party; provided,
          after giving effect to such reassignment, the Secured Party’s security interest
          granted pursuant hereto, as well as all other rights and remedies of the
          Secured
          Party granted hereunder, shall continue to be in full force and effect;
          and
          provided further, the rights, title and interests so reassigned shall be
          free
          and clear of any Liens granted by or on behalf of the Secured
          Party.

        
          
            
            

          

          
            24

            
              

            

          

          
            
            

          

        

         

        (c) Solely
          for the purpose of enabling the Secured Party to exercise rights and remedies
          under this Section 7.6 and at such time as the Secured Party shall be lawfully
          entitled to exercise such rights and remedies, each Grantor hereby grants
          to the
          Secured Party, to the extent it has the right to do so, an irrevocable,
          nonexclusive license (exercisable without payment of royalty or other
          compensation to such Grantor), subject, in the case of Trademarks, to sufficient
          rights to quality control and inspection in favor of such Grantor to avoid
          the
          risk of invalidation of said Trademarks, to use, operate under, license,
          or
          sublicense any Intellectual Property now owned or hereafter acquired by
          such
          Grantor, and wherever the same may be located.

         

        7.7
          Cash Proceeds.
          All
          proceeds of any Collateral received by any Grantor consisting of cash,
          checks
          and other near-cash items (collectively, “Cash
          Proceeds”)
          shall
          be held by such Grantor in trust for the Secured Party and shall be applied
          and
          paid as provided in the ISDA Agreement. Any Cash Proceeds received by the
          Secured Party (whether from a Grantor or otherwise): (i) if no Event of
          Default
          shall have occurred and be continuing, shall be applied and paid as provided
          in
          the ISDA Agreement and (ii) if an Event of Default shall have occurred
          and be
          continuing, may, in the sole discretion of the Secured Party, (A) be held
          by the
          Secured Party, as collateral security for the Secured Obligations (whether
          matured or unmatured) and/or (B) then or at any time thereafter may be
          applied
          by the Secured Party against the Secured Obligations then due and owing.
          

         

        SECTION
          8 [RESERVED]

         

        SECTION
          9 CONTINUING
          SECURITY INTEREST

         

        This
          Agreement shall create a continuing security interest in the Collateral
          and
          shall remain in full force and effect until the payment in full of all
          Secured
          Obligations, be binding upon each Grantor, its successors and assigns,
          and
          inure, together with the rights and remedies of the Secured Party hereunder,
          to
          the benefit of the Secured Party and its successors, transferees and assigns.
          Upon the payment in full of all Secured Obligations the security interest
          granted hereby shall terminate hereunder and of record and all rights to
          the
          Collateral shall revert to Grantors. Upon any such termination the Secured
          Party
          shall, at Grantors’ expense, execute and deliver to Grantors such documents as
          Grantors shall reasonably request to evidence such termination. 

         

        SECTION
          10 STANDARD
          OF CARE; SECURED PARTY MAY PERFORM

         

        Except
          for the exercise of reasonable care in the custody of any Collateral in
          its
          possession and the accounting for moneys actually received by it hereunder,
          the
          Secured Party shall have no duty as to any Collateral or as to the taking
          of any
          necessary steps to preserve rights against prior parties or any other rights
          pertaining to any Collateral. The Secured Party shall be deemed to have
          exercised reasonable care in the custody and preservation of Collateral
          in its
          possession if such Collateral is accorded treatment substantially equal
          to that
          which the Secured Party accords its own property. Neither the Secured Party
          nor
          any of its directors, officers, employees or agents shall be liable for
          failure
          to demand, collect or realize upon all or any part of the Collateral or
          for any
          delay in doing so or shall be under any obligation to sell or otherwise
          dispose
          of any Collateral upon the request of any Grantor or otherwise. If any
          Grantor
          fails to perform any agreement contained herein, the Secured Party may
          itself
          perform, or cause performance of, such agreement, and the expenses of the
          Secured Party incurred in connection therewith shall be payable by each
          Grantor
          immediately upon demand by Secured Party.

        
          
            
            

          

          
            25

            
              

            

          

          
            
            

          

        

         

        SECTION
          11 MISCELLANEOUS

         

        Any
          notice required or permitted to be given under this Agreement shall be
          given in
          accordance with the ISDA Agreement. No failure or delay on the part of
          the
          Secured Party in the exercise of any power, right or privilege hereunder
          or
          under any other Transaction Document shall impair such power, right or
          privilege
          or be construed to be a waiver of any default or acquiescence therein,
          nor shall
          any single or partial exercise of any such power, right or privilege preclude
          other or further exercise thereof or of any other power, right or privilege.
          All
          rights and remedies existing under this Agreement and the other Transaction
          Documents are cumulative to, and not exclusive of, any rights or remedies
          otherwise available. In case any provision in or obligation under this
          Agreement
          shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
          legality and enforceability of the remaining provisions or obligations,
          or of
          such provision or obligation in any other jurisdiction, shall not in any
          way be
          affected or impaired thereby. All covenants hereunder shall be given independent
          effect so that if a particular action or condition is not permitted by
          any of
          such covenants, the fact that it would be permitted by an exception to,
          or would
          otherwise be within the limitations of, another covenant shall not avoid
          the
          occurrence of a Default or an Event of Default if such action is taken
          or
          condition exists. This Agreement shall be binding upon and inure to the
          benefit
          of the Secured Party and Grantors and their respective successors and assigns.
          No Grantor shall, without the prior written consent of the Secured Party
          given
          in accordance with the ISDA Agreement, assign any right, duty or obligation
          hereunder. This Agreement and the other Transaction Documents embody the
          entire
          agreement and understanding between Grantors and the Secured Party and
          supersede
          all prior agreements and understandings between such parties relating to
          the
          subject matter hereof and thereof. Accordingly, the Transaction Documents
          may
          not be contradicted by evidence of prior, contemporaneous or subsequent
          oral
          agreements of the parties. There are no unwritten oral agreements between
          the
          parties. This Agreement may be executed in one or more counterparts and
          by
          different parties hereto in separate counterparts, each of which when so
          executed and delivered shall be deemed an original, but all such counterparts
          together shall constitute but one and the same instrument; signature pages
          may
          be detached from multiple separate counterparts and attached to a single
          counterpart so that all signature pages are physically attached to the
          same
          document.

         

        THIS
          AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
          BE
          GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
          LAWS OF
          THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW
          PROVISIONS.

         

        [Remainder
          of page intentionally left blank.]

        
          
            
            

          

          
            26

            
              

            

          

          
            
            

          

        

        IN
          WITNESS WHEREOF, each Grantor and the Secured Party have caused this Agreement
          to be duly executed and delivered by their respective officers thereunto
          duly
          authorized as of the date first written above.

        
          	 	 	 
	 	
                  FOOTHILLS
                    RESOURCES, INC.,

                  a
                    Grantor

                
	 
 	 
 	 
 
	
                	By:  	/s/
                  W. Kirk Bosche
	 	
                  
W.
                  Kirk Bosche
	 	
                  Assistant
                    Secretary and Chief Financial
                    Officer

                

        

         

        
          	 	 	 
	 	
                  FOOTHILLS CALIFORNIA, INC.,

                  a Grantor

                
	 
 	 
 	 
 
	
                	By:  	/s/ W. Kirk Bosche
	 	
                  
W.
                  Kirk Bosche
	 	Assistant
                  Secretary and Chief Financial Officer

        

         

        
          	 	 	 
	 	
                  FOOTHILLS OKLAHOMA, INC.,

                  a Grantor

                
	 
 	 
 	 
 
	
                	By:  	/s/ W. Kirk Bosche
	 	
                  
W.
                  Kirk Bosche
	 	
                  Assistant
                    Secretary and Chief Financial
                    Officer

                

        

         

        
          	 	 	 
	 	
                  FOOTHILLS TEXAS, INC.,

                  a Grantor

                
	 
 	 
 	 
 
	
                	By:  	/s/ W. Kirk Bosche
	 	
                  
W.
                  Kirk Bosche
	 	
                  Assistant
                    Secretary and Chief Financial
                    Officer

                

        

         

        
          	 	 	 
	 	
                  J.
                    ARON & COMPANY,

                  as
                    the Secured Party

                
	 
 	 
 	 
 
	
                	By:  	/s/
                  Colleen Foster
	 	
                  
Authorized
                  Signatory

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}]]