Document:

Exhibit 4.1

 

	
  

  	
  DEAN
  HELLER

  
	
  Secretary
  of State

  
	
  204
  North Carson Street, Suite 1

  
	
  Carson
  City, Nevada 89701-4299

  
	
  (775) 684
  5708

  
	
  Website:
  secretaryofstate.biz

  

 

	
   

  	
  Certificate of Designation

  	
   

  
	
   

  	
  (PURSUANT TO NRS 78.1955)

  	
   

  

 

	
  Important:
  Read attached instructions before completing form.

  	
   

  	
  ABOVE SPACE
  IS FOR OFFICE USE ONLY

  

 

 

Certificate of Designation

For Nevada Profit Corporations
(Pursuant to NRS 78.1955)

 

 

1.  Name
of corporation:  Whittier Energy
Corporation

 

2.  By
resolution of the board of directors pursuant to a provision in the articles of
incorporation, this certificate establishes the following regarding the voting
powers, designations, preferences, limitations, restrictions and relative
rights of the following class or series of stock:  Whittier Energy Corporation, a Nevada
corporation (the “Corporation”), certifies that pursuant to the authority
contained in its Articles of Incorporation, and in accordance with provisions
of Nevada Revised Statutes Section 78.1955, it Board of Directors (the “Board”)
has adopted the following resolution creating a series of Preferred Stock, par
value $0.001 per share, designated as Series A 8% Automatically Convertible
Preferred Stock:  [Continuation attached]

 

	
  3.  Effective
  date of filing (optional):

  	
  Upon Filing

  
	
   

  	
  (must not be later than 90 days after the certificate is filed)

  

 

	
  4.  Officer
  Signature:

  	
   

  	
  /s/ Michael
  B. Young

  	
   

  
	
   

  	
  By:

  	
  Michael B.
  Young

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  

 

Filing
Fee:  $175.00

 

IMPORTANT:  Failure
to include any of the above information and submit the proper fees may cause
this filing to be rejected.

 

SUBMIT IN DUPLICATE

 

	
  This form
  must be accompanied by appropriate fees.

  	
  Nevada Secretary of State AM 78.1955 Designation 2003

  
	
  See
  attached fee schedule.

  	
  Revised on: 11/03/03

  

 

 

RESOLVED, that a series of the class of authorized $0.001 par value Series A
Preferred Stock of the Corporation is hereby created, and that the designation
and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:

 

1.
Designation and Amounts.

 

The
shares of such series shall be designated as the ‘‘Series A 8%
Automatically Convertible Preferred Stock’’ (the ‘‘Series A Preferred’’)
and the number of shares initially constituting such series shall be 852,912,
which number may be decreased (but not increased) by the Board without a vote
of the stockholders; provided, however, that such number may not be decreased
below the number of then currently outstanding shares of Series A
Preferred and shares of Series A Preferred issuable on exercise of rights
to acquire Series A Preferred.

 

2.
Rank.

 

The
Series A Preferred shall rank senior to the $0.001 par value common stock
(‘‘Common Stock’’)
of the Corporation, any other preferred stock of the Corporation issued and
outstanding on the date the first share of Series A Preferred is issued,
or any other series of stock issued by the Corporation ranking junior as to the
Series A Preferred with respect to payment of dividends, or upon
liquidation, dissolution or winding up of the Corporation (collectively, ‘‘Junior Securities’’).
The Series A Preferred shall rank junior to all Senior Securities with
respect to both the payment of dividends and the distribution of assets on
liquidation, winding up and dissolution. ‘‘Senior Securities’’ means any class or series
of stock issued by the Corporation ranking senior to the Series A
Preferred with respect to payment of dividends, or upon liquidation,
dissolution or winding up of the Corporation.

 

3.
Dividends.

 

(a) Commencing January 1, 2006, the holders of the Series A
Preferred shall be entitled to receive out of any assets legally available
therefor cumulative dividends on each outstanding share of Series A
Preferred at the rate of 8% of the Initial Liquidation Price, as described in Section 4(a),
per share per annum from the original issue date of the Series A Preferred
(the ‘‘Issue Date’’),
payable quarterly in cash within 15 days following the end of the calendar
quarters ending March 31, June 30, September 30 and December 31
of each year (each a ‘‘Dividend
Payment Date’’), when and as declared by the Board, in
accordance with the preference and priority described in Section 2 with
respect to any payment of any dividend on the Common Stock or any other class
or series of stock of the Corporation. Such dividends shall be cumulative from
the Issue Date, whether or not in any period the Company is legally permitted
to make the payment of such dividends and whether or not such dividends are
declared, and shall be payable when, as and if declared by the Board. All
dividends on the Series A Preferred shall accrue on a daily basis from the
Issue Date whether or not there are (at the time such dividend accrues or
becomes payable or at any other time) profits, surplus or other funds

 

1

 

of
the Corporation legally available for the payment of dividends. Neither
conversion on or after January 1, 2006 nor redemption of the Series A
Preferred on or after January 1, 2006 shall affect any holder’s right to
receive any accrued but unpaid dividends on such Series A Preferred.
Notwithstanding any other provision herein, no dividends shall be payable on
shares of the Series A Preferred that are converted, as described in Section 5,
on or before December 31, 2005.

 

(b) Dividends shall be calculated on the basis of the time elapsed
from and including the Issue Date to and including the Dividend Payment Date or
on any final distribution date relating to conversion or redemption or to a
dissolution, liquidation or winding up of the Corporation. Dividends payable on
the shares of Series A Preferred for any period of less than a full
calendar quarter shall be prorated for the partial quarter on the basis of a 360-day
year of twelve, 30-day months.

 

(c) To the extent dividends are not paid on a Dividend Payment
Date, all dividends that have accrued on each share of Series A Preferred
outstanding as of such Dividend Payment Date shall accrue additional dividends
and all such accrued and unpaid dividends shall compound on a quarterly basis
at a rate per annum equal to 12% (the ‘‘Default Rate’’). Except as provided in the preceding
sentence, (i) no interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A
Preferred that are in arrears, and (ii) the dividend rate specified in Section 3(a) shall
continue in effect.

 

(d) Dividends payable on each Dividend Payment Date shall be paid
to record holders of the shares of Series A Preferred as they appear on
the Corporation’s books at the close of business on the tenth Business Day
immediately preceding the respective Dividend Payment Date or on such other record
date as may be fixed by the Board in advance of a Dividend Payment Date,
provided that no such record date shall be less than ten nor more than 60
calendar days preceding such Dividend Payment Date. Dividends in arrears may be
declared and paid at any time to holders of record on a date not more than 60
calendar days preceding the payment date as may be fixed by the Board.
Dividends paid on shares of Series A Preferred in an amount less than the
total amount of such dividends at the time payable shall be allocated pro rata
on a share by share basis among all shares outstanding. ‘‘Business Day’’ means
any day other than a Saturday, Sunday or a day on which banking institutions in
New York, New York are authorized or obligated by law or executive order to close.

 

(e) So long as any
shares of Series A Preferred are outstanding, no dividend or other distribution,
whether in liquidation or otherwise, shall be declared or paid, or set apart
for payment on or in respect of, any Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired for any consideration
prior to the stated maturity thereof (or any money be paid to a sinking fund or
otherwise set apart for the purchase or redemption of any such Junior
Securities), without the prior consent of the holders of at least 66 2/3% of the outstanding shares
of Series A Preferred voting together as a separate class. So long as any
shares of Series A Preferred are outstanding and without the prior consent
of the holders of at least 66 2/3% of the outstanding shares of Series A
Preferred voting together as a separate class, no dividend or other distribution,
whether in liquidation or otherwise, shall be declared or paid, or set apart
for payment on or in respect of, any Parity Securities, nor shall any Parity
Securities be redeemed, purchased or otherwise acquired for any consideration
prior to the stated maturity thereof (or any money be paid to a sinking fund or
otherwise set apart for the

 

2

 

purchase or redemption of any such Parity
Securities), unless (i) if there are any accrued and unpaid dividends on
the Series A Preferred or such Parity Stock, such dividend or distribution
shall be allocated to pay such accrued and unpaid dividends of the Series A
Preferred and such Parity Stock, pro rata based on the amount of such accrued
and unpaid dividends and (ii) if all accrued and unpaid dividends have been
paid on the Series A Preferred and such Parity Stock, such dividends and
distributions shall be allocated pro rata to the holders of the Series A
Preferred and the Parity Stock based on the respective liquidation preferences
thereof. ‘‘Parity
Security’’ means the Series A Preferred or any other class
or series of stock issued by the Corporation ranking on a parity with the Series A
Preferred with respect to payment of dividends, and upon liquidation,
dissolution or winding up of the Corporation.

 

4.
Liquidation Preference.

 

(a) Distribution Amount.
In the event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, the holders of the Series A Preferred
shall be entitled to receive, in accordance with the preference and priority
described in Section 2 as to any distribution of any assets of the Corporation
to the holders of any other class or series of shares, the amount of $60.00 per
share of Series A Preferred (the ‘‘Initial Liquidation Price’’) plus any accrued
but unpaid dividends and any cumulated dividends thereon (together the ‘‘Liquidation Preference’’).
To the extent the available assets are insufficient to fully satisfy the
Liquidation Preference, then the holders of the Series A Preferred shall
share ratably in such distribution in the proportion that each holder’s shares
bears to the total number of shares of Series A Preferred outstanding. No
payment on account of any such liquidation, dissolution or winding up of the Company
shall be paid to the holders of the shares of Series A Preferred or the
holders of any Parity Securities unless there shall be paid at the same time to
the holders of the shares of Series A Preferred and the holders of any
Parity Securities amounts in proportion to the respective full preferential
amounts to which each is entitled with respect to such distribution. For this Section 4(a),
absent the consent of holders of at least 50% of the Series A Preferred, a
Change of Control or the consummation of a Qualified Offering shall be deemed
to be a liquidation, dissolution or winding-up of the Company. ‘‘Change of Control’’
means (A) the acquisition at any time by a ‘‘person’’ or ‘‘group’’ (as
such terms are used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the ‘‘Exchange Act’’)) who or which is the beneficial owner
(as defined in Rule 13(d)-3 under the Exchange Act), directly or
indirectly, of securities representing more than 35% of the combined voting
power in the election of directors of the then outstanding securities of the
Corporation or any successor of the Corporation; (B) approval by the Corporation
or any of its subsidiaries of any sale or disposition of all or substantially
all of the assets or earning power of the Corporation and its subsidiaries,
taken as a whole; or (C) approval by the stockholders of the Corporation
of any merger, consolidation or statutory share exchange to which the
Corporation is a party as a result of which the persons who were stockholders
immediately prior to the effective date of the merger, consolidation or share
exchange shall have beneficial ownership of less than 50% of the combined
voting power in the election of directors of the surviving corporation. ‘‘Qualified Offering’’
means an offering for cash by the Corporation of Junior Securities.

 

(b) After payment of the full amount payable to the holders of Series A
Preferred pursuant to Section 4(a), and subject to the rights of holders
of Junior Securities other than the Common Stock, the holders of Common Stock
shall share in the distribution of

 

3

 

the
remaining available assets of the Company under the Company’s Articles of
Incorporation.

 

(c) Written notice of any liquidation, dissolution or winding up
of the Company, stating the payment date or dates when and the place or places
where the amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage prepaid, not less than fifteen days prior
to any payment date stated therein, to the holders of record of the shares of Series A
Preferred at their respective addresses as the same shall appear in the records
of the Company.

 

5.
Conversion.

 

The
Series A Preferred shall be convertible into Common Stock in accordance
with the following:

 

(a) Optional Conversion.
Subject to the provisions of this Section 5, the holders of the Series A
Preferred may at their option convert such shares into shares of Common Stock
at any time on or after the Issue Date (‘‘Optional Conversion’’).

 

(b) Automatic Conversion. The
Series A Preferred shall automatically convert into Common Stock on the
first Business Day immediately following the satisfaction of both of the
following conditions: (i) the NASDAQ National Market shall have approved
the Common Stock for quotation, and the Common Stock shall be quoted, on the
NASDAQ National Market; and (ii) the Corporation shall have effected the
reverse stock split of the Common Stock at a ratio of at least 1-for-3 in
connection with the June 2005 initial issuance (the ‘‘Initial Issuance’’)
of the Series A Preferred (the ‘‘Reverse Split’’). The date a share of Series A
Preferred is converted is referred to as the ‘‘Conversion Date.’’

 

(c) Conversion Mechanics.
Upon conversion pursuant to this Section 5, each share of Series A Preferred
shall be converted into such number of fully paid and non-assessable shares of
Common Stock as is determined by dividing (i) the Initial Liquidation
Price by (ii) the Conversion Price determined as hereinafter provided in
effect on the Conversion Date. Upon conversion by a holder of the Series A
Preferred pursuant to this Section 5, (i) such holder shall be deemed
to own the number of shares of Common Stock into which the holder’s Series A
Preferred is converted and (ii) the Corporation shall pay in cash all
accrued and unpaid dividends, if any, through the Conversion Date. Promptly
thereafter the holder shall surrender the certificate or certificates representing
the Series A Preferred which were converted at the office of the
Corporation or of the transfer agent for such shares, or at such other place
designated by the Corporation. Such surrender may be made by registered mail
with return receipt requested, properly insured, by hand or by overnight
courier. The Corporation shall, promptly upon receipt of such certificates representing
the Series A Preferred shares which have been converted, deliver to such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled. At the close of business on the
Conversion Date, such holder shall be deemed to be the beneficial owner of the
shares of Common Stock.

 

(d) Determination of Conversion
Price. The Conversion Price (the ‘‘Conversion Price’’) shall be $2.00. If
the Corporation at any time or from time to time makes, issues, declares, pays
or fixes a record date for the determination of holders entitled to receive

 

4

 

any
dividend or other distribution payable of shares of Common Stock in Common
Stock or other securities of the Corporation or any of its subsidiaries or in
rights to acquire Common Stock or other securities of the Corporation or any of
its subsidiaries, or shall effect a stock split or reverse stock split
(including the Reverse Split), or a combination, consolidation or
reclassification of the Common Stock, then in each such event the Conversion
Price shall be proportionately decreased or increased, as appropriate, to give effect
to such event, such that upon any conversion after any such event, a holder of Series A
Preferred shall be entitled to receive the number and class of any securities
of the Corporation or other assets which the holder would have received had the
Series A Preferred been converted into Common Stock immediately before the
event.

 

(e) Certificates as to
Adjustments. Upon the occurrence of any adjustment or readjustment
of the Conversion Price pursuant to Section 5(c), the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and the principal financial officer of the Corporation
shall verify such computation and prepare and furnish to each holder of Series A
Preferred a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series A
Preferred, furnish or cause to be furnished to such holder a like certificate
prepared by the Corporation setting forth (i) such adjustments and
readjustments and (ii) the number of other securities and the amount, if
any, of other property which at the time would be received upon the conversion
of Series A Preferred with respect to each share of Common Stock received
upon such conversion. Notwithstanding the terms of this Section 5(e), the
Corporation shall not be required to furnish written notice to each holder of Series A
Preferred upon the occurrence of the Reverse Split.

 

(f) Notice of Record Date.
If the Corporation takes a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any security or right
convertible into or entitling the holder thereof to receive additional shares
of Common Stock, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Corporation shall mail to each holder of Series A
Preferred at least ten days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.

 

(g) Issue Taxes. The
Corporation shall pay any and all issue and other taxes, excluding any income,
franchise or similar taxes, that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of shares of Series A
Preferred; provided, however, that the Corporation shall not be obligated to
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.

 

(h) Reservation of Stock
Issuable Upon Conversion. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares of the Series A
Preferred, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding shares of the Series A
Preferred, and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Series A

 

5

 

Preferred,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval.

 

(i) Fractional Shares.
No fractional shares shall be issued upon the conversion of any share or shares
of Series A Preferred. All shares of Common Stock (including fractions
thereof) issuable upon conversion of more than one share of Series A
Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share.
If, after the aforementioned aggregation, the conversion would result in the issuance
of a fraction of a share of Common Stock, in lieu of issuing any fractional
share, the fraction shall be rounded up or down to the nearest whole number of
shares.

 

(j) Reorganization or Merger.
In case of any reorganization or any reclassification of the capital stock of
the Corporation or any consolidation or merger of the Corporation with or into any
other corporation or corporations or a sale of all or substantially all of the
assets of the Corporation to any other person, and such transaction is not
treated as a liquidation, dissolution or winding up as provided in Section 4,
then, as part of such reorganization, consolidation, merger or sale, provision
shall be made so that each share of Series A Preferred shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Series A Preferred would have
been entitled upon the record date of (or date of, if no record date is fixed)
such event and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interest thereafter of the holders of the Series A
Preferred, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as equivalent as is practicable, in relation to any
shares of stock or the securities or property (including cash) thereafter deliverable
upon the conversion of the shares of Series A Preferred.

 

6.
Redemption of Series A Preferred.

 

(a) On September 14, 2008, if any shares of Series A
Preferred are then outstanding, a redemption event (the ‘‘Redemption Event’’)
shall be deemed to have occurred. The redemption price payable for each share
of Series A Preferred redeemed pursuant to this Section 6(a) shall
be calculated by multiplying the Liquidation Preference then in effect by 108%.

 

(b) Between 30 and 60 days before the Redemption Event, the
Corporation shall mail a written notice (the ‘‘Redemption Notice’’) to each holder of
record of the Series A Preferred at the address last shown on the records
of the Corporation for such holder, notifying such holder of the redemption
which is to be effected, that the redemption shall occur on the date of the
Redemption Event (the ‘‘Redemption
Date’’), the place at which payment may be obtained and calling
upon each such holder to surrender to the Corporation, in the manner and at the
place designated, a certificate or certificates representing the total number
of shares of Series A Preferred held by such holder. On or after the
Redemption Date, each holder of Series A Preferred then outstanding shall
surrender to the Corporation the certificate or certificates representing the
shares of Series A Preferred owned by such holder as of the Redemption
Date, in the manner and at the

 

6

 

place
designated in the Redemption Notice, and thereupon an amount equal to the
purchase price per share of Series A Preferred as calculated pursuant to Section 6(a) shall
be payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled.

 

7.
Corporation’s Dealings with Holders of Series A
Preferred. No payments shall be made to holders of Series A
Preferred, or redemptions of Series A Preferred shall be made unless the
right to receive such payments or participate in such redemptions are made
available to all holders of Series A Preferred on a pro rata basis based
on the number of shares of Series A Preferred such holder holds.

 

8.
Consent Rights. The Corporation
shall not undertake the following actions without the approval by the vote or
written consent of the holders of at least 66 2/3% of the Series A
Preferred then outstanding, voting together as a single class:

 

(a) amend, alter, waive, repeal or modify (whether by merger,
consolidation or otherwise) any provision of the Articles of Incorporation
(including any filing or amending of a Certificate of Designation for any
Senior Securities or Parity Securities) or Bylaws of the Corporation so as to adversely
affect or otherwise impair any of the rights, preferences, privileges,
qualifications, limitations or restrictions of, or applicable to, the Series A
Preferred;

 

(b) authorize, issue or increase the authorized amount of any
class of Senior Securities or Parity Securities;

 

(c) increase or decrease (other than by redemption or conversion)
the authorized number of shares of Series A Preferred;

 

(d) liquidate, dissolve or wind up the Corporation in any form of
transaction; or

 

(e) enter into any agreement regarding, or any transaction or
series of transactions resulting in, a Change of Control before December 31,
2005, and thereafter unless provision is made in the agreement effecting such
transaction provide for the redemption of the Series A Preferred under Section 4.

 

9.
Voting Rights.

 

(a) Voting Rights.
Subject to the voting rights set forth in Section 8 and this Section 9,
and except as otherwise provided by law, each holder of the Series A
Preferred, in addition to any voting rights provided by law, may vote on all
matters voted on by the holders of Common Stock, voting together as a single
class with other shares entitled to vote at all meetings of the stockholders of
the Corporation, including the Common Stock. Each share of Series A
Preferred shall be entitled to a number of votes equal to the number of shares
of Common Stock into which it is convertible on the record date for any such
vote.

 

(b) Board Representation.

 

(i) If the Conversion Date has not occurred on or before December 31,
2005, the holders of the Series A Preferred, exclusively and as a separate
class, shall be entitled to: (x) elect two members of the Board if less than
51% of the

 

7

 

outstanding
shares of Series A Preferred issued in the Initial Issuance have converted
to Common Stock on or before December 31, 2005; and (y) elect one member
of the Board if 51% or more of the outstanding shares of Series A
Preferred issued in the Initial Issuance have converted to Common Stock on or before
December 31, 2005; provided, however that, the right to elect Preferred
Directors shall terminate at such time as 90% or more of the Series A
Preferred issued in the Initial Issuance shall have converted to Common Stock.
The directors so elected under this Section 9(b) are referred to as ‘‘Preferred Directors’’.
Upon election of the Preferred Directors, the Board shall increase the size of
the Board to add the Preferred Directors, as applicable.

 

(ii) The election of the Preferred Directors shall occur (i) at
the annual meeting of stockholders, (ii) at any special meeting of
stockholders if such meeting is called for the purpose of electing directors, (iii) at
any special meeting of holders of shares of Series A Preferred called by
holders of not less than a majority of the outstanding shares of Series A Preferred
Stock or (iv) by the written consent of holders of a majority of the
outstanding shares of Series A Preferred entitled to vote for the
Preferred Directors in the manner and on the basis as otherwise provided by
law. At any meeting having as a purpose the election of the Preferred
Directors, the presence, in person or by proxy, of holders of not less than
one-third (1/3) of the outstanding shares of Series A Preferred Stock
shall be required and sufficient to constitute a quorum of such class for the
election of the Preferred Directors. The holders of shares of Series A
Preferred shall be entitled to notice of any stockholders’ meeting in accordance
with the Bylaws of the Corporation and notice of any other matter submitted to the
vote of stockholders.

 

(iii) If at any time when any share of Series A Preferred is
outstanding any such Preferred Director should cease to be a Preferred Director
for any reason, the remaining Preferred Director may appoint an additional
Preferred Director to fill the vacancy. If the remaining Preferred Director
does not appoint an additional Preferred Director or if there are no Preferred
Directors remaining on the Board, the vacancy(ies) may be filled by the vote or
written consent of the holders of the outstanding shares of Series A
Preferred, voting together as a separate class, in the manner and on the basis
specified above or as otherwise provided by law. Any Preferred Director elected
to fill a vacancy shall serve the same remaining term as that of his or her
predecessor, subject, however, to prior death, resignation, retirement, disqualification,
or removal from office.

 

(iv) A Preferred Director may be removed with or without cause by,
and only by, the affirmative vote of the holders of not less than a majority of
the outstanding shares of Series A Preferred, given either at a special
meeting of the holders of Series A Preferred duly called for that purpose,
or by written consent of the holders of Series A Preferred.

 

(c) Calling a Meeting.
The holders of not less than 20% of the shares of Series A Preferred outstanding
may request the calling of a special meeting of the holders of Series A
Preferred, which meeting shall thereupon be called by the President, a Vice-President
or the Secretary of the Corporation. Notice of such meeting shall be given to
each holder of record of Series A Preferred by mailing a copy of such
notice to such holder at such holder’s last address as the same appears on the
books of the Corporation. Such meeting

 

8

 

shall
be called for a time not earlier than 20 days and not later than 60 days after
such request and shall be held at such place as specified in such request. If
such meeting shall not be called within 20 days after such request, then the
holders of not less than 20% of the shares of Series A Preferred
outstanding may designate in writing any holder of Series A Preferred to
call such meeting on similar notice at the expense of the Corporation. Any
holder of Series A Preferred so designated shall have access to the stock
books of the Corporation relating to Series A Preferred for the purpose of
calling a meeting of the holders pursuant to these provisions.

 

(d) Action Without Meeting. With
respect to actions by the holders of Series A Preferred upon those matters
on which such holders are entitled to vote as a separate class, such actions
may be taken without a stockholders meeting by the written consent of such
holders who would be entitled to vote at a meeting having voting power to cast
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which the Series A Preferred is
entitled to vote were present and voted.

 

10.
Status of Reacquired Shares of Series A
Preferred. Shares of outstanding Series A Preferred reacquired
by the Corporation (including shares of Series A Preferred which have been
redeemed pursuant to the provisions hereof) or cancelled upon conversion into
Common Stock shall have the status of authorized and unissued shares of
Preferred Stock, undesignated as to series, and subject to later designation
and issuance by the Corporation in accordance with its Articles of
Incorporation.

 

11.
Preemptive Rights. Holders of Series A
Preferred shall not be entitled to any preemptive, subscription or similar
rights in respect to any securities of the Corporation, except as specifically
set forth herein.

 

12.
Notices. Any notice required by
the provisions hereof to be given to the holders of Series A Preferred
shall be deemed given if deposited in the United States Mail, first class
postage prepaid, and addressed to each holder of record at his or her address
appearing on the books of the Corporation. Any notice required by the provisions
hereof to be given to the Corporation shall be deemed given if deposited in the
United States Mail, first class postage prepaid, and addressed to the
Corporation at 333 Clay Street, Suite 1100, Houston, Texas 77002, or such
other address as the Corporation shall provide in writing to the holders of Series A
Preferred.

 

13.
Amendments. With the consent or
approval of the holders of at least a majority of the Series A Preferred
then outstanding, the Corporation may amend or modify any of the foregoing
rights, privileges and preferences with respect to the shares of Series A
Preferred, provided that no such amendment may materially and adversely affect
a holder of Series A Preferred without the holder’s approval.
Notwithstanding the foregoing, the Corporation may amend or modify (i) the
consent rights described in Section 8 of the holders of Series A
Preferred and (ii) any other rights described herein requiring consent or
approval of the holders of 66 2/3% of the Series A Preferred only with
the approval by the vote or written consent of the holders of at least 66 2/3% of the Series A
Preferred then outstanding.

 

[Signature Page Follows]

 

9

 

IN WITNESS
WHEREOF, the
undersigned has executed this Certificate as of June 13, 2005.

 

	
   

  	
  WHITTIER ENERGY
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Michael B. Young

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  

 

10Exhibit 10.1

 

CREDIT AGREEMENT

 

DATED AS OF

JUNE 15, 2005

 

AMONG

 

WHITTIER ENERGY CORPORATION,

AS BORROWER,

 

BNP PARIBAS,

AS ADMINISTRATIVE AGENT,

 

AND

 

THE LENDERS PARTY HERETO

 

 

SOLE LEAD ARRANGER AND BOOKRUNNER

 

 

BNP PARIBAS

 

 

TABLE OF CONTENTS

 

	
   

  	
  ARTICLE I

  DEFINITIONS AND ACCOUNTING MATTERS

  	
   

  
	
   

  	
   

  
	
  Section 1.01

  	
  Terms Defined Above

  	
   

  
	
  Section 1.02

  	
  Certain Defined Terms

  	
   

  
	
  Section 1.03

  	
  Types of Loans and Borrowings

  	
   

  
	
  Section 1.04

  	
  Terms Generally

  	
   

  
	
  Section 1.05

  	
  Accounting Terms and Determinations; GAAP

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE II

  THE CREDITS

  	
   

  
	
   

  	
   

  
	
  Section 2.01

  	
  Commitments

  	
   

  
	
  Section 2.02

  	
  Loans and Borrowings

  	
   

  
	
  Section 2.03

  	
  Requests for Borrowings

  	
   

  
	
  Section 2.04

  	
  Interest Elections

  	
   

  
	
  Section 2.05

  	
  Funding of Borrowings

  	
   

  
	
  Section 2.06

  	
  Termination and Reduction of Aggregate
  Maximum Credit Amounts

  	
   

  
	
  Section 2.07

  	
  Borrowing Base

  	
   

  
	
  Section 2.08

  	
  Letters of Credit

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE III

  PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

  	
   

  
	
   

  	
   

  
	
  Section 3.01

  	
  Repayment of Loans

  	
   

  
	
  Section 3.02

  	
  Interest

  	
   

  
	
  Section 3.03

  	
  Alternate Rate of Interest

  	
   

  
	
  Section 3.04

  	
  Prepayments

  	
   

  
	
  Section 3.05

  	
  Fees

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IV

  PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.

  	
   

  
	
   

  	
   

  
	
  Section 4.01

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

  	
   

  
	
  Section 4.02

  	
  Presumption of Payment by the Borrower

  	
   

  
	
  Section 4.03

  	
  Certain Deductions by the Administrative
  Agent

  	
   

  
	
  Section 4.04

  	
  Disposition of Proceeds

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE V

  INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

  	
   

  
	
   

  	
   

  
	
  Section 5.01

  	
  Increased Costs

  	
   

  
	
  Section 5.02

  	
  Break Funding Payments

  	
   

  
	
  Section 5.03

  	
  Taxes

  	
   

  
	
  Section 5.04

  	
  Designation of Different Lending Office

  	
   

  
	
  Section 5.05

  	
  Illegality

  	
   

  
				

 

i

 

	
   

  	
  ARTICLE VI

  CONDITIONS PRECEDENT

  	
   

  
	
   

  	
   

  
	
  Section 6.01

  	
  Effective Date

  	
   

  
	
  Section 6.02

  	
  Each Credit Event

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VII

  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  
	
  Section 7.01

  	
  Organization; Powers

  	
   

  
	
  Section 7.02

  	
  Authority; Enforceability

  	
   

  
	
  Section 7.03

  	
  Approvals; No Conflicts

  	
   

  
	
  Section 7.04

  	
  Financial Condition; No Material Adverse
  Change

  	
   

  
	
  Section 7.05

  	
  Litigation

  	
   

  
	
  Section 7.06

  	
  Environmental Matters

  	
   

  
	
  Section 7.07

  	
  Compliance with the Laws and Agreements; No
  Defaults

  	
   

  
	
  Section 7.08

  	
  Investment Company Act

  	
   

  
	
  Section 7.09

  	
  Public Utility Holding Company Act

  	
   

  
	
  Section 7.10

  	
  Taxes

  	
   

  
	
  Section 7.11

  	
  ERISA

  	
   

  
	
  Section 7.12

  	
  Disclosure; No Material Misstatements

  	
   

  
	
  Section 7.13

  	
  Insurance

  	
   

  
	
  Section 7.14

  	
  Restriction on Liens

  	
   

  
	
  Section 7.15

  	
  Subsidiaries

  	
   

  
	
  Section 7.16

  	
  Location of Business and Offices

  	
   

  
	
  Section 7.17

  	
  Properties; Titles, Etc.

  	
   

  
	
  Section 7.18

  	
  Maintenance of Properties

  	
   

  
	
  Section 7.19

  	
  Gas Imbalances, Prepayments

  	
   

  
	
  Section 7.20

  	
  Marketing of Production

  	
   

  
	
  Section 7.21

  	
  Swap Agreements

  	
   

  
	
  Section 7.22

  	
  Use of Loans and Letters of Credit

  	
   

  
	
  Section 7.23

  	
  Solvency

  	
   

  
	
  Section 7.24

  	
  Acquisition

  	
   

  
	
  Section 7.25

  	
  Subordinated Debt

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VIII

  AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
   

  
	
  Section 8.01

  	
  Financial Statements; Ratings Change; Other
  Information

  	
   

  
	
  Section 8.02

  	
  Notices of Material Events

  	
   

  
	
  Section 8.03

  	
  Existence; Conduct of Business

  	
   

  
	
  Section 8.04

  	
  Payment of Obligations

  	
   

  
	
  Section 8.05

  	
  Performance of Obligations under Loan
  Documents

  	
   

  
	
  Section 8.06

  	
  Operation and Maintenance of Properties

  	
   

  
	
  Section 8.07

  	
  Insurance

  	
   

  
	
  Section 8.08

  	
  Books and Records; Inspection Rights

  	
   

  
	
  Section 8.09

  	
  Compliance with Laws

  	
   

  
	
  Section 8.10

  	
  Environmental Matters

  	
   

  
	
  Section 8.11

  	
  Further Assurances

  	
   

  
				

 

ii

 

	
  Section 8.12

  	
  Reserve Reports

  	
   

  
	
  Section 8.13

  	
  Title Information

  	
   

  
	
  Section 8.14

  	
  Additional Collateral; Additional
  Guarantors

  	
   

  
	
  Section 8.15

  	
  ERISA Compliance

  	
   

  
	
  Section 8.16

  	
  Swap Agreements

  	
   

  
	
  Section 8.17

  	
  Marketing Activities

  	
   

  
	
  Section 8.18

  	
  Alabama Property

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IX

  NEGATIVE COVENANTS

  	
   

  
	
   

  	
   

  
	
  Section 9.01

  	
  Financial Covenants

  	
   

  
	
  Section 9.02

  	
  Debt

  	
   

  
	
  Section 9.03

  	
  Liens

  	
   

  
	
  Section 9.04

  	
  Dividends, Distributions and Redemptions

  	
   

  
	
  Section 9.05

  	
  Investments, Loans and Advances

  	
   

  
	
  Section 9.06

  	
  Nature of Business

  	
   

  
	
  Section 9.07

  	
  Limitation on Leases

  	
   

  
	
  Section 9.08

  	
  Proceeds of Notes

  	
   

  
	
  Section 9.09

  	
  ERISA Compliance

  	
   

  
	
  Section 9.10

  	
  Sale or Discount of Receivables

  	
   

  
	
  Section 9.11

  	
  Mergers, Etc.

  	
   

  
	
  Section 9.12

  	
  Sale of Properties

  	
   

  
	
  Section 9.13

  	
  Environmental Matters

  	
   

  
	
  Section 9.14

  	
  Transactions with Affiliates

  	
   

  
	
  Section 9.15

  	
  Subsidiaries

  	
   

  
	
  Section 9.16

  	
  Negative Pledge Agreements; Dividend
  Restrictions

  	
   

  
	
  Section 9.17

  	
  Gas Imbalances, Take-or-Pay or Other
  Prepayments

  	
   

  
	
  Section 9.18

  	
  Swap Agreements

  	
   

  
	
  Section 9.19

  	
  Amendment of Contracts

  	
   

  
	
  Section 9.20

  	
  Acquisition Documents

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE X

  EVENTS OF DEFAULT; REMEDIES

  	
   

  
	
   

  	
   

  
	
  Section 10.01

  	
  Events of Default

  	
   

  
	
  Section 10.02

  	
  Remedies

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XI

  THE ADMINISTRATIVE AGENT

  	
   

  
	
   

  	
   

  
	
  Section 11.01

  	
  Appointment; Powers

  	
   

  
	
  Section 11.02

  	
  Duties and Obligations of Administrative
  Agent

  	
   

  
	
  Section 11.03

  	
  Action by Administrative Agent

  	
   

  
	
  Section 11.04

  	
  Reliance by Administrative Agent

  	
   

  
	
  Section 11.05

  	
  Subagents

  	
   

  
	
  Section 11.06

  	
  Resignation or Removal of Administrative
  Agent

  	
   

  
	
  Section 11.07

  	
  Administrative Agent as Lender

  	
   

  
	
  Section 11.08

  	
  No Reliance

  	
   

  
	
  Section 11.09

  	
  Administrative Agent May File Proofs
  of Claim

  	
   

  
				

 

iii

 

	
  Section 11.10

  	
  Authority of Administrative Agent to
  Release Collateral and Liens

  	
   

  
	
  Section 11.11

  	
  The Arranger

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XII

  MISCELLANEOUS

  	
   

  
	
   

  	
   

  
	
  Section 12.01

  	
  Notices

  	
   

  
	
  Section 12.02

  	
  Waivers; Amendments

  	
   

  
	
  Section 12.03

  	
  Expenses, Indemnity; Damage Waiver.

  	
   

  
	
  Section 12.04

  	
  Successors and Assigns

  	
   

  
	
  Section 12.05

  	
  Survival; Revival; Reinstatement

  	
   

  
	
  Section 12.06

  	
  Counterparts; Integration; Effectiveness

  	
   

  
	
  Section 12.07

  	
  Severability

  	
   

  
	
  Section 12.08

  	
  Right of Setoff

  	
   

  
	
  Section 12.09

  	
  GOVERNING LAW; JURISDICTION; CONSENT TO
  SERVICE OF PROCESS

  	
   

  
	
  Section 12.10

  	
  Headings

  	
   

  
	
  Section 12.11

  	
  Confidentiality

  	
   

  
	
  Section 12.12

  	
  Interest Rate Limitation

  	
   

  
	
  Section 12.13

  	
  EXCULPATION PROVISIONS

  	
   

  
	
  Section 12.14

  	
  Collateral Matters; Swap Agreements

  	
   

  
	
  Section 12.15

  	
  No Third Party Beneficiaries

  	
   

  
	
  Section 12.16

  	
  USA Patriot Act Notice

  	
   

  
				

 

iv

 

	
   

  	
  ANNEXES, EXHIBITS AND SCHEDULES

  	
   

  
	
   

  	
   

  
	
  Annex I

  	
  List of
  Maximum Credit Amounts

  	
   

  
				

 

	
  Exhibit A

  	
  Form of
  Note

  	
   

  
	
  Exhibit B

  	
  Form of
  Compliance Certificate

  	
   

  
	
  Exhibit C-1

  	
  Form of
  Legal Opinion of counsel to the Borrower

  	
   

  
	
  Exhibit C-2

  	
  Form of
  Legal Opinion of Local Counsel

  	
   

  
	
  Exhibit D

  	
  Security
  Instruments

  	
   

  
	
  Exhibit E

  	
  Form of
  Assignment and Assumption

  	
   

  
	
  Exhibit F

  	
  Outstanding
  Letters of Credit

  	
   

  

 

	
  Schedule 1.02

  	
  Existing
  Letters of Credit

  	
   

  
	
  Schedule 6.01(a)

  	
  Swap
  Agreements

  	
   

  
	
  Schedule 6.01(b)

  	
  Required
  Hedging Position

  	
   

  
	
  Schedule 7.15

  	
  Subsidiaries
  and Partnerships

  	
   

  
	
  Schedule 7.19

  	
  Gas
  Imbalances

  	
   

  
	
  Schedule 7.20

  	
  Marketing
  Contracts

  	
   

  

 

v

 

THIS CREDIT AGREEMENT dated as of June 15, 2005,
is among WHITTIER ENERGY CORPORATION, a corporation duly formed and existing
under the laws of the State of Nevada (the “Borrower”); each of the
Lenders from time to time party hereto; and BNP PARIBAS (in its individual capacity, “BNP
Paribas”), as administrative agent for the Lenders (in such capacity,
together with its successors in such capacity, the “Administrative Agent”).

 

R E C I T A L S

 

A.            The Borrower has requested that the
Lenders provide certain loans to and extensions of credit on behalf of the
Borrower.

 

B.            The Lenders have agreed to make such
loans and extensions of credit subject to the terms and conditions of this
Agreement.

 

C.            In consideration of the mutual
covenants and agreements herein contained and of the loans, extensions of
credit and commitments hereinafter referred to, the parties hereto agree as
follows:

 

ARTICLE I
Definitions
and Accounting Matters

 

Section 1.01           Terms Defined Above.  As used in this Agreement, each term defined
above has the meaning indicated above.

 

Section 1.02           Certain Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:

 

“ABR”, when used in reference to any
Loan or Borrowing, refers to whether such Loan, or the Loans comprising such
Borrowing, are bearing interest at a rate determined by reference to the
Alternate Base Rate.

 

“Acquisition” means the acquisition of
certain oil, gas and mineral Properties pursuant to the terms and conditions of
the Acquisition Documents.

 

“Acquisition Documents” means (a) the
Agreement and Plan of Merger among RPC Acquisition Company, Inc., RIMCO
Production Company, Inc., and Borrower, dated April 18, 2005, and (b) all
bills of sale, assignments, agreements, instruments and documents executed and
delivered in connection therewith, as amended.

 

“Acquisition Properties” means the Oil
and Gas Properties and other properties acquired by the Borrower or any
Guarantor pursuant to the Acquisition Documents.

 

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

 

 

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

 

“Affected Loans” has the meaning
assigned such term in Section 5.05.

 

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

 

“Agents” means, collectively, the
Administrative Agent and any syndication agent, documentation agent or similar
agent that hereafter becomes a party hereto; and “Agent” shall mean either the
Administrative Agent or such other agent, as the context requires.

 

“Aggregate Maximum Credit Amounts” at
any time shall equal the sum of the Maximum Credit Amounts, as the same may be
reduced or terminated pursuant to Section 2.06.

 

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

 

“Alabama Properties” means those Oil
and Gas Properties identified on the Initial Reserve Report as being located in
Alabama.

 

“Alternate Base Rate” means, for any
day, a rate per annum equal to the greater of (a) the Prime Rate in effect
on such day and (b) the Federal Funds Effective Rate in effect on such day
plus 1⁄2 of 1%.  Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.

 

“Applicable Margin” means, for any
day, with respect to any ABR Loan or Eurodollar Loan, as the case may be, the
rate per annum set forth in the Borrowing Base Utilization Grid below based
upon the Borrowing Base Utilization Percentage then in effect:

 

Borrowing Base Utilization Grid

 

	
  Borrowing
  Base Utilization Percentage

  	
   

  	
  <33%

  	
   

  	
  333% <66%

  	
   

  	
  366% <85%

  	
   

  	
  385%

  
	
  Eurodollar
  Loans

  	
   

  	
  1.50%

  	
   

  	
  1.75%

  	
   

  	
  2.00%

  	
   

  	
  2.25%

  
	
  ABR
  Loans

  	
   

  	
  0.00%

  	
   

  	
  0.25%

  	
   

  	
  0.50%

  	
   

  	
  0.75%

  

 

Each change in the Applicable Margin shall
apply during the period commencing on the effective date of such change and
ending on the date immediately preceding the effective date of the next such
change.

 

“Applicable Percentage” means, with
respect to any Lender, the percentage of the Aggregate Maximum Credit Amounts
represented by such Lender’s Maximum Credit Amount as such percentage is set
forth on Annex I.

 

2

 

“Approved Counterparty” means (a) any
Lender or any Affiliate of a Lender and (b) any other Person whose long
term senior unsecured debt rating is A/A2 by S&P or Moody’s (or their
equivalent) or higher.

 

“Approved Fund” means any Person
(other than a natural person) that is engaged in making, purchasing, holding or
investing in bank loans and similar extensions of credit in the ordinary course
of its business and that is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that
administers or manages a Lender.

 

“Arranger” means BNP Paribas, in its
capacities as the sole lead arranger and bookrunner hereunder.

 

“Assignment and Assumption” means an
assignment and assumption entered into by a Lender and an assignee (with the
consent of any party whose consent is required by Section 12.04(b)), and
accepted by the Administrative Agent, in the form of Exhibit E or any
other form approved by the Administrative Agent.

 

“Availability Period” means the period
from and including the Effective Date to but excluding the Termination Date.

 

“Board” means the Board of Governors
of the Federal Reserve System of the United States of America or any successor
Governmental Authority.

 

“Borrowing” means Loans of the same
Type, made, converted or continued on the same date and, in the case of Eurodollar
Loans, as to which a single Interest Period is in effect.

 

“Borrowing Base” means at any time an
amount equal to the amount determined in accordance with Section 2.07, as
the same may be adjusted from time to time pursuant to Section 2.07(e), Section 8.13(c) or
Section 9.12(d).

 

“Borrowing Base Deficiency” occurs if
at any time the total Revolving Credit Exposures exceeds the Borrowing Base
then in effect.

 

“Borrowing Base Utilization Percentage”
means, as of any day, the fraction expressed as a percentage, the numerator of
which is the sum of the Revolving Credit Exposures of the Lenders on such day,
and the denominator of which is the Borrowing Base in effect on such day.

 

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

 

“Business Day” means any day that is
not a Saturday, Sunday or other day on which commercial banks in New York City
are authorized or required by law to remain closed; and if such day relates to
a Borrowing or continuation of, a payment or prepayment of principal of or
interest on, or a conversion of or into, or the Interest Period for, a
Eurodollar Loan or a notice by the Borrower with respect to any such Borrowing
or continuation, payment, prepayment, conversion or Interest Period, any day
which is also a day on which dealings in dollar deposits are carried out in the
London interbank market.

 

3

 

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

 

“Casualty Event” means any loss,
casualty or other insured damage to, or any nationalization, taking under power
of eminent domain or by condemnation or similar proceeding of, any Property of
the Borrower or any of its Subsidiaries having a fair market value in excess of
$100,000.

 

“Change in Control” means (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Securities Exchange Act of 1934
and the rules of the SEC thereunder as in effect on the date hereof), of
Equity Interests representing more than 33 1/3 % of the aggregate ordinary
voting power represented by the issued and outstanding Equity Interests of the
Borrower or (b) occupation of a majority of the seats (other than vacant
seats) on the board of directors of the Borrower by Persons who were neither (i) nominated
by the board of directors of the Borrower nor (ii) appointed by directors
so nominated.

 

“Change in Law” means (a) the
adoption of any law, rule or regulation after the date of this Agreement, (b) any
change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by any Lender or any Issuing Bank (or, for
purposes of Section 5.01(b)), by any lending office of such Lender or by such
Lender’s or such Issuing Bank’s holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.

 

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

 

“Commitment” means, with respect to
each Lender, the commitment of such Lender to make Loans and to acquire
participations in Letters of Credit hereunder, expressed as an amount representing
the maximum aggregate amount of such Lender’s Revolving Credit Exposure
hereunder, as such commitment may be (a) modified from time to time
pursuant to Section 2.06 and (b) modified from time to time pursuant
to assignments by or to such Lender pursuant to Section 12.04(b).  The amount representing each Lender’s
Commitment shall at any time be the lesser of such Lender’s Maximum Credit
Amount and such Lender’s Applicable Percentage of the then effective Borrowing
Base.

 

“Consolidated
EBITDAX”:  with respect to the
Borrower, for any period, Consolidated Net Income for that period, plus (a) to
the extent deducted from revenues in determining Consolidated Net Income for
that period, (i) the aggregate amount of Consolidated Interest Expense for
that period, (ii) the aggregate amount of letter of credit fees paid
during that period, (iii) the aggregate amount of income Tax expense for
that period (including franchise Tax expense imposed on or measured by Borrower’s
Consolidated Net Income) and (iv) all amounts attributable to
depreciation, depletion, exploration, amortization and other non-cash charges
and expenses for that period, minus (b) to the extent included in
revenues in determining Consolidated Net Income for that period, all non-cash
income during that period, in each case

 

4

 

determined on a consolidated basis in accordance with GAAP
and without duplication of amounts.

 

For the purposes of calculating Consolidated
EBITDAX for any period of four consecutive fiscal quarters (each, a “Reference
Period”) pursuant to any determination of the covenants set forth in Section 9.01,
(i) if at any time after the first day of such Reference Period the
Borrower or any Subsidiary shall have made any Material Disposition, the
Consolidated EBITDAX for such Reference Period shall be reduced by an amount
equal to the Consolidated EBITDAX (if positive) attributable to the Property
that is the subject of such Material Disposition for such Reference Period and (ii) if
at any time after the first day of such Reference Period the Borrower or any
Subsidiary shall have made a Material Acquisition, Consolidated EBITDAX for
such Reference Period shall be calculated after giving pro forma effect thereto as if such
Material Acquisition occurred on the first day of such Reference Period.

 

“Consolidated Interest Expense”:  with respect to the Borrower and its
Subsidiaries on a consolidated basis for any period, the sum of (i) gross
interest expense (including all cash and accrued interest expense) of the
Borrower and its Subsidiaries for such period on a consolidated basis,
including to the extent included in interest expense in accordance with GAAP
(x) the amortization of debt discounts and (y) the portion of any payments or
accruals with respect to Capital Leases allocable to interest expense and (ii) capitalized
interest of the Borrower and its Subsidiaries on a consolidated basis in
accordance with GAAP.

 

“Consolidated Net Income” means with
respect to the Borrower and the Consolidated Subsidiaries, for any period, the
aggregate of the net income (or loss) of the Borrower and the Consolidated
Subsidiaries after allowances for Taxes for such period determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included therein) the
following: (a) the net income of any Person in which the Borrower or any
of the Consolidated Subsidiaries has an interest (which interest does not cause
the net income of such other Person to be consolidated with the net income of
the Borrower and the Consolidated Subsidiaries in accordance with GAAP), except
to the extent of the amount of dividends or distributions actually paid in cash
during such period by such other Person to the Borrower or to any of the
Consolidated Subsidiaries, as the case may be; (b) the net income (but not
loss) during such period of any Consolidated Subsidiary to the extent that the
declaration or payment of dividends or similar distributions or transfers or
loans by that Consolidated Subsidiary is not at the time permitted by operation
of the terms of its charter or any agreement, instrument or Governmental
Requirement applicable to such Consolidated Subsidiary or is otherwise
restricted or prohibited, in each case determined in accordance with GAAP; (c) the
net income (or loss) of any Person acquired in a pooling-of-interests
transaction for any period prior to the date of such transaction; (d) any
extraordinary gains or losses during such period and (e) any gains or
losses attributable to writeups or writedowns of assets, including ceiling test
writedowns.

 

“Consolidated Subsidiaries” means each
Subsidiary of the Borrower (whether now existing or hereafter created or
acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of the Borrower in accordance with
GAAP.

 

5

 

“Control” means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ability to exercise
voting power, by contract or otherwise. 
For the purposes of this definition, and without limiting the generality
of the foregoing, any Person that owns directly or indirectly 10% or more of
the Equity Interests having ordinary voting power for the election of the
directors or other governing body of a Person (other than as a limited partner
of such other Person) will be deemed to “control” such other Person.  “Controlling” and “Controlled”
have meanings correlative thereto.

 

“Debt” means, for any Person, the sum
of the following (without duplication): (a) all obligations of such Person
for borrowed money or evidenced by bonds, bankers’ acceptances, debentures,
notes or other similar instruments; (b) all obligations of such Person
(whether contingent or otherwise) in respect of letters of credit, surety or
other bonds and similar instruments; (c) all accounts payable and all
accrued expenses, liabilities or other obligations of such Person to pay the
deferred purchase price of Property or services; (d) all obligations under
Capital Leases; (e) all obligations under Synthetic Leases; (f) all
Debt (as defined in the other clauses of this definition) of others secured by
(or for which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) a Lien on any Property of such Person, whether or
not such Debt is assumed by such Person; (g) all Debt (as defined in the
other clauses of this definition) of others guaranteed by such Person or in
which such Person otherwise assures a creditor against loss of the Debt
(howsoever such assurance shall be made) to the extent of the lesser of the
amount of such Debt and the maximum stated amount of such guarantee or
assurance against loss; (h) all obligations or undertakings of such Person
to maintain or cause to be maintained the financial position or covenants of
others or to purchase the Debt or Property of others; (i) obligations to
deliver commodities, goods or services, including, without limitation,
Hydrocarbons, in consideration of one or more advance payments, other than gas
balancing arrangements in the ordinary course of business; (j) obligations to
pay for goods or services even if such goods or services are not actually
received or utilized by such Person; (k) any Debt of a partnership for which
such Person is liable either by agreement, by operation of law or by a
Governmental Requirement but only to the extent of such liability; (l) Disqualified
Capital Stock; and (m) the undischarged balance of any production payment
created by such Person or for the creation of which such Person directly or
indirectly received payment.  The Debt of
any Person shall include all obligations of such Person of the character
described above to the extent such Person remains legally liable in respect
thereof notwithstanding that any such obligation is not included as a liability
of such Person under GAAP.

 

“Default” means any event or condition
which constitutes an Event of Default or which upon notice, lapse of time or
both would, unless cured or waived, become an Event of Default.

 

“Disqualified Capital Stock” means any
Equity Interest that, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable) or upon the happening of any
event, matures or is mandatorily redeemable for any consideration other than
other Equity Interests (which would not constitute Disqualified Capital Stock),
pursuant to a sinking fund obligation or otherwise, or is convertible or
exchangeable for Debt or redeemable for any consideration other than other
Equity Interests (which would not constitute Disqualified Capital Stock) at the
option of the holder thereof, in whole or in part, on or prior to the date that
is one year after the earlier of (a) the Maturity Date and (b) the
date on which there are no Loans,

 

6

 

LC Exposure or other
obligations hereunder outstanding and all of the Commitments are terminated.

 

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

 

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

 

“Effective Date” means the date on
which the conditions specified in Section 6.01 are satisfied (or waived in
accordance with Section 12.02).

 

“Engineering Reports” has the meaning
assigned such term in Section 2.07(c)(i).

 

“Environmental Laws” means any and all
Governmental Requirements pertaining in any way to health, safety, the
environment or the preservation or reclamation of natural resources, in effect
in any and all jurisdictions in which the Borrower or any of its Subsidiaries
is conducting or at any time has conducted business, or where any Property of
the Borrower or any of its Subsidiaries is located, including without
limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean
Air Act, as amended, the Comprehensive Environmental, Response, Compensation,
and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water
Pollution Control Act, as amended, the Occupational Safety and Health Act of
1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”),
as amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization Act of
1986, as amended, the Hazardous Materials Transportation Act, as amended, and
other environmental conservation or protection Governmental Requirements.  The term “oil” shall have the meaning
specified in OPA, the terms “hazardous substance” and “release”
(or “threatened release”) have the meanings specified in CERCLA, the
terms “solid waste” and “disposal” (or “disposed”) have
the meanings specified in RCRA and the term “oil and gas waste” shall
have the meaning specified in Section 91.1011 of the Texas Natural
Resources Code (“Section 91.1011”); provided, however, that (a) in
the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment and (b) to the
extent the laws of the state or other jurisdiction in which any Property of the
Borrower or any of its Subsidiaries is located establish a meaning for “oil,”
“hazardous substance,” “release,” “solid waste,” “disposal”
or “oil and gas waste” which is broader than that specified in either
OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply.

 

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

 

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

 

“ERISA Affiliate” means each trade or
business (whether or not incorporated) which together with the Borrower or any
of its Subsidiaries would be deemed to be a “single employer”

 

7

 

within the meaning
of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of
section 414 of the Code.

 

“ERISA Event” means (a) a “Reportable
Event” described in section 4043 of ERISA and the regulations issued
thereunder, (b) the withdrawal of the Borrower or any of its Subsidiaries
or any ERISA Affiliate from a Plan during a plan year in which it was a “substantial
employer” as defined in section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under section 4041 of ERISA, (d) the institution
of proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of
withdrawal liability pursuant to Section 4202 of ERISA or (f) any
other event or condition which might constitute grounds under section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any Plan.

 

“Eurodollar”, when used in reference
to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising
such Borrowing, are bearing interest at a rate determined by reference to the
Adjusted LIBO Rate.

 

“Event of Default” has the meaning
assigned such term in Section 10.01.

 

“Excepted Liens” means:  (a) Liens for Taxes, assessments or
other governmental charges or levies which are not delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (b) Liens in
connection with workers’ compensation, unemployment insurance or other social
security, old age pension or public liability obligations which are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP; (c) statutory
landlord’s liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s,
mechanics’, suppliers’, workers’, materialmen’s, construction or other like
Liens arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of Oil and
Gas Properties each of which is in respect of obligations that are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP; (d) contractual
Liens which arise in the ordinary course of business under operating
agreements, joint venture agreements, oil and gas partnership agreements, oil
and gas leases, farm-out agreements, division orders, contracts for the sale,
transportation or exchange of oil and natural gas, unitization and pooling declarations
and agreements, area of mutual interest agreements, overriding royalty
agreements, marketing agreements, processing agreements, net profits
agreements, development agreements, gas balancing or deferred production
agreements, injection, repressuring and recycling agreements, salt water or
other disposal agreements, seismic or other geophysical permits or agreements,
and other agreements which are usual and customary in the oil and gas business
and are for claims which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP, provided that any such Lien referred to in
this clause does not materially impair the use of the Property covered by such Lien
for the purposes for which such Property is held by the Borrower or any of its
Subsidiaries or materially impair the value of such Property subject thereto; (e) Liens
arising solely by virtue of any statutory or common law provision relating to
banker’s liens, rights of set-off or similar rights and remedies and burdening
only deposit accounts or other funds maintained with a

 

8

 

creditor depository
institution, provided that no such deposit account is a dedicated cash
collateral account or is subject to restrictions against access by the
depositor in excess of those set forth by regulations promulgated by the Board
and no such deposit account is intended by the Borrower or any of its
Subsidiaries to provide collateral to the depository institution; (f) easements,
restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations in any Property of the Borrower or any of its Subsidiaries for the
purpose of roads, pipelines, transmission lines, transportation lines,
distribution lines for the removal of gas, oil, coal or other minerals or
timber, and other like purposes, or for the joint or common use of real estate,
rights of way, facilities and equipment, which in the aggregate do not materially
impair the use of such Property for the purposes of which such Property is held
by the Borrower or any of its Subsidiaries or materially impair the value of
such Property subject thereto; (g) Liens on cash or securities pledged to
secure performance of tenders, surety and appeal bonds, government contracts,
performance and return of money bonds, bids, trade contracts, leases, statutory
obligations, regulatory obligations and other obligations of a like nature
incurred in the ordinary course of business and (h) judgment and
attachment Liens not giving rise to an Event of Default, provided that any
appropriate legal proceedings which may have been duly initiated for the review
of such judgment shall not have been finally terminated or the period within which
such proceeding may be initiated shall not have expired and no action to
enforce such Lien has been commenced; provided, further that Liens described in
clauses (a) through (e) shall remain “Excepted Liens” only for so
long as no action to enforce such Lien has been commenced and no intention to
subordinate the first priority Lien granted in favor of the Administrative
Agent and the Lenders is to be hereby implied or expressed by the permitted
existence of such Excepted Liens.

 

“Excluded Taxes” means, with respect
to the Administrative Agent, any Lender, any Issuing Bank or any other
recipient of any payment to be made by or on account of any obligation of the
Borrower or any Guarantor hereunder or under any other Loan Document, (a) income
or franchise Taxes imposed on (or measured by) its net income by the United
States of America or such other jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, (b) any
branch profits Taxes imposed by the United States of America or any similar Tax
imposed by any other jurisdiction in which the Borrower or any Guarantor is
located and (c) in the case of a Foreign Lender, any withholding Tax that
is imposed on amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party to this Agreement (or designates a new lending office)
or is attributable to such Foreign Lender’s failure to comply with Section 5.03(e),
except to the extent that such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment),
to receive additional amounts with respect to such withholding Tax pursuant to Section 5.03(a) or
Section 5.03(c).

 

“Existing Credit Agreements” means (a) that
certain Credit Agreement dated July 17, 2002, by and among Whittier Energy
Company, a Nevada corporation, and Whittier Operating, Inc., a Texas
corporation, and Compass Bank and (b) that certain Credit Agreement
between RIMCO and Frost Bank.

 

“Existing Letters of Credit” means
those existing Letters of Credit between Compass Bank and the Borrower listed
on Schedule 1.02.

 

9

 

“Existing Shell Hedges” means those
Swap Agreements listed on Schedule 1.02 that are between Shell Trading
(US) Co. and the Borrower.

 

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

 

“Financial Officer” means, for any
Person, the chief financial officer, principal accounting officer, treasurer or
controller of such Person.  Unless
otherwise specified, all references herein to a Financial Officer shall mean a
Financial Officer of the Borrower.

 

“Financial Statements” means the
financial statement or statements of the Borrower and its Consolidated
Subsidiaries referred to in Section 7.04(a).

 

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

 

“Foreign Subsidiary” means any
Subsidiary that is not a Domestic Subsidiary.

 

“GAAP” means generally accepted
accounting principles in the United States of America as in effect from time to
time subject to the terms and conditions set forth in Section 1.05.

 

“Governmental Authority” means the
government of the United States of America, any other nation or any political
subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government over the
Borrower or any of its Subsidiaries, any of their Properties, the
Administrative Agent, any Issuing Bank or any Lender.

 

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

 

“Guarantors” means each Subsidiary
that guarantees the Indebtedness pursuant to Section 8.14(b).

 

“Guaranty Agreement” means an
agreement executed by the Guarantors in form and substance reasonably
satisfactory to the Administrative Agent unconditionally guarantying on a

 

10

 

joint and several
basis, payment of the Indebtedness, as the same may be amended, modified or
supplemented from time to time.

 

“Highest Lawful Rate” means, with
respect to each Lender, the maximum nonusurious interest rate, if any, that at
any time or from time to time may be contracted for, taken, reserved, charged
or received on the Notes or on other Indebtedness under laws applicable to such
Lender which are presently in effect or, to the extent allowed by law, under
such applicable laws which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws allow as of the date
hereof.

 

“Hydrocarbon Interests” means all
rights, titles, interests and estates now or hereafter acquired in and to oil
and gas leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases, mineral fee interests, overriding royalty and royalty
interests, net profit interests and production payment interests, including any
reserved or residual interests of whatever nature.

 

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

 

“Indebtedness” means any and all
amounts owing or to be owing by the Borrower, any of its Subsidiaries or any
Guarantor (whether direct or indirect (including those acquired by assumption),
absolute or contingent, due or to become due, now existing or hereafter
arising): (a) to the Administrative Agent, any Issuing Bank or any Lender
under any Loan Document; (b) to any Lender or any Affiliate of a Lender
under any Swap Agreement between the Borrower or any Subsidiary and such Lender
or Affiliate of a Lender while such Person (or in the case of its Affiliate,
the Person affiliated therewith) is a Lender hereunder and (c) all renewals,
extensions and/or rearrangements of any of the above.

 

“Indemnified Taxes” means Taxes other
than Excluded Taxes.

 

“Initial Reserve Report” means (i) with
respect to the Borrower, the report of H.J. Gruy and Associates, Inc.,
dated March 4, 2005, with respect to the value of certain Oil and Gas
Properties of the Borrower and its Subsidiaries as of January 1,
2005,  and (ii) with respect to the
Acquisition Properties, the report of Netherland, Sewell & Associates, Inc.,
dated April 8, 2005, with respect to the value of certain Oil and Gas
Properties of RIMCO Production Company, Inc.and its Subsidiaries as of December 31,
2004.

 

“Interest Election Request” means a
request by the Borrower to convert or continue a Borrowing in accordance with Section 2.04.

 

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

 

11

 

“Interest Period” means with respect
to any Eurodollar Borrowing, the period commencing on the date of such
Borrowing and ending on the numerically corresponding day in the calendar month
that is one, two, three or six months thereafter, as the Borrower may elect;
provided, that (a) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (b) any Interest Period pertaining to a
Eurodollar Borrowing that commences on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period.  For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter
shall be the effective date of the most recent conversion or continuation of
such Borrowing.

 

“Interim Redetermination” has the
meaning assigned such term in Section 2.07(b).

 

“Interim Redetermination Date” means
the date on which a Borrowing Base that has been redetermined pursuant to an
Interim Redetermination becomes effective as provided in Section 2.07(d).

 

“Investment” means, for any Person: (a) the
acquisition (whether for cash, Property, services or securities or otherwise)
of Equity Interests of any other Person or any agreement to make any such
acquisition (including, without limitation, any “short sale” or any sale of any
securities at a time when such securities are not owned by the Person entering
into such short sale); (b) the making of any deposit with, or advance,
loan or capital contribution to, assumption of Debt of, purchase or other
acquisition of any other Debt or equity participation or interest in, or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding any such
advance, loan or extension of credit having a term not exceeding ninety (90)
days representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business); (c) the purchase or
acquisition (in one or a series of transactions) of Property of another Person
that constitutes a business unit or (d) the entering into of any guarantee
of, or other contingent obligation (including the deposit of any Equity
Interests to be sold) with respect to, Debt or other liability of any other
Person and (without duplication) any amount committed to be advanced, lent or
extended to such Person.

 

“Issuing Bank” means BNP Paribas and
each Lender that agrees to act as an issuer of Letters of Credit hereunder at
the request of the Borrower, in each case, in its capacity as an issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in
Section 2.08(i).  Any Issuing Bank
may, in its discretion, arrange for one or more Letters of Credit to be issued
by Affiliates of such Issuing Bank, in which case the term “Issuing Bank”
shall also include (i) any such Affiliate with respect to Letters of
Credit issued by such Affiliate and (ii) Compass Bank, with respect to the
Existing Letters of Credit.

 

“LC Commitment” at any time means Five
Million Dollars ($5,000,000).

 

12

 

“LC Disbursement” means a payment made
by any Issuing Bank pursuant to a Letter of Credit issued by such Issuing Bank.

 

“LC Exposure” means, at any time, the
sum of (a) the aggregate undrawn amount of all outstanding Letters of
Credit at such time plus (b) the aggregate amount of all LC Disbursements
that have not yet been reimbursed by or on behalf of the Borrower at such
time.  The LC Exposure of any Lender at
any time shall be its Applicable Percentage of the total LC Exposure at such
time.

 

“Lenders” means the Persons listed on
Annex I and any Person that shall have become a party hereto pursuant to an
Assignment and Assumption, other than any such Person that ceases to be a party
hereto pursuant to an Assignment and Assumption.

 

“Letter of Credit” means any letter of
credit issued or deemed issued pursuant to this Agreement, including the
Existing Letters of Credit.

 

“Letter of Credit Agreements” means
all letter of credit applications and other agreements (including any
amendments, modifications or supplements thereto) submitted by the Borrower, or
entered into by the Borrower, with any Issuing Bank relating to any Letter of
Credit issued by such Issuing Bank.

 

“LIBO Rate” means, with respect to any
Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750
of the Dow Jones Market Service (or on any successor or substitute page of
such Service, or any successor to or substitute for such Service, providing
rate quotations comparable to those currently provided on such page of
such Service, as determined by the Administrative Agent from time to time for
purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period.  In the event that such
rate is not available at such time for any reason, then the “LIBO Rate”
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such Interest Period.

 

“Lien” means any interest in Property
securing an obligation owed to, or a claim by, a Person other than the owner of
the Property, whether such interest is based on the common law, statute or
contract, and whether such obligation or claim is fixed or contingent, and
including but not limited to (a) the lien or security interest arising
from a mortgage, encumbrance, pledge, security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes or (b) production
payments and the like payable out of Oil and Gas Properties.  The term “Lien” shall include
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations. For the purposes of this Agreement, the Borrower and its
Subsidiaries shall be deemed to be the owner of any Property which they have
acquired or hold subject to a conditional sale agreement, or leases under a
financing lease or other arrangement pursuant to

 

13

 

which title to the
Property has been retained by or vested in some other Person in a transaction
intended to create a financing.

 

“Loan Documents” means this Agreement,
the Notes, the Letter of Credit Agreements, the Letters of Credit and the
Security Instruments.

 

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

 

“Majority Lenders” means, at any time
while no Loans or LC Exposure is outstanding, Lenders having at least sixty-six
and two-thirds percent (66-2/3%) of the Aggregate Maximum Credit Amounts; and
at any time while any Loans or LC Exposure is outstanding, Lenders holding at
least sixty-six and two-thirds percent (66-2/3%) of the outstanding aggregate
principal amount of the Loans or participation interests in Letters of Credit
(without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)).

 

“Material Acquisition”:  any acquisition of Property or series of
related acquisitions of Property that involves the payment of consideration
(including, without limitation, the issuance of Equity Interests of the
Borrower) by the Borrower and its Subsidiaries in excess of ten percent (10%)
of the then current Borrowing Base.

 

“Material Adverse Effect” means a
material adverse change in, or material adverse effect on (a) the
business, operations, Property, liabilities (actual or contingent), condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries
taken as a whole, (b) the ability of the Borrower, any of its Subsidiaries
or any Guarantor to perform any of its obligations under any Loan Document to
which it is a party, (c) the validity or enforceability of any Loan
Document or (d) the rights and remedies of or benefits available to the
Administrative Agent, any other Agent, any Issuing Bank or any Lender under any
Loan Document.

 

“Material Disposition”:  any sale, transfer or other disposition of
Property or series of related sales, transfers or other dispositions of
Property that yields gross proceeds to the Borrower or any Subsidiaries in
excess of ten percent (10%) of the then current Borrowing Base.

 

“Material Indebtedness” means Debt
(other than the Loans and Letters of Credit), or obligations in respect of one
or more Swap Agreements, of any one or more of the Borrower and its
Subsidiaries in an aggregate principal amount exceeding $500,000.  For purposes of determining Material
Indebtedness, the “principal amount” of the obligations of the Borrower or any
of its Subsidiaries in respect of any Swap Agreement at any time shall be the
Swap Termination Value.

 

“Maturity Date” means June 15,
2008.

 

“Maximum Credit Amount” means, as to
each Lender, the amount set forth opposite such Lender’s name on Annex I under
the caption “Maximum Credit Amounts”, as the same may be (a) reduced or
terminated from time to time in connection with a reduction or termination of
the Aggregate Maximum Credit Amounts pursuant to Section 2.06(b) or (b) modified
from time to time pursuant to any assignment permitted by Section 12.04(b).

 

14

 

“Moody’s” means Moody’s Investors
Service, Inc. and any successor thereto that is a nationally recognized
rating agency.

 

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

 

“Multiemployer Plan” means a Plan
which is a multiemployer plan as defined in section 3(37) or 4001 (a)(3) of
ERISA.

 

“New Borrowing Base Notice” has the
meaning assigned such term in Section 2.07(d).

 

“Notes” means the promissory notes of
the Borrower described in Section 2.02(d) and being substantially in
the form of Exhibit A, together with all amendments, modifications,
replacements, extensions and rearrangements thereof.

 

“Oil and Gas Properties” means (a) Hydrocarbon
Interests; (b) the Properties now or hereafter pooled or unitized with
Hydrocarbon Interests; (c) all presently existing or future unitization,
pooling agreements and declarations of pooled units and the units created
thereby (including without limitation all units created under orders, regulations
and rules of any Governmental Authority) which may affect all or any
portion of the Hydrocarbon Interests; (d) all operating agreements,
contracts and other agreements, including production sharing contracts and
agreements, which relate to any of the Hydrocarbon Interests or the production,
sale, purchase, exchange or processing of Hydrocarbons from or attributable to
such Hydrocarbon Interests; (e) all Hydrocarbons in and under and which
may be produced and saved or attributable to the Hydrocarbon Interests,
including all oil in tanks, and all rents, issues, profits, proceeds, products,
revenues and other incomes from or attributable to the Hydrocarbon Interests; (f) all
tenements, hereditaments, appurtenances and Properties in any manner appertaining,
belonging, affixed or incidental to the Hydrocarbon Interests; and (g) all
Properties, rights, titles, interests and estates described or referred to
above, including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of such
Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment, rental equipment or other personal Property which may be on such premises
for the purpose of drilling a well or for other similar temporary uses) and
including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.

 

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

 

“Participant” has the meaning set
forth in Section 12.04(c)(i).

 

15

 

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

 

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

 

“Plan” means any employee pension
benefit plan, as defined in section 3(2) of ERISA, which (a) is
currently or hereafter sponsored, maintained or contributed to by the Borrower,
any of its Subsidiaries or an ERISA Affiliate or (b) was at any time
during the six calendar years preceding the date hereof, sponsored, maintained
or contributed to by the Borrower, any of its Subsidiaries or an ERISA
Affiliate.

 

“Prime Rate” means the rate of interest
per annum publicly announced from time to time by BNP Paribas as its prime rate
in effect at its principal office in New York City; each change in the Prime
Rate shall be effective from and including the date such change is publicly
announced as being effective.  Such rate
is set by BNP Paribas as a general reference rate of interest, taking into
account such factors as BNP Paribas may deem appropriate; it being understood
that many of BNP Paribas’ commercial or other loans are priced in relation to such
rate, that it is not necessarily the lowest or best rate actually charged to
any customer and that BNP Paribas may make various commercial or other loans at
rates of interest having no relationship to such rate.

 

“Property” means any interest in any kind
of property or asset, whether real, personal or mixed, or tangible or
intangible, including, without limitation, cash, securities, accounts and
contract rights.

 

“Proposed Borrowing Base” has the
meaning assigned to such term in Section 2.07(c)(i).

 

“Proposed Borrowing Base Notice” has
the meaning assigned to such term in Section 2.07(c)(ii).

 

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

 

“Redetermination Date” means, with
respect to any Scheduled Redetermination or any Interim Redetermination, the
date that the redetermined Borrowing Base related thereto becomes effective
pursuant to Section 2.07(d).

 

“Register” has the meaning assigned
such term in Section 12.04(b)(iv).

 

“Regulation D” means Regulation D of
the Board, as the same may be amended, supplemented or replaced from time to
time.

 

“Related Parties” means, with respect
to any specified Person, such Person’s Affiliates and the respective directors,
officers, employees, agents and advisors (including attorneys, accountants and
experts) of such Person and such Person’s Affiliates.

 

16

 

“Remedial Work” has the meaning
assigned such term in Section 8.10(a).

 

“Reserve Report” means a report, in
form and substance reasonably satisfactory to the Administrative Agent, setting
forth, as of each January 1st or July 1st (or such other date in the
event of an Interim Redetermination) the oil and gas reserves attributable to
the Oil and Gas Properties of the Borrower and its Subsidiaries, together with
a projection of the rate of production and future net income, Taxes, operating
expenses and capital expenditures with respect thereto as of such date, based
upon the economic assumptions consistent with the Administrative Agent’s
lending requirements at the time.

 

“Responsible Officer” means, as to any
Person, the Chief Executive Officer, the President, any Financial Officer or
any Vice President of such Person. 
Unless otherwise specified, all references to a Responsible Officer
herein shall mean a Responsible Officer of the Borrower.

 

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

 

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

 

“Scheduled Redetermination” has the
meaning assigned such term in Section 2.07(b).

 

“Scheduled Redetermination Date” means
the date on which a Borrowing Base that has been redetermined pursuant to a
Scheduled Redetermination becomes effective as provided in Section 2.07(d).

 

“SEC” means the Securities and
Exchange Commission or any successor Governmental Authority.

 

“Security Instruments” means the
Guaranty Agreement, mortgages, deeds of trust and other agreements, instruments
or certificates described or referred to in Exhibit D, and any and all
other agreements, instruments, consents or certificates now or hereafter
executed and delivered by the Borrower or any other Person (other than Swap
Agreements with the Lenders or any Affiliate of a Lender or participation or
similar agreements between any Lender and any other lender or creditor with
respect to any Indebtedness pursuant to this Agreement) in connection with, or
as security for the payment or performance of the Indebtedness, the Notes, this
Agreement, or reimbursement obligations under the Letters of Credit, as such
agreements may be amended, modified, supplemented or restated from time to
time.

 

“S&P” means Standard &
Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., and
any successor thereto that is a nationally recognized rating agency.

 

17

 

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

 

“Subordination Agreement” means that
certain Subordination Agreement dated June 16, 2004, by and among Whittier
Energy Company, Whittier Operating, Inc., Texas Independent Exploration
Limited, Gulfcoast Acquisitions Limited, Frederick W. Zimmerman d/b/a Island
Resources and Compass Bank.

 

“Subordinated Note” means that certain
Convertible Note from Whittier Energy Company, a Nevada corporation, dated as
of June 16, 2004 in the principal amount of $1,787,300.00, payable to
Texas Independent Exploration, Limited on or before May 31, 2010.

 

“Subsidiary” means:  (a) any Person of which at least a
majority of the outstanding Equity Interests having by the terms thereof
ordinary voting power to elect a majority of the board of directors, manager or
other governing body of such Person (irrespective of whether or not at the time
Equity Interests of any other class or classes of such Person shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by the Borrower or one or more
of its Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any
partnership of which the Borrower or any of its Subsidiaries is a general
partner.  Unless otherwise indicated
herein, each reference to the term “Subsidiary” shall mean a Subsidiary
of the Borrower.

 

“Swap Agreement” means any agreement
with respect to any swap, forward, future or derivative transaction or option
or similar agreement, whether exchange traded, “over-the-counter” or otherwise,
involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial
or pricing indices or measures of economic, financial or pricing risk or value
or any similar transaction or any combination of these transactions; provided
that no phantom stock or similar plan providing for payments only on account of
services provided by current or former directors, officers, employees or consultants
of the Borrower or any of its Subsidiaries shall be a Swap Agreement.

 

“Swap Termination Value” means, in
respect of any one or more Swap Agreements, after taking into account the
effect of any legally enforceable netting agreement relating to such Swap
Agreements, (a) for any date on or after the date such Swap Agreements
have been closed out and termination value(s) determined in accordance
therewith, such termination value(s) and (b) for any date prior to the
date referenced in clause (a), the amount(s) determined as the mark-to-market

 

18

 

value(s) for such
Swap Agreements, as determined by the counterparties to such Swap Agreements.

 

“Synthetic Leases” means, in respect
of any Person, all leases which shall have been, or should have been, in
accordance with GAAP, treated as operating leases on the financial statements
of the Person liable (whether contingently or otherwise) for the payment of
rent thereunder and which were properly treated as indebtedness for borrowed
money for purposes of U.S. federal income Taxes, if the lessee in respect
thereof is obligated to either purchase for an amount in excess of, or pay upon
early termination an amount in excess of, 80% of the residual value of the Property
subject to such operating lease upon expiration or early termination of such
lease.

 

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

 

“Termination Date” means the earlier
of the Maturity Date and the date of termination of the Commitments.

 

“Total Debt” means, at any date, all
Debt of the Borrower and the Consolidated Subsidiaries on a consolidated basis,
excluding (i) non-cash obligations under FAS 133 and (ii) accounts
payable and other accrued liabilities (for the deferred purchase price of
Property or services) from time to time incurred in the ordinary course of
business which are not greater than sixty (60) days past the date of invoice or
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP.

 

“Transactions” means, with respect to (a) the
Borrower, the execution, delivery and performance by the Borrower of this
Agreement, and each other Loan Document and Acquisition Document to which it is
a party, the Acquisition, the borrowing of Loans, the use of the proceeds
thereof and the issuance of Letters of Credit hereunder, and the grant of Liens
by the Borrower on Mortgaged Properties and other Properties pursuant to the
Security Instruments and (b) each Guarantor, the execution, delivery and
performance by such Guarantor of each Loan Document and Acquisition Document to
which it is a party, the Acquisition, the guaranteeing of the Indebtedness and
the other obligations under the Guaranty Agreement by such Guarantor and such
Guarantor’s grant of the security interests and provision of collateral under
the Security Instruments, and the grant of Liens by such Guarantor on Mortgaged
Properties and other Properties pursuant to the Security Instruments.

 

“Type”, when used in reference to any
Loan or Borrowing, refers to whether the rate of interest on such Loan, or on
the Loans comprising such Borrowing, is determined by reference to the
Alternate Base Rate or the Adjusted LIBO Rate.

 

“Wholly-Owned Subsidiary” means any
Subsidiary of which all of the outstanding Equity Interests (other than any
directors’ qualifying shares mandated by applicable law), on a fully-diluted
basis, are owned by the Borrower or one or more of the Wholly-Owned
Subsidiaries or are owned by the Borrower and one or more of the Wholly-Owned
Subsidiaries.

 

19

 

Section 1.03           Types of Loans and Borrowings.  For purposes of this Agreement, Loans and
Borrowings, respectively, may be classified and referred to by Type (e.g., a “Eurodollar
Loan” or a “Eurodollar Borrowing”).

 

Section 1.04           Terms Generally.  The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth in the Loan Documents), (b) any reference herein to any law
shall be construed as referring to such law as amended, modified, codified or
reenacted, in whole or in part, and in effect from time to time, (c) any
reference herein to any Person shall be construed to include such Person’s
successors and assigns (subject to the restrictions contained in the Loan
Documents), (d) the words “herein”, “hereof” and “hereunder”, and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (e) with respect to the
determination of any time period, the word “from” means “from and including”
and the word “to” means “to and including” and (f) any reference herein to
Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer
to Articles and Sections of, and Annexes, Exhibits and Schedules to, this
Agreement.  No provision of this
Agreement or any other Loan Document shall be interpreted or construed against
any Person solely because such Person or its legal representative drafted such
provision.

 

Section 1.05           Accounting Terms and
Determinations; GAAP.  Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder shall
be made, and all financial statements and certificates and reports as to
financial matters required to be furnished to the Administrative Agent or the
Lenders hereunder shall be prepared, in accordance with GAAP, applied on a
basis consistent with the Financial Statements except for changes in which the
Borrower’s independent certified public accountants concur and which are
disclosed to Administrative Agent on the next date on which financial
statements are required to be delivered to the Lenders pursuant to Section 8.01(a);
provided that, unless the Borrower and all of the Lenders shall otherwise agree
in writing, no such change shall modify or affect the manner in which
compliance with the covenants contained herein is computed such that all such
computations shall be conducted utilizing financial information presented
consistently with prior periods.

 

ARTICLE II
The
Credits

 

Section 2.01           Commitments.  Subject to the terms and conditions set forth
herein, each Lender agrees to make Loans to the Borrower during the
Availability Period in an aggregate principal amount that will not result in (a) such
Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the
total Revolving Credit Exposures exceeding the total

 

20

 

Commitments.  Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow, repay and
reborrow the Loans.

 

Section 2.02           Loans and Borrowings.

 

(a)           Borrowings;
Several Obligations.  Each Loan shall
be made as part of a Borrowing consisting of Loans made by the Lenders ratably
in accordance with their respective Commitments.  The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments are several and no Lender shall be
responsible for any other Lender’s failure to make Loans as required.

 

(b)           Types of Loans.  Subject to Section 3.03, each Borrowing
shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower
may request in accordance herewith.  Each
Lender at its option may make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that any
exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of this Agreement.

 

(c)           Minimum Amounts;
Limitation on Number of Borrowings. 
At the commencement of each Interest Period for any Eurodollar Borrowing,
such Borrowing shall be in an aggregate amount that is an integral multiple of
$100,000 and not less than $25,000.  At
the time that each ABR Borrowing is made, such Borrowing shall be in an
aggregate amount that is an integral multiple of $100,000 and not less than
$25,000; provided that an ABR Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the total Commitments or that is required
to finance the reimbursement of an LC Disbursement as contemplated by Section 2.08(e).  Borrowings of more than one Type may be
outstanding at the same time; provided that there shall not at any time be more
than a total of five (5) Eurodollar Borrowings outstanding.  Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.

 

(d)           Notes.  The Loans made by each Lender shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit A, dated, in the case of (i) any Lender party hereto as of
the date of this Agreement, as of the date of this Agreement or (ii) any
Lender that becomes a party hereto pursuant to an Assignment and Assumption, as
of the effective date of the Assignment and Assumption, payable to the order of
such Lender in a principal amount equal to its Maximum Credit Amount as in
effect on such date, and otherwise duly completed.  In the event that any Lender’s Maximum Credit
Amount increases or decreases for any reason (whether pursuant to Section 2.06,
Section 12.04(b) or otherwise), the Borrower shall deliver or cause
to be delivered on the effective date of such increase or decrease, a new Note
payable to the order of such Lender in a principal amount equal to its Maximum
Credit Amount after giving effect to such increase or decrease, and otherwise
duly completed.  The date, amount, Type,
interest rate and, if applicable, Interest Period of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Note, and, prior to any transfer,
may be endorsed by such Lender on a schedule attached to such Note or any
continuation thereof or on any separate record maintained by such Lender.  Failure to make any such notation or to
attach a schedule shall not affect any

 

21

 

Lender’s
or the Borrower’s rights or obligations in respect of such Loans or affect the
validity of such transfer by any Lender of its Note.

 

Section 2.03           Requests for Borrowings.  To request a Borrowing, the Borrower shall
notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 11:00 a.m., Houston time,
three Business Days before the date of the proposed Borrowing or (b) in
the case of an ABR Borrowing, not later than 11:00 a.m., Houston time, on
the date of the proposed Borrowing; provided that no such notice shall be
required for any deemed request of an ABR Borrowing to finance the
reimbursement of an LC Disbursement as provided in Section 2.08(e).  Each such telephonic Borrowing Request shall
be irrevocable and shall be confirmed promptly by hand delivery or telecopy to
the Administrative Agent of a written Borrowing Request in a form approved by
the Administrative Agent and signed by the Borrower.  Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.02:

 

(i)            the aggregate
amount of the requested Borrowing;

 

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

 

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

 

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

 

(v)           the amount of the
then effective Borrowing Base, the current total Revolving Credit Exposures
(without regard to the requested Borrowing) and the pro forma total Revolving Credit Exposures (giving effect to
the requested Borrowing); and

 

(vi)          the location and
number of the Borrower’s account to which funds are to be disbursed, which
shall comply with the requirements of Section 2.05.

 

If no election as to the Type of Borrowing is
specified, then the requested Borrowing shall be an ABR Borrowing.  If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be
deemed to have selected an Interest Period of one month’s duration.  Each Borrowing Request shall constitute a
representation that the amount of the requested Borrowing shall not cause the
total Revolving Credit Exposures to exceed the total Commitments (i.e., the lesser
of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base).

 

Promptly following receipt of a  Borrowing Request in accordance with this Section 2.03,
the Administrative Agent shall advise each Lender of the details thereof and of
the amount of such Lender’s Loan to be made as part of the requested Borrowing.

 

22

 

Section 2.04           Interest Elections

 

(a)           Conversion and
Continuance.  Each Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Borrowing, shall have an initial Interest
Period as specified in such Borrowing Request. 
Thereafter, the Borrower may elect to convert such Borrowing to a
different Type or to continue such Borrowing and, in the case of a Eurodollar
Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.04.  The Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each such
portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing.

 

(b)           Interest Election
Requests.  To make an election
pursuant to this Section 2.04, the Borrower shall notify the
Administrative Agent of such election by telephone by the time that a Borrowing
Request would be required under Section 2.03 if the Borrower were
requesting a Borrowing of the Type resulting from such election to be made on
the effective date of such election. 
Each such telephonic Interest Election Request shall be irrevocable and
shall be confirmed promptly by hand delivery or telecopy to the Administrative
Agent of a written Interest Election Request in a form approved by the
Administrative Agent and signed by the Borrower.

 

(c)           Information in
Interest Election Requests.  Each
telephonic and written Interest Election Request shall specify the following
information in compliance with Section 2.02:

 

(i)            the Borrowing to
which such Interest Election Request applies and, if different options are
being elected with respect to different portions thereof, the portions thereof
to be allocated to each resulting Borrowing (in which case the information to
be specified pursuant to Section 2.04(c)(iii) and (iv) shall be
specified for each resulting Borrowing);

 

(ii)           the effective date
of the election made pursuant to such Interest Election Request, which shall be
a Business Day;

 

(iii)          whether the
resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

 

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

 

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

 

(d)           Notice to Lenders
by the Administrative Agent. 
Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of
such Lender’s portion of each resulting Borrowing.

 

(e)           Effect of Failure
to Deliver Timely Interest Election Request and Events of Default and Borrowing
Base Deficiencies on Interest Election. 
If the Borrower fails to deliver

 

23

 

a
timely Interest Election Request with respect to a Eurodollar Borrowing prior
to the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such
Borrowing shall be converted to an ABR Borrowing.  Notwithstanding any contrary provision
hereof, if an Event of Default or a Borrowing Base Deficiency has occurred and
is continuing:  (i) no outstanding
Borrowing may be converted to or continued as a Eurodollar Borrowing (and any
Interest Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective)
and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an
ABR Borrowing at the end of the Interest Period applicable thereto.

 

Section 2.05           Funding of Borrowings

 

(a)           Funding by
Lenders.  Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer
of immediately available funds by 1:00 p.m., Houston time, to the account
of the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders.  The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
and designated by the Borrower in the applicable Borrowing Request; provided
that ABR Loans made to finance the reimbursement of an LC Disbursement as
provided in Section 2.08(e) shall be remitted by the Administrative
Agent to the Issuing Bank that made such LC Disbursement.  Nothing herein shall be deemed to obligate
any Lender to obtain the funds for its Loan in any particular place or manner
or to constitute a representation by any Lender that it has obtained or will
obtain the funds for its Loan in any particular place or manner.

 

(b)           Presumption of
Funding by the Lenders.  Unless the
Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing that such Lender will not make available to the
Administrative Agent such Lender’s share of such Borrowing, the Administrative
Agent may assume that such Lender has made such share available on such date in
accordance with Section 2.05(a) and may, in reliance upon such
assumption, make available to the Borrower a corresponding amount.  In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent, then the applicable Lender and the Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of
the Federal Funds Effective Rate and a rate determined by the Administrative
Agent in accordance with banking industry rules on interbank compensation
or (ii) in the case of the Borrower, the interest rate applicable to ABR
Loans.  If such Lender pays such amount
to the Administrative Agent, then such amount shall constitute such Lender’s
Loan included in such Borrowing.

 

Section 2.06           Termination and Reduction of
Aggregate Maximum Credit Amounts.

 

(a)           Scheduled Termination of Commitments.  Unless previously terminated, the Commitments
shall terminate on the Maturity Date.  If
at any time the Aggregate Maximum Credit Amounts or the Borrowing Base is
terminated or reduced to zero, then the Commitments shall terminate on the
effective date of such termination or reduction.

 

24

 

(b)                                 Optional Termination and
Reduction of Aggregate Credit Amounts.

 

(i)                                     The Borrower may at any time
terminate, or from time to time reduce, the Aggregate Maximum Credit Amounts;
provided that (A) each reduction of the Aggregate Maximum Credit Amounts
shall be in an amount that is an integral multiple of $500,000 and not less
than $500,000 and (B) the Borrower shall not terminate or reduce the
Aggregate Maximum Credit Amounts if, after giving effect to any concurrent
prepayment of the Loans in accordance with Section 3.04(c), the total
Revolving Credit Exposures would exceed the total Commitments.

 

(ii)                                  The Borrower shall notify the
Administrative Agent of any election to terminate or reduce the Aggregate
Maximum Credit Amounts under Section 2.06(b)(i) at least three
Business Days prior to the effective date of such termination or reduction,
specifying such election and the effective date thereof.  Promptly following receipt of any notice, the
Administrative Agent shall advise the Lenders of the contents thereof.  Each notice delivered by the Borrower
pursuant to this Section 2.06(b)(ii) shall be irrevocable.  Any termination or reduction of the Aggregate
Maximum Credit Amounts shall be permanent and may not be reinstated.  Each reduction of the Aggregate Maximum
Credit Amounts shall be made ratably among the Lenders in accordance with each
Lender’s Applicable Percentage.

 

Section 2.07                                Borrowing
Base.

 

(a)                                  Initial Borrowing Base.  For the period from and including the
Effective Date to but excluding October 1, 2005 the amount of the
Borrowing Base shall be $30,500,000. 
Notwithstanding the foregoing, the Borrowing Base may be subject to
further adjustments from time to time pursuant to Section 2.07(e), Section 8.13(c) or
Section 9.12(d).

 

(b)                                 Scheduled and Interim
Redeterminations.  Subject to Section 2.07(d), the
Borrowing Base shall be redetermined (a “Scheduled Redetermination”) on April 1st
and October 1st of each year, commencing October 1, 2005.  In addition, either the Borrower or the
Administrative Agent may, or the Administrative Agent shall at the direction of
the Majority Lenders, one time during each calendar year, each elect to cause
the Borrowing Base to be redetermined between Scheduled Redeterminations (an “Interim
Redetermination”) in accordance with this Section 2.07.

 

(c)                                  Scheduled and Interim
Redetermination Procedure.

 

(i)                                     Each Scheduled Redetermination
and each Interim Redetermination shall be effectuated as follows:  Upon receipt by the Administrative Agent of (A) the
Reserve Report and the certificate required to be delivered by the Borrower to
the Administrative Agent, in the case of a Scheduled Redetermination, pursuant
to Section 8.12(a) and (c), and, in the case of an Interim
Redetermination, pursuant to Section 8.12(b) and (c), and (B) such
other reports, data and supplemental information, including, without
limitation, the information provided pursuant to Section 8.12(c), as may,
from time to time, be reasonably requested by the Majority Lenders (the Reserve
Report, such certificate and such other reports, data and supplemental
information being the “Engineering Reports”), the Administrative Agent
shall evaluate

 

25

 

the information
contained in the Engineering Reports and shall, in good faith, propose a new
Borrowing Base (the “Proposed Borrowing Base”) based upon such
information and such other information (including, without limitation, the
status of title information with respect to the Oil and Gas Properties as
described in the Engineering Reports and the existence of any other Debt) as
the Administrative Agent deems appropriate in its sole discretion and
consistent with its normal oil and gas lending criteria as it exists at the
particular time.  In no event shall the
Proposed Borrowing Base exceed the Aggregate Maximum Credit Amounts.

 

(ii)                                  The Administrative Agent shall
notify the Borrower and the Lenders of the Proposed Borrowing Base (the “Proposed
Borrowing Base Notice”):

 

(A)                              in the case of a Scheduled
Redetermination (1) if the Administrative Agent shall have received the
Engineering Reports required to be delivered by the Borrower pursuant to Section 8.12(a) and
(c) in a timely and complete manner, then on or before the March 15th
and September 15th of such year following the date of delivery or (2) if
the Administrative Agent shall not have received the Engineering Reports
required to be delivered by the Borrower pursuant to Section 8.12(a) and
(c) in a timely and complete manner, then promptly after the
Administrative Agent has received complete Engineering Reports from the
Borrower and has had a reasonable opportunity to determine the Proposed
Borrowing Base in accordance with Section 2.07(c)(i); and

 

(B)                                in the case of an Interim
Redetermination, promptly, and in any event, within fifteen (15) days after the
Administrative Agent has received the required Engineering Reports.

 

(iii)                               Any Proposed Borrowing Base that
would increase the Borrowing Base then in effect must be approved or deemed to
have been approved by all of the Lenders as provided in this Section 2.07(c)(iii),
and any Proposed Borrowing Base that would decrease or maintain the Borrowing
Base must be approved or deemed to have been approved by the Majority Lenders
as provided in this Section 2.07(c)(iii). 
Upon receipt of the Proposed Borrowing Base Notice, each Lender shall
have fifteen (15) days to agree with the Proposed Borrowing Base or disagree
with the Proposed Borrowing Base by proposing an alternate Borrowing Base.  If at the end of such fifteen (15) days, any
Lender has not communicated its approval or disapproval in writing to the
Administrative Agent, such silence shall be deemed to be an approval of the
Proposed Borrowing Base.  If, at the end
of such 15-day period, all of the Lenders, in the case of a Proposed Borrowing
Base that would increase the Borrowing Base then in effect, or the Majority
Lenders, in the case of a Proposed Borrowing Base that would decrease or
maintain the Borrowing Base then in effect, have approved or deemed to have
approved, as aforesaid, then the Proposed Borrowing Base shall become the new
Borrowing Base, effective on the date specified in Section 2.07(d).  If, however, at the end of such 15-day
period, all of the Lenders or the Majority Lenders, as applicable, have not
approved or deemed to have approved, as aforesaid, then the Administrative
Agent shall poll the Lenders to ascertain the highest Borrowing Base then
acceptable to a number of Lenders sufficient to constitute the Majority Lenders
and, so long as such amount does not

 

26

 

increase the
Borrowing Base then in effect, such amount shall become the new Borrowing Base,
effective on the date specified in Section 2.07(d)

 

(d)                                 Effectiveness of a Redetermined
Borrowing Base.  After a redetermined Borrowing Base is
approved or is deemed to have been approved by all of the Lenders pursuant to Section 2.07(c)(iii),
the Administrative Agent shall notify the Borrower and the Lenders of the
amount of the redetermined Borrowing Base (the “New Borrowing Base Notice”),
and such amount shall become the new Borrowing Base, effective and applicable
to the Borrower, the Administrative Agent, each Issuing Bank and the Lenders:

 

(A)                              in the case of a Scheduled
Redetermination, (1) if the Administrative Agent shall have received the
Engineering Reports required to be delivered by the Borrower pursuant to Section 8.12(a) and
(c) in a timely and complete manner, then on the April 1st or October 1st,
as applicable, following such notice, or (2) if the Administrative Agent
shall not have received the Engineering Reports required to be delivered by the
Borrower pursuant to Section 8.12(a) and (c) in a timely and
complete manner, then on the Business Day next succeeding delivery of such
notice; and

 

(B)                                in the case of an Interim
Redetermination, on the Business Day next succeeding delivery of such notice.

 

Such
amount shall then become the Borrowing Base until the next Scheduled
Redetermination Date, the next Interim Redetermination Date or the next adjustment
to the Borrowing Base under Section 2.07(e), Section 8.13(c) or Section 9.12(d),
whichever occurs first.  Notwithstanding
the foregoing, no Scheduled Redetermination or Interim Redetermination shall
become effective until the New Borrowing Base Notice related thereto is
received by the Borrower.

 

(e)                                  Amortization.  In each Proposed Borrowing Base Notice, the
Administrative Agent will also propose a new monthly amortization rate subject
to the approval of the Majority Lenders. 
Each Lender shall have fifteen (15) days to agree with such amortization
rate or disagree with the proposed monthly amortization rate by proposing an
alternate monthly amortization rate.  If
at the end of such fifteen (15) days, any Lender has not communicated its
approval or disapproval in writing to the Administrative Agent, such silence
shall be deemed to be an approval of the new monthly amortization rate.  After the amortization rate is approved or
deemed to be approved, the proposed monthly amortization rate shall then be effective
as of the Business Day next succeeding notice of the new monthly amortization
rate, which shall be delivered concurrently with the New Borrowing Base
Notice.  As of the Effective Date, until
the first Scheduled Redetermination or Interim Redetermination, the
amortization rate will be $0.00.

 

Section 2.08                                Letters
of Credit.

 

(a)                                  General.  Subject to the terms and conditions set forth
herein, the Borrower may request any Issuing Bank to issue Letters of Credit
for its own account or for the account of the Borrower or any of its
Subsidiaries, in a form reasonably acceptable to the Administrative Agent and
such Issuing Bank, at any time and from time to time during the

 

27

 

Availability
Period; provided that the Borrower may not request the issuance, amendment,
renewal or extension of Letters of Credit hereunder if a Borrowing Base
Deficiency exists at such time or would exist as a result thereof.  In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower
to, or entered into by the Borrower with, an Issuing Bank relating to any
Letter of Credit, the terms and conditions of this Agreement shall control.

 

(b)                                 Notice of Issuance, Amendment,
Renewal, Extension; Certain Conditions.  To request the
issuance of a Letter of Credit (or the amendment, renewal or extension of an
outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or
transmit by electronic communication, if arrangements for doing so have been
approved by the Issuing Bank) to any Issuing Bank and the Administrative Agent
(not less than five (5) Business Days in advance of the requested date of
issuance, amendment, renewal or extension) a notice:

 

(i)                                     requesting the issuance of a
Letter of Credit or identifying the Letter of Credit issued by such Issuing
Bank to be amended, renewed or extended;

 

(ii)                                  specifying the date of issuance,
amendment, renewal or extension (which shall be a Business Day);

 

(iii)                               specifying the date on which
such Letter of Credit is to expire (which shall comply with Section 2.08(c));

 

(iv)                              specifying the amount of such
Letter of Credit;

 

(v)                                 specifying the name and address
of the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit; and

 

(vi)                              specifying the amount of the
then effective Borrowing Base and whether a Borrowing Base Deficiency exists at
such time, the current total Revolving Credit Exposures (without regard to the
requested Letter of Credit or the requested amendment, renewal or extension of
an outstanding Letter of Credit) and the pro
forma total Revolving Credit Exposures (giving effect to the
requested Letter of Credit or the requested amendment, renewal or extension of
an outstanding Letter of Credit).

 

Each notice shall constitute a representation that after
giving effect to the requested issuance, amendment, renewal or extension, as
applicable, (i) the LC Exposure shall not exceed the LC Commitment and (ii) the
total Revolving Credit Exposures shall not exceed the lesser of the Aggregate
Maximum Credit Amounts and the then effective Borrowing Base.

 

If
requested by any Issuing Bank, the Borrower also shall submit a letter of
credit application on such Issuing Bank’s standard form in connection with any
request for a Letter of Credit.

 

(c)                                  Expiration Date.  Each Letter of Credit shall expire at or
prior to the close of business on the earlier of (i) the date one year
after the date of the issuance of such Letter of

 

28

 

Credit
(or, in the case of any renewal or extension thereof, one year after such
renewal or extension) and (ii) the date that is five Business Days prior
to the Maturity Date.

 

(d)                                 Participations.  By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank that issues such Letter of
Credit or the Lenders, each Issuing Bank that issues a Letter of Credit
hereunder hereby grants to each Lender, and each Lender hereby acquires from
such Issuing Bank, a participation in such Letter of Credit equal to such
Lender’s Applicable Percentage of the aggregate amount available to be drawn
under such Letter of Credit.  In
consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of any Issuing Bank that issues a Letter of Credit hereunder, such
Lender’s Applicable Percentage of each LC Disbursement made by such Issuing
Bank and not reimbursed by the Borrower on the date due as provided in Section 2.08(e),
or of any reimbursement payment required to be refunded to the Borrower for any
reason.  Each Lender acknowledges and
agrees that its obligation to acquire participations pursuant to this Section 2.08(d) in
respect of Letters of Credit is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including any amendment, renewal or
extension of any Letter of Credit or the occurrence and continuance of a
Default, the existence of a Borrowing Base Deficiency or reduction or
termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.

 

(e)                                  Reimbursement.  If any Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit issued by such Issuing Bank, the
Borrower shall reimburse such LC Disbursement by paying to the Administrative
Agent an amount equal to such LC Disbursement not later than 11:00 a.m.,
Houston time, on the date that such LC Disbursement is made, if the Borrower
shall have received notice of such LC Disbursement prior to 9:00 a.m.,
Houston time, on such date, or, if such notice has not been received by the
Borrower prior to such time on such date, then not later than 11:00 a.m.,
Houston time, on (i) the Business Day that the Borrower receives such notice,
if such notice is received prior to 9:00 a.m., Houston time, on the day of
receipt, or (ii) the Business Day immediately following the day that the
Borrower receives such notice, if such notice is not received prior to such
time on the day of receipt; provided that if such LC Disbursement is not less
than $1,000,000, the Borrower shall, subject to the conditions to Borrowing set
forth herein, be deemed to have requested, and the Borrower does hereby request
under such circumstances, that such payment be financed with an ABR Borrowing
in an equivalent amount and, to the extent so financed, the Borrower’s
obligation to make such payment shall be discharged and replaced by the
resulting ABR Borrowing.  If the Borrower
fails to make such payment when due, the Administrative Agent shall notify each
Lender of the applicable LC Disbursement, the payment then due from the
Borrower in respect thereof and such Lender’s Applicable Percentage
thereof.  Promptly following receipt of
such notice, each Lender shall pay to the Administrative Agent its Applicable
Percentage of the payment then due from the Borrower, in the same manner as
provided in Section 2.05 with respect to Loans made by such Lender (and Section 2.05
shall apply, mutatis mutandis, to
the payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Issuing Bank that issued such Letter of Credit the amounts
so received by it from the Lenders. 
Promptly following receipt by the Administrative Agent of any payment
from the Borrower pursuant to this Section 2.08(e), the Administrative
Agent shall distribute such payment to the Issuing Bank that issued such 

 

29

 

Letter
of Credit or, to the extent that Lenders have made payments pursuant to this Section 2.08(e) to
reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as
their interests may appear.  Any payment
made by a Lender pursuant to this Section 2.08(e) to reimburse any
Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as
contemplated above) shall not constitute a Loan and shall not relieve the
Borrower of its obligation to reimburse such LC Disbursement.

 

(f)                                    Obligations Absolute.  The Borrower’s obligation to reimburse LC
Disbursements as provided in Section 2.08(e) shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter
of Credit, any Letter of Credit Agreement or this Agreement, or any term or
provision therein, (ii) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent or invalid in any respect or
any statement therein being untrue or inaccurate in any respect, (iii) payment
by any Issuing Bank under a Letter of Credit issued by such Issuing Bank
against presentation of a draft or other document that does not comply with the
terms of such Letter of Credit or any Letter of Credit Agreement, or (iv) any
other event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section 2.08(f),
constitute a legal or equitable discharge of, or provide a right of setoff
against, the Borrower’s obligations hereunder. 
Neither the Administrative Agent, the Lenders nor any Issuing Bank, nor
any of their Related Parties shall have any liability or responsibility by
reason of or in connection with the issuance or transfer of any Letter of
Credit or any payment or failure to make any payment thereunder (irrespective
of any of the circumstances referred to in the preceding sentence), or any
error, omission, interruption, loss or delay in transmission or delivery of any
draft, notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond
the control of any Issuing Bank; provided that the foregoing shall not be
construed to excuse any Issuing Bank from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by such Issuing Bank’s
failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof.  The parties hereto expressly agree that, in
the absence of gross negligence or willful misconduct on the part of any
Issuing Bank (as finally determined by a court of competent jurisdiction), such
Issuing Bank shall be deemed to have exercised all requisite care in each such
determination.  In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that,
with respect to documents presented which appear on their face to be in substantial
compliance with the terms of a Letter of Credit, the Issuing Bank that issued
such Letter of Credit may, in its sole discretion, either accept and make
payment upon such documents without responsibility for further investigation,
regardless of any notice or information to the contrary, or refuse to accept
and make payment upon such documents if such documents are not in strict
compliance with the terms of such Letter of Credit.

 

(g)                                 Disbursement Procedures.  Each Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit issued by such Issuing Bank.  Such Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand

 

30

 

for
payment and whether such Issuing Bank has made or will make an LC Disbursement
thereunder; provided that any failure to give or delay in giving such notice
shall not relieve the Borrower of its obligation to reimburse such Issuing Bank
and the Lenders with respect to any such LC Disbursement.

 

(h)                                 Interim Interest.  If any Issuing Bank shall make any LC
Disbursement, then, until the Borrower shall have reimbursed such Issuing Bank
for such LC Disbursement (either with its own funds or a Borrowing under Section 2.08(e)),
the unpaid amount thereof shall bear interest, for each day from and including
the date such LC Disbursement is made to but excluding the date that the
Borrower reimburses such LC Disbursement, at the rate per annum then applicable
to ABR Loans.  Interest accrued pursuant
to this Section 2.08(h) shall be for the account of such Issuing
Bank, except that interest accrued on and after the date of payment by any
Lender pursuant to Section 2.08(e) to reimburse such Issuing Bank
shall be for the account of such Lender to the extent of such payment.

 

(i)                                     Replacement of an Issuing Bank.  Any Issuing Bank may be replaced or resign at
any time by written agreement among the Borrower, the Administrative Agent,
such resigning or replaced Issuing Bank and, in the case of a replacement, the
successor Issuing Bank.  The
Administrative Agent shall notify the Lenders of any such resignation or
replacement of an Issuing Bank.  At the
time any such resignation or replacement shall become effective, the Borrower
shall pay all unpaid fees accrued for the account of the resigning or replaced
Issuing Bank pursuant to Section 3.05(b). 
In the case of the replacement of an Issuing Bank, from and after the
effective date of such replacement, (i) the successor Issuing Bank shall
have all the rights and obligations of the replaced Issuing Bank under this
Agreement with respect to Letters of Credit to be issued thereafter and (ii) references
herein to “Issuing Bank” shall be deemed to refer to such successor or to any
previous Issuing Bank, or to such successor and all previous Issuing Banks, as
the context shall require.  After the
resignation or replacement of an Issuing Bank hereunder, the resigning or
replaced Issuing Bank shall remain a party hereto and shall continue to have
all the rights and obligations of an Issuing Bank under this Agreement with
respect to Letters of Credit issued by it prior to such resignation or
replacement, but shall not be required to issue additional Letters of Credit.

 

(j)                                     Cash Collateralization.  If (i) any Event of Default shall occur
and be continuing and the Borrower receives notice from the Administrative
Agent or the Majority Lenders demanding the deposit of cash collateral pursuant
to this Section 2.08(j), or (ii) the Borrower is required to pay to
the Administrative Agent the excess attributable to an LC Exposure in
connection with any prepayment pursuant to Section 3.04(c), then the
Borrower shall deposit, in an account with the Administrative Agent, in the
name of the Administrative Agent and for the benefit of the Lenders, an amount
in cash equal to, in the case of an Event of Default, the LC Exposure, and in
the case of a payment required by Section 3.04(c), the amount of such
excess as provided in Section 3.04(c), as of such date plus any accrued
and unpaid interest thereon; provided that the obligation to deposit such cash
collateral shall become effective immediately, and such deposit shall become
immediately due and payable, without demand or other notice of any kind, upon
the occurrence of any Event of Default with respect to the Borrower or any of
its Subsidiaries described in Section 10.01(h) or Section 10.01(i).  The Borrower hereby grants to the
Administrative Agent, for the benefit of each Issuing Bank and the Lenders, an
exclusive first priority and continuing perfected security interest in and Lien
on such

 

31

 

account
and all cash, checks, drafts, certificates and instruments, if any, from time
to time deposited or held in such account, all deposits or wire transfers made
thereto, any and all investments purchased with funds deposited in such
account, all interest, dividends, cash, instruments, financial assets and other
Property from time to time received, receivable or otherwise payable in respect
of, or in exchange for, any or all of the foregoing, and all proceeds,
products, accessions, rents, profits, income and benefits therefrom, and any
substitutions and replacements therefor. 
The Borrower’s obligation to deposit amounts pursuant to this Section 2.08(j)
shall be absolute and unconditional, without regard to whether any beneficiary
of any such Letter of Credit has attempted to draw down all or a portion of
such amount under the terms of a Letter of Credit, and, to the fullest extent
permitted by applicable law, shall not be subject to any defense or be affected
by a right of set-off, counterclaim or recoupment which the Borrower or any of
its Subsidiaries may now or hereafter have against any such beneficiary, any
Issuing Bank, the Administrative Agent, the Lenders or any other Person for any
reason whatsoever.  Such deposit shall be
held as collateral securing the payment and performance of the Borrower’s and
the Guarantor’s obligations under this Agreement and the other Loan
Documents.  The Administrative Agent
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over such account.  Deposits
in such account shall be invested at the direction of the Borrower in an
Investment of the type described in Section 9.05(c), Section 9.05(d),
Section 9.05(e) or Section 9.05(f) and at the Borrower’s
risk and expense.  Interest or profits,
if any, on such investments shall accumulate in such account.  Moneys in such account shall be applied by
the Administrative Agent to reimburse, on a pro
rata basis, each Issuing Bank for LC Disbursements for which it has
not been reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated, be
applied to satisfy other obligations of the Borrower and the Guarantors under
this Agreement or the other Loan Documents. 
If the Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, and the
Borrower is not otherwise required to pay to the Administrative Agent the
excess attributable to an LC Exposure in connection with any prepayment
pursuant to Section 3.04(c), then such amount (to the extent not applied
as aforesaid) shall be returned to the Borrower within three Business Days
after all Events of Default have been cured or waived.

 

(k)                                  Existing Letters of Credit.  On the Effective Date, the Existing Letters
of Credit listed on Schedule 1.02 shall be deemed to have been issued
under this Agreement by BNP Paribas, as an Issuing Bank, or Compass Bank, as an
Issuing Bank, as specified on Schedule 1.02, without payment of any fees
otherwise due upon the issuance of a Letter of Credit, and BNP Paribas and
Compass Bank shall be deemed, without further action by any party hereto, to
have sold to each Lender, and each Lender shall be deemed, without further
action by any party hereto, to have purchased from BNP Paribas and Compass
Bank, as Issuing Banks, a participation, to the extent of such Lender’s
Applicable Percentage, in such Letters of Credit.

 

32

 

ARTICLE III
Payments
of Principal and Interest; Prepayments; Fees

 

Section 3.01                                Repayment
of Loans.  The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Loan on the Termination
Date.

 

Section 3.02                                Interest.

 

(a)                                  ABR Loans.  Each Loan comprising an ABR Borrowing shall
bear interest at the Alternate Base Rate plus the Applicable Margin, but in no
event to exceed the Highest Lawful Rate.

 

(b)                                 Eurodollar Loans.  Each Loan comprising a Eurodollar Borrowing
shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect
for such Borrowing plus the Applicable Margin, but in no event to exceed the
Highest Lawful Rate.

 

(c)                                  Post-Default and Borrowing Base
Deficiency Rate.  Notwithstanding the foregoing, (i) if an
Event of Default has occurred and is continuing, or if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower or any
Guarantor hereunder or under any other Loan Document is not paid when due,
whether at stated maturity, upon acceleration or otherwise, and including any
payments in respect of a Borrowing Base Deficiency under Section 3.04(c),
then all Loans outstanding, in the case of an Event of Default, and such
overdue amount, in the case of a failure to pay amounts when due, shall bear
interest, after as well as before judgment, at the Alternate Base Rate plus two
percent (2%), but in no event to exceed the Highest Lawful Rate, and (ii) 
during any Borrowing Base Deficiency, the amount of such Borrowing Base
Deficiency shall bear interest, after as well as before judgment, at the rate
then applicable to the relevant Loan or Loans, plus the Applicable Margin, if
any, plus an additional two percent (2%), but in no event to exceed the Highest
Lawful Rate.

 

(d)                                 Interest Payment Dates.  Accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and on the
Termination Date; provided that (i) interest accrued pursuant to Section 3.02(c)(i) shall
be payable on demand, (ii) in the event of any repayment or prepayment of
any Loan (other than an optional prepayment of an ABR Loan prior to the
Termination Date), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment, and (iii) in
the event of any conversion of any Eurodollar Loan prior to the end of the
current Interest Period therefor, accrued interest on such Loan shall be
payable on the effective date of such conversion.

 

(e)                                  Interest Rate Computations.  All interest hereunder shall be computed on
the basis of a year of 360 days, unless such computation would exceed the
Highest Lawful Rate, in which case interest shall be computed on the basis of a
year of 365 days (or 366 days in a leap year), except that interest computed by
reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days
(or 366 days in a leap year), and in each case shall be payable for the actual
number of days elapsed (including the first day but excluding the last
day).  The applicable Alternate Base
Rate,

 

33

 

Adjusted
LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error, and be binding
upon the parties hereto.

 

Section 3.03                                Alternate
Rate of Interest.  If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:

 

(a)                                  the Administrative Agent
determines (which determination shall be conclusive absent manifest error) that
adequate and reasonable means do not exist for ascertaining the Adjusted LIBO
Rate or the LIBO Rate for such Interest Period; or

 

(b)                                 the Administrative Agent is advised
by the Majority Lenders that the Adjusted LIBO Rate or LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect the
cost to such Lenders of making or maintaining their Loans included in such
Borrowing for such Interest Period;

 

then the Administrative Agent shall give
notice thereof to the Borrower and the Lenders by telephone or telecopy as
promptly as practicable thereafter and, until the Administrative Agent notifies
the Borrower and the Lenders that the circumstances giving rise to such notice
no longer exist, (i) any Interest Election Request that requests the
conversion of any Borrowing to, or continuation of any Borrowing as, a
Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing
Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR
Borrowing.

 

Section 3.04                                Prepayments.

 

(a)                                  Optional Prepayments.  The Borrower shall have the right at any time
and from time to time to prepay any Borrowing in whole or in part, subject to
prior notice in accordance with Section 3.04(b).

 

(b)                                 Notice and Terms of Optional
Prepayment.  The Borrower shall notify the Administrative
Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in
the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m.,
Houston time, three Business Days before the date of prepayment, or (ii) in
the case of prepayment of an ABR Borrowing, not later than 11:00 a.m.,
Houston time, one Business Day before the date of prepayment.  Each such notice shall be irrevocable and
shall specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid.  Promptly
following receipt of any such notice relating to a Borrowing, the
Administrative Agent shall advise the Lenders of the contents thereof.  Each partial prepayment of any Borrowing
shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02.  Each prepayment of a Borrowing shall be
applied ratably to the Loans included in the prepaid Borrowing.  Prepayments shall be accompanied by accrued
interest to the extent required by Section 3.02.

 

(c)                                  Mandatory Prepayments.

 

(i)                                     If, after giving effect to any
termination or reduction of the Aggregate Maximum Credit Amounts pursuant to Section 2.06(b),
the total Revolving Credit Exposures exceeds the total Commitments, then the
Borrower shall (A) prepay the Borrowings

 

34

 

on
the date of such termination or reduction in an aggregate principal amount
equal to such excess, and (B) if any excess remains after prepaying all of
the Borrowings as a result of an LC Exposure, pay to the Administrative Agent
on behalf of the Lenders an amount equal to such excess to be held as cash
collateral as provided in Section 2.08(j).

 

(ii)                                  If, after giving effect to any
change in the then effective Borrowing Base as the result of monthly
amortization established pursuant Section 2.07(e), the total Revolving
Credit Exposures exceeds the Borrowing Base, as reduced, then the Borrower
shall (A) prepay the Borrowings three (3) Business Days following the
date of such amortization in an aggregate principal amount equal to such excess
and (B) if any excess remains after prepaying all of the Borrowings as a
result of an LC Exposure, pay to the Administrative Agent on behalf of the
Lenders an amount equal to such excess to be held as cash collateral as
provided in Section 2.08(j).

 

(iii)                               Upon any redetermination of or
adjustment to the amount of the Borrowing Base in accordance with Section 2.07
or Section 8.13(c), if the total Revolving Credit Exposures exceeds the
redetermined or adjusted Borrowing Base, then the Borrower shall (A) prepay
the Borrowings in an aggregate principal amount equal to such excess, and (B) if
any excess remains after prepaying all of the Borrowings as a result of an LC
Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
equal to such excess to be held as cash collateral as provided in Section 2.08(j).  The Borrower shall be obligated to make such
prepayment and/or deposit of cash collateral within ninety days (90) following
its receipt of the New Borrowing Base Notice in accordance with Section 2.07(d) or
the date the adjustment occurs; provided that all payments required to be made
pursuant to this Section 3.04(c)(iii) must be made on or prior to the
Termination Date.

 

(iv)                              Upon any adjustments to the
Borrowing Base pursuant to Section 9.12(d), if the total Revolving Credit
Exposures exceed the Borrowing Base as adjusted, then the Borrower shall (A) prepay
the Borrowings in an aggregate principal amount equal to such excess, and (B) if
any excess remains after prepaying all of the Borrowings as a result of an LC
Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
equal to such excess to be held as cash collateral as provided in Section 2.08(j).  The Borrower shall be obligated to make such
prepayment and/or deposit of cash collateral on the date it receives cash proceeds
as a result of such disposition; provided that all payments required to be made
pursuant to this Section 3.04(c)(iv) must be made on or prior to the
Termination Date.

 

(v)                                 Each prepayment of Borrowings
pursuant to this Section 3.04(c) shall be applied, first, ratably to
any ABR Borrowings then outstanding, and, second, to any Eurodollar Borrowings
then outstanding, and if more than one Eurodollar Borrowing is then
outstanding, to each such Eurodollar Borrowing in order of priority beginning
with the Eurodollar Borrowing with the least number of days remaining in the
Interest Period applicable thereto and ending with the Eurodollar Borrowing
with the most number of days remaining in the Interest Period applicable
thereto.

 

(vi)                              Each prepayment of Borrowings
pursuant to this Section 3.04(c) shall be applied ratably to the
Loans included in the prepaid Borrowings. 
Prepayments pursuant

 

35

 

to
this Section 3.04(c) shall be accompanied by accrued interest to the
extent required by Section 3.02.

 

(d)                                 No Premium or Penalty.  Prepayments permitted or required under this Section 3.04
shall be without premium or penalty, except as required under Section 5.02.

 

Section 3.05                                Fees.

 

(a)                                  Commitment Fees.  The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at a rate per annum equal to 0.375% on the average daily amount of
the unused amount of the Commitment of such Lender during the period from and including
the date of this Agreement to but excluding the Termination Date.  Accrued commitment fees shall be payable in
arrears on the last day of March, June, September and December of
each year and on the Termination Date, commencing on the first such date to
occur after the date hereof.  All
commitment fees shall be computed on the basis of a year of 360 days, unless
such computation would exceed the Highest Lawful Rate, in which case interest
shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and shall be payable for the actual number of days elapsed (including
the first day but excluding the last day).

 

(b)                                 Letter of Credit Fees.  The Borrower agrees to pay (i) to the
Administrative Agent for the account of each Lender a participation fee with
respect to its participations in Letters of Credit, which shall accrue at the
same Applicable Margin used to determine the interest rate applicable to
Eurodollar Loans on the average daily amount of such Lender’s LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the date of this Agreement to but
excluding the later of the date on which such Lender’s Commitment terminates
and the date on which such Lender ceases to have any LC Exposure, (ii) to
each Issuing Bank a fronting fee equal to 0.125% per annum on the face amount
of each Letter of Credit issued by such Issuing Bank hereunder, provided that
in no event shall such fee be less than $500 and (iii) to each Issuing
Bank, for its own account, its standard fees with respect to the issuance,
amendment, renewal or extension of any Letter of Credit issued by such Issuing
Bank or processing of drawings thereunder. 
Participation fees accrued through and including the last day of March,
June, September and December of each year shall be payable on the
third Business Day following such last day, commencing on the first such date
to occur after the date of this Agreement and fronting fees with respect to any
Letter of Credit shall be payable at the time of issuance of such Letter of
Credit; provided that all such fees shall be payable on the Termination Date
and any such fees accruing after the Termination Date shall be payable on
demand.  Any other fees payable to an Issuing
Bank pursuant to this Section 3.05(b) shall be payable within 10 days
after demand.  All participation fees and
fronting fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case interest shall
be computed on the basis of a year of 365 days (or 366 days in a leap year),
and shall be payable for the actual number of days elapsed (including the first
day but excluding the last day).

 

(c)                                  Administrative Agent Fees.  The Borrower agrees to pay to the
Administrative Agent, for its own account, fees payable in the amounts and at
the times separately agreed upon between the Borrower and the Administrative
Agent.

 

36

 

(d)                                 Borrowing Base Increase Fees.  The Borrower agrees to pay to the
Administrative Agent, for the account of each Lender then party to this
Agreement, ratably in accordance with its Applicable Percentage, a Borrowing
Base increase fee to be agreed by the Lenders and the Borrower on the amount of
any increase of the Borrowing Base over the highest Borrowing Base previously
in effect, payable on the effective date of any such increase to the Borrowing
Base.

 

ARTICLE IV
Payments;
Pro Rata Treatment; Sharing of Set-offs.

 

Section 4.01                                Payments
Generally; Pro Rata Treatment; Sharing of Set-offs.

 

(a)                                  Payments by the Borrower.  The Borrower shall make each payment required
to be made by it hereunder (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 5.01,
Section 5.02, Section 5.03 or otherwise) prior to 11:00 a.m.,
Houston time, on the date when due, in immediately available funds, without
defense, deduction, recoupment, set-off or counterclaim.  Fees, once paid, shall be fully earned and
shall not be refundable under any circumstances.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments
shall be made to the Administrative Agent at its offices specified in Section 12.01,
except payments to be made directly to an Issuing Bank as expressly provided
herein and except that payments pursuant to Section 5.01, Section 5.02,
Section 5.03 and Section 12.03 shall be made directly to the Persons
entitled thereto.  The Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt
thereof.  If any payment hereunder shall
be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such
extension.  All payments hereunder shall
be made in dollars.

 

(b)                                 Application of Insufficient
Payments.  If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, unreimbursed LC Disbursements, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, towards payment of principal and unreimbursed LC
Disbursements then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal and unreimbursed LC Disbursements then
due to such parties.

 

(c)                                  Sharing of Payments by Lenders.  If any Lender shall, by exercising any right
of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Loans and participations in LC
Disbursements and accrued interest thereon than the proportion received by any
other Lender, then the Lender receiving such greater proportion shall purchase
(for cash at face value) participations in the Loans and participations in LC
Disbursements of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in

 

37

 

accordance
with the aggregate amount of principal of and accrued interest on their
respective Loans and participations in LC Disbursements; provided that (i) if
any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and
the purchase price restored to the extent of such recovery, without interest,
and (ii) the provisions of this Section 4.01(c) shall not be
construed to apply to any payment made by the Borrower pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by
a Lender as consideration for the assignment of or sale of a participation in
any of its Loans or participations in LC Disbursements to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this Section 4.01(c) shall
apply).  The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under applicable
law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.

 

Section 4.02                                Presumption
of Payment by the Borrower.  Unless
the Administrative Agent shall have received notice from the Borrower prior to
the date on which any payment is due to the Administrative Agent for the
account of the Lenders or any Issuing Bank that the Borrower will not make such
payment, the Administrative Agent may assume that the Borrower has made such
payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders or such Issuing Bank, as the case may be,
the amount due.  In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or such
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or such Issuing Bank with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.

 

Section 4.03                                Certain
Deductions by the Administrative Agent. 
If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.05(b), Section 2.08(d), Section 2.08(e) or
Section 4.02 then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Lender to satisfy
such Lender’s obligations under such Sections until all such unsatisfied
obligations are fully paid.

 

Section 4.04                                Disposition
of Proceeds.  The Security
Instruments contain an assignment by the Borrower and/or the Guarantors unto
and in favor of the Administrative Agent for the benefit of the Lenders of all
of the Borrower’s or each Guarantor’s interest in and to production and all
proceeds attributable thereto which may be produced from or allocated to the
Mortgaged Property.  The Security
Instruments further provide in general for the application of such proceeds to
the satisfaction of the Indebtedness and other obligations described therein
and secured thereby.  Notwithstanding the
assignment contained in such Security Instruments, until the occurrence of an
Event of Default, (a) the Administrative Agent and the Lenders agree that
they will neither notify the purchaser or purchasers of such production nor
take any other action to cause such proceeds to be remitted to the
Administrative Agent or the Lenders, but the Lenders will instead permit such
proceeds to be paid to the Borrower and its Subsidiaries and (b)

 

38

 

the Lenders hereby authorize
the Administrative Agent to take such actions as may be necessary to cause such
proceeds to be paid to the Borrower and/or its Subsidiaries.

 

ARTICLE V
Increased
Costs; Break Funding Payments; Taxes; Illegality

 

Section 5.01                                Increased
Costs.

 

(a)                                  Eurodollar Changes in Law.  If any Change in Law shall:

 

(i)                                     impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by, any Lender
(except any such reserve requirement reflected in the Adjusted LIBO Rate); or

 

(ii)                                  impose on any Lender or the
London interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender;

 

and the result of
any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any
such Loan) or to reduce the amount of any sum received or receivable by such
Lender (whether of principal, interest or otherwise), then the Borrower will
pay to such Lender such additional amount or amounts as will compensate such
Lender for such additional costs incurred or reduction suffered.

 

(b)                                 Capital Requirements.  If any Lender or any Issuing Bank determines
that any Change in Law regarding capital requirements has or would have the
effect of reducing the rate of return on such Lender’s or such Issuing Bank’s
capital or on the capital of such Lender’s or such Issuing Bank’s holding company,
if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of
Credit issued by such Issuing Bank, to a level below that which such Lender or
such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could
have achieved but for such Change in Law (taking into consideration such Lender’s
or such Issuing Bank’s policies and the policies of such Lender’s or such
Issuing Bank’s holding company with respect to capital adequacy), then from
time to time the Borrower will pay to such Lender or such Issuing Bank, as the
case may be, such additional amount or amounts as will compensate such Lender
or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company
for any such reduction suffered.

 

(c)                                  Certificates.  A certificate of a Lender or any Issuing Bank
setting forth the amount or amounts necessary to compensate such Lender or such
Issuing Bank or its holding company, as the case may be, as specified in Section 5.01(a) or
(b) shall be delivered to the Borrower and shall be conclusive absent
manifest error.  The Borrower shall pay
such Lender or such Issuing Bank, as the case may be, the amount shown as due
on any such certificate within 10 days after receipt thereof.

 

(d)                                 Effect of Failure or Delay in
Requesting Compensation.  Failure or delay on the part of any Lender or
any Issuing Bank to demand compensation pursuant to this Section 5.01
shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to
demand such compensation.

 

39

 

Section 5.02                                Break
Funding Payments.  In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of
an Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan into an ABR Loan other
than on the last day of the Interest Period applicable thereto, or (c) the
failure to borrow, convert, continue or prepay any Eurodollar Loan on the date
specified in any notice delivered pursuant hereto, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event.  In the case
of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed
to include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such
Loan had such event not occurred, at the Adjusted LIBO Rate that would have
been applicable to such Loan, for the period from the date of such event to the
last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest which
would accrue on such principal amount for such period at the interest rate
which such Lender would bid were it to bid, at the commencement of such period,
for dollar deposits of a comparable amount and period from other banks in the
eurodollar market.

 

A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this Section 5.02
shall be delivered to the Borrower and shall be conclusive absent manifest
error.  The Borrower shall pay such
Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

 

Section 5.03                                Taxes.

 

(a)                                  Payments Free of Taxes.  Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the
sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower or such Guarantor
shall make such deductions and (iii) the Borrower or such Guarantor shall
pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.

 

(b)                                 Payment of Other Taxes by the
Borrower.  The Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

 

(c)                                  Indemnification by the Borrower.  The Borrower shall indemnify the
Administrative Agent, each Lender and each Issuing Bank, within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes paid by the Administrative Agent, such Lender or such Issuing Bank, as
the case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this Section 5.03)
and any penalties, interest and reasonable expenses arising therefrom or with
respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or

 

40

 

asserted
by the relevant Governmental Authority. 
A certificate of the Administrative Agent, a Lender or an Issuing Bank
as to the amount of such payment or liability under this Section 5.03
shall be delivered to the Borrower and shall be conclusive absent manifest
error.

 

(d)                                 Evidence of Payments.  As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.

 

(e)                                  Foreign Lenders.  Any Foreign Lender that is entitled to an
exemption from or reduction of withholding Tax under the law of the
jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement or any other
Loan Document shall deliver to the Borrower (with a copy to the Administrative
Agent), at the time or times prescribed by applicable law, such properly
completed and executed documentation prescribed by applicable law or reasonably
requested by the Borrower as will permit such payments to be made without
withholding or at a reduced rate.

 

Section 5.04                                Designation
of Different Lending Office.  If any
Lender or Participant requests compensation under Section 5.01, or
if the Borrower is required to pay any additional amount to any Lender or
Participant or any Governmental Authority for the account of any Lender or
Participant pursuant to Section 5.03,
then such Lender or Participant shall use reasonable efforts to designate a
different lending office for funding or booking its Loans hereunder or to
assign its rights and obligations hereunder to another of its offices, branches
or affiliates, if, in the judgment of such Lender or Participant, such
designation or assignment (i) would eliminate or reduce amounts payable
pursuant to Section 5.01 or Section 5.03,
as the case may be, in the future and (ii) would not subject such Lender
or Participant to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender or Participant. 
The Borrower hereby agrees to pay all reasonable costs and expenses
incurred by any Lender or Participant in connection with any such designation
or assignment.

 

Section 5.05                                Illegality.  Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
applicable lending office to honor its obligation to make or maintain
Eurodollar Loans either generally or having a particular Interest Period
hereunder, then (a) such Lender shall promptly notify the Borrower and the
Administrative Agent thereof and such Lender’s obligation to make such
Eurodollar Loans shall be suspended (the “Affected Loans”) until such
time as such Lender may again make and maintain such Eurodollar Loans and (b) all
Affected Loans which would otherwise be made by such Lender shall be made
instead as ABR Loans (and, if such Lender so requests by notice to the Borrower
and the Administrative Agent, all Affected Loans of such Lender then
outstanding shall be automatically converted into ABR Loans on the date
specified by such Lender in such notice) and, to the extent that Affected Loans
are so made as (or converted into) ABR Loans, all payments of principal which
would otherwise be applied to such Lender’s Affected Loans shall be applied
instead to its ABR Loans.

 

41

 

ARTICLE VI
Conditions
Precedent

 

Section 6.01                                Effective
Date.  The obligations of the Lenders
to make Loans and of any Issuing Bank to issue Letters of Credit hereunder
shall not become effective until the date on which each of the following
conditions is satisfied (or waived in accordance with Section 12.02):

 

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

 

(b)                                 The Administrative Agent shall
have received a certificate of the Secretary or an Assistant Secretary of each
of the Borrower and each Guarantor setting forth (i) resolutions of its
board of directors with respect to the authorization of the Borrower or such
Guarantor to execute and deliver the Loan Documents to which it is a party and
to enter into the transactions contemplated in those documents, (ii) the
officers of the Borrower or such Guarantor (y) who are authorized to sign the
Loan Documents to which the Borrower or such Guarantor is a party and (z) who
will, until replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing documents and
giving notices and other communications in connection with this Agreement and
the transactions contemplated hereby, (iii) specimen signatures of such
authorized officers, and (iv) the articles or certificate of incorporation
and bylaws of the Borrower and such Guarantor, in each case, certified as being
true and complete.  The Administrative
Agent and the Lenders may conclusively rely on such certificate until the
Administrative Agent receives notice in writing from the Borrower to the
contrary.

 

(c)                                  The Administrative Agent shall
have received certificates of the appropriate State agencies with respect to
the existence, qualification and good standing of the Borrower and each
Guarantor.

 

(d)                                 The Administrative Agent shall
have received a compliance certificate which shall be substantially in the form
of Exhibit B, duly and properly executed by a Responsible Officer and
dated as of the Effective Date.

 

(e)                                  The Administrative Agent shall
have received from each party hereto counterparts (in such number as may be
requested by the Administrative Agent) of this Agreement signed on behalf of
such party.

 

(f)                                    The Administrative Agent shall
have received duly executed Notes payable to the order of each Lender in a
principal amount equal to its Maximum Credit Amount dated as of the date
hereof.

 

(g)                                 The Administrative Agent shall
have received from each party thereto duly executed counterparts (in such
number as may be requested by the Administrative Agent) of the Security
Instruments.  In connection with the
execution and delivery of the Security Instruments, the Administrative Agent
shall be reasonably satisfied that the Security Instruments create first
priority, perfected Liens (provided the Excepted Liens identified in clauses (a) to
(d)

 

42

 

and
(f) of the definition thereof may exist, but subject to the provisos at
the end of such definition) on at least 80% of the total value of the Oil and
Gas Properties evaluated in the Initial Reserve Report.

 

(h)                                 The Administrative Agent shall
have received certificates, together with undated, blank stock powers for each
certificate, representing all of the issued and outstanding Equity Interests of
each of the Guarantors.

 

(i)                                     The Administrative Agent shall
have received an opinion of (i) Thompson & Knight LLP, special
counsel to the Borrower, substantially in the form of Exhibit C-1 hereto
and (ii) local counsel in each of the following states: New Mexico and any
other jurisdictions requested by the Administrative Agent, substantially in the
form of Exhibit C-2.

 

(j)                                     The Administrative Agent shall
have received a certificate of insurance coverage of the Borrower evidencing
that the Borrower is carrying insurance in accordance with Section 7.13.

 

(k)                                  The Administrative Agent shall
have received such information as the Administrative Agent may reasonably
require, all of which shall be reasonably satisfactory to the Administrative
Agent in form and substance, on the title to the Oil and Gas Properties
evaluated in the Initial Reserve Report.

 

(l)                                     The Administrative Agent shall
have received a certificate of a Responsible Officer certifying that the Borrower
has received all consents and approvals required by Section 7.03.

 

(m)                               The Administrative Agent shall
have received the financial statements referred to in Section 7.04(a) and
the Initial Reserve Report accompanied by a certificate covering the matters
described in Section 8.12(c).

 

(n)                                 The Administrative Agent shall
have received appropriate UCC search certificates reflecting no prior Liens
encumbering the Properties of the Borrower and its Subsidiaries for each of the
following jurisdictions:  Nevada, New
Mexico, Alabama, Texas and any other jurisdiction requested by the
Administrative Agent; other than those being assigned or released on or prior
to the Effective Date or Liens permitted by Section 9.03.

 

(o)                                 The Administrative Agent shall
have received evidence of the payment in full of all amounts due under the
Existing Credit Agreements other than the Existing Letters of Credit, the
termination of all commitments to lend thereunder, the cash collateralization
of all existing letters of credit issued by Frost Bank under the Existing
Credit Agreement between RIMCO Production Company, Inc. and Frost Bank,
and the release of all Liens securing such obligations and any other
obligations secured thereby.

 

(p)                                 The Administrative Agent shall
have received true and complete copies, certified as such by a Responsible
Officer of the Borrower, of the Acquisition Documents and be satisfied with the
terms thereof.

 

43

 

(q)                                 The Administrative Agent shall
have received true and complete copies, certified as such by a Responsible
Officer of the Borrower, of the Subordinated Note and the Subordination
Agreement.

 

(r)                                    The Administrative Agent shall
be reasonably satisfied with the environmental condition of the Oil and Gas
Properties of the Borrower and its Subsidiaries.

 

(s)                                  The Administrative Agent shall (i) be
reasonably satisfied that the Swap Agreements set forth on Schedule 6.01(a) are
still in place and will remain in place and (ii) have received evidence
that the Borrower has entered into one or more Swap Agreements with Approved
Counterparties which have aggregate notional amounts and minimum prices as set
forth on Schedule 6.01(b) and other terms satisfactory to the
Lenders.

 

(t)                                    The Administrative Agent shall
have received evidence that there is an unused amount of Commitment of at least
$2,500,000.00 as of the Effective Date.

 

(u)                                 The Administrative Agent shall
have received such other documents as the Administrative Agent or special
counsel to the Administrative Agent may reasonably request.

 

The
Administrative Agent shall notify the Borrower and the Lenders of the Effective
Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the
obligations of the Lenders to make Loans and of each Issuing Bank to issue
Letters of Credit hereunder shall not become effective unless each of the
foregoing conditions is satisfied (or waived pursuant to Section 12.02) at
or prior to 3:00 p.m., Houston time, on June 30, 2005 (and, in the
event such conditions are not so satisfied or waived, the Commitments shall
terminate at such time).

 

Section 6.02                                Each
Credit Event.  The obligation of each
Lender to make a Loan on the occasion of any Borrowing (including the initial
funding), and of each Issuing Bank to issue, amend, renew or extend any Letter
of Credit, is subject to the satisfaction of the following conditions:

 

(a)                                  At the time of and immediately
after giving effect to such Borrowing or the issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, no Default shall have
occurred and be continuing.

 

(b)                                 At the time of and immediately
after giving effect to such Borrowing or the issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, no Material Adverse Effect
shall have occurred.

 

(c)                                  The representations and
warranties of the Borrower and the Guarantors set forth in this Agreement and
in the other Loan Documents shall be true and correct on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, except to the extent any such representations
and warranties are expressly limited to an earlier date, in which case, on and
as of the date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, such representations and
warranties shall continue to be true and correct as of such specified earlier
date.

 

44

 

(d)                                 The making of such Loan or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, would not conflict with, or cause any Lender or any Issuing Bank to
violate or exceed, any applicable Governmental Requirement, and no Change in
Law shall have occurred, and no litigation shall be pending or threatened,
which does or, with respect to any threatened litigation, seeks to, enjoin,
prohibit or restrain, the making or repayment of any Loan, the issuance,
amendment, renewal, extension or repayment of any Letter of Credit or any
participations therein or the consummation of the transactions contemplated by
this Agreement or any other Loan Document.

 

(e)                                  The receipt by the
Administrative Agent of a Borrowing Request in accordance with Section 2.03
or a request for a Letter of Credit in accordance with Section 2.08(b), as
applicable.

 

Each request for a Borrowing and each
issuance, amendment, renewal or extension of any Letter of Credit shall be
deemed to constitute a representation and warranty by the Borrower on the date
thereof as to the matters specified in Section 6.02(a) through (e).

 

ARTICLE VII
Representations
and Warranties

 

The Borrower represents and warrants to the
Lenders that:

 

Section 7.01                                Organization;
Powers.  Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority, and has all material governmental licenses, authorizations, consents
and approvals necessary, to own its assets and to carry on its business as now
conducted, and is qualified to do business in, and is in good standing in,
every jurisdiction where such qualification is required, except where failure
to have such power, authority, licenses, authorizations, consents, approvals
and qualifications could not reasonably be expected to have a Material Adverse
Effect.

 

Section 7.02                                Authority;
Enforceability.  The Transactions are
within the Borrower’s and each Guarantor’s corporate powers and have been duly
authorized by all necessary corporate and, if required, stockholder action
(including, without limitation, any action required to be taken by any class of
directors of the Borrower or any other Person, whether interested or
disinterested, in order to ensure the due authorization of the
Transactions).  Each Loan Document and
Acquisition Document to which the Borrower and each Guarantor is a party has
been duly executed and delivered by the Borrower and such Guarantor and
constitutes a legal, valid and binding obligation of the Borrower and such
Guarantor, as applicable, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors’ rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.

 

Section 7.03                                Approvals;
No Conflicts.  The Transactions (a) do
not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority or any other third Person
(including shareholders or any class of directors of the Borrower or any other
Person, whether interested or disinterested), nor is any such consent,
approval, registration,

 

45

 

filing or other action
necessary for the validity or enforceability of any Loan Document or the
consummation of the transactions contemplated thereby, except such as have been
obtained or made and are in full force and effect, (b) will not violate
any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any of its Subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a
default under any indenture, agreement or other instrument binding upon the
Borrower or any of its Subsidiaries or their Properties, or give rise to a
right thereunder to require any payment to be made by the Borrower or such
Subsidiary and (d) will not result in the creation or imposition of any
Lien on any Property of the Borrower or any of its Subsidiaries (other than the
Liens created by the Loan Documents).

 

Section 7.04                                Financial
Condition; No Material Adverse Change.

 

(a)                                  The Borrower has heretofore
furnished to the Lenders on or before the date of this Agreement its
consolidated balance sheet and statements of income, stockholders equity and
cash flows as of and for the fiscal year ended December 31, 2004.  Such financial statement presents fairly, in
all material respects, the financial position and results of operations and
cash flows of the Borrower and its Subsidiaries as of such date and for such
period in accordance with GAAP.

 

(b)                                 Since December 31, 2004, (i) there
has been no event, development or circumstance that has had or could reasonably
be expected to have a Material Adverse Effect and (ii) the business of the
Borrower and its Subsidiaries has been conducted only in the ordinary course
consistent with past business practices.

 

(c)                                  Except as set forth on Schedule 6.01,
neither the Borrower nor any of its Subsidiaries has on the date hereof any
material Debt (including Disqualified Capital Stock), or any contingent
liabilities, off-balance sheet liabilities or partnerships, liabilities for
Taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments.

 

Section 7.05           Litigation.  There are no actions, suits, investigations
or proceedings by or before any arbitrator or Governmental Authority pending
against or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its Subsidiaries or involving the Acquisition (i) as
to which there is a reasonable possibility of an adverse determination that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect, (ii) that involve any
Loan Document, any Acquisition Document or the Transactions, or (iii) that
could impair the consummation of the Acquisition on the time and in the manner
contemplated by the Acquisition Documents.

 

Section 7.06                                Environmental
Matters.  Except as could not be
reasonably expected to have a Material Adverse Effect (or with respect to (c), (d) and
(e) below, where the failure to take such actions could not be reasonably
expected to have a Material Adverse Effect):

 

(a)                                  neither any Property of the
Borrower or any of its Subsidiaries nor the operations conducted thereon
violate any order or requirement of any court or Governmental Authority or any
Environmental Laws.

 

46

 

(b)                                 no Property of the Borrower or
any of its Subsidiaries nor the operations currently conducted thereon or, to
the knowledge of the Borrower, by any prior owner or operator of such Property
or operation, are in violation of or subject to any existing, pending or
threatened action, suit, investigation, inquiry or proceeding by or before any
court or Governmental Authority or to any remedial obligations under
Environmental Laws.

 

(c)                                  all notices, permits, licenses,
exemptions, approvals or similar authorizations, if any, required to be
obtained or filed in connection with the operation or use of any and all
Property of the Borrower and each of its Subsidiaries, including, without
limitation, past or present treatment, storage, disposal or release of a
hazardous substance, oil and gas waste or solid waste into the environment,
have been duly obtained or filed, and the Borrower and each of its Subsidiaries
are in compliance with the terms and conditions of all such notices, permits,
licenses and similar authorizations.

 

(d)                                 all hazardous substances, solid
waste and oil and gas waste, if any, generated at any and all Property of the
Borrower or any of its Subsidiaries have in the past been transported, treated
and disposed of in accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and, to the knowledge of the Borrower, all such transport carriers
and treatment and disposal facilities have been and are operating in compliance
with Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and are not the
subject of any existing, pending or threatened action, investigation or inquiry
by any Governmental Authority in connection with any Environmental Laws.

 

(e)                                  the Borrower has taken all steps
reasonably necessary to determine and has determined that no oil, hazardous
substances, solid waste or oil and gas waste, have been disposed of or
otherwise released and there has been no threatened release of any oil,
hazardous substances, solid waste or oil and gas waste on or to any Property of
the Borrower or any of its Subsidiaries except in compliance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to public
health or welfare or the environment.

 

(f)                                    to the extent applicable, all
Property of the Borrower and each of its Subsidiaries currently satisfies all
design, operation, and equipment requirements imposed by the OPA, and the
Borrower does not have any reason to believe that such Property, to the extent
subject to the OPA, will not be able to maintain compliance with the OPA
requirements during the term of this Agreement.

 

(g)                                 neither the Borrower nor any of
its Subsidiaries has any known contingent liability or Remedial Work in
connection with any release or threatened release of any oil, hazardous
substance, solid waste or oil and gas waste into the environment.

 

Section 7.07                                Compliance
with the Laws and Agreements; No Defaults.

 

(a)                                  Each of the Borrower and its
Subsidiaries is in compliance with all Governmental Requirements applicable to
it or its Property and all agreements and other instruments binding upon it or
its Property, and possesses all licenses, permits, franchises, exemptions,
approvals and other governmental authorizations necessary for the ownership of
its

 

47

 

Property
and the conduct of its business, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

 

(b)                                 Neither the Borrower nor any of
its Subsidiaries is in default nor has any event or circumstance occurred
which, but for the expiration of any applicable grace period or the giving of
notice, or both, would constitute a default or would require the Borrower or
any of its Subsidiaries to Redeem or make any offer to Redeem under any
indenture, note, credit agreement or instrument pursuant to which any Material
Indebtedness is outstanding or by which the Borrower or any of its Subsidiaries
or any of their Properties is bound.

 

(c)                                  No Default has occurred and is
continuing.

 

Section 7.08                                Investment
Company Act.  Neither the Borrower
nor any of its Subsidiaries is an “investment company” or a company “controlled”
by an “investment company,” within the meaning of, or subject to regulation
under, the Investment Company Act of 1940, as amended.

 

Section 7.09                                Public
Utility Holding Company Act.  Neither
the Borrower nor any of its Subsidiaries is a “holding company,” or a “subsidiary
company” of a “holding company,” or an “affiliate” of a “holding company” or of
a “subsidiary company” of a “holding company,” or a “public utility” within the
meaning of, or subject to regulation under, the Public Utility Holding Company
Act of 1935, as amended.

 

Section 7.10                                Taxes.  Each of the Borrower and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves in accordance with
GAAP or (b) to the extent that the failure to do so could not reasonably
be expected to result in a Material Adverse Effect.  The charges, accruals and reserves on the
books of the Borrower and its Subsidiaries in respect of Taxes and other
governmental charges are, in the reasonable opinion of the Borrower,
adequate.  No Tax Lien has been filed
and, to the knowledge of the Borrower, no claim is being asserted with respect
to any such Tax or other such governmental charge.

 

Section 7.11                                ERISA.

 

(a)                                  The Borrower, its Subsidiaries
and each ERISA Affiliate have complied in all material respects with ERISA and,
where applicable, the Code regarding each Plan.

 

(b)                                 Each Plan is, and has been,
maintained in substantial compliance with ERISA and, where applicable, the
Code.

 

(c)                                  No act, omission or transaction
has occurred that could result in imposition on the Borrower, any of its
Subsidiaries or any ERISA Affiliate (whether directly or indirectly) of (i) either
a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502
of ERISA or a Tax imposed pursuant to Chapter 43 of Subtitle D of the Code
or (ii) breach of fiduciary duty liability damages under section 409
of ERISA.

 

48

 

(d)                                 No Plan (other than a defined
contribution plan) or any trust created under any such Plan has been terminated
since September 2, 1974.  No
liability to the PBGC (other than for the payment of current premiums which are
not past due) by the Borrower, any of its Subsidiaries or any ERISA Affiliate
has been or is expected by the Borrower, any of its Subsidiaries or any ERISA
Affiliate to be incurred with respect to any Plan.  No ERISA Event with respect to any Plan has
occurred.

 

(e)                                  Full payment when due has been
made of all amounts which the Borrower, any of its Subsidiaries or any ERISA
Affiliate is required under the terms of each Plan or applicable law to have
paid as contributions to such Plan as of the date hereof, and no accumulated
funding deficiency (as defined in section 302 of ERISA and section 412
of the Code), whether or not waived, exists with respect to any Plan.

 

(f)                                    The actuarial present value of
the benefit liabilities under each Plan which is subject to Title IV of
ERISA does not, as of the end of the Borrower’s most recently ended fiscal
year, exceed the current value of the assets (computed on a plan termination
basis in accordance with Title IV of ERISA) of such Plan allocable to such
benefit liabilities.  The term “actuarial
present value of the benefit liabilities” shall have the meaning specified in section 4041
of ERISA.

 

(g)                                 Neither the Borrower, its
Subsidiaries nor any ERISA Affiliate sponsors, maintains, or contributes to an
employee welfare benefit plan, as defined in section 3(1) of ERISA,
including, without limitation, any such plan maintained to provide benefits to
former employees of such entities, that may not be terminated by the Borrower,
any of its Subsidiaries or any ERISA Affiliate in its sole discretion at any
time without any material liability.

 

(h)                                 Neither the Borrower, its
Subsidiaries nor any ERISA Affiliate sponsors, maintains or contributes to, or
has at any time in the six-year period preceding the date hereof sponsored,
maintained or contributed to, any Multiemployer Plan.

 

(i)                                     Neither the Borrower, its
Subsidiaries nor any ERISA Affiliate is required to provide security under section 401(a)(29)
of the Code due to a Plan amendment that results in an increase in current
liability for the Plan.

 

Section 7.12                                Disclosure;
No Material Misstatements.  The
Borrower has disclosed or made available to the Lenders all agreements,
instruments and corporate or other restrictions to which it or any of its
Subsidiaries is subject, and all other matters known to it, that, individually
or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect.  None of the reports,
financial statements, certificates or other information furnished by or on
behalf of the Borrower or any of its Subsidiaries to the Administrative Agent,
any other Agent or any Lender or any of their Affiliates in connection with the
negotiation of this Agreement or any other Loan Document or delivered hereunder
or under any other Loan Document (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided
that, with respect to projected financial information, the Borrower represents
only that such information was prepared in good faith based upon assumptions
believed to be reasonable at the time. 
There is no fact

 

49

 

peculiar to the Borrower or any
of its Subsidiaries that could reasonably be expected to have a Material
Adverse Effect or in the future is reasonably likely to have a Material Adverse
Effect and which has not been set forth in this Agreement or the Loan Documents
or the other documents, certificates and statements furnished to the
Administrative Agent, any other Agent or the Lenders by or on behalf of the
Borrower or any of its Subsidiaries prior to, or on, the date hereof in
connection with the transactions contemplated hereby.  There are no statements or conclusions in any
Reserve Report which are based upon or include misleading information or fail
to take into account material information regarding the matters reported
therein.

 

Section 7.13                                Insurance.  The Borrower has, and has caused all of its
Subsidiaries to have, (a) all insurance policies sufficient for the
compliance by each of them with all material Governmental Requirements and all
material agreements and (b) insurance coverage in at least amounts and
against such risk (including, without limitation, public liability) that are
usually insured against by companies similarly situated and engaged in the same
or a similar business for the assets and operations of the Borrower and its
Subsidiaries.  The Administrative Agent
and the Lenders have been named as additional insureds in respect of such
liability insurance policies and the Administrative Agent has been named as
loss payee for the benefit of the Administrative Agent and the Lenders with
respect to Property loss insurance.

 

Section 7.14                                Restriction
on Liens.  Neither the Borrower nor
any of its Subsidiaries is a party to any material agreement or arrangement, or
subject to any order, judgment, writ or decree, which either restricts or purports
to restrict its ability to grant Liens to the Administrative Agent and the
Lenders on or in respect of their Properties to secure the Indebtedness and the
Loan Documents.

 

Section 7.15                                Subsidiaries.  Except as set forth on Schedule 7.15 or
as disclosed in writing to the Administrative Agent (which shall promptly
furnish a copy to the Lenders), which shall be a supplement to Schedule 7.15,
the Borrower has no Subsidiaries.  The
Borrower has no Foreign Subsidiaries.

 

Section 7.16                                Location
of Business and Offices.  The
Borrower’s jurisdiction of organization is Nevada; the name of the Borrower as
listed in the public records of its jurisdiction of organization is Whittier
Energy Corporation; and the organizational identification number of the
Borrower in its jurisdiction of organization is C28115-2003 (or, in each case,
as set forth in a notice delivered to the Administrative Agent pursuant to Section 8.01(m)
in accordance with Section 12.01). 
The Borrower’s principal place of business and chief executive offices
are located at the address specified in Section 12.01 (or as set forth in
a notice delivered pursuant to Section 8.01(m) and Section 12.01(c)).  Each Subsidiary’s jurisdiction of
organization, name as listed in the public records of its jurisdiction of
organization, organizational identification number in its jurisdiction of
organization, and the location of its principal place of business and chief
executive office is stated on Schedule 7.15 (or as set forth in a notice
delivered pursuant to Section 8.01(m)).

 

Section 7.17                                Properties;
Titles, Etc.

 

(a)                                  Each of the Borrower and its
Subsidiaries has good and defensible title to the Oil and Gas Properties
evaluated in the most recently delivered Reserve Report and good title

 

50

 

to
all its personal Properties, in each case, free and clear of all Liens except
Liens permitted by Section 9.03. 
After giving full effect to the Excepted Liens, the Borrower or any of
its Subsidiaries specified as the owner owns the net interests in production
attributable to the Hydrocarbon Interests as reflected in the most recently
delivered Reserve Report, and the ownership of such Properties shall not in any
material respect obligate the Borrower or any of its Subsidiaries to bear the
costs and expenses relating to the maintenance, development and operations of
each such Property in an amount in excess of the working interest of each
Property set forth in the most recently delivered Reserve Report that is not
offset by a corresponding proportionate increase in the Borrower’s or any of
its Subsidiaries’ net revenue interest in such Property.

 

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

 

(c)                                  The rights and Properties
presently owned, leased or licensed by the Borrower and its Subsidiaries
including, without limitation, all easements and rights of way, include all
rights and Properties necessary to permit the Borrower and its Subsidiaries to
conduct their business in all material respects in the same manner as their
business has been conducted prior to the date hereof.

 

(d)                                 All of the Properties of the
Borrower and each of its Subsidiaries that are reasonably necessary for the
operation of their businesses are in good working condition and are maintained
in accordance with prudent business standards.

 

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

 

Section 7.18                                Maintenance
of Properties.  Except for such acts
or failures to act as could not be reasonably expected to have a Material
Adverse Effect, the Oil and Gas Properties (and Properties unitized therewith)
have been maintained, operated and developed in a good and workmanlike manner
and in conformity with all Government Requirements and in conformity with the
provisions of all leases, subleases or other contracts comprising a part of the
Hydrocarbon Interests and other contracts and agreements forming a part of the
Oil and Gas Properties.  Specifically in
connection with the foregoing, except for those as could not be

 

51

 

reasonably expected to have a
Material Adverse Effect, (i) no Oil and Gas Property is subject to having
allowable production reduced below the full and regular allowable (including
the maximum permissible tolerance) because of any overproduction (whether or
not the same was permissible at the time) and (ii) none of the wells
comprising a part of the Oil and Gas Properties (or Properties unitized
therewith) is deviated from the vertical more than the maximum permitted by
Government Requirements, and such wells are, in fact, bottomed under and are
producing from, and the well bores are wholly within, the Oil and Gas
Properties (or in the case of wells located on Properties unitized therewith,
such unitized Properties).  All
pipelines, wells, gas processing plants, platforms and other material
improvements, fixtures and equipment owned in whole or in part by the Borrower
or any of its Subsidiaries that are necessary to conduct normal operations are
being maintained in a state adequate to conduct normal operations, and with
respect to such of the foregoing which are operated by the Borrower or any of
its Subsidiaries, in a manner consistent with the Borrower’s or its
Subsidiaries’ past practices (other than those the failure of which to maintain
in accordance with this Section 7.18 could not reasonably be expect to
have a Material Adverse Effect).  The
representations and warranties of this Section 7.18 are limited to the
Borrower’s knowledge insofar as they relate to (i) any Acquisition
Properties prior to the date such properties were acquired and (ii) any
Property not operated by Borrower or one of its Subsidiaries.

 

Section 7.19                                Gas
Imbalances, Prepayments.  As of the
date hereof, except as set forth on Schedule 7.19 or on the most recent
certificate delivered pursuant to Section 8.12(c), on a net basis there
are no gas imbalances, take or pay or other prepayments which would require the
Borrower or any of its Subsidiaries to deliver Hydrocarbons produced from the
Oil and Gas Properties at some future time without then or thereafter receiving
full payment therefor exceeding 50,000 Mcf of gas (on an Mcf equivalent basis)
in the aggregate.

 

Section 7.20                                Marketing
of Production.  Except for contracts
listed and in effect on the date hereof on Schedule 7.20, and thereafter
either disclosed in writing to the Administrative Agent or included in the most
recently delivered Reserve Report (with respect to all of which contracts the
Borrower represents that it or its Subsidiaries are receiving a price for all
production sold thereunder which is computed substantially in accordance with
the terms of the relevant contract and are not having deliveries curtailed
substantially below the subject Property’s delivery capacity), no material
agreements exist which are not cancelable on 60 days notice or less without
penalty or detriment for the sale of production from the Borrower’s or its
Subsidiaries’ Hydrocarbons (including, without limitation, calls on or other
rights to purchase, production, whether or not the same are currently being
exercised) that (a) pertain to the sale of production at a fixed price and
(b) have a maturity or expiry date of longer than six (6) months from
the date hereof.

 

Section 7.21                                Swap
Agreements.  Schedule 6.01(a),
as of the date hereof, and after the date hereof, each report required to be
delivered by the Borrower pursuant to Section 8.01(e), sets forth, a true
and complete list of all Swap Agreements of the Borrower and each of its
Subsidiaries, the material terms thereof (including the type, term, effective
date, termination date and notional amounts or volumes), the net mark to market
value thereof, all credit support agreements relating thereto (including any
margin required or supplied) and the counterparty to each such agreement.

 

52

 

Section 7.22                                Use
of Loans and Letters of Credit.  The
proceeds of the Loans and the Letters of Credit shall be used to provide
funding in connection with the Acquisition, to refinance existing debt of the
Borrower, and for general corporate purposes of the Borrower or any of its
Subsidiaries (including in connection with Investments permitted by Section 9.05(i)).  The Borrower and its Subsidiaries are not
engaged principally, or as one of its or their important activities, in the
business of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying margin stock (within the meaning of Regulation
T, U or X of the Board).  No part of the
proceeds of any Loan or Letter of Credit will be used for any purpose which
violates the provisions of Regulations T, U or X of the Board.

 

Section 7.23                                Solvency.  After giving effect to the transactions
contemplated hereby, (a) the aggregate assets (after giving effect to
amounts that could reasonably be received by reason of indemnity, offset,
insurance or any similar arrangement), at a fair valuation, of the Borrower and
the Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrower
and the Guarantors on a consolidated basis, as the Debt becomes absolute and
matures, (b) each of the Borrower and the Guarantors will not have
incurred or intended to incur, and will not believe that it will incur, Debt
beyond its ability to pay such Debt (after taking into account the timing and
amounts of cash to be received by each of the Borrower and the Guarantors and
the amounts to be payable on or in respect of its liabilities, and giving
effect to amounts that could reasonably be received by reason of indemnity,
offset, insurance or any similar arrangement) as such Debt becomes absolute and
matures and (c) each of the Borrower and the Guarantors will not have (and
will have no reason to believe that it will have thereafter) unreasonably small
capital for the conduct of its business.

 

Section 7.24                                Acquisition.  The copies of the Acquisition Documents
previously delivered by the Borrower to the Administrative Agent are true,
accurate and complete and have not been amended or modified in any manner, other
than pursuant to amendments or modifications previously delivered to the
Administrative Agent.  Neither the
Borrower nor RPC Acquisition Company, Inc. is in default in respect of any
material term or obligation under any Acquisition Document.

 

Section 7.25                                Subordinated
Debt.  The copies of the
Subordination Agreement and Subordinated Note previously delivered by the
Borrower to the Administrative Agent are true, accurate and complete and have
not been amended or modified in any manner, other than pursuant to amendments
or modifications previously delivered to the Administrative Agent.  No party to the Subordination Agreement or
Subordinated Note is in default in respect of any material term or obligation
thereunder.

 

ARTICLE VIII
Affirmative
Covenants

 

Until the Commitments have expired or been
terminated and the principal of and interest on each Loan and all fees payable
hereunder and all other amounts payable under the Loan Documents shall have
been paid in full and all Letters of Credit shall have expired or terminated
and all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:

 

53

 

Section 8.01                                Financial
Statements; Ratings Change; Other Information.  The Borrower will furnish to the
Administrative Agent and each Lender:

 

(a)                                  Annual Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than 90 days after the end of
each fiscal year of the Borrower, its audited consolidated balance sheet and
related statements of operations, stockholders’ equity and cash flows as of the
end of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by independent public
accountants of recognized national standing and reasonably acceptable to the
Administrative Agent (without a “going concern” or like qualification or
exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of
the Borrower and its Consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied.

 

(b)                                 Quarterly Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year of the Borrower,
its unaudited, consolidated balance sheet and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in each
case, in comparative form the figures for the corresponding period or periods
of (or, in the case of the balance sheet, as of the end of) the previous fiscal
year, all certified by one of its Financial Officers as presenting fairly in
all material respects the financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes.

 

(c)                                  Certificate of Financial Officer
— Compliance.  Concurrently with any delivery of financial
statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit B
hereto (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 9.01 and (iii) stating
whether any change in GAAP or in the application thereof has occurred since December 31,
2004 and, if any such change has occurred, specifying the effect of such change
on the financial statements accompanying such certificate.

 

(d)                                 Certificate of Accounting Firm —
Defaults.  Concurrently with any delivery of financial
statements under Section 8.01(a), a certificate of the accounting firm
that reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial statements
of any Default (which certificate may be limited to the extent required by
accounting rules or guidelines).

 

(e)                                  Certificate of Financial Officer
– Swap Agreements.  Concurrently with any delivery of financial
statements under Section 8.01(a) and Section 8.01(b), a
certificate of a Financial Officer, in form and substance reasonably
satisfactory to the Administrative Agent, setting forth as of a recent date, a
true and complete list of all Swap Agreements of the Borrower

 

54

 

and
each of its Subsidiaries, the material terms thereof (including the type, term,
effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating
thereto not listed on Schedule 6.01(a), any margin required or supplied
under any credit support document, and the counterparty to each such agreement.

 

(f)                                    Certificate of Insurer –
Insurance Coverage.  Concurrently with any delivery of financial
statements under Section 8.01(a), a certificate of insurance coverage from
each insurer with respect to the insurance required by Section 8.07, in
form and substance reasonably satisfactory to the Administrative Agent, and, if
requested by the Administrative Agent or any Lender, all copies of the
applicable policies.

 

(g)                                 Other Accounting Reports.  Promptly upon receipt thereof, a copy of each
other report or letter submitted to the Borrower or any of its Subsidiaries by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower or any such Subsidiary, and a copy of
any response by the Borrower or any such Subsidiary, or the Board of Directors
of the Borrower or any such Subsidiary, to such letter or report.

 

(h)                                 Filings; Reports to Shareholders.  Promptly after distribution thereof, copies
of all periodic and other reports and other materials distributed by the
Borrower to its shareholders generally.

 

(i)                                     Notices Under Material
Instruments.  Promptly after the furnishing thereof, copies
of any financial statement, report or notice furnished to or by any Person
pursuant to the terms of any preferred stock designation, indenture, loan or
credit or other similar agreement, other than this Agreement and not otherwise
required to be furnished to the Lenders pursuant to any other provision of this
Section 8.01.

 

(j)                                     Lists of Purchasers.  Concurrently with the delivery of any Reserve
Report to the Administrative Agent pursuant to Section 8.12, a list of all
Persons purchasing in the aggregate not less than 80% of the Hydrocarbons from
the Borrower or any of its Subsidiaries.

 

(k)                                  Notice of Sales of Oil and Gas
Properties.  In the event the Borrower or any of its
Subsidiaries intends to sell, transfer, assign or otherwise dispose of any Oil
or Gas Properties or any Equity Interests in any Subsidiary included in the
most recently delivered Reserve Report during any period between two successive
Scheduled Redetermination Dates having a fair market value, individually or in
the aggregate, in excess of $500,000, prior written notice of such disposition,
the price thereof, the anticipated date of closing and any other details
thereof requested by the Administrative Agent or any Lender.

 

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

 

(m)                               Information Regarding Borrower
and Guarantors.  Prompt written notice (and in any event
within thirty (30) days prior thereto) of any change (i) in the Borrower
or any Guarantor’s corporate name or in any trade name used to identify such
Person in the conduct of

 

55

 

its
business or in the ownership of its Properties, (ii) in the location of
the Borrower or any Guarantor’s chief executive office or principal place of
business, (iii) in the Borrower or any Guarantor’s identity or corporate
structure or in the jurisdiction in which such Person is incorporated or
formed, (iv) in the Borrower or any Guarantor’s jurisdiction of
organization or such Person’s organizational identification number in such
jurisdiction of organization, and (v) in the Borrower or any Guarantor’s
federal taxpayer identification number.

 

(n)                                 Production
Report and Lease Operating Statements.  Within 60 days
after the end of each quarter, a report setting forth, on an accrual basis for
each quarter during the then-current fiscal year to date, the volume of
production and sales attributable to production (and the prices at which such
sales were made and the revenues derived from such sales) for each such quarter
from the Oil and Gas Properties, and setting forth the related ad valorem,
severance and production Taxes and lease operating expenses attributable
thereto and incurred for each such quarter.

 

(o)                                 Notices of Certain Changes.  Promptly, but in any event within five (5) Business
Days after the execution thereof, copies of any amendment, modification or
supplement to the certificate or articles of incorporation, by-laws, any
preferred stock designation or any other organic document of the Borrower or
any of its Subsidiaries.

 

(p)                                 Other Requested Information.  Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any of its Subsidiaries (including, without
limitation, any Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA), or compliance with the terms of this
Agreement or any other Loan Document, as the Administrative Agent or any Lender
may reasonably request.

 

(q)                                 Notices Relating to Acquisition. In the event that after the
Effective Date:  (i) any matter
being disputed in accordance with the terms of the Acquisition Documents is
resolved or (ii) the Borrower and the seller(s) calculate and agree upon a
withdrawal of the “holdback amount” or other post-closing adjustments as
contemplated by the Acquisition Documents, then, in each such case, the
Borrower shall promptly give the Administrative Agent notice in reasonable
detail of such circumstances.

 

Section 8.02                                Notices
of Material Events.  The Borrower
will furnish to the Administrative Agent and each Lender prompt written notice
of the following:

 

(a)                                  the occurrence of any Default;

 

(b)                                 the filing or commencement of,
or the threat in writing of, any action, suit, investigation, arbitration or
proceeding by or before any arbitrator or Governmental Authority against or
affecting the Borrower or any Subsidiary thereof, or any material adverse
development in any action, suit, proceeding, investigation or arbitration
(whether or not previously disclosed to the Lenders), that, in either case, if
adversely determined, could reasonably be expected to result in liability in
excess of $500,000;

 

56

 

(c)                                  the occurrence of any ERISA
Event that, alone or together with any other ERISA Events that have occurred,
could reasonably be expected to result in liability of the Borrower and its
Subsidiaries in an aggregate amount exceeding $500,000; and

 

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

 

Each notice delivered under this Section 8.02
shall be accompanied by a statement of a Responsible Officer of the Borrower
setting forth the details of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.

 

Section 8.03                                Existence;
Conduct of Business.  The Borrower
will, and will cause each of its Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business and maintain, if necessary, its qualification to
do business in each other jurisdiction in which any of its Oil and Gas
Properties is located or the ownership of its Properties requires such
qualification, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.

 

Section 8.04                                Payment
of Obligations.  The Borrower will,
and will cause each of its Subsidiaries to, pay its obligations, including Tax
liabilities of the Borrower and all of its Subsidiaries before the same shall
become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b) the
Borrower or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make
payment pending such contest could not reasonably be expected to result in a
Material Adverse Effect or result in the seizure or levy of any material
Property of the Borrower or any of its Subsidiaries.

 

Section 8.05                                Performance
of Obligations under Loan Documents. 
The Borrower will pay the Notes according to the reading, tenor and
effect thereof, and the Borrower will, and the Borrower will cause each of its
Subsidiaries to do and perform every act and discharge all of the obligations
to be performed and discharged by them under the Loan Documents, including,
without limitation, this Agreement, at the time or times and in the manner
specified.

 

Section 8.06                                Operation
and Maintenance of Properties.  The
Borrower will, and will cause each of its Subsidiaries to:

 

(a)                                  operate its Oil and Gas Properties
and other material Properties or cause such Oil and Gas Properties and other
material Properties to be operated in a careful and efficient manner in
accordance with the practices of the industry and in compliance with all
applicable contracts and agreements and in compliance with all Governmental
Requirements, including, without limitation, applicable pro ration requirements
and Environmental Laws, and all applicable laws, rules and regulations of
every other Governmental Authority from time to time constituted to regulate
the development and operation of its Oil and Gas Properties and the production
and sale of Hydrocarbons and other minerals therefrom, except, in each case,
where the failure to comply could not reasonably be expected to have a Material
Adverse Effect.

 

57

 

(b)                                 keep and maintain all Property
material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted and preserve, maintain and keep in good repair,
working order and efficiency (ordinary wear and tear excepted) all of its
material Oil and Gas Properties and other material Properties, including,
without limitation, all material equipment, machinery and facilities.

 

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

 

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

 

(e)                                  operate its Oil and Gas
Properties and other material Properties or cause or make reasonable and
customary efforts to cause such Oil and Gas Properties and other material
Properties to be operated in accordance with the practices of the industry and
in material compliance with all applicable contracts and agreements and in
compliance in all material respects with all Governmental Requirements.

 

(f)                                    to the extent the Borrower or
one of its Subsidiaries is not the operator of any of its Property, the
Borrower shall use reasonable efforts to cause the operator to comply with this
Section 8.06.

 

Section 8.07                                Insurance.  The Borrower will, and will cause each of its
Subsidiaries to, maintain, with financially sound and reputable insurance
companies, insurance in such amounts and against such risks as are customarily
maintained by companies engaged in the same or similar businesses operating in
the same or similar locations.  The loss
payable clauses or provisions in said insurance policy or policies insuring any
of the collateral for the Loans shall be endorsed in favor of and made payable
to the Administrative Agent as its interests may appear and such policies shall
name the Administrative Agent and the Lenders as “additional insureds” and
provide that the insurer will endeavor to give at least 30 days prior notice of
any cancellation to the Administrative Agent.

 

Section 8.08                                Books
and Records; Inspection Rights.  The
Borrower will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities.  The Borrower will, and will cause each of its
Subsidiaries to, permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
Properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested.

 

58

 

Section 8.09                                Compliance
with Laws.  The Borrower will, and
will cause each of its Subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to them or
their Property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.

 

Section 8.10                                Environmental
Matters.

 

(a)                                  The Borrower shall: (i) comply,
and shall cause its Properties and operations and each of its Subsidiaries and
each Subsidiary’s Properties and operations to comply, with all applicable
Environmental Laws, the breach of which could be reasonably expected to have a
Material Adverse Effect; (ii) not dispose of or otherwise release, and
shall cause each Subsidiary not to dispose of or otherwise release, any oil,
oil and gas waste, hazardous substance, or solid waste on, under, about or from
any of the Borrower’s or its Subsidiaries’ Properties or any other Property to
the extent caused by the Borrower’s or any of its Subsidiaries’ operations
except in compliance with applicable Environmental Laws, the disposal or
release of which could reasonably be expected to have a Material Adverse Effect;
(iii) timely obtain or file, and shall cause each of its Subsidiaries to
timely obtain or file, all notices, permits, licenses, exemptions, approvals,
registrations or other authorizations, if any, required under applicable
Environmental Laws to be obtained or filed in connection with the operation or
use of the Borrower’s or its Subsidiaries’ Properties, which failure to obtain
or file could reasonably be expected to have a Material Adverse Effect; (iv) promptly
commence and diligently prosecute to completion, and shall cause each of its
Subsidiaries to promptly commence and diligently prosecute to completion, any
assessment, evaluation, investigation, monitoring, containment, cleanup,
removal, repair, restoration, remediation or other remedial obligations
(collectively, the “Remedial Work”) in the event any Remedial Work is
required or reasonably necessary under applicable Environmental Laws because of
or in connection with the actual or suspected past, present or future disposal
or other release of any oil, oil and gas waste, hazardous substance or solid
waste on, under, about or from any of the Borrower’s or its Subsidiaries’
Properties, which failure to commence and diligently prosecute to completion
could reasonably be expected to have a Material Adverse Effect; and (v) establish
and implement, and shall cause each of its Subsidiaries to establish and
implement, such procedures as may be necessary to continuously determine and
assure that the Borrower’s and its Subsidiaries’ obligations under this Section 8.10(a) are
timely and fully satisfied, which failure to establish and implement could
reasonably be expected to have a Material Adverse Effect.

 

(b)                                 The Borrower will promptly, but
in no event later than five days of the occurrence of a triggering event,
notify the Administrative Agent and the Lenders in writing of any threatened
action, investigation or inquiry by any Governmental Authority or any
threatened demand or lawsuit by any landowner or other third party against the
Borrower or its Subsidiaries or their Properties of which the Borrower has
knowledge in connection with any Environmental Laws (excluding routine testing
and corrective action) if the Borrower reasonably anticipates that such action
will result in liability (whether individually or in the aggregate) in excess
of $500,000, not fully covered by insurance, subject to normal deductibles.

 

(c)                                  The Borrower will, and will
cause each of its Subsidiaries to, provide environmental audits and tests in
accordance with American Society of Testing Materials standards upon request by
the Administrative Agent and the Lenders and no more than once per

 

59

 

year
in the absence of any Event of Default (or as otherwise required to be obtained
by the Administrative Agent or the Lenders by any Governmental Authority), in
connection with any future acquisitions of Oil and Gas Properties or other
Properties.

 

Section 8.11                                Further
Assurances.

 

(a)                                  The Borrower at its sole expense
will, and will cause each of its Subsidiaries to, promptly execute and deliver
to the Administrative Agent all such other documents, agreements and
instruments reasonably requested by the Administrative Agent to comply with,
cure any defects or accomplish the conditions precedent, covenants and
agreements of the Borrower or any of its Subsidiaries, as the case may be, in
the Loan Documents, including the Notes, or to further evidence and more fully
describe the collateral intended as security for the Indebtedness, or to
correct any omissions in this Agreement or the Security Instruments, or to
state more fully the obligations secured therein, or to perfect, protect or
preserve any Liens created pursuant to this Agreement or any of the Security
Instruments or the priority thereof, or to make any recordings, file any
notices or obtain any consents, all as may be reasonably necessary or
appropriate, in the reasonable discretion of the Administrative Agent, in
connection therewith.

 

(b)                                 The Borrower hereby authorizes
the Administrative Agent to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
Mortgaged Property without the signature of the Borrower or any other Guarantor
where permitted by law.  A carbon,
photographic or other reproduction of the Security Instruments or any financing
statement covering the Mortgaged Property or any part thereof shall be
sufficient as a financing statement where permitted by law.

 

Section 8.12                                Reserve
Reports.

 

(a)                                  On or before March 1st and September 1st
of each year, commencing September 1st, 2005, the Borrower shall furnish
to the Administrative Agent and the Lenders a Reserve Report as of the
immediately preceding January 1 or July 1, as applicable.  The Reserve Report as of January 1 of
each year shall be prepared by one or more petroleum engineers reasonably
acceptable to the Administrative Agent and the July 1 Reserve Report of
each year shall be prepared by or under the supervision of the chief engineer
of the Borrower who shall certify such Reserve Report to be true and accurate
and to have been prepared in accordance with the procedures used in the
immediately preceding January 1 Reserve Report.

 

(b)                                 In the event of an Interim
Redetermination, the Borrower shall furnish to the Administrative Agent and the
Lenders a Reserve Report prepared by or under the supervision of the chief
engineer of the Borrower who shall certify such Reserve Report to be true and
accurate and to have been prepared in accordance with the procedures used in
the immediately preceding January 1 Reserve Report.  For any Interim Redetermination requested by
the Administrative Agent or the Borrower pursuant to Section 2.07(b), the
Borrower shall provide such Reserve Report with an “as of” date as required by
the Administrative Agent as soon as possible, but in any event no later than
thirty (30) days following the receipt of such request.

 

60

 

(c)                                  With the delivery of each
Reserve Report, the Borrower shall provide to the Administrative Agent and the
Lenders a certificate from a Responsible Officer of the Borrower certifying
that in all material respects: (i) the information contained in the
Reserve Report and any other information delivered in connection therewith is
true and correct, (ii) the Borrower or its Subsidiaries owns good and
defensible title to the Oil and Gas Properties evaluated in such Reserve Report
and such Properties are free of all Liens except for Liens permitted by Section 9.03,
(iii) except as set forth on an exhibit to the certificate, on a net basis
there are no gas imbalances, take or pay or other prepayments in excess of the
volume specified in Section 7.19 with respect to their Oil and Gas
Properties evaluated in such Reserve Report that would require the Borrower or
any of its Subsidiaries to deliver Hydrocarbons either generally or produced
from such Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor, (iv) none of their Oil and Gas Properties
have been sold since the date of the last Borrowing Base determination except
as set forth on an exhibit to the certificate, which certificate shall list all
of its Oil and Gas Properties sold and in such detail as reasonably required by
the Administrative Agent, (v) attached to the certificate is a list of all
marketing agreements entered into subsequent to the later of the date hereof or
the most recently delivered Reserve Report that the Borrower could reasonably
be expected to have been obligated to list on Schedule 7.20 had such
agreement been in effect on the date hereof and (vi) attached thereto is a
schedule of the Oil and Gas Properties evaluated by such Reserve Report
that are Mortgaged Properties and demonstrating the percentage of the Borrowing
Base that the value of such Mortgaged Properties represent.

 

Section 8.13                                Title
Information.

 

(a)                                  On or before the delivery to the
Administrative Agent and the Lenders of each Reserve Report required by Section 8.12(a),
the Borrower will deliver title information in form and substance acceptable to
the Administrative Agent covering enough of the Oil and Gas Properties
evaluated by such Reserve Report that were not included in the immediately
preceding Reserve Report, so that the Administrative Agent shall have received
together with title information previously delivered to the Administrative
Agent, satisfactory title information on at least 80% of the total value of the
Oil and Gas Properties evaluated by such Reserve Report.

 

(b)                                 If the Borrower has provided
title information for additional Properties under Section 8.13(a), the
Borrower shall, within 60 days of notice from the Administrative Agent that
title defects or exceptions exist with respect to such additional Properties,
either (i) cure any such title defects or exceptions (including defects or
exceptions as to priority) which are not permitted by Section 9.03 raised
by such information, (ii) substitute acceptable Mortgaged Properties with
no title defects or exceptions except for Excepted Liens (other than Excepted
Liens described in clauses (e), (g) and (h) of such definition)
having an equivalent value or (iii) deliver title information in form and
substance acceptable to the Administrative Agent so that the Administrative
Agent shall have received, together with title information previously delivered
to the Administrative Agent, satisfactory title information on at least 80% of
the value of the Oil and Gas Properties evaluated by such Reserve Report.

 

(c)                                  If the Borrower is unable to
cure any title defect requested by the Administrative Agent or the Lenders to
be cured within the 60-day period or the Borrower does

 

61

 

not
comply with the requirements to provide acceptable title information covering
80% of the value of the Oil and Gas Properties evaluated in the most recent
Reserve Report, such default shall not be a Default, but instead the
Administrative Agent and/or the Majority Lenders shall have the right to
exercise the following remedy in their reasonable discretion from time to time,
and any failure to so exercise this remedy at any time shall not be a waiver as
to future exercise of the remedy by the Administrative Agent or the
Lenders.  To the extent that the Administrative
Agent or the Majority Lenders are not satisfied with title to any Mortgaged
Property after the 60-day period has elapsed, such unacceptable Mortgaged
Property shall not count towards the 80% requirement, and the Administrative
Agent may send a notice to the Borrower and the Lenders that the then
outstanding Borrowing Base shall be reduced by an amount as determined by the
Majority Lenders to cause the Borrower to be in compliance with the requirement
to provide acceptable title information on 80% of the value of the Oil and Gas
Properties evaluated in the most recent Reserve Report.  This new Borrowing Base shall become
effective immediately after receipt of such notice.

 

Section 8.14                                Additional Collateral; Additional Guarantors.

 

(a)                                  In connection with each
redetermination of the Borrowing Base, the Borrower shall review the Reserve
Report and the list of current Mortgaged Properties (as described in Section 8.12(c)(vi))
to ascertain whether the Mortgaged Properties represent at least 85% of the
total value of the Oil and Gas Properties evaluated in the most recently
completed Reserve Report after giving effect to exploration and production
activities, acquisitions, dispositions and production.  In the event that the Mortgaged Properties do
not represent at least 85% of such total value, then the Borrower shall, and
shall cause its Subsidiaries to, grant to the Administrative Agent as security
for the Indebtedness a first-priority Lien (provided the Excepted Liens of the
type described in clauses (a) to (d) and (f) of the definition
thereof may exist, but subject to the provisos at the end of such definition)
on additional Oil and Gas Properties not already subject to a Lien of the
Security Instruments such that after giving effect thereto, the Mortgaged
Properties will represent at least 85% of such total value.  All such Liens will be created and perfected
by and in accordance with the provisions of deeds of trust, security agreements
and financing statements or other Security Instruments, all in form and
substance reasonably satisfactory to the Administrative Agent and in sufficient
executed (and acknowledged where necessary or appropriate) counterparts for
recording purposes.

 

(b)                                 The Borrower shall promptly
cause each Subsidiary, except those Subsidiaries acquired in the Acquisition
which will be dissolved shortly thereafter, to guarantee the Indebtedness
pursuant to the Guaranty Agreement.  In
connection with any such guaranty, the Borrower shall, or shall cause such
Subsidiary to, (A) execute and deliver the Guaranty Agreement or a supplement
to the Guaranty Agreement as required by the Administrative Agent, (B) pledge
all of the Equity Interests of such Subsidiary (including, without limitation,
delivery of original stock certificates evidencing the Equity Interests of such
Subsidiary, together with an appropriate undated stock powers for each
certificate duly executed in blank by the registered owner thereof) and (C) execute
and deliver such other additional closing documents, certificates and legal
opinions as shall reasonably be requested by the Administrative Agent.

 

(c)                                  If any Event of Default shall
occur and be continuing, then the Borrower shall, and shall cause each of its
Subsidiaries to, within 10 Business Days, grant to the

 

62

 

Administrative
Agent as security for the Indebtedness a first-priority Lien (provided Excepted
Liens of the type described in clauses (a) to (d) and (f) of the
definition thereof may exist, but subject to the provisos at the end of such
definition) on all of their Oil and Gas Properties not already subject to a
Lien of the Security Instruments such that after giving effect thereto, the
Mortgaged Properties will represent substantially all of the Oil and Gas
Properties of the Borrower and its Subsidiaries.  All such Liens will be created and perfected
by and in accordance with the provisions of deeds of trust, security agreements
and financing statements or other Security Instruments, all in form and
substance reasonably satisfactory to the Administrative Agent and in sufficient
executed (and acknowledged where necessary or appropriate) counterparts for
recording purposes.

 

(d)                                 Any Person that must guarantee
the Indebtedness in order for the Borrower to be in compliance with Section 9.04(b)(ii)(C) shall
guarantee the Indebtedness pursuant to the Guaranty Agreement.  In connection with any such guaranty, the
Borrower shall, or shall cause such Person to, promptly, but in any event no
later than 30 days after the date required thereby, (A) execute and
deliver a supplement to the Guaranty Agreement executed by such Person, and (B) execute
and deliver such other additional closing documents, certificates and legal
opinions as shall reasonably be requested by the Administrative Agent.  If at any time such Person is not otherwise
required to guarantee the Indebtedness hereunder (whether pursuant to the other
provisions of this Section 8.14 or otherwise) or under any other Loan
Document, then upon receipt by the Administrative Agent of evidence
satisfactory to it that such Person has been fully and finally released from
its guarantee obligations in respect of the Subordinated Note, such Person
shall be released from its guarantee obligations with respect to the
Indebtedness and the Administrative Agent shall, at the sole cost and expense
of the Borrower, execute such further documents and do all such further acts so
as to reasonably evidence such release.

 

Section 8.15                                ERISA
Compliance.  The Borrower will
promptly furnish, and will cause its Subsidiaries and any ERISA Affiliate to
promptly furnish, to the Administrative Agent (i) promptly after the
filing thereof with the United States Secretary of Labor, the Internal Revenue
Service or the PBGC, copies of each annual and other report with respect to
each Plan or any trust created thereunder, (ii) immediately upon becoming
aware of the occurrence of any ERISA Event or of any “prohibited transaction,”
as described in section 406 of ERISA or in section 4975 of the Code,
in connection with any Plan or any trust created thereunder, a written notice
signed by the President or the principal Financial Officer of the Borrower, its
Subsidiaries or the ERISA Affiliate, as the case may be, specifying the nature
thereof, what action the Borrower, its Subsidiaries or the ERISA Affiliate is
taking or proposes to take with respect thereto, and, when known, any action
taken or proposed by the Internal Revenue Service, the Department of Labor or
the PBGC with respect thereto, and (iii) immediately upon receipt thereof,
copies of any notice of the PBGC’s intention to terminate or to have a trustee
appointed to administer any Plan.  With
respect to each Plan (other than a Multiemployer Plan), the Borrower will, and
the Borrower will cause each of its Subsidiaries and ERISA Affiliates to, (i) satisfy
in full and in a timely manner, without incurring any late payment or
underpayment charge or penalty and without giving rise to any lien, all of the
contribution and funding requirements of section 412 of the Code
(determined without regard to subsections (d), (e), (f) and (k) thereof)
and of section 302 of ERISA (determined without regard to sections 303,
304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a
timely manner, without incurring any late payment or

 

63

 

underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.

 

Section 8.16                                Swap
Agreements.  The Borrower shall
maintain the hedge position established by the Swap Agreements required under Section 6.01(s)
during the period specified therein and shall neither assign, terminate or
unwind any such Swap Agreements nor sell any Swap Agreements if the effect of
such action (when taken together with any other Swap Agreements executed
contemporaneously with the taking of such action) would have the effect of
canceling its positions under such Swap Agreements required hereby.

 

Section 8.17                                Marketing
Activities.  The Borrower will not,
and will not permit any of its Subsidiaries to, engage in marketing activities
for any Hydrocarbons or enter into any contracts related thereto other than (i) contracts
for the sale of Hydrocarbons scheduled or reasonably estimated to be produced
from their proved Oil and Gas Properties during the period of such contract, (ii) contracts
for the sale of Hydrocarbons scheduled or reasonably estimated to be produced
from proved Oil and Gas Properties of third parties during the period of such
contract associated with the Oil and Gas Properties of the Borrower and its
Subsidiaries that the Borrower or one of its Subsidiaries has the right to
market pursuant to joint operating agreements, unitization agreements or other
similar contracts that are usual and customary in the oil and gas business and (iii) other
contracts for the purchase and/or sale of Hydrocarbons of third parties (A) which
have generally offsetting provisions (i.e. corresponding pricing mechanics,
delivery dates and points and volumes) such that no “position” is taken and (B) for
which appropriate credit support has been taken to alleviate the material
credit risks of the counterparty thereto.

 

Section 8.18                                Alabama
Property.  With respect to the
Alabama Properties, the Borrower will, within 60 days of the Closing Date,
deliver to the Administrative Agent (i) an assignment or bill of sale
evidencing the sale of the Alabama Properties accompanied by a certificate from
a Responsible Officer that such sale complies with Section 9.12 or (ii) a
mortgage on the Alabama Properties in form and substance satisfactory to the
Administrative Agent, and to be accompanied with such other closing documents,
certificates and legal opinions as shall reasonably be requested by the
Administrative Agent.

 

ARTICLE IX

Negative Covenants

 

Until the Commitments have expired or
terminated and the principal of and interest on each Loan and all fees payable
hereunder and all other amounts payable under the Loan Documents have been paid
in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees
with the Lenders that:

 

Section 9.01                                Financial
Covenants.

 

(a)                                  Ratio of Total Debt to
Consolidated EBITDAX.  The Borrower will not, as of any date of
determination, permit its ratio of Total Debt as of such day to Consolidated

 

64

 

EBITDAX
for the most recent period of four fiscal quarters then ending for which
financial statements are available to be greater than 3.5 to 1.0.

 

(b)                                 Current Ratio.  The Borrower will not permit, as of the last
day of any fiscal quarter, its ratio of (i) consolidated current assets
(including the unused amount of the total Commitments, but excluding non-cash
assets under FAS 133) to (ii) consolidated current liabilities (excluding
non-cash obligations under FAS 133, asset and asset retirement obligations and
current maturities of Indebtedness under this Agreement) to be less than 1.0 to
1.0.

 

Section 9.02                                Debt.  The Borrower will not, and will not permit
any of its Subsidiaries to, incur, create, assume or suffer to exist any Debt,
except:

 

(a)                                  the Notes or other Indebtedness
arising under the Loan Documents or any guaranty of or suretyship arrangement
for the Notes or other Indebtedness arising under the Loan Documents.

 

(b)                                 accounts payable and accrued
expenses, liabilities or other obligations to pay the deferred purchase price
of Property or services from time to time incurred in the ordinary course of
business which are not outstanding more than sixty (60) days past the date of
receipt of the invoice or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP.

 

(c)                                  Debt under Capital Leases not to
exceed $500,000.

 

(d)                                 Debt associated with bonds or
surety obligations required by Governmental Requirements in connection with the
operation of the Oil and Gas Properties.

 

(e)                                  intercompany Debt between the
Borrower and any of its Subsidiaries or between Subsidiaries to the extent
permitted by Section 9.05(g); provided that such Debt is not held,
assigned, transferred, negotiated or pledged to any Person other than the
Borrower or one of their Wholly-Owned Subsidiaries, and, provided further, that
any such Debt owed by either the Borrower or a Guarantor shall be subordinated
to the Indebtedness on terms set forth in the Guaranty Agreement.

 

(f)                                    endorsements of negotiable
instruments for collection in the ordinary course of business.

 

(g)                                 the Subordinated Note.

 

(h)                                 other Debt not to exceed
$500,000 in the aggregate at any one time outstanding.

 

Section 9.03                                Liens.  The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or permit to exist any Lien
on any of its Properties (now owned or hereafter acquired), except:

 

(a)                                  Liens securing the payment of
any Indebtedness.

 

65

 

(b)                                 Excepted Liens.

 

(c)                                  Liens securing Capital Leases
permitted by Section 9.02(c) but only on the Property under lease.

 

(d)                                 Liens on Property not
constituting collateral for the Indebtedness and not otherwise permitted by the
foregoing clauses of this Section 9.03; provided that the aggregate
principal or face amount of all Debt secured under this Section 9.03(d) shall
not exceed $250,000 at any time.

 

Section 9.04                                Dividends,
Distributions and Redemptions.

 

(a)                                  Restricted Payments. The Borrower will not, and
will not permit any of its Subsidiaries to, declare or make, or agree to pay or
make, directly or indirectly, any Restricted Payment, return any capital to its
stockholders or make any distribution of their Property to their respective
Equity Interest holders, except (i) the Borrower may declare and pay cash
dividends with respect to its Equity Interests payable solely in additional
shares of its Equity Interests (other than Disqualified Capital Stock); (ii) Subsidiaries
may declare and pay dividends ratably with respect to their Equity Interests
and (iii) the Borrower may declare and pay cash dividends to its Equity
Interest holders in an aggregate amount not to exceed $100,000 in any fiscal
year, so long as no Default or Borrowing Base Deficiency has occurred and is
continuing, or would result after giving effect to such payment.

 

(b)                                 Repayment of Subordinated Note.  The Borrower will not, and will not permit
any Subsidiary to, prior to the Termination Date:  (i) call, make or offer to make any
optional or voluntary Redemption (whether in whole or in part) of the
Subordinated Note, provided that the Borrower may Redeem the Subordinated Note
if such Redemption is acceptable to the Majority Lenders, or (ii) amend,
modify, waive or otherwise change, consent or agree to any amendment,
modification, waiver or other change to, any of the terms of the Subordinated
Note or the Subordination Agreement if (A) the effect thereof would be to
increase the amount of any payment of principal thereof or increase the of
interest thereon (unless such increase is acceptable to the Majority Lenders), (B) such
action requires the payment of a consent fee (unless such consent fee is
acceptable to the Majority Lenders) or (C) the effect thereof would be to
add any guarantor or surety, unless such guarantor or surety also guarantees
the Indebtedness pursuant to the Guaranty Agreement and each of the Borrower
and such guarantor or surety otherwise complies with Section 8.14(d).

 

Section 9.05                                Investments,
Loans and Advances.  The Borrower
will not, and will not permit any of its Subsidiaries to, make or permit to
remain outstanding any Investments in or to any Person, except that the
foregoing restriction shall not apply to:

 

(a)                                  Investments reflected in the
Financial Statements.

 

(b)                                 accounts receivable arising in
the ordinary course of business.

 

(c)                                  direct obligations of the United
States or any agency thereof, or obligations guaranteed by the United States or
any agency thereof, in each case maturing within one year from the date of
creation thereof.

 

66

 

(d)                                 commercial paper maturing within
one year from the date of creation thereof rated in the highest grade by
S&P or Moody’s.

 

(e)                                  deposits maturing within one
year from the date of creation thereof with, including certificates of deposit
issued by, any Lender or any office located in the United States of any other
bank or trust company which is organized under the laws of the United States or
any state thereof, has capital, surplus and undivided profits aggregating at
least $500,000,000 (as of the date of such bank or trust company’s most recent
financial reports) and has a short term deposit rating of no lower than A2 or
P2, as such rating is set forth from time to time, by S&P or Moody’s,
respectively.

 

(f)                                    deposits in money market funds
investing exclusively in Investments described in Section 9.05(c), Section 9.05(d) or
Section 9.05(e).

 

(g)                                 Investments (i) made by the
Borrower in or to the Guarantors, and (ii) made by any Subsidiary of the
Borrower in or to the Borrower or any Guarantor.

 

(h)                                 Investments in stock,
obligations or securities received in settlement of debts arising from
Investments permitted under this Section 9.05 owing to the Borrower or any
of its Subsidiaries as a result of a bankruptcy or other insolvency proceeding
of the obligor in respect of such debts or upon the enforcement of any Lien in
favor of the Borrower or any of its Subsidiaries; provided that the Borrower
shall give the Administrative Agent prompt written notice in the event that the
aggregate amount of all investments held at any one time under this Section 9.05(h) exceeds
$250,000.

 

(i)                                     other Investments not to exceed
$250,000 in the aggregate at any time.

 

Section 9.06                                Nature
of Business.  The Borrower will not,
and will not permit any of its Subsidiaries to, allow any material change to be
made in the character of its business as an independent oil and gas exploration
and production company.  The Borrower
will not, and will not permit any of its Subsidiaries to, operate its business
outside the geographical boundaries of the United States.

 

Section 9.07                                Limitation
on Leases.  The Borrower will not,
and will not permit any of its Subsidiaries to, create, incur, assume or suffer
to exist any obligation for the payment of rent or hire of Property of any kind
whatsoever (real or personal but excluding leases of Hydrocarbon Interests),
under leases or lease agreements which would cause the aggregate amount of all
payments made by the Borrower and its Subsidiaries pursuant to all such leases
or lease agreements, including, without limitation, any residual payments at
the end of any lease, to exceed $750,000 in any period of twelve consecutive
calendar months during the life of such leases.

 

Section 9.08                                Proceeds
of Notes.  The Borrower will not
permit the proceeds of the Notes to be used for any purpose other than those
permitted by Section 7.22.  Neither
the Borrower nor any Person acting on behalf of the Borrower has taken or will
take any action which might cause any of the Loan Documents to violate
Regulations T, U or X or any other regulation of the Board or to violate Section 7
of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in

 

67

 

effect.  If requested by the
Administrative Agent, the Borrower will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form U-1 or such other form referred to in Regulation
U, Regulation T or Regulation X of the Board, as the case may be.

 

Section 9.09                                ERISA
Compliance.  The Borrower will not,
and will not permit any of its Subsidiaries to, at any time:

 

(a)                                  engage in, or permit any ERISA
Affiliate to engage in, any transaction in connection with which the Borrower,
any of its Subsidiaries or any ERISA Affiliate could be subjected to either a
civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502
of ERISA or a Tax imposed by Chapter 43 of Subtitle D of the Code.

 

(b)                                 terminate, or permit any ERISA
Affiliate to terminate, any Plan in a manner, or take any other action with
respect to any Plan, which could result in any liability of the Borrower, any
of its Subsidiaries or any ERISA Affiliate to the PBGC.

 

(c)                                  fail to make, or permit any
ERISA Affiliate to fail to make, full payment when due of all amounts which,
under the provisions of any Plan, agreement relating thereto or applicable law,
the Borrower, any of its Subsidiaries or any ERISA Affiliate is required to pay
as contributions thereto.

 

(d)                                 permit to exist, or allow any
ERISA Affiliate to permit to exist, any accumulated funding deficiency within
the meaning of section 302 of ERISA or section 412 of the Code,
whether or not waived, with respect to any Plan.

 

(e)                                  permit, or allow any ERISA
Affiliate to permit, the actuarial present value of the benefit liabilities
under any Plan maintained by the Borrower, any of its Subsidiaries or any ERISA
Affiliate which is regulated under Title IV of ERISA to exceed the current
value of the assets (computed on a plan termination basis in accordance with Title IV
of ERISA) of such Plan allocable to such benefit liabilities.  The term “actuarial present value of the
benefit liabilities” shall have the meaning specified in section 4041 of
ERISA.

 

(f)                                    contribute to or assume an
obligation to contribute to, or permit any ERISA Affiliate to contribute to or
assume an obligation to contribute to, any Multiemployer Plan.

 

(g)                                 acquire, or permit any ERISA
Affiliate to acquire, an interest in any Person that causes such Person to
become an ERISA Affiliate with respect to the Borrower or any of its
Subsidiaries or with respect to any ERISA Affiliate of the Borrower or any of
its Subsidiaries if such Person sponsors, maintains or contributes to, or at
any time in the six-year period preceding such acquisition has sponsored, maintained,
or contributed to, (1) any Multiemployer Plan, or (2) any other Plan
that is subject to Title IV of ERISA under which the actuarial present
value of the benefit liabilities under such Plan exceeds the current value of
the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit liabilities.

 

68

 

(h)                                 incur, or permit any ERISA
Affiliate to incur, a liability to or on account of a Plan under sections 515,
4062, 4063, 4064, 4201 or 4204 of ERISA.

 

(i)                                     contribute to or assume an
obligation to contribute to, or permit any ERISA Affiliate to contribute to or
assume an obligation to contribute to, any employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any
such plan maintained to provide benefits to former employees of such entities,
that may not be terminated by such entities in their sole discretion at any
time without any material liability.

 

(j)                                     amend, or permit any ERISA
Affiliate to amend, a Plan resulting in an increase in current liability such
that the Borrower, any of its Subsidiaries or any ERISA Affiliate is required
to provide security to such Plan under section 401(a)(29) of the Code.

 

Section 9.10                                Sale
or Discount of Receivables.  Except
for receivables obtained by the Borrower or any of its Subsidiaries out of the
ordinary course of business or the settlement of joint interest billing
accounts in the ordinary course of business or discounts granted to settle
collection of accounts receivable or the sale of defaulted accounts arising in
the ordinary course of business in connection with the compromise or collection
thereof and not in connection with any financing transaction, the Borrower will
not, and will not permit any of its Subsidiaries to, discount or sell (with or
without recourse) any of its notes receivable or accounts receivable.

 

Section 9.11                                Mergers,
Etc.  Except as contemplated by the
Acquisition Documents, the Borrower will not, and will not permit any of its
Subsidiaries to, merge into or with or consolidate with any other Person, or
sell, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its Property to any other Person,
except that any Wholly-Owned Subsidiary may merge with any other Wholly-Owned
Subsidiary and that the Borrower may merge with any Wholly-Owned Subsidiary so
long as the Borrower is the survivor.

 

Section 9.12                                Sale
of Properties.  The Borrower will
not, and will not permit any of its Subsidiaries to, sell, assign, farm-out,
convey or otherwise transfer any Property except for: (a) the sale of
Hydrocarbons in the ordinary course of business; (b) farmouts of
undeveloped acreage and assignments in connection with such farmouts; (c) the
sale or transfer of equipment that is no longer necessary for the business of
the Borrower or such Subsidiary or is replaced by equipment of at least
comparable value and use; (d) sales or other dispositions (including
Casualty Events) of Oil and Gas Properties or any interest therein or
Subsidiaries owning Oil and Gas Properties; provided that (i) 100% of the
consideration received in respect of such sale or other disposition shall be
cash, (ii) the consideration received in respect of such sale or other
disposition shall be equal to or greater than the fair market value of the Oil
and Gas Property, interest therein or Subsidiary subject of such sale or other
disposition (as reasonably determined by the board of directors of the Borrower
and, if requested by the Administrative Agent, the Borrower shall deliver a
certificate of a Responsible Officer of the Borrower certifying to that
effect), (iii) if such sale or other disposition of Oil and Gas Property
or Subsidiary owning Oil and Gas Properties included in the most recently
delivered Reserve Report during any period between two successive Scheduled
Redetermination Dates has a fair market value (as determined by the
Administrative Agent), individually or in the aggregate, in excess of five
percent (5%) of the Borrowing Base as then in effect, the Borrowing Base shall
be reduced, effective immediately

 

69

 

upon such sale or disposition, by an amount equal to the value, if any,
assigned such Property as determined by the Majority Lenders and (iv) if
any such sale or other disposition is of a Subsidiary owning Oil and Gas
Properties, such sale or other disposition shall include all the Equity
Interests of such Subsidiary; and (e) sales and other dispositions of
Properties not regulated by Section 9.12(a) to (d) having a fair
market value not to exceed $500,000 during any 12-month period.

 

Section 9.13                                Environmental
Matters.  The Borrower will not, and
will not permit any of its Subsidiaries to, cause or permit any of its Property
to be in violation of, or do anything or permit anything to be done which will
subject any such Property to any Remedial Work under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where
such violations or remedial obligations could reasonably be expected to have a
Material Adverse Effect.

 

Section 9.14                                Transactions
with Affiliates.  The Borrower will
not, and will not permit any of its Subsidiaries to, enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property or the rendering of any service, with any Affiliate (other
than the Guarantors and Wholly-Owned Subsidiaries of the Borrower) unless such
transactions are otherwise permitted under this Agreement and are upon fair and
reasonable terms no less favorable to it than it would obtain in a comparable
arm’s length transaction with a Person not an Affiliate.

 

Section 9.15                                Subsidiaries.  The Borrower shall have no Subsidiaries other
than Wholly-Owned Subsidiaries.  The
Borrower shall not, and shall not permit its Subsidiaries to, create or acquire
any additional Subsidiary unless the Borrower gives written notice to the
Administrative Agent of such creation or acquisition and complies with Section 8.14(b).  The Borrower shall not, and shall not permit
any of its Subsidiaries to, sell, assign or otherwise dispose of any Equity
Interests in any of its Subsidiaries. 
The Borrower shall have no Foreign Subsidiaries.

 

Section 9.16                                Negative
Pledge Agreements; Dividend Restrictions. 
The Borrower will not, and will not permit any of its Subsidiaries to,
create, incur, assume or suffer to exist any contract, agreement or
understanding (other than this Agreement or the Security Instruments) that in
any way prohibits or restricts the granting, conveying, creation or imposition
of any Lien on any of its Property in favor of the Administrative Agent and the
Lenders or restricts any Subsidiary from paying dividends or making
distributions to the Borrower or any Guarantor, or which requires the consent
of or notice to other Persons in connection therewith.

 

Section 9.17                                Gas
Imbalances, Take-or-Pay or Other Prepayments.  The Borrower will not, and will not permit
any of its Subsidiaries to, allow gas imbalances, take-or-pay or other
prepayments with respect to the Oil and Gas Properties of the Borrower or any
of its Subsidiaries that would require the Borrower or such Subsidiary to
deliver Hydrocarbons at some future time without then or thereafter receiving
full payment therefor to exceed 50,000 Mcf of gas (on an Mcfe equivalent basis)
in the aggregate.

 

Section 9.18                                Swap
Agreements.  The Borrower will not,
and will not permit any of its Subsidiaries to, enter into any Swap Agreements
with any Person other than (a) Swap

 

70

 

Agreements in respect of commodities (i) with an Approved
Counterparty and (ii) the notional volumes for which (when aggregated with
other commodity Swap Agreements then in effect other than basis differential
swaps on volumes already hedged pursuant to other Swap Agreements) do not
exceed, as of the date such Swap Agreement is executed, 85% of the reasonably
anticipated projected production from proved, developed, producing Oil and Gas
Properties for each month during the period during which such Swap Agreement is
in effect for each of crude oil and natural gas, calculated separately, and (b) Swap
Agreements in respect of interest rates with an Approved Counterparty, which
effectively convert interest rates from floating to fixed, the notional amounts
of which (when aggregated with all other Swap Agreements of the Borrower and
its Subsidiaries then in effect effectively converting interest rates from
floating to fixed) do not exceed 75% of the then outstanding principal amount
of the Borrower’s Debt for borrowed money which bears interest at a floating
rate.  Other than the Existing Shell Hedges,
in no event shall any Swap Agreement contain any requirement, agreement or
covenant for the Borrower or any of its Subsidiaries to post collateral or
margin to secure their obligations under such Swap Agreement or to cover market
exposures.

 

Section 9.19                                Amendment
of Contracts.  Neither the Borrower
nor any of its Subsidiaries will amend or permit any amendment to any contract
that could reasonably be expected to release, qualify, limit, make contingent
or otherwise detrimentally affect, in any material way, the rights and benefits
of the Administrative Agent, any other Agent, any Issuing Bank or the Lenders,
under or acquired pursuant to any of the Loan Documents.

 

Section 9.20                                Acquisition
Documents.  The Borrower will not,
and will not permit any of its Subsidiaries to, amend, modify or supplement any
Acquisition Document if the effect thereof could reasonably be expected to have
a Material Adverse Effect (and provided that the Borrower promptly furnishes to
the Administrative Agent a copy of such amendment, modification or supplement).

 

ARTICLE X

Events of Default; Remedies

 

Section 10.01                          Events
of Default.  One or more of the
following events shall constitute an “Event of Default”:

 

(a)                                  the Borrower shall fail to pay
any principal of any Loan or any reimbursement obligation in respect of any LC
Disbursement when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof, by acceleration or
otherwise.

 

(b)                                 the Borrower shall fail to pay
any interest on any Loan or any fee or any other amount (other than an amount
referred to in Section 10.01(a)) payable under any Loan Document, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of three (3) Business Days.

 

(c)                                  any representation or warranty
made or deemed made by or on behalf of the Borrower or any of its Subsidiaries
in or in connection with any Loan Document or any amendment or modification of
any Loan Document or waiver under such Loan Document, or in

 

71

 

any
report, certificate, financial statement or other document furnished pursuant
to or in connection with any Loan Document or any amendment or modification
thereof or waiver thereunder, shall prove to have been incorrect when made or
deemed made.

 

(d)                                 the Borrower or any of its
Subsidiaries shall fail to observe or perform any covenant, condition or
agreement contained in, Section 8.01(i), Section 8.01(m), Section 8.02,
Section 8.03, Section 8.15 or in ARTICLE IX.

 

(e)                                  the Borrower or any of its
Subsidiaries shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement (other than those specified in Section 10.01(a),
Section 10.01(b) or Section 10.01(d)) or any other Loan
Document, and such failure shall continue unremedied for a period of 30 days
after the earlier to occur of (A) notice thereof from the Administrative
Agent to the Borrower (which notice will be given at the request of any Lender)
or (B) a Responsible Officer of the Borrower or any of its Subsidiaries
otherwise becoming aware of such default.

 

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

 

(g)                                 any event or condition occurs
that results in any Material Indebtedness becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of such Material Indebtedness or
any trustee or agent on its or their behalf to cause such Material Indebtedness
to become due, or to require the Redemption thereof or any offer to Redeem to be
made in respect thereof, prior to its scheduled maturity or require the
Borrower or any of its Subsidiaries to make an offer in respect thereof.

 

(h)                                 an involuntary proceeding shall
be commenced or an involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any of its
Subsidiaries or its debts, or of a substantial part of its assets, under
any  Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect
or (ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any of its Subsidiaries or
for a substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 90 days or an order or decree approving
or ordering any of the foregoing shall be entered.

 

(i)                                     the Borrower or any of its
Subsidiaries shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition described
in Section 10.01(h), (iii) apply for or consent to the appointment of
a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any of its Subsidiaries or for a substantial part of its
assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing; or any stockholder of the Borrower
shall make any request or take any action for 

 

72

 

the
purpose of calling a meeting of the stockholders of the Borrower to consider a
resolution to dissolve and wind-up the Borrower’s affairs.

 

(j)                                     the Borrower or any of its
Subsidiaries shall become unable, admit in writing its inability or fail
generally to pay its debts as they become due.

 

(k)                                  (i) one or more judgments
for the payment of money in an aggregate amount in excess of $500,000 (to the extent
not covered by independent third party insurance provided by insurers as to
which the insurer does not dispute coverage and is not subject to an insolvency
proceeding) or (ii) any one or more non-monetary judgments that have, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, shall be rendered against the Borrower, any of its
Subsidiaries or any combination thereof and the same shall remain undischarged
for a period of 30 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to attach or levy upon any assets of the Borrower or any of its Subsidiaries to
enforce any such judgment.

 

(l)                                     the Loan Documents after
delivery thereof shall for any reason, except to the extent permitted by the
terms thereof, cease to be in full force and effect and valid, binding and
enforceable in accordance with their terms against the Borrower or a Guarantor
party thereto or shall be repudiated by any of them, or cease to create a valid
and perfected Lien of the priority required thereby on any of the Oil and Gas
Properties purported to be covered thereby, except to the extent permitted by
the terms of this Agreement, or the Borrower or any of its Subsidiaries shall
so state in writing.

 

(m)                               an ERISA Event shall have
occurred that, in the opinion of the Majority Lenders, when taken together with
all other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Borrower and its Subsidiaries in an aggregate amount
exceeding $500,000 in any year.

 

(n)                                 a Change in Control shall occur.

 

(o)                                 any event or events which
individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect shall occur.

 

Section 10.02                          Remedies.

 

(a)                                  In the case of an Event of
Default other than one described in Section 10.01(h), Section 10.01(i) or
Section 10.01(j), at any time thereafter during the continuance of such
Event of Default, the Administrative Agent may, and at the request of the
Majority Lenders, shall, by notice to the Borrower, take either or both of the
following actions, at the same or different times:  (i) terminate the Commitments, and
thereupon the Commitments shall terminate immediately, and (ii) declare
the Notes and the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower and the Guarantors
accrued hereunder and under the Notes and the other Loan Documents (including,
without limitation, the payment of cash collateral to secure the LC Exposure as
provided in Section 2.08(j)), shall become due and payable immediately,

 

73

 

without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby waived by the
Borrower and each Guarantor; and in case of an Event of Default described in Section 10.01(h),
Section 10.01(i) or  Section 10.01(j),
the Commitments shall automatically terminate and the Notes and the principal
of the Loans then outstanding, together with accrued interest thereon and all
fees and the other obligations of the Borrower and the Guarantors accrued
hereunder and under the Notes and the other Loan Documents (including, without limitation,
the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)),
shall automatically become due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower and each Guarantor.

 

(b)                                 In the case of the occurrence of
an Event of Default, the Administrative Agent and the Lenders will have all
other rights and remedies available at law and equity.

 

(c)                                  All proceeds realized from the
liquidation or other disposition of collateral or otherwise received after
maturity of the Notes, whether by acceleration or otherwise, shall be applied:

 

(i)                                     first, to payment or reimbursement of
that portion of the Indebtedness constituting fees, expenses and indemnities
payable to the Administrative Agent in its capacity as such;

 

(ii)                                  second, pro rata to payment or
reimbursement of that portion of the Indebtedness constituting fees, expenses
and indemnities payable to the Lenders;

 

(iii)                               third, pro rata to payment of accrued
interest on the Loans;

 

(iv)                              fourth, pro rata to payment of
principal outstanding on the Loans and Indebtedness referred to in Clause (b) of
the definition of Indebtedness owing to a Lender or an Affiliate of a Lender;

 

(v)                                 fifth, pro rata to any other Indebtedness;

 

(vi)                              sixth, to serve as cash collateral to
be held by the Administrative Agent to secure the LC Exposure; and

 

(vii)                           seventh, any excess, after all of the
Indebtedness shall have been indefeasibly paid in full in cash, shall be paid
to the Borrower or as otherwise required by any Governmental Requirement.

 

ARTICLE XI

The Administrative Agent

 

Section 11.01                          Appointment;
Powers.  Each of the Lenders and each
Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent
and authorizes the Administrative Agent to take such actions on its behalf and
to exercise such powers as are delegated to the Administrative Agent by the
terms hereof and the other Loan Documents, together with such actions and
powers as are reasonably incidental thereto.

 

74

 

Section 11.02                          Duties
and Obligations of Administrative Agent. 
The Administrative Agent shall have no duties or obligations except
those expressly set forth in the Loan Documents.  Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing (the use of the term “agent” herein and in the other Loan
Documents with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the
Administrative Agent shall have no duty to take any discretionary action or
exercise any discretionary powers, except as provided in Section 11.03, and
(c) except as expressly set forth herein, the Administrative Agent shall
have no duty to disclose, and shall not be liable for the failure to disclose,
any information relating to the Borrower or any of its Subsidiaries that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity.  The
Administrative Agent shall be deemed not to have knowledge of any Default
unless and until written notice thereof is given to the Administrative Agent by
the Borrower or a Lender, and shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation
made in or in connection with this Agreement or any other Loan Document, (ii) the
contents of any certificate, report or other document delivered hereunder or
under any other Loan Document or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein or in any other Loan Document, (iv) the
validity, enforceability, effectiveness or genuineness of this Agreement, any
other Loan Document or any other agreement, instrument or document, (v) the
satisfaction of any condition set forth in ARTICLE VI or elsewhere herein,
other than to confirm receipt of items expressly required to be delivered to
the Administrative Agent, (vi) the existence, value, perfection or
priority of any collateral security or the financial or other condition of the
Borrower and its Subsidiaries or any other obligor or guarantor, or (vii) any
failure by the Borrower or any other Person (other than itself) to perform any
of its obligations hereunder or under any other Loan Document or the
performance or observance of any covenants, agreements or other terms or conditions
set forth herein or therein.  For
purposes of determining compliance with the conditions specified in ARTICLE VI,
each Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless
the Administrative Agent shall have received written notice from such Lender
prior to the proposed closing date specifying its objection thereto.

 

Section 11.03                          Action
by Administrative Agent.  The
Administrative Agent shall have no duty to take any discretionary action or
exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby or by the other Loan Documents that the
Administrative Agent is required to exercise in writing as directed by the
Majority Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 12.02) and in all
cases the Administrative Agent shall be fully justified in failing or refusing
to act hereunder or under any other Loan Documents unless it shall (a) receive
written instructions from the Majority Lenders or the Lenders, as applicable,
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 12.02) specifying the action to
be taken and (b) be indemnified to its satisfaction by

 

75

 

the Lenders against any and all liability and expenses which may be
incurred by it by reason of taking or continuing to take any such action.  The instructions as aforesaid and any action
taken or failure to act pursuant thereto by the Administrative Agent shall be
binding on all of the Lenders.  If a
Default has occurred and is continuing, then the Administrative Agent shall
take such action with respect to such Default as shall be directed by the
requisite Lenders in the written instructions (with indemnities) described in
this Section 11.03, 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 as it shall deem advisable in the best
interests of the Lenders.  In no event,
however, shall the Administrative Agent be required to take any action which
exposes the Administrative Agent to personal liability or which is contrary to
this Agreement, the Loan Documents or applicable law.  The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Majority Lenders or the Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section 12.02),
and otherwise the Administrative Agent shall not be liable for any action taken
or not taken by it hereunder or under any other Loan Document or under any
other document or instrument referred to or provided for herein or therein or
in connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE,
except for its own gross negligence or willful misconduct.

 

Section 11.04                          Reliance
by Administrative Agent.  The
Administrative Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person.  The Administrative Agent also may rely upon
any statement made to it orally or by telephone and believed by it to be made
by the proper Person, and shall not incur any liability for relying thereon and
each of the Borrower, the Lenders and each Issuing Bank hereby waives the right
to dispute the Administrative Agent’s record of such statement, except in the
case of gross negligence or willful misconduct by the Administrative
Agent.  The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.  The
Administrative Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with
the Administrative Agent.

 

Section 11.05                          Subagents.  The Administrative Agent may perform any and
all its duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. 
The exculpatory provisions of the preceding Sections of this ARTICLE XI
shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Agent.

 

Section 11.06                          Resignation
or Removal of Administrative Agent. 
Subject to the appointment and acceptance of a successor Agent as
provided in this Section 11.06, the

 

76

 

Administrative Agent may resign at any time by notifying the Lenders,
each Issuing Bank and the Borrower, and the Administrative Agent may be removed
at any time with or without cause by the Majority Lenders.  Upon any such resignation or removal, the
Majority Lenders shall have the right, in consultation with the Borrower, to
appoint a successor.  If no successor
shall have been so appointed by the Majority Lenders and shall have accepted
such appointment within 30 days after the retiring Agent gives notice of its
resignation or removal of the retiring Agent, then the retiring Agent may, on
behalf of the Lenders and each Issuing Bank, appoint a successor Agent.  Upon the acceptance of its appointment as
Agent hereunder by a successor, such successor shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder.  The fees payable
by the Borrower to a successor Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such successor.  After the Agent’s resignation hereunder, the provisions
of this ARTICLE XI and Section 12.03 shall continue in effect for the
benefit of such retiring Agent, its sub-agents and their respective Related
Parties in respect of any actions taken or omitted to be taken by any of them
while it was acting as Agent.

 

Section 11.07                          Administrative
Agent as Lender.  BNP Paribas serving
as the Administrative Agent hereunder shall have the same rights and powers in
its capacity as a Lender as any other Lender and may exercise the same as
though it were not the Administrative Agent, and such bank and its Affiliates
may accept deposits from, lend money to and generally engage in any kind of
business with the Borrower or any Subsidiary or other Affiliate thereof as if
it were not the Administrative Agent hereunder.

 

Section 11.08                          No
Reliance.  Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Agent,
any other Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement and each other Loan Document to which it is a
party.  Each Lender also acknowledges
that it will, independently and without reliance upon the Administrative Agent,
any other Agent or any other Lender and based on such documents and information
as it shall from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document, any related agreement or any document furnished
hereunder or thereunder.  The
Administrative Agent shall not be required to keep themselves informed as to
the performance or observance by the Borrower or any of its Subsidiaries of
this Agreement, the Loan Documents or any other document referred to or
provided for herein or to inspect the Properties or books of the Borrower or
its Subsidiaries.  Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by the Administrative Agent hereunder, the Administrative Agent
shall have no duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of
the Borrower (or any of its Affiliates) which may come into the possession of
the Administrative Agent or any of its Affiliates.  In this regard, each Lender acknowledges that
Vinson & Elkins L.L.P. is acting in this transaction as special
counsel to the Administrative Agent only, except to the extent otherwise
expressly stated in any legal opinion or any Loan Document.  Each other party hereto will consult with its
own legal counsel to the extent that it deems necessary in connection with the
Loan Documents and the matters contemplated therein.

 

77

 

Section 11.09                          Administrative
Agent May File Proofs of Claim. 
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Borrower or any of its Subsidiaries, the
Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on
the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:

 

(a)                                  to file and prove a claim for
the whole amount of the principal and interest owing and unpaid in respect of
the Loans and all other Indebtedness that are owing and unpaid and to file such
other documents as may be necessary or advisable in order to have the claims of
the Lenders and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Lenders
and the Administrative Agent and their respective agents and counsel and all
other amounts due the Lenders and the Administrative Agent under Section 12.03)
allowed in such judicial proceeding; and

 

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

 

and
any custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Lender to make such payments to the Administrative Agent and, in the event that
the Administrative Agent shall consent to the making of such payments directly
to the Lenders, to pay to the Administrative Agent any amount due for the
reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.

 

Nothing contained
herein shall be deemed to authorize the Administrative Agent to authorize or
consent to or accept or adopt on behalf of any Lender any plan of
reorganization, arrangement, adjustment or composition affecting the
Indebtedness or the rights of any Lender or to authorize the Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.

 

Section 11.10                          Authority of Administrative Agent to Release Collateral
and Liens.  Each Lender and
each Issuing Bank hereby authorizes the Administrative Agent to release any
collateral that is permitted to be sold or released pursuant to the terms of
the Loan Documents.  Each Lender and each
Issuing Bank hereby authorizes the Administrative Agent to execute and deliver
to the Borrower, at the Borrower’s sole cost and expense, any and all releases
of Liens, termination statements, assignments or other documents reasonably
requested by the Borrower in connection with any sale or other disposition of
Property to the extent such sale or other disposition is permitted by the terms
of Section 9.12 or is otherwise authorized by the terms of the Loan
Documents.

 

Section 11.11                          The
Arranger.  The Arranger shall have no
duties, responsibilities or liabilities under this Agreement and the other Loan
Documents other than its duties, responsibilities and liabilities in its capacity
as the Administrative Agent and as a Lender hereunder.

 

78

 

ARTICLE XII

Miscellaneous

 

Section 12.01                          Notices.

 

(a)                                  Except in the case of notices
and other communications expressly permitted to be given by telephone (and
subject to Section 12.01(b)), all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:

 

(i)                                     if to the Borrower, to it at

 

Whittier Energy Corporation

333 Clay Street

Suite 1100

Houston, TX 
77002

Attention: 
Michael Young, Chief Financial Officer

Telecopy: 
(713) 850-1879

 

with
a copy to:

 

Whittier Energy Corporation

333 Clay Street

Suite 1100

Houston, TX 
77002

Attention: 
Daniel H. Silverman, Chief Operating Officer

Telecopy: 
(713) 850-1879

 

(ii)                                  if to the Administrative Agent,
to it at

 

919 Third Avenue

New York, New York 10022

Attention: Millie Carrillo, Loan Assistant

Telecopy: 
212-841-2683

 

with a copy to the Administrative Agent at:

 

1200 Smith Street, Suite 3100

Houston, Texas  77002

Attention: 
David Dodd/Betsy Jocher

Telecopy: 713-659-6915

 

(iii)                               if to any other Lender, in its
capacity as such, or any other Lender in its capacity as an Issuing Bank, to it
at its address (or telecopy number) set forth in its Administrative
Questionnaire.

 

79

 

(b)                                 Notices and other communications
to the Lenders hereunder may be delivered or furnished by electronic
communications pursuant to procedures approved by the Administrative Agent;
provided that the foregoing shall not apply to notices pursuant to ARTICLE II,
ARTICLE III, ARTICLE IV and ARTICLE V unless otherwise agreed by
the Administrative Agent and the applicable Lender.  The Administrative Agent may, in its
discretion, agree to accept notices and other communications to it hereunder by
electronic communications pursuant to procedures approved by it; provided that
approval of such procedures may be limited to particular notices or
communications.

 

(c)                                  Any party hereto may change its
address or telecopy number for notices and other communications hereunder by
notice to the other parties hereto.  All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.

 

Section 12.02                          Waivers;
Amendments.

 

(a)                                  No failure on the part of the
Administrative Agent, any other Agent, any Issuing Bank or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege, or any abandonment or discontinuance of steps to
enforce such right, power or privilege, under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.  The rights and remedies of the
Administrative Agent, any other Agent, each Issuing Bank and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement
or any other Loan Document or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
Section 12.02(b), and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any other Agent, any Lender or any Issuing Bank may have had notice or
knowledge of such Default at the time.

 

(b)                                 Neither this Agreement nor any
provision hereof nor any Security Instrument nor any provision thereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Majority Lenders or by the
Borrower and the Administrative Agent with the consent of the Majority Lenders;
provided that no such agreement shall (i) increase the Maximum Credit Amount
of any Lender without the written consent of such Lender, (ii) increase
the Borrowing Base without the written consent of each Lender, decrease or
maintain the Borrowing Base without the consent of the Majority Lenders, or
modify in any manner Section 2.07 without the consent of each Lender, (iii) reduce
the principal amount of any Loan or LC Disbursement or reduce the rate of
interest thereon, or reduce any fees payable hereunder, or reduce any other
Indebtedness hereunder or under any other Loan Document, without the written
consent of each Lender affected thereby, (iv) postpone the scheduled date
of payment of the principal amount of any Loan or LC Disbursement, or any
interest thereon, or any fees payable hereunder, or any other Indebtedness
hereunder or under any other Loan Document, or reduce the amount of, waive or
excuse any such payment, or

 

80

 

postpone
or extend the Termination Date or the Maturity Date without the written consent
of each Lender affected thereby, (v) change Section 4.01(b) or Section 4.01(c) in
a manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (vi) waive or amend Section 6.01,
Section 10.02(c) or Section 8.14 or change the definition of the
terms “Domestic Subsidiary”, “Foreign Subsidiary” or “Subsidiary”, without the
written consent of each Lender, (vii) release any Guarantor (except as set
forth in the Guaranty Agreement), release all or substantially all of the
collateral (other than as provided in Section 11.10), or reduce the
percentage set forth in Section 8.14(a) to less than 85%, without the
written consent of each Lender, or (viii) change any of the provisions of
this Section 12.02(b) or the definition of “Majority Lenders” or any
other provision hereof specifying the number or percentage of Lenders required
to waive, amend or modify any rights hereunder or under any other Loan
Documents or make any determination or grant any consent hereunder or any other
Loan Documents, without the written consent of each Lender; provided further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent, any other Agent, or any Issuing Bank
hereunder or under any other Loan Document without the prior written consent of
the Administrative Agent, such other Agent or such Issuing Bank, as the case
may be.  Notwithstanding the foregoing,
any supplement to Schedule 7.15 (Subsidiaries) shall be effective simply
by delivering to the Administrative Agent a supplemental schedule clearly
marked as such and, upon receipt, the Administrative Agent will promptly
deliver a copy thereof to the Lenders.

 

Section 12.03                          Expenses,
Indemnity; Damage Waiver.

 

(a)                                  The Borrower shall pay (i) all
reasonable out-of-pocket expenses incurred by the Administrative Agent and its
Affiliates, including, without limitation, the reasonable fees, charges and
disbursements of counsel and other outside consultants for the Administrative
Agent, the reasonable travel, photocopy, mailing, courier, telephone and other
similar expenses, and the cost of environmental audits and surveys and
appraisals, in connection with the syndication of the credit facilities
provided for herein, the preparation, negotiation, execution, delivery and
administration (both before and after the execution hereof and including advice
of counsel to the Administrative Agent as to the rights and duties of the
Administrative Agent and the Lenders with respect thereto) of this Agreement and
the other Loan Documents and any amendments, modifications or waivers of or
consents related to the provisions hereof or thereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), (ii) all
costs, expenses, Taxes, assessments and other charges incurred by the
Administrative Agent or any Lender in connection with any filing, registration,
recording or perfection of any security interest contemplated by this Agreement
or any Security Instrument or any other document referred to therein, (iii) all
reasonable out-of-pocket expenses incurred by each Issuing Bank in connection
with the issuance, amendment, renewal or extension of any Letter of Credit
issued by such Issuing Bank or any demand for payment thereunder, (iv) all
out-of-pocket expenses incurred by the Administrative Agent, any Issuing Bank
or any Lender, including the reasonable fees, charges and disbursements of any
counsel for the Administrative Agent, any Issuing Bank or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement or any other Loan Document, including its rights under this Section 12.03,
or in connection with the Loans made or Letters of Credit issued hereunder,
including, without limitation, all such out-of-pocket expenses incurred
during  any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.

 

81

 

(b)                                 THE BORROWER SHALL INDEMNIFY THE
ADMINISTRATIVE AGENT, EACH OTHER AGENT, THE ARRANGER, EACH ISSUING BANK AND
EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH
PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE
HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED
EXPENSES, INCLUDING THE REASONABLE FEES, CHARGES AND DISBURSEMENTS OF ANY
COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE
ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR
DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR
INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES
HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE OF THE
BORROWER OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH THE TERMS OF ANY LOAN
DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iii) ANY
INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF
THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY
LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, INCLUDING,
WITHOUT LIMITATION, (A) ANY REFUSAL BY ANY ISSUING BANK TO HONOR A DEMAND
FOR PAYMENT UNDER A LETTER OF CREDIT ISSUED BY SUCH ISSUING BANK IF THE
DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH
THE TERMS OF SUCH LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING UNDER
ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER
IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (v) ANY
OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF
THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (vii) ANY
ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED
PURSUANT TO THE SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ITS SUBSIDIARIES OR ANY OF THEIR PROPERTIES,
INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE,
THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR
TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON
ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER
OR ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE
BORROWER OR ANY OF ITS SUBSIDIARIES, (x) THE PAST OWNERSHIP BY THE BORROWER OR
ANY OF ITS SUBSIDIARIES OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF
THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD
RESULT IN PRESENT LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE,
TREATMENT, DISPOSAL, GENERATION,

 

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THREATENED
RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF
OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF
THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OR
ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xii)
ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH
INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR
AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE
OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE
GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNITEE.

 

(c)                                  To the extent that the Borrower
fails to pay any amount required to be paid by it to the Administrative Agent
or any Issuing Bank under Section 12.03(a) or (b), each Lender
severally agrees to pay to the Administrative Agent or such Issuing Bank, as
the case may be, such Lender’s Applicable Percentage (determined as of the time
that the applicable unreimbursed expense or indemnity payment is sought) of
such unpaid amount; provided that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred
by or asserted against the Administrative Agent or such Issuing Bank in its
capacity as such.

 

(d)                                 To the extent permitted by
applicable law, the Borrower shall not assert, and hereby waives, any claim
against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, this Agreement, any
other Loan Document or any agreement or instrument contemplated hereby or
thereby, the Transactions, any Loan or Letter of Credit or the use of the
proceeds thereof.

 

(e)                                  All amounts due under this Section 12.03
shall be payable within three (3) Business Days of written demand therefor.

 

83

 

Section 12.04                          Successors
and Assigns.

 

(a)                                  The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of
any Issuing Bank that issues any Letter of Credit), except that (i)  the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void) and (ii) no Lender may assign or otherwise transfer its rights or
obligations hereunder except in accordance with this Section 12.04.  Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby (including any
Affiliate of any Issuing Bank that issues any Letter of Credit), Participants
(to the extent provided in Section 12.04(c)) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent,
each Issuing Bank and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.

 

(b)                                 (i)  Subject to the
conditions set forth in Section 12.04(b)(ii), any Lender may assign to one
or more assignees all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans at the
time owing to it) with the prior written consent (such consent not to be
unreasonably withheld) of:

 

(A)                              the Borrower, provided that no
consent of the Borrower shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred
and is continuing, any other assignee; and

 

(B)                                the Administrative Agent,
provided that no consent of the Administrative Agent shall be required for an
assignment to an assignee that is a Lender immediately prior to giving effect
to such assignment.

 

(ii)                                  Assignments shall be subject to
the following additional conditions:

 

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

 

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

 

(C)                                the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Assumption, together with a processing and recordation fee of $3,500; and

 

(D)                               the assignee, if it shall not be
a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire.

 

84

 

(iii)                               Subject to Section 12.04(b)(iv) and
the acceptance and recording thereof, from and after the effective date
specified in each Assignment and Assumption the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations
under this Agreement (and, in the case of an Assignment and Assumption covering
all of the assigning Lender’s rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to
the benefits of Section 5.01, Section 5.02, Section 5.03 and Section 12.03).  Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this Section 12.04
shall be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with Section 12.04(c).

 

(iv)                              The Administrative Agent, acting
for this purpose as an agent of the Borrower, shall maintain at one of its
offices a copy of each Assignment and Assumption delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the Maximum
Credit Amount of, and principal amount of the Loans and LC Disbursements owing
to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive,
and the Borrower, the Administrative Agent, each Issuing Bank and the Lenders
may treat each Person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. 
The Register shall be available for inspection by the Borrower, any
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.  In connection
with any changes to the Register, if necessary, the Administrative Agent will
reflect the revisions on Annex I and forward a copy of such revised Annex I to
the Borrower, each Issuing Bank and each Lender.

 

(v)                                 Upon its receipt of a duly
completed Assignment and Assumption executed by an assigning Lender and an
assignee, the assignee’s completed Administrative Questionnaire (unless the
assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in Section 12.04(b) and any written consent to such
assignment required by Section 12.04(b), the Administrative Agent shall
accept such Assignment and Assumption and record the information contained
therein in the Register.  No assignment
shall be effective for purposes of this Agreement unless it has been recorded
in the Register as provided in this Section 12.04(b).

 

(c)                                  (i)                                     Any Lender may, without the
consent of the Borrower, the Administrative Agent or any Issuing Bank, sell
participations to one or more banks or other entities (a “Participant”)
in all or a portion of such Lender’s rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided that (A) such Lender’s obligations under this Agreement
shall remain unchanged, (B) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations and (C) the
Borrower, the Administrative Agent, each Issuing Bank and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any

 

85

 

provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the proviso to Section 12.02
that affects such Participant.  In
addition such agreement must provide that the Participant be bound by the
provisions of Section 12.03. 
Subject to Section 12.04(c)(ii), the Borrower agrees that each
Participant shall be entitled to the benefits of Section 5.01, Section 5.02
and Section 5.03 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to Section 12.04(b).  To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 12.08 as
though it were a Lender, provided such Participant agrees to be subject to Section 4.01(c) as
though it were a Lender.

 

(ii)                                  A Participant shall not be
entitled to receive any greater payment under Section 5.01, Section 5.02
or Section 5.03 than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the
sale of the participation to such Participant is made with the Borrower’s prior
written consent.  A Participant that
would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 5.03 unless the Borrower is notified of the
participation sold to such Participant and such Participant agrees, for the
benefit of the Borrower, to comply with Section 5.03(e) as though it
were a Lender.

 

(d)                                 Any Lender may at any time
pledge or assign a security interest in all or any portion of its rights under
this Agreement to secure obligations of such Lender, including, without
limitation, any pledge or assignment to secure obligations to a Federal Reserve
Bank, and this Section 12.04(d) shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.

 

Section 12.05                          Survival;
Revival; Reinstatement.

 

(a)                                  All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, any other
Agent, any Issuing Bank or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid or any Letter of Credit
is outstanding and so long as the Commitments have not expired or
terminated.  The provisions of Section 5.01,
Section 5.02, Section 5.03 and Section 12.03 and ARTICLE XI
shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the Commitments
or the termination of this Agreement, any other Loan Document or any provision
hereof or thereof.

 

86

 

(b)                                 To the extent that any payments
on the Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid
to a trustee, debtor in possession, receiver or other Person under any
bankruptcy law, common law or equitable cause, then to such extent, the
Indebtedness so satisfied shall be revived and continue as if such payment or
proceeds had not been received and the Administrative Agent’s and the Lenders’
Liens, security interests, rights, powers and remedies under this Agreement and
each Loan Document shall continue in full force and effect.  In such event, each Loan Document shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.

 

Section 12.06                          Counterparts;
Integration; Effectiveness.

 

(a)                                  This Agreement may be executed
in counterparts (and by different parties hereto on different counterparts),
each of which shall constitute an original, but all of which when taken
together shall constitute a single contract.

 

(b)                                 This Agreement, the other Loan
Documents and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and thereof and supersede any and all
previous agreements and understandings, oral or written, relating to the
subject matter hereof and thereof.  THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.

 

(c)                                  Except as provided in Section 6.01,
this Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as
delivery of a manually executed counterpart of this Agreement.

 

Section 12.07                          Severability.  Any provision of this Agreement or any other
Loan Document held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions hereof or thereof; and
the invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.

 

Section 12.08                          Right
of Setoff.  If an Event of Default
shall have occurred and be continuing, each Lender and each of its Affiliates
is hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
obligations (of whatsoever kind, including, without limitations obligations under
Swap Agreements) at any time

 

87

 

owing by such Lender or Affiliate to or for the credit or the account
of the Borrower or any of its Subsidiaries against any of and all the
obligations of the Borrower or any of its Subsidiaries owed to such Lender now
or hereafter existing under this Agreement or any other Loan Document,
irrespective of whether or not such Lender shall have made any demand under
this Agreement or any other Loan Document and although such obligations may be
unmatured.  The rights of each Lender
under this Section 12.08 are in addition to other rights and remedies
(including other rights of setoff) which such Lender or its Affiliates may
have.

 

Section 12.09                          GOVERNING
LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.

 

(a)                                  THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS
ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE OR TAKE INTEREST AT THE
RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED.

 

(b)                                 ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE
STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
TEXAS, HOUSTON DIVISION, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS.  EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.  THIS
SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM
OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING
JURISDICTION.

 

(c)                                  EACH PARTY IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH
OTHER ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT
AND ASSUMPTION), SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH
MAILING.  NOTHING HEREIN SHALL AFFECT THE
RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANOTHER PARTY IN ANY OTHER JURISDICTION.

 

(d)                                 EACH PARTY HEREBY (i) IRREVOCABLY
AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,

 

88

 

TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.

 

Section 12.10                          Headings.  Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.

 

Section 12.11                          Confidentiality.  Each of the Administrative Agent, each
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement or any
other Loan Document, (e) in connection with the exercise of any remedies
hereunder or under any other Loan Document or any suit, action or proceeding
relating to this Agreement or any other Loan Document or the enforcement of
rights hereunder or thereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section 12.11, to (i) any
assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations under this Agreement or (ii) any
actual or prospective counterparty (or its advisors) to any Swap Agreement
relating to the Borrower and their obligations, (g) with the consent of
the Borrower or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section 12.11
or (ii) becomes available to the Administrative Agent, any Issuing Bank or
any Lender on a nonconfidential basis from a source other than the
Borrower.  For the purposes of this Section 12.11,
“Information” means all information received from the Borrower or any of
its Subsidiaries relating to the Borrower or any of its Subsidiaries and their
businesses, other than any such information that is available to the
Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis
prior to disclosure by the Borrower or any of its Subsidiaries; provided that,
in the case of information received from the Borrower, or any of its
Subsidiaries after the date hereof, such information is clearly identified at
the time of delivery as confidential. 
Any Person required to maintain the confidentiality of Information as
provided in this Section 12.11 shall be considered to have complied with
its obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information.

 

89

 

Section 12.12                          Interest
Rate Limitation.  It is the intention
of the parties hereto that each Lender shall conform strictly to usury laws
applicable to it.  Accordingly, if the
transactions contemplated hereby would be usurious as to any Lender under laws
applicable to it (including the laws of the United States of America and the
State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to such Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in
any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows:  (i) the aggregate of all consideration
which constitutes interest under law applicable to any Lender that is
contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower); and (ii) in the event that the maturity of the
Notes is accelerated by reason of an election of the holder thereof resulting
from any Event of Default under this Agreement or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest under law applicable to any Lender may never include more than the
maximum amount allowed by such applicable law, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled automatically by
such Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower).  All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of
sums due hereunder shall, to the extent permitted by law applicable to such
Lender, be amortized, prorated, allocated and spread throughout the stated term
of the Loans evidenced by the Notes until payment in full so that the rate or
amount of interest on account of any Loans hereunder does not exceed the
maximum amount allowed by such applicable law. 
If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate
applicable to such Lender pursuant to this Section 12.12 and (ii) in
respect of any subsequent interest computation period the amount of interest
otherwise payable to such Lender would be less than the amount of interest
payable to such Lender computed at the Highest Lawful Rate applicable to such
Lender, then the amount of interest payable to such Lender in respect of such
subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of
interest payable to such Lender shall equal the total amount of interest which
would have been payable to such Lender if the total amount of interest had been
computed without giving effect to this Section 12.12.  To the extent that Chapter 303 of the Texas
Finance Code is relevant for the purpose of determining the Highest Lawful Rate
applicable to a Lender, such Lender elects to determine the applicable rate
ceiling under such Chapter by the weekly ceiling from time to time in
effect.  Chapter 346 of the Texas Finance
Code does not apply to the Borrower’s obligations hereunder.

 

Section 12.13                          EXCULPATION
PROVISIONS.  EACH OF THE PARTIES
HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF
THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN

 

90

 

DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY
INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS
OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF
ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS
ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT
IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS
OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY.  EACH PARTY HERETO AGREES AND
COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE
BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE
PROVISION IS NOT “CONSPICUOUS.”

 

Section 12.14                          Collateral
Matters; Swap Agreements.  The
benefit of the Security Instruments and of the provisions of this Agreement
relating to any collateral securing the Indebtedness shall also extend to and
be available to those Lenders or their Affiliates which are counterparties to
any Swap Agreement with the Borrower or any of its Subsidiaries on a pro rata basis in respect of any
obligations of the Borrower or any of its Subsidiaries which arise under any
such Swap Agreement while such Person or its Affiliate is a Lender, but only
while such Person or its Affiliate is a Lender, including any Swap Agreements
between such Persons in existence prior to the date hereof.  No Lender or any Affiliate of a Lender shall
have any voting rights under any Loan Document as a result of the existence of
obligations owed to it under any such Swap Agreements.

 

Section 12.15                          No
Third Party Beneficiaries.  This
Agreement, the other Loan Documents, and the agreement of the Lenders to make
Loans and the Issuing Bank to issue, amend, renew or extend Letters of Credit
hereunder are solely for the benefit of the Borrower, and no other Person
(including, without limitation, any Subsidiary of the Borrower, any obligor,
contractor, subcontractor, supplier or materialsman) shall have any rights,
claims, remedies or privileges hereunder or under any other Loan Document
against the Administrative Agent, any other Agent, the Issuing Bank or any
Lender for any reason whatsoever.  There
are no third party beneficiaries.

 

Section 12.16                          USA
Patriot Act Notice.  Each Lender
hereby notifies the Borrower that pursuant to the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)) (the “Act”), it is required to obtain, verify and record
information that identifies the Borrower, which information includes the name
and address of the Borrower and other information that will allow such Lender
to identify the Borrower in accordance with the Act.

 

91

 

The parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.

 

	
  BORROWER:

  	
  WHITTIER ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael B.
  Young

  
	
   

  	
  Name:

  	
  Michael B. Young

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
				

 

1

 

	
  ADMINISTRATIVE AGENT:

  AND LENDER

  	
  BNP PARIBAS, as Administrative Agent

  and a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Dodd

  
	
   

  	
  Name:

  	
  David
  Dodd

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Betsy Jocher

  
	
   

  	
  Name:

  	
  Betsy
  Jocher

  
	
   

  	
  Title:

  	
  Vice
  President

  
				

 

2

 

	
  LENDER:

  	
  COMPASS BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kathleen J.
  Bowen

  
	
   

  	
  Name:

  	
  Kathleen
  J. Bowen

  
	
   

  	
  Title:

  	
  Senior
  Vice President

  
				

 

3

 

ANNEX I

LIST OF MAXIMUM CREDIT AMOUNTS

 

Aggregate Maximum Credit Amounts

 

	
  Name of Lender

  	
   

  	
  Applicable Percentage

  	
   

  	
  Maximum Credit Amount

  	
   

  
	
  BNP Paribas

  	
   

  	
  72.13

  	
  %

  	
  $

  	
  54,097,500.00

  	
   

  
	
  Compass Bank

  	
   

  	
  27.87

  	
  %

  	
  $

  	
  20,902,500.00

  	
   

  
	
  TOTAL

  	
   

  	
  100

  	
  %

  	
  $

  	
  75,000,000.00

  	
   

  

 

1

 

EXHIBIT A

FORM OF NOTE

 

	
  $[          ]

  	
   

  	
  [          ],
  200[     ]

  

 

FOR VALUE RECEIVED, Whittier Energy
Corporation, a Nevada corporation (the “Borrower”), hereby promises to
pay to the order of
[          ] (the “Lender”),
at the principal office of BNP Paribas, as administrative agent (the “Administrative
Agent”), the principal sum of
[          ] Dollars
($[          ]) (or such
lesser amount as shall equal the aggregate unpaid principal amount of the Loans
made by the Lender to the Borrower under the Credit Agreement, as hereinafter
defined), in lawful money of the United States of America and in immediately
available funds, on the dates and in the principal amounts provided in the
Credit Agreement, and to pay interest on the unpaid principal amount of each
such Loan, at such office, in like money and funds, for the period commencing
on the date of such Loan until such Loan shall be paid in full, at the rates
per annum and on the dates provided in the Credit Agreement.

 

The date, amount, Type, interest rate,
Interest Period and maturity of each Loan made by the Lender to the Borrower,
and each payment made on account of the principal thereof, shall be recorded by
the Lender on its books and, prior to any transfer of this Note, may be
endorsed by the Lender on the schedules attached hereto or any continuation
thereof or on any separate record maintained by the Lender.  Failure to make any such notation or to
attach a schedule shall not affect any Lender’s or the Borrower’s rights
or obligations in respect of such Loans or affect the validity of such transfer
by any Lender of this Note.

 

This Note is one of the Notes referred to in
the Credit Agreement dated as of June 15, 2005 among the Borrower, the
Administrative Agent and lenders signatory thereto (including the Lender), and
evidences Loans made by the Lender thereunder (such Credit Agreement as the
same may be amended, supplemented or restated from time to time, the “Credit
Agreement”).  Capitalized terms used
in this Note have the respective meanings assigned to them in the Credit
Agreement.

 

This Note is issued pursuant to the Credit
Agreement and is entitled to the benefits provided for in the Credit Agreement
and the other Loan Documents.  The Credit
Agreement provides for the acceleration of the maturity of this Note upon the
occurrence of certain events, for prepayments of Loans upon the terms and
conditions specified therein and other provisions relevant to this Note.

 

1

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS.

 

	
   

  	
  WHITTIER
  ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

2

 

EXHIBIT B

FORM OF

COMPLIANCE CERTIFICATE

 

The undersigned hereby certifies that he/she
is the [          ] of
Whittier Energy Corporation, a Nevada corporation (the “Borrower”), and
that as such he/she is authorized to execute this certificate on behalf of the
Borrower.  With reference to the Credit
Agreement dated as of June 15, 2005 (together with all amendments,
supplements or restatements thereto being the “Agreement”) among the
Borrower, BNP Paribas, as Administrative Agent and lenders (the “Lenders”)
which are or become a party thereto, and such Lenders, the undersigned
represents and warrants as follows (each capitalized term used herein having
the same meaning given to it in the Agreement unless otherwise specified):

 

(a)                                  The representations and
warranties of the Borrower contained in Article VII of the Agreement and
in the Loan Documents and otherwise made in writing by or on behalf of the
Borrower or any Guarantor pursuant to the Agreement and the Loan Documents were
true and correct when made, and are repeated at and as of the time of delivery
hereof and are true and correct in all material respects at and as of the time
of delivery hereof, except to the extent such representations and warranties
are expressly limited to an earlier date or all of the Lenders have expressly
consented in writing to the contrary.

 

(b)                                 The Borrower has performed and
complied with all agreements and conditions contained in the Agreement and in
the Loan Documents required to be performed or complied with by it prior to or
at the time of delivery hereof [or specify default and describe].

 

(c)                                  Since December 31, 2004, no
change has occurred, either in any case or in the aggregate, in the condition,
financial or otherwise, of the Borrower or any of its Subsidiaries that could
reasonably be expected to have a Material Adverse Effect [or specify event].

 

(d)                                 There exists no Default or Event
of Default [or specify Default and describe].

 

(e)                                  Attached hereto are the detailed
computations necessary to determine whether the Borrower is in compliance with Section 9.01
and Section 8.14 as of the end of the [fiscal quarter][fiscal year] ending
[          ].

 

1

 

EXECUTED AND DELIVERED this
[          ] day of
[          ].

 

	
   

  	
  WHITTIER
  ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

2

 

EXHIBIT C-1

FORM OF LEGAL OPINION

 

 

[insert closing date]

 

BNP PARIBAS, as
Administrative Agent

 

and each of the
Agents and Lenders party to the

herein described
Credit Agreement

 

Re:                               Credit
Agreement (the “Credit Agreement”) dated as of June 15, 2005 among
Whittier Energy Corporation, as borrower, each of the Agents and Lenders from
time to time party thereto and BNP PARIBAS, as administrative agent for the
Lenders (in such capacity, as the administrative agent, the “Administrative
Agent”).

 

Ladies and Gentlemen:

 

We
have acted as special counsel for Whittier Energy Corporation, a Nevada
corporation (the “Borrower”), and [add Guarantors] (collectively being
the “Guarantors” and together with the
Borrower collectively being the “Obligors”), in connection with
the execution and delivery of the Credit Agreement and the other Loan Documents
(as defined below).  This opinion is
being furnished to you pursuant to Section 6.01(h) of the Credit
Agreement.  All capitalized terms not
defined herein shall have the same meanings assigned to them in the Credit
Agreement.

 

In
connection with the opinions set forth herein, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of the following
documents (items (A) through (F) being referred to as the “Loan
Documents”):

 

(A)                              the Credit Agreement;

 

(B)                                the Notes;

 

(C)                                the Guaranty and Collateral
Agreement dated of even date with the Credit Agreement executed by the Obligors
in favor of the Administrative Agent for the benefit of the Lenders;

 

(D)                               [Deed of Trust, Assignment of
As-Extracted Collateral, Security Agreement and Financing Statement (the “Mortgages”)]
[list for each Obligor];

 

(E)                                 the Financing Statements (UCC-1)
to be delivered in connection with (C) above (the “Guaranty Financing
Statements”); and

 

1

 

(F)                                 the Financing Statements (UCC-1)
to be delivered in connection with (D) above (the “Financing Statements”);
and

 

(G)                                the stock powers with stock
certificates attached (the “Stock Certificates”)

 

In
rendering the opinions set forth herein, we have relied upon certificates of
officers of the Obligors, certificates or telegrams of public officials and
such other documents, records and information as we have deemed necessary or
appropriate.  We have assumed that all
signatures are genuine; that all documents submitted to us as originals are
authentic; that all documents submitted to us as copies conform to the
originals; and that the facts stated in all such documents are true and
correct.  In rendering this opinion, we
have not made any independent investigation as to accuracy or completeness of
any facts or representations, warranties, data or other information, whether
written or oral, that may have been made by or on behalf of the parties, except
as specifically set forth herein.

 

Based
upon the foregoing, and subject to the qualifications set forth herein, it is
our opinion that:

 

1.                                       The Borrower is a limited
liability company duly formed, validly existing and in good standing under the
laws of the State of Nevada.  Each of the
Guarantors is a limited liability company duly organized, validly existing and
in good standing under the laws of the State of [].

 

2.                                       Each of the Obligors has the
corporate power and authority to execute, deliver and perform its obligations
under each of the Loan Documents to which it is a party.  The Borrower has taken all corporate action
and each Guarantor has taken all necessary corporate action to authorize the
execution and delivery of, and performance of its obligations under, each of
the Loan Documents to which it is a party. 
Such execution, delivery and performance of its obligations under the
Loan Documents to which it is a party will not (i) result in a violation
of the Borrower’s Bylaws or any Guarantor’s Bylaws, as applicable, or any
applicable law, (ii) result in a violation of or constitute a breach or
default under any material agreement or instrument relating to the borrowing of
money or judicial or regulatory order binding upon it or (iii) result in
the creation or imposition of any Lien on any of its properties pursuant to any
such material agreement or instrument or judicial or regulatory order.  Each of the Loan Documents to which an Obligor
is a party has been duly authorized, executed and delivered by such Obligor.

 

3.                                       Each of the Loan Documents
constitutes the legal, valid and binding obligation of each Obligor party
thereto, enforceable against it in accordance with its terms.

 

4.                                       No authorization, consent,
approval, license or exemption of, or filing or registration with, any
Governmental Authority of the United States or the State of Texas, , or any
Governmental Authority of the State of Nevada in connection with

 

2

 

any
application of the [] is necessary for either (i) the due execution and
delivery by each Obligor of the Loan Documents to which it is a party, (ii) the
borrowing of Loans and obtaining of Letters of Credit by the Borrower or (iii) payment
by the Obligors of the Loans or any other amounts payable under the Loan
Documents.

 

5.                                       There are, to the best of our
knowledge, no actions, suits or proceedings pending or threatened against any
Obligor or its property which involves the possibility of any judgment or
liability against such Obligor which could reasonably be expected to have a
Material Adverse Effect.

 

6.                                       None of the Obligors is subject
to regulation under the Investment Company Act of 1940, as amended, or the
Public Utility Holding Company act of 1935, as amended.

 

7.                                       The Guaranty and Collateral
Agreement creates in favor of the Administrative Agent a security interest in
collateral in which a security interest may be created under Article 9 of
the Uniform Commercial Code of the State of Texas (the “Texas UCC”) as in effect in the State
of Texas on the date hereof (the “Article 9
Collateral”) to secure the Obligations.

 

8.                                       Upon the filing of the Guaranty
Financing Statements in the Office of the Secretary of State of Delaware for
the Delaware entity, the Administrative Agent will have a perfected security
interest for the ratable benefit of the Lenders in that portion of the Article 9
Collateral subject thereto under the Uniform Commercial Code of the State of
Delaware (the “Delaware UCC”).

 

9.                                       The Mortgages create in favor of
the Administrative Agent a security interest in collateral described therein in
which a security interest may be created under the Texas UCC (the “Article 9
Mortgage Collateral”).  Upon the filing of the Financing Statements (with
a copy of the Mortgages attached thereto) with
the Office of the Secretary of State of the State of Delaware, the security
interests created by the Mortgages in the Article 9 Mortgage Collateral
will be perfected under the Delaware UCC to the extent perfection can be
effected by the filing of a financing statement in the Office of the Secretary
of State of Delaware.

 

10.                                 No Delaware or Texas state or
local recording tax, stamp tax or other similar fee, tax or governmental charge
(other than nominal statutory filing and recording fees to be paid upon the
filing or recordation thereof) is required to be paid in connection with the
filing and recording of the Mortgages, the Financing Statements and the
Guaranty Financing Statements.

 

The
opinions rendered herein are for the sole benefit of, and may only be relied
upon by, the Lenders, the Agents and their successors or permitted assigns, and
the opinions herein expressed are not to be used, circulated or otherwise
referred to in connection with any

 

3

 

transaction other than those contemplated by the Loan
Documents.  This opinion is specifically
limited to the presently effective laws of the State of Texas and the United
States of America, the Limited Liability Company Acts of the State of Delaware
and the Delaware UCC.  We have not been
asked to, and we do not, render any opinion as to any matter except as
specifically set forth herein.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [                         ]

  

 

4

 

EXHIBIT C-2

 

FORM OF LEGAL OPINION OF LOCAL COUNSEL

 

June 15,
2005

 

Each of the Addressees Listed in

the Attached Schedule I

 

Re:                               Credit Agreement dated as June 15,
2005 among Whittier Energy Corporation, a Nevada corporation (the “Borrower”), the financial institutions now or
hereafter party thereto (the “Lenders”),
BNP Paribas, as administrative agent and collateral agent for the Lenders (in
such capacity, the “Collateral Agent”),
and the other agents party thereto (the “Credit
Agreement”).

 

Ladies and Gentlemen:

 

We have acted as special
[                       ]
counsel to the Borrower and Whittier Energy Company, a Nevada corporation (“Mortgagor”),
in connection with the execution and delivery of that certain [Describe Mortgage/Deed of Trust] (the “Mortgage”).  This opinion is being furnished to you
pursuant to Section 6.01(i)(ii) of the Credit Agreement.  All capitalized terms not defined herein
shall have the same meanings assigned to them in the Credit Agreement.  For purposes of this opinion letter, the term
“State” means the State of [].  In
rendering the opinions set forth below, we have reviewed an execution copy of
the following documents and instruments, as the same are being executed as of
the date hereof (the “Loan Documents”):

 

[(A)]                      the Mortgage[; and]

 

[(B)         UCC-1 Financing Statement, with the Mortgagor, as debtor,
and the Collateral Agent, as secured party, covering as-extracted collateral
and goods that are or are to become fixtures, to be filed in connection with
the Mortgage (the “Financing Statement”)].
(1)

 

In rendering the
opinions set forth herein, we have relied upon certificates of officers of the
Mortgagor, certificates of public officials and such other documents, records and

 

(1) Under Section 9.502 of UCC, a record of our form of
mortgage is effective as a financing statement filed as a fixture filing or as
a financing statement covering as-extracted collateral or timber to be
cut.  Some counties, however, maintain
separate indexes for UCC filings, and in such case, a UCC-1 financing statement
covering such collateral should be prepared and filed separately.

 

1

 

information as we
have deemed necessary or appropriate.  We
have assumed that all signatures are genuine; that all documents submitted to
us as originals are authentic; that all documents submitted to us as copies
conform to the originals; and that the facts stated in all such documents are
true and correct.  In rendering the
opinions set forth herein, we have not made any independent investigation as to
accuracy or completeness of any facts or representations, warranties, data or
other information, whether written or oral, that may have been made by or on
behalf of the parties, except as specifically set forth herein.

 

Based upon the
foregoing, and subject to the assumptions, qualifications, exceptions and
limitations set forth herein, it is our opinion that:

 

1.                                       The Mortgage, including the
acknowledgment thereto, [and the Financing Statement,] is [are] in a form
satisfactory for recordation in the official public records of real property in
each county in the State where any portion of the Mortgaged Property is
located.

 

2.                                       The descriptions of those
portions of the Mortgaged Property located within the State which are shown on Exhibit ”A”
attached to the Mortgage are legally sufficient descriptions for the purpose of
creating and maintaining the Liens purported to be created by the Mortgage and
for the purposes of all applicable recording, filing and registration laws in
the State.

 

3.                                       The Mortgagor is duly qualified
to do business and own its properties in, and is in good standing as a foreign
corporation in, the State, under the laws of the State.

 

4.                                       The Mortgage constitutes the
legal, valid and binding obligation of the Mortgagor enforceable against the
Mortgagor in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application relating to or affecting creditors’ rights generally and general
principles of equity.

 

5.                                       The Mortgage is effective to
create in favor of the Collateral Agent (or the Trustee named therein, as
applicable) for the benefit of the Collateral Agent and the Lenders, for the
payment of the obligations described therein, a valid mortgage Lien on all of
the Mortgagor’s right, title and interest in and to the portion of the
Mortgaged Property constituting real property described in the Mortgage as
being mortgaged thereby and a valid security interest in all of the Mortgagor’s
right, title and interest in and to as-extracted collateral located in each
county in which the Mortgaged Property is situated and all fixtures located on
the real property described in the Mortgage.

 

6.                                       Fully executed counterparts of
the Mortgage [and the Financing Statement] should be filed for record in each
county in the State where any portion of the Mortgaged Property is located [or
if other, please specify].  Other than
the foregoing, no authorization, consent, approval, license or exemption of, or
filing or registration with, any Governmental Authority of the State is
necessary for either the due execution and delivery by the Mortgagor of the
Mortgage, the perfection of the Liens intended to be created thereby or with
the

 

2

 

holding and
enforcement by the Collateral Agent of the Mortgage or the obligations secured
thereby.

 

7.                                       After the recordings and filings
specified in paragraph 6 have occurred, the Liens created by the Mortgage on
that portion of the Mortgaged Property constituting real property will be
effective against third parties and the Liens created by the Mortgage on that
portion of the Mortgaged Property constituting as-extracted collateral and
fixtures will be perfected.

 

8.                                       After the recordings and filings
specified in paragraph 6 have occurred, no instruments need be recorded,
registered or filed or re-recorded, re-registered or re-filed in any public
office in the State in connection with the execution and delivery of the
Mortgage in order to maintain the perfection and priority of the Liens created
thereby after the date of recordation, other than [state rule if
necessary] and continuation statements as required by the Uniform Commercial
Code as in effect in the State.

 

9.                                       No state or local recording tax,
stamp tax or other similar fee, tax or governmental charge (other than
statutory filing and recording fees to be paid upon the filing of the Mortgage
[or the Financing Statement]) is required to be paid in connection with the
filing and recording of [either] the Mortgage [or the Financing Statement][,
except as follows:  explain if
necessary].

 

10.                                 The execution and delivery by
the Mortgagor of the Mortgage do not, and the performance by the Mortgagor of
its obligations thereunder will not, result in any violation by the Mortgagor
of any laws, rules or regulations of the State which, in our experience,
exercising customary professional diligence, are normally applicable to
transactions of the type contemplated by the Loan Documents.

 

11.                                 A
[               ]
state court of competent jurisdiction or a federal court sitting in the State
of competent jurisdiction and applying conflicts of laws principles of the
State, if properly presented with a choice of law issue, will honor the choice
of New York law to govern the Credit Agreement, the Notes and the Mortgage that
state such documents shall be governed by the laws of the State of New York.

 

12.                                 The Lenders and the Collateral
Agent are not required to qualify to transact business in the State nor will
they incur any tax imposed by the State (including without limitation, any tax
imposed by the State on interest or on revenue paid in respect of the
obligations secured by the Mortgage), nor is any approval, authorization,
license, permit, declaration, consent or order of, exemption by, or
registration, recording, notice or filing with, any Governmental Authority of
the State required with respect to the Collateral Agent or any Lender, solely as
a result of the transaction to which this opinion letter refers, or the
execution, recording or holding by the Collateral Agent or any Lender of the
Mortgage or the indebtedness or other obligations secured thereby, or the
creation or perfection of the Liens pursuant to the Mortgage.  However, we express no opinion as to the
necessity of qualifying to transact business

 

3

 

in the State of (i) as
a result of other business transactions by the Lenders or the Collateral Agent
in the State, or (ii) if the beneficiary under the Mortgage acquires,
holds, and operates any portion of the real property described in the Mortgage
by foreclosure sale, by deed in lieu of foreclosure, or otherwise, or if such
beneficiary operates such real property itself or through an agent or
independent contractor.

 

13.                                 The Mortgage contains the terms
and provisions necessary to enable the Collateral Agent (or the Trustee named
therein, as applicable) following a default under the Mortgage, to exercise the
essential rights and remedies which are customarily available to a real estate
lienholder under the laws of the State.

 

14.                                 The laws (statutory or
otherwise) of the State do not require a lienholder to make an election of
remedies where such lienholder holds a Lien on both the real and personal
property of a debtor or require a lienholder to take recourse first or solely
against its collateral located in the State.

 

15.                                 The Loans evidenced by the Notes
and the Credit Agreement will not violate any applicable usury laws of the
State, or other applicable laws of the State regulating the interest rate, fees
and other charges that may be collected with respect to the Loans.

 

The foregoing
opinions are subject to the following additional assumptions and
qualifications:

 

[add appropriate qualifications, if any].

 

This opinion letter
is given solely for the benefit and use of you and your counsel in connection
with the transactions contemplated by the Loan Documents and may not, without
our prior written consent, be (a) relied upon or furnished to any Person
other than you and your counsel and Persons who become Lenders after the date
hereof and their counsel, or (b) relied upon by you and your counsel or
such Lenders and their counsel for any other purpose.

 

Very truly yours,

 

4

 

EXHIBIT D

SECURITY INSTRUMENTS

 

1)                                      Guaranty and Pledge Agreement
among Whittier Energy Corporation, the other Obligors and BNP Paribas.

 

2)                                      Guaranty Agreement Financing Statements

 

(a)                                  Whittier Energy Corporation

 

(b)                                 RIMCO Production Company Inc.

 

(c)                                  Whittier Energy Company

 

3)                                      Stock powers and certificates
for:

 

(a)                                  Whittier Energy Company

 

(b)                                 Whittier Operating Inc.

 

(c)                                  RIMCO Production Company Inc.

 

(d)                                 Vaquero Gas Company,
Incorporated

 

4)                                      Deed of Trust, Fixture Filing,
Assignment of As-Extracted Collateral, Security Agreement and Financing
Statement from Whittier Energy Company in favor of BNP Paribas, as Mortgagee
and Administrative Agent. (Texas)

 

5)                                      Deed of Trust, Fixture Filing,
Assignment of As-Extracted Collateral, Security Agreement and Financing
Statement from RIMCO Production Company, Inc., in favor of BNP Paribas, as
Mortgagee and Administrative Agent. (Texas)

 

6)                                      Deed of Trust, Fixture Filing,
Assignment of As-Extracted Collateral, Security Agreement and Financing
Statement from Vaquero Gas Company, Incorporated, in favor of BNP Paribas, as
Mortgagee and Administrative Agent. (Texas)

 

7)                                      Deed of Trust, Mortgage, Line of
Credit Mortgage Assignment, Security Agreement, Fixture Filing and Financing
Statement from RIMCO Production Company, Inc. in favor of BNP Paribas, as
Mortgagee and Administrative Agent. (New Mexico)

 

8)                                      Mortgage, Fixture Filing,
Assignment of As-Extracted Collateral, Security Agreement and Financing
Statement from Whittier Energy Company in favor of BNP Paribas, as Mortgagee
and Administrative Agent. (Louisiana)

 

9)                                      Mortgage, Fixture Filing,
Assignment of As-Extracted Collateral, Security Agreement and Financing
Statement from RIMCO Production Company, Inc., in favor of BNP Paribas, as
Mortgagee and Administrative Agent. (Louisiana)

 

1

 

10)                                Mortgage, Fixture Filing,
Assignment of As-Extracted Collateral, Security Agreement and Financing Statement
from Whittier Operating, Inc., in favor of BNP Paribas, as Mortgagee and
Administrative Agent. (Louisiana)

 

11)                                UCC-1s, with respect to items 4
through 10, filed with Nevada (for Whittier Energy Company), Delaware (for
RIMCO Production Company, Inc.), Texas (for Vaquero Gas Company,
Incorporated and Whittier Operating, Inc.) or Louisiana (Fixture filings
for Louisiana mortgages (items 8 through 10))

 

2

 

EXHIBIT E

FORM OF ASSIGNMENT AND ASSUMPTION

 

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

 

For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Administrative Agent as contemplated below (i) all of the Assignor’s
rights and obligations in its capacity as a Lender under the Credit Agreement
and any other documents or instruments delivered pursuant thereto to the extent
related to the amount and percentage interest identified below of all of such
outstanding rights and obligations of the Assignor under the respective
facilities identified below (including any guarantees included in such
facilities) and (ii) to the extent permitted to be assigned under
applicable law, all claims, suits, causes of action and any other right of the
Assignor (in its capacity as a Lender) against any Person, whether known or
unknown, arising under or in connection with the Credit Agreement, any other
documents or instruments delivered pursuant thereto or the loan transactions
governed thereby or in any way based on or related to any of the foregoing,
including contract claims, tort claims, malpractice claims, statutory claims
and all other claims at law or in equity related to the rights and obligations
sold and assigned pursuant to clause (i) above (the rights and obligations
sold and assigned pursuant to clauses (i) and (ii) above being
referred to herein collectively as the “Assigned Interest”).  Such sale and assignment is without recourse
to the Assignor and, except as expressly provided in this Assignment and
Assumption, without representation or warranty by the Assignor.

 

	
  1.

  	
   

  	
  Assignor:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Assignee:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  [and is an Affiliate/Approved Fund of [identify Lender] (2)]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Borrower:

  	
   

  	
  Whittier Energy Corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Administrative Agent:

  	
   

  	
  BNP Paribas, as the administrative agent
  under the Credit Agreement

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Credit Agreement:

  	
   

  	
  The Credit Agreement dated as of June 15,
  2005 among Whittier Energy Corporation, the Lenders parties thereto, and BNP
  Paribas, as Administrative Agent

  

 

(2) Select
as applicable.

 

1

 

	
  6.

  	
   

  	
  Assigned Interest:

  	
   

  	
   

  

 

	
  Commitment Assigned

  	
   

  	
  Aggregate Amount of

  Commitment/Loans for

  all Lenders

  	
   

  	
  Amount of

  Commitment/Loans

  Assigned

  	
   

  	
  Percentage Assigned of

  Commitment/Loans (3)

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  

 

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

 

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

 

	
   

  	
  ASSIGNOR

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  

 

(3) Set forth, to at least 9 decimals, as a percentage of the
Commitment/Loans of all Lenders thereunder.

 

2

 

	
  [Consented to and](4) Accepted:

  	
   

  
	
   

  	
   

  
	
  BNP PARIBAS, as

  Administrative Agent

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
  [Consented to:]
  (5)

  	
   

  
	
   

  	
   

  
	
  WHITTIER ENERGY
  CORPORATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Title:

  	
   

  

 

(4) To be
added only if the consent of the Administrative Agent is required by the terms
of the Credit Agreement.

(5) To be
added only if the consent of the Borrower and/or other parties is required by
the terms of the Credit Agreement.

 

3

 

ANNEX 1

 

WHITTIER ENERGY CORPORATION
$200 MILLION REVOLVING LOAN

 

STANDARD TERMS AND CONDITIONS
FOR

ASSIGNMENT AND ASSUMPTION

 

1.  Representations
and Warranties.

 

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

 

1.2.  Assignee.  The Assignee (a) represents and warrants
that (i) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Assumption and to consummate
the transactions contemplated hereby and to become a Lender under the Credit
Agreement, (ii) it satisfies the requirements, if any, specified in the
Credit Agreement that are required to be satisfied by it in order to acquire
the Assigned Interest and become a Lender, (iii) from and after the
Effective Date, it shall be bound by the provisions of the Credit Agreement as
a Lender thereunder and, to the extent of the Assigned Interest, shall have the
obligations of a Lender thereunder, (iv) it has received a copy of the
Credit Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 8.01 thereof, as applicable, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Assumption and to
purchase the Assigned Interest on the basis of which it has made such analysis
and decision independently and without reliance on the Administrative Agent or
any other Lender, and (v) if it is a Foreign Lender, attached to the
Assignment and Assumption is any documentation required to be delivered by it
pursuant to the terms of the Credit Agreement, duly completed and executed by
the Assignee; and (b) agrees that (i) it will, independently and
without reliance on the Administrative Agent, the Assignor or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Documents, and (ii) it will perform in accordance with
their terms all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender.

 

2.   Payments.    From and after the Effective Date, the
Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignor for amounts which have accrued to but excluding the Effective Date
and to the Assignee for amounts which have accrued from and after the Effective
Date.

 

3.  General
Provisions. This Assignment and Assumption shall be binding upon, and inure
to the benefit of, the parties hereto and their respective successors and
assigns.  This Assignment and Assumption
may be executed in any number of counterparts, which together shall constitute
one instrument.  Delivery of an executed
counterpart of a signature page of this

 

 

Assignment and Assumption by telecopy shall be effective as delivery of
a manually executed counterpart of this Assignment and Assumption.  This Assignment and Assumption shall be
governed by, and construed in accordance with, the law of the State of Texas.

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