Document:

Exhibit 10.1

 

EXECUTION COPY

 

 

 

$547,250,000

 

CREDIT
AGREEMENT

 

among

 

KEY
ENERGY SERVICES, INC.,

 

as
Borrower,

 

The
Several Lenders

from Time to Time Parties Hereto,

 

LEHMAN
BROTHERS INC.,

 

as
Sole Lead Arranger and Sole Bookrunner

 

LEHMAN
COMMERCIAL PAPER INC.,

as Syndication Agent,

 

WELLS
FARGO FOOTHILL, INC.,

as
Revolving Administrative Agent,

 

and

 

LEHMAN
COMMERCIAL PAPER INC.,

as Administrative Agent and Collateral Agent

 

Dated as of July 29,
2005

 

 

 

TABLE OF CONTENTS

 

	
  SECTION 1.
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Defined Terms

  	
   

  
	
  1.2

  	
  Other
  Definitional Provisions.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 2. AMOUNT AND TERMS OF
  COMMITMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Term Loan Commitments

  	
   

  
	
  2.2

  	
  Procedure for Term Loan Borrowing

  	
   

  
	
  2.3

  	
  Repayment of Term Loans.

  	
   

  
	
  2.4

  	
  Revolving Credit Commitments

  	
   

  
	
  2.5

  	
  Procedure for Revolving Credit Borrowing

  	
   

  
	
  2.6

  	
  Swing Line
  Commitment

  	
   

  
	
  2.7

  	
  Procedure for Swing Line Borrowing;
  Refunding of Swing Line Loans

  	
   

  
	
  2.8

  	
  Repayment of Loans; Evidence of Debt

  	
   

  
	
  2.9

  	
  Commitment Fees, etc

  	
   

  
	
  2.10

  	
  Termination or Reduction of Commitments

  	
   

  
	
  2.11

  	
  Optional Prepayments

  	
   

  
	
  2.12

  	
  Mandatory Prepayments

  	
   

  
	
  2.13

  	
  Conversion and Continuation Options

  	
   

  
	
  2.14

  	
  Minimum Amounts and Maximum Number of
  Eurodollar Tranches

  	
   

  
	
  2.15

  	
  Interest Rates and Payment Dates

  	
   

  
	
  2.16

  	
  Computation of Interest and Fees

  	
   

  
	
  2.17

  	
  Inability to Determine Interest Rate

  	
   

  
	
  2.18

  	
  Pro Rata Treatment and Payments

  	
   

  
	
  2.19

  	
  Requirements of Law

  	
   

  
	
  2.20

  	
  Taxes

  	
   

  
	
  2.21

  	
  Indemnity

  	
   

  
	
  2.22

  	
  Illegality

  	
   

  
	
  2.23

  	
  Change of Lending Office

  	
   

  
	
  2.24

  	
  Replacement of Lenders under Certain
  Circumstances

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 3. LETTERS OF CREDIT

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  L/C Commitment

  	
   

  
	
  3.2

  	
  Procedure for Issuance of Letters of Credit

  	
   

  
	
  3.3

  	
  Fees and Other Charges

  	
   

  
	
  3.4

  	
  Revolving Credit L/C Participations

  	
   

  
	
  3.5

  	
  Participations in Funded Letters of Credit

  	
   

  
	
  3.6

  	
  Reimbursement Obligation of the Borrower

  	
   

  
	
  3.7

  	
  Credit Linked Deposit Account.

  	
   

  
	
  3.8

  	
  Obligations Absolute

  	
   

  
	
  3.9

  	
  Letter of Credit Payments

  	
   

  

 

i

 

	
  3.10

  	
  Applications

  	
   

  
	
  3.11

  	
  Enforcement

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 4. REPRESENTATIONS AND
  WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Financial Condition

  	
   

  
	
  4.2

  	
  No Change

  	
   

  
	
  4.3

  	
  Corporate Existence; Compliance with Law

  	
   

  
	
  4.4

  	
  Corporate Power; Authorization; Enforceable
  Obligations

  	
   

  
	
  4.5

  	
  No Legal Bar

  	
   

  
	
  4.6

  	
  No Material Litigation

  	
   

  
	
  4.7

  	
  No Default

  	
   

  
	
  4.8

  	
  Ownership of Property; Liens

  	
   

  
	
  4.9

  	
  Intellectual Property

  	
   

  
	
  4.10

  	
  Taxes

  	
   

  
	
  4.11

  	
  Federal Regulations

  	
   

  
	
  4.12

  	
  Labor Matters

  	
   

  
	
  4.13

  	
  ERISA

  	
   

  
	
  4.14

  	
  Investment Company Act; Other Regulations

  	
   

  
	
  4.15

  	
  Subsidiaries

  	
   

  
	
  4.16

  	
  Use of Proceeds.

  	
   

  
	
  4.17

  	
  Environmental Matters.

  	
   

  
	
  4.18

  	
  Accuracy of Information, etc

  	
   

  
	
  4.19

  	
  Security Documents

  	
   

  
	
  4.20

  	
  Solvency

  	
   

  
	
  4.21

  	
  Insurance

  	
   

  
	
  4.22

  	
  Real Estate

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 5. CONDITIONS PRECEDENT

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Conditions to Initial Extension of Credit

  	
   

  
	
  5.2

  	
  Conditions to Each Extension of Credit

  	
   

  
	
  5.3

  	
  Conditions to Extensions of Tranche B Term
  Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 6. AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Financial Statements

  	
   

  
	
  6.2

  	
  Certificates; Other Information

  	
   

  
	
  6.3

  	
  Payment of Obligations

  	
   

  
	
  6.4

  	
  Conduct of Business and Maintenance of
  Existence, etc.

  	
   

  
	
  6.5

  	
  Maintenance of Property; Insurance

  	
   

  
	
  6.6

  	
  Inspection of Property; Books and Records;
  Discussions

  	
   

  
	
  6.7

  	
  Notices

  	
   

  
	
  6.8

  	
  Environmental Laws

  	
   

  
	
  6.9

  	
  Interest Rate Protection

  	
   

  
	
  6.10

  	
  Additional Collateral, etc.

  	
   

  
	
  6.11

  	
  Use of Proceeds

  	
   

  

 

ii

 

	
  6.12

  	
  ERISA Documents

  	
   

  
	
  6.13

  	
  Further Assurances

  	
   

  
	
  6.14

  	
  Prior Financial Statements

  	
   

  
	
  6.15

  	
  Post-Closing Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 7. NEGATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Financial Condition Covenants.

  	
   

  
	
  7.2

  	
  Limitation on Indebtedness

  	
   

  
	
  7.3

  	
  Limitation on Liens

  	
   

  
	
  7.4

  	
  Limitation on Fundamental Changes

  	
   

  
	
  7.5

  	
  Limitation on Disposition of Property

  	
   

  
	
  7.6

  	
  Limitation on Restricted Payments

  	
   

  
	
  7.7

  	
  Limitation on Capital Expenditures

  	
   

  
	
  7.8

  	
  Limitation on Investments

  	
   

  
	
  7.9

  	
  Limitation on Optional Payments and
  Modifications of Debt Instruments, etc.

  	
   

  
	
  7.10

  	
  Limitation on Transactions with Affiliates

  	
   

  
	
  7.11

  	
  Limitation on Sales and Leasebacks

  	
   

  
	
  7.12

  	
  Limitation on Changes in Fiscal Periods

  	
   

  
	
  7.13

  	
  Limitation on Negative Pledge Clauses

  	
   

  
	
  7.14

  	
  Limitation on Restrictions on Subsidiary
  Distributions

  	
   

  
	
  7.15

  	
  Limitation on Lines of Business

  	
   

  
	
  7.16

  	
  Limitation on Hedge Agreements

  	
   

  
	
  7.17

  	
  Partnerships and Joint Ventures

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 8. EVENTS OF DEFAULT

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 9. THE AGENTS; THE ARRANGER

  	
   

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Appointment

  	
   

  
	
  9.2

  	
  Delegation of Duties

  	
   

  
	
  9.3

  	
  Exculpatory Provisions

  	
   

  
	
  9.4

  	
  Reliance by Agents

  	
   

  
	
  9.5

  	
  Notice of Default

  	
   

  
	
  9.6

  	
  Non-Reliance on the Arranger, the Agents
  and Other Lenders

  	
   

  
	
  9.7

  	
  Indemnification

  	
   

  
	
  9.8

  	
  Arranger and Agent in their Individual
  Capacities

  	
   

  
	
  9.9

  	
  Successor Agent

  	
   

  
	
  9.10

  	
  Authorization to Release Liens and
  Guarantees

  	
   

  
	
  9.11

  	
  The Arranger; the Syndication Agent

  	
   

  
	
  9.12

  	
  Withholding Tax

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 10. MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Amendments and Waivers

  	
   

  
	
  10.2

  	
  Notices

  	
   

  

 

iii

 

	
  10.3

  	
  No Waiver; Cumulative Remedies

  	
   

  
	
  10.4

  	
  Survival of Representations and Warranties

  	
   

  
	
  10.5

  	
  Payment of Expenses

  	
   

  
	
  10.6

  	
  Successors and Assigns; Participations and
  Assignments

  	
   

  
	
  10.7

  	
  Adjustments; Set-off

  	
   

  
	
  10.8

  	
  Counterparts

  	
   

  
	
  10.9

  	
  Severability

  	
   

  
	
  10.10

  	
  Integration

  	
   

  
	
  10.11

  	
  GOVERNING LAW

  	
   

  
	
  10.12

  	
  Submission To Jurisdiction; Waivers

  	
   

  
	
  10.13

  	
  Acknowledgments

  	
   

  
	
  10.14

  	
  Confidentiality

  	
   

  
	
  10.15

  	
  Release of Collateral and Guarantee
  Obligations.

  	
   

  
	
  10.16

  	
  Accounting Changes

  	
   

  
	
  10.17

  	
  Delivery of Lender Addenda

  	
   

  
	
  10.18

  	
  WAIVERS OF JURY TRIAL

  	
   

  
	
  10.19

  	
  Limitation on Interest Charges. .

  	
   

  

 

iv

 

	
  ANNEXES:

  
	
   

  	
   

  
	
  A

  	
  Pricing
  Grid

  
	
   

  	
   

  
	
  SCHEDULES:

  
	
   

  	
   

  
	
  4.1(b)-1

  	
  Contingent Obligations

  
	
  4.1(b)-2

  	
  Dispositions since December 31, 2004

  
	
  4.4

  	
  Consents, Authorizations, Filings and Notices

  
	
  4.6

  	
  Litigation

  
	
  4.15

  	
  Subsidiaries

  
	
  4.19(a)-1

  	
  UCC Filing Jurisdictions

  
	
  4.19(a)-2

  	
  UCC Financing Statements to be Terminated

  
	
  4.22

  	
  Owned and Leased Property

  
	
  5.1(i)

  	
  Required Appraisals

  
	
  6.15

  	
  Post-Closing Covenants

  
	
  7.2(d)

  	
  Existing Indebtedness

  
	
  7.3(f)

  	
  Existing Liens

  
	
  7.5(g)

  	
  Identified Dispositions

  
	
   

  	
   

  
	
  EXHIBITS:

  
	
   

  	
   

  
	
  A

  	
  Form of Guarantee and Collateral Agreement

  
	
  B

  	
  Form of Compliance Certificate

  
	
  C

  	
  Form of Closing Certificate

  
	
  D

  	
  Form of Assignment and Acceptance

  
	
  E-1

  	
  Form of Legal Opinion of Porter & Hedges L.L.P.

  
	
  E-2

  	
  Form of Legal Opinion of Miles & Stockbridge P.C.

  
	
  E-3

  	
  Form of Legal Opinion of Schully, Roberts, Slattery,
  Jaubert & Marino, PC

  
	
  E-4

  	
  Form of Legal Opinion of Zimmerman, Kuhn, Darling, Boyd, Taylor
  and Quandt, PLC

  
	
  E-5

  	
  Form of Legal Opinion of Nixon Peabody LLP

  
	
  E-6

  	
  Form of Legal Opinion of Rice, Sibley, Reuther &
  Sullivan

  
	
  F-1

  	
  Form of Term Note

  
	
  F-2

  	
  Form of Revolving Credit Note

  
	
  F-3

  	
  Form of Swing Line Note

  
	
  G

  	
  Form of Exemption Certificate

  
	
  H

  	
  Form of Solvency Certificate

  
	
  I

  	
  Form of Subordinated Intercompany Note

  
	
  J

  	
  Form of Borrowing Notice

  
	
  K

  	
  Form of Payoff Letter

  
	
  L

  	
  Form of
  Lender Addendum

  
			

 

 

CREDIT
AGREEMENT, dated as of July 29, 2005 , among KEY ENERGY SERVICES, INC., a
Maryland corporation (the “Borrower”), the several banks and other
financial institutions or entities from time to time parties to this Agreement
(the “Lenders”), LEHMAN BROTHERS INC., as advisor, sole lead arranger
and sole bookrunner (in such capacity, the “Arranger”), LEHMAN
COMMERCIAL PAPER INC., as syndication agent (in such capacity, the “Syndication
Agent”), WELLS FARGO FOOTHILL, INC., as administrative agent under the
Revolving Credit Facility and the Funded Letter of Credit Facility (in such
capacity, the “Revolving Administrative Agent”), and LEHMAN COMMERCIAL
PAPER INC., as administrative agent (in such capacity, the “Administrative
Agent”), and as collateral agent (in such capacity, the “Collateral
Agent”).

 

W I T N E S S
E T H:

 

WHEREAS, the
Borrower wishes to refinance its Existing Credit Facility and to have funds
available to refinance the Existing Notes (collectively, the “Refinancing”);

 

WHEREAS, the
Borrower has requested that the Lenders make credit facilities available to the
Borrower in order to finance the Refinancing and for the other purposes set
forth herein; and

 

WHEREAS, the
Lenders are willing to make such credit facilities available upon and subject
to the terms and conditions hereinafter set forth;

 

NOW,
THEREFORE, in consideration of the premises and the agreements hereinafter set
forth, the parties hereto hereby agree as follows:

 

SECTION 1.
 DEFINITIONS

 

1.1                                 Defined
Terms.  As used in this Agreement,
the terms listed in this Section 1.1 shall have the respective meanings
set forth in this Section 1.1.

 

“Acquired
Person”:  any Person (a) acquired
by the Borrower or its Subsidiaries which upon such acquisition becomes a
Subsidiary or is merged or combined into the Borrower or a Subsidiary or (b) all
or substantially all of the assets of which (or all or substantially all of the
assets of any business or division of which) are acquired by the Borrower or a
Subsidiary.

 

“Acquired
Person Unreleased Liens”:  financing
statements, the notation of Liens on certificates of title and other notices of
Liens given or filed with respect to Acquired Persons which relate solely to
Indebtedness and other obligations which have been fully repaid.

 

“Administrative
Agent”:  as defined in the preamble
hereto.

 

“Affiliate”:  as to any Person, any other Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person.  For purposes
of this definition, “control” of a Person means the power, directly or
indirectly, either to (a) vote 10% or more of the securities having
ordinary voting power for the election of directors (or persons performing
similar functions) of such Person or (b) direct or cause the direction of
the management and policies of such Person, whether by contract or otherwise.

 

 

“Agents”:  the collective reference to the Syndication
Agent, the Revolving Administrative Agent, the Administrative Agent and the
Collateral Agent.

 

“Aggregate
Exposure”:  with respect to any
Lender at any time, an amount equal to (a) until the Closing Date, the
aggregate amount of such Lender’s Commitments at such time and (b) thereafter,
the sum of (i) the aggregate amount of such Lender’s then unfunded Tranche
B Term Loan Commitment plus the aggregate then unpaid principal amount of such
Lender’s Term Loans, (ii) the amount of such Lender’s Revolving Credit
Commitment then in effect or, if the Revolving Credit Commitments have been
terminated, the amount of such Lender’s Revolving Extensions of Credit then
outstanding and (iii) the amount of such Lender’s Funded Letter of Credit
Commitment then in effect or, if the Funded Letter of Credit Commitments have
been terminated, the amount of such Lender’s Funded Letter of Credit Exposure.

 

“Aggregate
Exposure Percentage”:  with respect
to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s
Aggregate Exposure at such time to the sum of the Aggregate Exposures of all
Lenders at such time.

 

“Agreement”:  this Credit Agreement, as amended,
supplemented, replaced or otherwise modified from time to time.

 

“Applicable
Margin”:  for each Type of Loan under
each Facility, the rate per annum set forth opposite such Facility under the
relevant column heading below:

 

	
   

  	
   

  	
  Eurodollar

  Loans

  	
   

  	
  Base Rate

  Loans

  	
   

  
	
  Revolving Credit Facility

  	
   

  	
  2.75

  	
  %

  	
  1.75

  	
  %

  
	
  Swing Line Loans

  	
   

  	
  —

  	
   

  	
  1.75

  	
  %

  
	
  Tranche B Term Loan Facility

  	
   

  	
  2.75

  	
  %

  	
  1.75

  	
  %

  

 

provided,
that (a) each Applicable Margin set forth above shall increase permanently
by 0.50% on each of December 31, 2005 and June 30, 2006, in each case
if by such date the Borrower has not provided to the Arranger audited and
unaudited financial statements (which unaudited financial statements have been
reviewed by the independent accountants for the Borrower and its subsidiaries
as provided in Statement on Auditing Standards No. 100) of the Borrower
and its subsidiaries (including pro forma financial statements) meeting the
requirements of Regulation S-X for a Form S-1 registration statement under
the Securities Act of 1933, as amended and (b) on and after the first date
on which the Facilities are rated by both S&P and Moody’s, the Applicable
Margins will be determined pursuant to the Pricing Grid.

 

“Applicable
States”:  with respect to any Loan
Party, the states in which such Loan Party does a material amount of business
or has material operations, as determined on the Closing Date by the Borrower,
in consultation with the Administrative Agent.

 

“Application”:  an application, in such form as the relevant
Issuing Lender may specify from time to time, requesting such Issuing Lender to
issue a Letter of Credit.

 

2

 

“Arranger”:  as defined in the preamble hereto.

 

“Asset Sale”:  any Disposition of Property or series of
related Dispositions of Property (excluding any such Disposition permitted by
any of clauses (a)-(f) or (i)-(l) of Section 7.5) which yields gross
proceeds to the Borrower or any of its Subsidiaries (valued at the initial
principal amount thereof (net of any original issue discount) in the case of
non-cash proceeds consisting of notes or other debt securities and valued at
Fair Market Value in the case of other non-cash proceeds) in excess of
$2,000,000.

 

“Assignee”:  as defined in Section 10.6(c).

 

“Assignment
and Acceptance”:  as defined in Section 10.6(c).

 

“Assignor”:  as defined in Section 10.6(c).

 

“Available
Revolving Credit Commitment”:  with
respect to any Revolving Credit Lender at any time, an amount equal to the
excess, if any, of (a) such Lender’s Revolving Credit Commitment then in
effect over (b) such Lender’s Revolving Extensions of Credit then
outstanding; provided, that in calculating any Lender’s Revolving
Extensions of Credit for the purpose of determining such Lender’s Available
Revolving Credit Commitment pursuant to Section 2.9(a), but not for any
other purpose (including Section 2.7), the aggregate principal amount of
Swing Line Loans then outstanding shall be deemed to be zero.

 

“Base Rate”:  for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/100 of 1%) equal to the greater of (a) the
Prime Rate in effect on such day and (b) the Federal Funds Effective Rate
in effect on such day plus 1⁄2 of 1%.  For
purposes hereof:  “Prime Rate”
shall mean the prime lending rate as set forth on the British Banking
Association Telerate Page 5 (or such other comparable page as may, in
the opinion of the Administrative Agent, replace such page for the purpose
of displaying such rate), as in effect from time to time.  The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate actually available.  Any change in the Base Rate due to a change
in the Prime Rate or the Federal Funds Effective Rate shall be effective as of
the opening of business on the effective day of such change in the Prime Rate
or the Federal Funds Effective Rate, respectively.

 

“Base Rate
Loans”:  Loans for which the
applicable rate of interest is based upon the Base Rate.

 

“Benefitted
Lender”:  as defined in Section 10.7(a).

 

“Board”:  the Board of Governors of the Federal Reserve
System of the United States (or any successor).

 

“Borrower”:  as defined in the preamble hereto.

 

“Borrowing
Date”:  any Business Day specified by
the Borrower in a Borrowing Notice as a date on which the relevant Lenders are
requested to make Loans hereunder.

 

3

 

“Borrowing
Notice”:  with respect to any request
for borrowing of Loans hereunder, a notice from the Borrower, substantially in
the form of, and containing the information prescribed by, Exhibit J,
delivered to the Administrative Agent and the Revolving Administrative Agent,
as applicable.

 

“Business
Day”:  (a) for all purposes
other than as covered by clause (b) below, a day other than a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
or required by law to close and (b) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans or the Credit Linked Deposit, any day which is a Business Day
described in clause (a) and which is also a day for trading by and between
banks in Dollar deposits in the interbank eurodollar market.

 

“Capital Expenditures”:  for any period, with respect to any Person,
the aggregate of all expenditures by such Person for the acquisition or leasing
(pursuant to a capital lease) of fixed or capital assets or additions to
equipment (including replacements, capitalized repairs and improvements during
such period) which are required to be capitalized under GAAP on a balance sheet
of such Person; provided that “Capital Expenditures” shall not include (a) expenditures
for Permitted Acquisitions or (b) expenditures by any Acquired Person
prior to the time such Acquired Person was acquired in a Permitted Acquisition.

 

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

 

“Capital
Stock”:  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) and any and all warrants, rights or options to
purchase any of the foregoing.

 

“Cash
Equivalents”:  (a) marketable
direct obligations issued by, or unconditionally guaranteed by, the United
States government or issued by any agency thereof and backed by the full faith
and credit of the United States, in each case maturing within one year from the
date of acquisition; (b) certificates of deposit, time deposits, eurodollar
time deposits or overnight bank deposits having maturities of six months or
less from the date of acquisition issued by any Lender or by any commercial
bank organized under the laws of the United States or any state thereof
(including any foreign bank which is a Subsidiary of a commercial bank or
holding company thereof which is organized under any such laws) having combined
capital and surplus of not less than $500,000,000; (c) commercial paper of
an issuer rated at least A-2 by S&P or P-2 by Moody’s or carrying an
equivalent rating by a nationally recognized rating agency, if both of the two
named rating agencies cease publishing ratings of commercial paper issuers
generally, and maturing within six months from the date of acquisition; (d) repurchase
obligations of any Lender or of any commercial bank satisfying the requirements
of clause (b) of this definition, having a term of not more than 30 days
with respect to securities issued or fully guaranteed or insured by the United
States government; (e) securities with

 

4

 

maturities of one year or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody’s; (f) securities with
maturities of six months or less from the date of acquisition backed by standby
letters of credit issued by any Lender or any commercial bank satisfying the
requirements of clause (b) of this definition; and (g) shares of
money market mutual or similar funds which invest primarily in assets
satisfying the requirements of clauses (a) through (f) of this
definition.

 

“Change of
Control”:  the occurrence of any of
the following events:   (a) any “person”
or “group” (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (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 35% of the
outstanding common stock of the Borrower; (b) the board of directors of
the Borrower shall cease to consist of a majority of Continuing Directors;  or (c)  a Specified Change of Control.

 

“Closing
Date”:  the date on which the
conditions precedent set forth in Section 5.1 shall have been satisfied or
waived, which date shall be not later than December 31, 2005.

 

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

 

“Collateral”:  all Property of the Loan Parties, now owned
or hereafter acquired, upon which a Lien is purported to be created by any
Security Document.

 

“Collateral
Agent”:  as defined in the preamble
hereto.

 

“Commitment”:  with respect to any Lender, the sum of the
Tranche B Term Loan Commitment, the Revolving Credit Commitment and the Funded
Letter of Credit Commitment of such Lender.

 

“Commitment
Fee Rate”:  with respect to the
Revolving Credit Commitments, 0.50% per annum and, with respect to the Tranche
B Term Loan Commitments, 1.00% per annum.

 

“Commonly
Controlled Entity”:  an entity,
whether or not incorporated, that is under common control with the Borrower
within the meaning of Section 4001 of ERISA or is part of a group that
includes the Borrower and that is treated as a single employer under Section 414
of the Code.

 

“Compliance
Certificate”:  a certificate duly
executed by a Responsible Officer, substantially in the form of Exhibit B.

 

“Confidential
Information Memorandum”:  the
Confidential Information Memorandum dated July 2005 and furnished to the
initial Lenders in connection with the syndication of the Facilities.

 

5

 

“Consolidated
Current Assets”:  of any Person at
any date, all amounts (other than cash and Cash Equivalents) that would, in
conformity with GAAP, be set forth opposite the caption “total current assets”
(or any like caption) on a consolidated balance sheet of such Person and its
Subsidiaries at such date.

 

“Consolidated
Current Liabilities”:  of any Person
at any date, all amounts that would, in conformity with GAAP, be set forth
opposite the caption “total current liabilities” (or any like caption) on a
consolidated balance sheet of such Person and its Subsidiaries at such date,
but in any event excluding (a) the current portion of Funded Debt and (b) all
Indebtedness consisting of Revolving Credit Loans and Swing Line Loans.

 

“Consolidated
EBITDA”:  of any Person for any
period, Consolidated Net Income of such Person and its Subsidiaries for such
period plus, without duplication and to the extent reflected as a charge
in the statement of such Consolidated Net Income for such period, the sum of (a) income
tax expense, (b) Consolidated Interest Expense of such Person and its
Subsidiaries, amortization or write-off of debt discount and debt issuance
costs and commissions, discounts and other fees and charges associated with
Indebtedness, (c) depreciation and amortization expense, (d) amortization
of intangibles (including, but not limited to, goodwill) and organization
costs, (e) any extraordinary, unusual or non-recurring expenses or losses
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, losses on sales of
assets outside of the ordinary course of business and any premium, make-whole
or other similar amount payable in connection with the purchase or call of, or
tender for, the Existing Notes), (f) any other non-cash charges and (g) for
the fiscal quarters ending March 31, 2005 and June 30, 2005, amounts
for accounting, legal and other expenses related to the Restatements, not to
exceed $6,000,000 and $6,000,000, respectively and, for any fiscal quarter
thereafter, an amount not to exceed $5,000,000 for similar expenses related to
the Restatement, and minus (i) cash payments made during such
period with respect to non-cash charges that were added back pursuant to clause
(f) above in a prior period and (ii) to the extent included in the
statement of such Consolidated Net Income for such period, the sum of (x)
interest income (except to the extent deducted in determining Consolidated
Interest Expense), (y) any extraordinary, unusual or non-recurring income or
gains (including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, gains on the sales
of assets outside of the ordinary course of business) and (z) any other
non-cash income, all as determined on a consolidated basis.

 

“Consolidated
Interest Coverage Ratio”:  for any
period, the ratio of (a) Consolidated EBITDA of the Borrower and its
Subsidiaries for such period to (b) Consolidated Interest Expense of the
Borrower and its Subsidiaries for such period.

 

“Consolidated
Interest Expense”:  of any Person for
any period, total cash interest expense (including that attributable to Capital
Lease Obligations) of such Person and its Subsidiaries for such period with
respect to all outstanding Indebtedness of such Person and its Subsidiaries
(including, without limitation, all commissions, discounts and other fees and
charges owed by such Person with respect to letters of credit and bankers’
acceptance financing and net costs of such Person under Hedge Agreements in
respect of interest rates to the extent such net costs are allocable to such
period in accordance with GAAP).

 

6

 

“Consolidated
Leverage Ratio”:  as at the last day
of any period of four consecutive fiscal quarters of the Borrower, the ratio of
(a) Consolidated Total Debt on such day to (b) Consolidated EBITDA of
the Borrower and its Subsidiaries for such period; provided that for purposes
of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any
period, (i) the Consolidated EBITDA of any Acquired Person (or of any
business or division of any Acquired Person which is acquired by the Borrower
or its Subsidiaries) shall be included for the period in which such Acquired
Person (or such business or division) was acquired on a pro forma basis for
such period (as if the consummation of such acquisition and the incurrence or
assumption of any Indebtedness in connection therewith occurred on the first
day of such period) if the consolidated balance sheet of such Acquired Person
as at the end of the period preceding the acquisition thereof and the related
consolidated statements of income and stockholders’ equity and of cash flows
for the period in respect of which Consolidated EBITDA is to be calculated (x)
have been previously provided to the Administrative Agent and (y) either (1) have
been reported on without a qualification arising out of the scope of the audit
by independent certified public accountants of nationally recognized standing
or (2) have been found acceptable by the Administrative Agent and (ii) the
Consolidated EBITDA of any Person (or assets comprising a business) Disposed of
by the Borrower or its Subsidiaries during such period shall be excluded for
such period (as if the consummation of such Disposition and the repayment of
any Indebtedness in connection therewith had occurred on the first day of such
period).

 

“Consolidated
Net Income”:  of any Person for any
period, the consolidated net income (or loss) of such Person and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; provided, that in calculating Consolidated Net Income of the
Borrower and its consolidated Subsidiaries for any period, there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the
date it becomes a Subsidiary of the Borrower or is merged into or consolidated
with the Borrower or any of its Subsidiaries, (b) the income (or deficit)
of any Person (other than a Subsidiary of the Borrower) in which the Borrower
or any of its Subsidiaries has an ownership interest, except to the extent that
any such income is actually received by the Borrower or such Subsidiary in the
form of dividends or similar distributions and (c) the undistributed
earnings of any Subsidiary of the Borrower to the extent that the declaration
or payment of dividends or similar distributions by such Subsidiary is not at
the time permitted by the terms of any Contractual Obligation (other than under
any Loan Document) or Requirement of Law applicable to such Subsidiary.

 

“Consolidated
Total Debt”:  at any date, the
aggregate principal amount of all Indebtedness of the Borrower and its
Subsidiaries at such date, determined on a consolidated basis in accordance
with GAAP, plus the aggregate undrawn Stated Amount of all outstanding Letters
of Credit.

 

“Consolidated
Working Capital”:  at any date, the
difference of (a) Consolidated Current Assets of the Borrower on such date
less (b) Consolidated Current Liabilities of the Borrower on such date.

 

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

 

7

 

“Contractual
Obligation”:  with respect to any
Person, any provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such Person is a party or
by which it or any of its Property is bound.

 

“Credit Linked Deposit”:  with respect to each Lender, the cash
deposit, if any, made by such Lender on the Closing Date pursuant to Section 5.1(b) or,
as to which such Lender has acquired reversionary rights therein pursuant to an
Assignment and Acceptance, increased or reduced from time to time pursuant to
the terms hereof.

 

“Credit Linked Deposit Account”:  one or more operating or investment accounts
established by the Revolving Administrative Agent as set forth in Section 3.7.

 

“Delaware Assigning Entity”:  Yale E. Key, LLC, Brooks Well Servicing, LLC,
WellTech Mid-Continent, LLC, Key Energy Drilling, LLC, and Q.V. Services, LLC.

 

“Default”:  any of the events specified in Section 8,
whether or not any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.

 

“Derivatives
Counterparty”:  as defined in Section 7.6.

 

“Disposition”:  with respect to any Property, any sale,
lease, sale and leaseback, assignment, conveyance, transfer or other
disposition thereof; and the terms “Dispose” and “Disposed of”
shall have correlative meanings.

 

“Dollars”
and “$”:  lawful currency of the
United States.

 

“Domestic
Subsidiary”:  any Subsidiary of the
Borrower organized under the laws of any jurisdiction within the United States.

 

“ECF
Percentage”:  with respect to any
fiscal year of the Borrower, 50.0%; provided, that, with respect to any
fiscal year of the Borrower ending on or after December 31, 2006, (a) the
ECF Percentage shall be 25.0% if the Consolidated Leverage Ratio as of the last
day of such fiscal year is greater than 2.0 to 1.0 but not greater than 2.5 to
1.0 and (b) the ECF Percentage shall be 0.0% if the Consolidated Leverage
Ratio as of the last day of such fiscal year is not greater than 2.0 to 1.0.

 

“8 3/8 %
Notes”:  the 8 3/8% Senior Notes due
2008 outstanding under the 8 3/8% Notes Indenture in an aggregate principal
amount of $275,000,000 as of the date hereof.

 

“8 3/8 %
Notes Indenture”:  the Indenture
dated as of February 27, 2002, between the Borrower and U.S. Bank National
Association, as trustee, as amended and supplemented from time to time prior to
the Closing Date.

 

“Environmental
Laws”:  any and all laws, rules,
orders, regulations, statutes, ordinances, codes, decrees, or other legally
enforceable requirements (including, without limitation, common law) of any
international authority, foreign government, the United States, or any state,
local, municipal or other governmental authority, regulating, relating to or
imposing

 

8

 

liability or standards of conduct concerning
protection of the environment or of human health, or employee health and
safety, as has been, is now, or may at any time hereafter be, in effect.

 

“Environmental
Permits”:  any and all permits,
licenses, approvals,  registrations,
notifications, exemptions and other authorizations required under any
Environmental Law.

 

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

 

“Eurocurrency
Reserve Requirements”:  for any
day,  the aggregate (without duplication)
of the maximum rates (expressed as a decimal fraction) of reserve requirements
in effect on such day (including, without limitation, basic, supplemental,
marginal and emergency reserves) under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as “Eurocurrency Liabilities” in Regulation D of the Board) maintained by a
member bank of the Federal Reserve System.

 

“Eurodollar
Base Rate”:  with respect to each day
during each Interest Period, the rate per annum determined on the basis of the
rate for deposits in Dollars for a period equal to such Interest Period
commencing on the first day of such Interest Period appearing on Page 3750
of the Telerate screen as of 11:00 A.M., London time, two Business Days
prior to the beginning of such Interest Period. 
In the event that such rate does not appear on Page 3750 of the
Telerate screen (or otherwise on such screen), the “Eurodollar Base Rate”
for purposes of this definition shall be determined by reference to such other
comparable publicly available service for displaying eurodollar rates as may be
selected by the Administrative Agent.

 

“Eurodollar
Loans”:  Loans for which the
applicable rate of interest is based upon the Eurodollar Rate.

 

“Eurodollar
Rate”:  with respect to each day
during each Interest Period, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):

 

	
  Eurodollar Base Rate

  
	
  1.00 -
  Eurocurrency Reserve Requirements

  

 

“Eurodollar
Tranche”:  the collective reference
to Eurodollar Loans the then current Interest Periods with respect to all of
which begin on the same date and end on the same later date (whether or not
such Loans shall originally have been made on the same day).

 

“Event of
Default”:  any of the events
specified in Section 8, provided that any requirement for the
giving of notice, the lapse of time, or both, has been satisfied.

 

“Excess
Cash Flow”:  for any fiscal year of
the Borrower, Consolidated EBITDA of the Borrower and its Subsidiaries for such
fiscal year less (a) the sum of (i) Consolidated Interest Expense of
the Borrower and its Subsidiaries for such fiscal year, to the extent paid or
currently payable in cash, (ii) cash taxes paid or payable with respect to
such fiscal year, (iii) the aggregate amount actually paid by the Borrower
and its Subsidiaries in cash during such fiscal

 

9

 

year on account of Capital Expenditures
(minus the principal amount of Indebtedness incurred in connection with such
expenditures and minus the amount of any such expenditures financed with the
proceeds of any Reinvestment Deferred Amount), (iv) the aggregate amount
of all regularly scheduled principal payments of Funded Debt of the Borrower
and its Subsidiaries made during such Fiscal Year (other than in respect of any
revolving credit facility to the extent there is not an equivalent permanent
reduction of commitments thereunder), and (v) the aggregate amount of all
optional prepayments of Term Loans during such Fiscal Year, and plus (b) decreases
(and minus increases) in Consolidated Working Capital for such fiscal
year.

 

“Excess
Cash Flow Application Date”:  as
defined in Section 2.12(c).

 

“Excluded
Equity Issuances”:  the issuance and
sale of Capital Stock of the Borrower (a) upon the exercise of any options
issued to employees in the ordinary course of business pursuant to employee
stock plans or (b) the proceeds of which will be used within 90 days
thereafter to pay consideration for a Permitted Acquisition (provided that any
such proceeds not so used within 90 days of issuance shall be subject to the
provisions of Section 2.12(a)).

 

“Existing
Credit Facility”: the Fourth Amended and Restated Credit Agreement, dated
as of June 7, 1997, as amended and restated through November 10, 2003,
as amended from time to time through the Closing Date, among the Borrower, each
of the subsidiaries of the Borrower party thereto, PNC Bank, National
Association, as administrative agent, PNC Capital Markets, Inc. and Wells
Fargo Bank Texas, National Association, as co-lead arrangers, Credit Lyonnais
New York Branch as Syndication Agent and Bank One, NA and Comerica Bank as
co-documentation agents.

 

“Existing
Indentures”: the 6 3/8% Notes Indenture and the 8 3/8% Notes Indenture.

 

“Existing
Notes”: the 6 3/8% Notes and the 8 3/8% Notes.

 

“Facility”:  each of (a) the Tranche B Term Loan
Commitments and the Tranche B Term Loans made thereunder (the “Tranche B
Term Loan Facility”), (b) the Revolving Credit Commitments and the
extensions of credit made thereunder (the “Revolving Credit Facility”)
and (c) the Funded Letter of Credit Commitments and the extensions of
credit made thereunder (the “Funded Letter of Credit Facility”).

 

“Fair
Market Value”:  with respect to any
Asset Sale, any exchange or “swap” subject to the provisions of Section 7.5(f) or
any Disposition of assets subject to the provisions of Section 7.5(h),
fair market value as determined in good faith (a) by a Responsible Officer
if such fair market value is equal to or less than $10,000,000 and (b) by
the board of directors of Borrower if such fair market value is greater than
$10,000,000.

 

“Federal
Funds Effective Rate”:  for any day,
the weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such transactions
received by the Administrative Agent from three federal funds brokers of
recognized standing selected by it.

 

10

 

“Financial
Reporting Compliance Date”:  the day
that the Borrower has delivered to the Administrative Agent, the Revolving
Administrative Agent and the Lenders (a) all financial statements then
required to be delivered pursuant to, and meeting the requirements of, Section 6.1
and (b) all Prior Financial Statements.

 

“Foreign
Subsidiary”:  any Subsidiary of the
Borrower that is not a Domestic Subsidiary.

 

“FQ1”, “FQ2
“, “FQ3”, and “FQ4”: when used with a numerical year
designation, means the first, second, third or fourth fiscal quarters,
respectively, of the designated fiscal year of the Borrower (e.g., FQ1 2004
means the first fiscal quarter of the Borrower’s 2004 fiscal year, which ended March 31,
2004).

 

“Funded
Debt”:  with respect to any Person,
all Indebtedness of such Person of the types described in clauses (a) through
(e) of the definition of “Indebtedness” in this Section.

 

“Funded L/C
Obligations”:  at any time, an amount
equal to the sum of (a) the aggregate Stated Amount of the then
outstanding Funded Letters of Credit and (b) the aggregate amount of
drawings under Funded Letters of Credit that have not then been reimbursed by
the Borrower pursuant to Section 3.6.

 

“Funded L/C
Participant”: each Lender that has a Funded
Letter of Credit Commitment or that has a reversionary interest in the Credit
Linked Deposit.

 

“Funded
Letter of Credit”:  as defined in Section 3.1(b).

 

“Funded
Letter of Credit Commitment”:  as to
any Lender, the obligation of such Lender, if any, to make or otherwise fund a
Credit Linked Deposit, in an aggregate principal amount not to exceed the
amount set forth under the heading “Funded Letter of Credit Commitment”
opposite such Lender’s name on Schedule 1 to the Lender Addendum delivered
by such Lender or in the applicable Assignment and Acceptance pursuant to which
such Lender became a party hereto, as the same may be changed from time to time
pursuant to the terms hereof.  The
aggregate amount of the Funded Letter of Credit Commitments as of the Closing
Date is $82,250,000.

 

“Funded
Letter of Credit Commitment Period”: 
the period from and including the Closing Date to the Funded Letter of
Credit Termination Date.

 

“Funded
Letter of Credit Exposure”:  with
respect to any Lender, such Lender’s Funded Letter of Credit Percentage of the
Funded L/C Obligations at such time.

 

“Funded
Letter of Credit Facility”:  as
defined in the definition of “Facility” in this Section 1.1.

 

“Funded
Letter of Credit Fee”:  as defined in Section 3.3(b).

 

“Funded
Letter of Credit Participation”:  as
defined in Section 3.5.

 

11

 

“Funded
Letter of Credit Percentage”:  as to
any Funded L/C Participant at any time, the percentage which its Funded Letter
of Credit Commitment then constitutes of the Total Funded Letter of Credit
Commitments (or, at any time after the Funded Letter of Credit Commitments
shall have expired or terminated, the percentage which the aggregate amount of
such Lender’s Funded Letter of Credit Exposure then outstanding constitutes of
the Total Funded Letter of Credit Exposure then outstanding).

 

“Funded
Letter of Credit Termination Date”: 
the five-year anniversary of the Closing Date or, if earlier, the date
on which the Funded Letter of Credit Commitments are terminated in full
pursuant to Sections 2.10 or 8.

 

“Funding
Date”:  with respect to any Tranche B
Term Loan, the date specified by the Borrower in the Borrowing Notice with
respect to such Tranche B Term Loan as the date such Tranche B Term Loan is to
be made.

 

“Funding
Office”:  the office specified from
time to time by the Administrative Agent or the Revolving Administrative Agent,
as applicable, as its funding office by notice to the Borrower and the Lenders.

 

“GAAP”:  generally accepted accounting principles in
the United States as in effect from time to time.

 

“Governmental
Authority”:  any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

 

“Guarantee
and Collateral Agreement”:  the
Guarantee and Collateral Agreement to be executed and delivered by the Borrower
and each Guarantor, substantially in the form of Exhibit A, as the same
may be amended, supplemented, replaced or otherwise modified from time to time.

 

“Guarantee
Obligation”:  with respect to any
Person (the “guaranteeing person”), any obligation of (a) the
guaranteeing person or (b) another Person (including any bank under any
letter of credit), if to induce the creation of which the guaranteeing person
has issued a reimbursement, counterindemnity or similar obligation, in either
case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the “primary obligations”) of any other third
Person (the “primary obligor”) in any manner, whether directly or
indirectly, including, without limitation, any obligation of the guaranteeing
person, whether or not contingent, (i) to purchase any such primary
obligation or any Property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase Property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the owner of any such primary obligation against
loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business.

 

12

 

The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person’s maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.

 

“Guarantor”:  each Subsidiary of the Borrower other than a
Foreign Subsidiary or an Immaterial Subsidiary.

 

“Hedge
Agreements”:  all interest rate or
currency swaps, caps or collar agreements, foreign exchange agreements,
commodity contracts or similar arrangements entered into by the Borrower or its
Subsidiaries providing for protection against fluctuations in interest rates,
currency exchange rates, commodity prices or the exchange of nominal interest
obligations, either generally or under specific contingencies.

 

“Immaterial
Subsidiary”:  (a) any Qualified
Domestic Captive Insurance Subsidiary and (b) any other Subsidiary of the
Borrower designated as an “Immaterial Subsidiary” which has assets with a book
value of $1,000,000 or less and annual revenues of $1,000,000 or less; provided
that all entities so designated as Immaterial Subsidiaries (excluding all
Qualified Domestic Captive Insurance Subsidiaries) may not have at any time, in
the aggregate, assets with a book value exceeding $5,000,000 or annual revenues
exceeding $5,000,000.  All of the
Immaterial Subsidiaries as of the Closing Date are listed on Schedule 4.15
and designated thereon as “Immaterial Subsidiaries”.

 

“Indebtedness”:  of any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of Property or
services (other than trade payables incurred in the ordinary course of such
Person’s business), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to Property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such Property), (e) all
Capital Lease Obligations or Synthetic Lease Obligations of such Person, (f) all
obligations of such Person, contingent or otherwise, as an account party or
applicant under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person, contingent or otherwise, to purchase, redeem,
retire or otherwise acquire for value any Capital Stock of such Person, (h) all
Guarantee Obligations of such Person in respect of obligations of the kind
referred to in clauses (a) through (g) above, (i) all
obligations of the kind referred to in clauses (a) through (h) above
secured by (or for which the holder of such obligation has an existing right,
contingent or otherwise, to be secured by) any Lien on Property owned by such
Person, whether or not such Person has assumed or become liable for the payment
of such obligation, and (j) for the purposes of Section 8(e) only,
all obligations of such Person in respect of Hedge Agreements.

 

“Indemnified
Liabilities”:  as defined in Section 10.5.

 

13

 

“Indemnitee”:  as defined in Section 10.5.

 

“Insolvency”:  with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245
of ERISA.

 

“Insolvent”:  pertaining to a condition of Insolvency.

 

“Intellectual
Property”:  the collective reference
to all rights, priorities and privileges relating to intellectual property,
whether arising under United States, state, multinational or foreign laws or
otherwise, including, without limitation, copyrights, copyright licenses,
patents, patent licenses, trademarks, trademark licenses, service-marks,
technology, know-how and processes, recipes, formulas, trade secrets, and all rights
to sue at law or in equity for any infringement or other impairment thereof,
including the right to receive all proceeds and damages therefrom.

 

“Interest
Payment Date”:  (a) as to any
Base Rate Loan, the last day of each March, June, September and December to
occur while such Loan is outstanding and the final maturity date of such Loan, (b) as
to any Eurodollar Loan having an Interest Period of three months or less, the
last day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day that is three months after
the first day of such Interest Period and the last day of such Interest Period
and (d) as to any Loan (other than any Revolving Credit Loan that is a
Base Rate Loan (unless all Revolving Credit Loans are being repaid in full and
the Revolving Credit Commitments terminated) and any Swing Line Loan), the date
of any repayment or prepayment made in respect thereof.

 

“Interest
Period”:  (a) as to any
Eurodollar Loan, (i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the Borrower in
its Borrowing Notice or notice of conversion, as the case may be, given with
respect thereto; provided that, prior to the Syndication Date, the
Interest Period shall be one month; and (ii) thereafter, each period
commencing on the last day of the immediately preceding Interest Period
applicable to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice to the
Administrative Agent and the Revolving Administrative Agent not less than three
Business Days prior to the last day of the then current Interest Period with
respect thereto; and (b) in connection with a Credit Linked Deposit, (i) initially,
the period commencing on the Closing Date and ending three months thereafter
and (ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to the Credit Linked Deposit and ending
three months thereafter; provided that, all of the foregoing provisions
relating to Interest Periods are subject to the following:

 

(x)                                   if any Interest Period would
otherwise end on a day that is not a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding
Business Day;

 

14

 

(y)                                 any Interest Period with respect to
any Revolving Credit Loans, Funded Letter of Credit or Tranche B Term Loan,
respectively, that would otherwise extend beyond the Revolving Credit
Termination Date, the Funded Letter of Credit Termination Date, or beyond the
date final payment is due on the Tranche B Term Loans, as the case may be,
shall end on the Revolving Credit Termination Date, the Funded Letter of Credit
Termination Date or such due date, as applicable; and

 

(z)                                   any Interest Period that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the end of
such Interest Period.

 

“Investments”:  as defined in Section 7.8.

 

“Issuing
Lender”: any financial institution designated by the L/C Arranger as an
Issuing Lender hereunder and any Revolving Credit Lender from time to time
designated by the Borrower as an Issuing Lender with respect to Letters of
Credit under the Revolving Credit Facility with the consent of such Revolving
Credit Lender, the L/C Arranger and the Revolving Administrative Agent.

 

“L/C
Arranger”: Wells Fargo, in its capacity as the party responsible for
causing the issuance of Letters of Credit hereunder.

 

“L/C Fee
Payment Date”:  the last day of each
March, June, September and December, the last day of the Funded Letter of
Credit Commitment Period with respect to Funded Letters of Credit and the last
day of the Revolving Credit Commitment Period with respect to Revolving Credit
Letters of Credit.

 

“Lender
Addendum”:  with respect to any
initial Lender, a Lender Addendum, substantially in the form of Exhibit L,
or otherwise acceptable to the Administrative Agent, executed and delivered by
such Lender as provided in Section 10.17.

 

“Lenders”:  as defined in the preamble hereto and
specifically includes each Issuing Lender, the L/C Arranger, and the Swing Line
Lender.

 

“Letters of
Credit”:  the Funded Letters of
Credit and the Revolving Credit Letters of Credit.

 

“Lien”:  any mortgage, pledge, hypothecation,
encumbrance, lien (statutory or other), charge or other security interest or
other security agreement or preferential arrangement of any kind or nature
whatsoever and any assignment or deposit arrangement intended as, or having the
effect of, security (including, without limitation, any conditional sale or
other title retention agreement and any capital lease having substantially the
same economic effect as any of the foregoing).

 

“Liquidity”:  at any time, the sum of the Loan Parties’
cash and Cash Equivalents, plus the amount by which the Total Revolving Credit
Commitments exceed the Total Revolving Extensions of Credit.

 

15

 

“Loan”:  any loan made by any Lender pursuant to this
Agreement.

 

“Loan
Documents”:  this Agreement, the
Security Documents, the Applications and the Notes.

 

“Loan
Parties”:  the Borrower and each
Subsidiary of the Borrower that is a party to a Loan Document.

 

“Majority
Facility Lenders”:  with respect to
any Facility, the holders of more than 50% of the aggregate outstanding
Commitments for and extensions of credit under such Facility.

 

“Majority
Revolving Credit Facility Lenders”: 
the Majority Facility Lenders in respect of the Revolving Credit
Facility.

 

“Material
Adverse Effect”:  a material adverse
effect on (a) the financial condition, results of operations, assets,
liabilities or value of the Borrower and its Subsidiaries taken as a whole or (b) the
validity or enforceability of this Agreement or any of the other Loan Documents
or the rights or remedies of the Agents or the Lenders hereunder or thereunder;
provided, however, that none of (a) until the Tranche B Term Loan
Commitment Expiration Date, the occurrence and continuation of any Specified
Default or the acceleration of any Indebtedness as a result of any Specified
Default, (b) at any time prior to the Report Date, the Borrower’s failure
to complete the Restatement, (c) the sale of operations listed on Schedule 4.1(b)-2
and the sale of the balance of the Borrower’s Eastern division at a loss, (d) any information publicly disclosed by
the Borrower prior to July 21, 2005 or (e) any event, development or
circumstance which affects generally segments of the oil and gas business in
which the Borrower and its Subsidiaries are engaged and does not
disproportionately affect the Borrower and its Subsidiaries, shall be deemed,
individually or in the aggregate, to have a “Material Adverse Effect”.

 

“Materials
of Environmental Concern”:  any
gasoline or petroleum (including crude oil or any fraction thereof) or
petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation,
asbestos, pollutants, contaminants, radioactivity, and any other substances or
forces of any kind, whether or not any such substance or force is defined as
hazardous or toxic under any Environmental Law, that is regulated pursuant to or
could give rise to liability under any Environmental Law.

 

“Moody’s”:  Moody’s Investor Services, Inc.

 

“Mortgages”:  any and all mortgages or deeds of trust made
by any Loan Party in favor of, or for the benefit of, the Collateral Agent for
the benefit of the Secured Parties, in a form as may be reasonably agreed by
the Collateral Agent and the Loan Parties thereto.

 

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

 

“Net Cash
Proceeds”:  (a) in connection
with any Asset Sale or any Recovery Event, all proceeds thereof, to the extent
exceeding $5,000,000 in any year, received in the form

 

16

 

of cash and Cash Equivalents (including any
such proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or purchase price adjustment receivable or
otherwise, but only as and when received) of such Asset Sale or Recovery Event,
net of (i) reasonable and customary attorneys’ fees, accountants’ fees,
investment banking fees, relocation expenses, amounts required to be applied to
the repayment of Indebtedness secured by a Lien expressly permitted hereunder
on any asset which is the subject of such Asset Sale or Recovery Event (other
than any Lien pursuant to a Security Document) and other reasonable and
customary fees and expenses actually incurred in connection therewith and net
of taxes paid or reasonably estimated to be payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements) and (ii) solely in connection with any such Asset Sale, any
reserve established in accordance with GAAP, provided that any such reserved
amount shall be Net Cash Proceeds to the extent and at the time such reserve is
no longer required in accordance with GAAP, and (b) in connection with any
issuance or sale of equity securities or debt securities or instruments or the
incurrence of Indebtedness, the cash proceeds received from such issuance or
incurrence, net of attorneys’ fees, investment banking fees, accountants’ fees,
underwriting discounts and commissions and other customary fees and expenses
actually incurred in connection therewith.

 

“Non-Excluded
Taxes”:  as defined in Section 2.20(a).

 

“Non-Recourse
Indebtedness”:  Indebtedness as to
which (a) no Loan Party (i)  provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or (ii) is directly or indirectly liable as a guarantor or
otherwise, (b) no default with respect thereto (including any rights that
the holders thereof may have to take enforcement action against any Subsidiary
which is not a Loan Party) would permit, upon notice, lapse of time or both,
any holder of any other Indebtedness (other than the Indebtedness incurred
hereunder) of the Borrower or any of its Subsidiaries to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity, and (c) the holders thereof have
been notified in writing that they will not have any recourse to the stock or
assets of the Loan Parties.

 

“Non-U.S.
Lender”:  as defined in Section 2.20(d).

 

“Note”:  any promissory note evidencing any Loan.

 

“Obligations”:
 the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity of the
Loans and Reimbursement Obligations and interest accruing after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
the Loans, the Reimbursement Obligations and all other obligations and
liabilities of the Borrower to the Administrative Agent, the Revolving
Administrative Agent, the Collateral Agent, any Issuing Lender, any Lender or
any Qualified Counterparty, whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Agreement, any other Loan Document,
the Letters of Credit, any Specified Hedge Agreement or any other document
made, delivered or given in connection herewith or therewith, whether on account
of principal, interest, reimbursement obligations, fees,

 

17

 

indemnities, costs, expenses (including,
without limitation, all fees, charges and disbursements of counsel to the
Arranger, to the Agents or to any Lender that are required to be paid by the
Borrower pursuant hereto) or otherwise; provided, that (a) obligations
of the Borrower or any Subsidiary under any Specified Hedge Agreement shall be
secured and guaranteed pursuant to the Security Documents only to the extent
that, and for so long as, the other Obligations are so secured and guaranteed
and (b) any release of Collateral or Guarantors effected in the manner
permitted by this Agreement shall not require the consent of holders of
obligations under Specified Hedge Agreements.

 

“Oilfield
Intellectual Property”:  (a) the
services provided by the Loan Parties and/or their Subsidiaries, including, but
not limited to, well servicing, work-over, and drilling services; (b) all
data and/or other information generated or obtained by or on behalf of the Loan
Parties and/or their Subsidiaries in connection with the provision of such
services; (c) all measurement, acquisition, manipulation, and display and
all devices and systems used or useful in measuring, acquiring, manipulating,
displaying, and/or otherwise dealing with such data or information; and (d) all
U.S. and foreign patents and trademarks, U.S. and foreign applications for
patents and trademarks, trade secrets, confidential business information, U.S.
and foreign copyrights, and any other intellectual property or intellectual
property right associated with items described in clauses (a) through (c) above.

 

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

 

“Participant”:  as defined in Section 10.6(b).

 

“Payment
Office”:  the office specified from
time to time by the Administrative Agent or the Revolving Administrative Agent,
as applicable, as its payment office by notice to the Borrower and the Lenders.

 

“PBGC”:  the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA (or any successor).

 

“Permits”:  the collective reference to (a) Environmental
Permits, and (b) any and all other franchises, licenses, leases, permits,
approvals, notifications, certifications, registrations, authorizations,
exemptions, easements, and rights of way.

 

“Permitted
Acquisitions”:  as defined in Section 7.8(g).

 

“Permitted
Liens”:  the collective reference to (a) in
the case of Collateral other than Pledged Stock, Liens permitted by Section 7.3
and (b) in the case of Collateral consisting of Pledged Stock,
non-consensual Liens permitted by Section 7.3 to the extent arising by
operation of law.

 

“Permitted
Perfection Exception”:  (a) personal
property subject to a certificate of title act under which a security interest
may be perfected only by notation on the certificate of title (i) without
limitation as to amount until the date such perfection is required under Section 6.15

 

18

 

and (ii) thereafter only if and so long
as the aggregate book value of all such property as to which no such notation
has been made does not at any time exceed $1,000,000, (b) to the extent
deposit accounts are maintained at financial institutions other than the Revolving
Administrative Agent, the Loan Parties will not be required to take action
pursuant to Section 9-104 of the Uniform Commercial Code to perfect the
Collateral Agent’s Liens in such deposit accounts or to grant the Collateral
Agent control thereof unless an Event of Default has occurred and is
continuing, (c) the Loan Parties will not be required to take any action
outside of the United States to perfect the Collateral Agent’s Liens on assets
of any Loan Party located outside of the United States unless the aggregate
book value of such assets, together with the aggregate amounts permitted by Section 7.2(e),
the proviso in Section 7.2(k) and Section 7.8(h) with respect to
Foreign Subsidiaries, exceeds at any time $25,000,000 per fiscal year or
$100,000,000 in the aggregate for the term hereof or an Event of Default has
occurred and is continuing, (d) real property owned on the date hereof, (e) to
the extent fixtures exist at real property which is not required by the Loan
Documents to be subject to a Mortgage, no fixture filing will be required as to
such fixtures and (f) the shares of Capital Stock of Foreign Subsidiaries
required to be delivered to the Collateral Agent under the Guarantee and
Collateral Agreement need not be delivered until such delivery is required
under Section 6.15.

 

“Permitted
Subordinated Indebtedness”: 
Indebtedness otherwise permitted hereunder that is subordinated in right
of payment to any of the Obligations.

 

“Person”:  an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.

 

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

 

“Pledged
Stock”: as defined in the Guarantee and Collateral Agreement.

 

“Pricing
Grid”:  the pricing grid attached
hereto as Annex A.

 

“Prior
Financial Statements”:  as defined in
Section 6.14.

 

“Projections”:  as defined in Section 6.2(c).

 

“Property”:  any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.

 

“Qualified Counterparty”: 
with respect to any Specified Hedge Agreement, any counterparty thereto
that, at the time such Specified Hedge Agreement was entered into, was a Lender
or an affiliate of a Lender.

 

“Qualified
Domestic Captive Insurance Subsidiary”: 
any Domestic Subsidiary of the Borrower which meets the following
requirements:

 

19

 

(a)  such Subsidiary is organized for the sole
purpose of providing insurance coverage for the Loan Parties and their
Subsidiaries (the “Insurance Business”);

 

(b)                                 such
Subsidiary has no material assets other than assets related to the Insurance Business
and conducts no business other than the Insurance Business; and

 

(c)                                  the
Loan Parties’ Investment in such Subsidiary meets the requirements under Section 7.8.

 

“Recovery
Event”:  any settlement of or payment
in respect of, or series of settlements or payments in respect of, any property
or casualty insurance claim or any condemnation proceeding relating to any
asset of the Borrower or any of its Subsidiaries in excess of $2,000,000.

 

“Refinancing”:  as defined in the Recitals.

 

“Refunded
Swing Line Loans”:  as defined in Section 2.7(b).

 

“Refunding
Date”:  as defined in Section 2.7(c).

 

“Register”:  as defined in Section 10.6(d).

 

“Regulation
D”:  Regulation D of the Board as in
effect from time to time.

 

“Regulation
U”:  Regulation U of the Board as in
effect from time to time.

 

“Regulation
X”:  Regulation X of the Board as in
effect from time to time.

 

 “Reimbursement Obligation”:  the obligation of the Borrower to reimburse
each Issuing Lender pursuant to Section 3.6 for amounts drawn under
Letters of Credit issued by such Issuing Lender.

 

“Reinvestment
Deferred Amount”:  with respect to
any Reinvestment Event, the aggregate Net Cash Proceeds received by the
Borrower or any of its Subsidiaries in connection therewith that are not
applied to prepay the Term Loans pursuant to Section 2.12(b) as a
result of the delivery of a Reinvestment Notice.

 

“Reinvestment
Event”:  any Asset Sale or Recovery
Event in respect of which the Borrower has delivered a Reinvestment Notice.

 

“Reinvestment
Notice”:  a written notice executed
by a Responsible Officer stating that no Default or Event of Default has
occurred and is continuing and that the Borrower (directly or indirectly
through a Wholly Owned Subsidiary) intends and expects to use all or a
specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event
to acquire capital assets useful in its or such Subsidiary’s business.

 

“Reinvestment
Prepayment Amount”:  with respect to
any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less
any amount expended prior to the

 

20

 

relevant Reinvestment Prepayment Date to make
Permitted Acquisitions or to acquire capital assets useful in the Borrower’s
business.

 

“Reinvestment
Prepayment Date”:  with respect to
any Reinvestment Event, the earlier of (a) the date occurring one year
after such Reinvestment Event and (b) the date on which the Borrower shall
have determined not to acquire assets useful in the Borrower’s business with
all or any portion of the relevant Reinvestment Deferred Amount.

 

“Related
Fund”:  with respect to any Lender,
any fund that (a) invests in commercial loans and (b) is managed or
advised by the same investment advisor as such Lender, by such Lender or an
affiliate of such Lender.

 

“Reorganization”:  with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.

 

“Report
Date”: March 16, 2007.

 

“Reportable
Event”:  any of the events set forth
in Section 4043(c) of ERISA, other than those events as to which the
thirty day notice period is waived under subsections .27, .28, .29, .30, .31,
..32, .34 or .35 of PBGC Reg. § 4043.

 

“Required
Lenders”:  at any time, the holders
of more than 50% of (a) until the Closing Date, the Commitments and (b) thereafter,
the sum of (i) the aggregate unpaid principal amount of the Term Loans
then outstanding plus the aggregate amount of then unfunded Tranche B Term Loan
Commitments, (ii) the Total Revolving Credit Commitments then in effect
or, if the Revolving Credit Commitments have been terminated, the Total
Revolving Extensions of Credit then outstanding and (iii) the Total Funded
Letter of Credit Commitments then in effect or, if the Funded Letters of Credit
Commitments have been terminated, the Total Funded Letter of Credit Exposure at
such time.

 

“Requirement
of Law”:  as to any Person, the
Certificate of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its Property or
to which such Person or any of its Property is subject.

 

“Responsible
Officer”:  as to any Person, the
chief executive officer, chief operating officer, chief accounting officer,
president or chief financial officer of such Person, but in any event, with
respect to financial matters, the chief accounting officer or the chief
financial officer of such Person.  Unless
otherwise qualified, all references to a “Responsible Officer” shall refer to a
Responsible Officer of the Borrower.

 

“Restatement”:  the restatement of the Borrower’s financial
statements with respect to the first three fiscal quarters of 2003 and prior
periods, as a result of write downs or write offs of certain assets, and
recording certain charges and making certain additional adjustments, in each
case, to the extent disclosed in the Borrower’s press releases and filings with
the SEC prior to the Closing Date.

 

21

 

“Restricted
Payments”:  as defined in Section 7.6.

 

“Retire”: as to Existing Notes, the
redemption of Existing Notes in accordance with the applicable Existing
Indenture or the repurchase and substantially concurrent surrender thereof for
cancellation, in each case, in accordance with the applicable provisions of the
Existing Indentures, provided that, if any such Existing Notes are not
physically delivered for cancellation, such Existing Notes shall be deemed “Retired”
if the Borrower has delivered a certificate to the trustee under the applicable
Existing Indenture stating that it has purchased such Existing Notes, that it
will not resell such Existing Notes and that it intends to Retire such Existing
Notes when such Existing Notes become available for surrender.

 

“Revolving
Administrative Agent”:  as defined in
the preamble hereto.

 

“Revolving
Credit Commitment”:  as to any
Lender, the obligation of such Lender, if any, to make Revolving Credit Loans
and participate in Swing Line Loans and Revolving Credit Letters of Credit, in
an aggregate principal and/or Stated Amount not to exceed the amount set forth
under the heading “Revolving Credit Commitment” opposite such Lender’s name on Schedule 1
to the Lender Addendum delivered by such Lender, or, as the case may be, in the
Assignment and Acceptance pursuant to which such Lender became a party hereto,
as the same may be changed from time to time pursuant to the terms hereof.  The original aggregate amount of the
Revolving Credit Commitments is $65,000,000.

 

“Revolving
Credit Commitment Period”:  the
period from and including the Closing Date to the Revolving Credit Termination
Date.

 

“Revolving
Credit Facility”:  as defined in the
definition of “Facility” in this Section 1.1.

 

“Revolving
Credit L/C Commitment”:  $25,000,000.

 

“Revolving
Credit L/C Obligations”:  at any
time, an amount equal to the sum of (a) the aggregate Stated Amount of the
then outstanding Revolving Credit Letters of Credit and (b) the aggregate
amount of drawings under Revolving Credit Letters of Credit that have not then
been reimbursed by the Borrower pursuant to Section 3.6.

 

“Revolving
Credit L/C Participants”:  with
respect to any Revolving Credit Letter of Credit, the collective reference to
all the Revolving Credit Lenders other than the Issuing Lender that issued such
Revolving Credit Letter of Credit.

 

“Revolving
Credit Lender”:  each Lender that has
a Revolving Credit Commitment or holds Revolving Extensions of Credit.

 

“Revolving
Credit Letters of Credit”: as defined in Section 3.1(a).

 

“Revolving
Credit Loans”:  as defined in Section 2.4.

 

“Revolving
Credit Note”:  as defined in Section 2.8.

 

22

 

“Revolving Credit Percentage”:  as to any Revolving Credit Lender at any time, the percentage which such Lender’s Revolving Credit Commitment then constitutes of the Total Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate amount of such Lender’s Revolving Extensions of Credit then outstanding constitutes of the amount of the Total Revolving Extensions of Credit then outstanding).

 

“Revolving Credit Termination Date”:  the five-year anniversary of the Closing Date or, if earlier, the date on which the Revolving Credit Commitments are terminated in full pursuant to Sections 2.10 or 8 hereof.

 

“Revolving Extensions of Credit”:  as to any Revolving Credit Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans then outstanding to such Lender, (b) such Lender’s Revolving Credit Percentage of the Revolving Credit L/C Obligations then outstanding and (c) such Lender’s Revolving Credit Percentage of the aggregate principal amount of Swing Line Loans then outstanding.

 

“S&P”:  Standard & Poor’s Ratings Services Group.

 

“SEC”:  the Securities and Exchange Commission (or successors thereto or an analogous Governmental Authority).

 

“Secured Parties”:  as defined in the Guarantee and Collateral Agreement.

 

“Security Documents”:  the collective reference to the Guarantee and Collateral Agreement, the Mortgages, any intellectual property security agreements or control agreements required to be delivered pursuant to the Guarantee and Collateral Agreement or any other Loan Document and all other security documents hereafter delivered to the Collateral Agent granting a Lien on any Property of any Person to secure the Obligations.

 

“Single Employer Plan”:  any Plan that is covered by Title IV of ERISA, but which is not a Multiemployer Plan.

 

“6 3/8 % Notes”: the 6 3/8% Senior Notes due 2013 outstanding under the 6 3/8% Notes Indenture in an aggregate principal amount of $150,000,000 as of the date hereof.

 

“6 3/8 % Notes Indenture”: the Indenture dated as of May 9, 2003, between the Borrower and U.S. Bank National Association, as trustee, as amended and supplemented from time to time prior to the Closing Date.

 

“Solvent”:  with respect to any Person, as of any date of determination, (a) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its

 

23

 

business,  and (d) such Person will be able to pay its debts as they mature; provided, however, that such determination shall be made without taking into account the Specified Defaults (or the consequences thereof) and assuming that the Loans are made and the Letters of Credit are issued upon request by the Borrower.  For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

 

“Specified Change of Control”:  at any time a “change of control” as defined in the 8-3/8% Notes Indenture (if the 8-3/8% Notes have not been Retired at such time), the 6-3/8% Notes Indentures (if the 6-3/8% Notes have not been Retired at such time) or any other item of Indebtedness incurred pursuant to Section 7.2(f), (h) or (i) which is outstanding at such time in an outstanding principal amount in excess of $20,000,000.

 

“Specified Defaults”: (a) any default or event of default under the Existing Notes occurring as a result of any default under the financial reporting or filing of SEC reports (or, to the extent arising therefrom, the compliance with laws) covenants thereof, (b) any default or event of default under any other Indebtedness to the extent the default or event of default is occurring as a result of failure to comply with financial reporting or SEC reporting covenants comparable to those in the Existing Notes (or, to the extent arising therefrom, any comparable compliance with law covenant), (c) any default or event of default under the “cross-default” or “cross-acceleration” provisions of the Existing Notes, to the extent occurring as a result of a default described in clause (a), (b) or (d) of this paragraph, and (d) any default or event of default under the “cross-default” or “cross-acceleration” provisions of any Indebtedness (other than the Existing Notes) occurring as a result of a default or event of default described in clause (a), (b) or (c) of this paragraph.  Notwithstanding the foregoing, if any financial information that is or was required to be filed (or would be required to be filed if the Borrower had a class of securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”) by the Report Date has not been so filed, any default or event of default arising therefrom (including any default or event of default set forth in clauses (a) and (b) above) shall no longer be a Specified Default.

 

“Specified Hedge Agreement”:  any Hedge Agreement entered into by the Borrower or any Guarantor and any Qualified Counterparty providing for protections against fluctuations in interest rates.

 

“Stated Amount”:  as to any Letter of Credit, at any time, the maximum amount that then is or may become available to be drawn thereunder, determined without regard to whether any conditions to drawing could then be met.

 

“Subordinated Intercompany Note”: as defined in Section 7.2(b).

 

“Subsidiary”:  as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by

 

24

 

reason  of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.  Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.

 

“Swing Line Commitment”:  the obligation of the Swing Line Lender to make Swing Line Loans pursuant to Section 2.6 in an aggregate principal amount at any one time outstanding not to exceed $10,000,000.

 

“Swing Line Lender”:  Wells Fargo, in its capacity as the lender of Swing Line Loans.

 

“Swing Line Loans”:  as defined in Section 2.6.

 

“Swing Line Note”: as defined in Section 2.8(e).

 

“Swing Line Participation Amount”:  as defined in Section 2.7(c).

 

“Syndication Agent”:  as defined in the preamble hereto.

 

“Syndication Date”:  the date, which shall not be later than five Business Days after the first Funding Date for Term Loans, on which the Lenders selected in the syndication of the Facilities become parties to this Agreement or any earlier date determined by the Administrative Agent.

 

“Synthetic Lease Obligations”:  all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).

 

“Term Loan Facility”:  the Tranche B Term Loan Facility.

 

“Term Loan Lenders”:  the Tranche B Term Loan Lenders.

 

“Term Loans”:  the Tranche B Term Loans.

 

“Term Notes”:  as defined in Section 2.8(e).

 

“Texas Assigning Corporations”: (a) Yale E. Key,
Inc., a Texas corporation, (b) Q.V. Services, Inc., a Louisiana corporation, and
(c) Brooks Well Servicing, Inc., WellTech Mid-Continent, Inc., and Key Energy Drilling,
Inc., each of which under this clause (c) is a Delaware corporation, and each of
which has assigned the beneficial interests in its operating assets, directly or
indirectly, to a Texas Assignee Limited Partnership and which owns 100% of the membership
interests in a Delaware Assigning Entity and a 1% general partner’s interest in
a Texas Assignee Limited Partnership.

 

25

 

“Texas Assignee Limited Partnerships:  Yale E. Key Beneficial, LP, Brooks Well Servicing
Beneficial, LP., WellTech Mid-Continent Beneficial, LP, Key Energy Drilling Beneficial,
LP. and Q.V. Services Beneficial, L.P., each of which is a Texas limited partnership
whose limited partnership interests are owned by a Delaware Assigning LLC and whose
general partnership interests are owned by a Texas Assigning Corporation, and which
has received, directly or indirectly, all of the beneficial interests in the operating
assets of such Texas Assigning Corporation.

 

“Total Credit  Linked  Deposit”:  atany time, the sum of all Credit Linked Deposits at such time.

 

“Total Funded  Letter  of  Credit  Commitments”:  at any time the aggregate amount of the Funded Letter of Credit Commitments of all the Lenders at such time.

 

“Total Funded  Letter  of  Credit  Exposure”:  at any time the aggregate amount of the Funded Letter of Credit Exposure of all the Lenders at such time.

 

“Total Revolving Credit Commitments”:  at any time, the aggregate amount of the Revolving Credit Commitments then in effect.

 

“Total Revolving Extensions of Credit”:  at any time, the aggregate amount of the Revolving Extensions of Credit of the Revolving Credit Lenders outstanding at such time.

 

“Tranche B Funding Date”:  any Business Day on or prior to the Tranche B Term Loan Commitment Expiration Date.

 

“Tranche B Term Loan”:  as defined in Section 2.1.

 

“Tranche B Term Loan Commitment”:  as to any Lender, the obligation of such Lender, if any, to make a Tranche B Term Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading “Tranche B Term Loan Commitment” opposite such Lender’s name on Schedule 1 to the Lender Addendum delivered by such Lender, or, as the case may be, in the Assignment and Acceptance pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof.  The original aggregate amount of the Tranche B Term Loan Commitments is $400,000,000.

 

“Tranche B Term Loan Commitment Expiration Date”: December 31, 2005, or, if earlier, the date of which the Tranche B Term Loan Commitments are terminated in full pursuant to Sections 2.10 or 8 hereof.

 

“Tranche B Term Loan Facility”:  as defined in the definition of “Facility” in this Section 1.1.

 

“Tranche B Term Loan Lender”:  each Lender that has a Tranche B Term Loan Commitment or is the holder of a Tranche B Term Loan.

 

26

 

“Tranche B Term Loan Percentage”:  as to any Tranche B Term Loan Lender at any time, the percentage which such Lender’s Tranche B Term Loan Commitment then constitutes of the aggregate Tranche B Term Loan Commitments (or, at any time after the initial Funding Date, the percentage which the sum of the aggregate principal amount of such Lender’s Tranche B Term Loans then outstanding plus such Lender’s then unfunded Tranche B Term Loan Commitments constitutes of the aggregate principal amount of the sum of the Tranche B Term Loans then outstanding plus the aggregate amount of the Lenders’ then unfunded Tranche B Term Loan Commitments).

 

“Transferee”:  as defined in Section 10.14.

 

“Type”:  as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan.

 

“UCC”:  the Uniform Commercial Code, as in effect from time to time in any jurisdiction.

 

“United States”: the United States of America.

 

“Weighted Average Life to Maturity”:  when applied to any Indebtedness, at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness.

 

“Wells Fargo”:  Wells Fargo Foothill, Inc.

 

“Wholly Owned Guarantor”:  any Guarantor that is a Wholly Owned Subsidiary of the Borrower.

 

“Wholly Owned Subsidiary”:  as to any Person, any other Person all of the Capital Stock of which (other than directors’ qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.

 

1.2                                 Other Definitional Provisions.  (a)  Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto.

 

(b)                                 As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP.

 

(c)                                  The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any

 

27

 

particular  provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.

 

(d)                                 The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

 

(e)                                  All calculations of financial ratios set forth in Section 7.1 shall be calculated to the same number of decimal places as the relevant ratios are expressed in and shall be rounded upward if the number in the decimal place immediately following the last calculated decimal place is five or greater.  For example, if the relevant ratio is to be calculated to the hundredth decimal place and the calculation of the ratio is 5.126, the ratio will be rounded up to 5.13.

 

(f)                                    The expressions “payment in full,” “paid in full” and any other similar terms or phrases when used herein with respect to the Obligations shall mean the payment in full, in immediately available funds, of all of the Obligations.

 

SECTION  2. AMOUNT AND TERMS OF COMMITMENTS

 

2.1                                 Term Loan Commitments.  Subject to the terms and conditions hereof, the Tranche B Term Loan Lenders severally agree to make term loans (each, a “Tranche B Term Loan”) to the Borrower on each Funding Date in an amount for each Tranche B Term Loan Lender not to exceed the lesser of its (a) Tranche B Term Loan Percentage of the Tranche B Term Loans requested by the Borrower on such Funding Date and (b) its remaining unfunded Tranche B Term Loan Commitment.  The Term Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.13.  Any unfunded Tranche B Term Loan Commitments shall terminate on the Tranche B Term Loan Commitment Expiration Date, if not borrowed on or before such date.

 

2.2                                 Procedure for Term Loan Borrowing.  The Borrower shall deliver to the Administrative Agent a Borrowing Notice (which Borrowing Notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, one Business Day prior to the anticipated Funding Date, in the case of Base Rate Loans, and three Business Days prior to the anticipated Funding Date, in the case of Eurodollar Loans) requesting that the Term Loan Lenders make the Term Loans on such Funding Date and specifying the amount to be borrowed.  Upon receipt of such Borrowing Notice the Administrative Agent shall promptly notify each Term Loan Lender thereof.  Not later than 12:00 Noon, New York City time, on the Funding Date each Term Loan Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Term Loan to be made by such Lender on such Funding Date.  The Administrative Agent shall make available to the Borrower the aggregate of the amounts made available to the Administrative Agent by the Term Loan Lenders, in like funds as received by the Administrative Agent.

 

2.3                                 Repayment of Term Loans.  (a) 
The Tranche B Term Loan of each Tranche B Term Loan Lender shall mature in 26 consecutive quarterly installments, commencing on March 31, 2006, each of which shall be in an amount equal to such Lender’s

 

28

 

Tranche  B Term Loan Percentage multiplied by the amount set forth below opposite such installment.

 

	
  Installment

  	
   

  	
  Principal Amount

  	
   

  
	
  March  31, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  June  30, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  September  30, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  December  31, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  March  31, 2007

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  June  30, 2007

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  September  30, 2007

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  December  31, 2007

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  March  31, 2008

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  June  30, 2008

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  September  30, 2008

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  December  31, 2008

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  March  31, 2009

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  June  30, 2009

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  September  30, 2009

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  December  31, 2009

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  March  31, 2010

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  June  30, 2010

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  September  30, 2010

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  December  31, 2010

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  March  31, 2011

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  June  30, 2011

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  September  30, 2011

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  December  31, 2011

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  March  31, 2012

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  June  30, 2012

  	
   

  	
  $

  	
  375,000,000

  	
   

  
						

 

(b)                                 If the aggregate principal amount of Tranche B Term Loans made prior to the Tranche B Term Loan Commitment Expiration Date is less than the aggregate amount of the Tranche B Term Loan Commitments as of the Closing Date, the amount of each installment set forth in Section 2.3(a) shall be proportionally reduced.

 

2.4                                 Revolving Credit Commitments.  (a)  Subject to the terms and conditions hereof, the Revolving Credit Lenders severally agree to make revolving credit loans (“Revolving Credit Loans”) to the Borrower from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding for each Revolving Credit Lender which, when added to such Lender’s Revolving Credit Percentage of the sum of (i) the Revolving Credit L/C Obligations then outstanding and (ii) the aggregate principal amount of the Swing Line Loans then outstanding, does not exceed the amount of such Lender’s Revolving Credit Commitment.  During the Revolving Credit Commitment Period the Borrower may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof.  The Revolving Credit Loans may from time to time be Eurodollar Loans or Base Rate Loans, as

 

29

 

determined  by the Borrower and notified to the Revolving Administrative Agent in accordance with Sections 2.5 and 2.13, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Revolving Credit Termination Date.

 

(b)                                 The Borrower shall repay all outstanding Revolving Credit Loans on the Revolving Credit Termination Date.

 

2.5                                 Procedure for Revolving Credit Borrowing.  The Borrower may borrow under the Revolving Credit Commitments on any Business Day during the Revolving Credit Commitment Period, provided that the Borrower shall deliver to the Revolving Administrative Agent a Borrowing Notice (which Borrowing Notice must be received by the Revolving Administrative Agent prior to 12:00 Noon, New York City time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans).  Each borrowing of Revolving Credit Loans under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Credit Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided, that the Swing Line Lender may request, on behalf of the Borrower, borrowings of Base Rate Loans under the Revolving Credit Commitments in other amounts pursuant to Section 2.7.  Upon receipt of any such Borrowing Notice from the Borrower, the Revolving Administrative Agent shall promptly notify each Revolving Credit Lender thereof.  Each Revolving Credit Lender will make its Revolving Credit Percentage of the amount of each borrowing of Revolving Credit Loans available to the Revolving Administrative Agent for the account of the Borrower at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Revolving Administrative Agent.  Such borrowing will then be made available to the Borrower by the Revolving Administrative Agent in like funds as received by the Revolving Administrative Agent.

 

2.6                                 Swing Line Commitment.  (a)  Subject to the terms and conditions hereof, the Swing Line Lender agrees that, during the Revolving Credit Commitment Period, it will make available to the Borrower in the form of swing line loans (“Swing Line Loans”) a portion of the credit otherwise available to the Borrower under the Revolving Credit Commitments; provided that (i) the aggregate principal amount of Swing Line Loans outstanding at any time shall not exceed the Swing Line Commitment then in effect (notwithstanding that the Swing Line Loans outstanding at any time, when aggregated with the Swing Line Lender’s other outstanding Revolving Credit Loans hereunder, may exceed the Swing Line Commitment then in effect or the Swing Line Lender’s Revolving Credit Commitment then in effect) and (ii) the Borrower shall not request, and the Swing Line Lender shall not make, any Swing Line Loan if, after giving effect to the making of such Swing Line Loan, the aggregate amount of the Available Revolving Credit Commitments would be less than zero.  During the Revolving Credit Commitment Period, the Borrower may use the Swing Line Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof.  Swing Line Loans shall be Base Rate Loans only.

 

30

 

(b)                                 The Borrower shall repay all outstanding Swing Line Loans on the Revolving Credit Termination Date.

 

2.7                                 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans.  (a)  The Borrower may borrow under the Swing Line Commitment on any Business Day during the Revolving Credit Commitment Period, provided, the Borrower shall give the Swing Line Lender irrevocable telephonic notice confirmed promptly in writing (which telephonic notice must be received by the Swing Line Lender not later than 1:00 P.M., New York City time, on the proposed Borrowing Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date.  Each borrowing under the Swing Line Commitment shall be in an amount equal to $500,000 or a whole multiple of $100,000 in excess thereof.  Not later than 4:00 P.M., New York City time, on the Borrowing Date specified in the borrowing notice in respect of any Swing Line Loan, the Swing Line Lender shall make available to the Revolving Administrative Agent at the Funding Office an amount in immediately available funds equal to the amount of such Swing Line Loan.  The Revolving Administrative Agent shall make the proceeds of such Swing Line Loan available to the Borrower on such Borrowing Date in like funds as received by the Revolving Administrative Agent.

 

(b)                                 The Swing Line Lender, at any time and from time to time in its sole and absolute discretion may, on behalf of the Borrower (which hereby irrevocably directs the Swing Line Lender to act on its behalf), on one Business Day’s notice given by the Swing Line Lender no later than 12:00 Noon, New York City time, request each Revolving Credit Lender to make, and each Revolving Credit Lender hereby agrees to make, a Revolving Credit Loan (which shall initially be a Base Rate Loan), in an amount equal to such Revolving Credit Lender’s Revolving Credit Percentage of the aggregate amount of the Swing Line Loans (the “Refunded Swing Line Loans”) outstanding on the date of such notice, to repay the outstanding Swing Line Loans.  Each Revolving Credit Lender shall make the amount of such Revolving Credit Loan available to the Revolving Administrative Agent at the Funding Office in immediately available funds, not later than 10:00 A.M., New York City time, one Business Day after the date of such notice.  The proceeds of such Revolving Credit Loans shall be made immediately available by the Revolving Administrative Agent to the Swing Line Lender for application by the Swing Line Lender to the repayment of the Refunded Swing Line Loans.  The Borrower irrevocably authorizes the Swing Line Lender to charge the Borrower’s accounts with the Revolving Administrative Agent (up to the amount available in each such account) in order to immediately pay the amount of such Refunded Swing Line Loans to the extent amounts received from the Revolving Credit Lenders are not sufficient to repay in full such Refunded Swing Line Loans.

 

(c)                                  If prior to the time a Revolving Credit Loan would have otherwise been made pursuant to Section 2.7(b), one of the events described in Section 8(f) shall have occurred and be continuing with respect to the Borrower, or if for any other reason, as determined by the Swing Line Lender in its sole discretion, Revolving Credit Loans may not be made as contemplated by Section 2.7(b), each Revolving Credit Lender shall, on the date such Revolving Credit Loan was to have been made pursuant to the notice referred to in Section 2.7(b) (the “Refunding Date”), purchase for cash an undivided participating interest in the then outstanding Swing Line Loans by paying to the Swing Line Lender an amount (the “Swing Line Participation Amount”) equal to (i) such Revolving Credit Lender’s Revolving Credit Percentage times (ii) the

 

31

 

sum  of the aggregate principal amount of Swing Line Loans then outstanding which were to have been repaid with such Revolving Credit Loans.

 

(d)                                 Whenever, at any time after the Swing Line Lender has received from any Revolving Credit Lender such Lender’s Swing Line Participation Amount, the Swing Line Lender receives any payment on account of the Swing Line Loans, the Swing Line Lender will distribute to such Lender its Swing Line Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender’s pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swing Line Loans then due); provided, however, that in the event that such payment received by the Swing Line Lender is required to be returned, such Revolving Credit Lender will return to the Swing Line Lender any portion thereof previously distributed to it by the Swing Line Lender.

 

(e)                                  Each Revolving Credit Lender’s obligation to make the Loans referred to in Section 2.7(b) and to purchase participating interests pursuant to Section 2.7(c) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which such Revolving Credit Lender or the Borrower may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Revolving Credit Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

 

2.8                                 Repayment of Loans; Evidence of Debt.  (a)  The Borrower hereby unconditionally promises to pay to the Revolving Administrative Agent for the account of the appropriate Revolving Credit Lender or the Swing Line Lender and to the Administrative Agent for the account of the appropriate Term Loan Lender, as the case may be, (i) the then unpaid principal amount of each Revolving Credit Loan of such Revolving Credit Lender on the Revolving Credit Termination Date, (ii) the then unpaid principal amount of each Swing Line Loan of such Swing Line Lender on the Revolving Credit Termination Date and (iii) the principal amount of each Term Loan of such Term Loan Lender in installments according to the amortization schedule set forth in Section 2.3 and, in any event, in full on June 30, 2012 (or on any earlier date on which the Loans become due and payable pursuant to Section 8).  The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.15.

 

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

 

32

 

(c)                                  The Administrative Agent, in the case of Term Loans, and the Revolving Administrative Agent, in the case of Revolving Credit Loans, shall maintain the Register on behalf of the Borrower pursuant to Section 10.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and any Note evidencing such Loan, the Type of such Loan and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by such Agent hereunder from the Borrower and each Lender’s share thereof.

 

(d)                                 The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.8(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement.

 

(e)                                  The Borrower agrees that, upon request to the Administrative Agent by any Lender, the Borrower will promptly execute and deliver to such Lender a promissory note of the Borrower evidencing any Term Loans, Revolving Credit Loans or Swing Line Loans, as the case may be, of such Lender, substantially in the forms of Exhibit F-1, F-2 or F-3, respectively (a “Term Note”, “Revolving Credit Note” or “Swing Line Note”, respectively), with appropriate insertions as to date and principal amount; provided, that delivery of Notes shall not be a condition precedent to the occurrence of the Closing Date or the making of the Loans on the Closing Date and the obligations of the Borrower in respect of each Loan shall be enforceable in accordance with the provisions of the Loan Documents whether or not evidenced by any Note.

 

2.9                                 Commitment Fees, etc.  (a)  The Borrower agrees to pay to the Revolving Administrative Agent for the account of each Revolving Credit Lender a commitment fee for the period from and including the date hereof to the last day of the Revolving Credit Commitment Period, computed at the Commitment Fee Rate applicable to the Revolving Credit Commitments, on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Credit Termination Date, commencing on the first of such dates to occur after the date hereof.

 

(b)                                 The Borrower agrees to pay to the Administrative Agent for the account of each Tranche B Term Loan Lender a commitment fee for the period from and including the date hereof to the Tranche B Term Loan Commitment Expiration Date computed at the Commitment Fee Rate applicable to Tranche B Term Loan Commitments, on the product of (i) the daily average amount of the Tranche B Term Loan Commitment of such Lender during the period for which payment is made and (ii) the number of days in such period.  Such commitment fee will be payable in arrears on each Funding Date, the Tranche B Term Loan Commitment Expiration Date and, if the Tranche B Term Loan Commitment Expiration Date is after September 30, 2005, on September 30, 2005.

 

33

 

(c)                                  The Borrower agrees to pay to the Administrative Agent on the Tranche B Term Loan Commitment Expiration Date, for the account of each Tranche B Term Loan Lender in accordance with its Tranche B Term Loan Percentage, a fee equal to 0.50% applied to the difference between (a) $400,000,000 and (b) the aggregate amount of Tranche B Term Loans funded on or before the Tranche B Term Loan Commitment Expiration Date.

 

(d)                                 The Borrower agrees to pay to the Arranger the fees in the amounts and on the dates previously agreed to in writing by the Borrower and the Arranger.

 

(e)                                  The Borrower agrees to pay to each Agent the fees in the amounts and on the dates from time to time agreed to in writing by the Borrower and such Agent.

 

2.10                           Termination or Reduction of Commitments.  (a)  The Borrower shall have the right, upon not less than three Business Days’ notice to the Revolving Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the aggregate amount of the Revolving Credit Commitments; provided that no such termination or reduction of Revolving Credit Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans and Swing Line Loans made on the effective date thereof, the Total Revolving Extensions of Credit would exceed the Total Revolving Credit Commitments.  Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Credit Commitments then in effect.

 

(b)                                 The Borrower shall have the right, upon not less than three Business Days’ notice to the Revolving Administrative Agent, to terminate the Funded Letter of Credit Commitments or, from time to time, to reduce the aggregate amount of the Funded Letter of Credit Commitments; provided that no such termination or reduction of Funded Letter of Credit Commitments shall be permitted if, after giving effect thereto the Total Funded Letter of Credit Exposure would exceed the Total Funded Letter of Credit Commitments.  Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Funded Letter of Credit Commitments then in effect.  If the Funded Letter of Credit Commitments are reduced as provided in this Section 2.10(b), then the Revolving Administrative Agent will return all amounts in the Credit Linked Deposit Account in excess of the Total Funded Letter of Credit Commitments (after giving effect to such reduction) to the Funded L/C Participants, ratably in accordance with their Funded Letter of Credit Percentages.

 

(c)                                  The Borrower shall have the right, upon not less than three Business Days’ notice to the Administrative Agent, to terminate any unfunded portion of the Tranche B Term Loan Commitments or, from time to time, to reduce the aggregate amount of the Tranche B Term Loan Commitments.  Any such termination or reduction shall be in an amount equal to $5,000,000, or a whole multiple thereof, and shall reduce permanently the Tranche B Term Loan Commitments then in effect.

 

2.11                           Optional Prepayments.  Subject to Section 2.11(b), (a) the Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty (except as otherwise provided herein), upon irrevocable notice delivered to the Revolving Administrative Agent, in the case of the Revolving Credit Loans, and to the Administrative Agent, in the case of the Term Loans, at least three Business Days prior thereto in

 

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the  case of Eurodollar Loans and at least one Business Day prior thereto in the case of Base Rate Loans, which notice shall specify the date and amount of such prepayment, whether such prepayment is of Term Loans or Revolving Credit Loans, and whether such prepayment is of Eurodollar Loans or Base Rate Loans; provided, that (i) if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.21 and (ii) no prior notice is required for the prepayment of Swing Line Loans.  Upon receipt of any such notice the Revolving Administrative Agent or the Administrative Agent, as applicable, shall promptly notify each relevant Lender thereof.  If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Credit Loans that are Base Rate Loans and Swing Line Loans) accrued interest to such date on the amount prepaid.  Partial prepayments of Term Loans and Revolving Credit Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof.  Partial prepayments of Swing Line Loans shall be in an aggregate principal amount of $100,000 or a whole multiple thereof.

 

(b)                                 In the event that the Term Loans are prepaid or repaid in whole or in part by the Borrower pursuant to this Section 2.11 on or prior to the first anniversary of the Closing Date, the Borrower shall pay to the Administrative Agent, for the account of each Term Loan Lender in accordance with its Tranche B Term Loan Percentage, a 1.00% prepayment premium on the amount so repaid.

 

(c)                                  In the event that the aggregate amount of the Funded Letter of Credit Commitments are reduced and amounts in the Credit Linked Deposit Account are returned to the Funded L/C Participants pursuant to Section 2.10(b) on or prior to the first anniversary of the Closing Date, the Borrower shall pay to the Revolving Administrative Agent, for the account of each Funded L/C Participant in accordance with its Funded Letter of Credit Percentage, a 1.00% reduction fee on the amount so returned.

 

2.12                           Mandatory Prepayments.  (a)  Until the Term Loans have been repaid in full and the Tranche B Term Loan Commitments terminated, if any Capital Stock shall be issued by the Borrower (except any Excluded Equity Issuance) or if any proceeds of an Excluded Equity Issuance required to be used for a Permitted Acquisition are not so used within 90 days of the issuance thereof, then on the date of such issuance (or such 90th day, as applicable), the Term Loans shall be prepaid by an amount equal to 50% of the amount of the Net Cash Proceeds of such issuance or such proceeds.  If any Indebtedness shall be incurred by the Borrower or any of its Subsidiaries (excluding any Indebtedness incurred in accordance with Section 7.2 (except as set forth in Section 7.2(f)(ii)) as in effect on the date of this Agreement), then on the date of such incurrence, the Term Loans shall be prepaid by an amount equal to the amount of the Net Cash Proceeds of such incurrence.  The provisions of this Section do not constitute a consent to the issuance of any equity securities by any entity whose equity securities are pledged pursuant to the Guarantee and Collateral Agreement, or a consent to the incurrence of any Indebtedness by the Borrower or any of its Subsidiaries.

 

(b)                                 Until the Term Loans have been repaid in full and the Tranche B Term Loan Commitments terminated, if on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment

 

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Notice  shall be delivered in respect thereof, within 10 Business Days of receipt by the Borrower of such Net Cash Proceeds, the Term Loans shall be prepaid by an amount equal to the amount of such Net Cash Proceeds; provided, that, notwithstanding the foregoing, on each Reinvestment Prepayment Date the Term Loans shall be prepaid, by an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event.  The provisions of this Section do not constitute a consent to the consummation of any Disposition not permitted by Section 7.5.

 

(c)                                  Until the Term Loans have been repaid in full and the Tranche B Term Loan Commitments terminated, if for any fiscal year of the Borrower commencing with the fiscal year ending December 31, 2006, there shall be Excess Cash Flow, then, on the relevant Excess Cash Flow Application Date, the Term Loans shall be prepaid by an amount equal to the ECF Percentage of such Excess Cash Flow.  Each such prepayment shall be made on a date (an “Excess Cash Flow Application Date”) no later than five days after the earlier of (i) the date on which the financial statements of the Borrower referred to in Section 6.1(a), for the fiscal year with respect to which such prepayment is made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered.

 

2.13                           Conversion and Continuation Options.  (a)  The Borrower may elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving the Revolving Administrative Agent, in the case of Revolving Credit Loans, and the Administrative Agent, in the case of Term Loans, at least two Business Day’s prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may be made only on the last day of an Interest Period with respect thereto.  The Borrower may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Revolving Administrative Agent in the case of Revolving Credit Loans and the Administrative Agent in the case of Term Loans at least three Business Days’ prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), provided that no Base Rate Loan under a particular Facility may be converted into a Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent has, or the Majority Facility Lenders in respect of such Facility have, determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility.  Upon receipt of any such notice the Revolving Administrative Agent or the Administrative Agent, as applicable, shall promptly notify each relevant Lender thereof.

 

(b)                                 The Borrower may elect to continue any Eurodollar Loan as such upon the expiration of the then current Interest Period with respect thereto by giving irrevocable notice to the Revolving Administrative Agent, in the case of Revolving Credit Loans, and the Administrative Agent, in the case of Term Loans, in accordance with the applicable provisions of the term “Interest Period” set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan under a particular Facility may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has, or the Majority Facility Lenders in respect of such Facility have, determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso, such

 

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Loans  shall be converted automatically to Base Rate Loans on the last day of such then expiring Interest Period.  Upon receipt of any such notice the Revolving Administrative Agent or the Administrative Agent, as applicable, shall promptly notify each relevant Lender thereof.

 

2.14                           Minimum Amounts and Maximum Number of Eurodollar Tranches.  Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurodollar Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time.

 

2.15                           Interest Rates and Payment Dates.  (a)  Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin in effect for such day.

 

(b)                                 Each Base Rate Loan shall bear interest for each day on which it is outstanding at a rate per annum equal to the Base Rate in effect for such day plus the Applicable Margin in effect for such day.

 

(c)                                  (i)                                     If all or a portion of the principal amount of any Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such principal amount shall bear interest at a rate per annum that is equal to the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2.0% per annum and (ii) if all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans under the relevant Facility plus 2.0% (or, in the case of any such other amounts that do not relate to a particular Facility, the rate then applicable to Base Rate Loans under the Revolving Credit Facility plus 2.0%), in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (after as well as before judgment).

 

(d)                                 All Reimbursement Obligations in respect of any payment under a Letter of Credit shall bear interest from and including the date on which such payment is made until such Reimbursement Obligation is paid in full.  For the date on which payment is made and the first day following such date such interest will be equal to (i) in the case of Reimbursement Obligations with respect to Revolving Credit Letters of Credit, at the rate then applicable to Base Rate Loans under the Revolving Credit Facility and (ii) in the case of Reimbursement Obligations with respect to Funded Letters of Credit, the rate then applicable to Base Rate Loans under the Term Loan Facility.  For the second day following the date on which payment is made and for each day thereafter until such Reimbursement Obligation is paid in full, such interest will be equal to (i) in the case of Reimbursement Obligations with respect to Revolving Credit Letters of Credit, the rate then applicable to Base Rate Loans under the Revolving Credit Facility plus 2.0% per annum or (ii) in the case of Reimbursement Obligations with respect to Funded Letters of Credit, the rate then applicable to Base Rate Loans under the Term Loan Facility plus 2.0% per annum.

 

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(e)                                  Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) and (d) of this Section shall be payable from time to time on demand.

 

2.16                           Computation of Interest and Fees.  (a)  Interest, fees, commissions payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to Base Rate Loans on which interest is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed.  The Revolving Administrative Agent, in the case of Revolving Credit Loans, and the Administrative Agent, in the case of Term Loans, shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate.  Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective.  The Revolving Administrative Agent, in the case of Revolving Credit Loans, and the Administrative Agent, in the case of Term Loans, shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate.

 

(b)                                 Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error.  The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.15(a).

 

2.17                           Inability to Determine Interest Rate.  If prior to the first day of any Interest Period:

 

(a)                                  the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or

 

(b)                                 the Administrative Agent shall have received notice from the Majority Facility Lenders in respect of the relevant Facility that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans or their Credit Linked Deposit during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to Revolving Administrative Agent, the Borrower and the relevant Lenders as soon as practicable thereafter.  If such notice is given (w) any Eurodollar Loans under the relevant Facility requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (x) any Loans under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (y) any outstanding Eurodollar Loans under the relevant Facility shall be converted, on the last day of the then current Interest Period with respect thereto, to Base Rate Loans, (z) the amount payable to the Borrower pursuant to the penultimate sentence of Section 3.7(b) shall be increased by an amount corresponding to the resultant increase in the aggregate interest payable on outstanding Term Loans.  Until such notice has been withdrawn by the

 

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Administrative  Agent, no further Eurodollar Loans under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurodollar Loans.

 

2.18                           Pro Rata Treatment and Payments.  (a)  Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee or Letter of Credit fee, and any reduction of the Commitments of the Lenders, shall be made pro rata according to the respective Tranche B Term Loan Percentages, Revolving Credit Percentages or Funded Letter of Credit Percentages, as the case may be, of the relevant Lenders.  Each payment in respect of principal or interest in respect of the Term Loans and each payment in respect of fees or expenses payable hereunder shall be applied to the amounts of such obligations owing to the Lenders pro rata according to the respective amounts then due and owing to the Lenders.

 

(b)                                 Each payment (including each prepayment) of the Term Loans outstanding under the Tranche B Term Loan Facility shall be allocated among the Tranche B Term Loan Lenders holding such Tranche B Term Loans pro rata based on the principal amount of such Tranche B Term Loans held by such Tranche B Term Loan Lenders, and shall be applied to the installments of such Tranche B Term Loans in the inverse order of the scheduled maturities of such installments.  Amounts prepaid on account of the Tranche B Term Loans may not be reborrowed.

 

(c)                                  Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Credit Loans then held by the Revolving Credit Lenders.

 

(d)                                 Each payment in respect of Reimbursement Obligations in respect of any Letter of Credit shall be made to the Issuing Lender that issued such Letters of Credit.

 

(e)                                  The application of any payment of Loans under any Facility (including optional and mandatory prepayments) shall be made, first, to Base Rate Loans under such Facility and, second, to Eurodollar Loans under such Facility.  Each payment of the Loans (except in the case of Swing Line Loans and Revolving Credit Loans that are Base Rate Loans) shall be accompanied by accrued interest to the date of such payment on the amount paid.

 

(f)                                    All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, except as set forth in Section 2.18(d), shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Revolving Administrative Agent or the Administrative Agent, as applicable, for the account of the relevant Lenders, at the Payment Office, in Dollars and in immediately available funds.  Any payment made by the Borrower after 12:00 Noon, New York City time, on any Business Day shall be deemed to have been on the next following Business Day. The Revolving Administrative Agent or the Administrative Agent, as applicable, shall distribute such payments to the Lenders promptly upon receipt in like funds as received.  If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next

 

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succeeding  Business Day.  If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day.  In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension.

 

(g)                                 Unless the Revolving Administrative Agent and the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Revolving Administrative Agent or the Administrative Agent, as applicable, the Revolving Administrative Agent and the Administrative Agent may assume that such Lender is making such amount available to the Revolving Administrative Agent and the Administrative Agent, as applicable, and the Revolving Administrative Agent and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount.  If such amount is not made available to the Revolving Administrative Agent or the Administrative Agent, as applicable, by the required time on the Borrowing Date therefor, such Lender shall pay to the Revolving Administrative Agent or the Administrative Agent, as applicable, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Revolving Administrative Agent or the Administrative Agent, as applicable.  A certificate of the Revolving Administrative Agent or the Administrative Agent, as applicable, submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error.  If such Lender’s share of such borrowing is not made available to the Revolving Administrative Agent or the Administrative Agent, as applicable, by such Lender within three Business Days after such Borrowing Date, the Revolving Administrative Agent and the Administrative Agent, as applicable, shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Base Rate Loans under the relevant Facility, on demand, from the Borrower.

 

(h)                                 Unless the Revolving Administrative Agent and the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Revolving Administrative Agent or the Administrative Agent, as applicable, the Revolving Administrative Agent and the Administrative Agent may assume that the Borrower is making such payment, and the Revolving Administrative Agent and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount.  If such payment is not made to the Revolving Administrative Agent or the Administrative Agent, as applicable, by the Borrower within three Business Days after such due date, the Revolving Administrative Agent and the Administrative Agent, as applicable, shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate.  Nothing herein shall be deemed to limit the rights of the Revolving Administrative Agent and the Administrative Agent or any Lender against the Borrower.

 

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2.19                           Requirements of Law.  (a)  If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:

 

(i)                                     shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application, the Credit Linked Deposit or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.20 and changes in the rate of tax on the overall net income of such Lender);

 

(ii)                                  shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate hereunder; or

 

(iii)                               shall impose on such Lender any other condition;

 

and  the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender on an after-tax basis for such increased cost or reduced amount receivable.  If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled.

 

(b)                                 If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction on an after-tax basis.

 

(c)                                  A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error.  The obligations of the Borrower pursuant to this

 

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Section  shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

 

2.20                           Taxes.  (a)  All payments made by the Borrower under this Agreement or any other Loan Documents shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Arranger, any Agent or any Lender as a result of a present or former connection between the Arranger, such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Arranger’s, such Agent’s or such Lender’s having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document).  If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings (“Non-Excluded Taxes”) or any Other Taxes are required to be withheld from any amounts payable to the Arranger, any Agent or any Lender hereunder, the amounts so payable to the Arranger, such Agent or such Lender shall be increased to the extent necessary to yield to the Arranger, such Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement; provided, however, that the Borrower or any Guarantor shall not be required to increase any such amounts payable to the Arranger, any Agent or any Lender with respect to any Non-Excluded Taxes (i) that are attributable to the Arranger’s, such Agent’s or such Lender’s failure to comply with the requirements of paragraph (d) or (e) of this Section or (ii) in the case of any Non-U.S. Lender, that are United States withholding taxes imposed on amounts payable to the Arranger, such Agent or such Lender at the time the Arranger, such Agent or such Lender becomes a party to this Agreement, except to the extent that the Arranger’s such Agent’s or such Lender’s assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph (a).  The Borrower or the applicable Guarantor shall make any required withholding and pay the full amount withheld to the relevant tax authority or other Governmental Authority in accordance with applicable Requirements of Law.

 

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

 

(c)                                  Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for the account of the relevant Arranger, Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof.  If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Arranger, the Agents and the Lenders for any incremental taxes, interest or penalties that may become payable by the Arranger, any Agent or any Lender as a result of any such failure.  The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

 

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(d)                                 Each Lender (or Transferee) that is not a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States (or any jurisdiction thereof), or any estate or trust that is subject to federal income taxation regardless of the source of its income (a “Non-U.S. Lender”) shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest” a statement substantially in the form of Exhibit G to the effect that such Lender is eligible for a complete exemption from withholding of U.S. taxes under Section 871(h) or 881(c) of the Code and a Form W-8BEN, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents.  Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (and in the case of any Participant, on or before the date such Participant purchases the related participation).  In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender.  Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose).  Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver.

 

(e)                                  A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender’s reasonable judgment such completion, execution or submission would not materially prejudice the legal position of such Lender.

 

2.21                           Indemnity.  The Borrower agrees to indemnify each Lender, the L/C Arranger and each Issuing Lender for, and to hold each of them harmless from, any loss or expense that such Lender, L/C Arranger or Issuing Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement, (c) the making of a prepayment or conversion of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto, (d) the withdrawal of funds from the Credit Linked Deposit Account to pay the L/C Arranger and the Issuing Lender pursuant to Section 3.6 or the repayment by the Borrower to the Issuing Lender (and the deposit of such amounts into the Credit Linked Deposit Account) pursuant to Section 3.6 on a day that is not the last day of an

 

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Interest  Period with respect thereto or (e) the return of amounts in the Credit Linked Deposit Account to the Funded L/C Participants pursuant to Section 2.10(b) on a day that is not the last day of an Interest Period with respect thereto.  Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market.  A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error.  This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

 

2.22                           Illegality.  Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful (a)  for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (i) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be canceled and (ii) such Lender’s Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law or (b) for the Credit Linked Deposit to be invested at a three month Eurodollar Rate, then the Funded L/C Participants shall be compensated as provided in clause (z) of the second sentence of Section 2.17.  If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.21.

 

2.23                           Change of Lending Office.  Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.19, 2.20(a) or 2.22 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.19, 2.20(a) or 2.22.

 

2.24                           Replacement of Lenders under Certain Circumstances.  The Borrower shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 2.19 or 2.20 or gives a notice of illegality pursuant to Section 2.22 or (b) defaults in its obligation to make Loans or maintain its Credit Linked Deposit hereunder, with a replacement financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action

 

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under  Section 2.23 so as to eliminate the continued need for payment of amounts owing pursuant to Section 2.19 or 2.20 or to eliminate the illegality referred to in such notice of illegality given pursuant to Section 2.22, (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender under Section 2.21 (as though Section 2.21 were applicable) if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Revolving Administrative Agent and the Administrative Agent, (vii)  the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 10.6 (provided that the Borrower shall be obligated to pay or to cause the replacement financial institution to pay the registration and processing fee referred to therein), (viii) the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.19 or 2.20, as the case may be, in respect of any period prior to the date on which such replacement shall be consummated, and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Revolving Administrative Agent, the Administrative Agent or any other Lender shall have against the replaced Lender.

 

SECTION  3.   LETTERS OF CREDIT

 

3.1                                 L/C Commitment.  (a)  Subject to the terms and conditions hereof, the L/C Arranger agrees to cause the Issuing Lender designated by it with respect to the Revolving Credit Facility, in reliance on the agreements of the other Revolving Credit Lenders set forth in Section 3.4(a), to issue letters of credit (the letters of credit issued on and after the Closing Date pursuant to this Section 3.1(a), “Revolving Credit Letters of Credit”) for the account of the Borrower on any Business Day during the Revolving Credit Commitment Period in such form as may be approved from time to time by the L/C Arranger and such Issuing Lender; provided, that the L/C Arranger shall have no obligation to cause such Issuing Lender to issue any Revolving Credit Letter of Credit if, after giving effect to such issuance, (i) the Revolving Credit L/C Obligations would exceed the Revolving Credit L/C Commitment or (ii) the aggregate amount of the Available Revolving Credit Commitments would be less than zero.  Each Revolving Credit Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date which is five Business Days prior to the Revolving Credit Termination Date; provided that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above).

 

(b)                                 Subject to the terms and conditions hereof, the L/C Arranger agrees to cause the Issuing Lender designated by it, in reliance on the agreements of the other Funded L/C Participants set forth in Sections 3.5 and 3.6, to issue letters of credit (the letters of credit issued on and after the Closing Date pursuant to this Section 3.1(b), collectively, the “Funded Letters of Credit”) for the account of the Borrower on any Business Day during the Funded Letter of Credit Commitment Period in such form as may be approved from time to time by the L/C Arranger and such Issuing Lender; provided, that the L/C Arranger shall have no obligation to cause such Issuing Lender to issue any Funded Letter of Credit if, after giving effect to such issuance the Total Funded Letter of Credit Exposure would exceed the Total Funded Letter of Credit Commitments or the Total Credit Linked Deposit then in effect.  Each Funded Credit Letter of

 

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Credit  shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date which is five Business Days prior to the Funded Letter of Credit Termination Date; provided that any Funded Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above).

 

(c)                                  The L/C Arranger shall not at any time be obligated to cause any Letter of Credit to be issued hereunder if such issuance would conflict with, or cause the L/C Arranger, Issuing Lender or any Revolving L/C Participant or Funded L/C Participant to exceed any limits imposed by, any applicable Requirement of Law.

 

3.2                                 Procedure for Issuance of Letters of Credit.  The Borrower may from time to time request that the L/C Arranger cause a Letter of Credit to be issued by an Issuing Lender designated by it by delivering to the L/C Arranger, with a copy to the Revolving Administrative Agent, at their addresses for notices specified herein an Application therefor, completed to the satisfaction of the L/C Arranger, and such other certificates, documents and other papers and information as such L/C Arranger may request.  Such application shall specify if such Letter of Credit is to be made as a Revolving Credit Letter of Credit or a Funded Letter of Credit.  Upon receipt of any Application, the L/C Arranger will, and will cause such Issuing Lender to, process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with their respective customary procedures, and the L/C Arranger will promptly cause such Issuing Lender to issue the Letter of Credit requested thereby by causing the original of such Letter of Credit to be issued to the beneficiary thereof or as otherwise may be agreed to by the L/C Arranger, such Issuing Lender and the Borrower (but in no event shall any Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after the L/C Arranger’s receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto).  Promptly after issuance by an Issuing Lender of a Letter of Credit, the L/C Arranger shall furnish a copy of such Letter of Credit to the Borrower and the Revolving Administrative Agent.  The L/C Arranger shall promptly give notice to the Revolving Administrative Agent of the issuance of each Letter of Credit issued by such Issuing Lender (including the amount thereof).

 

3.3                                 Fees and Other Charges.  (a)  The Borrower will pay a fee on the daily aggregate undrawn Stated Amount of all outstanding Revolving Credit Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans under the Revolving Credit Facility, shared ratably among the Revolving Credit Lenders in accordance with their respective Revolving Credit Percentages and payable quarterly in arrears on each L/C Fee Payment Date.

 

(b)                                 The Borrower will pay to Revolving Administrative Agent for the ratable benefit of each Funded L/C Participant a fee calculated on the daily amount of such Funded L/C Participant’s Credit Linked Deposit (the “Funded Letter of Credit Fee”), for the period from and including the Closing Date to the date on which the full amount of such Credit Linked Deposit is returned to such Funded L/C Participant, at a rate per annum equal to the Applicable Margin then in effect for Term Loans which are Eurodollar Loans, such fee payable quarterly in arrears on each L/C Fee Payment Date.

 

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(c)                                  The Borrower shall pay to the L/C Arranger, for the account of the L/C Arranger and each Issuing Lender designated by it, a fronting fee on the aggregate Stated Amount of all outstanding Letters of Credit issued by such Issuing Lender in the amounts and at the times separately agreed between the Borrower and the L/C Arranger.  The Borrower shall further pay each other Issuing Lender, if any, a fronting fee on the aggregate Stated Amount of all outstanding Letters of Credit issued by it in the amounts and at the times separately agreed between the Borrower and such Issuing Lender.

 

(d)                                 In addition to the foregoing fees, the Borrower shall pay or reimburse the L/C Arranger and each Issuing Lender, as the case may be, for such normal and customary costs and expenses as are incurred or charged by such Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit.

 

3.4                                 Revolving Credit L/C Participations.  (a)  The L/C Arranger, for itself and the Issuing Lender designated by it, and each Revolving Credit Lender that becomes an Issuing Lender, for itself only, irrevocably agrees to grant and hereby grants to each Revolving Credit L/C Participant, and, to induce the issuance of Revolving Credit Letters of Credit hereunder, each Revolving Credit L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the L/C Arranger, in respect of Revolving Credit Letters of Credit issued by the Issuing Lender designated by it, and from each other Issuing Lender, on the terms and conditions hereinafter stated, for such Revolving Credit L/C Participant’s own account and risk, an undivided interest equal to such Revolving Credit L/C Participant’s Revolving Credit Percentage in the L/C Arranger’s obligations and rights in respect of each Revolving Credit Letter of Credit issued by the L/C Arranger’s designated Issuing Lender and each other Issuing Lender hereunder and the amount of each draft paid by the Issuing Lender thereunder (which shall include the L/C Arranger’s obligation to reimburse its designated Issuing Lender for the amount of such drawing).  Each Revolving Credit L/C Participant unconditionally and irrevocably agrees with the L/C Arranger, for itself and the Issuing Lender designated by it, and each Revolving Credit Lender that becomes an Issuing Lender, that, if a draft is paid under any Revolving Credit Letter of Credit issued by any Issuing Lender for which the L/C Arranger or the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such Revolving Credit L/C Participant shall pay to the Revolving Administrative Agent (for the account of the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender, as applicable), regardless of the occurrence or continuance of a Default or Event of Default or the failure to satisfy any of the other conditions specified in Section 5, upon demand of the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender at the Revolving Administrative Agent’s address for notices specified herein (and thereafter, the Revolving Administrative Agent shall promptly pay to the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender) an amount equal to such Revolving Credit L/C Participant’s Revolving Credit Percentage of the amount of such draft, or any part thereof, that is not so reimbursed.

 

(b)                                 If any amount required to be paid by any Revolving Credit L/C Participant to the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender pursuant to Section 3.4(a) is paid to the Revolving Administrative Agent (and Revolving Administrative Agent shall promptly distribute such amount to the L/C Arranger) within three Business Days after the date such payment is due, the Revolving Administrative Agent shall

 

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promptly  notify such Revolving Credit L/C Participant and such Revolving Credit L/C Participant shall pay to the Revolving Administrative Agent, for the account of the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender, as applicable, on demand (and thereafter the Revolving Administrative Agent shall promptly pay to the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender, as applicable) an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360.  If any such amount required to be paid by any Revolving Credit L/C Participant pursuant to Section 3.4(a) is not made available to the Revolving Administrative Agent, for the account of the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender, as applicable, by such Revolving Credit L/C Participant within three Business Days after the date such payment is due, the Revolving Administrative Agent, on behalf of the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender, as applicable, shall be entitled to recover from such Revolving Credit L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Base Rate Loans under the Revolving Credit Facility.  A certificate of the Revolving Administrative Agent on behalf of the L/C Arranger, for itself and the Issuing Lender designated by it, or each other Issuing Lender, submitted to any Revolving Credit L/C Participant with respect to any such amounts owing under this Section shall be conclusive in the absence of manifest error.

 

(c)                                  Whenever, at any time after the L/C Arranger, or the Issuing Lender designated by it, or each other Issuing Lender has made payment under any Revolving Credit Letter of Credit and has received from the Revolving Administrative Agent any Revolving Credit L/C Participant’s pro rata share of such payment in accordance with Section 3.4(a), the L/C Arranger, or the Issuing Lender designated by it, or each other Issuing Lender, as applicable, receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto), or any payment of interest on account thereof, the L/C Arranger, or the Issuing Lender designated by it, or each other Issuing Lender, as applicable, will distribute to the Revolving Administrative Agent for the account of such Revolving Credit L/C Participant (and thereafter, the Revolving Administrative Agent will promptly distribute to such Revolving Credit L/C Participant) its pro rata share thereof; provided, however, that in the event that any such payment received by the L/C Arranger, or the Issuing Lender designated by it, or each other Issuing Lender, as applicable, shall be required to be returned by the L/C Arranger, or the Issuing Lender designated by it, or each other Issuing Lender, as applicable, such Revolving Credit L/C Participant shall return to the Revolving Administrative Agent for the account of the L/C Arranger, or the Issuing Lender designated by it, or each other Issuing Lender, as applicable, the portion thereof previously distributed by the L/C Arranger, or the Issuing Lender designated by it, or each other Issuing Lender, to it.

 

3.5                                 Participations in Funded Letters of Credit.  (a)  On the Closing Date, without any further action on the part of the L/C Arranger, the Issuing Lender designated by the L/C Arranger or the Lenders, the L/C Arranger hereby grants to each Funded L/C Participant, and each Funded L/C Participant shall be deemed irrevocably and unconditionally to have

 

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purchased  and received from the L/C Arranger, without recourse or warranty, an undivided interest and participation (each, a “Funded Letter of Credit Participation”), in all obligations and rights of the L/C Arranger in respect of each existing and future Funded Letter of Credit equal to such Lender’s Funded Letter of Credit Percentage of the aggregate Stated Amount under each Funded Letter of Credit.  The aggregate purchase price for the Funded Letter of Credit Participations of each Funded L/C Participant shall equal the amount of the Credit Linked Deposit of such Funded L/C Participant.  Each Funded L/C Participant shall pay to the Revolving Administrative Agent its Credit Linked Deposit in full on the Closing Date in an amount equal to such Funded L/C Participant’s Funded Letter of Credit Commitment.  Each Funded L/C Participant hereby absolutely and unconditionally agrees that if the L/C Arranger or such Issuing Lender makes a disbursement in respect of any Funded Letter of Credit which is not reimbursed by the Borrower on the date due pursuant to Section 3.6(a), or is required to refund any reimbursement payment in respect of any Funded Letter of Credit to Borrower for any reason, Revolving Administrative Agent shall reimburse the L/C Arranger and such Issuing Lender for the amount of such disbursement, ratably as among the Funded L/C Participants in accordance with their Funded Letter of Credit Percentages of the Total Credit Linked Deposit, from such Funded L/C Participant’s Credit Linked Deposit on deposit in the Credit Linked Deposit Account.

 

(b)                                 Each Funded L/C Participant acknowledges and agrees that its obligation to acquire and fund participations in respect of Funded Letters of Credit pursuant to Section 3.5(a) is absolute, unconditional and irrevocable and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Funded Letter of Credit or the occurrence and continuance of a Default or Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

 

(c)                                  Notwithstanding the intention of the parties that each Funded L/C Participant shall have purchased its Funded Letter of Credit Participation on the Closing Date, in further consideration for the agreements of the L/C Arranger hereunder, each Funded L/C Participant hereby grants to the Revolving Administrative Agent for the benefit of the L/C Arranger a security interest and right of offset with respect to its Credit Linked Deposit and all investments thereof and all proceeds of any of the foregoing to secure such Funded L/C Participant’s obligation to acquire and fund participations in respect of Funded Letters of Credit pursuant to Section 3.5(a) and each Funded L/C Participant irrevocably authorizes the Revolving Administrative Agent to apply amounts of its Credit Linked Deposit in accordance with this Section 3.5.

 

3.6                                 Reimbursement Obligation of the Borrower.  (a)  The Borrower agrees to reimburse the L/C Arranger and each Revolving Credit Lender that becomes an Issuing Lender, on each date on which the L/C Arranger or such Issuing Lender, as applicable, notifies the Borrower of the date and amount of a draft presented under any Letter of Credit and paid by the L/C Arranger or such Issuing Lender, as applicable, for the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or expenses incurred by the L/C Arranger or such Issuing Lender in connection with such payment (the amounts described in the foregoing clauses (i) and (ii) in respect of any drawing, collectively, the “Payment Amount”).  Each such payment shall be made to the Revolving Administrative Agent at its address for notices specified herein in lawful money of the United States and in immediately available funds and the Revolving

 

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Administrative  Agent shall promptly distribute such payment to the L/C Arranger or such Issuing Lender.  Interest shall be payable on each Payment Amount from the date of the applicable drawing until payment in full at the rate set forth in Section 2.15(d).

 

(b)                                 Each drawing under any Revolving Credit Letter of Credit shall (unless an event of the type described in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with respect to the Borrower, in which case the procedures specified in Section 3.4 for funding by L/C Participants shall apply) constitute a request by the Borrower to the Revolving Administrative Agent for a borrowing pursuant to Section 2.5 of Base Rate Loans (or, at the option of the Revolving Administrative Agent and the Swing Line Lender in their sole discretion, a borrowing pursuant to Section 2.7 of Swing Line Loans) in the amount of such drawing.  The Borrowing Date with respect to such borrowing shall be the first date on which a borrowing of Revolving Credit Loans (or, if applicable, Swing Line Loans) could be made, pursuant to Section 2.5 (or, if applicable, Section 2.7), if the Revolving Administrative Agent had received a notice of such borrowing at the time the Revolving Administrative Agent receives notice from the relevant Issuing Lender of such drawing under such Letter of Credit.

 

(c)                                  In the event that the L/C Arranger makes any payment under or in respect of any Funded Letter of Credit and the Borrower shall not have repaid such amount in full to the L/C Arranger pursuant to Section 3.6(a), the L/C Arranger shall notify Revolving Administrative Agent and Revolving Administrative Agent shall notify each Funded L/C Participant of such failure, and Revolving Administrative Agent shall promptly remit to the L/C Arranger an amount equal to each Funded L/C Participant’s Funded Letter of Credit Percentages of such unreimbursed payment from such Funded L/C Participant’s Credit Linked Deposit.  If payment is made from the Credit Linked Deposit, the Borrower shall have the right, within 5 Business Days of the date on which such payment is made (provided no other Default or Event of Default shall exist and be continuing) to pay to the Revolving Administrative Agent an amount equal to the full amount of such payment and such payment shall be added to the Credit Linked Deposits of the Funded L/C Participants in accordance with their Funded Letter of Credit Percentages.

 

3.7                                 Credit Linked Deposit Account.

 

(a)                                  Subject to the terms and conditions hereof, each Funded L/C Participant severally agrees to make, on the Closing Date, a deposit with the Revolving Administrative Agent in an amount equal to such Funded L/C Participant’s Funded Letter of Credit Commitment and the Revolving Administrative Agent shall use such deposits to establish the Credit Linked Deposit Account.  The Credit Linked Deposits shall be held by the Revolving Administrative Agent for the benefit of the L/C Arranger, and no party other than the Revolving Administrative Agent acting on the instructions of the L/C Arranger shall have a right of withdrawal from the Credit Linked Deposit Account or any other right or power with respect to the Credit Linked Deposits.  Notwithstanding any provision in this Agreement to the contrary, the sole funding obligation of each Funded L/C Participant in respect of its Funded Letter of Credit Commitment and Funded Letter of Credit Participation shall be satisfied in full upon the funding of its Credit Linked Deposit on the Closing Date.

 

(b)                                 Each of the Borrower, the Revolving Administrative Agent, the L/C Arranger, the Issuing Lender and each Funded L/C Participant hereby acknowledges and agrees

 

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that  each Funded L/C Participant is funding its Credit Linked Deposit to the Credit Linked Deposit Account for application in the manner contemplated by Sections 3.5 and 3.6(c).  The Revolving Administrative Agent hereby agrees to direct the investment of the Credit Linked Deposits so as to earn a return (except during periods when such Credit Linked Deposits, or funds advanced by or on behalf of the Revolving Administrative Agent or the L/C Arranger against such Credit Linked Deposits, are used to cover drawings under Funded Letters of Credit) for the Funded L/C Participants for each date at the rate per annum (the “Deposit Return”) equal to (i) the three month Eurodollar Rate for successive three month Interest Periods, as determined by the Revolving Administrative Agent, minus (ii) 0.10% per annum (based on a 360-day year for the actual days elapsed) .  The Deposit Return accrued through and including the last day of March, June, September and December of each year, shall be paid by the Revolving Administrative Agent to the Funded L/C Participants, in arrears on the first Business Day following each such last day, commencing on the first Business Date following the first such day to occur after the Closing Date and on the date on which the Credit Linked Deposits are reduced to zero (whether pursuant to Sections 2.10, 3.7(d), 8 or otherwise).  In addition, the Borrower shall pay to the Revolving Administrative Agent for the account of the Funded L/C Participants, on the days set forth in the immediately preceding sentence, a fee equal to 0.10% per annum (based on a 360-day year for the actual days elapsed) of the amount of the Credit Linked Deposit.   The Revolving Administrative Agent shall promptly distribute to the Funded L/C Participants entitled thereto any amount received from the Borrower pursuant to this Section 3.7.

 

(c)                                  The Borrower shall have no right, title or interest in or to the Credit Linked Deposits and no obligations with respect thereto (but shall remain liable in all respects for all Reimbursement Obligations in respect of Funded Letters of Credit, even after the Credit Linked Deposits have been applied as set forth in Section 3.6(c)), it being acknowledged and agreed by the parties hereto that the making of the Credit Linked Deposits by the Funded L/C Participants, the provisions of this Section 3.7 and the application of the Credit Linked Deposits in the manner contemplated by Section 3.6 constitute agreements among the Revolving Administrative Agent, the L/C Arranger, the Issuing Lender and the Funded L/C Participants with respect to the funding obligations of each Funded L/C Participant in respect of its Funded Letter of Credit Participation and do not constitute any loan or extension of credit to the Borrower or payment or discharge of any Reimbursement Obligation.

 

(d)                                 Subject to Section 3.6(c), upon expiration or termination of the Funded Letter of Credit Commitments and discharge of all outstanding Funded Letters of Credit, the Revolving Administrative Agent will return all amounts then remaining in the Credit Linked Deposit Account to the Funded L/C Participants, ratably in accordance with their Funded Letter of Credit Percentages.

 

3.8                                 Obligations Absolute.  The Borrower’s obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against the L/C Arranger, any Issuing Lender, any beneficiary of a Letter of Credit or any other Person.  The Borrower also agrees with the L/C Arranger and each Issuing Lender that the L/C Arranger and the Issuing Lenders shall not be responsible for, and the Borrower’s Reimbursement Obligations under Section 3.6 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be

 

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invalid,  fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee.  Neither the L/C Arranger nor any Issuing Lender shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except that the L/C Arranger and each Issuing Lender shall be liable to the extent provided by law for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its own gross negligence or willful misconduct.  The Borrower agrees that any action taken or omitted by the L/C Arranger or an Issuing Lender under or in connection with any Letter of Credit issued by it or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards or care specified in the UCC of the State of New York, shall be binding on the Borrower and shall not result in any liability of the L/C Arranger or such Issuing Lender to the Borrower.

 

3.9                                 Letter of Credit Payments.  If any draft shall be presented for payment under any Letter of Credit, the L/C Arranger shall promptly notify the Revolving Administrative Agent and the Borrower of the date and amount thereof.  The responsibility of the L/C Arranger and any Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit, in addition to any payment obligation expressly provided for in such Letter of Credit, shall be limited to a determination by the Issuing Lender that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment appear on their face to be in conformity with such Letter of Credit.

 

3.10                           Applications.  To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply.

 

3.11                           Enforcement.  The provisions of this Section 3 are intended for the benefit of, and shall be enforceable by, each Issuing Lender, whether or not such Issuing Lender is party to this Agreement but the Issuing Lender designated by the L/C Arranger will not have any obligation under any Loan Document to which it is not a signatory.

 

SECTION  4.   REPRESENTATIONS AND WARRANTIES

 

To  induce the Arranger, the Agents and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, the Borrower hereby represents and warrants to the Arranger, each Agent and each Lender that:

 

4.1                                 Financial Condition.  The unaudited consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at December 31, 2004, and December 31, 2003 and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, present fairly in all material respects the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended, subject to any write downs, write offs, charges and adjustments required as a result of the Restatements.  The unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at

 

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March  31, 2005, and the related unaudited consolidated statements of income and cash flows for the three-month period ended on such date, present fairly in all material respects the consolidated financial condition of the Borrower and its consolidated subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the three-month period then ended (subject to normal year-end audit adjustments and absence of footnotes and subject to any write downs, write offs, charges and adjustments, required as a result of the Restatements).  The Borrower and its Subsidiaries do not have any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any material long-term leases or unusual forward or long-term commitments, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph (other than contingent liabilities arising in the ordinary course of business or as disclosed on Schedule 4.1(b)-1).  Except as set forth on Schedule 4.1(b)-2, during the period from December 31, 2004 to and including the date hereof there has been no Disposition by the Borrower or its consolidated Subsidiaries of any material part of its business or Property.

 

4.2                                 No Change.  Since December 31, 2004 there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect.

 

4.3                                 Corporate Existence; Compliance with Law.  Each of the Borrower and the other Loan Parties (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its Property, to lease the Property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification except to the extent that the failure to be so qualified could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

4.4                                 Corporate Power; Authorization; Enforceable Obligations.  Each Loan Party has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to borrow hereunder.  Each Loan Party has taken all necessary corporate or other action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the borrowings on the terms and conditions of this Agreement.  No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or the execution, delivery, performance, validity or enforceability of this Agreement or any of the other Loan Documents except (i) consents, authorizations, filings and notices described in Schedule 4.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect, (ii) the filings referred to in Section 4.19 and (iii) consents, authorizations, filings, notices and acts required in the conduct of business in the ordinary course in connection with the performance of its obligations hereunder relating to the conduct of business after the Closing Date.  Each Loan Document has been duly executed and delivered on behalf of each Loan Party that is a party thereto.  This Agreement constitutes, and

 

53

 

each  other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party that is a party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

 

4.5                                 No Legal Bar.  The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of the Borrower or any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents).  No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect, except, with respect to the Specified Defaults, the Existing Indentures.

 

4.6                                 No Material Litigation.  No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, except the litigation, investigations or proceedings described in Schedule 4.6, or (b) that could reasonably be expected to have a Material Adverse Effect.

 

4.7                                 No Default.  Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations (other than the Specified Defaults) in any respect that could reasonably be expected to have a Material Adverse Effect.  No Default or Event of Default shall exist and be continuing.

 

4.8                                 Ownership of Property; Liens.  Each of the Borrower and each of its Subsidiaries is the sole owner of, legally and beneficially, and has good marketable and insurable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other Property, and none of such real property or other Property is subject to any Lien except for Permitted Liens.  None of the Pledged Stock is subject to any Lien except for Permitted Liens.

 

4.9                                 Intellectual Property.  The Borrower and each of its Subsidiaries owns, or is licensed to use, all material Intellectual Property necessary for the conduct of its business as currently conducted.  No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Borrower know of any valid basis for any such claim.  The use of Intellectual Property necessary for the conduct of its business as currently conducted by the Borrower and its Subsidiaries does not infringe on the rights of any Person in any material respect.

 

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4.10                           Taxes.  Each of the Borrower and its Subsidiaries has
filed or caused to be filed all Federal and material state and other tax
returns that are required to be filed and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of its
Property and all other taxes, fees or other charges imposed on it or any of its
Property by any Governmental Authority (other than any the amount or validity
of which are currently being contested in good faith by appropriate proceedings
and with respect to which reserves in conformity with GAAP have been provided
on the books of the Borrower or its Subsidiaries, as the case may be, with such
reserves being subject to any adjustments made as a result of the Restatement);
and no tax Lien (other than any tax Lien that is a Permitted Lien) has been
filed, and, to the knowledge of the Borrower, no material claim is being
asserted, with respect to any such tax, fee or other charge.  No Loan Party and no Subsidiary thereof (i) intends
to treat the Loans or any other transaction contemplated hereby as being a “reportable
transaction” (within the meaning of Treasury Regulation 1.6011-4) or (ii) is
aware of any facts or events that would result in such treatment.

 

4.11                           Federal
Regulations.  No part of the proceeds
of any Loans will be used for “purchasing” or “carrying” any “margin stock”
within the respective meanings of each of the quoted terms under Regulation U
as now and from time to time hereafter in effect or for any purpose that
violates the provisions of the Regulations of the Board.  If requested by any Lender, the Revolving
Administrative Agent or the Administrative Agent, the Borrower will furnish to
the Revolving Administrative Agent or the Administrative Agent and each Lender
a statement to the foregoing effect in conformity with the requirements of FR Form G-3
or FR Form U-1 referred to in Regulation U.

 

4.12                           Labor
Matters. There are no strikes, stoppages or slowdowns or other labor
disputes against the Borrower or any of its Subsidiaries pending or, to the
knowledge of the Borrower, threatened that (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect.  Hours worked by and payment made to employees
of the Borrower and its Subsidiaries have not been in violation of the Fair
Labor Standards Act or any other applicable Requirement of Law dealing with
such matters that (individually or in the aggregate) could reasonably be
expected to have a Material Adverse Effect. 
All payments due from the Borrower or any of its Subsidiaries on account
of employee health and welfare insurance that (individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect if
not paid have been paid or accrued as a liability on the books of the Borrower
or the relevant Subsidiary.

 

4.13                           ERISA.  Neither a Reportable Event nor an “accumulated
funding deficiency” (within the meaning of Section 412 of the Code or Section 302
of ERISA) has occurred during the five-year period prior to the date on which
this representation is made or deemed made with respect to any Plan that could
reasonably be expected to have a Material Adverse Effect, and each Plan has
complied in all material respects with the applicable provisions of ERISA and
the Code except where failure to do so could not reasonably be expected to have
a Material Adverse Effect.  No
termination of a Single Employer Plan has occurred that could reasonably be
expected to have a Material Adverse Effect, and no Lien in favor of the PBGC or
a Plan has arisen that could reasonably be expected to have a Material Adverse
Effect, during such five-year period. 
The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of

 

55

 

the last annual valuation date prior to the
date on which this representation is made or deemed made, exceed the value of
the assets of such Plan allocable to such accrued benefits by a material
amount.  Neither the Borrower nor any
Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan that has resulted or could reasonably be expected to result
in a material liability under ERISA, and neither the Borrower nor any Commonly
Controlled Entity would become subject to any material liability under ERISA if
the Borrower or any such Commonly Controlled Entity were to withdraw completely
from all Multiemployer Plans as of the valuation date most closely preceding
the date on which this representation is made or deemed made.  No such Multiemployer Plan is in
Reorganization or Insolvent.

 

4.14                           Investment
Company Act; Other Regulations.  No
Loan Party is an “investment company”, or a company “controlled” by an “investment
company”, within the meaning of the Investment Company Act of 1940, as
amended.  No Loan Party is subject to
regulation under any Requirement of Law (other than Regulation X of the Board)
which limits its ability to incur Indebtedness.

 

4.15                           Subsidiaries. 
(a)  The Subsidiaries listed on Schedule 4.15
constitute all the Subsidiaries of the Borrower as of the Closing Date.  Schedule 4.15 sets forth as of the
Closing Date, the exact legal name (as reflected on the certificate of
incorporation (or formation) and jurisdiction of incorporation (or formation)
of each Subsidiary of the Borrower and, as to each such Subsidiary, the
percentage and number of each class of Capital Stock owned by each Loan Party
and its Subsidiaries.

 

(b) 
There are no outstanding subscriptions, options, warrants, calls, rights or
other agreements or commitments (other than stock options granted to employees
or directors and directors’ qualifying shares) of any nature relating to any
Capital Stock of the Borrower or any Subsidiary, except as disclosed on Schedule 4.15.

 

4.16                           Use
of Proceeds.  The proceeds of the
Term Loans shall be used to Retire Existing Notes or replace cash or repay
Revolving Credit Loans used to Retire Existing Notes and to pay related fees
and expenses.  The proceeds of the
Revolving Credit Loans and the Swing Line Loans, and the Letters of Credit,
shall be used to refinance the Existing Credit Facility, to pay related fees
and expenses and finance the working capital needed and general corporate
purposes of the Borrower and its Subsidiaries in the ordinary course of
business.  In addition, (i) the
proceeds of Revolving Credit Loans may also be used prior to December 31,
2005 to repurchase Existing Notes in open market transactions if such Existing
Notes are promptly Retired and (ii) the Borrower may repay Revolving
Credit Loans with the proceeds of Excluded Equity Issuances, reborrow Revolving
Credit Loans in an equivalent amount, and use the proceeds of such Revolving
Credit Loans to consummate Permitted Acquisitions (or if such proceeds are not
used to consummate a Permitted Acquisition, to repay the Term Loans as required
by Section 2.12(a)).

 

4.17                           Environmental
Matters.  Other than exceptions to
any of the following that could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect:

 

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(a)                                  the Borrower and its
Subsidiaries:  (i) are, and to the
knowledge of the executive management of the Borrower within the period of all
applicable statutes of limitation have been, in substantial compliance with all
applicable Environmental Laws; (ii) hold all Environmental Permits (each
of which is in full force and effect) required for any of their current or
intended operations or for any property owned, leased, or otherwise operated by
any of them; (iii) are, and to the knowledge of the executive management
of the Borrower within the period of all applicable statutes of limitation have
been, in substantial compliance with all of their Environmental Permits; and (iv) reasonably
believe that:  each of their
Environmental Permits will be timely renewed and complied with, without
material expense; any additional Environmental Permits that may be required of
any of them will be timely obtained and complied with, without material
expense; and compliance with any Environmental Law that is or is expected to
become applicable to any of them will be timely attained and maintained,
without material expense.

 

(b)                                 Materials of Environmental Concern
are not present at, on, under, in, or about any real property now or formerly
owned, leased or operated by the Borrower or any of its Subsidiaries, or at any
other location (including, without limitation, any location to which Materials
of Environmental Concern have been sent for re-use or recycling or for
treatment, storage, or disposal) which could reasonably be expected to (i) give
rise to liability of the Borrower or any of its Subsidiaries under any
applicable Environmental Law or otherwise result in costs to the Borrower or
any of its Subsidiaries, or (ii) interfere with the Borrower’s or any of
its Subsidiaries’ continued operations, or (iii) impair the fair saleable
value of any real property owned or leased by the Borrower or any of its
Subsidiaries.

 

(c)                                  There is no judicial,
administrative, or arbitral proceeding (including any notice of violation or
alleged violation) under or relating to any Environmental Law to which the
Borrower or any of its Subsidiaries is, or to the knowledge of the executive
management of the Borrower or any of its Subsidiaries will be, named as a party
that is pending or, to the knowledge of the executive management of the
Borrower or any of its Subsidiaries, threatened.

 

(d)                                 Neither the Borrower nor any of its
Subsidiaries has received any written request for information, or been notified
that it is a potentially responsible party under or relating to the federal
Comprehensive Environmental Response, Compensation, and Liability Act or any
similar Environmental Law, or with respect to any Materials of Environmental
Concern.

 

(e)                                  Neither the Borrower nor any of its
Subsidiaries has entered into or agreed to any consent decree, order, or
settlement or other agreement, or is subject to any judgment, decree, or order
or other agreement, in any judicial, administrative, arbitral, or other forum
for dispute resolution, relating to compliance with or liability under any
Environmental Law.

 

(f)                                    To the knowledge of the executive
management of the Borrower, neither the Borrower nor any of its Subsidiaries
has assumed or retained, by contract or operation of law, any liabilities of
any kind, fixed or contingent, known or unknown, under any Environmental Law or
with respect to any Material of Environmental Concern.

 

4.18                           Accuracy
of Information, etc.  No statement or
information (other than projections, pro  forma financial
information and “forward-looking” statements) contained in this

 

57

 

Agreement, any other Loan Document, the
Confidential Information Memorandum or any other document, certificate, written
statement or formal presentation furnished to the Administrative Agent, the
Arranger, the Agents or the Lenders or any of them, by or on behalf of any Loan
Party for use in connection with the transactions contemplated by this
Agreement or the other Loan Documents, contained as of the date such
presentation, statement, information, document or certificate was so furnished
(or, in the case of the Confidential Information Memorandum, as of the date of
this Agreement), any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which such
statements were made.  The projections, pro
forma financial information and “forward-looking” statements contained
in the materials referenced above are based upon good faith estimates and
assumptions believed by management of the Borrower to be reasonable at the time
made, it being recognized by the Lenders that such financial information as it
relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected or anticipated results set forth therein by a material
amount.  There is no fact known to any
Loan Party that could reasonably be expected to have a Material Adverse Effect
that has not been expressly disclosed herein, in the other Loan Documents, in
the Confidential Information Memorandum or in other documents, certificates and
statements furnished to the Arranger, the Agents and the Lenders for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.  Notwithstanding the preceding
and notwithstanding any other provision hereof or of any other Loan Document,
document, certificate, written statement or formal presentation, the
Administrative Agent, the Arranger, the other Agents and the Lenders
understand, acknowledge and agree that the Borrower is in the process of
restating its financial statements for the first three fiscal quarters of 2003
and prior periods and all financial information provided (or which may in the
future be provided prior to the Financial Reporting Compliance Date), including
the financial information delivered pursuant to Section 4.1, to be
delivered pursuant to Section 6.1(b) and contained in the
Confidential Information Memorandum (a) has not been prepared and
presented in conformity with GAAP to the extent specific items of such
financial information will be affected by the Restatement and (b) is
subject in all respects to the results of the Restatement.

 

4.19                           Security Documents. 
(a)  The Guarantee and Collateral
Agreement is effective to create in favor of the Collateral Agent, for the
benefit of the Secured Parties, an enforceable security interest in the
Collateral described therein and proceeds and products thereof.  In the case of the Pledged Stock described in
the Guarantee and Collateral Agreement, when any stock certificates
representing such Pledged Stock are delivered to the Collateral Agent, and in
the case of the other Collateral located in the United States and described in
the Guarantee and Collateral Agreement, when financing statements in appropriate
form are filed in the offices specified on Schedule 4.19(a)-1 (which
financing statements may be filed by the Collateral Agent at any time) and such
other filings, recordings or notations as are specified on Schedule 3 to
the Guarantee and Collateral Agreement have been completed (all of which
filings, recordings or notations may be filed by the Collateral Agent at any
time except as set forth in the definition of Permitted Perfection Exception),
the Guarantee and Collateral Agreement shall constitute a fully perfected Lien
on, and security interest in, all right, title and interest of the Loan Parties
in such Collateral and the proceeds and products thereof, as security for the
Obligations (as defined in the Guarantee and Collateral Agreement), in each
case prior and superior in right to any other Person (except, Permitted Liens),
but subject to the Permitted

 

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Perfection Exception.  Schedule 4.19(a)-2 lists each UCC
Financing Statement that (i) names any Loan Party as debtor and (ii) will
be terminated on or prior to the Closing Date; and on or prior to the Closing
Date, the Borrower will have delivered to the Collateral Agent, or caused to be
filed, duly completed UCC termination statements in respect of each such UCC
Financing Statement.

 

(b)                                 Each of the Mortgages when delivered
will be effective to create in favor of the Collateral Agent, for the benefit
of the Secured Parties, an enforceable Lien on the mortgaged properties
described therein and, when filed in the recording office designated by the
Borrower, shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties in the mortgaged properties
described therein, as security for the Obligations (as defined in the relevant
Mortgage), in each case prior and superior in right to any other Person (other
than Persons holding Permitted Liens).

 

4.20                           Solvency.  The Borrower is, and the Borrower and the
other Loan Parties on a consolidated basis are, and after giving effect to the
incurrence of all Indebtedness and obligations being incurred in connection
herewith and therewith will be and will continue to be, Solvent.

 

4.21                           Insurance.  Each of the Borrower and its Subsidiaries is
insured, in accordance with Section 5.3 of the Guarantee and Collateral
Agreement, by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which it is engaged and none of the Borrower or any of its
Subsidiaries (i) has received notice from any insurer or agent of such
insurer that substantial capital improvements or other material expenditures
will have to be made in order to continue such insurance or (ii) has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers at a cost that could not reasonably be expected to have a
Material Adverse Effect.

 

4.22                           Real
Estate.  As of the Closing Date, Schedule 4.22
sets forth a true, complete and correct list in all material respects of all
real property (i) owned by any Loan Party or its Subsidiaries in fee
simple or (ii) leased by any Loan Party or its Subsidiaries.

 

SECTION 5.
CONDITIONS PRECEDENT

 

5.1                                 Conditions
to Initial Extension of Credit.  The
agreement of each Lender to make the initial extension of credit requested to
be made by it hereunder is subject to the satisfaction, or waiver in accordance
with Section 10.1, prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:

 

(a)                                  Loan Documents. 
The Administrative Agent shall have received (i) this Agreement,
executed and delivered by a duly authorized officer of the Borrower, (ii) signed
counterpart signature pages (or facsimiled copies thereof, which shall be
enforceable as an original) of this Agreement delivered by each Agent and
Lender listed on the signature pages hereof, (iii) the Guarantee and
Collateral Agreement, executed and delivered by a duly

 

59

 

authorized officer of the Borrower and each
Guarantor and (iv) subject to Section 10.17, a Lender Addendum
executed and delivered by each Lender and accepted by the Borrower.

 

(b)                                 Funding of Credit Linked Deposit. 
Each of the Funded L/C Participants shall have complied with its
obligations under Section 3.7 to deposit cash in an amount equivalent to
such Funded L/C Participant’s Funded Letter of Credit Commitment in the Credit
Linked Deposit Account.

 

(c)                                  Financial Statements. 
The Lenders shall have received (i) unaudited consolidated
financial statements of the Borrower and its consolidated Subsidiaries for the
2004 and 2003 fiscal years and (ii) unaudited interim consolidated
financial statements of the Borrower and its consolidated Subsidiaries for each
quarterly period ended subsequent to the date of the latest applicable
financial statements delivered pursuant to clause (i) of this paragraph as
to which financial statements are available, certified by the chief financial
officer of the Borrower to present fairly in all material respects, in
conformity with GAAP (except for any variances from GAAP that either (A) are
related to the Restatement or (B) are or may become identified in
connection with the Restatement and are not expected by such Responsible
Officer to have a Material Adverse Effect), the Borrower’s consolidated
financial condition as of the date thereof and its consolidated results of operations
and cash flows for the period then ended, subject to any write downs, write
offs, charges and adjustments to be made in the Restatement.

 

(d)                                 Approvals. 
All governmental and third party approvals necessary in connection with
the Refinancing and the transactions contemplated hereby shall have been
obtained and be in full force and effect, and 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 financing contemplated hereby.

 

(e)                                  Termination of Existing Credit
Facility.  The Administrative Agent shall have received
a copy of a letter in the form of Exhibit K delivered to the Borrower by
the agent under the Existing Credit Facility.

 

(f)                                    Fees. 
The Lenders, the Arranger, the L/C Arranger and the Agents shall have
received all fees required to be paid, and all expenses for which invoices have
been presented (including reasonable fees, disbursements and other charges of
counsel to the Agents), on or before the Closing Date.  All such amounts will be paid with proceeds
of Loans made on the Closing Date and will be reflected in the funding
instructions given by the Borrower to the Administrative Agent on or before the
Closing Date.

 

(g)                                 Solvency Certificate. 
The Lenders shall have received a Solvency Certificate substantially in
the form attached hereto as Exhibit H.

 

(h)                                 Lien Searches. 
The Administrative Agent shall have received the results of a recent
lien search in each jurisdiction or office as reasonably determined by the
Administrative Agent and the Collateral Agent, and the Administrative Agent and
the Collateral Agent shall be satisfied with the results of such lien searches.

 

(i)                                     Appraisals. 
The Administrative Agent and the Collateral Agent shall have received a
certificate of the Borrower stating that the appraisals identified on Schedule 5.1(i) and

 

60

 

delivered by the Borrower to the
Administrative Agent prior to the date hereof demonstrate that the current fair
market value (as determined by the Person performing such appraisal) of the
assets subject to such appraisal is not less than $570,000,000.

 

(j)                                     Closing Certificate. 
The Administrative Agent shall have received a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C,
with appropriate insertions and attachments.

 

(k)                                  Other Certifications. 
The Administrative Agent shall have received the following:

 

(i)                                     a copy of the charter of each Loan
Party and each amendment thereto, certified (as of a date reasonably near the
date of the initial extension of credit) as being a true and correct copy
thereof by the Secretary of State or other applicable Governmental Authority of
the jurisdiction in which each such Loan Party is organized;

 

(ii)                                  a copy of a certificate of the
Secretary of State or other applicable Governmental Authority of the
jurisdiction in which each Loan Party is organized, dated reasonably near the
date of the initial extension of credit, listing the charter such Loan Party
and each amendment thereto on file in such office and certifying that (A) such
amendments are the only amendments to such Loan Party’s charter on file in such
office, (B) such Loan Party has paid all franchise taxes to the date of
such certificate and (C) such Loan Party is duly organized and in good
standing under the laws of such jurisdiction;

 

(iii)                               an electronic confirmation from the
Secretary of State or other applicable Governmental Authority of each
jurisdiction in which each such Loan Party is organized certifying that such
Loan Party is duly organized and in good standing under the laws of such
jurisdiction on the date of the initial extension of credit; prepared by, or on
behalf of, a filing service acceptable to the Administrative Agent; and

 

(iv)                              a copy of a certificate of the
Secretary of State or other applicable Governmental Authority of Applicable
States dated reasonably near the date of the initial extension of credit, stating
that each Loan Party is duly qualified and in good standing as a foreign
corporation or entity in each such jurisdiction and has filed all annual
reports required to be filed to the date of such certificate; and electronic
confirmation, from the Secretary of State or other applicable Governmental
Authority of each such Applicable State on the date of the initial extension of
credit as to the due qualification and continued good standing of each such
Person as a foreign corporation or entity in each such Applicable State on or
about such date, prepared by, or on behalf of, a filing service acceptable to
the Administrative Agent.

 

(l)                                     Legal Opinions. 
The Administrative Agent shall have received the following executed
legal opinions:

 

(i)                                     the legal opinion of Porter &
Hedges, L.L.P., counsel to the Borrower and its Subsidiaries, substantially in
the form of Exhibit E-1; and

 

61

 

(ii)                                  the legal opinion of local counsel
in each of Maryland, Louisiana, Michigan, New York and Nevada, substantially in
the form of Exhibits E-2, E-3, E-4, E-5 and E-6, respectively.

 

Each such legal
opinion shall cover such other matters incident to the transactions
contemplated by this Agreement as the Administrative Agent may reasonably
require.

 

(m)                               Acknowledgment and Consent.  
Except as set forth in Section 6.15, the Collateral Agent shall
have received an Acknowledgment and Consent, substantially in the form of Annex
II to the Guarantee and Collateral Agreement, duly executed by any issuer of
Capital Stock pledged pursuant to the Guarantee and Collateral Agreement that
is not itself a party to the Guarantee and Collateral Agreement.

 

(n)                                 Insurance. 
The Collateral Agent shall have received insurance certificates
satisfying the requirements of Section 5.3 of the Guarantee and Collateral
Agreement.

 

(o)                                 Miscellaneous. 
The Administrative Agent shall have received such other documents,
agreements, certificates and information as it shall reasonably request.

 

Each Lender,
by delivering its signature page to this Agreement or an Addendum and
funding a Loan or Credit Linked Deposit on the Closing Date, shall be deemed to
have acknowledged receipt of, and consented to and approved, each Loan Document
and each other document required to be approved by any Agent, Requisite Lenders
or Lenders, as applicable on the Closing Date.

 

5.2                                 Conditions
to Each Extension of Credit.  The
agreement of each Lender to make any extension of credit requested to be made
by it hereunder on any date (including, without limitation, its initial
extension of credit) is subject to the satisfaction of the following conditions
precedent:

 

(a)                                  Representations and Warranties. 
Each of the representations and warranties made by any Loan Party in or
pursuant to the Loan Documents shall be true and correct on and as of such date
as if made on and as of such date, except for representations and warranties
expressly stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date.

 

(b)                                 No Default. 
No Default or Event of Default shall exist and be continuing on such
date or after giving effect to the extensions of credit requested to be made on
such date.

 

(c)                                  Permitted Debt. 
For so long as any Existing Notes remain outstanding, a Responsible
Officer of the Borrower shall certify in writing to the Administrative Agent (i) that
the incurrence of Indebtedness represented by the requested extension of credit
is permitted under the applicable Existing Indentures or (ii) that the
proceeds of the related extension of credit will be used to redeem and Retire
the applicable issue of Existing Notes.

 

Each borrowing
by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall
constitute a representation and warranty by the Borrower as of the date of such
extension of credit that the conditions contained in this Section 5.2 have
been satisfied.

 

62

 

5.3                                 Conditions
to Extensions of Tranche B Term Loans. 
The agreement of each Lender to make Tranche B Term Loans on any Funding
Date is subject to the satisfaction of the following additional conditions
precedent:

 

(a)                                  An initial funding of Tranche B Term
Loans shall be requested for funding in an aggregate principal amount of at
least $150,000,000, and each subsequent funding of Tranche B Term Loans shall
be requested in an aggregate principal amount of at least $50,000,000.

 

(b)                                 The amount of Tranche B Term Loans
made on any Funding Date shall not exceed the amount that can be used on such
Funding Date to Retire Existing Notes or replace cash or repay Revolving Credit
Loans the proceeds of which were previously used to Retire Existing Notes.

 

(c)                                  There shall be no more than three
Funding Dates with respect to Tranche B Term Loans.

 

SECTION 6.
AFFIRMATIVE COVENANTS

 

The Borrower
hereby agrees that, so long as the Commitments remain in effect, any Letter of
Credit remains outstanding or any Loan or other amount is owing to any Lender,
any Agent or the Arranger hereunder, the Borrower shall and shall cause each of
its Subsidiaries to:

 

6.1                                 Financial
Statements.

 

(a)                                  Furnish to each Agent and each
Lender, from time to time after the Financial Reporting Compliance Date:

 

(i)                                     as soon as available, but in any
event within 90 days after the end of each fiscal year of the Borrower, a
copy of the audited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such year and the related audited
consolidated statements of income and of cash flows for such year, setting
forth in each case in comparative form the figures as of the end of and for the
previous year, reported on without a “going concern” or like qualification or
exception, or qualification arising out of the scope of the audit, by KPMG LLP
or other independent certified public accountants of nationally recognized
standing; and

 

(ii)                                  as soon as available, but in any
event not later than 45 days after the end of each of the first three quarterly
periods of each fiscal year of the Borrower, the unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of such
quarter and the related unaudited consolidated statements of income and of cash
flows for such quarter and the portion of the fiscal year through the end of
such quarter, setting forth in each case in comparative form the figures as of
the end of and for the corresponding period in the previous year, certified by
the chief financial officer of the Borrower to present fairly in all material
respects, in conformity with GAAP, the Borrower’s consolidated financial
condition as of the date thereof and its

 

63

 

consolidated
results of operations and cash flows for the period then ended (subject to
normal year-end audit adjustments and absence of footnotes);

 

all such financial statements to be complete and correct in all
material respects and to be prepared in reasonable detail and in accordance
with GAAP (subject, in the case of interim financial statements, to normal
year-end audit adjustments and absence of footnotes) applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein).

 

(b)                                 Prior to the Financial Reporting
Compliance Date, furnish to each Agent and each Lender:

 

(i)                                     as soon as available, but in any
event within 90 days after the end of each fiscal year, a copy of draft,
internal, unaudited financial statements, consisting of a consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as of the end of such
fiscal year, and related consolidated statements of income and cash flows for
such year, setting forth in each case in comparable form the figures as of the
end of and for the previous year, and certified by the chief financial officer
of the Borrower to present fairly in all material respects, in conformity with
GAAP (except for any variances from GAAP that either (A) are related to
the Restatement or (B) are or may become identified in connection with the
Restatement and are not expected by such Responsible Officer to have a Material
Adverse Effect), the Borrower’s consolidated financial condition as of the date
thereof and its consolidated results of operations and cash flows for the
period then ended, subject to any write downs, write offs, charges and
adjustments to be made in the Restatement;

 

(ii)                                  as soon as available, but in any
event not later than 50 days after the end of each of the first three quarterly
periods of each fiscal year of the Borrower, draft, internal, unaudited
financial statements for such fiscal quarter, consisting of the unaudited
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such quarter and the related unaudited consolidated statements of
income and cash flows for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding date and period in the previous year,
certified by the chief financial officer of the Borrower to present fairly in
all material respects, in conformity with GAAP (except for any variances from
GAAP that either (A) are related to the Restatement or (B) are or may
become identified in connection with the Restatement and are not expected by
such Responsible Officer to have a Material Adverse Effect), the Borrower’s
consolidated financial condition as of the date thereof and its consolidated
results of operations and cash flows for the period then ended, subject to any
write downs, write offs, charges and adjustments to be made in the Restatement
(subject to normal year-end audit adjustments); and

 

(iii)                               as soon as available, but in any
event not later than 50 days after the end of June 30, 2005 and the last
day of each month thereafter, financial information consistent with that filed
by the Borrower on a monthly basis in a report on Form 8-K, including
revenues, certain expense data (including interest expense), current assets

 

64

 

(including
cash and cash equivalents) and current liabilities, outstanding indebtedness,
capital expenditures, status of compliance with credit facility covenants
(including amounts available for borrowing), management’s discussion and
analysis of the foregoing information and disclosure of rig hours and trucking
hours.

 

6.2                                 Certificates;
Other Information.  Furnish to each
Agent and each Lender, or, in the case of clause (i), to the relevant Lender:

 

(a)                                  concurrently with the delivery of
the financial statements required by Section 6.1(a)(i), a statement of the
independent certified public accountants reporting on such financial statements
to the effect that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in such
certificate (it being understood that such statement shall be limited to the
items that independent certified public accountants are permitted to cover in
such statement pursuant to their professional standards and customs of the
profession);

 

(b)                                 concurrently with the delivery of
any financial statements pursuant to Section 6.1, (i) a certificate
of a Responsible Officer stating that, to the best of such Responsible Officer’s
knowledge, each Loan Party during such period has observed or performed all of
its covenants and other agreements contained in this Agreement and the other
Loan Documents to which it is a party to be observed, performed or satisfied by
it, and that such Responsible Officer has obtained no knowledge of any Default
or Event of Default except as specified in such certificate and (ii) (x) a
Compliance Certificate containing all information and calculations necessary
for determining compliance by the Borrower and its Subsidiaries with the
provisions of this Agreement referred to therein as of the last day of the
fiscal quarter or fiscal year of the Borrower, as the case may be, (y) to the
extent not previously disclosed to the Administrative Agent, in writing, a
listing of any jurisdiction outside of the United States where any Loan Party
keeps a material amount of inventory or equipment and of any registered
Intellectual Property acquired by any Loan Party since the date of the most recent
list delivered pursuant to this clause (y) (or, in the case of the first such
list so delivered, since the Closing Date) and (z) any UCC financing statements
or other filings or actions specified in such Compliance Certificate as being
required to be delivered or taken therewith;

 

(c)                                  as soon as available, and in any
event no later than 45 days after the end of each fiscal year of the Borrower,
a detailed consolidated budget for the following fiscal year (including a
projected consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of the following fiscal year, and the related consolidated statements
of projected cash flow, projected changes in financial position and projected
income), and, as soon as available, significant revisions, if any, of such
budget and projections with respect to such fiscal year (collectively, the “Projections”),
which Projections shall in each case be accompanied by a certificate of a
Responsible Officer stating that such Projections are based on reasonable
estimates, information and assumptions and that such Responsible Officer has no
reason to believe that such Projections are incorrect or misleading in any
material respect, except to the extent such Projections are affected by the
Restatement;

 

(d)                                 within 45 days after the end of each
fiscal quarter of the Borrower occurring after the Financial Reporting
Compliance Date, a narrative discussion and analysis of

 

65

 

the financial condition and results of operations
of the Borrower and its Subsidiaries for such fiscal quarter and for the period
from the beginning of the then current fiscal year to the end of such fiscal
quarter, as compared to the portion of the Projections covering such periods
and to the comparable periods of the previous year;

 

(e)                                  no later than five Business Days or
such lesser period time as the Administrative Agent may agree prior to the
effectiveness thereof, copies of substantially final drafts of any proposed
amendment, supplement, waiver or other modification with respect to any
Existing Indenture or the governing documents of any Loan Party;

 

(f)                                    within five Business Days after the
same are sent, copies of all financial statements and reports that the Borrower
or any of its Subsidiaries sends to the holders of any class of its debt
securities or public equity securities and, within five days after the same are
filed, copies of all financial statements and reports that the Borrower or any
of its Subsidiaries may make to, or file with, the SEC;

 

(g)                                 promptly after the receipt thereof,
notice that (i) any or all of the obligations under any Existing Indenture
have been accelerated, or (ii) the trustee or the required holders with
respect to any of the Existing Notes has given notice that any or all such
obligations are to be accelerated; and

 

(h)                                 promptly, such additional financial
and other information as any Lender may from time to time reasonably request.

 

6.3                                 Payment
of Obligations.  Pay, discharge or
otherwise satisfy at or before maturity or before they become delinquent, as
the case may be, all its material obligations of whatever nature, except (a) where
the amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower or its Subsidiaries, as
the case may be and (b) the extension of trade payables in the ordinary
course of business and consistent with past practice.

 

6.4                                 Conduct
of Business and Maintenance of Existence, etc.  (a)  (i) Preserve, renew and keep
in full force and effect its corporate or other existence and (ii) take
all reasonable action to maintain all rights, privileges, franchises, Permits
and licenses necessary or desirable in the normal conduct of its business,
except, in each case, as otherwise permitted by Section 7.4 and except, in
the case of clause (ii) above, to the extent that failure to do so could
not reasonably be expected to have a Material Adverse Effect; and (b) to the
extent not in conflict with this Agreement or the other Loan Documents, comply
with all Contractual Obligations and Requirements of Law, except to the extent
that failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

6.5                                 Maintenance of Property; Insurance. 
(a)  Keep all Property and systems
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted, except where failure to do so is consistent with
industry practice, in the ordinary course of business and could not reasonably
be expected to have a Material Adverse Effect and (b) (i) maintain
with financially sound and reputable insurance companies insurance on all its

 

66

 

Property meeting the requirements of Section 5.3
of the Guarantee and Collateral Agreement and in at least such amounts and
against at least such risks (but including in any event public liability and
product liability) as are usually insured against in the same general area by
companies engaged in the same or a similar business.

 

6.6                                 Inspection
of Property; Books and Records; Discussions.  (a)  Keep
proper books of records and account in which full, true and correct entries to
permit financial statements to be prepared in accordance with GAAP (except,
prior to the Financial Compliance Reporting Date, for any variances from GAAP
that either (i) are related to the Restatement or (ii) are or may
become identified in connection with the Restatement and are not expected by a
Responsible Officer to have a Material Adverse Effect) and all Requirements of
Law shall be made of all dealings and transactions in relation to its business
and activities and (b) permit representatives of any Lender to visit and
inspect during normal business hours any of its properties and examine and, at
the Borrower’s expense, make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with their respective independent certified public
accountants; provided that each Lender shall provide the Borrower with
reasonable written notice prior to any visit or inspection.  Visits and audits by the Administrative Agent
and the Lenders to the Borrower and its Subsidiaries shall be at the expense of
the Administrative Agent or such Lender, as the case may be except that (i) the
Borrower shall pay for not more than one visit per calendar year by the
Administrative Agent and the Lenders to not more than three locations of the
Loan Parties (if no Event of Default exists and is continuing) and (ii) the
Borrower shall pay for any visit by the Administrative Agent or the Lenders if
an Event of Default exists and is continuing.

 

6.7                                 Notices.  Promptly give notice to the Administrative
Agent, Revolving Administrative Agent and each Lender of:

 

(a)                                  the occurrence of any Default or
Event of Default;

 

(b)                                 any (i) default or event of
default (or alleged default) under any Contractual Obligation of the Borrower
or any of its Subsidiaries (other than Specified Defaults) or (ii) litigation,
investigation or proceeding which may exist at any time between the Borrower or
any of its Subsidiaries and any Governmental Authority, that in either case,
could reasonably be expected to have a Material Adverse Effect;

 

(c)                                  any litigation or proceeding
affecting the Borrower or any of its Subsidiaries in which the amount involved
is $10,000,000 or more and not covered by insurance or in which injunctive or
similar relief is sought and such injunctive relief, if granted, could
reasonably be expected to have a Material Adverse Effect;

 

(d)                                 the following events, to the extent
such events could reasonably be expected to have a Material Adverse Effect, as
soon as possible and in any event within 30 days after the Borrower knows or
has reason to know thereof:  (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to make
any required contribution to a Plan, the creation of any Lien in favor of the
PBGC or a Plan or any withdrawal from, or the termination,

 

67

 

Reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the taking of
any other action by the PBGC or the Borrower or any Commonly Controlled Entity
or any Multiemployer Plan with respect to the withdrawal from, or the
termination, Reorganization or Insolvency of, any Plan; and

 

(e)                                  any development or event that has
had or could reasonably be expected to have a Material Adverse Effect.

 

Each notice pursuant to this Section shall be accompanied by a
statement of a Responsible Officer setting forth details of the occurrence
referred to therein and stating what action the Borrower or the relevant
Subsidiary proposes to take with respect thereto.

 

6.8                                 Environmental Laws. 
(a)  Comply in all material
respects with, and ensure compliance in all material respects by all tenants
and subtenants, if any, with, all applicable Environmental Laws and
Environmental Permits, and obtain, maintain and comply in all material respects
with and maintain, and ensure that all tenants and subtenants obtain, maintain
and comply in all material respects with and maintain, any and all material
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.

 

(b)                                 Conduct and complete all
investigations, studies, sampling and testing, and all remedial, removal and
other actions required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all Governmental
Authorities regarding Environmental Laws.

 

6.9                                 Interest
Rate Protection.  In the case of the
Borrower, by March 31, 2006, enter into Hedge Agreements to the extent
necessary to provide that at least 50% of the aggregate principal amount of
Funded Debt of the Borrower is subject to either a fixed interest rate or
interest rate protection for a period of not less than two years, which Hedge
Agreements shall have terms and conditions reasonably satisfactory to the
Administrative Agent.

 

6.10                           Additional Collateral, etc. 
(a)  With respect to any Property
acquired after the Closing Date by the Borrower or any of its Subsidiaries
(other than (w) subject to paragraph (b) of this Section, real property
(including fixtures to the extent such fixtures are included within the
definition of Permitted Perfection Exception), (x) any Property described
paragraph (c) of this Section, (y) any Property subject to a Lien
expressly permitted by Section 7.3(g) or (l) and (z) Property
acquired by a Foreign Subsidiary or an Immaterial Subsidiary) as to which the
Collateral Agent, for the benefit of the Secured Parties, does not have a
perfected Lien, promptly (i) execute and deliver to the Administrative
Agent and the Collateral Agent such amendments to the Guarantee and Collateral
Agreement or such other documents as the Administrative Agent and the
Collateral Agent deem necessary or advisable to grant to the Collateral Agent,
for the benefit of the Secured Parties, a security interest in such Property
and (ii) take all actions necessary or advisable to grant to the Collateral
Agent, for the benefit of the Secured Parties, a perfected first priority
security interest in such Property, including without limitation, the filing of
UCC financing statements in such jurisdictions as may be required by the
Guarantee and Collateral Agreement or by law or as may be requested by the
Collateral Agent, except in each case as permitted in the definition of
Permitted Perfection Exceptions.

 

68

 

(b)                                 With respect to any fee interest (or
leasehold interest, to the extent such leasehold is created under a triple net
ground lease or similar transaction) in any real property having a value
(together with improvements thereof) of at least $2,500,000 in excess of any
applicable Permitted Lien acquired on or after the Closing Date by the Borrower
or any of its Subsidiaries (other than any such real property owned by a
Foreign Subsidiary or subject to a Lien expressly permitted by Section 7.3(g))
promptly (i) execute and deliver a first priority Mortgage subject only to
Permitted Liens in favor of the Collateral Agent, for the benefit of the
Secured Parties, covering such acquired real property, (ii) if requested
by the Collateral Agent, provide the Lenders with (x) title and extended
coverage insurance (including flood insurance required by Requirement of Law),
reasonably acceptable to the Collateral Agent, covering such real property in
an amount at least equal to the purchase price of such real property (or such
other amount as shall be reasonably specified by the Collateral Agent) as well
as a current ALTA or comparable survey thereof reasonably acceptable to the
Collateral Agent, together with a surveyor’s certificate and (y) any consents
or estoppels reasonably deemed necessary or advisable by the Collateral Agent
in connection with such Mortgage, each of the foregoing in form and substance
reasonably satisfactory to the Collateral Agent and (iii) if requested by
the Collateral Agent, deliver to the Collateral Agent legal opinions relating
to the matters described above, which opinions shall be in form and substance,
and from counsel, reasonably satisfactory to the Collateral Agent.

 

(c)                                  With respect to any new Subsidiary
(other than a Foreign Subsidiary or Immaterial Subsidiary) created or acquired
after the Closing Date (which, for the purposes of this paragraph, shall
include any existing Subsidiary that ceases to be a Foreign Subsidiary or that
ceases to be an Immaterial Subsidiary), by the Borrower or any of its
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent
and the Collateral Agent such amendments to the Guarantee and Collateral
Agreement as the Administrative Agent and the Collateral Agent deem necessary
or advisable to grant to the Collateral Agent, for the benefit of the Secured
Parties, a perfected first priority security interest in the Capital Stock of
such new Subsidiary that is owned by the Borrower or any of its Subsidiaries, (ii) deliver
to the Collateral Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly
authorized officer of the Borrower or such Subsidiary, as the case may be, (iii) cause
such new Subsidiary (A) to become a party to the Guarantee and Collateral
Agreement and (B) to take such actions necessary or advisable to grant to
the Collateral Agent for the benefit of the Secured Parties a perfected first
priority security interest in the Collateral described in the Guarantee and
Collateral Agreement with respect to such new Subsidiary except with respect to
Permitted Perfection Exceptions, including, without limitation, the recording
of instruments in the United States Patent and Trademark Office and the United
States Copyright Offices, the execution and delivery by all necessary persons
of control agreements, and the filing of UCC financing statements in such
jurisdictions as may be required by the Guarantee and Collateral Agreement or
by law or as may be requested by the Collateral Agent, and (iv) if
requested by the Administrative Agent or the Collateral Agent, deliver to the
Administrative Agent and the Collateral Agent legal opinions relating to the
matters described above, which opinions shall be in form and substance, and
from counsel, reasonably satisfactory to the Administrative Agent and the
Collateral Agent.

 

(d)                                 With respect to any new Foreign
Subsidiary created or acquired after the Closing Date by the Borrower or any of
its Subsidiaries (other than any Foreign Subsidiaries),

 

69

 

promptly (i) execute and deliver to the
Administrative Agent and the Collateral Agent such amendments to the Guarantee
and Collateral Agreement or such other documents as the Administrative Agent
and Collateral Agent deem necessary or advisable in order to grant to the
Collateral Agent, for the benefit of the Secured Parties, a perfected first
priority security interest in the Capital Stock of such new Subsidiary that is
owned by the Borrower or any of its Subsidiaries (other than any Foreign
Subsidiaries), (provided that in no event shall more than 65% of the total
outstanding voting Capital Stock of any such new Foreign Subsidiary be required
to be so pledged), (ii) deliver to the Collateral Agent the certificates
representing such Capital Stock, together with undated stock powers, in blank,
executed and delivered by a duly authorized officer of the Borrower or such
Subsidiary, as the case may be, and take such other action as may be necessary
or, in the opinion of the Administrative Agent and the Collateral Agent,
desirable to perfect the Lien of the Collateral Agent thereon, and (iii) if
requested by the Administrative Agent or the Collateral Agent, deliver to the
Administrative Agent and the Collateral Agent legal opinions relating to the matters
described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent and the Collateral
Agent.

 

(e)                                  Notwithstanding anything to the
contrary in this Section 6.10, paragraphs (a), (b), (c) and (d) of
this Section 6.10 shall not apply to any Property, any new Subsidiary or
any new Foreign Subsidiary created or acquired after the Closing Date, as
applicable, as to which the Administrative Agent has determined in its sole
discretion that the collateral value thereof is insufficient to justify the
difficulty, time and/or expense of obtaining a perfected security interest
therein.

 

6.11                           Use
of Proceeds.  Use the proceeds of the
Loans only for the purposes specified in Section 4.16.

 

6.12                           ERISA
Documents.  The Borrower will cause
to be delivered to the Administrative Agent, promptly upon the Administrative
Agent’s written request, any or all of the following:  (i) a copy of each material Plan (or,
where any such Plan is not in writing, a complete description thereof) and, if
applicable, related trust agreements or other funding instruments and all
amendments thereto, and all written interpretations thereof and written
descriptions thereof that have been distributed to employees or former employees
of the Borrower or any of its Subsidiaries; (ii) the most recent
determination letter issued by the Internal Revenue Service with respect to
each Plan; (iii) for the three most recent plan years preceding the
Administrative Agent’s request, Annual Reports on Form 5500 Series required
to be filed with any governmental agency for each Plan; (iv) a listing of
all Multiemployer Plans, with the aggregate amount of the most recent annual
contributions required to be made by the Borrower or any Commonly Controlled
Entity to each such Plan and copies of the collective bargaining agreements
requiring such contributions; (v) any information that has been provided
to the Borrower or any Commonly Controlled Entity regarding withdrawal
liability under any Multiemployer Plan; (vi) the aggregate amount of
payments made under any employee welfare benefit plan (as defined in Section 3(1) of
ERISA) to any retired employees of the Borrower or any of its Subsidiaries (or
any dependents thereof) during the most recently completed fiscal year; and (vii) documents
reflecting any agreements between the PBGC and the Borrower or any Commonly
Controlled Entity with respect to any Plan.

 

70

 

6.13                           Further
Assurances.  From time to time execute
and deliver, or cause to be executed and delivered, such additional
instruments, certificates or documents, and take all such actions, as the
Administrative Agent and the Collateral Agent, as applicable, may reasonably
request for the purposes of implementing or effectuating the provisions of this
Agreement and the other Loan Documents, or of more fully perfecting or renewing
the rights of the Collateral Agent and the Secured Parties with respect to the
Collateral (or with respect to any additions thereto or replacements or
proceeds or products thereof or, to the extent provided in Section 6.10,
with respect to any other property or assets hereafter acquired by the Borrower
or any Subsidiary which may be deemed to be part of the Collateral) pursuant
hereto or thereto.  Upon the exercise by
any Agent or any Lender of any power, right, privilege or remedy pursuant to
this Agreement or the other Loan Documents which requires any consent,
approval, recording, qualification or authorization of any Governmental
Authority, the Borrower will execute and deliver, or will cause the execution
and delivery of, all applications, certifications, instruments and other
documents and papers that such Agent or such Lender may be required to obtain
from the Borrower or any of its Subsidiaries for such governmental consent,
approval, recording, qualification or authorization.

 

6.14                           Prior Financial Statements. 
(a) Use commercially reasonable efforts to (i) complete the
Restatement and (ii) complete the audited financial statements for the
Borrower’s 2003 and 2004 fiscal years and unaudited financial statements for
each fiscal quarter ended subsequent to fiscal year end 2004, but prior to the
Closing Date, in each case, meeting the requirements of Regulation S-X for a Form S-1
registration statement under the Securities Act of 1933, as amended (such
financial statements, the “Prior Financial Statements”).

 

(b)                                 Furnish to each Agent and each
Lender each of the Prior Financial Statements upon the completion thereof.

 

(c)                                  Cause the Financial Reporting
Compliance Date to occur by the Report Date.

 

6.15                           Post-Closing
Covenants.  Take the actions required
to be taken on Schedule 6.15 within the time frames set forth therein,
including any extensions permitted thereunder.

 

SECTION 7.   NEGATIVE COVENANTS

 

The Borrower
hereby agrees that, so long as the Commitments remain in effect, any Letter of
Credit remains outstanding or any Loan or other amount is owing to any Lender,
any Agent or the Arranger hereunder, the Borrower shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly:

 

7.1                                 Financial
Condition Covenants.

 

(a)                                  Consolidated Leverage Ratio. 
Permit the Consolidated Leverage Ratio as at the last day of any period
of four consecutive fiscal quarters of the Borrower ending on the last day of
any fiscal quarter, commencing with FQ4 2005, to exceed the ratio set forth
below opposite such fiscal quarter:

 

71

 

	
  Fiscal Quarter

  	
   

  	
  Consolidated

  Leverage Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  FQ4 2005

  	
   

  	
  3.5 : 1.0

  	
   

  
	
  FQ1 2006

  	
   

  	
  3.0 : 1.0

  	
   

  
	
  FQ2 2006

  	
   

  	
  3.0 : 1.0

  	
   

  
	
  FQ3 2006, and thereafter

  	
   

  	
  2.75 : 1.0

  	
   

  

 

(b)                                 Consolidated Interest Coverage Ratio. 
Permit the Consolidated Interest Coverage Ratio for any period of four
consecutive fiscal quarters of the Borrower ending with the last day of any
fiscal quarter, commencing with FQ4 2005, to be less than 3.0 : 1.0.

 

7.2                                 Limitation
on Indebtedness.  Create, incur,
assume or suffer to exist any Indebtedness, except:

 

(a)                                  Indebtedness of any Loan Party
pursuant to any Loan Document;

 

(b)                                 Indebtedness of the Borrower to any
Subsidiary and of any Wholly Owned Guarantor to the Borrower or any other
Subsidiary provided that such Indebtedness is evidenced by, and subject
to the terms and conditions of, a subordinated intercompany note substantially
in the form of Exhibit I (the “Subordinated Intercompany Note”),
and subject to the first priority security interest of the Collateral Agent;

 

(c)                                  Indebtedness (including, without
limitation, Capital Lease Obligations) secured by Liens permitted by Section 7.3(g) in
an aggregate principal amount, together with any Indebtedness permitted by Section 7.2(g) and
obligations under operating leases incurred with respect to Sale Leasebacks
permitted by Section 7.11, not to exceed $60,000,000 at any one time
outstanding; provided that after the Financial Reporting Compliance Date
such amount will be increased by $40,000,000 if, at the time of incurrence of
such additional Indebtedness and after giving effect thereto, the Consolidated
Leverage Ratio does not exceed 2.5 to 1.0.

 

(d)                                 Indebtedness (other than the
Indebtedness referred to in Section 7.2(f)) that is (i) outstanding
on the date hereof and listed on part (i) of Schedule 7.2(d) and
any refinancings, refundings, renewals or extensions thereof (without any
shortening of the maturity of any principal amount thereof) or any increase in
the principal amount thereof, except to the extent of any prepayment,
make-whole or tender premium applicable to the Indebtedness being refinanced or
(ii) consists of contingent reimbursement obligations in respect of
letters of credit outstanding on the date hereof and listed on part (ii) of
Schedule 7.2(d), but only if, for so long as, and to the extent that (A) such
reimbursement obligations and any guarantees thereof by any Guarantors are not
secured by any Lien and (B) the issuer of such letters of credit has the
right to draw payment of such reimbursement obligations (and guarantees
thereof) under “back-to-back” letters of credit issued to it under the Funded
Letter of Credit Facility;

 

(e)                                  Guarantee Obligations made in the
ordinary course of business by the Borrower or any of its Subsidiaries of
obligations of (i) the Borrower or any Guarantor permitted to be incurred
hereunder and (ii) any Foreign Subsidiary, but solely to the extent and in
an

 

72

 

aggregate amount not to exceed, together with
any Indebtedness permitted by the proviso in Section 7.2(k), any
Investments permitted by Section 7.8(h) and the book value of assets
of any Loan Party located outside of the United States, $25,000,000 per fiscal
year or $100,000,000 in the aggregate for the term hereof;

 

(f)                                    Indebtedness of the Borrower:

 

(i)                                     in respect of the Existing Notes in
an aggregate principal amount not to exceed $425,000,000 and Guarantee
Obligations of any Guarantor in respect of such Indebtedness and, if (A) no
Default or Event of Default shall exist and be continuing and (B) the Term
Loan Commitments have expired or been terminated (or are terminated
simultaneously with the incurrence of such Indebtedness), any refinancings
thereof, the aggregate principal amount of which does not exceed the principal
amount of the Existing Notes being refinanced (plus all accrued interest on
such Existing Notes and the amount of all fees and expenses, including premiums
and make-whole payments, incurred in connection with such refinancing) and the
final maturity date of which is later than the final maturity date of, and has
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Existing Notes being refinanced; and

 

(ii)                                  consisting of Unsecured Indebtedness
in an aggregate principal amount (net of any original issue discount) not to
exceed $400,000,000, the proceeds of which are used to repay the Tranche B Term
Loans; and Guarantee Obligations of any Guarantor in respect of such
Indebtedness; provided that no part of the principal part of such
Indebtedness shall have a maturity date earlier than six months after the final
maturity of the last maturing Loans that will remain outstanding after such
proceeds are applied;

 

(g)                                 Indebtedness of the Borrower or any
Subsidiary in an aggregate principal amount, together with any Indebtedness
permitted by Section 7.2(c) and obligations under operating leases
incurred with respect to Sale Leasebacks permitted by Section 7.11, not to
exceed $60,000,000, at any one time, acquired pursuant to, or assumed in
connection with, any Permitted Acquisition; provided that such Indebtedness was
not incurred (x) to provide all or a portion of the funds utilized to
consummate the transaction or series of related transactions constituting such
Permitted Acquisition or (y) otherwise in connection with, or in contemplation
of, such Permitted Acquisition; and (ii) any refinancings, refundings,
renewals or extensions thereof (without any increase in the principal amount
thereof and on terms no less favorable to the Borrower or the applicable
Subsidiary); provided that after the Financial Reporting Compliance Date
such $60,000,000 limitation will be increased by $40,000,000 if, at the time of
incurrence of such Indebtedness and after giving effect thereto, the
Consolidated Leverage Ratio does not exceed 2.5 to 1.0.

 

(h)                                 Unsecured subordinated Indebtedness
of the Borrower and the unsecured guarantee by any Guarantor hereunder of the
Borrower’s obligations thereunder; provided that (i) such
Indebtedness is incurred after the Financial Reporting Compliance Date, (ii) no
part of the principal part of such Indebtedness shall have a maturity date
earlier than one year after the final maturity of the Loans hereunder, (iii) after
giving effect to the incurrence of any such

 

73

 

Indebtedness, on a pro forma basis, as if
such incurrence of Indebtedness, the application of the proceeds thereof and
the consummation of any transaction to be completed with such proceeds had
occurred on the first day of the twelve month period ending on the last day of
the Borrower’s then most recently completed fiscal quarter for which financial
statements are available, the Borrower and its Subsidiaries would have been in
compliance with all the financial covenants set forth in Section 7.1 and
the Borrower shall have delivered to the Administrative Agent a certificate of
a Responsible Officer of the Borrower to such effect setting forth in
reasonable detail the computations necessary to determine such compliance, (iv) at
the time of the incurrence of such Indebtedness and after giving effect
thereto, no Default or Event of Default shall exist and be continuing and (v) the
documentation governing such Indebtedness contains customary market terms for
public subordinated unsecured securities (including subordination terms)
reasonably acceptable to the Administrative Agent;

 

(i)                                     Unsecured Indebtedness of the
Borrower, in an aggregate principal amount not to exceed $100,000,000 at any
one time outstanding, and the unsecured guarantee by any Guarantor hereunder of
the Borrower’s obligations thereunder; provided that (i) such Indebtedness
is incurred after the Financial Reporting Compliance Date, (ii) no part of
the principal part of such Indebtedness shall have a maturity date earlier than
one year after the final maturity of the Loans hereunder, (iii) after
giving effect to the incurrence of any such Indebtedness, on a pro forma basis,
as if such incurrence of Indebtedness, the application of the proceeds thereof
and the consummation of any transaction to be completed with such proceeds had
occurred on the first day of the twelve month period ending on the last day of
the Borrower’s then most recently completed fiscal quarter for which financial
statements are available, the Borrower and its Subsidiaries would have been in
compliance with all the financial covenants set forth in Section 7.1 and
the Borrower shall have delivered to the Administrative Agent a certificate of
a Responsible Officer of the Borrower to such effect setting forth in
reasonable detail the computations necessary to determine such compliance, (iv) at
the time of the incurrence of such Indebtedness and after giving effect
thereto, no Default or Event of Default shall exist and be continuing and (v) the
documentation governing such Indebtedness contains covenants, events of default
and remedies not materially less favorable (in each case, taken as a whole) to
the Borrower than those contained in the Existing Indentures on the date
hereof, subject to modification where necessary to reflect prevailing market
terms at the time of issuance of such senior notes for “high-yield” securities
issued by companies of comparable size, credit rating and capitalization
(including, without limitation, having in place a senior secured credit
facility) and reasonably acceptable to the Administrative Agent);

 

(j)                                     Indebtedness
issued to insurance companies, or their affiliates, to finance insurance
premiums payable to such insurance companies in connection with insurance
policies purchased by a Loan Party in the ordinary course of business;

 

(k)                                  Indebtedness of Foreign
Subsidiaries; provided that any such Indebtedness owed to any other
Subsidiary of the Borrower (other than another Foreign Subsidiary) shall not
exceed in an aggregate amount, together with the aggregate amount of any
Guarantee Obligations with respect to Foreign Subsidiaries permitted under Section 7.2(e),
Investments made pursuant to Section 7.8(h), and book value of assets of
any Loan Party located outside of the United States, $25,000,000 per fiscal
year or $100,000,000 in the aggregate for the term hereof; and

 

74

 

(l)                                     additional Indebtedness of the
Borrower or any of its Subsidiaries in an aggregate principal amount (for the
Borrower and all Subsidiaries) not to exceed $60,000,000 at any one time
outstanding.

 

7.3                                 Limitation
on Liens.  Create, incur, assume or
suffer to exist any Lien upon any of its Property, whether now owned or
hereafter acquired, except for:

 

(a)                                  Liens for taxes not yet due or which
are being contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on the books of the
Borrower or its Subsidiaries, as the case may be, in conformity with GAAP;

 

(b)                                 carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s or other like Liens arising in the ordinary course
of business which are not overdue for a period of more than 30 days or that are
being contested in good faith by appropriate proceedings; provided that
adequate reserves with respect thereto are maintained in the books of the
applicable Loan Party, in conformity with GAAP;

 

(c)                                  pledges or deposits in connection
with workers’ compensation, unemployment insurance and other social security
legislation;

 

(d)                                 deposits by or on behalf of the
Borrower or any of its Subsidiaries and on letters of credit issued in lieu of
cash deposits to secure the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business, so long as the aggregate amount of deposits or
such letters of credit at any one time securing appeal bonds does not exceed
$5,000,000;

 

(e)                                  easements, rights-of-way,
restrictions and other similar encumbrances incurred in the ordinary course of
business that, in the aggregate, are not substantial in amount and which do not
in any case materially detract from the value of the Property subject thereto
or materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;

 

(f)                                    Liens in existence on the date
hereof listed on Schedule 7.3(f), securing Indebtedness permitted by Section 7.2(d),
provided that no such Lien is spread to cover any additional Property
after the Closing Date and that the amount of Indebtedness secured thereby is
not increased;

 

(g)                                 Liens securing Indebtedness of the
Borrower or any of its Subsidiaries incurred pursuant to Section 7.2(c) to
finance the acquisition of fixed or capital assets, provided that (i) such
Liens shall be created within 180 days after the acquisition of such fixed or
capital assets, (ii) such Liens do not at any time encumber any Property
other than the Property financed by such Indebtedness, (iii) the amount of
Indebtedness secured thereby is not increased and (iv) the amount of
Indebtedness initially secured thereby is not more than 100% of the purchase
price of such fixed or capital asset;

 

(h)                                 Liens created pursuant to the
Security Documents;

 

75

 

(i)                                     any interest or title of a lessor
under any lease entered into by the Borrower or any of its Subsidiaries in the
ordinary course of its business and covering only the assets so leased;

 

(j)                                     until the date which is 120 days
after the acquisition of the applicable Acquired Person, Acquired Person
Unreleased Liens;

 

(k)                                  Liens in connection with attachments
or judgments in circumstances not constituting an Event of Default under Section 8(h);

 

(l)                                     Liens on the property or assets of a
Person which becomes a Subsidiary of the Borrower after the date hereof, or is
acquired by such Person after the date hereof, securing Indebtedness permitted
by Section 7.2(g); provided that (i) such Liens existed at the time
such Person became a Subsidiary of the Borrower, (ii) such Liens were not
granted in connection with or in contemplation of the applicable Permitted
Acquisition and (iii) the amount of Indebtedness secured thereby is not
increased and such Liens are not expanded to cover additional Property (other
than proceeds thereof);

 

(m)                               Liens on the assets of any Foreign
Subsidiary (other than intercompany notes payable to by a Loan Party) which
secure Indebtedness permitted pursuant to Section 7.2(k);

 

(n)                                 Liens consistent with those arising
by operation of law consisting of customary and ordinary course rights of
setoff upon deposits of cash in favor of banks or other depository institutions
in the ordinary course of business;

 

(o)                                 Liens on unearned premiums in
respect of insurance policies securing insurance premium financing permitted
under Section 7.2(j);

 

(p)                                 legal ownership by each Texas
Assigning Corporation in assets the beneficial interests of which it
transferred, directly or indirectly, to a Texas Assignee Limited Partnership
and beneficial ownership by each Texas Assignee Limited Partnership in assets
the legal ownership is held by each Texas Assigning Corporation;

 

(q)                                 Licenses of Oilfield Intellectual
Property in the ordinary course of business; and

 

(r)                                    Liens not otherwise permitted by
this Section 7.3 so long as neither (i) the aggregate outstanding
principal amount of the obligations secured thereby nor (ii) the aggregate
book value (determined, in the case of each such Lien, as of the date such Lien
is incurred) of the assets subject thereto exceeds (as to the Borrower and all
Subsidiaries) $10,000,000 at any one time.

 

7.4                                 Limitation
on Fundamental Changes.  Enter into
any merger, consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or Dispose of all or
substantially all of its Property or business, except that:

 

76

 

(a)                                  any Solvent Subsidiary of the
Borrower may be merged or consolidated with or into the Borrower (provided
that the Borrower shall be the continuing or surviving corporation) or with or
into any Wholly Owned Guarantor (provided that (i) such Guarantor
shall be the continuing or surviving corporation or (ii) simultaneously
with such transaction, the continuing or surviving corporation shall become a
Guarantor and the Borrower shall comply with Section 6.10 in connection
therewith);

 

(b)                                 any Subsidiary of the Borrower may
Dispose of any or all of its assets (upon voluntary liquidation or otherwise)
to the Borrower or any Guarantor or, if it is a Foreign Subsidiary, to its
equity owners generally;

 

(c)                                  any Immaterial Subsidiary of the
Borrower (i) may be merged on consolidated with or into any other
Immaterial Subsidiary of the Borrower and (ii) may Dispose of any or all
of its assets (upon voluntary liquidation or otherwise) pro rata to its equity
holders; and

 

(d)                                 any Foreign Subsidiary of the
Borrower (i) may be merged on consolidated with or into any other Foreign
Subsidiary of the Borrower and (ii) may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) pro rata to its equity
holders.

 

7.5                                 Limitation
on Disposition of Property.  Dispose
of any of its Property (including, without limitation, receivables and
leasehold interests), whether now owned or hereafter acquired, or, in the case
of any Subsidiary of the Borrower, issue or sell any shares of such Subsidiary’s
Capital Stock to any Person, except:

 

(a)                                  the Disposition of obsolete or worn
out Property in the ordinary course of business (including the abandonment or
termination of leasehold interests in the ordinary course of business);

 

(b)                                 the Disposition of inventory in the
ordinary course of business;

 

(c)                                  Dispositions permitted by Section 7.4(b),
(c) or (d);

 

(d)                                 the sale of the Borrower’s treasury
stock and the sale or issuance of any Subsidiary’s Capital Stock to the
Borrower or any Guarantor;

 

(e)                                  the Disposition of light vehicles
(i.e. cars and pick-up trucks but not heavy trucks or rigs) in the ordinary
course of business;

 

(f)                                    an exchange or “swap” of fixed,
tangible assets of a Loan Party for the assets of a person other than another
Loan Party in the ordinary course of business, provided that (i) the
assets received by such Loan Party will be used or useful in such Loan Party’s
business and (ii) such Loan Party received reasonable equivalent value for
such assets, such equipment value to be demonstrated to the reasonable
satisfaction of the Administrative Agent; provided  further that
the Fair Market Value of all such assets of the Loan Parties exchanged or “swapped”
in any fiscal year of the Borrower does not exceed $25,000,000 per fiscal year;

 

(g)                                 Dispositions described on Schedule 7.5(g);

 

77

 

(h)                                 the Disposition of any assets (other
than Capital Stock of Subsidiaries of the Borrower); provided that (i) the
aggregate proceeds received from all assets so sold, leased or disposed of in
any fiscal year (except as otherwise permitted by this Section 7.5), shall
not exceed $25,000,000 per fiscal year, (ii) such sale, lease or other
disposition shall be for Fair Market Value and (iii) if such sale, lease
or other disposition (or series of related sales, leases and dispositions)
relates to assets with a Fair Market Value in excess of $1,000,000, the cash
consideration received in respect thereof shall be not less than 80% of such
Fair Market Value; and provided further that up to $5,000,000 of such
proceeds shall be excluded from the mandatory prepayment requirements of Section 2.12
per fiscal year;

 

(i)                                     Dispositions of Property
constituting investments permitted under Section 7.8 and Dispositions of
Property constituting Restricted Payments permitted by Section 7.6;

 

(j)                                     licenses of Oilfield Intellectual
Property;

 

(k)                                  Dispositions of drill pipe or
downhole equipment lost, abandoned or destroyed in the ordinary course of
business;

 

(l)                                     the sale of past due accounts
receivable in the ordinary course of business; and

 

(m)                               any Recovery Event.

 

7.6                                 Limitation
on Restricted Payments.  Declare or
pay any dividend on, or make any payment on account of, or set apart assets for
a sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any Capital Stock of the Borrower or any of
its Subsidiaries, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the Borrower or any of its Subsidiaries, or
enter into any derivatives or other transaction with any financial institution,
commodities or stock exchange or clearinghouse (a “Derivatives Counterparty”)
obligating the Borrower or any Subsidiary to make payments to such Derivatives
Counterparty as a result of any change in market value of any such Capital
Stock (collectively, “Restricted Payments”), except that:

 

(a)                                  any Subsidiary may make Restricted
Payments to the Borrower or any Guarantor or, if it is a Foreign Subsidiary, to
its equity owners generally;

 

(b)                                 the Borrower may make Restricted
Payments in the form of common stock of the Borrower;

 

(c)                                  the Borrower may repurchase its
Capital Stock in connection with the administration of its equity-based
compensation plans from time to time in effect, including (i) in connection
with the cashless exercise of stock options, (ii) the repurchase of
restricted stock from employees, directors and other recipients under such
plans at nominal values and (iii) the repurchase of Capital Stock from
employees, directors and other such recipients to satisfy federal, state or
local tax withholding obligations of such employees, directors and other
recipients with respect to income deemed earned as the result of options, stock
grants or other

 

78

 

awards made under such plans, provided, that
the amount of cash expended for purposes described in clauses (i) through (ii) above
shall not exceed $1,000,000 in any fiscal year or $2,500,000 while this
Agreement is in effect;

 

(d)                                 the Borrower and may repurchase its
common stock at market prices in an aggregate amount not to exceed $50,000,000
in the aggregate during the term of this Agreement so long as (i) such
repurchase is after the Financial Reporting Compliance Date (ii) no
Default or Event of Default exists and is continuing, or would result
therefrom, and (iii) the Borrower’s Consolidated Leverage Ratio (based on
the most recent twelve month period for which financial statements are
available) is not greater than 2.0 to 1.0; and

 

(e)                                  the Borrower may pay cash dividends
to the holders of its Capital Stock, so long as (i) such dividend is paid
after the Financial Reporting Compliance Date, (ii) no Default or Event of
Default shall exist and be continuing, (iii) the Borrower’s Consolidated
Leverage Ratio (based on the most recent twelve month period for which
financial statement are available) is not greater than 2.0 to 1.0 and (iv) as
of the date of such cash dividend, the aggregate amount of all Restricted
Payments made pursuant to this Section 7.6(e) through such date, pro
forma to include such cash dividend, does not exceed 50% of the aggregate
amount of Consolidated Net Income of the Borrower and its Subsidiaries from the
last day of the fiscal quarter in which the Closing Date occurs through such
date.

 

7.7                                 Limitation
on Capital Expenditures.  Make or
commit to make any Capital Expenditure, except (a) Capital Expenditures of
the Borrower and its Subsidiaries in the ordinary course of business not
exceeding $150,000,000 per annum; provided, that (i) up to
$25,000,000 of such amount referred to above, if not so expended in the fiscal
year for which it is permitted, may be carried over for expenditure in the next
succeeding fiscal year and (ii) Capital Expenditures made pursuant to this
clause (a) during any fiscal year shall be deemed made, first, in
respect of amounts permitted for such fiscal year as provided above and second,
in respect of amounts carried over from the prior fiscal year pursuant to
subclause (i) above, (b) Capital Expenditures made with the proceeds
of any Reinvestment Deferred Amount and (c) with respect to any fiscal
year following a fiscal year as to which the ECF Percentage is 0.0%, Capital
Expenditures in an amount equal to the Excess Cash Flow for the prior fiscal
year to the extent not used to make Restricted Payments pursuant to Section 7.6(d) and
(e) or Investments pursuant to Section 7.8(g), (h) or (m).

 

7.8                                 Limitation
on Investments.  Make any advance,
loan, extension of credit (by way of guaranty or otherwise) or capital
contribution to, or purchase any Capital Stock, bonds, notes, debentures or
other debt securities of, or any assets constituting an ongoing business from,
or make any other investment in, any other Person (all of the foregoing, “Investments”),
except:

 

(a)                                  extensions of trade credit in the
ordinary course of business;

 

(b)                                 investments in Cash Equivalents;

 

(c)                                  Investments arising in connection
with the incurrence of Indebtedness permitted by Section 7.2(b) and
(e);

 

79

 

(d)                                 loans and advances to employees of
the Borrower or any Subsidiaries of the Borrower in the ordinary course of
business (including, without limitation, for travel, entertainment and
relocation expenses) in an aggregate amount for the Borrower and Subsidiaries
of the Borrower not to exceed $7,500,000 at any one time outstanding;

 

(e)                                  Investments in assets useful in the
Borrower’s or the applicable Subsidiary’s business made by the Borrower or any
of its Subsidiaries with the proceeds of any Reinvestment Deferred Amount;

 

(f)                                    Investments (other than those
relating to the incurrence of Indebtedness permitted by Section 7.8(c)) by
the Borrower or any of its Subsidiaries in the Borrower or any Person that,
prior to such Investment, is a Wholly Owned Guarantor;

 

(g)                                 in addition to Investments otherwise
expressly permitted by this Section, Investments by the Borrower or any of its
Wholly Owned Subsidiaries constituting acquisitions of Persons or ongoing
businesses engaged primarily in one or more lines of businesses permitted under
Section 7.15 (“Permitted Acquisitions”); provided that:

 

(i)                                     immediately prior to and after
giving effect to any such Permitted Acquisition, no Default or Event of Default
shall exist and be continuing and the Borrower shall have certified same to the
Administrative Agent in writing;

 

(ii)                                  if such Permitted Acquisition is
structured as a stock acquisition, or a merger or consolidation, then either (A) the
Person so acquired becomes a Wholly Owned Subsidiary or (B) such Person is
merged with and into either the Borrower or a Wholly Owned Subsidiary of the
Borrower (with the Borrower or such Wholly Owned Subsidiary being the surviving
corporation in such merger);

 

(iii)                               all of the provisions of Section 6.10
have been or will be complied with in all material respects in respect of such
Permitted Acquisition;

 

(iv)                              after giving pro forma effect to the
proposed Permitted Acquisition, the Borrower shall be in compliance with the
financial covenants set forth in Section 7.1;

 

(v)                                 the consideration for such Permitted
Acquisition (other than consideration consisting of Capital Stock of the
Borrower) shall not exceed (A) with respect to any Permitted Acquisition
consummated at any time prior to the Financial Reporting Compliance Date, $50,000,000,
in the aggregate prior to the Financial Reporting Compliance Date, plus any
cash proceeds of Excluded Equity Issuances, but no Permitted Acquisition shall
be made for any consideration (other than Capital Stock of the Borrower) until
the Restatement with respect to the Borrower’s audited financial statements for
the fiscal year ending December 31, 2003 has been completed and such
audited financial statements have been reported on without a “going concern” or
like qualification or exception arising out of the scope of the audit by KPMG
LLP and are not then subject to any additional review by KPMG LLP, and (B) with
respect to any Permitted Acquisition consummated on or after Financial
Reporting Compliance Date,

 

80

 

$50,000,000, in the aggregate for any fiscal
year, plus any cash consideration arising from Excluded Equity Issuances; and

 

(vi)                              any Stock Repurchases permitted
under Section 7.6 and any purchases of Indebtedness not restricted by Section 7.9;

 

(h)                                 Investments by the Loan Parties in
any Foreign Subsidiary or any joint venture (regardless of the type of entity
used to form such joint venture) formed to operate or provide services in a
jurisdiction outside of the United States; provided that the aggregate
amount of such Investments after the date hereof, together with the aggregate
amount of Guarantee Obligations with respect to Foreign Subsidiaries permitted
by Section 7.2(e), Indebtedness of Foreign Subsidiaries permitted by the
proviso in Section 7.2(k) and the book value of assets of any Loan Party
located outside of the United States, shall not at any time exceed $25,000,000
per fiscal year or $100,000,000 in the aggregate for the term hereof;

 

(i)                                     Investments by Foreign Subsidiaries;

 

(j)                                     any Investments received in
consideration for an asset sale permitted by Section 7.5; provided
that such transfer or sale shall be on terms reasonably satisfactory to the
Administrative Agent and that the Loan Parties shall take appropriate steps to
grant a first priority security interest in such Investments in favor of the
Collateral Agent, for the benefit of the Secured Parties;

 

(k)                                  Investments (including Indebtedness
and other obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers in the
ordinary course of business;

 

(l)                                     Investments in the Qualified
Domestic Captive Insurance Companies not to exceed $15,000,000 (plus the amount
of any cash dividends, repayments or other cash distributions received by the
Loan Parties in respect of such Investments) in the aggregate; and

 

(m)                               in addition to Investments otherwise
expressly permitted by this Section, Investments by the Borrower or any of its
Subsidiaries in an aggregate amount (valued at cost) not to exceed, at any time
prior to the Financial Reporting Compliance Date, $10,000,000 and, at any time
on or after the Financial Reporting Compliance Date, $25,000,000 (plus, in each
case, the amount of any cash dividends, repayments or other cash distributions
received by the Loan Parties in respect of such Investments) during the term of
this Agreement, provided that total Investments in Qualified Domestic Captive
Insurance Companies shall not exceed $15,000,000.

 

7.9                                 Limitation on Optional Payments and
Modifications of Debt Instruments, etc.  (a)  Make or offer to make any optional or
voluntary payment, prepayment, repurchase or redemption of, or otherwise
voluntarily or optionally defease, any Permitted Subordinated Indebtedness or
segregate funds for any such payment, prepayment, repurchase, redemption or
defeasance, or enter into any derivative or other transaction with any
Derivatives Counterparty obligating the Borrower or any Subsidiary to make
payments to such Derivatives Counterparty as a result of any change in market
value of any Permitted Subordinated Indebtedness, amend, modify or otherwise
change, or consent or agree to any amendment, modification, waiver or

 

81

 

other change to, any of the terms of the any
Permitted Subordinated Indebtedness (other than any such amendment,
modification, waiver or other change which (i) would extend the maturity
or reduce the amount of any payment of principal thereof, reduce the rate or
extend the date for payment of interest thereon or relax any covenant or other
restriction applicable to the Borrower or any of its Subsidiaries or add
subsidiary guarantors thereto (so long as such subsidiary guarantors are
Guarantors), and (ii) does not involve the payment of a consent fee), (c) designate
any Indebtedness (other than the Obligations) as “Designated Senior
Indebtedness” for the purposes of any Permitted Subordinated Indebtedness or (d) amend
its certificate of incorporation, by-laws or other governing documents in any
manner determined by the Administrative Agent to be materially adverse to the
Lenders.

 

7.10                           Limitation
on Transactions with Affiliates. 
Enter into any transaction, including, without limitation, any purchase,
sale, lease or exchange of Property, the rendering of any service or the
payment of any management, advisory or similar fees, with any Affiliate (other
than the Borrower or any Subsidiary) unless such transaction is (a) otherwise
permitted under this Agreement, (b) in the ordinary course of business of
the Borrower or such Subsidiary, as the case may be, and (c) upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary, as the
case may be, than it would obtain in a comparable arm’s length transaction with
a Person that is not an Affiliate.

 

7.11                           Limitation
on Sales and Leasebacks.  Enter into
any arrangement with any Person providing for the leasing by the Borrower or
any of its Subsidiaries of real or personal property which has been or is to be
sold or transferred by the Borrower or such Subsidiary to such Person or to any
other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of the Borrower or such
Subsidiary (each such arrangement, a “Sale Leaseback”) except to the
extent that the sale of such assets is permitted by Section 7.5 and the
aggregate amount of any obligations of the Borrower or its Subsidiaries with
respect to operating or capital leases entered into in connection therewith
does not exceed, together with the aggregate principal amount of any other
Indebtedness incurred pursuant to Sections 7.2(c) and (g), $60,000,000, at
any time; provided that after the Financial Reporting Compliance Date,
such amount will be increased by $40,000,000 if, at the time of incurrence of
such obligations and after giving effect thereto, the Consolidated Leverage
Ratio does not exceed 2.5 to 1.0.

 

7.12                           Limitation
on Changes in Fiscal Periods.  Permit
the fiscal year of the Borrower to end on a day other than December 31 or
change the Borrower’s method of determining fiscal quarters.

 

7.13                           Limitation
on Negative Pledge Clauses.  Enter
into or suffer to exist or become effective any agreement that prohibits or
limits the ability of the Borrower or any of its Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of its Property or revenues,
whether now owned or hereafter acquired, to secure the Obligations or, in the
case of any guarantor, its obligations under the Guarantee and Collateral
Agreement, other than (a) this Agreement and the other Loan Documents , (b) the
Existing Indentures, any agreements governing Indebtedness which is permitted
to refinance the Indebtedness thereunder and any agreements governing
Indebtedness permitted by Sections 7.2(f), (h) and (i), in each case, to
the extent such restrictions are no more restrictive than those in the Existing
Indentures, (c) any

 

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agreements governing any purchase money Liens
or Capital Lease Obligations otherwise permitted hereby (in which case, any
prohibition or limitation shall only be effective against the assets financed
thereby), (d) customary non-assignment provisions in leases, joint venture
and other contracts entered into in the ordinary course of business, (e) agreements
entered into with respect to other Indebtedness permitted to be incurred by Section 7.2(l)
and to be secured by a Lien pursuant to Section 7.3(r) to the extent the
prohibition or restriction is only applicable to the assets which secure such
Indebtedness, (f) any agreement entered into in connection with
Indebtedness permitted to be incurred hereunder by Foreign Subsidiaries
relating to the property, assets or revenues of the Foreign Subsidiaries (and
not the Loan Parties except for ownership interests of Foreign Subsidiaries, no
portion of which is part of, or intended in the future to be part of, the
Collateral).

 

7.14                           Limitation
on Restrictions on Subsidiary Distributions.  Enter into or suffer to exist or become
effective any consensual encumbrance or restriction on the ability of any
Subsidiary to (a) make Restricted Payments in respect of any Capital Stock
of such Subsidiary held by, or pay or subordinate any Indebtedness owed to the
Borrower or any other Subsidiary, (b) make Investments in the Borrower or
any other Subsidiary or (c) transfer any of its assets to the Borrower or
any other Subsidiary, except for such encumbrances or restrictions existing
under or by reason of (i) any restrictions existing under the Loan
Documents, (ii) any restrictions existing under the Existing Indentures,
and any agreements governing Indebtedness which is permitted to refinance the
Indebtedness thereunder and any agreements governing Indebtedness permitted by
Sections 7.2(f), (h) or (i), in each case, to the extent such restrictions
are no more restrictive than those in the Existing Indentures, (iii) any
restrictions with respect to a Subsidiary imposed pursuant to an agreement that
has been entered into in connection with the Disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary, (iv) customary
contracts with customers which require that the Loan Parties or their Subsidiaries
maintain a given level of net worth so long as such net worth provisions would
not reasonably be expected to impair materially the ability of any such Loan
Party to meet its ongoing obligations under this Agreement or any of the other
Loan Documents and (v) solely with respect to clause (c), any agreements
governing any purchase money Liens or Capital Lease Obligations otherwise
permitted hereby (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby and the proceeds thereof),
agreements entered into with respect to other Indebtedness permitted to be
incurred by Section 7.2(l) and to be secured by a Lien pursuant to Section 7.3(r)
to the extent the prohibition or restriction is only applicable to the assets
which secure such Indebtedness, and customary non-assignment provisions in
leases, joint venture agreements and other contracts entered into in the
ordinary course of business.

 

7.15                           Limitation
on Lines of Business.  Enter into any
business, either directly or through any Subsidiary, except for those
businesses in which the Borrower and its Subsidiaries are engaged on the date
of this Agreement or that are reasonably related thereto.

 

7.16                           Limitation
on Hedge Agreements.  Enter into any
Hedge Agreement other than Hedge Agreements entered into in the ordinary course
of business, and not for speculative purposes, to protect against changes in
interest rates , commodity prices or foreign exchange rates.

 

83

 

7.17                           Partnerships
and Joint Ventures.  Become a general
or limited partner in a partnership or joint venturer in any joint venture, or
permit any of its Subsidiaries to do so, except to the extent that each other
general or limited partner or other joint venturer in such partnership or joint
venture is a Loan Party, other than any joint venture permitted by Sections
7.8(h), (i) and (m); provided that any Indebtedness of such joint
venture is permitted by Section 7.2(e), the proviso in Section 7.2(k)
or Section 7.8(h) or is Non-Recourse Indebtedness.

 

SECTION 8.   EVENTS OF DEFAULT

 

If any of the
following events shall occur and be continuing:

 

(a)                                  The Borrower shall fail to pay any
principal of any Loan or Reimbursement Obligation when due in accordance with
the terms hereof; or the Borrower shall fail to pay any interest on any Loan or
Reimbursement Obligation, or any Loan Party shall fail to pay any other amount
payable hereunder or under any other Loan Document, within five days after any
such interest or other amount becomes due in accordance with the terms hereof
or thereof; or

 

(b)                                 Any representation or warranty made
or deemed made by any Loan Party herein or in any other Loan Document or that
is contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Agreement or any
such other Loan Document shall prove to have been inaccurate in any material
respect on or as of the date made or deemed made or furnished; or

 

(c)                                  (i)  Any Loan Party shall
default in the observance or performance of any agreement contained in clause (i) or
(ii) of Section 6.4(a) (with respect to the Borrower only), Section 6.7(a) or
Section 7, or in Section 5 of the Guarantee and Collateral Agreement
or (ii) an “Event of Default” under and as defined in any Mortgage shall
have occurred and be continuing; or

 

(d)                                 Any Loan Party shall default in the
observance or performance of any other agreement contained in this Agreement or
any other Loan Document (other than as provided in paragraphs (a) through (c) of
this Section), and such default shall continue unremedied for a period of 30
days; or

 

(e)                                  the Borrower or any of its
Subsidiaries shall (i) default in making any payment of any principal of
any Indebtedness (including, without limitation, any Guarantee Obligation, but
excluding the Loans and Reimbursement Obligations) on the due date with respect
thereto (other than any such payment arising upon acceleration of such
Indebtedness based solely on the Specified Defaults, subject to the final
proviso of this paragraph); or (ii) default in making any payment of any
interest on any such Indebtedness beyond the period of grace, if any, provided
in the instrument or agreement under which such Indebtedness was created (other
than any such payment arising upon acceleration of such Indebtedness based
solely on the Specified Defaults, subject to the final proviso of this
paragraph); or (iii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist (other than any based solely on the

 

84

 

Specified Defaults, subject to the final
proviso of this paragraph), the effect of which default or other event or
condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to
cause, with the giving of notice if required, such Indebtedness to become due
prior to its stated maturity or to become subject to a mandatory offer to
purchase by the obligor thereunder or (in the case of any such Indebtedness
constituting a Guarantee Obligation) to become payable; provided, that a
default, event or condition described in clause (i), (ii) or (iii) of
this paragraph (e) shall not at any time constitute an Event of Default
unless, at such time, one or more defaults, events or conditions of the type
described in clauses (i), (ii) and (iii) of this paragraph (e) shall
have occurred and be continuing with respect to Indebtedness the outstanding
principal amount of which exceeds in the aggregate $20,000,000; provided
further that notwithstanding the foregoing, if Existing Notes or any other
Indebtedness is accelerated based solely on the Specified Defaults, and the
Borrower fails to pay such accelerated Existing Notes and other Indebtedness
within ten days of demand therefor, such payment default shall be an Event of
Default hereunder; or

 

(f)                                    (i)  The Borrower or any of its
Subsidiaries shall commence any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have
an order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or any
substantial part of its assets, or the Borrower or any of its Subsidiaries
shall make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Borrower or any of its Subsidiaries any case,
proceeding or other action of a nature referred to in clause (i) above
that (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets that results in the
entry of an order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) the Borrower or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above;
or (v) the Borrower or any of its Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts
as they become due; or

 

(g)                                 (i) 
Any Person shall engage in any “prohibited transaction” (as defined in Section 406
of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated
funding deficiency” (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan, or any Lien in favor of the PBGC
or a Plan shall arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Required

 

85

 

Lenders shall be likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) the Borrower, or any of
its Subsidiaries or any Commonly Controlled Entity shall be required to make
during any fiscal year of the Borrower payments pursuant to any employee
welfare benefit plan (as defined in Section 3.1 of ERISA) that provides
benefits to retired employees (or their dependents) that, in the aggregate,
would have a Material Adverse Effect with respect to such fiscal year, (vii) the
Borrower, or any of its Subsidiaries or any Commonly Controlled Entity shall be
required to make during any fiscal year of the Borrower contributions to any
defined benefit pension plan subject to Title IV of ERISA (including any
Multiemployer Plan) that, in the aggregate, would have a Material Adverse
Effect with respect to such fiscal year or (viii) any other similar event
or condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) and (iii) - (viii) above, such event or condition,
together with all other such events or conditions, if any, could, in the sole
judgment of the Required Lenders, reasonably be expected to have a Material
Adverse Effect; or

 

(h)                                 One or more judgments or decrees
shall be entered against the Borrower or any of its Subsidiaries involving for
the Borrower and its Subsidiaries taken as a whole a liability (not paid or
fully covered by insurance as to which the relevant insurance company has
acknowledged coverage) of $20,0000,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 30 days from the entry thereof; or

 

(i)                                     Any of the Security Documents shall
cease, for any reason (other than by reason of the express release thereof
pursuant to Section 10.15), to be in full force and effect, or any Loan
Party or any Affiliate of any Loan Party shall so assert, or any Lien created
by any of the Security Documents shall cease to be enforceable and of the same
effect and priority purported to be created thereby; or

 

(j)                                     The guarantee contained in Section 2
of the Guarantee and Collateral Agreement shall cease, for any reason (other
than by reason of the express release thereof pursuant to Section 10.15),
to be in full force and effect or any Loan Party or any Affiliate of any Loan
Party shall so assert; or

 

(k)                                  Any Change of Control shall occur;

 

then, and in any such event, (A) if such event is an Event of
Default specified in clause (i) or (ii) of paragraph (f) above
with respect to the Borrower, automatically the Commitments shall immediately
terminate and the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the other Loan Documents (including,
without limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) shall immediately become due and payable,
and (B) if such event is any other Event of Default, any or all of the
following actions may be taken:  with the
consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
the Borrower, declare (i) the Loans hereunder (with accrued interest
thereon), and all other amounts owing under this Agreement and the other Loan
Documents (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of

 

86

 

the then outstanding Letters of
Credit shall have presented the documents required thereunder) to be due and
payable forthwith, whereupon the same shall immediately become due and payable,
(ii) the Revolving Credit Commitments to be terminated forthwith
(whereupon the Revolving Credit Commitments shall immediately terminate) and (iii) the
Funded Letter of Credit Commitments to be terminated forthwith (whereupon the
Funded Letter of Credit Commitments shall immediately be reduced to the amount
of Total Funded Letter of Credit Exposure). 
In the case of all Letters of Credit with respect to which presentment
for honor shall not have occurred at the time of an acceleration pursuant to
this paragraph, the Borrower shall at such time deposit in a cash collateral
account opened by the Collateral Agent an amount in immediately available funds
equal to the aggregate then undrawn and unexpired amount of such Letters of
Credit (and the Borrower hereby grants to the Collateral Agent, for the ratable
benefit of the Secured Parties, a continuing security interest in all amounts
at any time on deposit in such cash collateral account to secure the undrawn
and unexpired amount of such Letters of Credit and all other Obligations).  If at any time the Administrative Agent
determines that any funds held in such cash collateral account are subject to
any right or claim of any Person other than the Collateral Agent and the
Secured Parties or that the total amount of such funds is less than the
aggregate undrawn and unexpired amount of outstanding Letters of Credit, the
Borrower shall, forthwith upon demand by the Administrative Agent, pay to the
Collateral Agent, as additional funds to be deposited and held in such cash
collateral account, an amount equal to the excess of (a) such aggregate
undrawn and unexpired amount over (b) the total amount of funds, if any,
then held in such cash collateral account that the Administrative Agent
determines to be free and clear of any such right and claim.  Amounts held in such cash collateral account
shall be applied by the Revolving Administrative Agent to the payment of drafts
drawn under such Letters of Credit, and the unused portion thereof after all
such Letters of Credit shall have expired or been fully drawn upon, if any, shall
be applied to repay other obligations of the Borrower hereunder and under the
other Loan Documents.  After all such
Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations
of the Borrower hereunder and under the other Loan Documents shall have been
paid in full, the balance, if any, in such cash collateral account shall be
returned to the Borrower (or such other Person as may be lawfully entitled
thereto).

 

SECTION 9.
THE AGENTS; THE ARRANGER

 

9.1                                 Appointment.  Each Lender hereby irrevocably designates and
appoints the Agents as the agents of such Lender under this Agreement and the
other Loan Documents, and each Lender irrevocably authorizes each Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto.  
Notwithstanding any provision to the contrary elsewhere in this
Agreement, no Agent shall have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against any Agent.

 

9.2                                 Delegation
of Duties.  Each Agent may execute
any of its duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be

 

87

 

entitled to advice of counsel concerning all
matters pertaining to such duties.  No
Agent shall be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.

 

9.3                                 Exculpatory
Provisions.  Neither the Arranger,
any Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Loan Document (except to the extent
that any of the foregoing are found by a final and nonappealable decision of a
court of competent jurisdiction to have resulted solely and proximately from
its or such Person’s own gross negligence or willful misconduct) or (ii) responsible
in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any Loan Party or any officer thereof
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Arranger, the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party to perform its obligations hereunder or
thereunder.  The Agents shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Loan Party.

 

9.4                                 Reliance
by Agents.  Each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any instrument,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Loan Parties), independent
accountants and other experts selected by such Agent.  The Agents may deem and treat the payee of
any Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with Section 10.6 and all actions required by
such Section in connection with such transfer shall have been taken.  Each Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, if so specified by this Agreement, all Lenders or any
other instructing group of Lenders specified by this Agreement) as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense that may be incurred by it by reason
of taking or continuing to take any such action.  Each Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement and the other
Loan Documents in accordance with a request of the Required Lenders (or, if so
specified by this Agreement, all Lenders or any other instructing group of
Lenders specified by this Agreement), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Loans.

 

9.5                                 Notice
of Default.  No Agent shall be deemed
to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless such Agent shall have received notice from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a “notice of default”.  In the event that the Administrative Agent
shall receive such a notice, the Administrative Agent shall give notice

 

88

 

thereof to the Lenders.  The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement, all
Lenders or any other instructing group of Lenders specified by this Agreement);
provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.

 

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

 

9.7                                 Indemnification.  The Lenders agree to indemnify the Arranger
and each Agent in its capacity as such (to the extent not reimbursed by the
Borrower and without limiting the obligation of the Borrower to do so), ratably
according to their respective Aggregate Exposure Percentages in effect on the
date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), for,
and to save the Arranger and each Agent harmless from and against, any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever that may at any
time (including, without limitation, at any time following the payment of the
Loans) be imposed on, incurred by or asserted against the Arranger or such
Agent in any way relating to or arising out of, the Commitments, this
Agreement, any of the other Loan Documents, or any

 

89

 

documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Arranger or such Agent under or in connection
with any of the foregoing; provided that no Lender shall be liable for
the payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements that are
found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted solely and proximately from the Arranger’s or
such Agent’s gross negligence or willful misconduct.  The agreements in this Section shall
survive the payment of the Loans and all other amounts payable hereunder.

 

9.8                                 Arranger
and Agent in their Individual Capacities.  
The Arranger and each Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with any Loan Party
as though the Arranger or such Agent were not an Arranger or an Agent.  With respect to its Loans made or renewed by
it and with respect to any Letter of Credit issued or participated in by it,
the Arranger and each Agent shall have the same rights and powers under this
Agreement and the other Loan Documents as any Lender and may exercise the same
as though it were not an Arranger or an Agent, and the terms “Lender” and “Lenders”
shall include the Arranger and the Agent in their individual capacities.

 

9.9                                 Successor
Agent.  The Administrative Agent,
Revolving Administrative Agent and the Collateral Agent may resign as such
agent upon 30 days’ notice to the Lenders and the Borrower.  If the Administrative Agent, Revolving
Administrative Agent or Collateral Agent shall resign as Administrative Agent,
Revolving Administrative Agent or Collateral Agent, respectively, under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall (unless an Event of Default under Section 8(a) or Section 8(f) with
respect to the Borrower shall have occurred and be continuing) be subject to
approval by the Borrower (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers
and duties of the Administrative Agent, Revolving Administrative Agent or
Collateral Agent, as applicable, and the terms “Administrative Agent”, “Revolving
Administrative Agent” and “Collateral Agent”, as applicable, shall mean such
successor agent effective upon such appointment and approval, and the former
Administrative Agent’s, Revolving Administrative Agent’s or Collateral Agent’s,
as applicable, rights, powers and duties as Administrative Agent, Revolving
Administrative Agent or Collateral Agent, respectively, shall be terminated,
without any other or further act or deed on the part of such former
Administrative Agent, Revolving Administrative Agent, or Collateral Agent, as
applicable, or any of the parties to this Agreement or any holders of the Loans
or issuers of Letters of Credit.  If no successor
agent has accepted appointment as Administrative Agent, Revolving
Administrative Agent or Collateral Agent, as applicable, by the date that is 30
days following a retiring Administrative Agent’s, Revolving Administrative
Agent’s or Collateral Agent’s, as applicable, notice of resignation, the
retiring Administrative Agent’s, Revolving Administrative Agent’s or Collateral
Agent’s, as applicable, resignation shall nevertheless thereupon become
effective, and the Lenders shall assume and perform all of the duties of the
Administrative Agent, Revolving Administrative Agent or Collateral Agent, as
applicable, hereunder until such time, if any, as the Required Lenders appoint
a successor agent as provided for above. 
The Syndication Agent may, at any time, by notice to the Lenders and the
Administrative Agent, resign as Syndication Agent hereunder, whereupon the
duties, rights, obligations and responsibilities of the Syndication Agent hereunder
shall automatically be

 

90

 

assumed by, and inure to the benefit of, the
Administrative Agent, without any further act by the Arranger, any Agent or any
Lender.  After any retiring Agent’s
resignation as Agent, the provisions of this Section 9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement and the other Loan Documents.

 

9.10                           Authorization
to Release Liens and Guarantees.  The
Collateral Agent is hereby irrevocably authorized by each of the Lenders to
effect any release of Liens or guarantee obligations contemplated by Section 10.15.

 

9.11                           The
Arranger; the Syndication Agent.  The
Arranger and the Syndication Agent, in their respective capacities as such,
shall have no duties or responsibilities, and shall incur no liability, under
this Agreement and the other Loan Documents.

 

9.12                           Withholding Tax. 
(a)  To the extent required by any
applicable law, the Administrative Agent may withhold from any interest payment
to any Lender an amount equivalent to any applicable withholding tax.  If the forms or other documentation required
by Section 2.20(d) are not delivered to the Administrative Agent,
then the Administrative Agent may withhold from any interest payment to any
Lender not providing such forms or other documentation, a maximum amount of the
applicable withholding tax.

 

(b)                                 If the Internal Revenue Service or
any authority of the United States or other jurisdiction asserts a claim that
the Administrative Agent did not properly withhold tax from amounts paid to or
for the account of any Lender (because the appropriate form was not delivered,
was not properly executed, or because such Lender failed to notify the
Administrative Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason),
such Lender shall indemnify the Administrative Agent fully for all amounts
paid, directly or indirectly, by the Administrative Agent as tax or otherwise,
including penalties and interest, together with all expenses incurred,
including legal expenses, allocated staff costs and any out of pocket expenses.

 

(c)                                  If any Lender sells, assigns, grants
a participation in, or otherwise transfers its rights under this Agreement, the
purchaser, assignee, participant or transferee, as applicable, shall comply and
be bound by the terms of Sections 2.20(d) and 9.12; provided that with
respect to any Participant, as set forth in Section 10.6(b), such
Participant shall only be required to comply with the requirements of Sections
2.20(d) and 9.12. if such Participant seeks to obtain the benefits of Section 2.20.

 

SECTION 10.
MISCELLANEOUS

 

10.1                           Amendments
and Waivers.  Neither this Agreement
or any other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this Section 10.1.  The Required Lenders and each Loan Party
party to the relevant Loan Document may, or (with the written consent of the
Required Lenders) the Administrative Agent and each Loan Party party to the
relevant Loan Document may, from time to time, (a) enter into written
amendments, supplements or modifications hereto and to the other Loan Documents
(including amendments and restatements hereof or thereof) for the purpose of
adding any provisions to this Agreement or the other Loan Documents or

 

91

 

changing in any manner the rights of the
Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on
such terms and conditions as may be specified in the instrument of waiver, any
of the requirements of this Agreement or the other Loan Documents or any
Default or Event of Default and its consequences; provided, however,
that no such waiver and no such amendment, supplement or modification shall:

 

(i)                                     forgive the principal amount or
extend the final scheduled date of maturity of any Loan or Reimbursement
Obligation, extend the scheduled date of any amortization payment in respect of
any Term Loan, extend the date on which any Credit Linked Deposit is required
to be returned to any Lender, reduce the stated rate of any interest or fee
payable hereunder or extend the scheduled date of any payment thereof, or
increase the amount or extend the expiration date of any Commitment of any
Lender, or permit an Interest Period with a duration in excess of six months,
in each case without the consent of each Lender directly affected thereby;

 

(ii)                                  amend, modify or waive any provision
of this Section or reduce any percentage specified in the definition of
Required Lenders, consent to the assignment or transfer by the Borrower of any
of its rights and obligations under this Agreement and the other Loan
Documents, release all or substantially all of the Collateral or release all or
substantially all of the Guarantors from their guarantee obligations under the
Guarantee and Collateral Agreement, in each case without the consent of all
Lenders;

 

(iii)                               amend, modify or waive any condition
precedent to any extension of credit under the Revolving Credit Facility set
forth in Section 5.2 (including, without limitation, the waiver of an
existing Default or Event of Default required to be waived in order for such
extension of credit to be made) without the consent of the Majority Revolving
Credit Facility Lenders;

 

(iv)                              reduce the percentage specified in
the definition of Majority Facility Lenders with respect to any Facility
without the written consent of all Lenders under such Facility;

 

(v)                                 amend, modify or waive any provision
of Section 9 or any other provision affecting the rights, duties and
obligations of the Arranger or any Agent without the consent of the Arranger or
Agent directly affected thereby;

 

(vi)                              amend, modify or waive any provision
of Section 2.6 or 2.7 without the written consent of the Swing Line
Lender;

 

(vii)                           amend, modify or waive any provision
of Section 2.12 or the application of mandatory prepayments pursuant to Section 2.18(b) without
the written consent of the Majority Facility Lenders with respect to the Term
Loan Facility;

 

(viii)                        amend, modify or waive the pro rata
provisions of Section 2.18 without the consent of each Lender directly
affected thereby;

 

(ix)                                amend, modify or waive any provision
of Section 3 without the consent of each Issuing Lender;

 

92

 

(x)                                   amend, modify or waive any provision
of Section 3.7 without the written consent of the Majority Facility
Lenders with respect to the Funded Letter of Credit Facility; or

 

(xi)                                impose restrictions on assignments
and participations that are more restrictive than, or additional to, those set
forth in Section 10.6

 

Any such waiver and any such amendment, supplement or modification
shall apply equally to each of the Lenders and shall be binding upon the Loan
Parties, the Lenders, the Arranger, the Agents and all future holders of the
Loans.  In the case of any waiver, the
Loan Parties, the Lenders, the Arranger and the Agents shall be restored to
their former position and rights hereunder and under the other Loan Documents,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.  Any such waiver, amendment, supplement or modification
shall be effected by a written instrument signed by the parties required to
sign pursuant to the foregoing provisions of this Section; provided,
that delivery of an executed signature page of any such instrument by
facsimile transmission shall be effective as delivery of a manually executed
counterpart thereof.

 

Notwithstanding
the foregoing, this Agreement and any other Loan Document may be amended (or
amended and restated) with the written consent of the Required Lenders, the
Administrative Agent and each Loan Party party to each relevant Loan Document
(x) to add one or more additional credit facilities to this Agreement and to
permit the extensions of credit from time to time outstanding thereunder and
the accrued interest and fees in respect thereof (collectively, the “Additional
Extensions of Credit”) to share ratably in the benefits of this Agreement
and the other Loan Documents with the Term Loans, Funded L/C Extensions of
Credit and Revolving Extensions of Credit and the accrued interest and fees in
respect thereof and (y) to include appropriately the Lenders holding such
credit facilities in any determination of the Required Lenders and Majority
Revolving Facility Lenders.

 

10.2                           Notices.  All notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice,
when received, addressed (a) in the case of the Borrower, the Arranger and
the Agents, as follows and (b) in the case of the Lenders, as set forth in
an administrative questionnaire delivered to the Administrative Agent or on Schedule I
to the Lender Addendum to which such Lender is a party or, in the case of a
Lender which becomes a party to this Agreement pursuant to an Assignment and
Acceptance, in such Assignment and Acceptance or (c) in the case of any
party, to such other address as such party may hereafter notify to the other
parties hereto:

 

	
  The Borrower:

  	
   

  	
  Key Energy Services, Inc.

  
	
   

  	
   

  	
  1301 McKinney Street, Suite 1800

  
	
   

  	
   

  	
  Houston, Texas 77010

  
	
   

  	
   

  	
  Attention:  General Counsel

  
	
   

  	
   

  	
  Telecopy:  (713) 651-4559

  
	
   

  	
   

  	
  Telephone: (713) 651-4300

  

 

93

 

	
  The Syndication Agent:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lehman Commercial Paper Inc.

  
	
   

  	
   

  	
  745 Seventh Avenue

  
	
   

  	
   

  	
  New York, New York 10019

  
	
   

  	
   

  	
  Attention:  Maritza Ospina

  
	
   

  	
   

  	
  Telecopy:  (646) 758-4648

  
	
   

  	
   

  	
  Telephone: (212) 526-6590

  
	
   

  	
   

  	
   

  
	
  The Administrative Agent:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lehman Commercial Paper Inc.

  
	
   

  	
   

  	
  745 Seventh Avenue

  
	
   

  	
   

  	
  New York, New York 10019

  
	
   

  	
   

  	
  Attention:  Maritza Ospina

  
	
   

  	
   

  	
  Telecopy:  (646) 758-4648

  
	
   

  	
   

  	
  Telephone: (212) 526-6590

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Latham & Watkins LLP

  
	
   

  	
   

  	
  885 Third Avenue, suite 1000

  
	
   

  	
   

  	
  New York, New York, 10022

  
	
   

  	
   

  	
  Attention:  Melissa S. Alwang

  
	
   

  	
   

  	
  Telecopy:  (212) 751-4864

  
	
   

  	
   

  	
  Telephone: (212) 906-1200

  
	
   

  	
   

  	
   

  
	
  The Revolving Administrative Agent:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Wells Fargo Foothill, Inc.

  
	
   

  	
   

  	
  1000 Abernathy Road, Suite 1450

  
	
   

  	
   

  	
  Atlanta, Georgia 30328

  
	
   

  	
   

  	
  Attention:  Kristy S. Loucks, Vice President,

  Senior Account Executive

  
	
   

  	
   

  	
  Telecopy:  (770) 508-1371

  
	
   

  	
   

  	
  Telephone:  (770) 508-1333

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Paul, Hastings, Janofsky & Walker LLP

  
	
   

  	
   

  	
  515 South Flower Street, 25th Floor

  
	
   

  	
   

  	
  Los Angeles, CA 90071

  
	
   

  	
   

  	
  Attention:  John F. Hilson

  
	
   

  	
   

  	
  Telecopy:  (213) 996-3300

  
	
   

  	
   

  	
  Telephone: (213) 683-6300

  

 

94

 

	
  The Collateral Agent:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lehman Commercial Paper Inc.

  
	
   

  	
   

  	
  745 Seventh Avenue

  
	
   

  	
   

  	
  New York, New York 10019

  
	
   

  	
   

  	
  Attention:  Maritza Ospina

  
	
   

  	
   

  	
  Telecopy:  (646) 758-4648

  
	
   

  	
   

  	
  Telephone: (212) 526-6590

  
	
   

  	
   

  	
   

  
	
  Issuing Lender:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  As notified by such Issuing Lender to the Revolving Administrative
  Agent and the Borrower

  

 

provided
that any notice, request or demand to or upon the Arranger, any Agent, the
Issuing Lender or any Lender shall not be effective until received.

 

10.3                           No
Waiver; Cumulative Remedies.  No
failure to exercise and no delay in exercising, on the part of any Agent or any
Lender, any right, remedy, power or privilege hereunder or under the other Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power
or privilege.  The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.

 

10.4                           Survival
of Representations and Warranties. 
All representations and warranties made herein, in the other Loan
Documents and in any document, certificate or statement delivered pursuant
hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the making of the Loans and other extensions of credit
hereunder.

 

10.5                           Payment
of Expenses.  The Borrower agrees (a) to
pay or reimburse the Arranger and the Agents for all their reasonable
out-of-pocket costs and expenses incurred in connection with the syndication of
the Facilities (other than fees payable to syndicate members) and the
development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Loan Documents and any other
documents prepared in connection herewith or therewith, and the consummation
and administration of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and disbursements and other charges
of counsel to the Administrative Agent and the Revolving Administrative Agent
and the charges of Intralinks, (b) to pay or reimburse each Lender, the
Arranger and the Agents for all their costs and expenses incurred in connection
with the enforcement or preservation of any rights under this Agreement, the
other Loan Documents and any other documents prepared in connection herewith or
therewith, including, without limitation, the fees and disbursements of counsel
(including the allocated fees and disbursements and other charges of in-house
counsel) to each Lender and of counsel to the Agents, (c) to pay,
indemnify, or reimburse each Lender, the Arranger and the Agents for, and hold
each Lender, the Arranger and the Agents harmless from, any and all recording
and filing fees and any and all liabilities with respect to, or resulting from
any delay in paying, stamp, excise and other taxes, if any, which may be
payable or determined to be payable in connection with the execution and
delivery 

 

95

 

of, or consummation or administration of any
of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the other Loan Documents and any such other documents, and (d) to
pay, indemnify or reimburse each Lender, the Arranger, each Agent, their
respective affiliates, and their respective officers, directors, trustees,
employees, affiliates, shareholders, attorneys and other advisors, agents and
controlling persons (each, an “Indemnitee”) for, and hold each
Indemnitee harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower any of its
Subsidiaries or any of the Properties or the use by unauthorized persons of
information or other materials sent through electronic, telecommunications or
other information transmission systems that are intercepted by such persons and
the fees and disbursements and other charges of legal counsel in connection
with claims, actions or proceedings by any Indemnitee against the Borrower
hereunder (all the foregoing in this clause (d), collectively, the “Indemnified
Liabilities”), provided, that the Borrower shall have no obligation
hereunder to any Indemnitee with respect to Indemnified Liabilities to the
extent such Indemnified Liabilities are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted solely and
proximately from the gross negligence or willful misconduct of such Indemnitee.  No Indemnitee shall be liable for any damages
arising from the use by unauthorized persons of Information or other materials
sent through electronic, telecommunications or other information transmission
systems that are intercepted by such persons or for any special, indirect, consequential
or punitive damages in connection with the Facilities.  Without limiting the foregoing, and to the
extent permitted by applicable law, the Borrower agrees not to assert and to
cause its Subsidiaries not to assert, and hereby waives and agrees to cause its
Subsidiaries so to waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Indemnitee.  All
amounts due under this Section shall be payable not later than 30 days
after written demand therefor. 
Statements payable by the Borrower pursuant to this Section shall
be submitted to the address of the Borrower set forth in Section 10.2, or
to such other Person or address as may be hereafter designated by the Borrower
in a notice to the Administrative Agent. 
The agreements in this Section shall survive repayment of the Loans
and all other amounts payable hereunder.

 

10.6                           Successors and Assigns;
Participations and Assignments.  (a)  This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Lenders, the Arranger, the Agents,
all future holders of the Loans and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of the
Arranger, the Agents and each Lender.

 

(b)                                 Any Lender may, without the consent
of the Borrower or any other Person, in accordance with applicable law, at any
time sell to one or more banks, financial institutions or other entities (each,
a “Participant”) participating interests in any Loan owing to such
Lender, any Commitment of such Lender or any other interest of such Lender
hereunder

 

96

 

and under the other Loan Documents.  In the event of any such sale by a Lender of
a participating interest to a Participant, such Lender’s obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Agents shall continue to
deal solely and directly with such Lender in connection with such Lender’s
rights and obligations under this Agreement and the other Loan Documents.  In no event shall any Participant under any
such participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or consent
would require the consent of all Lenders pursuant to Section 10.1.  The Borrower agrees that if amounts
outstanding under this Agreement and the Loans are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such
participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in Section 10.7(a) as
fully as if such Participant were a Lender hereunder.  The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 2.19, 2.20 and 2.21
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if such Participant were a Lender; provided that,
in the case of Section 2.20, such Participant shall have complied with the
requirements of said Section and Section 9.12, and provided, further,
that no Participant shall be entitled to receive any greater amount pursuant to
any such Section than the transferor Lender would have been entitled to
receive in respect of the amount of the participation transferred by such
transferor Lender to such Participant had no such transfer occurred.

 

(c)                                  Any Lender (an “Assignor”)
may, in accordance with applicable law and upon written notice to the
Administrative Agent, at any time and from time to time assign to any Lender or
any affiliate or Related Fund thereof or, with the consent of the Borrower and
the Agents and, in the case of any assignment of Revolving Credit Commitments,
the written consent of the Issuing Lender under the Revolving Credit Facility
and the Swing Line Lender (which, in each case, shall not be unreasonably
withheld or delayed) (provided (x) that no such consent need be obtained
with respect to assignments from or to the Arranger or its affiliates and (y)
the consent of the Borrower need not be obtained with respect to any assignment
of Term Loans or Funded Letter of Credit Commitments), to an additional bank,
financial institution or other entity (an “Assignee”) all or any part of
its rights and obligations under this Agreement pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit D (an “Assignment and
Acceptance”), executed by such Assignee and such Assignor (and, where the
consent of the Borrower, the Administrative Agent, the Issuing Lenders or the
Swing Line Lender is required pursuant to the foregoing provisions, by the Borrower
and such other Persons) and delivered to the Administrative Agent for its
acceptance and recording in the Register; provided that no such
assignment to an Assignee (other than any Lender or any affiliate thereof or
any Related Fund) shall be in an aggregate principal amount of less than
$1,000,000 (with respect to Term Loans and Funded Letter of Credit Commitments
and $5,000,000 with respect to the Revolving Credit Facility (other than, in
each case, in the case of an assignment of

 

97

 

all of a Lender’s interests under this
Agreement), unless otherwise agreed by the Borrower and the Administrative
Agent.  Any such assignment need not be
ratable as among the Facilities.  Upon such
execution, delivery, acceptance and recording, from and after the effective
date determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with Commitments and/or Loans as set forth therein, and (y) the
Assignor thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of an Assignor’s rights and
obligations under this Agreement, such Assignor shall cease to be a party
hereto, except as to Section 2.19, 2.20, 2.21, 9.12 and 10.5 in respect of
the period prior to such effective date).  Notwithstanding any provision of this Section,
the consent of the Borrower shall not be required for any assignment that
occurs at any time when any Event of Default shall have occurred and be
continuing.  For purposes of the minimum
assignment amounts set forth in this paragraph, multiple assignments by two or
more Related Funds shall be aggregated.

 

(d)                                 The Administrative Agent (or, in the
case of Revolving Credit Commitments and Revolving Credit Loans, the Revolving
Administrative Agent) shall, on behalf of the Borrower, maintain at its address
referred to in Section 10.2 a copy of each Assignment and Acceptance
delivered to it and a register (the “Register”) for the recordation of
the names and addresses of the Lenders and the Commitment of, and principal
amount of the Loans owing to, each Lender from time to time.  The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, each Agent and
the Lenders shall treat each Person whose name is recorded in the Register as
the owner of the Loans and any Notes evidencing such Loans recorded therein for
all purposes of this Agreement.  Any
assignment of any Loan, whether or not evidenced by a Note, shall be effective
only upon appropriate entries with respect thereto being made in the Register
(and each Note shall expressly so provide). 
Any assignment or transfer of all or part of a Loan evidenced by a Note
shall be registered on the Register only upon surrender for registration of assignment
or transfer of the Note evidencing such Loan, accompanied by a duly executed
Assignment and Acceptance; thereupon one or more new Notes in the same
aggregate principal amount shall be issued to the designated Assignee, and the
old Notes shall be returned by the Administrative Agent to the Borrower marked “canceled”.  The Register shall be available for
inspection by the Borrower or any Lender (with respect to any entry relating to
such Lender’s Loans) at any reasonable time and from time to time upon
reasonable prior notice.

 

(e)                                  Upon its receipt of an Assignment
and Acceptance executed by an Assignor and an Assignee (and, in any case where
the consent of any other Person is required by Section 10.6(c), by each
such other Person) together with payment to the Administrative Agent of a registration
and processing fee of $3,500 (treating multiple, simultaneous assignments by or
to two or more Related Funds as a single assignment) (except that no such
registration and processing fee shall be payable in the case of an Assignee
which is already a Lender or is an affiliate or Related Fund of a Lender or a
Person under common management with a Lender), the Administrative Agent shall (i) promptly
accept such Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the
Borrower.  On or prior to such effective
date, the Borrower, at its own expense, upon request, shall execute and deliver
to the

 

98

 

Administrative Agent (in exchange for the
Revolving Credit Note and/or applicable Term Notes, as the case may be, of the
assigning Lender) a new Revolving Credit Note and/or applicable Term Notes, as
the case may be, to the order of such Assignee in an amount equal to the
Revolving Credit Commitment and/or applicable Term Loans, as the case may be,
assumed or acquired by it pursuant to such Assignment and Acceptance and, if
the Assignor has retained a Revolving Credit Commitment and/or Term Loans, as
the case may be, upon request, a new Revolving Credit Note and/or Term Notes,
as the case may be, to the order of the Assignor in an amount equal to the
Revolving Credit Commitment and/or applicable Term Loans, as the case may be,
retained by it hereunder.  Such new Note
or Notes shall be dated the Closing Date and shall otherwise be in the form of
the Note or Notes replaced thereby.

 

(f)                                    For the avoidance of doubt, the
parties to this Agreement acknowledge that the provisions of this Section concerning
assignments of Loans and Notes relate only to absolute assignments and that
such provisions do not prohibit assignments creating security interests in
Loans and Notes, including, without limitation, any pledge or assignment by a
Lender of any Loan or Note to any Federal Reserve Bank in accordance with
applicable law.

 

(g)                                 Notwithstanding anything to the
contrary contained herein, any Lender (a “Granting Lender”) may grant to
a special purpose funding vehicle (an “SPC”), identified as such in
writing from time to time by the Granting Lender to the Administrative Agent
and the Borrower, the option to provide to the Borrower all or any part of any
Loan that such Granting Lender would otherwise be obligated to make to the
Borrower pursuant to this Agreement; provided that (i) nothing
herein shall constitute a commitment by any SPC to make any Loan and (ii) if
an SPC elects not to exercise such option or otherwise fails to provide all or
any part of such Loan, the Granting Lender shall be obligated to make such Loan
pursuant to the terms hereof.  The making
of a Loan by an SPC hereunder shall utilize the Commitment of the Granting
Lender to the same extent, and as if, such Loan were made by such Granting
Lender.  Each party hereto hereby agrees
that no SPC shall be liable for any indemnity or similar payment obligation
under this Agreement (all liability for which shall remain with the Granting
Lender).  In furtherance of the
foregoing, each party hereto hereby agrees (which agreement shall survive the
termination of this Agreement) that, prior to the date that is one year and one
day after the payment in full of all outstanding commercial paper or other
indebtedness of any SPC, it will not institute against, or join any other
person in instituting against, such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any state thereof.  In
addition, notwithstanding anything to the contrary in this Section 10.6(g),
any SPC may (A) with notice to, but without the prior written consent of,
the Borrower and the Administrative Agent and without paying any processing fee
therefor, assign all or a portion of its interests in any Loans to the Granting
Lender, or with the prior written consent of the Borrower and the
Administrative Agent (which consent shall not be unreasonably withheld) to any
financial institutions providing liquidity and/or credit support to or for the
account of such SPC to support the funding or maintenance of Loans, and (B) disclose
on a confidential basis any non-public information relating to its Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC; provided that non-public
information with respect to the Borrower may be disclosed only with the
Borrower’s consent which will not be unreasonably withheld.  This paragraph (g) may not be amended
without the written consent of any SPC with Loans outstanding at the time of
such proposed amendment.

 

99

 

10.7                           Adjustments; Set-off. 
(a)  Except to the extent that
this Agreement provides for payments to be allocated to a particular Lender or
to the Lenders under a particular Facility, if any Lender (a “Benefitted
Lender”) shall at any time receive any payment of all or part of the
Obligations owing to it, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 8(f), or otherwise), in a greater
proportion than any such payment to or collateral received by any other Lender,
if any, in respect of such other Lender’s Obligations, such Benefitted Lender
shall purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender’s Obligations, or shall provide such other
Lenders with the benefits of any such collateral, as shall be necessary to
cause such Benefitted Lender to share the excess payment or benefits of such
collateral ratably with each of the Lenders; provided, however,
that if all or any portion of such excess payment or benefits is thereafter
recovered from such Benefitted Lender, such purchase shall be rescinded, and
the purchase price and benefits returned, to the extent of such recovery, but
without interest.

 

(b)                                 In addition to any rights and
remedies of the Lenders provided by law, each Lender shall have the right,
without prior notice to the Borrower, any such notice being expressly waived by
the Borrower to the extent permitted by applicable law, upon any amount
becoming due and payable by the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise), to set off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of the
Borrower.  Each Lender agrees to notify
promptly the Borrower and the Administrative Agent after any such setoff and
application made by such Lender, provided that the failure to give such
notice shall not affect the validity of such setoff and application.

 

10.8                           Counterparts.  This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.  Delivery of an
executed signature page of this Agreement or of a Lender Addendum by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.

 

10.9                           Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.

 

10.10                     Integration.  This Agreement and the other Loan Documents
represent the entire agreement of the Borrower, the Agents, the Arranger and
the Lenders with respect to the subject matter hereof and thereof, and there
are no promises, undertakings, representations or warranties by the Arranger,
any Agent or any Lender relative to the subject matter hereof not expressly set
forth or referred to herein or in the other Loan Documents.

 

100

 

10.11                 GOVERNING LAW.  THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.

 

10.12                     Submission
To Jurisdiction; Waivers.  The
Borrower hereby irrevocably and unconditionally:

 

(a)                                  submits for itself and its Property
in any legal action or proceeding relating to this Agreement and the other Loan
Documents to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York located in the County of New York, the courts
of the United States for the Southern District of New York, and appellate
courts from any thereof;

 

(b)                                 consents that any such action or
proceeding may be brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient court
and agrees not to plead or claim the same;

 

(c)                                  agrees that service of process in
any such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Borrower at its address set forth in Section 10.2
or at such other address of which the Administrative Agent shall have been
notified pursuant thereto;

 

(d)                                 agrees that nothing herein shall
affect the right to effect service of process in any other manner permitted by
law or shall limit the right to sue in any other jurisdiction; and

 

(e)                                  waives, to the maximum extent not
prohibited by law, any right it may have to claim or recover in any legal
action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.

 

10.13                     Acknowledgments.  The Borrower hereby acknowledges that:

 

(a)                                  it has been advised by counsel in
the negotiation, execution and delivery of this Agreement and the other Loan
Documents;

 

(b)                                 neither the Arranger, any Agent nor
any Lender has any fiduciary relationship with or duty to the Borrower arising
out of or in connection with this Agreement or any of the other Loan Documents,
and the relationship between the Arranger, the Agents and the Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and

 

(c)                                  no joint venture is created hereby
or by the other Loan Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Arranger, the Agents and the Lenders
or among the Borrower and the Lenders.

 

101

 

10.14                     Confidentiality.  Each of the Arranger, the Agents and the
Lenders agrees to keep confidential all non-public information provided to it
by any Loan Party pursuant to this Agreement that is designated by such Loan
Party as confidential; provided that nothing herein shall prevent the
Arranger, any Agent or any Lender from disclosing any such information (a) to
the Arranger, any Agent, any other Lender or any affiliate of any thereof, (b) to
any pledgee referred to in Section 10.6(f) or Participant or Assignee
(each, a “Transferee”) or prospective Transferee that agrees to comply
with the provisions of this Section or substantially equivalent
provisions, (c) to any of its employees, directors, agents, attorneys,
accountants and other professional advisors, (d) to any financial
institution that is a direct or indirect contractual counterparty in swap
agreements or such contractual counterparty’s professional advisor (so long as
such contractual counterparty or professional advisor to such contractual
counterparty agrees to be bound by the provisions of this Section), (e) upon
the request or demand of any Governmental Authority having jurisdiction over
it, (f) in response to any order of any court or other Governmental
Authority or as may otherwise be required pursuant to any Requirement of Law, (g) if
requested or required to do so in connection with any litigation or similar
proceeding, (h) that has been publicly disclosed other than in breach of
this Section, (i) to the National Association of Insurance Commissioners
or any similar organization or any nationally recognized rating agency that
requires access to information about a Lender’s investment portfolio in
connection with ratings issued with respect to such Lender or (j) in connection with the exercise of any
remedy hereunder or under any other Loan Document.  Notwithstanding anything to the contrary in
the foregoing sentence or any other express or implied agreement, arrangement
or understanding, the parties hereto hereby agree that, from the commencement
of discussions with respect to the financing provided hereunder, any party
hereto (and each of its employees, representatives, or agents) is permitted to
disclose to any and all persons, without limitation of any kind, the tax
structure and tax aspects of the transactions contemplated hereby, and all
materials of any kind (including opinions or other tax analyses) related to
such tax structure and tax aspects.

 

10.15                     Release
of Collateral and Guarantee Obligations. 

 

(a)                                  Notwithstanding anything to the
contrary contained herein or in any other Loan Document, upon request of the
Borrower in connection with any Disposition of Property permitted by the Loan
Documents, the Collateral Agent shall (without notice to, or vote or consent
of, any Lender, or any affiliate of any Lender that is a party to any Specified
Hedge Agreement) take such actions as shall be required to release its security
interest in any Collateral being Disposed of in such Disposition, and to
release any guarantee obligations under any Loan Document of any Person being
Disposed of in such Disposition, to the extent necessary to permit consummation
of such Disposition in accordance with the Loan Documents; provided that the
Borrower shall have delivered to the Administrative Agent, at least five
Business Days or such lesser period of time as the Administrative Agent may
agree prior to the date of the proposed release (or such shorter period agreed
to by the Administrative Agent), a written request for release identifying the
relevant Collateral being Disposed of in such Disposition and the terms of such
Disposition in reasonable detail, including the date thereof, the price thereof
and any expenses in connection therewith, together with a certification by the
Borrower stating that such transaction is in compliance with this Agreement and
the other Loan Documents and that the proceeds of such Disposition will be
applied in accordance with this Agreement and the other Loan Documents.

 

102

 

(b)                                 Notwithstanding anything to the
contrary contained herein or any other Loan Document, when all Obligations
(other than obligations in respect of any Specified Hedge Agreement) have been
paid in full, all Commitments have terminated or expired and no Letter of
Credit shall be outstanding, upon request of the Borrower, the Collateral Agent
shall (without notice to, or vote or consent of, any Lender, or any affiliate
of any Lender that is a party to any Specified Hedge Agreement) take such
actions as shall be required to release its security interest in all
Collateral, and to release all guarantee obligations provided for in any Loan
Document, whether or not on the date of such release there may be outstanding
Obligations in respect of Specified Hedge Agreements.  Any such release of guarantee obligations
shall be deemed subject to the provision that such guarantee obligations shall
be reinstated if after such release any portion of any payment in respect of
the Obligations guaranteed thereby shall be rescinded or must otherwise be
restored or returned upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of the Borrower or any Guarantor, or upon or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, the Borrower or any Guarantor or any substantial part of its
property, or otherwise, all as though such payment had not been made.

 

10.16                     Accounting
Changes.  In the event that any “Accounting
Change” (as defined below) shall occur and such change results in a change in
the method of calculation of financial covenants, standards or terms in this
Agreement, then the Borrower and the Administrative Agent agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Change with the desired result that the
criteria for evaluating the Borrower’s financial condition shall be the same
after such Accounting Change as if such Accounting Change had not been
made.  Until such time as such an
amendment shall have been executed and delivered by the Borrower, the Administrative
Agent and the Required Lenders, all financial covenants, standards and terms in
this Agreement shall continue to be calculated or construed as if such
Accounting Change had not occurred.  “Accounting
Change” refers to any change in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the SEC.

 

10.17                     Delivery
of Lender Addenda.  To the extent
deemed necessary by the Administrative Agent, each initial Lender may become a
party to this Agreement by delivering to the Administrative Agent a Lender
Addendum duly executed by such Lender, the Borrower and the Administrative
Agent.

 

10.18                 WAIVERS OF
JURY TRIAL.  THE BORROWER, THE ARRANGER, THE AGENTS AND THE LENDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

 

10.19                     Limitation
on Interest Charges.  It is the
intention of the parties to comply with applicable usury laws.  In the event that, notwithstanding the intent
of the parties, it is determined that the laws of the State of Texas govern the
Loan Documents, the parties agree that the total amount of interest contracted
for, charged, collected or received by Lender under this Agreement shall not
exceed the maximum permissible rate under the laws of the State of

 

103

 

Texas (the “Maximum Rate”).  To the extent, if any, that Chapter 303 of
the Texas Finance Code (the “Finance Code”) is relevant to Lender for
purposes of determining the Maximum Rate, the parties elect to determine the
Maximum Rate under the Finance Code pursuant to the “weekly ceiling” from time
to time in effect, as referred to and defined in § 303.001-303.016 of the
Finance Code; subject, however, to any right Lender subsequently may have under
applicable law to change the method of determining the Maximum Rate.  Notwithstanding any contrary provisions
contained herein, (a) the Maximum Rate shall be calculated on the basis of
the actual number of days elapsed over a year of 365 or 366 days, as the case
may be; (b) in determining whether the interest hereunder exceeds interest
at the Maximum Rate, the total amount of interest shall be spread throughout
the entire term of this Agreement until its payment in full; (c) if at any
time the interest rate chargeable under this Agreement would exceed the Maximum
Rate, thereby causing the interest payable under this Agreement to be limited
to the Maximum Rate, then any subsequent reductions in the interest rate(s)
shall not reduce the rate of interest charged under this Agreement below the
Maximum Rate until the total amount of interest accrued from and after the date
of this Agreement equals the amount of interest which would have accrued if the
interest rate(s) had at all times been in effect; (d) if the Agents or the
Lenders ever charge or receive anything of value which is deemed to be interest
under applicable Texas law, and if the occurrence of any event, including
acceleration of maturity of obligations owing to the Agents or the Lenders,
should cause such interest to exceed the maximum lawful amount, any amount
which exceeds interest at the Maximum Rate shall be applied to the reduction of
the unpaid principal balance of the Obligations under this Agreement, and if
the Obligations under this Agreement are paid in full, any remaining excess
shall be paid to the Borrower; and (e) Chapter 346 of the Finance
Code shall not be applicable to this Agreement or the Obligations.

 

104

 

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

 

 

	
   

  	
  KEY ENERGY SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard J. Alario

  	
   

  
	
   

  	
   

  	
  Name: Richard J. Alario

  
	
   

  	
   

  	
  Title: President and Chief Executive Officer

  

 

105

 

	
   

  	
  LEHMAN BROTHERS INC.,

  
	
   

  	
  as Arranger

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Frank P. Turner

  	
   

  
	
   

  	
   

  	
  Name: Frank P. Turner

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LEHMAN COMMERCIAL PAPER INC.,

  
	
   

  	
  as Administrative Agent, Collateral Agent, Syndication Agent and a Lender

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Digne Albanese

  	
   

  
	
   

  	
   

  	
  Name: Digne Albanese

  
	
   

  	
   

  	
  Title: Authorized Signatory

  

 

106

 

	
   

  	
  WELLS FARGO FOOTHILL, INC.,

  
	
   

  	
  as Revolving Administrative Agent and a

  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jacqueline M. Hermie

  	
   

  
	
   

  	
   

  	
  Name: Jacqueline M. Hermie

  
	
   

  	
   

  	
  Title: Vice President

  

 

107

 

Annex A

 

PRICING GRID
FOR TERM LOANS, REVOLVING CREDIT LOANS AND SWING LINE LOANS

 

	
  Ratings (in each case, with a

  stable or positive outlook)

  	
   

  	
  Applicable Margin

  Revolving Credit Loans

  Swing Line Loans

  	
   

  	
  Applicable Margin

  Tranche B Term Loans

  	
   

  
	
  Moody’s

  	
   

  	
   

  	
   

  	
  S&P

  	
   

  	
  Base Rate

  Loans

  	
   

  	
  Eurodollar

  Loans

  	
   

  	
  Base Rate

  Loans

  	
   

  	
  Eurodollar

  Loans

  	
   

  
	
  >Ba3

  	
   

  	
  and

  	
   

  	
  >BB-

  	
   

  	
  1.00

  	
  %

  	
  2.00

  	
  %

  	
  1.00

  	
  %

  	
  2.00

  	
  %

  
	
  Ba3

  	
   

  	
  and  

  	
   

  	
  B+ 

  	
   

  	
  1.25

  	
  %

  	
  2.25

  	
  %

  	
  1.25

  	
  %

  	
  2.25

  	
  %

  
	
   

  	
   

  	
  or

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   B1

  	
   

  	
  and

  	
   

  	
  BB-

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  <B1

  	
   

  	
  and

  	
   

  	
  <B+

  	
   

  	
  1.50

  	
  %

  	
  2.50

  	
  %

  	
  1.50

  	
  %

  	
  2.50

  	
  %Exhibit 10.1

 

 

STOCK PURCHASE AGREEMENT

 

By and Among

 

GEOKINETICS INC.

a Delaware corporation,

 

SCF-III, L.P.

a Delaware limited partnership,

 

AND

 

JAMES WHITE

an individual resident of Houston, Texas

 

 

Dated as of July 29, 2005

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I.
  DEFINITIONS

  	
   

  
	
  Section 1.1

  	
  Definitions

  	
   

  
	
  Section 1.2

  	
  Definitions Appearing Elsewhere in
  this Agreement

  	
   

  
	
  Section 1.3

  	
  Accounting Principles and Terms

  	
   

  
	
  Section 1.4

  	
  Determination of Current Assets and
  Liabilities

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II.
  PURCHASE AND SALE OF COMPANY SHARES

  	
   

  
	
  Section 2.1

  	
  Purchase and Sale

  	
   

  
	
  Section 2.2

  	
  Payment of the Purchase Price

  	
   

  
	
  Section 2.3

  	
  Adjusted Purchase Price

  	
   

  
	
  Section 2.4

  	
  Post Closing Adjustment

  	
   

  
	
  Section 2.5

  	
  Treatment of the Trace Options

  	
   

  
	
  Section 2.6

  	
  Closing

  	
   

  
	
  Section 2.7

  	
  Deliveries at the Closing

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III.
  REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION

  	
   

  
	
  Section 3.1

  	
  Representations and Warranties of the
  Sellers

  	
   

  
	
  Section 3.2

  	
  Representations and Warranties of the
  Buyer

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV.
  REPRESENTATIONS AND WARRANTIES CONCERNING THE CORPORATIONS

  	
   

  
	
  Section 4.1

  	
  Corporate
  Organization; Etc.

  	
   

  
	
  Section 4.2

  	
  Authorization, Etc.

  	
   

  
	
  Section 4.3

  	
  No Violation

  	
   

  
	
  Section 4.4

  	
  Consents

  	
   

  
	
  Section 4.5

  	
  Accounts Receivable

  	
   

  
	
  Section 4.6

  	
  Financial Statements

  	
   

  
	
  Section 4.7

  	
  Inventories

  	
   

  
	
  Section 4.8

  	
  Real Property

  	
   

  
	
  Section 4.9

  	
  Absence of Certain Changes

  	
   

  
	
  Section 4.10

  	
  No Material Change

  	
   

  
	
  Section 4.11

  	
  Litigation

  	
   

  
	
  Section 4.12

  	
  Intellectual Property

  	
   

  
	
  Section 4.13

  	
  Contracts

  	
   

  
	
  Section 4.14

  	
  Customers and Suppliers

  	
   

  
	
  Section 4.15

  	
  Employee Benefit Plans

  	
   

  
	
  Section 4.16

  	
  Compliance with Law

  	
   

  
	
  Section 4.17

  	
  Taxes

  	
   

  
	
  Section 4.18

  	
  Insurance

  	
   

  
	
  Section 4.19

  	
  Environmental Laws and
  Regulations

  	
   

  
	
  Section 4.20

  	
  Products and Services

  	
   

  
	
  Section 4.21

  	
  [Not used]

  	
   

  

 

 

	
  Section 4.22

  	
  Capitalization

  	
   

  
	
  Section 4.23

  	
  Brokers and Finders

  	
   

  
	
  Section 4.24

  	
  [Not used]

  	
   

  
	
  Section 4.25

  	
  Books and Records

  	
   

  
	
  Section 4.26

  	
  Condition of Facilities

  	
   

  
	
  Section 4.27

  	
  No Undisclosed Financial
  Liabilities

  	
   

  
	
  Section 4.28

  	
  Employees

  	
   

  
	
  Section 4.29

  	
  Compliance with the Foreign
  Corrupt Practices Act and Export Control and Antiboycott Laws

  	
   

  
	
  Section 4.30

  	
  Relationships with Related
  Persons

  	
   

  
	
  Section 4.31

  	
  Title
  to Assets

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V.
  PRE-CLOSING COVENANTS

  	
   

  
	
  Section 5.1

  	
  General

  	
   

  
	
  Section 5.2

  	
  Notices
  and Consents

  	
   

  
	
  Section 5.3

  	
  Operation
  of Business

  	
   

  
	
  Section 5.4

  	
  Notice
  of Developments

  	
   

  
	
  Section 5.5

  	
  Exclusivity

  	
   

  
	
  Section 5.6

  	
  Access
  and Investigation

  	
   

  
	
  Section 5.7

  	
  Confidential Information of
  Corporations and Sellers

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI.
  POST-CLOSING COVENANTS

  	
   

  
	
  Section 6.1

  	
  General

  	
   

  
	
  Section 6.2

  	
  Litigation
  Support

  	
   

  
	
  Section 6.3

  	
  Transition

  	
   

  
	
  Section 6.4

  	
  Confidentiality

  	
   

  
	
  Section 6.5

  	
  Restrictive
  Legend

  	
   

  
	
  Section 6.6

  	
  [Not
  used]

  	
   

  
	
  Section 6.7

  	
  Withholding
  Tax and Clearance Certificates

  	
   

  
	
  Section 6.8

  	
  Registration Rights

  	
   

  
	
  Section 6.9

  	
  Transferred
  Information

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII.
  CONDITIONS TO OBLIGATIONS TO CLOSE

  	
   

  
	
  Section 7.1

  	
  Conditions
  to Obligations of the Buyer

  	
   

  
	
  Section 7.2

  	
  Conditions
  to Obligation of the Sellers

  	
   

  
	
  Section 7.3

  	
  Information
  Regarding the Satisfaction of Conditions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII.
  REMEDIES FOR BREACHES OF THIS AGREEMENT

  	
   

  
	
  Section 8.1

  	
  Survival
  of Representations and Warranties

  	
   

  
	
  Section 8.2

  	
  Indemnification
  Provisions for Benefit of the Buyer

  	
   

  
	
  Section 8.3

  	
  Indemnification
  Provisions for Benefit of the Sellers

  	
   

  
	
  Section 8.4

  	
  Limitation
  of Indemnities

  	
   

  
	
  Section 8.5

  	
  Indemnification
  Procedure

  	
   

  
	
  Section 8.6

  	
  Determination
  of Adverse Consequences

  	
   

  
	
  Section 8.7

  	
  Excluded
  Damages

  	
   

  
	
  Section 8.8

  	
  Scope
  of the Representations and Warranties of Sellers

  	
   

  

 

 

	
  Section 8.9

  	
  Exclusive
  Remedy

  	
   

  
	
  Section 8.10

  	
  Mitigation
  of Damages and Minimization of Claims

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX.
  TERMINATION

  	
   

  
	
  Section 9.1

  	
  Termination
  of Agreement

  	
   

  
	
  Section 9.2

  	
  Effect
  of Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X.
  MISCELLANEOUS

  	
   

  
	
  Section 10.1

  	
  Press
  Releases and Public Announcements

  	
   

  
	
  Section 10.2

  	
  No
  Third-Party Beneficiaries

  	
   

  
	
  Section 10.3

  	
  Entire
  Agreement

  	
   

  
	
  Section 10.4

  	
  Succession
  and Assignment

  	
   

  
	
  Section 10.5

  	
  Counterparts

  	
   

  
	
  Section 10.6

  	
  Headings

  	
   

  
	
  Section 10.7

  	
  Notices

  	
   

  
	
  Section 10.8

  	
  Governing
  Law

  	
   

  
	
  Section 10.9

  	
  Amendments
  and Waivers

  	
   

  
	
  Section 10.10

  	
  Severability

  	
   

  
	
  Section 10.11

  	
  Expenses

  	
   

  
	
  Section 10.12

  	
  Construction

  	
   

  
	
  Section 10.13

  	
  Incorporation
  of Exhibits and Schedules

  	
   

  
	
  Section 10.14

  	
  Submission
  to Jurisdiction

  	
   

  

 

 

EXHIBITS

 

	
  Exhibit

  	
   

  	
  Title

  	
   

  	
  Section

  Reference

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A

  	
   

  	
  Escrow Agreement

  	
   

  	
  1.1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B

  	
   

  	
  Registration Rights Agreement

  	
   

  	
  6.10

  

 

 

SCHEDULES

 

	
  Schedule

  	
   

  	
  Title

  	
   

  	
  Section

  References

  
	
  2.3

  	
   

  	
  Sample Calculation of the Adjusted Purchase Price

  	
   

  	
  2.3

  
	
  3.1

  	
   

  	
  Representations and Warranties of Sellers

  	
   

  	
  3.1

  
	
  3.2

  	
   

  	
  Representations and Warranties of Buyer

  	
   

  	
  3.2

  
	
  4.1

  	
   

  	
  Corporation Organization

  	
   

  	
  4.1

  
	
  4.3

  	
   

  	
  No Violation

  	
   

  	
  4.3

  
	
  4.4

  	
   

  	
  Consents

  	
   

  	
  4.4

  
	
  4.5

  	
   

  	
  Accounts Receivable

  	
   

  	
  4.5

  
	
  4.6

  	
   

  	
  Financial Statements

  	
   

  	
  4.6

  
	
  4.8

  	
   

  	
  Real Property

  	
   

  	
  4.8

  
	
  4.9

  	
   

  	
  Absence of Certain Changes

  	
   

  	
  4.9

  
	
  4.10

  	
   

  	
  Material Changes

  	
   

  	
  4.10

  
	
  4.11

  	
   

  	
  Litigation

  	
   

  	
  4.11, 4.20

  
	
  4.12(a)

  	
   

  	
  Intellectual Property

  	
   

  	
  4.12(a)

  
	
  4.12(b)

  	
   

  	
  Intellectual Property Licenses Granted

  	
   

  	
  4.12(b)

  
	
  4.12(c)

  	
   

  	
  Intellectual Property Licenses Required

  	
   

  	
  4.12(c)

  
	
  4.12(e)

  	
   

  	
  Intellectual Property Infringement

  	
   

  	
  4.12(e)

  
	
  4.13(a)

  	
   

  	
  Corporation Contracts

  	
   

  	
  4.13(a), 4.13(c)

  
	
  4.13(b)

  	
   

  	
  Sellers’ Rights under Corporation Contracts

  	
   

  	
  4.13(b)

  
	
  4.13(c)

  	
   

  	
  Corporation Contracts Enforceability and Termination

  	
   

  	
  4.13(c)

  
	
  4.13(d)

  	
   

  	
  Corporation Contracts Compliance

  	
   

  	
  4.13(d)

  
	
  4.14

  	
   

  	
  Customers and Suppliers

  	
   

  	
  4.14

  
	
  4.15(a)

  	
   

  	
  Employee Benefit Plans

  	
   

  	
  4.15(a)

  
	
  4.15(c)

  	
   

  	
  Payment under Employee Plans

  	
   

  	
  4.15(c)

  
	
  4.15(i)

  	
   

  	
  Worker’s Compensation Coverage

  	
   

  	
  4.15(i)

  
	
  4.15(j)

  	
   

  	
  Acceleration or Vesting of Employee Compensation

  	
   

  	
  4.15(j)

  
	
  4.16(a)

  	
   

  	
  Compliance with Law

  	
   

  	
  4.16(a)

  
	
  4.16(b)

  	
   

  	
  Governmental Authorization

  	
   

  	
  4.16(b), 4.16(c)

  
	
  4.17

  	
   

  	
  Taxes

  	
   

  	
  4.17

  
	
  4.18(a)

  	
   

  	
  Insurance

  	
   

  	
  4.18(a)

  
	
  4.18(b)

  	
   

  	
  Insurance Arrangements

  	
   

  	
  4.18(b)

  
	
  4.18(c)

  	
   

  	
  Insurance Claims

  	
   

  	
  4.18(c)

  
	
  4.19

  	
   

  	
  Environmental Laws and Regulations

  	
   

  	
  4.19

  
	
  4.21

  	
   

  	
  Governmental Authorities

  	
   

  	
  4.21

  
	
  4.22(a)

  	
   

  	
  Trace Capitalization

  	
   

  	
  3.1(e), 4.22(a)

  
	
  4.22(b)

  	
   

  	
  Trace Texas Capitalization

  	
   

  	
  4.22(b)

  
	
  4.26

  	
   

  	
  Condition of Facilities

  	
   

  	
  4.26

  
	
  4.28(a)

  	
   

  	
  Employee List

  	
   

  	
  4.28(a)

  
	
  4.28(b)

  	
   

  	
  Retired Employees

  	
   

  	
  4.28(b)

  
	
  4.28(c)

  	
   

  	
  Terminated Employees

  	
   

  	
  4.28(c)

  
	
  4.28(f)

  	
   

  	
  Increase in Compensation or Benefits

  	
   

  	
  4.28(f)

  

 

 

	
  4.28(g)

  	
   

  	
  Collective Employee Contracts

  	
   

  	
  4.28(g)

  
	
  4.28(j)

  	
   

  	
  Employees on Leave

  	
   

  	
  4.28(j)

  
	
  4.28(k)

  	
   

  	
  Obligations to Former Employees

  	
   

  	
  4.28(k)

  
	
  4.28(l)

  	
   

  	
  Independent Contractors

  	
   

  	
  4.28(l)

  
	
  4.29(a)

  	
   

  	
  Payments to Political Parties

  	
   

  	
  4.29(a)

  
	
  4.29(b)

  	
   

  	
  Payments to Third Parties

  	
   

  	
  4.29(b)

  
	
  4.29(d)

  	
   

  	
  Antiboycott Prohibitions

  	
   

  	
  4.29(d)

  
	
  4.30

  	
   

  	
  Relationships with Related Persons

  	
   

  	
  4.30

  
	
  4.31

  	
   

  	
  Title to Assets

  	
   

  	
  4.31

  

 

 

STOCK PURCHASE AGREEMENT

 

This Stock Purchase
Agreement (“Agreement”) is entered into on July 29, 2005, by and among
Geokinetics Inc., a Delaware corporation (“Buyer”), SCF-III, L.P., a Delaware
limited partnership (“SCF”), and James White, an individual resident of
Houston, Texas (“White”).  SCF and White
are each individually a “Seller,” and collectively the “Sellers.”  The Buyer and the Sellers are referred to
collectively herein as the “Parties.”

 

Background

 

The Sellers in the
aggregate own all of the outstanding common shares of Trace Energy Services
Ltd., a corporation organized
under the laws of Alberta (“Trace”).

 

This Agreement
contemplates a transaction in which the Buyer will purchase from the Sellers,
and the Sellers will sell to the Buyer, all outstanding shares of Trace Common
Stock in return for cash and shares of the Common Stock, $.01 par value per
share, of Buyer (the “Geokinetics Shares”).

 

Trace is the sole
shareholder of Trace Energy Services, Inc., a Texas corporation (“Trace
Texas”), and a minority shareholder of Trace Energy Services (Sahtu) Ltd., a
corporation organized under the laws of the Northwest Territories (“Trace Sahtu”),
and Delta Trace Ltd., a corporation organized under the laws of the Northwest
Territories (“Delta”) and Trace Energy Services (Inuvialuit) Ltd., a
corporation organized under the laws of the Northwest Territories (“Trace
Inuvialuit”). Trace and Trace Texas are each individually a “Corporation,” and
collectively the “Corporations.”

 

Now, therefore, in
consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, and covenants herein
contained, the Parties agree as follows.

 

ARTICLE I.

DEFINITIONS

 

Section 1.1                                   Definitions.

 

Where used in this Agreement, the following
words and terms shall have the respective definitions (and such definitions
shall be equally applicable to the singular and plural forms, and all
grammatical variations, of such terms):

 

“Accounts Receivable”
shall have the meaning given to it by Canadian GAAP.

 

“Acquiror” has
the meaning set forth in Section 8.2 below.

 

“Acquiror Parties”
has the meaning set forth in Section 8.2 below.

 

“Additional Seismic Equipment” means 3,500 channels
of I/O Analog System 4.

 

1

 

“Adjusted Purchase Price” has
the meaning set forth in Section 2.3 below.

 

“Adjusted Purchase Price Notice”
has the meaning set forth in Section 2.3 below and as it may be modified
pursuant to the procedure specified in Section 2.4.

 

“Adverse
Consequences” means all actions, suits, proceedings, claims,
injunctions, judgments, Orders, court ordered damages, penalties, fines, costs,
reasonable amounts paid in settlement, liabilities, obligations, Taxes, liens,
losses, expenses, and reasonable fees, including court costs and attorneys’
fees and expenses, expressly excluding Excluded Damages or any claim for loss
of profit or economic loss.

 

“Affiliate”
has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Exchange Act.

 

“Affiliated
Group” means any affiliated group within the meaning of Code § 1504
or any similar group defined under a similar provision of state, local or
foreign law.

 

“Agreement” has
the meaning set forth in the preface above.

 

“Breach” means
any breach of any representation or warranty or any breach of any covenant or
obligation, in or of this Agreement, or any event which with the passing of
time or the giving of notice, or both, would constitute such a breach.

 

“Buyer”
has the meaning set forth in the preface above.

 

“Buyer Consents and Approvals”
means all of the consents and approvals required to be obtained by the Buyer in
connection with the execution and delivery of this Agreement and the completion
of the transactions contemplated hereby.

 

“Buyer Group”
has the meaning set forth in Section 5.6 below.

 

“Canadian GAAP”
has the meaning set forth in Section 1.3 below.

 

“Cash” means
cash and cash equivalents (including marketable securities and short term
investments) calculated in accordance with Canadian GAAP, applied on a basis
consistent with the preparation of the Financial Statements.

 

“Closing”
has the meaning set forth in Section 2.6 below.

 

“Closing
Date” has the meaning set forth in Section 2.6 below.

 

“Closing Time”
means the time of Closing.

 

“COBRA”
has the meaning set forth in Section 4.15(e) below.

 

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

 

“Competing Business”
has the meaning set forth in Section 4.30 below.

 

2

 

“Contract” means
any non-terminated or non-expired legally binding agreement, contract, lease or
consensual obligation (made in writing).

 

“Corporation”
and “Corporations” have the respective meanings set forth in
the preface above.

 

“Current Assets”
shall have the meaning given to it by Canadian GAAP.

 

“Current Liabilities”shall have the meaning given to it by
Canadian GAAP.

 

“Debt” means, as to any Person, at a
particular time, all items that, in accordance with Canadian GAAP, would be
classified as liabilities on a balance sheet of such Person as at such time and
that constitute, without duplication, (a) indebtedness for borrowed money
or the deferred purchase price of Property (other than credit extended to such
Person for the purchase of goods in the Ordinary Course of Business to the
extent the same would not otherwise constitute indebtedness), (b) indebtedness
evidenced by notes, bonds, debentures, or similar instruments, (c) obligations
under leases that, in accordance with Canadian GAAP, are required to be
capitalized on a balance sheet, (d) obligations under conditional sales or
other title retention agreements, (e) indebtedness arising under letter of
credit (both documentary and standby) and acceptance facilities and the face
amount of all letters of credit issued for the account of such Person (but exclusive
of the letters of credit described on Schedule 4.13(xiv) hereto or the
issuance of which are approved in writing, by Buyer after the date of this
Agreement) and, without duplication, all drafts drawn thereunder to the extent
such Person shall not have reimbursed the issuer in respect of the issuer’s
payment of such drafts, (f) all liabilities of the types described in (a)-(d) above
secured by any lien on any property owned by such Person even though such
Person has not assumed or otherwise become liable for the payment thereof, (g) any
repurchase obligation or liability of such Person or any of its subsidiaries
with respect to accounts or notes receivable sold by such Person or any of its
subsidiaries, (h) any sale or leaseback transaction that does not create a
liability on the consolidated balance sheet of such Person or its subsidiaries
and (i) any obligation to a third party (which third-party obligation is
not otherwise included within the definition of Debt) to guarantee the
obligations of another Person of the types described in (a)-(d) above, to
contribute to the payment of such obligations, to provide funds, either by
contribution or by purchase of property or services, to enable such other
Person to pay such obligations, or to hold harmless the beneficiary of such
obligation of another Person against loss. 
For purposes hereof, Debt shall not include (a) trade accounts
payable to third parties for the purchase of goods or services, which are
incurred in the Ordinary Course of Business and are by their terms, payable
within 60 days, (b) accrued liabilities and (c) income taxes payable.

 

“Delta” has the
meaning set forth in the preface above.

 

“Employee
Pension Benefit Plan” has the meaning set forth in ERISA § 3(2).

 

“Employee Plans” has
the meaning set forth in Section 4.15(a).

 

“Employee
Welfare Benefit Plan” has the meaning set forth in ERISA § 3(1).

 

3

 

“Encumbrance”
means any charge, claim, condition, equitable interest, lien, option, Security
Interest, pledge, mortgage, right of way, easement, encroachment, servitude,
right of first option, right of first refusal or similar restriction, including
any restriction on use, voting (in the case of any security or equity
interest), transfer, receipt of income or exercise of any other attribute of
ownership, but excluding (a) mechanic’s, materialmen’s, and similar liens,
(b) liens or assessments for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase
money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business.

 

“Engagement Letter” means
that certain letter agreement between Trace and Goldsmith, Agio, Helms &
Lynner, LLC dated October 27, 2004, as amended March 8, 2005.

 

“Environment” means
soil, land surface or subsurface strata, surface waters (including navigable
waters, ocean waters, streams, ponds, drainage basins, and wetlands),
groundwaters, drinking water supply, stream sediments, ambient air (including
indoor air), plant and animal life, and any other environmental medium or natural
resource.

 

“Environmental, Health and Safety
Liabilities” means any cost, damages, expense, liability,
obligation or other responsibility arising from or under any Environmental Law
or occupational safety and health law, including those consisting of or
relating to:

 

(a)                                  any
environmental, health or safety matter or condition (including on-site or
off-site contamination, occupational safety and health and regulation of any
chemical substance or product);

 

(b)                                 any
fine, penalty, judgment, award, settlement, legal or administrative proceeding,
damages, loss, claim, demand or response, remedial or inspection cost or
expense arising under any Environmental Law or occupational safety and health
law;

 

(c)                                  a
Liability arising under any Environmental Law or occupational safety and health
law for cleanup costs or corrective action, including any cleanup, removal,
containment or other remediation or response actions (“Cleanup”) required by
any Environmental Law or occupational safety and health law (whether or not
such Cleanup has been required or requested by any Governmental Body or any
other Person) and for any natural resource damages; or

 

(d)                                 any
other compliance, corrective or remedial measure required under any
Environmental Law or occupational safety and health law.

 

The terms “removal,” “remedial”
and “response action” include the types of activities covered by the United
States Comprehensive Environmental Response, Compensation and Liability Act of
1980 (“CERCLA”) and Canadian environmental laws, regulations, rules, codes or
policies.

 

“Environmental
Law” means any Legal Requirement that requires or relates
to:

 

4

 

(a)                                  advising
appropriate authorities, employees or the public of intended or actual Releases
of pollutants or hazardous substances or materials, violations of discharge
limits or other prohibitions and the commencement of activities, such as
resource extraction or construction, that could have significant impact on the
Environment;

 

(b)                                 preventing
or reducing to acceptable levels the Release of pollutants or hazardous
substances or materials into the Environment;

 

(c)                                  reducing
the quantities, preventing the Release or minimizing the hazardous
characteristics of wastes that are generated;

 

(d)                                 assuring
that products are designed, formulated, packaged and used so that they do not
present unreasonable risks to human health or the Environment when used or
disposed of;

 

(e)                                  protecting
resources, species or ecological amenities;

 

(f)                                    reducing
to acceptable levels the risks inherent in the transportation of hazardous
substances, pollutants, oil or other potentially harmful substances;

 

(g)                                 cleaning
up pollutants that have been Released, preventing the threat of Release or
paying the costs of such clean up or prevention; or

 

(h)                                 making
responsible parties pay private parties, or groups of them, for damages done to
their health or the Environment or permitting self-appointed representatives of
the public interest to recover for injuries done to public assets.

 

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

 

“ERISA Affiliate”
has the meaning set forth in Section 4.15(d) below.

 

“Escrow Agent”
means Amegy Bank National Association of Houston, Texas.

 

“Escrow Agreement”
means a document in the form of Exhibit A.

 

“Escrow Amount”
has the meaning set forth in Section 2.2(c).

 

“Escrowed Assets” has
the meaning set forth in Section 8.4(i).

 

“Exchange
Act” means the Securities Act of 1934, as amended.

 

“Exchange Rate” means
for a particular day, the average Bank of Canada Noon Day Rate,
expressed in CDN$/US$ or US$/CDN$, as the case may be, for the previous ten
days, as set out on the Bank of Canada’s website.

 

“Excluded Damages” has the meaning set
forth in Section 8.7 below.

 

“Facility” means
any real property, leasehold or other interest in real property currently owned
or leased by the Corporations, including the Tangible Personal Property used or
operated

 

5

 

by the
Corporations at the respective locations of the real property specified in Schedule 4.8.
Notwithstanding the foregoing, for purposes of the definitions of “Hazardous
Activity” and “Remedial Action” and Section 4.19, “Facilities” shall mean
any real property, leasehold or other interest in real property currently or
formerly owned, leased or operated by the Corporations, including the Tangible
Personal Property used or operated by the Corporations at the respective
locations of the Real Property specified in Schedule 4.8.

 

“Fiduciary”
has the meaning set forth in ERISA § 3(21).

 

“Financial
Statement” has the meaning set forth in Section 4.6
below.

 

“Geokinetics Shares”
has the meaning set forth in the preface above.

 

“Governing Documents”
means with respect to any particular entity, (a) if a corporation, the
articles or certificate of incorporation and the bylaws; (b) if a general
partnership, the partnership agreement and any statement of partnership; (c) if
a limited partnership, the limited partnership agreement and the certificate of
limited partnership; (d) if a limited liability company, the articles of
organization and operating agreement; (e) if another type of Person, any
other charter or similar document adopted or filed in connection with the
creation, formation or organization of the Person; (f) all equity holders’
agreements, voting agreements, voting trust agreements, joint venture
agreements, registration rights agreements or other agreements or documents
relating to the organization, management or operation of any Person or relating
to the rights, duties and obligations of the equity holders of any Person; and (g) any
amendment or supplement to any of the foregoing.

 

“Governmental Authorization”
means any consent, license, registration or permit issued, granted, given or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.

 

“Governmental Body”
means any:

 

(i)                                     nation,
state, county, city, town, borough, village, district or other jurisdiction;

 

(ii)                                  federal,
state, provincial, territorial, local, municipal, foreign or other government;

 

(iii)                               governmental
authority of any nature (including any agency, branch, department, board,
commission, court, tribunal or other entity exercising governmental powers); or

 

(iv)                              body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power.

 

“Hazardous Activity”
means the distribution, generation, handling, importing, management,
manufacturing, processing, production, refinement, Release, storage, transfer,
transportation, treatment or use (including any withdrawal or other use of
groundwater) of

 

6

 

Hazardous Material
in, on, under, about or from any of the Facilities or any part thereof into the
Environment and any other act, business, operation or thing that increases the
danger, or risk of danger, or poses an unreasonable risk of harm, to persons or
property on or off the Facilities.

 

“Hazardous Materials”
means any substance, material or waste which is defined as a “hazardous waste,”
“hazardous material,” “hazardous substance,” “extremely hazardous waste,” “restricted
hazardous waste,” “contaminant,” “toxic waste” or “toxic substance” under any
provision of Environmental Law, which includes petroleum, petroleum products,
asbestos, presumed asbestos-containing material or asbestos-containing
material, urea formaldehyde and polychlorinated biphenyls.

 

“I/O Option Cost” means the remaining amount to be paid (net
of rental credits) to Input/Output Inc. to acquire the Additional Seismic
Equipment, at the Closing Time, if any.

 

“Indemnified
Party” has the meaning set forth in Section 8.5(a) below.

 

“Indemnifying
Party” has the meaning set forth in Section 8.5(a) below.

 

“Intellectual
Property” means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (c) all copyrightable works, all
copyrights, and all applications, registrations, and renewals in connection
therewith, (d) all mask works and all applications, registrations, and
renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments
thereof (in whatever form or medium).

 

“Interim Consolidated Balance
Sheet” has the meaning set forth in Section 4.6(a) below.

 

“Inventory”
means all inventories of the Corporations, wherever located, including all
finished goods, work in process, raw materials, spare parts and all other
materials and supplies to be used or consumed by the Corporations in the
production of finished goods or provision of services.

 

“IRS”
means the United States Internal Revenue Service.

 

“Knowledge”
means:

 

(1)                                  what
an individual is actually aware of; or

 

7

 

(2)                                  what
a prudent individual, by reason of his or her occupying the same position in an
entity of similar size operating in the oilfield services industry in Canada or
the United States, could be expected to discover or otherwise become aware of
in the course of discharging his or her duties in a prudent manner,

 

except that in the case of:

 

(a)                                  SCF,
the Knowledge of SCF means what John Geddes is actually aware of or what a prudent individual in the position
of Chair of the board of directors of an entity of similar size operating in
the oilfield services industry in Canada or the United States could be expected
to discover or otherwise become aware of in the course of discharging his or
her duties in a prudent manner; and

 

(b)                                 the
Corporations, the Knowledge of the Corporations means what David Smiddy, John
Vance and Efty Uswak are actually aware of or what a prudent individual in the
position of the Chief Financial Officer, Chief Accounting Officer or General
Manager of an entity of similar size operating in the oilfield services
industry in Canada or the United States could be expected to discover or
otherwise become aware of in the course of discharging his or her duties in a
prudent manner.

 

“Legal Requirement”
means any federal, state, provincial, territorial, local, municipal, foreign,
international, multinational or other constitution, law, ordinance, code,
regulation, statute or treaty.

 

“Liability”
means any liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due), including any
liability for Taxes.

 

“Minority Subsidiaries” means
Trace Sahtu, Delta and Trace Inuvialuit.

 

“Multiemployer
Plan” has the meaning set forth in ERISA § 3(37).

 

“Non-Resident Seller” has
the meaning set forth in Section 6.7(a) below.

 

“NRV Purchase Price”
has the meaning set forth in Section 6.7(b) below.

 

“Option Agreements” has
the meaning set forth in Section 2.5(a).

 

“Option Costs” shall have the meaning given to it in Section 2.5(a) below.

 

“Optionholders” means the individuals who have entered into
Option Agreements with Trace, as identified in Section 2.5(c).

 

“Order” means
any order, injunction, judgment, decree, ruling, assessment or arbitration
award of any Governmental Body or arbitrator.

 

8

 

“Ordinary
Course of Business” means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency) of the entity in question.

 

“Original Value” has
the meaning set forth in Section 2.4(b) below.

 

“Party”
has the meaning set forth in the preface above.

 

“PBGC” means
the Pension Benefit Guaranty Corporation.

 

“Permitted Encumbrance”
has the meaning set forth in Section 4.31 below.

 

“Person”
means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).

 

“Pre-Closing Tax Period”
has the meaning set forth in Section 6.6(a) below.

 

“Proceeding”
means any action, arbitration, audit, hearing, investigation, litigation or
suit (whether civil, criminal, administrative, judicial or investigative,
whether formal or informal, whether public or private) commenced, brought, conducted
or heard by or before, or otherwise involving, any Governmental Body or
arbitrator.

 

“Purchase
Price” has the meaning set forth in Section 2.1 below.

 

“Recalculated Value” has
the meaning set forth in Section 2.4(b) below.

 

“Related Person”
means:

 

With respect to a
particular individual:

 

(v)                                 each
other member of such individual’s Family;

 

(vi)                              any
business entity that is directly or indirectly controlled by any one or more
members of such individual’s Family;

 

(vii)                           any
business entity in which members of such individual’s Family hold (individually
or in the aggregate) a Material Interest; and

 

(viii)                        any business entity with respect to which one
or more members of such individual’s Family serves as a director, officer,
partner, executor or trustee (or in a similar capacity).

 

With respect to a
specified Person other than an individual:

 

(ix)                                any
Person that directly or indirectly controls, is directly or indirectly
controlled by or is directly or indirectly under common control with such
specified Person;

 

9

 

(x)                                   any
Person that holds a Material Interest in such specified Person;

 

(xi)                                each
Person that serves as a director, officer, partner, executor or trustee of such
specified Person (or in a similar capacity);

 

(xii)                             any
Person in which such specified Person holds a Material Interest; and

 

(xiii)                          any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity).

 

For purposes of this
definition, (a) ”control” (including “controlling,” “controlled by,” and “under
common control with”) means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
and shall be construed as such term is used in the rules promulgated under
the Securities Act; (b) the “Family” of an individual includes (i) the
individual, (ii) the individual’s spouse, (iii) any other natural
person who is related to the individual or the individual’s spouse within the
second degree and (iv) any other natural person who resides with such
individual; and (c) ”Material Interest” means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of
voting securities or other voting interests representing at least ten percent
(10%) of the outstanding voting power of a Person or equity securities or other
equity interests representing at least ten percent (10%) of the outstanding
equity securities or equity interests in a Person.

 

“Release” means
any release, spill, emission, leaking, pumping, pouring, dumping, emptying,
injection, deposit, disposal, discharge, dispersal, leaching or migration on or
into the Environment or into or out of any property.

 

“Representative”
means, with respect to a particular Person, any director, officer, manager,
employee, agent, accountant, financial advisor or legal counsel.

 

“Retained Employees”
means James White, David Smiddy, Efty Uswak, John Vance, Tim Carry, Harold
Cuddie, Greg Dearsley, Eddie Gonzales, Michael Lee, Jason Nelson, and Paul Noseworthy.

 

“SCF” has the
meaning set forth in the preface above.

 

“SCF Proportion” means 262,614 divided by
268,539.

 

“SEC” means the
U.S. Securities and Exchange Commission.

 

“SEC Reports” has
the meaning set forth in Section 3.2(f) below.

 

“Section 116 Certificate” has
the meaning set forth in Section 6.7(a) below.

 

“Securities
Act” means the Securities Act of 1933, as amended.

 

“Security
Interest” means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other
than (a) mechanic’s,
materialmen’s, and similar liens, (b) liens or

 

10

 

assessments for
Taxes not yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money liens and
liens securing rental payments under capital lease arrangements, and (d) other
liens arising in the Ordinary Course of Business.

 

“Seller”
and “Sellers” have the meanings set forth in the preface
above.

 

“Seller Consents and Approvals”
means all consents and approvals required to be obtained by each of the Sellers
in connection with the execution and delivery of this Agreement and the completion
of the transactions contemplated hereby.

 

“Sellers’ Solicitors” means
Bennett Jones LLP and Vinson & Elkins LLP.

 

“Tangible Personal Property” means all machinery,
equipment, tools, furniture, office equipment, computer hardware, supplies,
materials, vehicles and other items of tangible personal property of every kind
owned or leased by the Corporations (wherever located).

 

“Tax”
means any federal, state, provincial, territorial, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code § 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, goods and services use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto that arises under applicable Legal Requirements.

 

“Tax Act” has
the meaning set forth in Section 6.7(a) below.

 

“Tax
Liability Escrow”
has the meaning set forth in Section 8.4(i) below.

 

“Tax
Return” means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

 

“Texas Common Stock” has
the meaning set forth in Section 4.22(b) below.

 

“Third
Party Claim” has the meaning set forth in Section 8.5(b) below.

 

“Trace” has the
meaning set forth in the preface above.

 

“Trace
Common Stock” means the common shares of Trace.

 

“Trace
Inuvialuit” has the meaning set forth in the preface above.

 

“Trace Options” means, collective, the options to acquire an
aggregate 10,925 shares of Trace Common Stock pursuant to the Option
Agreements.

 

“Trace Share Purchase Price”
has the meaning set forth in Section 2.5(b).

 

11

 

“Trace
Texas” has the
meaning set forth in the preface above.

 

“Trace Sahtu”
has the meaning set
forth in the preface above.

 

“Transaction Costs”
means (a) all amounts payable to Trace’s financial advisor pursuant to the
Engagement Letter between Trace and Goldsmith, Agio, Helms & Lynner,
LLC, (b) the outstanding accounts of its legal counsel and any other
advisors for services rendered in connection with the transaction described in
this Agreement and (c) all amounts payable to Trace’s independent auditors
after the date of this Agreement to satisfy the condition set forth in Section 7.1(o)(i) below.

 

“Transferred Information” means the personal information (namely,
information about an identifiable individual other than their business contact
information when used or disclosed for business communications) to be disclosed
or conveyed to the Buyer or any of its representatives or agents by or on
behalf of the Sellers as a result of or in conjunction with the transactions
contemplated herein, and includes all such personal information disclosed to
the Buyer prior to the execution of this Agreement.

 

“US GAAP” has
the meaning set forth in Section 1.3 below.

 

“US
Plans” has the meaning set forth in Section 4.15(o)
below.

 

“WARN Act” has
the meaning set forth in Section 4.28(d) below.

 

“White” has the
meaning set forth in the preface above.

 

“White Proportion” means 5,925 divided by 268,539.

 

“Withheld
Amount” has the
meaning set forth in Section 6.7(c) below.

 

Section 1.2                                   Definitions
Appearing Elsewhere in this Agreement.

 

The terms used in this Agreement which are
defined in (a) the preface of this Agreement, (b) the recitals of
this Agreement and (c) the further Sections of this Agreement shall have
the respective definitions therein ascribed to them.

 

Section 1.3                                   Accounting
Principles and Terms.

 

(a)                                  The
reference to “US GAAP” or United States generally accepted accounting
principles in this Agreement shall, to the extent not inconsistent with
specific definitions herein, be construed in accordance with generally accepted
accounting principles in the United States, consistently applied, as such
principles are in effect as of the date of this Agreement.

 

(b)                                 The
reference to “Canadian GAAP” or Canadian generally accepted accounting
principles in this Agreement, and any other accounting terms not specifically
defined herein, shall, to the extent not inconsistent with specific definitions
herein, be construed in accordance with generally accepted accounting
principles in the Canada, consistently applied, as such principles are in
effect as of the date of this Agreement or, if applicable, the Closing Time.

 

12

 

Section 1.4                                   Determination
of Current Assets and Liabilities.

 

For the purposes of the definition of Current
Assets and Current Liabilities, all such amounts included in the definition
shall be calculated as of the Closing and in accordance with Canadian GAAP
(except as specifically otherwise provided in this Agreement). Any amounts
included in Current Assets or Current Liabilities that are denominated in US
dollars will be converted to Canadian Dollars as of the close of business on the business day immediately preceding the
Closing Date in accordance with Canadian GAAP.

 

ARTICLE II.

PURCHASE AND SALE OF COMPANY SHARES

 

Section 2.1                                   Purchase and
Sale.

 

Subject to the terms and conditions hereof,
at Closing the Sellers covenant and agree to sell, assign and transfer to the
Buyer and the Buyer covenants and agrees to purchase from the Sellers all
outstanding shares of Trace Common Stock for the Adjusted Purchase Price, the
Escrow Amount and 1,000,000 Geokinetics Shares (the “Purchase Price”).  At the
Closing, SCF and Trace shall agree to terminate all of the outstanding warrants
of Trace.

 

Section 2.2                                   Payment of
the Purchase Price.

 

The Purchase Price is to be paid by the Buyer
at Closing by:

 

(a)                                  the
delivery at Closing to the Escrow Agent (to be held in escrow in accordance
with the terms of Section 8.4(i) below and the Escrow Agreement) of
validly issued share certificates representing an aggregate one million
(1,000,000) shares of Common Stock, $.01 par value per share, of the Buyer (the
“Geokinetics Shares”) which
shall be registered in such names and amounts: (i) as directed by SCF in
respect of the number of Geokinetics Shares equal to the SCF Proportion
multiplied by 1,000,000; and (ii) as directed by White in respect of the
number of Geokinetics Shares equal to the White Proportion multiplied by
1,000,000, in each case rounded down to the nearest share;

 

(b)                                 the
delivery at Closing, by wire transfers of immediately available funds to the
Sellers, of the Adjusted Purchase Price (converted into US$ at the Exchange
Rate) which shall be paid: (i) as directed by SCF in an amount equal to
the  SCF Proportion multiplied by the
Adjusted Purchase Price; and (ii) as directed by White in an amount equal
to the White Proportion multiplied by the Adjusted Purchase Price, in each case
rounded down to the nearest cent;

 

(c)                                  the
delivery at Closing, by wire transfer to the Escrow Agent, of the amount of
CDN$2,000,000 (the “Escrow Amount”),
such amount (converted into US$ at the Exchange Rate) to be held in escrow in
accordance with the terms of the Escrow Agreement.

 

13

 

Section 2.3                                   Adjusted
Purchase Price.

 

The Adjusted Purchase Price shall be equal to
(all amounts determined as at the Closing Time):

 

(a)                                  CDN$33,000,000;

 

plus

 

(b)                                 the
Corporations’ Cash;

 

less

 

(c)                                  the
sum of the following amounts:

 

(i)                                     the
amount by which the Corporations’ Current Liabilities (excluding any portion of
Debt, I/O Option Cost, Transaction Costs and Option Costs) exceeds the
Corporations’ Current Assets (excluding Cash);

 

(ii)                                  the
amount of the I/O Option Cost;

 

(iii)                               the
amount of the Corporation’s Debt;

 

(iv)                              the
amount of the Transaction Costs; and

 

(v)                                 the
amount of the Option Costs.

 

No earlier than five
business days and no later than two business days prior to the Closing Date,
the Sellers shall provide to the Buyer a statement setting out a good faith
estimate of this calculation (the “Adjusted Purchase Price Notice”) which shall specify the
Adjusted Purchase Price payable at Closing, subject to adjustment on the basis
described in Section 2.4 below. 
Attached to this Agreement is Schedule 2.3 which illustrates the
calculation of the Adjusted Purchase Price based on Cash, Current Assets,
Current Liabilities, Debt as shown in Trace’s consolidated balance sheet at June 30,
2005 and other estimated amounts.  Schedule 2.3
is included to assist the Sellers in preparing the Adjusted Purchase Price
Notice and the parties in completing any adjustments pursuant to Section 2.4.

 

The difference between
CDN$33,000,000 and the Adjusted Purchase Price shall be applied at the Closing
Time by the Buyer (or by Trace, upon payment of the required funds to Trace by
the Buyer), in the following order of priority, to pay the full amount of the
Transaction Costs, the Option Costs, the I/O Option Cost, and to reduce the
Debt (in the case of the Debt, to the extent any such funds remain).

 

Section 2.4                                   Post Closing
Adjustment.

 

(a)                                  Within
45 days of the Closing Date, the Buyer and each of the Sellers shall have the
right to review the books and records of the Corporations and any other
relevant books and records maintained by the Corporations and determine whether
the Adjusted Purchase Price

 

14

 

Notice is
accurate and whether the Adjusted Purchase Price should be altered, based on
the Buyer’s or the Sellers’ determination, per good faith calculations, that
the value of such items is not accurately represented in the Adjusted Purchase
Price Notice.  In the event any of the
Parties makes such determination, it shall prepare and deliver to the other
Parties a statement setting forth in reasonable detail, such calculation of the
amount for which adjustment is provided herein and shall assist the other
parties in verifying the amounts set forth in such statements.

 

(b)                                 Buyer
or either of the Sellers may dispute all or any portion of the calculation of
the Adjusted Purchase Price Notice and the proposed revised Adjusted Purchase
Price by written notice to the other party within 30 days of the date of
receipt of the statement referred to in Section 2.4(a) setting forth,
in reasonable detail, the basis for the dispute.  If the parties do not agree on the calculation
of the adjustment amounts within 15 days of any notice of dispute, the Buyer
and the Sellers will select (within 10 days of the expiration of that 15 day
period) an accounting firm mutually acceptable to them to resolve any remaining
objections.  If the Buyer and the Sellers
are unable to agree on the choice of an accounting firm within such 10 day
period, they will select, within an additional 10 day period, the Calgary
office of a nationally-recognized accounting firm by lot (after excluding their
respective regular outside accounting firms) that is qualified to provide an
audit opinion in respect of the financial statements of a “reporting issuer”,
as that term is defined in Canadian securities law.  The determination of any accounting firm so
selected (and the determination it makes pursuant to its power to resolve any
objections regarding the Adjusted Purchase Price) will be set forth in writing
and will be conclusive and binding upon the Buyer and the Sellers for purposes
of determining adjustments to the Purchase Price pursuant to this Section 2.4.  The cost and expense of such accounting firm
shall be borne equally by the Buyer and the Sellers.  Such accounting firm shall be engaged on the
basis that it will make its determination within 60 days of being selected.

 

(c)                                  If
all of the adjustment amounts are agreed to by the Parties or determined by an
appointed accounting firm in accordance with this Section 2.4, as the case
may be, and if:

 

(i)                                     the
sum of such adjustments would result in a revised Adjusted Purchase Price (the “Recalculated
Value”) which is less in value than the amount of the Adjusted Purchase Price
set forth in the Adjusted Purchase Price Notice delivered pursuant to Section 2.3
(the “Original Value”), then the Sellers shall pay to the Buyer the amount of
the Original Value less the Recalculated Value within two (2) business
days by wire transfer; or

 

(ii)                                  if
the Recalculated Value is greater than the Original Value, then the Buyer shall
pay to the Sellers the amount, if any, by which the Recalculated Value is
greater than the Original Value within two (2) business days by wire
transfer.

 

(d)                                 any
adjustments determined in accordance with this Section 2.4 shall be made
in accordance with Canadian GAAP and no adjustment shall be made for changes in
the exchange rate for the Canadian dollar in effect after the Closing Date.

 

(e)                                  The
Buyer and the Sellers shall have no remedy whatsoever in respect of any
determination of a Recalculated Value, except pursuant to this Section 2.4.

 

15

 

Section 2.5                                   Treatment of
the Trace Options

 

(a)                                  Pursuant
to those certain agreements by which Trace awarded stock options to the Persons
listed in the table under Section 2.5(c) (the “Option Agreements”),
at the Closing Time Trace, upon receipt of an executed option termination
agreement which terminates all obligations of Trace relating to the Option
Agreements in exchange for the payment described herein in a form acceptable to
the Buyer acting reasonably, will pay to the Optionholders an amount for each
Option equal to the Trace Share Purchase Price (as determined below) less
CDN$50 (and Trace shall be entitled to make any withholdings required by
applicable law).  The total of these
payments shall be the “Option Costs”.  As a result of these payments, all of the
Option Agreements will be terminated. 
For clarity, the Option Costs shall not be adjusted after Closing,
including as a consequence of any post Closing adjustment to the Adjusted
Purchase Price.

 

(b)                                 The
“Trace Share Purchase Price” shall be a dollar amount equal to:

 

(i)                                     the
sum of:  (i) Adjusted Purchase Price
(calculated without adjustment for the Option Costs), (ii) the Escrow
Amount, (iii) the product of 1,000,000 multiplied by the 10 day weighted
average trading price of the shares of the common stock of the Buyer before the
Closing Date (and converted to Canadian dollars using the Exchange Rate); and (iv) CDN$546,250;

 

divided by

 

(ii)                                  279,464.

 

(c)                                  The
Trace Options have been issued as follows:

 

	
  Option Holder

  	
   

  	
  Number of Options

  	
   

  
	
  Tim Carry

  	
   

  	
  700

  	
   

  	
   

  
	
  Harold Cuddie

  	
   

  	
  200

  	
   

  	
   

  
	
  Greg Dearsley

  	
   

  	
  250

  	
   

  	
   

  
	
  Mike Lee

  	
   

  	
  250

  	
   

  	
   

  
	
  Paul Noseworthy

  	
   

  	
  700

  	
   

  	
   

  
	
  Dave Smiddy

  	
   

  	
  1,600

  	
   

  	
   

  
	
  Efty Uswak

  	
   

  	
  450

  	
   

  	
   

  
	
  John Vance

  	
   

  	
  850

  	
   

  	
   

  
	
  James White

  	
   

  	
  5,925

  	
   

  	
   

  

 

Section 2.6                                   Closing.

 

The closing of the transactions contemplated
by this Agreement (the “Closing”) shall take place at the offices of
Chamberlain Hrdlicka White Williams & Martin, 1200 Smith Street, Suite 1400,
Houston, Texas 77002 commencing at 9:00 a.m. Houston, Texas time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Parties may mutually determine
(the “Closing Date”).

 

16

 

Section 2.7                                   Deliveries
at the Closing.

 

At the Closing, (i) the Sellers will
deliver to Buyer the various certificates, instruments, and documents referred
to in Section 7.1 below, (ii) Buyer will deliver to the Sellers the
various certificates, instruments, and documents referred to in Section 7.2
below, (iii) each of the Sellers will deliver to Buyer share certificates
representing all of his or its Trace Common Stock, endorsed in blank or
accompanied by duly executed assignment documents, which shall effect the
transfer and assignment of such Trace Common Stock to the Buyer as of the
Closing Date, and (iv) the Buyer will deliver to each of the Sellers the
consideration specified in Section 2.2 above.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION

 

Section 3.1                                   Representations
and Warranties of the Sellers.

 

Each of the Sellers severally and not jointly
represents and warrants to the Buyer with respect to himself or itself the
following, except as set forth in Schedule 3.1:

 

(a)                                  Power and Authority.  The Seller has the capacity and full power
and authority (including full partnership power and authority, as applicable)
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby.  This Agreement
constitutes the valid and legally binding obligation of the Seller.  The Seller is not required to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the transactions
contemplated by this Agreement.

 

(b)                                 Noncontravention.   Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, Order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or (ii) conflict
with, result in a Breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Seller is a party or by
which he or it is bound or to which any, of his or its assets is subject.

 

(c)                                  Brokers’ Fees.  Except for Goldsmith-Agio-Helms, whose fees
and expenses shall be paid by Trace at Closing, the Sellers have no Liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which the
Buyer could become liable or obligated.

 

(d)                                 Investment.  The Seller (i) understands that the
Geokinetics Shares have not been, and, except as provided in the Registration
Rights Agreement, will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (ii) is acquiring the Geokinetics Shares solely for his or its
own account for investment purposes, and not with a view to the distribution
thereof, (iii) has knowledge and experience in business and financial

 

17

 

matters, (iv) has
received certain information concerning the Buyer and has had the opportunity
to obtain additional information as desired in order to evaluate the merits and
the risks inherent in holding the Geokinetics Shares and (v) is able to
bear the economic risk and lack of liquidity inherent in holding the
Geokinetics Shares.

 

(e)                                  Trace Common Stock.  The Seller holds of record and owns beneficially
the number of Trace Common Stock set forth next to his or its name in Schedule 4.22(a),
free and clear of any restrictions on transfer (other than any restrictions
under the Securities Act and state securities laws), Taxes, Encumbrances,
options, warrants, purchase rights, contracts, commitments, equities and
demands.  The Seller is not a party to
any option, warrant, purchase right, or other contract or commitment that could
require the Seller to sell, transfer, or otherwise dispose of any capital stock
of Trace (other than this Agreement). 
The Seller is not a party to any voting trust, proxy, or other agreement
or understanding with respect to the voting of any capital stock of Trace.

 

Section 3.2                                   Representations
and Warranties of the Buyer.

 

The Buyer represents and warrants to the
Sellers the following, except as set forth on Schedule 3.2:

 

(a)                                  Organization.  The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation.

 

(b)                                 Authorization of Transaction.  The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder and the Board of Directors
of Buyer has approved this Agreement and transactions contemplated herein.  This Agreement constitutes the valid and
legally binding obligation of the Buyer, enforceable in accordance with its
terms and conditions.  The Buyer is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.

 

(c)                                  Noncontravention.  Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, Order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or any
provision of its charter or bylaws or (ii) conflict with, result in a
Breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which it is bound or to which
any of its assets is subject.

 

(d)                                 Brokers’ Fees.  The Buyer does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which any Seller
could become liable or obligated.

 

18

 

(e)                                  Investment.  The Buyer is not acquiring Trace Common Stock
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.

 

(f)                                    Company Shares and SEC Reports.  Buyer has filed all reports required to be
filed by it under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the twelve (12) months
preceding the date hereof (or such shorter period as the Company was required
by law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the “SEC Reports”) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.

 

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES CONCERNING THE CORPORATIONS

 

Each of the Sellers represents and warrants
to Buyer, jointly and not severally, as set forth below.  Each representation and warranty of the
Sellers in this Article IV shall be deemed true and correct except to the
extent that any Breach of such representations and warranties would result in a
material adverse effect on the business, results of operations or financial
position of the Corporations.  The
representations and warranties set forth in Article IV are generally
subject to the exceptions set forth in Schedules 4.1 to 4.31 (it is
acknowledged and agreed that it is unnecessary for a disclosure made in one
such Schedule to expressly qualify a particular representation made in Article IV),
as specifically identified in Schedules 4.1 to 4.31 and as may be modified
pursuant to disclosures made pursuant to Section 5.4.

 

Section 4.1                                   Corporate Organization; Etc.

 

Each of the Corporations is a corporation
duly organized, validly existing and in good standing under its jurisdiction of
incorporation. The Corporations have full corporate power and authority to
carry on their business as they are now being conducted and to own the
properties and assets they now own.  The
Corporations are duly qualified or licensed to do business and is in good
standing in each jurisdiction listed on Schedule 4.1.  Except as set forth on Schedule 4.1,
there is no other jurisdiction in which the character or location of the
properties owned or leased by the Corporations or the nature of the business
conducted by the Corporations makes such qualification or licensing
necessary.  Schedule 4.1 sets forth
the capitalization of each of the Minority Subsidiaries and the equity
ownership of each such Minority Subsidiary by the Corporations.  Trace Explorations Ltd. (Sucrsal Argentine)
is an unincorporated branch of Trace doing business in Argentina.

 

19

 

Section 4.2                                   Authorization, Etc.

 

The Corporations have taken all action
required by applicable Legal Requirements, the Corporations’ Governing
Documents or otherwise to authorize the transactions contemplated in this
Agreement.

 

Section 4.3                                   No Violation.

 

The Corporations are not subject to, nor a
party to, any contract, instrument or other commitment that would prevent the
consummation of the transactions contemplated in this Agreement.  Except as set forth in Schedule 4.3,
neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will, directly or indirectly (with or
without notice or lapse of time), (a) Breach (i) any provision of any
of the Governing Documents of the Corporations or (ii) any resolution
adopted by the board of directors or the shareholders of the Corporations; (b) Breach
or give any Governmental Body or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any relief
under any Legal Requirement or any Order to which any Corporation or any of its
assets, may be subject; (c) contravene, conflict with or result in a
violation or Breach of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or
modify, any Governmental Authorization that is held by the Corporations or that
otherwise relates to the Corporations’ assets or to the business of the Corporations; (d) cause
the Buyer to become subject to, or to become liable for the payment of, any Tax
payable by the Corporations not accrued for or reflected in the Financial
Statements; (e) Breach any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or payment under, or to cancel, terminate or modify, any
contract to which the either Corporation is a party; or (f) result in the
imposition or creation of any Encumbrance, other than a Permitted Encumbrance,
upon or with respect to any of the Corporations’ assets.

 

Section 4.4                                   Consents.

 

Except as set forth in Schedule 4.4,
neither Corporation is required to give any notice to or obtain any consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the transactions contemplated
hereby.

 

Section 4.5                                   Accounts Receivable.

 

All Accounts Receivable that are reflected on
the Interim Consolidated Balance Sheet or on the accounting records of the
Corporations as of the Closing Date represent or will represent valid
obligations arising from sales actually made or services actually performed by
the Corporations and the Minority Subsidiaries in the Ordinary Course of
Business.  Except to the extent paid
prior to the Closing Date, such Accounts Receivable are or will be as of the
Closing Date collectible net of the respective reserves shown on the Interim
Consolidated Balance Sheet or Adjusted Purchase Price Notice (as it may be
re-calculated pursuant to Section 2.4) (which reserves are adequate and
calculated consistent with past practice). 
There is no contest, claim, defense or right of setoff, other than
returns in the Ordinary Course of Business of the Corporations, under any
Contract with any account debtor of an Account Receivable relating to

 

20

 

the amount or validity of such Account Receivable.  Schedule 4.5 contains a complete and
accurate list of all Accounts Receivable of the Corporations as of the date of
the Interim Consolidated Balance Sheet, which list sets forth the aging of each
such Account Receivable.

 

Section 4.6                                   Financial Statements.

 

(a)                                 Schedule 4.6 contains a true and
correct copy of (i) an unaudited consolidated balance sheet of Trace at May 31,
2005, and the related statements of income, shareholders’ equity and cash flows
for the period then ended (“Interim Consolidated Balance Sheet”), and (ii) audited
financial statements of Trace as of December 31 of each of 2002, 2003 and
2004, and Schedule 4.6 will contain, within 20 days after the date of this
Agreement, a true and correct copy of an unaudited consolidated balance sheet of
Trace at June 30, 2005, and the related statements of income, shareholders’
equity and cash flows for the period then ended (the financial statements
described in clauses (i), (ii) and (iii) above are collectively
referred to as the “Financial Statements”). 
Except as noted on Schedule 4.6 or in the Financial Statements and
except for normal year-end adjustments, the Financial Statements were prepared
in accordance with Canadian GAAP and present fairly, in all material respects,
the financial position of the Corporations at the respective dates thereof and
the operating income of the Corporations for the respective periods then ended.

 

(b)                                 Trace has no Debt except as set forth in the
Interim Consolidated Balance Sheet or the Adjusted Purchase Price Notice (as it
may be re-calculated pursuant to Section 2.4).

 

Section 4.7                                   Inventories.

 

The
Corporations have no Inventories.

 

Section 4.8                                   Real Property.

 

The Corporations do not own any fee simple
interest in real property.  Schedule 4.8
lists and describes briefly all real property leased or subleased to the
Corporations.   The Corporations have
made available to the Buyer correct and complete copies of the leases and
subleases listed in Schedule 4.8, each as amended to date.  With respect to each lease and sublease
listed in Schedule 4.8, and any amendment thereto:

 

(a)                                 the lease or sublease, and any amendment
thereto, is legal, valid, binding, enforceable, and in full force and effect;

 

(b)                                 the lease or sublease will (subject to
landlord approval, as set forth on Schedule 4.4 or 4.8) continue to be
legal, valid, binding, enforceable, and in full force and effect on the same
terms following the consummation of the transactions contemplated hereby;

 

(c)                                  the Corporations are not and to the
Knowledge of the Sellers, no other party to the lease or sublease is, in Breach
or default, and no event has occurred which, with notice or lapse of time,
would constitute a Breach or default or permit termination, modification, or
acceleration thereunder;

 

21

 

(d)                                 the Corporations have not and, to the
Knowledge of the Sellers, no other party to the lease or sublease has,
repudiated any provision thereof;

 

(e)                                  there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;

 

(f)                                   with respect to each sublease, neither the
Corporations nor any Seller has taken any action that would cause the
representations and warranties set forth in Sections 4.8(a) through 4.8(e) above
to be untrue or incorrect with respect to the underlying lease;

 

(g)                                  the Corporations have not assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest
in the leasehold or subleasehold; and

 

(h)                                 all facilities leased or subleased
thereunder are supplied with utilities and other services necessary for the
operation of said facilities as currently operated by the Corporations.

 

Section 4.9                                   Absence of Certain Changes.

 

Except as and to the extent set forth in Schedule 4.9,
or as permitted by the Agreement or consented to by the Buyer, since December 31, 2004, the Corporations have conducted
their business only in the Ordinary Course of Business and there has not been
any:

 

(a)                                 change in the Corporations’ authorized or
issued capital stock, grant of any stock option or right to purchase shares of
capital stock of the Corporations or issuance of any security convertible into
such capital stock;

 

(b)                                 amendment to the Governing Documents of the
Corporations;

 

(c)                                  payment (except in the Ordinary Course of
Business) or increase by the Corporations of any bonuses, salaries or other
compensation to any shareholder, director or officer or entry into any
employment, severance or similar Contract with any director or officer
providing for an annual rate of compensation exceeding CDN$50,000.00 and that
is not cancelable with no more than 90 days notice;

 

(d)                                 adoption of, amendment to or increase in the
payments to or benefits under, any Employee Plan;

 

(e)                                  damage to or destruction or loss in excess
of CDN$25,000.00 to any asset of the Corporations, whether or not covered by
insurance;

 

(f)                                   except as is described in Schedule 4.13(a),
(b), (c), or (d) entry into, termination of or receipt of notice of
termination of (i) any license, distributorship, dealer, sales
representative, joint venture Contract to which the either Corporation is a
party, or (ii) any Contract or transaction (other than any Contract or
transaction involving the performance of services or delivery of goods or
materials by any Corporation or to any Corporation in the Ordinary Course of
Business) involving a total remaining commitment by either Corporation of at
least CDN$25,000.00;

 

22

 

(g)                                  sale (other than sales of Inventories or
services in the Ordinary Course of Business of the Corporations), lease or
other disposition of any asset or property of either Corporation (including the
Intellectual Property assets) where the proceeds from such disposition exceeded
CDN$25,000.00 or the creation of
any Encumbrance on any asset with a book value greater than CDN$25,000.00;

 

(h)                                 cancellation or waiver of any claims or
rights with a value to any Corporation in excess of CDN$25,000.00;

 

(i)                                     notification by any customer or supplier of
discontinuance of or changes to the terms of its relationship with either
Corporation;

 

(j)                                    material change in the accounting methods
used by the Corporations; or

 

(k)                                 Contract by the Corporations  to do any of the foregoing.

 

Section 4.10                            No Material
Change.

 

Except as set forth in Schedule 4.10,
or, as may be shown in the Adjusted Purchase Price Notice (as it may be
re-calculated pursuant to Section 2.4) since the date of the Interim
Consolidated Balance Sheet, there has not been any material adverse change in
the business, assets, liabilities (contingent or otherwise), results of
operations or financial position, of the Corporations.

 

Section 4.11                            Litigation.

 

(a)                                 Except as set forth in
Schedule 4.11, there is no pending (which, for the purpose of this
Agreement, shall mean a Proceeding notice of which has been received by either
of the Corporations) or, to the Sellers’ Knowledge, threatened Proceeding:

 

(i)                                     by or against either Corporation, or that
otherwise relates to or may materially adversely affect the business of, or any
of the assets owned or used by, either Corporation; or

 

(ii)                                  that challenges, or that may have the effect
of preventing, delaying, making illegal or otherwise interfering with, any of
the transactions contemplated herein.

 

To the Knowledge of the Sellers
or the Corporations, no event has occurred or circumstance exists that is
reasonably likely to give rise to or serve as a basis for the commencement of
any such Proceeding.  The Corporations
have made available to the Buyer copies of all pleadings, correspondence and
other documents relating to each Proceeding listed in Schedule 4.11.

 

(b)                                 Except as set forth in Schedule 4.11:

 

(i)                                     there is no Order to which the Corporations,
their business or any of the Corporations ‘ assets is subject; and

 

23

 

(ii)                                  no officer, director, agent or employee of
the Corporations is subject to any Order that prohibits such officer, director,
agent or employee from engaging in or continuing any conduct, activity or
practice relating to the business of the Corporations.

 

(c)                                  Except as set forth in Schedule 4.11:

 

(i)                                     the Corporations are, and, at all times
since December 31, 2002, have been in compliance with all of the terms and
requirements of each Order to which it or any of the Corporations’ assets is or
has been subject;

 

(ii)                                  to Sellers’ Knowledge, no event has occurred
or circumstance exists that is reasonably likely to constitute or result in
(with or without notice or lapse of time) a violation of or failure to comply
with any term or requirement of any Order to which the Corporations or any of
the Corporations assets are subject; and

 

(iii)                               the Corporations have not received, at any
time since December 31, 2002, any notice or other communication (whether
oral or written) from any Governmental Body or any other Person regarding any
actual or alleged violation of, or failure to comply with, any Order to which
the Corporations or any of the Corporations’ assets is or has been subject.

 

Section 4.12                            Intellectual Property.

 

(a)                                 Except as set forth in Schedule 4.12(a),
all of the Corporations’ Intellectual Property is vested in and beneficially
owned by the Corporations free and clear of any Encumbrances.  Except as disclosed in Schedule 4.12(a),
the Corporations have no Intellectual Property registered with any Governmental
Body.

 

(b)                                 Except as set forth in Schedule 4.12(b),
the Corporations have not granted any license under any of the Intellectual
Property to any other Person.

 

(c)                                  Except as set forth in Schedule 4.12(c),
the Corporations do not require a license or right under or in respect of any
Intellectual Property of any other Person to conduct their business as it is
conducted as of the date of this Agreement and no substantial part of the
business is carried on under the agreement or consent of any other Person nor
is there any agreement with any other Person which significantly restricts the
fields in which the Corporations’ business may be carried on.

 

(d)                                 No disclosure has been made to any Person of
the know-how or financial or trade secrets of the Corporations, except in the
Ordinary Course of Business and on the expectation that such disclosure is to
be treated as being of a confidential nature.

 

(e)                                  Except as set forth on Schedule 4.12(e):
(i) none of the processes currently used by the Corporations or any of the
properties, products or services currently sold by the Corporations or any
Intellectual Property infringes the intellectual property rights of any other
Person; and (ii) neither the Corporations nor any Seller has received any
notice of adverse claim

 

24

 

or threat of adverse claim by any Person with respect thereto, and, to
the Knowledge of Sellers or the Corporations, no basis exists for any such
claim.

 

Section 4.13                            Contracts.

 

(a)                                 Schedule 4.13(a) contains an
accurate and complete list, and the Corporations have made available to Buyer
accurate and complete summaries or copies, of:

 

(i)                                     each Contract between either Corporation and
a Related Party;

 

(ii)                                  each Contract that involves performance of
services or delivery of goods or materials by either Corporation or to either Corporation,
as the case may be, (A) of an amount or value in excess of CDN$100,000.00
and (B) that is not cancelable with no more than 90 days notice;

 

(iii)                               each Contract of either Corporation that was
not entered into in the Ordinary Course of Business and that involves expenditures
or receipts of such Corporation in excess of CDN$25,000.00;

 

(iv)                              each Contract of either Corporation
affecting the ownership of, leasing of, title to, use of  or any leasehold or other interest in any
real or personal property (except personal property leases and installment and
conditional sales agreements having a value per item or aggregate payments of
less than CDN$25,000.00 and with a term of less than one year);

 

(v)                                 each Contract of either Corporation with any
labor union or other employee representative of a group of employees relating
to wages, hours and other conditions of employment;

 

(vi)                              each Contract (however named) involving an
express provision for the sharing of profits, losses, costs or liabilities by either
Corporation with any other Person rather than direct payments for goods or
services;

 

(vii)                           each Contract containing express covenants
that restrict either Corporation’s business activities or the ability compete
with any Person;

 

(viii)                        each Contract providing for payments to or
by either Corporation based on sales, purchases or profits, other than direct
payments for goods or services;

 

(ix)                              each power of attorney of either Corporation
that is currently effective and outstanding;

 

(x)                                 each Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express
undertaking by either Corporation to be responsible for consequential damages;

 

(xi)                              each Contract for capital expenditures by either
Corporation in excess of $25,000.00;

 

25

 

(xii)                           each non-terminated or non-expired legally
binding agreement or contract of either Corporation made orally by either
Corporation;

 

(xiii)                        each guarantee by either Corporation of the
obligations of any person or entity (other than one of the Corporations);

 

(xiv)                       any letters of credit issued on behalf of
either Corporation to or for the benefit of any creditor or other third person
or entity; and

 

(xv)                          each effective amendment, supplement and
modification (made in writing) in respect of any of the foregoing.

 

(b)                                 Except as set forth in Schedule 4.13(b),
no Seller has (or has a right to acquire) any rights of any Corporation or any
of the Corporations’ assets.

 

(c)                                  Except as set forth in Schedule 4.13(c):

 

(i)                                     unless completed in the Ordinary Course of
Business or discharged due to the bankruptcy of a party thereto, each Contract
identified or required to be identified in Schedule 4.13(a) is in
full force and effect and is valid and enforceable in accordance with its terms;
and

 

(ii)                                  no Contract identified or required to be
identified in Schedule 4.13(a) is subject to cancellation or
termination as a result of the transactions contemplated herein.

 

(d)                                 Except as set forth in Schedule 4.13(d):

 

(i)                                     the Corporations have, and at all times
since December 31, 2004, have been, in compliance with all applicable
terms and requirements of each Contract to which either Corporation is a party;

 

(ii)                                  to the Sellers’ Knowledge, each other Person
that has or had any obligation or liability under any Contract to which any
Corporation is a party is, and at all times since December 31, 2004, has
been, in full compliance with all applicable terms and requirements of such
Contract;

 

(iii)                               to the Sellers’ Knowledge, no event has
occurred or circumstance exists that (with or without notice or lapse of time)
may contravene, conflict with or result in a Breach of, or give the
Corporations or other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or payment
under, or to cancel, terminate or modify, any Contract to which either
Corporation is a Party;

 

(iv)                              to the Sellers’ Knowledge, no event has
occurred or circumstance exists under or by virtue of any Contract that (with
or without notice or lapse of time) would cause the creation of any Encumbrance
affecting any of the Corporations’ assets; and

 

26

 

(v)                                 the Corporations have not given to or
received from any other Person, at any time since December 31, 2004, any
written notice or other communication (whether oral or written) regarding any
actual or alleged violation or Breach of, or default under, any Contract to
which either Corporation is a Party.

 

(e)                                  There are no renegotiations of, attempts to
renegotiate or outstanding rights to renegotiate any amounts paid or payable to
the either Corporation under current or completed Contracts with any Person
having the contractual or statutory right to demand or require such
renegotiation and no such Person has made written demand for such
renegotiation.

 

Section 4.14                            Customers and
Suppliers.

 

Except as set forth in Schedule 4.14,
since December 31, 2004, no supplier, customer, distributor or third party
sales representative has canceled or otherwise terminated, or given notice of
intent to cancel or otherwise terminate, for any reason, its relationship with
either Corporation.

 

Section 4.15                            Employee
Benefit Plans.

 

(a)                                 Set forth in Schedule 4.15(a) is a
complete and correct list of all “employee benefit plans” as defined by Section 3(3) of
ERISA, all specified fringe benefit plans as defined in Section 6039D of
the Code, and all other bonus, incentive-compensation, deferred-compensation,
profit-sharing, stock-option, stock-appreciation-right, stock-bonus,
stock-purchase, employee-stock-ownership, savings, savings plans (registered or
non-registered) severance, change-in-control, supplemental-unemployment,
layoff, salary-continuation, retirement, pension, health, life-insurance,
disability, accident, group-insurance, vacation, holiday, sick-leave,
fringe-benefit or welfare plan, and any other employee compensation or benefit
plan, agreement, policy, practice, commitment, contract or understanding
(whether qualified or nonqualified, currently effective or terminated, written
or unwritten) and any trust, escrow or other agreement related thereto that (i) is
sponsored, maintained or contributed to by the Corporations or required to be
sponsored, maintained or contributed to by the Corporations within the six
years prior to the Closing Date; and (ii) provides benefits, or describes
policies or procedures applicable to any current or former director, officer,
employee or service provider of the Corporations, or the dependents of any
thereof, regardless of how (or whether) liabilities for the provision of
benefits are accrued or assets are acquired or dedicated with respect to the
funding thereof (collectively the “Employee Plans”).  The Corporations do not sponsor,
maintain or contribute to any Employee Plan that is a “defined benefit plan”
(as defined in Section 414(j) of the Code), a plan intended to meet the requirements of Section 401(a) of
the Code, or a “multiemployer plan” (as defined in Section 3(37) of
ERISA) (a “Multiemployer Plan”), and have not sponsored, maintained or
contributed to, or had any obligation to contribute to, any such Employee Plan
within the six years preceding the Closing Date.  The only Employee Welfare Benefit Plan
sponsored, maintained or contributed to by the Corporations within the six
years preceding the date of this Agreement is a fully insured group health
plan.

 

(b)                                 Each of the Corporations have made available
to the Buyer true, accurate and complete copies of (i) the documents
comprising each Employee Plan (or, with respect to any Employee Plan which is
unwritten, a detailed written description of eligibility, participation,

 

27

 

benefits, funding arrangements, assets and any other matters which
relate to the obligations of each of the Corporations); (ii) all trust
agreements, insurance contracts or any other funding instruments related to the
Employee Plans; (iii) all rulings, determination letters, no-action
letters or advisory opinions from the IRS, the U.S. Department of Labor, the
PBGC or any other Governmental Body that pertain to each Employee Plan and any
open requests therefor; (iv) the most recent actuarial (if applicable) and
financial reports (audited and/or unaudited) and the annual reports filed with
any Government Body with respect to the Employee Plans during the current year;
(v) all securities registration statements filed with respect to any
Employee Plan; (vi) all contracts with third-party administrators,
actuaries, investment managers, consultants and other independent contractors
that relate to any Employee Plan, and (vii) with respect to any Employee
Plans that are subject to Title IV of ERISA, the most recent Form PBGC-1
filed for such plan.

 

(c)                                  Except as disclosed in Schedule 4.15(c),
full payment has been made of all amounts that are required under the terms of
each Employee Plan and applicable Legal Requirements to be paid by the
Corporations as contributions with respect to all periods prior to and
including the last day of the most recent fiscal year of such Employee Plan
ended on or before the date of this Agreement and all periods thereafter prior
to the Closing Date.  Trace Texas has
paid in full all required insurance premiums, subject only to normal retrospective
adjustments in the ordinary course, with regard to the Employee Plans for all
policy years or other applicable policy periods ending on or before the Closing
Date.

 

(d)                                 With
respect to any Employee Pension Benefit Plan and any Employee Welfare Benefit
Plan which is sponsored, maintained, or contributed to, or has been sponsored,
maintained or contributed to within six years prior to the Closing Date, by the
Corporations or any other corporation or trade or business controlled by,
controlling or under common control with the Corporations (within the meaning
of Section 414 of the Code or Section 4001(a)(14) or 4001(b) of
ERISA) (“ERISA Affiliate”), neither
Trace Texas nor any ERISA Affiliate has any liability or has Knowledge of any
facts or circumstances that might give rise to any liability of the
Corporations for, or the imposition of a lien on any of their assets or with
respect to any of their assets, and the transactions contemplated hereby will
not result in any liability for (i) the termination of or withdrawal from
any Employee Pension Benefit Plan under Sections 4062, 4063 or 4064 of ERISA; (ii) any
lien imposed under Section 302(f) of ERISA or Section 412(n) of
the Code; (iii) any interest payments required under Section 302(e) of
ERISA or Section 412(m) of the Code; (iv) any excise tax imposed by Section 4971
of the Code; (v) any minimum funding contributions under Section 302(c)(11)
of ERISA or Section 412(c)(11) of the Code; or (vi) withdrawal from
any Multiemployer Plan under Section 4201 of ERISA.

 

(e)                                  Trace Texas has, at all times, complied, and
currently complies, in all material respects with the applicable continuation
requirements for its welfare benefit plans that are “group health plans” within
the meaning of Section 5000(b)(i) of the Code, including (1) Section 4980B
of the Code (as well as its predecessor provision, Section 162(k) of the
Code) and Sections 601 through 608, inclusive, of ERISA, which provisions are
hereinafter referred to collectively as “COBRA” and (2) any applicable
state statutes mandating health insurance continuation coverage for employees.

 

28

 

(f)                                   The form of all Employee Plans is in
compliance with the applicable terms of ERISA, the Code, and any other
applicable Legal Requirements, and such plans have been operated in compliance
with such laws and the written Employee Plan documents.  All required reports and descriptions of the
Employee Plans (including Internal Revenue Service Form 5500 Annual
Reports, Summary Annual Reports and Summary Plan Descriptions and Summaries of
Material Modifications) have been (when required) timely filed with the IRS,
the U.S. Department of Labor or other Governmental Body and distributed as
required, and all notices required by ERISA or the Code or any other Legal
Requirement with respect to the Employee Plans have been appropriately given.

 

(g)                                  There is no material pending or threatened
Proceeding relating to any Employee Plan, nor is there any basis for any such
Proceeding other than any pending routine determination filings, if any.  Neither Trace Texas nor any Fiduciary of an
Employee Plan has engaged in a transaction with respect to any Employee Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, could subject Trace Texas or Buyer to a Tax or penalty imposed by
either Section 4975 of the Code or Section 502(l) of ERISA or a
violation of Section 406 of ERISA. 
The transactions contemplated hereby will not result in the potential
assessment of a Tax or penalty under Section 4975 of the Code or Section 502(l)
of ERISA nor result in a violation of Section 406 of ERISA.

 

(h)                                 Trace Texas has maintained workers’
compensation coverage as required by applicable state, provincial, or
territorial law through purchase of insurance and not by self-insurance or
otherwise except as disclosed to Buyer on Schedule 4.15(i).

 

(i)                                     Except as required by Legal Requirements or
as set out in Schedule 4.15(j), the consummation of the transactions
contemplated hereby will not accelerate the time of vesting or the time of
payment, or increase the amount, of compensation due to any director, employee,
officer, former employee or former officer of the Corporations.

 

(j)                                    Except for the continuation coverage
requirements of COBRA, the Corporations have no obligations or potential
liability for benefits to employees, former employees or their respective
dependents following termination of employment or retirement under any of the
Employee Plans that are Employee Welfare Benefit Plans.

 

(k)                                 None of the transactions contemplated hereby
will result in an amendment, modification or termination of any of the Employee
Plans. No written or oral representations have been made to any employee or
former employee of the Corporations promising or guaranteeing any employer
payment or funding for the continuation of medical, dental, life or disability
coverage for any period of time beyond the end of the current plan year (except
to the extent of coverage required under COBRA). No written or oral
representations have been made by the Corporations to any employee or former
employee of the Corporations concerning the employee benefits of the Buyer.

 

(l)                                     All Employee Plans of the Corporations other
than the US Plans (as defined in paragraph (o) below) have been duly
registered, where required, and are in good standing under all applicable
legislation (foreign or domestic), including, without limiting the generality
of the foregoing, the Tax Act, the Employment Pension Plans Act (Alberta), or
similar legislation in

 

29

 

any other jurisdiction and all required employer contributions under
any such plan(s) or policies have been made and no past service funding
liabilities exist thereunder.

 

(m)                             Notwithstanding
any provision to the contrary above, any representation that is made concerning
an Employee Plan and its compliance with ERISA, the Code or any applicable
Legal Requirements under U.S. law, or where the IRS, PBGC, ERISA, the Code or
any applicable Legal Requirement under U.S. law is referred to in the context
of such Employee Plan, such representation is hereby limited to Employee Plans
that are sponsored, contributed to or maintained by the Corporations or any of
their Subsidiaries in the United States on behalf of employees employed by such
entities in the United States (“US Plans”) and no representation is made in
such regard concerning any Employee Plans that are not US Plans.

 

Section 4.16                            Compliance with Law.

 

(a)                                 Except as set forth in Schedule 4.16(a),

 

(i)                                     the Corporations are, and at all times since
December 31, 2002, have been, in full compliance with each Legal
Requirement that is or was applicable to them or to the conduct or operation of
its business or the ownership or use of any of its assets in all material
respects;

 

(ii)                                  no event has occurred since December 31,
2002 or circumstance exists since December 31, 2002 that (with or without
notice or lapse of time) (A) is likely to constitute or result in a
violation by either Corporation of, or a failure on the part of either Corporation
to comply with, any Legal Requirement or (B) is likely to give rise to any
obligation on the part of either Corporation to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature; and

 

(iii)                               neither Corporation has received, at any
time since December 31, 2002, any notice or other communication (whether
oral or written) from any Governmental Body or any other Person regarding (A) any
actual or alleged violation of, or failure to comply with, any Legal
Requirement or (B) any actual or alleged obligation on the part of the
Corporations to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.

 

(b)                                 Schedule 4.16(b) contains a
complete and accurate list of each Governmental Authorization that is held by
the Corporations or that otherwise relates to the Corporations’ business or its
assets.  Each Governmental Authorization
needed by the Corporations for the conduct of its business is valid and in full
force and effect.  Except as set forth in
Schedule 4.16(b):

 

(i)                                     the Corporations are, and at all times since
December 31, 2002, have been, in full compliance with all of the terms and
requirements of each Governmental Authorization identified or required to be
identified in Schedule 4.16(b);

 

(ii)                                  no event has occurred since December 31,
2002 or circumstance exists since December 31, 2002 that is likely to (A) constitute
or result directly or indirectly in a

 

30

 

violation of or a failure to comply with any
term or requirement of any Governmental Authorization or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation
or termination of, or any modification to, any Governmental Authorization
needed by either Corporation for the conduct of its business as presently
conducted;

 

(iii)                               neither Corporation has received, at any
time since December 31, 2002, any notice or other communication (whether
oral or written) from any Governmental Body or any other Person regarding (A) any
actual or alleged violation of or failure to comply with any term or
requirement of any Governmental Authorization or (B) any actual or
proposed revocation, withdrawal, suspension, cancellation, termination of or
modification to any Governmental Authorization; and

 

(iv)                              since December 31, 2002 all
applications required to have been filed for the renewal of the Governmental
Authorizations necessary of the conduct of the Corporations’ business have been
duly filed on a timely basis with the appropriate Governmental Bodies, and all
other filings required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the appropriate
Governmental Bodies.

 

(c)                                  the Governmental Authorizations listed in Schedule 4.16(b) collectively
constitute all of the Governmental Authorizations necessary to permit the
Corporations to lawfully conduct and operate their business in the manner in
which it currently conducts and operates such business and to permit the Corporations
to own and use their assets in the manner in which they currently own and use
such assets.

 

(d)                                 Notwithstanding
anything to the contrary in this Section 4.16, the provisions of this Section 4.16
shall not relate to or cover compliance with Legal Requirements related to: (i) Employee
Plans of the Corporation or any of their ERISA Affiliates, which are covered
exclusively by Section 4.15; or (ii) Environmental Law, which is
covered exclusively by Section 4.19.

 

Section 4.17                            Taxes.

 

(a)                                 Tax Returns Filed and Taxes Paid.  The
Corporations have filed or caused to be filed on a timely basis all Tax Returns
and all reports with respect to Taxes that are or were required to be filed
pursuant to applicable Legal Requirements. 
Trace Texas will file all Tax Returns and reports required to be filed
in respect of its fiscal year ended December 31, 2004, on or before September 15,
2005.  All Tax Returns and reports filed
by the Corporations are true, correct and complete (provided that this
representation shall not be construed as a representation as to the existence,
availability or value to the Buyer of any net operating loss, foreign tax
credit or other tax attributes of the Corporations as of the Closing
Time).  Each of the Sellers and the
Corporations, as the case may be, has paid, or made provision for the payment
of, all Taxes for which they are responsible that have or may have become due
for all periods covered by the Tax Returns or otherwise, or pursuant to any
assessment received by the Corporations, except such Taxes, if any, as are
listed in Schedule 4.17 and are being contested in good faith and as to
which adequate reserves (determined in accordance with US GAAP or Canadian
GAAP, as applicable)

 

31

 

have been provided in the Interim Consolidated Balance Sheet and the
Financial Statements.  Except as provided
in Schedule 4.17, none of the Corporations are currently the beneficiary
of any extension of time within which to file any Tax Return.  No claim has ever been made or is expected to
be made by any Governmental Body in a jurisdiction where either Corporation
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction.  There are no Encumbrances
on any of the assets of the Corporations that arose in connection with any
failure to pay any Tax (other than Taxes not yet due and payable), and the
Sellers have no Knowledge of any claims attributable to Taxes which, if
adversely determined, would result in any such Encumbrance.

 

(b)                                 Delivery of Tax Returns and
Information Regarding Audits and Potential Audits.  The
Sellers have made available to Buyer copies of, and Schedule 4.17 contains
a complete and accurate copy of, all federal, state, provincial, territorial,
local, and foreign income Tax Returns of the Corporations (other than Tax
Returns for sales and use taxes) filed since December 31, 2000.  Schedule 4.17 contains a complete and
accurate list of all pending audits and Tax disputes.  Neither the Corporations nor any Seller expects
any undisclosed deficiencies in payment of Tax to be asserted with respect to
any such audit.  Any such deficiencies
proposed as a result of such audits have been paid, reserved against, settled
or are being contested in good faith. 
The Sellers have made available to Buyer, copies of any examination
reports, statements or deficiencies or similar items with respect to such
audits in either Corporation’s possession. 
Except as provided in Schedule 4.17, the Sellers have no Knowledge
that any Governmental Body is likely to assess any additional taxes for any
period for which Tax Returns have been filed. 
Except as provided in Schedule 4.17, there is no dispute or claim
concerning any Taxes of the Corporations either (i) claimed or raised by
any Governmental Body in writing or (ii) as to which the Sellers have
Knowledge.  Except as described in Schedule 4.17,
neither Corporation has been given or been requested to give waivers or
extensions (or is or would be subject to a waiver or extension given by any
other Person) of any statute of limitations relating to the payment of Taxes of
either Corporation or for which either Corporation may be liable.

 

(c)                                  Post-Closing Tax Liabilities.  The
unpaid Taxes of the Corporations do not, as of the Closing Date, exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth on the face of the Interim Consolidated Balance Sheet.  Except as disclosed in Schedule 4.17,
since December 31, 2004, neither Corporation has received notice of any
proposed tax assessment or deficiency against either Corporation.  Since the date of the Interim Consolidated
Balance Sheet, the Corporations have not incurred any liability for Taxes
arising from extraordinary gains or losses, as that term is used in Canadian
GAAP.

 

(d)                                 Transactions Affecting
Post-Closing Tax Years.  The Corporations will not be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing
Date as a result of any (i) change in method of accounting for a taxable
period ending on or prior to the Closing Date, (ii) ”closing agreement” as
described in Code Section 7121 (or any corresponding provision or similar
provision of federal, state, provincial, territorial, local or foreign income
Tax law) executed on or prior to the Closing Date, (iii) installment sale
or open transaction

 

32

 

disposition made on or prior to the Closing Date, or (iv) prepaid
amount received on or prior to the Closing Date.

 

(e)                                  Specific Potential Tax
Liabilities and Tax Situations.  Except as provided in Schedule 4.17:

 

(i)                                     Withholding.  All
Taxes that the Corporations are or were required by Legal Requirements to
withhold, deduct or collect prior to the Closing Date have been or will be duly
withheld, deducted and collected and, to the extent required, will be paid to
the proper Governmental Body or other Person.

 

(ii)                                  Tax Sharing or Similar Agreements. 
There is no tax sharing agreement, tax allocation agreement, tax
indemnity obligation or similar written or unwritten agreement or practice with
respect to Taxes (including any advance pricing agreement, closing agreement or
other arrangement relating to Taxes) that will require any payment by either
Corporation after the Closing.

 

(iii)                               Consolidated Group. 
Neither Corporation (i) has been a member of an Affiliated Group
(or any similar group defined under a similar provision of federal, state,
provincial, territorial, local or foreign law) and (ii) has no liability
for Taxes of any person (other than the Corporations) under §1.1502-6 of the
Treasury Regulations (or any similar provision of state, local or foreign law),
as a transferee or successor by contract or otherwise.

 

(iv)                              Listed Transactions.  In
the past six years, neither Corporation has ever participated in a transaction
that has been specifically identified by the IRS as a “listed” transaction for
purposes of §1.6011-4(b) of the Treasury Regulations and has not disclosed
any transactions to the IRS under any penalty amnesty program.

 

(v)                                 Golden Parachute Agreements. 
Neither Corporation is a party to any agreement, contract or plan that
as a result of the consummation of the transactions contemplated hereby could
result, separately or in the aggregate, in the payment of (i) any “excess
parachute payment” within the meaning of Code Section 280G (or any
corresponding provision of federal, state, provincial, territorial, local or
foreign Tax law) and (ii) any amount that will not be fully deductible as
a result of Code Section 162(m) (or any corresponding provision of state,
local or foreign Tax law).

 

(vi)                              Arrangement Constituting a Partnership. 
Neither Corporation is subject to any joint venture, partnership or
other arrangement or contract that is treated as a partnership for federal or
applicable state income tax purposes or for any other Tax purposes.

 

(vii)                           Tax Attributes. 
Subject to the general qualification made in Section 4.17(a) that
no representation will be made as the actual value of such amounts, Schedule 4.17(f)(vii) sets
forth the estimated amount of any net operating loss, net capital loss, unused
investment, foreign tax or other credit, or excess charitable contribution
allocable to either Corporation as of December 31, 2004.

 

33

 

(f)                                   Since December 31, 2004, the
Corporations have not:

 

(i)                                     made any election under Section 85 of
the Tax Act with respect to the acquisition or disposition of any property;

 

(ii)                                  made any election under Section 83 or
196 of the Tax Act; or

 

(iii)                               discontinued carrying on any business in
respect of which any unutilized non-capital losses were incurred.

 

(g)                                  The
Corporations have made all elections required to be made under the Tax Act in
connection with any distributions by it and all such elections were true and
correct and in the prescribed form and were made within the prescribed time
periods;

 

(h)                                 The
year end of the Corporations for income tax purposes is December 31;

 

(i)                                     The
Sellers are each a non-resident person within the meaning of the Tax Act;

 

(j)                                    Trace
is a taxable Canadian corporation within the meaning of the Tax Act.

 

Section 4.18                            Insurance.

 

(a)                                 Except as set forth in Schedule 4.18(a),
the Corporations have made available to Buyer accurate and complete copies of:

 

(i)                                     all policies of insurance (and
correspondence relating to coverage thereunder) to which any Corporation is a
party or under which any Corporation is or has been covered at any time since December 31,
2004;

 

(ii)                                  all pending applications by the Corporations
for policies of insurance; and

 

(iii)                               any written statement by the auditor of
Trace’s Financial Statements or any consultant or risk management advisor with
regard to the inadequacy of the Corporations’ coverage or of the reserves for
claims received by the Corporations since June 30, 2004.

 

(b)                                 Except as set forth in Schedule 4.18(b),
the Corporations:

 

(i)                                     do not have any written self-insurance
arrangement by (or that expressly involves) the Corporations, including any
reserves established thereunder; and

 

(ii)                                  have complied with all obligations of the
Corporations to provide insurance coverage to third parties (for example, under
leases or service agreements).

 

(c)                                  Except as set forth in Schedule 4.18(c):

 

(i)                                     all policies of insurance that provide
coverage to either Corporation and which have been established by the
Corporations:

 

34

 

(A)                               are valid, outstanding and enforceable, subject to limitations on
enforceability as are applicable under applicable Legal Requirements; and

 

(B)                               are issued by an insurer that is reputable;

 

(ii)                                  With respect to any policy of insurance
described in Section 4.18(c)(i), neither Corporation has received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights or (B) any notice of cancellation or any other
indication that any policy of insurance is no longer in full force or effect or
that the issuer of any policy of insurance is not willing or able to perform
its obligations thereunder;

 

(iii)                               With respect to any policy of insurance
described in Section 4.18(c)(i) that involves either Corporation,
such Corporation has paid or caused to be paid, all premiums due, and has
otherwise performed all of its obligations,; and

 

(iv)                              With respect to any policy of insurance
described in Section 4.18(c)(i), the Corporations have given notice to the
insurer of all known claims that may be insured thereby.

 

Section 4.19                            Environmental
Laws and Regulations.

 

Except as set forth in Schedule 4.19:

 

(a)                                 The Corporations, since December 31,
2002, have been in compliance with, and are not in violation of or liable
under, any Environmental Law.  Since December 31,
2002, neither Corporation has received, nor, to the Knowledge of the
Corporations or the Sellers, has any other Person for whose conduct either
Corporation is or may be held to be responsible received, any written Order,
notice or other communication from (i) any Governmental Body or (ii) the
current or prior owner or operator of any Facilities, of any actual or alleged violation
or failure to comply with any Environmental Law, or of any actual or threatened
obligation to undertake or bear the cost of any Environmental, Health and
Safety Liabilities with respect to any Facility or other property or asset
(whether real, personal or mixed) in which the Corporations have or had an
interest.

 

(b)                                 There are no pending or, to the Knowledge of
the Corporations or the Sellers, threatened claims, Encumbrances, or other
restrictions of any nature seeking to assert or threatening to create any
Environmental, Health and Safety Liabilities and there are no claims arising
under or pursuant to any alleged violations of Environmental Law with respect
to or affecting any Facility or any other property or asset (whether real,
personal or mixed) in which either Corporation has or had an interest.

 

(c)                                  Neither Corporation expects, nor, to the
Sellers’ Knowledge, has any other Person for whose conduct either Corporation
is or may be held responsible, received, any written citation, directive,
inquiry, notice, Order, summons, warning or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged or actual violation or
failure to comply with any Environmental Law, or of any alleged or actual
obligation to undertake or bear the cost of any Environmental, Health and
Safety Liabilities with respect to any Facility or

 

35

 

property or asset (whether real, personal or mixed) in which either
Corporation has or had an interest, in all cases in respect of conduct since December 31,
2002.

 

(d)                                 The Corporations have made available to
Buyer true and complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by either Corporation that are in
possession of the Corporation pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or concerning compliance, by either
Corporation or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.

 

(e)                                  There are no Hazardous Materials present at
any Facility, or incorporated into any structure thereon.

 

Section 4.20                            Products and
Services.

 

Schedule 4.11 sets forth all claims
asserted or, to the Knowledge of the Corporations or the Sellers, threatened at
any time since June 30, 2003 against either Corporation in respect of
personal injury, wrongful death or property damage alleged to have resulted
from products or services provided by either Corporation, and all warranty
claims with respect to any single product with a value, individually or in the
aggregate, in excess of CDN$10,000.

 

Section 4.21                            [Not used].

 

Section 4.22                            Capitalization.

 

(a)                                 The
authorized capital stock of Trace consists of an unlimited number of common
shares (the “Trace Common Stock”), of which 268,539 shares are issued and
outstanding, and, except as set forth on Schedule 4.22(a), no shares are
reserved for issuance pursuant to Trace’s stock option and purchase plans and
no shares are reserved for issuance pursuant to securities exercisable or
exchangeable for, or convertible into, shares of Trace Common Stock.  Except as set forth in Schedule 4.22(a),
the outstanding shares of Trace Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable, are owned beneficially and
of record by the shareholders set forth on Schedule 4.22(a) and in
such amounts as set forth on Schedule 4.22(a).  The outstanding shares of Trace Common Stock
have been offered, issued, sold and delivered by Trace in compliance with all
applicable securities laws including, but not limited to, the Securities Act
(Alberta).  Except pursuant to the Option
Agreements and as set forth on Schedule 4.22(a), there are no outstanding
rights, options, warrants, conversion rights, preemptive rights or other rights
to acquire securities of Trace.  There
are no outstanding obligations of Trace to repurchase, redeem or otherwise
acquire any capital stock of Trace. 
Except as set forth on Schedule 4.22(a), there are no agreements or
restrictions (such as a right of first refusal, co-sale, right of first offer,
proxy, voting trust or voting agreements) with respect to the sale or voting of
any shares of the capital stock of Trace. 
Trace does not own or control, directly or indirectly, any interest or
investment in any corporation, partnership, association or other form of
business entity except Trace Texas, Trace Explorations Ltd. (Sucral Argentina)
and the Minority Subsidiaries.  Trace holds of record and beneficially owns
less than a majority of the common stock of the Minority
Subsidiaries.  Neither Corporation is
liable for any current or

 

36

 

future
obligations or liabilities of the Minority Subsidiaries, except pursuant to
applicable Legal Requirements.

 

(b)                                 The
authorized capital stock of Trace Texas consists of 100,000 shares of common
stock, $1.00 par value per share (the “Texas Common Stock”), of which
1,000 shares are issued and outstanding, and, except as set forth on Schedule 4.22(b),
no shares are reserved for issuance pursuant to Trace Texas’ stock option and
purchase plans and no shares are reserved for issuance pursuant to securities
exercisable or exchangeable for, or convertible into, shares of Texas Common
Stock.  The outstanding shares of Texas
Common Stock have been duly authorized and validly issued and are fully paid
and nonassessable, are owned beneficially and of record by the shareholders set
forth on Schedule 4.22(b) and in such amounts as set forth on Schedule 4.22(b).  The outstanding securities of Trace Texas
have been offered, issued, sold and delivered by Trace Texas in transactions
exempt from registration under the Securities Act and in accordance with all
applicable state securities or “blue sky” laws. 
Except as set forth on Schedule 4.22(b), there are no outstanding
rights, options, warrants, conversion rights, preemptive rights or other rights
to acquire securities of Trace Texas. 
There are no outstanding obligations of Trace Texas to repurchase,
redeem or otherwise acquire any capital stock of Trace Texas.  Except as set forth on Schedule 4.22(b),
there are no agreements or restrictions (such as a right of first refusal,
co-sale, right of first offer, proxy, voting trust or voting agreements) with
respect to the sale or voting of any shares of the capital stock of Trace
Texas.  Trace Texas does not own or
control, directly or indirectly, any interest or investment in any corporation,
partnership, association or other form of business entity.

 

Section 4.23                            Brokers and
Finders.

 

Except for Goldsmith-Agio-Helms, whose fees
and expenses shall be paid by Trace at Closing, neither the Corporations nor
any of the Corporations’ officers, directors or employees has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finders fees in connection with the Transactions contemplated by this Agreement, and the
Buyer shall not have any liability for any such fees or commissions.

 

Section 4.24                            [Not used].

 

Section 4.25                            Books and
Records.

 

The
books of account and other financial records of the Corporations in the
possession of the Corporations, all of which have been made available to the
Buyer, are complete and correct in all material respects in respect of the
matters described therein, to the Sellers’ Knowledge, represent actual, bona
fide transactions and have been maintained in accordance with applicable Legal
Requirements, including, since December 31, 2002, the maintenance of an
adequate system of internal controls.

 

Section 4.26                            Condition of Facilities.

 

(a)                                 Use of the real property for the various
purposes for which it is presently being used is permitted as of right under
all applicable zoning legal requirements and is not subject to “permitted
nonconforming” use or structure classifications.  All improvements to real property

 

37

 

leased by the Corporations or otherwise used in the Ordinary Course of
Business by the Corporations are in compliance with all applicable Legal
Requirements, including those pertaining to zoning and building, and are
accepted as is.  To the Sellers’
Knowledge, no part of any improvement encroaches on any real property not
leased by the Corporations.  To the
Sellers’ Knowledge, there is no existing or proposed plan to modify or realign
any street or highway or any existing or proposed eminent domain proceeding
that would result in the taking of all or any part of any Facility or that
would prevent or hinder the continued use of any Facility as heretofore used in
the conduct of the business of the Corporations.

 

(b)                                 Each item of Tangible Personal Property is
accepted as is.  All Tangible Personal
Property used in the Corporations’ business is in the possession of the
Corporations, except: (i) as may not be in their possession as a result of
actions taken in the Ordinary Course of Business or (ii) as set forth on Schedule 4.26.

 

Section 4.27                            No Undisclosed
Financial Liabilities.

 

Except as set forth in Schedule 4.27,
all of the Liabilities which, in accordance with Canadian GAAP are of a nature
as are required to be described in the Interim Consolidated Balance Sheet are so
described in such balance sheet and there are no additional Liabilities which,
in accordance with Canadian GAAP, are of a nature which are required to be
disclosed except as are incurred in the Ordinary Course of Business of the
Corporations since the date of the Interim Consolidated Balance Sheet or as are
otherwise accounted for in the Adjusted Purchase Price, including as it may be
recalculated pursuant to Section 2.4.

 

Section 4.28                            Employees.

 

(a)                                 Schedule 4.28(a) contains a
complete and accurate list of the following information for each current
executive, administration, office or operational management employee of the
Corporations, including each employee on leave of absence or layoff status:
name; job title; date of hire; and current compensation paid or payable and any
change in compensation since December 31, 2004.

 

(b)                                 The Corporations have no retired employees
except as set forth on Schedule 4.28(b).

 

(c)                                  Schedule 4.28(c) contains a
complete and accurate list of the following information for each such employee
of either Corporation who has been terminated or laid off, or whose hours of
work have been reduced by more than fifty percent (50%) by either Corporation,
in the three months prior to the date of this Agreement: (i) the date of
such termination, layoff or reduction in hours; (ii) a statement of
whether it was a termination for cause, layoff or reduction in hours; and (iii) the
location to which the employee was assigned.

 

(d)                                 The Corporations have not violated the
Worker Adjustment and Retraining Notification Act (the “WARN Act”) or any
similar state or local Legal Requirement.

 

(e)                                  To the Knowledge of the Sellers, no officer,
director, employee or contractor of the Corporations is bound by any Contract
that purports to limit the ability of such officer,

 

38

 

director, employee, or contractor to engage in or continue or perform
any conduct, activity, duties or practice. 
To the Sellers’ Knowledge, no executive or managerial employee of the
Corporations is a party to, or is otherwise bound by, any Contract that in any
way adversely affected, affects, or will affect the ability of the Corporations
or the Buyer to conduct the business as heretofore carried on by the
Corporations.

 

(f)                                   Except
as disclosed in Schedule 4.28(f), the Corporations have not, since December 31,
2004, directly or indirectly, made any increase in the compensation or other
benefits payable or to become payable to their employees or any of them, other
than general salary increases in the Ordinary Course of Business, consistent
with past practice, or any increase in the compensation or other benefits
payable or to become payable to any officer or director or any increase in the
benefits provided under any of its pension plans or other employee benefit
plans.

 

(g)                                  Except
as set out in Schedule 4.28(g) or as otherwise described in any
manner in Section 4.15, the Corporations are not a party to and are not
bound by any:

 

(i)                                     contract
or collective agreement with or commitment to any labour union or employee
association and the Corporations have not conducted negotiations with respect
to any future such contracts or commitments and there are no current or
threatened attempts to organize or establish any labour union or employee association
with respect to the Corporations, and no trade union, council of trade unions,
employee bargaining agency or affiliated bargaining agent:

 

(A)                               holds
bargaining rights with respect to any of the employees of the Corporations by
way of certification, interim certification, voluntary recognition, designation
or successor rights;

 

(B)                               has
applied to be certified as the bargaining agent of any of the employees of the
Corporations; or

 

(C)                               has
applied to have either Corporation declared a related employer pursuant to the
Labour Relations Code (Alberta);

 

(ii)                                  bonus,
pension, profit sharing, deferred compensation, retirement, hospitalization,
disability, insurance or similar plan or practice, formal or informal, or
policy with respect to any of their employees or others, other than the Canada Pension Plan, the Alberta Health Care Insurance Plan
and other similar health plans established and administered by any other
jurisdiction (foreign or domestic) and workers’ compensation insurance provided
pursuant to statute.

 

(h)                                 There
are no proceedings with respect to either Corporation under the Labour
Relations Code (Alberta) or any other similar legislation in other jurisdiction
(foreign or domestic), nor are there any labour disputes, grievances, strikes
or lockouts, current, pending or, to the Knowledge of the Corporations or the Sellers,
threatened.

 

39

 

(i)                                     To
the Knowledge of the Corporations or the Sellers, there are no allegations with
respect to either Corporation of unfair labour practices or complaints under
the Employment Standards Code, the Human Rights, Citizenship
and Multiculturalism Act, (Alberta) the Workers’
Compensation Act (Alberta) or the Labour Relations Code (Alberta) or
any other similar legislation in any other jurisdiction (foreign or domestic).

 

(j)                                    Except
as disclosed in Schedule 4.28(j), no employee of either Corporation is on
lay off, leave of absence, maternity or disability leave.  Schedule 4.28(j) sets forth the terms of
such lay off, leave of absence, maternity or disability leave.

 

(k)                                 Except
as disclosed in Schedule 4.28(k), the Corporations do not owe any
obligations to former directors, officers or employees.

 

(l)                                     Except
as disclosed in Schedule 4.28(l), there are no independent contractors
engaged by either Corporation.

 

(m)                             All
plans and policies listed in Schedule 4.28(g) have been duly registered
where required by, and are in good standing under, all applicable legislation
(foreign or domestic), including, without limiting the generality of the
foregoing, the Tax Act and the Employment Pension Plans
Act (Alberta) or any other similar legislation in any other
jurisdiction and all required employer contributions under any such plans or
policies have been made and no past service funding liabilities exist
thereunder.

 

(n)                                 Except
as otherwise described in Section 4.15, the amount of salaries, pensions,
bonuses, and other remuneration and fringe benefits of any nature, including
vacation pay, severance pay and unpaid earned wages of the directors, officers
and employees of the Corporations as of the Closing Date have been paid in full
or accrued and there is no outstanding overdue assessment, Order, certificate,
lien or judgment under the Employment Standards Code (Alberta), Human Rights, Citizenship and Multiculturalism Act,
(Alberta), Labour Relations Code (Alberta), Workers’ Compensation Act
(Alberta) and any other statute regarding employment of any jurisdiction
(foreign or domestic) in which either Corporation carries on business or have
employees.

 

(o)                                 All
employer obligations of the Corporations with respect to the directors,
officers and employees of either Corporation for withholding tax, and for
Canada Pension Plan, Employment Insurance, Workers’ Compensation Board
premiums, contributions or remittances of any kind in all material respects
which are then due, have been paid in full or accrued as of the Closing Date.

 

(p)                                 There
are no written warnings or disciplinary action currently outstanding against
any employee of the Corporations.

 

(q)                                 Except
for remuneration paid to employees in Ordinary Course of Business and made at
current rates of remuneration no payments have been made or authorized since
the date of the Interim Consolidated Balance Sheet by the Corporation or to
officers, directors or employees of the Corporation.

 

40

 

Section 4.29                            Compliance with the Foreign Corrupt Practices Act and Export Control and
Antiboycott Laws.

 

(a)                                 Except
as set forth in Schedule 4.29(a), the Corporations have not, and the
Corporations’ employees, agents and Representatives have not, used any funds of
the Corporations for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity, made any direct or indirect
unlawful payment to any foreign or domestic governmental official or employee,
violated or is in violation of any provision of the Foreign Corrupt Practices
Act of 1977 or made any illegal bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.

 

(b)                                 Except as set forth in Schedule 4.29(b),
the Corporations have made all payments to third parties by check, by credit
card or by wire transfer to such third party in the country in which the work
was performed.

 

(c)                                  The Corporations have at all times been in
compliance with all Legal Requirements relating to export control and trade
embargoes.  No product sold or service
provided by Trace (Texas) during the last five (5) years has been directly
sold to or performed in or on behalf of Cuba, Iraq, Iran, Libya or North Korea.

 

(d)                                 Except as set forth in Schedule 4.29(d),
Trace Texas has not violated the antiboycott prohibitions contained in 50
U.S.C. § 2401 et seq. or taken any action that can be penalized under Section 999
of the Code.  Except as set forth in Schedule 4.29(d),
during the last five (5) years, Trace Texas has not been a party to, is
not a beneficiary under and has not performed any service or sold any product
under any Contract under which a product has been sold directly to customers in
Bahrain, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia,
Sudan, Syria, United Arab Emirates or the Republic of Yemen.

 

Section 4.30                            Relationships
with Related Persons.

 

To the Knowledge of the Sellers or the
Corporations, no Related Person of the Corporations has, or since December 31,
2004, has had, any interest in any property used by the Corporations in the
Corporations’ business.  To the Knowledge
of the Sellers or the Corporations, no Related Person of the Corporations owns,
or since December 31, 2004, has owned, of record or as a beneficial owner,
an equity interest or any other financial or profit interest in any Person
(other than the Corporations themselves or the Minority Corporations) that has (a) had
significant business dealings or a significant financial interest in any
transaction with either Corporation other than business dealings or
transactions disclosed in Schedule 4.30, each of which has been conducted
in the Ordinary Course of Business with such Corporation at substantially
prevailing market prices and on substantially prevailing market terms or (b) engaged
in competition with such Corporation with respect to any line of the products
or services of such Corporation (a “Competing Business”) in any market presently
served by such Corporation, except for any of the Related Parties of SCF or
ownership of less than five percent (5%) of the outstanding capital stock of
any Competing Business that is publicly traded on any recognized exchange or in
the over-the-counter market.  To the
Knowledge of the Corporations or the Sellers, no Related Person of either
Corporation (other than one of the Corporations) is a

 

41

 

party to any Contract with, or has any claim or right against, such
Corporation except as set forth in Schedule 4.30.

 

Section 4.31                            Title to Assets.

 

The Corporations have good and marketable
title to, or a valid leasehold or other interest in, the properties and assets
used by them, located on their premises, or shown on the Interim Consolidated
Balance Sheet or acquired after the date thereof, free and clear of all
Encumbrances, except for Permitted Encumbrances or properties, assets or
interests disposed of in the Ordinary Course of Business since the date of the
Interim Consolidated Balance Sheet or as otherwise permitted by this Agreement.

 

As used herein, the term “Permitted
Encumbrances” shall include the following:

 

(i)                                     liens
for taxes, assessments or governmental or quasi-governmental charges that are
not yet delinquent;

 

(ii)                                  Encumbrances
reflected in the Financial Statements or created in the Ordinary Course of
Business subsequent to the date of the Financial Statements;

 

(iii)                               Encumbrances
disclosed in Schedule 4.31;

 

(iv)                              zoning
ordinances, conservation restrictions, building codes and all other statutes,
regulations and administrative enactments of any federal, state or governmental
or public authority having jurisdiction over the property affected thereby;

 

(v)                                 any
matters to which a real property lease is subject or subordinate;

 

(vi)                              Encumbrances
that will be released or satisfied at Closing, pursuant to the terms of this
Agreement; and

 

(vii)                           Encumbrances
that do not, individually or in the aggregate, significantly interfere with the
present use by the Companies of the real property subject thereto or affected
thereby.

 

ARTICLE V.

PRE-CLOSING COVENANTS

 

The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing, except as
provided in Section 5.7.

 

Section 5.1                                   General.

 

Each of the Parties will use his or its
commercially reasonable efforts to take all action and to do all things
necessary, proper, or advisable in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Article VII below).

 

42

 

Section 5.2                                   Notices and
Consents.

 

The Sellers will cause the Corporations to
give any notices to third parties, and will cause the Corporations to use their
commercially reasonable efforts to obtain any third-party consents, that the
Buyer reasonably may request in connection with the matters referred to in Section 4.4
above.  Each of the Parties will (and the
Sellers will cause the Corporations to) give any notices to, make any filings
with, and use its commercially reasonable efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section 4.4 above.

 

Section 5.3                                   Operation of
Business.

 

(a)                                 Sellers
will not cause or permit the Corporations to engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business
except:

 

(i)                                     to
the extent permitted or required by this Agreement;

 

(ii)                                  as
required to acquire the Additional Seismic Equipment;

 

(iii)                               as
required to complete joint venture arrangements of Trace relating to conducting
or creating business in the Northwest, Yukon or Nunavut Territories, provided
that the completion of such joint venture arrangements shall be subject to the
consent of the Buyer, such consent not to be unreasonably withheld; or

 

(iv)                              as
consented to by the Buyer.

 

(b)                                 Without
limiting the generality of the foregoing, the Sellers shall use their
commercially reasonable efforts to preserve the goodwill of the Corporations’
customers, employees, suppliers and other with whom the Corporations have
business relations.  Sellers will not
cause or permit either Corporation to (i) declare, set aside, or pay any
dividend or make any distribution with respect to its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock; (ii) enter into
employment agreements, modifying existing employment agreements or grant any
compensation increases or other additional compensation to employees (other
than seasonal employees); or (iii) otherwise engage in any practice, take
any action, or enter into any transaction of the sort described in Section 4.9
above.

 

Section 5.4                                   Notice of
Developments.

 

Each Party will give written notice within
three days to the other Parties of any development causing a Breach of any of
the representations and warranties in Article III or Article IV above
either in respect of representations made as of the date of this Agreement or
in respect of a Breach of a representation or warranty which would cause a
Party to be unable to satisfy the conditions set forth in Section 7.1 or Section 7.2.   The Parties shall be entitled to make such
determination in their discretion, acting reasonably, as to whether an event of
circumstance constitutes a Breach.  Such
notices may take the form of an amendment or supplement of any of the
representations or Schedules to this Agreement or the creation of a new Schedule to
this Agreement or any other form as may be applicable.  A written notice given

 

43

 

pursuant to this Section 5.4 shall become an exhibit to this
Agreement and shall be incorporated herein if such notice is delivered prior to
the Closing.  If the Party to whom the
notice is addressed receives such notice prior to Closing and thereafter
participates in the Closing, such Party will be deemed to have waived any
claims relating to the matters specified in such notice; however, no waiver
shall be deemed to have been made with respect to any claims that arise from or
are the subject of matters that are not specifically stated in such
notice.  Such notices must be delivered
on or before 72 hours before the Closing Time. 
If any such notice is delivered after such period, the Closing Time
shall be delayed to a time that is 72 hours (or the same hour on the next
business day if such time falls on a day that is not a business day in Houston
Texas) after the delivery of such notice, except as otherwise may be agreed by
the Buyer and the Sellers.

 

Section 5.5                                   Exclusivity.

 

(a)                                 Subject
to Section 5.5(b), the Sellers will not (and will cause the Corporations
to not) solicit, directly or through any intermediary, offers for the Trace
Common Stock and all or substantially all of the assets of the Corporations,
from any Person other than the Buyer and its Affiliates.  If the Sellers, the Corporations or their
respective Representatives receive an unsolicited bona fide third-party offer
to sell or otherwise acquire the Trace Common Stock or all or substantially all
of Trace’s assets, the Buyer shall be given prompt notice of such offer and the
Sellers shall notify the Person making such offer of the provisions of this Section 5.5.

 

(b)                                 The
obligation under this Section 5.5 will terminate, and the Sellers, the
Corporations and their Representatives will be able to solicit any offer of any
kind for some or all of the Trace Common Stock or some or all of the assets of
the Corporations without any restriction whatsoever, upon the earlier of:

 

(i)                                     receipt
by the Sellers of a proposal by the Buyer to reduce the amount of the Purchase
Price or otherwise alter the consideration that comprises the Purchase Price;

 

(ii)                                  the
Buyer’s failure to deliver to the Sellers, on or prior to the date that is 30
days from the date of the Agreement, written notification that Buyer’s due
diligence is completed; or

 

(iii)                               the
Buyer’s failure to deliver to the Sellers, on or prior to the date that is 60
days from the date of the Agreement, written evidence that the Buyer has
obtained financing commitments that will allow it to pay the Purchase Price
which commitments are not subject to conditions other than those set forth in Section 7.1.

 

Section 5.6                                   Access and
Investigation.

 

(a)                                 Between
the date of this Agreement and the Closing Date, and upon reasonable advance
notice received from the Buyer, the Corporations shall (and Sellers shall cause
the Corporations to) (a) afford the Buyer and its Representatives and
prospective lenders and their Representatives (collectively, “Buyer Group”)
full and free access, during regular business hours, to the Corporations’
personnel, properties (including non-destructive subsurface testing),
Contracts, Governmental Authorizations, books and records and other documents
and data, such rights of access to be exercised in a manner that does not
unreasonably interfere with the

 

44

 

operations of
the Corporations; the performance of the Corporations’ or the Sellers’ duties
under this Agreement or the transactions contemplated hereby, (b) furnish
Buyer Group with copies of all such Contracts, Governmental Authorizations,
books and records and other existing documents and data as Buyer Group may
reasonably request; (c) furnish Buyer Group with such additional
financial, operating and other relevant data and information regarding the
Corporations as Buyer may reasonably request; and (d) otherwise cooperate
and assist, to the extent reasonably requested by Buyer, with Buyer’s
investigation of the properties, assets and financial position related to the
Corporations, except
where the Sellers or the Corporations are contractually precluded by an
agreement pre-existing the date of this Agreement (or are otherwise
precluded by applicable Legal Requirement) 
from making such material available or taking any such action.  Notwithstanding these requirements, the
Corporations (and the Sellers) shall have no obligation to create any new
information for the Buyer;

 

(b)                                 Buyer
acknowledges and agrees that all such material and information provided to
Buyer Group shall constitute Confidential Information (unless such information
is excluded by the terms of the definition of Confidential Information);

 

(c)                                  In
addition, Buyer upon reasonable advance notice received from the Buyer shall
have the right to have the real property and Tangible Personal Property
inspected by Buyer Group, at Buyer’s sole cost and expense, during regular
business hours, for purposes of determining the physical condition and legal
characteristics of the real property and Tangible Personal Property and such rights
of access shall be exercised in a manner that does not unreasonably interfere
with the operations of the Corporations, the performance of the Corporations’
or the Sellers’ duties under this Agreement or the transactions contemplated
hereby, except that where the Sellers or the Corporations are contractually
precluded by an agreement pre-existing the date of this Agreement (or are
otherwise precluded by law) from taking any such action they shall not be
obligated to provide such access; and

 

(d)                                 In
the event subsurface testing is recommended by any of Buyer Group, Buyer shall
be permitted to have the same performed, at its own cost only after agreeing to
indemnify the Corporations from all Adverse Consequences arising from such
testing, obtaining adequate insurance, necessary permits and after receiving
consent from the Corporations, which shall not be unreasonably withheld, and
the land owner.  Before conducting such
activities, Buyer shall enter into a site access agreement with the owner of
the real property with respect to such testing.

 

Section 5.7                                   Confidential Information of Corporations and Sellers.

 

(a)                                 Until
the Closing (except in respect of Confidential Information regarding the
Sellers, in which case such obligation shall not terminate), all Confidential
Information, as hereinafter defined, acquired by Buyer Group with respect to
the Corporations or the Sellers shall be: (a) maintained in strict
confidence; (b) used only for the purpose of and in connection with
evaluating the transaction contemplated herein; and (c) disclosed only to
employees and duly authorized agents and representatives of Buyer Group who
have been informed of the obligations of the Buyer under this Section 5.7,
have a need to know the information in connection with the transactions
contemplated by this Agreement, agree to keep such information confidential,
and agree to be bound by the terms of this provision to the same extent

 

45

 

as if they
were parties hereto.  The Buyer shall keep
a record of such individuals and shall confirm their compliance with the
provisions of this obligation.

 

(b)                                 In
the event that any of Buyer Group is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, then the Buyer will notify the Sellers promptly of
the request or requirement so that the Sellers may seek an appropriate
protective Order or waive compliance with the provisions of this Section 5.7.  If, in the absence of a protective Order or
the receipt of a waiver hereunder, any of Buyer Group is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal,
Buyer Group may disclose the Confidential Information to the tribunal; provided, however, that the disclosing
member of Buyer Group shall use his or its commercially reasonable efforts to
obtain, at the reasonable request of the Sellers, an Order or other assurance
that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Sellers shall
designate.

 

(c)                                  For
the purposes of this Section 5.7, the term “Confidential Information”
shall mean all information acquired by Buyer Group from the Sellers, the
Corporations or their Representatives with respect to the business of the
Corporations other than information generally available to the public (other
than as a result of disclosure by Buyer Group or its Representatives in
violation of this Section 5.7) and information which becomes available to
Buyer Group on a non-confidential basis from a source other than the Sellers or
the Corporations or their Representatives (provided that such source is not known
by Buyer Group to be bound by a confidentiality agreement with, or other
obligation of secrecy to the Sellers, the Corporations or another party).  If the Closing does not occur, all
Confidential Information in written or printed or other tangible form (whether
copies or originals) held by Buyer Group shall be returned to Trace and all
documents, memoranda, notes and other writings whatsoever prepared by Buyer
Group based on the Confidential Information shall be destroyed and, upon
written request of Trace, the Buyer shall provide confirmation from itself and
each entity which comprises Buyer Group of compliance with this provision.

 

ARTICLE VI.

POST-CLOSING COVENANTS

 

The Parties agree as follows with respect to
the period following the Closing.

 

Section 6.1                                   General.

 

In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Article VIII below). 
The Sellers acknowledge and agree that from and after the Closing the
Buyer will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
the Corporations.  After Closing, the
Sellers shall have access to all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the

 

46

 

Corporations at their sole cost and expense, and such records shall not
be destroyed prior to the expiration of five years following the Closing Date,
unless otherwise agreed to by the Parties.

 

Section 6.2                                   Litigation
Support.

 

In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing
Date involving the Corporations, each of the other Parties will cooperate with
him or it and his or its counsel in the contest or defense, make available
their personnel upon reasonable notice, and provide such testimony and access
to their books and records upon reasonable notice as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party which shall be paid within 30 days of an invoice
being rendered) (unless the contesting or defending Party is entitled to
indemnification therefor under Article VIII below or such disclosure is
prohibited by applicable Legal Requirements or by a pre-existing duty or
covenant of confidentiality).

 

Section 6.3                                   Transition.

 

For a period of two years after the Closing
Date, SCF will not take any action that is designed or intended to have the
effect of discouraging any lessor, licensor, customer, supplier, or other
business associate of the Corporations from maintaining the same business
relationships with the Corporations after the Closing as it maintained with the
Corporations prior to the Closing except to the extent that such action: (a) is
taken by SCF in the course of exercising any of its rights pursuant to this
Agreement or defending any claim made against SCF pursuant to this Agreement; (b) involves
the direct or indirect sale or disposition of any of the Geokinetics Shares; or
(c) results from any activity undertaken after the Closing Date, of SCF or
any entity in which it has an investment, its limited partners, its general
partner or any of their Related Persons or their Representatives or
Representatives of their Related Persons, including any business activities
that compete directly with the businesses of the Corporations as constituted on
the Closing Date or anytime thereafter. 
SCF will refer all customer inquiries relating to the business of the
Corporations to the Buyer after the Closing.

 

Section 6.4                                   Confidentiality.

 

(a)                                 SCF
will treat and hold as such all of the Confidential Information, and refrain
from using any of the Confidential Information except in connection with this
Agreement or otherwise in connection with it having been a shareholder of
Trace, and after the Closing Date destroy, at the request and option of Buyer,
all tangible embodiments (and all copies) of the Confidential Information which
are in its possession except to the extent that such Confidential Information
is contained within other documents which do not otherwise constitute
Confidential Information or is otherwise required to permit SCF to maintain its
own records, as it determines in its discretion, in order to assert its rights
pursuant to this Agreement or defend against any claim made by the Buyer
pursuant to this Agreement.

 

47

 

(b)                                 In
the event that SCF is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any Confidential
Information, then SCF will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective Order or waive
compliance with the provisions of this Section 6.4.  If, in the absence of a protective Order or
the receipt of a waiver hereunder, SCF is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand liable
for contempt, SCF may disclose the Confidential Information to the tribunal;
provided, however, that SCF shall use its commercially
reasonable efforts to obtain, at the reasonable request of Buyer, an Order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as the Buyer shall
designate.  The foregoing provisions
shall not apply to any Confidential Information which is generally available to
the public immediately prior to the time of disclosure.

 

(c)                                  For
the purposes of this Section 6.4, the term “Confidential Information”
shall mean all information acquired by SCF from the Corporations or their
Representatives with respect to the business of the Corporations other than
information generally available to the public (other than as a result of
disclosure by SCF or its Representatives in violation of this paragraph) and
information which becomes available to SCF on a non-confidential basis from a
source other than the Corporations or their Representatives (provided that such
source is not known by SCF to be bound by a confidentiality agreement with, or
other obligation of secrecy to the Corporations).

 

Section 6.5                                   Restrictive
Legend.

 

Each certificate representing Geokinetics
Shares will be imprinted with a legend substantially in the following form:

 

THE SHARES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE
SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS SUCH
TRANSFER IS MADE (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS,
OR (B) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND ANY APPLICABLE STATE OR LOCAL SECURITIES LAW (INCLUDING
WITHOUT LIMITATION THE DELIVERY OF A LEGAL OPINION FROM COUNSEL TO THE
TRANSFEROR, REASONABLY SATISFACTORY, IF REQUESTED BY THE COMPANY).

 

Each holder desiring to transfer a Geokinetics
Share first must furnish the Buyer with (i) a written opinion reasonably
satisfactory to Buyer in form and substance from counsel reasonably
satisfactory to Buyer by reason of experience to the effect that the holder may
transfer the Geokinetics Shares as desired without registration under the
Securities Act and (ii) a

 

48

 

written undertaking executed by the desired transferee reasonably
satisfactory to Buyer in form and substance agreeing to be bound by the
restrictions on transfer contained herein.

 

Section 6.6                                   [Not used]

 

Section 6.7                                   Withholding
Tax and Clearance Certificates.

 

(a)                                 Each
of the Sellers who is not a resident of Canada for the purposes of the Income Tax Act (Canada) (the “Tax Act”) (each such Person referred
to herein as a “Non-Resident Seller”)
shall attempt to deliver or cause to be delivered to the Buyer at or prior to
the Closing Date a clearance certificate (a “Section 116 Certificate”) issued by the Canada Revenue Agency
pursuant to Section 116 of the Tax Act in respect of the disposition of
the Non-Resident Seller’s Trace Common Stock.

 

(b)                                 Each
such Section 116 Certificate shall fix (or otherwise be based on an amount
equal to) a certificate limit that is not less than the price payable to the
applicable Non-Resident Seller for the Non-Resident Seller’s Trace Common Stock
(such price for the Non-Resident Seller’s Trace Common Stock being referred to
herein as the “NRV Purchase Price”
and, in the case of the partial payment with Geokinetics Shares as referred to
in Section 2.2(a), shall have an amount added to the cash portion of the
Purchase Price payable to them equal to the number of Geokinetics Shares
multiplied by the 10 day weighted average trading price of the shares of the
common stock of the Buyer before the Closing Date (converted to Canadian
dollars using the Exchange Rate).

 

(c)                                  If
a Non-Resident Seller does not deliver or cause to be delivered a Section 116
Certificate containing a certificate limit as required by Section 6.7(b) to
the Buyer at or prior to the Closing Date, the Non-Resident Seller acknowledges
that the Buyer shall be entitled to deduct an amount from the NRV Purchase
Price payable by the Buyer to the Non-Resident Seller on the Closing Date equal
to 25% of such NRV Purchase Price, provided that a corresponding amount of any
such deduction (the “Withheld Amount”)
shall be paid in cash and deposited by the Buyer to the Sellers’ Solicitors on
the Closing Date, on the condition that such amount shall be held by the Sellers’
Solicitors in trust pending the delivery to the Buyer of a Section 116
Certificate with a certificate limit that is not less the full amount of the
NRV Purchase Price payable to the Non-Resident Seller, all in accordance with
the following terms and conditions:

 

(i)                                     the
deposit of the Withheld Amount with the Sellers’ Solicitors by the Buyer on the
Closing Date shall satisfy the Buyer’s payment obligation in respect of the
corresponding portion of the NRV Purchase Price payable to the Non-Resident Seller;

 

(ii)                                  the
amount deposited with the Sellers’ Solicitors shall be held in trust by the
Sellers’ Solicitors for the benefit of the Non-Resident Seller and the Buyer
for payment to the Non-Resident Seller and the Receiver General for Canada, as
described below;

 

(iii)                               promptly
upon the Non-Resident Seller’s providing a Section 116 Certificate to the
Buyer with a certificate limit that is not less the NRV Purchase Price payable
to the Non-Resident Seller, the full amount of the funds held in trust by the

 

49

 

Sellers’ Solicitors for the Non-Resident Seller (including any interest
earned on the funds held in trust less any Canadian withholding tax on such
interest) shall be paid to the Non-Resident Seller;

 

(iv)                              if
a Section 116 Certificate has not been provided to the Buyer as set out
above on or before the 30th day after the end of the month in which
the Closing Date occurs, the Sellers’ Solicitors shall remit the full amount it
continues to hold in trust for the applicable Non-Resident Seller at that date
(less any interest earned in respect of such funds) to the Receiver General for
Canada in satisfaction of the Buyer’s withholding tax liability in respect of
the purchase of the Non-Resident Seller’s Trace Common Stock pursuant to subsection 116(5) of
the Tax Act, unless the Non-Resident Seller provides evidence satisfactory to
the Buyer (acting reasonably) that the Canada Revenue Agency has instructed
that the funds not be remitted at such time, in which case the funds held by
the Escrow Agent shall continue to be held in trust;

 

(v)                                 in
the event that subparagraph (iv) applies to defer the time at which
amounts would otherwise be required to be remitted to the Receiver General for
Canada under that paragraph, the provisions of this paragraph (c) shall
continue to apply to any such withheld funds as if the reference to the date
that such amounts are required to be remitted to the Receiver General for
Canada were instead a reference to the new date set by the Canada Revenue
Agency as the date for the remittance or the date remittance is otherwise
required by law;

 

(vi)                              if
the aggregate certificate limit in the Section 116 Certificate provided to
the Buyer by the Non-Resident Seller is less than the NRV Purchase Price
payable to the Non-Resident Seller, the Sellers’ Solicitors shall remit 25% of
the difference between such excess NRV Purchase Price amount and the
certificate limit shown in the Section 116 Certificate to the Receiver
General for Canada in satisfaction of the Buyer’s withholding tax liability in
respect of the purchase of the Non-Resident Seller’s Trace Common Stock
pursuant to subsection 116(5) of the Tax Act, and any excess funds
held by the Sellers’ Solicitors following such remittance (including any
interest earned on the funds held in trust less any Canadian withholding tax on
such interest) shall be paid to the Non-Resident Seller;

 

(vii)                           the
funds held by the Sellers’ Solicitors for the Non-Resident Seller shall be
invested in an interest bearing account, with any such interest (less any
applicable Canadian withholding tax) to accrue for the benefit of the
Non-Resident Seller; and

 

(viii)                        if
requested by the Non-Resident Seller, the Sellers’ Solicitors will be entitled
to pay all or any portion of the funds that it holds in trust for the
Non-Resident Seller directly to the Receiver General for Canada against
delivery by the Canada Revenue Agency of a Section 116 Certificate.

 

Section 6.8                                   Registration Rights.

 

On the Closing Date, the Buyer and the
Sellers shall enter into the Registration Rights Agreement in substantially the
form attached hereto as Exhibit B.

 

50

 

Section 6.9                                   Transferred
Information.

 

The Buyer covenants and agrees to:

 

(a)                                 prior
to the completion of the transactions contemplated herein, collect, use and
disclose the Transferred Information solely for the purpose of reviewing and
completing the transactions contemplated herein, including the determination to
complete such transactions, and only collect, use and disclose such information
to the extent necessary to meet such purpose and as authorized or permitted by
law;

 

(b)                                 after
the completion of the transactions contemplated herein: (i) collect, use
and disclose the Transferred Information only for those purposes for which the
Transferred Information was initially collected from or in respect of the
individual to which such Transferred Information relates, unless: (A) the
Buyer has first notified such individual of such additional purpose, and where
required by law, obtained the consent of such individual to such additional
purpose, or (B) such use or disclosure is permitted or authorized by law,
without notice to, or consent from, such individual; and (ii) where
required by applicable Legal Requirement, promptly notify the individuals to
whom the Transferred Information relates that the transactions contemplated
herein have taken place and that the Transferred Information has been disclosed
to the Buyer;

 

(c)                                  return
or destroy the Transferred Information, at the option of the Sellers, should
the transactions contemplated herein not be completed; and

 

(d)                                 where
the disclosure or transfer of Transferred Information to the Buyer requires the
consent of, or the provision of notice to, the individual to which such
Transferred Information relates, to not require or accept the disclosure or
transfer of such Transferred Information until the Sellers have first notified
such individual of such disclosure or transfer and the purpose for same, and
where required by law, obtained the individual’s consent to same.

 

ARTICLE VII.

CONDITIONS TO OBLIGATIONS TO CLOSE

 

Section 7.1                                   Conditions
to Obligations of the Buyer.

 

The obligation of the Buyer to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:

 

(a)                                 all
of the representations and warranties of the Sellers made in this Agreement
(and as modified pursuant to Section 5.4) shall be true and correct in all
respects as of the Closing Date (unless they expressly refer to an earlier
date) with the same effect as if made at and as of the Closing Time (and for
the purpose of this condition, the representations and warranties of the
Sellers made in this Agreement shall be read as though none of them contained
any “material adverse effect” or other materiality qualification), except to
the extent that any breach of such representations and warranties arises from
the actions of the Sellers or the Corporations which are required by this
Agreement or are consented to by the Buyer;

 

51

 

(b)                                 the
Sellers shall have complied with and performed all of their obligations in this
Agreement to be performed or complied with at or before Closing, except to the
extent that any breach of such obligations is consented to by the Buyer;

 

(c)                                  since
the date of the Agreement, the business of Trace has been conducted in the
Ordinary Course of Business (except as otherwise permitted by this Agreement)
and in the absence of any material casualty or material adverse change in the
conduct of such business;

 

(d)                                 the
Buyer shall have finalized financing arrangements, satisfactory to the Buyer,
with Blackhawk Capital Partners or another Person, in the Buyer’s sole
discretion, to pay the Purchase Price as specified in this Agreement;

 

(e)                                  the
Buyer shall have agreed to employment terms with the Retained Employees, such
terms to be subject to the completion of Closing and to include compensation,
description of duties, non-competition and non-solicitation covenants, and
incentive compensation provisions (including, where applicable, participation
in the Buyer’s 401K to the extent such employees are eligible for
participation);

 

(f)                                   as
of the Closing Date, Trace shall have contracts which allow for a backlog of at
least CDN$19,000,000, which contracts shall reflect profit margins consistent
with Trace’s prior bidding practices;

 

(g)                                  the
Buyer shall have completed its due diligence review of Trace to its
satisfaction in its absolute and sole discretion;

 

(h)                                 the
consummation of the transactions contemplated by this Agreement will not result
in the acceleration of a termination right (or the creation of a termination
right) or the actual termination of, any Material Contract;

 

(i)                                     Trace
shall have exercised its option to purchase the Additional Seismic Equipment
pursuant to the terms of the option agreement between Trace and Input-Output
Inc. and the I/O Option Price
shall have been paid by Trace in cash or debt (which debt shall be incurred on
terms and conditions satisfactory to the Buyer), or has been exercised on the
basis that the I/O Option Cost will be paid by Trace (or the Buyer) at the
Closing Time or thereafter;

 

(j)                                    the
Sellers shall have entered into the Escrow Agreement and the Registration
Rights Agreement;

 

(k)                                 the
Seller Consents and Approvals and the Buyer Consents and Approvals shall have
been obtained with no conditions other than those agreed to in writing by the
Buyer, acting reasonably, or complied with on or before the Closing and the
Seller Consents and Approvals shall be in form and have terms satisfactory to
the Buyer, acting reasonably;

 

(l)                                     the
Sellers shall have delivered to the Buyer a certificate to the effect that each
of the conditions specified above in Section 7.1(a), (b), (c), (f), (h) and
(i) is satisfied in all respects;

 

52

 

(m)                             the
final Schedules to Section 3.1 and Article IV of this Agreement shall
have been delivered to the Buyer by the Sellers not less than three business
days prior to the Closing, and such Schedules shall be satisfactory to the Buyer
in its sole discretion;

 

(n)                                 the
Buyer shall have received the resignations, effective as of the Closing, of
each director and officer of the Corporations resigning their positions as an
officer or director, as the case may be, other than those whom the Buyer shall
have specified in writing at least three business days prior to the Closing;
and

 

(o)                                 Trace
shall have delivered to Buyer consolidated financial statements of the
Corporations for the fiscal year ended December 31, 2002, 2003, and 2004,
together with the consent (which consent shall be in form acceptable to Buyer,
acting reasonably) of the Corporations’ independent auditors to the inclusion
of such financial statements and the related reports thereon (i) in the
Buyer’s required filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, after the Closing Date or (ii) in
any registration statement or other offering document required to be prepared
by the Buyer in order to register its securities, or perfect an exemption from
applicable registration requirements, under the Securities Act of 1933, as
amended, or applicable state securities laws.

 

The Buyer may waive any condition specified
in this Section 7.1 if it executes a notice in writing so stating at or
prior to the Closing.  If any of the
conditions specified in this Section 7.1 are not complied with (provided
such non-compliance did not arise from the acts or omissions of the Buyer) or
waived by the Buyer on or before the Closing Date (other than Section 7.1(g),
for which the Buyer must provide the Sellers with notice of non-satisfaction on
or before the date that is 30 days from the date of this Agreement and if no
such notice is received by such date it shall be deemed to have been satisfied)
the Buyer may terminate this Agreement by written notice to the Sellers.

 

Section 7.2                                   Conditions
to Obligation of the Sellers.

 

The obligation of the Sellers to consummate
the transactions to be performed by them in connection with the Closing is
subject to satisfaction of the following conditions:

 

(a)                                 all
of the representations and warranties of the Buyer made in this Agreement (and
as modified pursuant to Section 5.4) shall be true and correct in all
respects as of the Closing and with the same effect as if made at and as of the
Closing Date, except to the extent that any breach of such representations and
warranties arises from the actions of the Buyer which are required by this
Agreement or are consented to by SCF;

 

(b)                                 the
Buyer shall have complied with and performed all of the terms and conditions in
this Agreement on its part to be performed or complied with at or before
Closing, except to the extent that any breach of such obligations is consented
to by SCF;

 

(c)                                  since
the date of this Agreement, the Buyer’s business has been conducted in the
Ordinary Course of Business and in the absence of any material casualty of
material adverse change in the conduct of such business;

 

53

 

(d)                                 the
Buyer shall have entered into the Escrow Agreement and the Registration Rights
Agreement;

 

(e)                                  the
Seller Consents and Approvals and the Buyer Consents and Approvals shall have
been obtained with no conditions other than those agreed to in writing by the
Sellers, acting reasonably, or complied with on or before the Closing and the
Buyer Consents and Approvals shall be in form and have terms satisfactory to
the Sellers, acting reasonably;

 

(f)                                   the
Buyer shall have delivered to the Sellers a certificate to the effect that each
of the conditions specified above in Section 7.2(a), (b), (c) and (d) is
satisfied in all respects;

 

(g)                                  the
final Schedules to Section 3.2 of this Agreement shall have been delivered
to the Sellers by the Buyer not less than three business days prior to the
Closing, and such Schedules shall be satisfactory to the Sellers in their sole
discretion.  The Buyer may amend the
Schedules to Section 3.2 up to the day that is three business days prior
to the Closing; and

 

(h)                                 the
directors of the Corporations and the Minority Corporations and SCF shall have
received releases from the Corporations and the Minority Corporations that are
satisfactory to them, and the Buyer, in each case acting reasonably.

 

SCF, on behalf of the Sellers, may waive any
condition specified in this Section 7.2 if it executes a notice in writing
so stating at or prior to the Closing. 
If any of the conditions specified in this Section 7.2 are not
complied with or waived by SCF on or before the Closing Date (provided such
non-compliance did not arise from the acts or omissions of the Sellers), SCF,
on behalf of the Sellers, may terminate this Agreement by written notice to the
Buyer.

 

Section 7.3                                   Information
Regarding the Satisfaction of Conditions

 

At the request of the Sellers, the Buyer
shall provide information to the Sellers regarding progress that is made in
satisfaction in the conditions set forth in Section 7.1.  At the request of the Buyer, the Sellers
shall provide information to the Buyer regarding progress that is being made in
the satisfaction of the conditions set forth in Section 7.2.  Such information shall be delivered to the
requesting Party in such reasonable detail as will permit such Party to assess
progress that has been made by the other Party (or Parties) in the satisfaction
of the conditions and such information shall be provided promptly after such
request.

 

ARTICLE VIII.

REMEDIES FOR BREACHES OF THIS AGREEMENT

 

Section 8.1                                   Survival of
Representations and Warranties.

 

All of the representations, warranties and
covenants of the Parties contained in this Agreement and any certificates
delivered at Closing shall survive the Closing hereunder (but not if notice of
a Breach is provided pursuant to Section 5.4) and continue in full force
and effect for a period of twelve months following the Closing Date (or lesser
period specified by any applicable statutes of limitations).  The twelve month period set forth in this Section 8.1
shall not apply with respect to the inaccuracy or breach of the representations
set forth in (a) Section 4.17,

 

54

 

which representations shall survive the Closing and continue in full
force and effect until the earlier of:  (i) 36
months following the Closing Date; and (ii) the occurrence of an event
described in Section 8.4(i)(v), so long as such event occurs after the
first anniversary of the Closing Date; and (b) Section 3.1(e), which
shall survive the Closing and continue in full force and effect (subject to the
applicable statute of limitations).

 

Section 8.2                                   Indemnification
Provisions for Benefit of the Buyer

 

If the Closing Time occurs, in the event any
Seller Breaches any of the representations, warranties, covenants or agreements
contained in this Agreement or in any certificate delivered by the Sellers with
respect hereto in connection with the Closing, provided that an Acquiror Party
provides a Claim Notice to the Sellers pursuant to Section 8.5 below
within the survival period specified in Section 8.1, then each of the
Sellers shall indemnify (individually as to a Seller’s Breach of any of the
representations set forth in Section 3.1 above, but severally in the case
of a Breach of any other representations, warranties, covenants or agreements
made by the Sellers in this Agreement) from the Escrow Fund the Buyer and the
Corporations (each, an “Acquiror”) and each of Acquiror’s respective officers,
directors, employees, agents, Representatives, Affiliates, successors and
permitted assigns (collectively, “Acquiror Parties”) and hold each of them
harmless from and against and pay on behalf of or reimburse such Acquiror
Parties in respect of the entirety of any Adverse Consequences such Acquiror
Parties may suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by the
Breach.  For the purpose of this Article VIII,
the representations and warranties of the Sellers made in this Agreement shall
be read as though none of them contained any “material adverse effect” or other
materiality qualification (which, for greater certainty, does not apply to any
knowledge qualification or a qualification as to significance).

 

Section 8.3                                   Indemnification
Provisions for Benefit of the Sellers.

 

In the event the Buyer Breaches any of its
representations, warranties, and covenants contained herein, provided that the
Sellers provide a Claim Notice to the Buyer pursuant to Section 8.5 below
within the survival period specified in Section 8.1, the Buyer shall
indemnify each of the Sellers from and against the entirety of any Adverse
Consequences the Seller may suffer through and after the date of the claim for
indemnification resulting from, arising out of, relating to, in the nature of,
or caused by the Breach.  For the purpose
of this Article VIII, the representations and warranties of the Buyer made
by in this Agreement shall be read as though none of them contained any “material
adverse effect” or other materiality qualification.

 

Section 8.4                                   Limitation
of Indemnities.

 

(a)                                 No
claims, demands, suits, actions, proceedings or remedies (“Claims”) with respect to the indemnities provided by this Agreement shall
be made or be available unless a Claim Notice (as that term is defined in Section 8.5(b))
has been given by the party making the Claim to the other parties hereto within
twelve months of the Closing
Date (or lesser period specified in any applicable statute of limitations),
except in the case of a claim for a Breach of the representations set forth in Section 3.1(e) which
may be made up until the applicable limitation period expires;

 

55

 

(b)                                 The
Sellers’ liability pursuant to this Article VIII shall be limited to the
Escrow Amount (including any interest thereon) and the Acquiror Party shall
have no remedy whatsoever against the Sellers or any other asset or interest of
them in respect of any such Claim, even in the event that the Escrow Amount is
lost or is not otherwise available, except as provided in Sections 8.4(i) and
8.9;

 

(c)                                  The
Sellers shall have no obligation to provide any indemnity to the Acquiror
Parties unless and until the aggregate of all Adverse Consequences suffered by
the Acquiror Parties thereunder exceed CDN$150,000, which amount shall be
treated as a deductible and such initial amount of CDN$150,000 amount shall not
be indemnifiable by the Sellers pursuant to Section 8.2;

 

(d)                                 The
Buyer shall have no obligation to provide any indemnity to the Sellers unless
and until the aggregate of all Adverse Consequences suffered by the Sellers
thereunder exceeds CDN$150,000, which amount shall be treated as a deductible
and such initial amount of CDN$150,000 shall not be indemnifiable by the Buyer
pursuant to Section 8.3;

 

(e)                                  The
indemnification obligations of the Sellers and the Buyer hereunder with respect
to any Adverse Consequences suffered by an Indemnified Party shall be deemed
reduced by the amount of (i) any insurance proceeds received by such Indemnified
Party with respect to such Adverse Consequences and (ii) any payments
received by such Indemnified Party pursuant to Section 2.4 which would
otherwise result in an indemnification obligation under Section 8.2 or
8.3, as applicable;

 

(f)                                   No
Acquiror Party may make a claim pursuant to this Article VIII for any
matter arising from any circumstance, matter or thing actually known by the
Buyer or its Representatives on or before the Closing Time;

 

(g)                                  The
Sellers may not make a claim pursuant to this Article VIII for any matter
arising from any circumstance, matter or thing actually known by the Sellers or
its Representatives on or before the Closing Time;

 

(h)                                 The
Acquiror Parties and the Sellers shall not be entitled to rely on the
provisions of this Article VIII in respect of any claim regarding the
obligations set forth in Section 2.4; and

 

(i)

 

(i)                                     The
Escrow Agent shall hold the Geokinetics Shares and any proceeds derived therefrom
(the “Escrowed Assets”) in escrow (the “Tax Liability Escrow”) until the second
anniversary of the Closing Date, at which time such portion of the Escrowed
Assets that represents 80% of the value of the Escrowed Assets at that date that
are in excess of the amount of any Claim or Claims for a Tax Breach that are
pending at that date, as determined in accordance with this Section 8.4(i)(iv),
shall be released from the Tax

 

56

 

Liability Escrow to the Sellers and shall no longer form part of the
Escrowed Assets.  The remaining Escrowed
Assets shall continue to be held in the Tax Liability Escrow until the third
anniversary of the Closing Date, at which time such remaining Escrowed Assets,
subject to the terms of the Escrow Agreement, shall be released from the Tax
Liability Escrow to the Sellers and shall no longer form part of the Escrowed
Assets.  The Sellers shall be permitted
at all times to dispose of the Geokinetics Shares or any other Escrowed
Assets  held in the Tax Liability Escrow
so long as the Escrow Agent retains all proceeds from any such disposition in
the Tax Liability Escrow;

 

(ii)                                  If
an Acquiror Party provides a Claim Notice pursuant to Section 8.5 (after
all of the Escrow Amount has been released pursuant to the Escrow Agreement)
with respect to a Claim for a Breach by any of the Sellers of any of the
representations set forth in Section 4.17 (a “Tax Breach”), the Sellers’
liability pursuant to this Article VIII in respect of such Tax Breach
shall be limited to an amount equal to the lesser of:

 

(A)                               the
value of the Escrowed Assets as of the date the Claim is satisfied; and

 

(B)                               the
Escrow Amount less all payments previously made to any Acquiror Party therefrom
or from the Escrowed Assets.

 

There shall be no claim against all or any portion of
the Escrowed Assets if at the time the Claim Notice is received by the Sellers
any portion of the Escrow Amount remains in escrow under the Escrow Agreement.

 

(iii)                               The
Acquiror Party shall have no remedy whatsoever against the Sellers or any other
asset or interest of them in respect of any such Claim for a Tax Breach set
forth in a Claim Notice provided pursuant to Section 8.4(i)(ii), even in
the event that the Escrowed Assets are lost or are not otherwise available;

 

(iv)                              The
value of any Geokinetics Shares that form part of the Escrowed Assets at any
time and from time to time shall be equal to the number of such Geokinetics
Shares multiplied by the 10 day weighted average trading price of the shares of
the common stock of the Buyer before such time (converted to Canadian dollars
using the Exchange Rate).  The value of
any other assets forming part of the Escrowed Assets shall be determined by the
Sellers acting reasonably;

 

(v)                                 The
provisions of this Section 8.4(i) shall terminate and be of no force
and effect upon the Buyer undergoing a merger (in which the Buyer is not the
surviving entity), tender offer, reorganization, sale of all or substantially
all of its assets, disposition (in a single transaction or series of related
transactions) of at least 50% of its common shares or similar transaction
resulting in a change in control of the Buyer, in which case the Tax Liability
Escrow shall terminate and all remaining Escrowed Assets shall be released to
the Sellers; and

 

(vi)                              If,
at any time, the Escrowed Assets include cash at least equal to the amount of
the Escrow Amount less all previous payments made to any Acquiror Party from
either the Escrow Amount or the Escrowed 
Assets, the Escrow Agent shall, upon written request from the Sellers,
release to the Sellers all Escrowed Assets other than an amount of cash equal
to the Escrow Amount less all previous payments to made to any Acquiror Party
from either the Escrow Amount or the Escrowed Assets.

 

57

 

Section 8.5                                   Indemnification
Procedure.

 

The following procedure shall apply to a
claim for indemnity described in this Article VIII:

 

(a)                                 For
purposes of this Section, the term “Indemnifying
Party” when used in connection with a Claim shall mean the Person having
an obligation to indemnify another Person with respect to such Claim pursuant
to this Agreement and the term “Indemnified
Party” when used in connection with a particular Claim shall mean
the Person having the right to be indemnified with respect to such Claim by the
Indemnifying Party pursuant to this Agreement;

 

(b)                                 To
make claim for indemnification, an Indemnified Party shall notify the
Indemnifying Party of its Claim, including the specific details of and specific
basis under this Agreement for its Claim (the “Claim Notice”).  In the
event that the claim for indemnification is based upon a Claim by a third party
against the Indemnified Party (a “Third Party
Claim”), the Indemnified Party shall provide its Claim Notice
promptly after the Indemnified Party has actual knowledge of the Third Party
Claim and shall enclose a copy of all papers (if any) served with respect to
the Third Party Claim; provided that the failure of any Indemnified Party to
give notice of a Third Party Claim as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement except to the extent
such failure results in insufficient time being available to permit the
Indemnifying Party to effectively defend against the Third Party Claim or
otherwise materially prejudices the Indemnifying Party’s ability to defend
against the Third Party Claim or increases the amount of liability or cost of
defense.  In the event that the claim for
indemnification is based upon an inaccuracy or breach of a representation,
warranty, covenant or agreement, the Claim Notice shall specify the
representation, warranty, covenant or agreement which was inaccurate or
breached;

 

(c)                                  The
Indemnifying Party shall have the right, by notice to the Indemnified Party
given not later than 60 days after receipt of the Claim Notice, to assume the
control of the compromise, settlement and defense of the Third Party Claim,
provided that such assumption shall, by its terms, be without cost to the
Indemnified Party.  The Indemnified Party
is authorized, prior to and during such 60-day period, to file any motion,
answer or other pleading that it shall deem necessary or appropriate to protect
its interests or those of the Indemnifying Party and that is not prejudicial to
the Indemnifying Party;

 

(d)                                 Upon
the assumption of control of any Third Party Claim by the Indemnifying Party on
the basis provided herein, the Indemnifying Party shall diligently proceed with
the defense, compromise or settlement of the Third Party Claim, including, the
employment of counsel satisfactory to the Indemnifying Party and, in connection
therewith, the Indemnified Party shall: (i) cooperate fully and to make
available to the Indemnifying Party all pertinent information, documents and
witnesses under the Indemnified Party’s control; and (ii) make such
assignments and take such other steps as on the advice of counsel for the
Indemnifying Party are reasonably necessary to enable the Indemnifying Party to
conduct such defense;

 

(e)                                  Notwithstanding
any other provision contained herein, the Indemnified Party, at its sole
expense, shall have the right to participate in the negotiation, settlement and
defense of any Third Party Claim and the Indemnifying Party shall not
negotiate, settle, compromise or pay

 

58

 

any Third
Party Claim without the prior written consent of the Indemnified Party; such
consent not to be unreasonably withheld or delayed;

 

(f)                                   Should
the Indemnifying Party fail to give notice to the Indemnified Party in accordance
with subsection (d) above, the Indemnified Party shall diligently
proceed with the defense, compromise or settlement of the Third Party Claim,
and, in connection therewith, the Indemnifying Party shall, at its sole
expense, cooperate fully to make available to the Indemnified Party all
pertinent information and witnesses under the Indemnifying Party’s control and (ii) make
such assignments and take such other steps as on the advice of counsel for the
Indemnified Party are reasonably necessary to conduct such defense.
Notwithstanding any other provision contained herein, the Indemnifying Party
shall have the right to participate in the negotiation, settlement and defense
of any Third Party Claim, at its sole expense, and under no circumstance shall
the Indemnified Party negotiate, settle, compromise or pay (except in the case
of payment of a judgment) any Third Party Claim without the prior written
consent of the Indemnifying Party, such consent not to be unreasonably withheld
or delayed; and

 

(g)                                  In
the case of a claim for indemnification not based upon a Third Party Claim (a “Direct Claim”), the Indemnifying Party
shall have 60 days from its receipt of the Claim Notice to (i) cure
the Adverse Consequences that form the substance of the Claim; (ii) admit
its liability for such Adverse Consequences or (iii) dispute the Claim for
such Adverse Consequences.  If the
Indemnifying Party does not notify the Indemnified Party within such 60-day
period that it has cured the Adverse Consequences or that it disputes the Claim
for such Adverse Consequences, the amount of such Adverse Consequences shall
conclusively be deemed a liability of the Indemnifying Party hereunder.  The
Indemnified Party shall cooperate fully to make available to the Indemnifying
Party all pertinent information, documents and witnesses under the Indemnified
Party’s control.  The Indemnified Party
shall not be entitled to the payment of any of its expenses in this regard from
the Escrow Amount until the outcome of such proceedings is known and the
obligation of the Indemnifying Party is determined.

 

Section 8.6                                   Determination
of Adverse Consequences.

 

All indemnification payments under this Article VIII
shall be deemed adjustments to the Purchase Price except as required by
applicable Legal Requirements.

 

Section 8.7                                   Excluded
Damages

 

Notwithstanding any other provision of this
Agreement, no Indemnified Party shall be entitled to any consequential damages
including exemplary, punitive, incidental, indirect or special damages
(collectively “Excluded Damages”)
suffered by an Indemnified Party except to the extent  such Excluded Damages were incurred by a
third party and are the subject of a Third-Party Claim asserted by that
third-party after the Closing Date, and Buyer hereby releases Seller, and
Seller hereby releases Buyer, in each case to the fullest extend applicable law
permits, from liabilities for all Excluded Damages.

 

59

 

Section 8.8                                   Scope of the
Representations and Warranties of Sellers.

 

THE BUYER ACKNOWLEDGES THAT EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT THE SELLERS HAVE NOT MADE, AND THE SELLERS HEREBY EXPRESSLY DISCLAIM
AND NEGATE, AND BUYER HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY,
EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO, AND THE
BUYER HEREBY EXPRESSLY WAIVES AND RELINQUISHES ANY AND ALL RIGHTS, CLAIMS AND
CAUSES OF ACTION AGAINST THE SELLERS AND ITS REPRESENTATIVES IN CONNECTION
WITH, THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR
OTHER MATERIALS (WRITTEN OR ORAL), HERETOFORE FURNISHED TO THE BUYER AND ITS
REPRESENTATIVES BY OR ON BEHALF OF THE SELLERS. 
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE SELLERS EXPRESSLY DISCLAIM
AND NEGATE, AND THE BUYER HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT AND
FIXTURES CONSTITUTING A PART OF THE ASSETS OWNED OR OPERATED BY THE
CORPORATIONS,

 

(A)                               ANY
IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY;

 

(B)                               ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE;

 

(C)                               ANY
AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LEGAL REQUIREMENTS.

 

THE SELLERS AND THE BUYER AGREE THAT, TO THE EXTENT REQUIRED BY
APPLICABLE LEGAL REQUIREMENTS TO BE EFFECTIVE, THE DISCLAIMERS OF THE
WARRANTIES CONTAINED IN THIS SECTION ARE CONSPICUOUS.

 

Section 8.9                                   Exclusive
Remedy.

 

Except in respect of (i) the right to
injunctive relief under Section 10.4 below or (ii) any claims based
on fraud involving a knowing and intentional misrepresentation of a material
fact:  (a) the indemnities provided
for in this Article VIII shall be the sole and exclusive remedy of any
person after the Closing with respect to, matters arising out of, or resulting
from this Agreement (including for any inaccuracy of any representation or
warranty or any failure or breach of any covenant, obligation, condition or
agreement contained in this Agreement whether such action is brought in tort,
contract or otherwise); (b) Each Party covenants and agrees that following
the Closing it shall not seek or assert any other remedy hereunder; and (c) Each
Party specifically waives and releases the other Parties from any liability and
any rights it might otherwise have pursuant to law except as provided for in
this Article VIII.  Any claims by a
Party for a Breach by another Party of such second Party’s obligations under Section 2.4
above shall not be subject to the limitations set forth in this Article VIII.

 

60

 

Section 8.10                            Mitigation
of Damages and Minimization of Claims.

 

The Buyer and the Sellers agree to use all
reasonable commercial efforts to:  (a) resolve
all Third Party Claims and Direct Claims for which indemnification is sought
under this Article VIII on the lowest cost basis that complies with the
requirements of Applicable Laws; and (b) mitigate the costs and expenses
as well as any Adverse Consequences arising out of any Third Party Claim or
Direct Claim.

 

ARTICLE IX.

TERMINATION

 

Section 9.1                                   Termination
of Agreement.

 

Certain of the Parties may terminate this Agreement
as provided below:

 

(a)                                 the
Buyer and SCF may terminate this Agreement by mutual written consent at any
time prior to the Closing;

 

(b)                                 the
Buyer terminate this Agreement by giving written notice to the Sellers on or
before the 30th day following the date of this Agreement if the Buyer is not
satisfied with the results of its continuing business, legal and accounting due
diligence regarding the Corporations;

 

(c)                                  the
Buyer may terminate this Agreement by giving written notice to the Sellers at
any time prior to the Closing (A) in the event any of the Sellers has
Breached any representation, warranty or covenant contained in this Agreement
in any material respect, the Buyer has notified the Sellers of the Breach, and
the Breach has continued without cure for a period of 15 days after the notice
of Breach or (B) if the Closing shall not have occurred on or before the
day that is 90 days following the date of this Agreement (unless the failure
results primarily from the Buyer itself breaching any covenant contained in
this Agreement (except a breach of a covenant of the Buyer which arises from or
in connection with a Breach of a representation or warranty of the Buyer)),
except as such Closing may be delayed pursuant to Section 5.4 (for up to
nine days); and

 

(d)                                 SCF
may terminate this Agreement by giving written notice to the Buyer any time
prior to the Closing (i) in the event the Buyer has Breached any
representation, warranty, or covenant contained in this Agreement in any
material respect, SCF has notified the Buyer of the Breach, and the Breach has
continued without cure for a period of 15 days after the notice of Breach, or (ii) if
the Closing shall not have occurred on or before day that is 90 days following
the date of this Agreement (unless the failure results primarily from any of
the Sellers themselves breaching any covenant contained in this Agreement
(except a breach of a covenant of one or more of the Sellers which arises from
or in connection with a Breach of a representation or warranty or on or more of
the Sellers)), except as such Closing may be delayed pursuant to Section 5.4
(for up to nine days).

 

61

 

Section 9.2                                   Effect of
Termination.

 

If any Party terminates this Agreement
pursuant to Section 9.1 above or any other provision of this Agreement,
all rights and obligations of the Parties hereunder shall terminate without any
Liability of any Party to any other Party except that the provisions of Section 5.7,
Section 10.1, Section 10.2, Section 10.8 and Section 10.14
shall survive termination of this Agreement.

 

ARTICLE X.

MISCELLANEOUS

 

Section 10.1                            Press
Releases and Public Announcements.

 

No Party shall issue any press release or
make any public announcement relating to the subject matter of this
Agreement  without the prior written
approval of the Buyer and SCF; provided,
however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its commercially reasonable best efforts to advise the other Parties
prior to making the disclosure).  These
obligations shall not apply to: (a) SCF’s notification of its limited
partners of the completion of Closing in a fashion consistent with its past
practice; and (b) disclosure made in the marketing materials of the
advisors of the Buyer and the Sellers that discloses only the identity of
Trace, the identity of the Buyer, the date of the sale and the participation of
the advisor in the transaction.

 

Section 10.2                            No Third-Party
Beneficiaries.

 

This Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective successors
and permitted assigns.

 

Section 10.3                            Entire
Agreement.

 

This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.

 

Section 10.4                            Succession
and Assignment.

 

This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns.  No
Party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other
Parties; provided, however, that the Buyer may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Buyer shall nonetheless
remain responsible for the performance of all of its obligations hereunder).

 

62

 

Section 10.5                            Counterparts.

 

This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

 

Section 10.6                            Headings.

 

The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.

 

Section 10.7                            Notices.

 

All notices, requests, demands, claims, and other
communications hereunder will be in writing. 
Any notice, request, demand, claim, or other communication hereunder
shall be deemed duly given if (and then two business days after) it is sent by,
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:

 

Notices to Buyer:

 

Geokinetics Inc.

One Riverway, Suite 2100

Houston, Texas
77056

Attention:                                David
A. Johnson

Phone:                                                 (713)
782-1234

Facsimile:                                (713)
850-7330

 

with a copy to:

 

Chamberlain,
Hrdlicka, White, Williams & Martin

1200 Smith Street

Suite 1400

Houston,
Texas  77002

Attention: James
J. Spring, III

Phone:                                                (713)
658-1818

Facsimile:                               (713)
658-2553

 

Notices to the SCF:

 

SCF –III, L.P.

600 Travis Street, Suite 6600

Houston, Texas  77002

Attention: Adam
Zylman

Phone:                                                (713)
227-7888

Facsimile:                               (713)
227-7850

 

63

 

with a copy to:

 

Bennett Jones LLP

4500, 855 2nd
Street SW

Calgary, AB T2P
4K7

Attention: Chip
Johnston

Phone:                                                (403)
298-3020

Facsimile:                               (403)
265-7219

 

And

 

Vinson &
Elkins LLP

2300 First City
Tower

1001 Fannin Street

Houston, TX 77002-6760

USA

Attention: Scott
Wulfe

Phone:                                                (713)
758-2750

Facsimile:                               (713)
615-5637

 

Notices to James White:

 

James White

302 Cove Creek
Lane

Houston,
Texas  77002

Phone:                                                (713)
435-0800

Facsimile:                               (713)
435-0804

 

Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any, other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient.  Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.

 

Section 10.8                            Governing
Law.

 

This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether
of the State of Texas or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Texas.

 

64

 

Section 10.9                            Amendments
and Waivers.

 

No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers.  No waiver by any
Party of any default, misrepresentation, or Breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any, prior
or subsequent default, misrepresentation, or Breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.

 

Section 10.10                     Severability.

 

Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability, of the offending term or provision in
any other situation or in any other jurisdiction.

 

Section 10.11                     Expenses.

 

Except as otherwise provided herein, each of
the Parties will bear his or its own costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.  The Parties acknowledge
that Trace has borne all of the Seller’s costs and expenses (including legal
fees) in connection with this Agreement and any of the transactions
contemplated hereby and that Trace (and no other Party) shall pay the
Transaction Costs, Option Costs and I/O Option Costs (if any) at Closing.

 

Section 10.12                     Construction.

 

The Parties have participated jointly in the
negotiation and drafting of this Agreement. 
In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties
and no presumption or burden of proof shall arise favoring or disfavoring any
Party by virtue of the authorship of any of the provisions of this
Agreement.  Any reference to any federal,
state, local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.  The word “including” shall mean including
without limitation.  The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance.  If any Party
has Breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not Breached shall not detract from or
mitigate the fact that the Party is in Breach of the first representation,
warranty, or covenant.  Matters disclosed
by the Sellers in any exhibit or schedule to this Agreement shall be
deemed disclosed as to all portions of this Agreement and shall qualify all
such portions of the Agreement, without being restricted to the express
provisions that they are identified as excepting.  Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

 

65

 

Section 10.13                     Incorporation
of Exhibits and Schedules.

 

The Exhibits and Schedules identified in this
Agreement (including notices given pursuant to Section 5.4) are
incorporated herein by reference and made a part hereof.

 

Section 10.14                     Submission
to Jurisdiction.

 

Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Harris County, Texas, in
any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court.  Each of
the Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other Party with respect thereto.  Any Party may make service on any other Party
by sending or delivering a copy of the process 
to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10.7 above.  Nothing in this Section 10.14, however,
shall affect the right of any Party to bring any action or proceeding arising
out of or relating to this Agreement in any other court or to serve legal
process in any other manner permitted by law or at equity.  Each Party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or at equity.

 

*****

 

66

 

IN WITNESS WHEREOF, the
Parties hereto have executed this Agreement on as of the date first above
written.

 

 

	
   

  	
  GEOKINETICS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David A. Johnson

  	
   

  
	
   

  	
  Name:

  	
  David A. Johnson

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SCF-III, L.P., by its general partner SCF-II, L.P.,
  by its

  general partner L.E. Simmons & Associates Incorporated,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Adam Zylman

  	
   

  
	
   

  	
  Name:

  	
  Adam Zylman

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  JAMES WHITE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James White

  	
   

  
										

 

67

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