CREDIT AGREEMENT

Exhibit 10.1

 

CREDIT AGREEMENT

 

TX ENERGY SERVICES, LLC,

C.C. FORBES, LLC

and

SUPERIOR TUBING TESTERS, LLC,

as Borrowers

and

FORBES ENERGY SERVICES LLC,

a Guarantor

CITIBANK, N.A. ,

as Lender

 

$20,000,000 Revolving Credit Facility

April 10, 2008

 

TABLE OF CONTENTS

 

 

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CREDIT AGREEMENT

THIS CREDIT AGREEMENT is made as of April 10, 2008, by and among TX ENERGY SERVICES, LLC, a Delaware limited liability company (“ TX Energy ”), C.C. FORBES, LLC, a Delaware limited liability company (“ C.C. Forbes ”), and SUPERIOR TUBING TESTERS, LLC, a Delaware limited liability company (“ Superior ”) (“ TX Energy ”, C.C. Forbes and Superior collectively, the “ Borrowers ”, and individually, a “ Borrower ”), FORBES ENERGY SERVICES LLC, a Delaware limited liability company (the “ Parent ”) as a Guarantor, and CITIBANK, N.A., a national association (“ Lender ”).

W I T N E S S E T H:

In consideration of the mutual covenants and agreements contained herein in consideration of the loans which may hereafter be made by Lender and the Letters of Credit which may be made available by Lender to Borrowers, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I - Definitions and References

Section 1.1. Defined Terms . As used in this Agreement, each of the following terms has the meaning given to such term in this Section 1.1 or in the sections and subsections referred to below:

“ Accounts ” means all present and future rights of a Person to payment for goods sold or leased or for services rendered (except those evidenced by instruments or chattel paper), whether now existing or hereafter arising and wherever arising and whether or not earned by performance, and “ Account Debtor ” means the Person which is obligated on any Account.

“ Adjusted Base Rate ” means, on any day, the Base Rate for such day plus the Applicable Margin for such day, provided that the Adjusted Base Rate charged by any Person shall never exceed the Highest Lawful Rate.

“ Adjusted Libor Rate ” means, for any Libor Loan for any day during any Interest Period therefor, the rate per annum equal to the sum of (a) the Applicable Margin for such day plus (b) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Lender to be equal to the quotient obtained by dividing (i) the Libor Rate for such Libor Loan for such Interest Period by (ii) 1 minus the Reserve Requirement for such Libor Loan for such Interest Period, provided that no Adjusted Libor Rate charged by any Person shall ever exceed the Highest Lawful Rate. The Adjusted Libor Rate for any Libor Loan shall change whenever the Applicable Margin or the Reserve Requirement changes.

“ 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. As used herein, “ 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 and “ controlled ” has the meaning correlative thereto.

 

CREDIT AGREEMENT – Page 4

“ Agreement ” means this Credit Agreement.

“ Applicable Margin ” shall mean, on any day the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Leverage Ratio on the last day of the most recent Fiscal Quarter of Parent or any New Parent, whichever is then the ultimate parent company, and its Consolidated Subsidiaries:

Applicable Margin

 

The Applicable Margin shall be established as of the last day of each Fiscal Quarter of Parent or any New Parent, whichever is then the ultimate parent company, (each, a “ Determination Date ”). Any change in the Applicable Margin following each Determination Date shall be determined based upon the information and computations set forth in the financial statements and Compliance Certificate furnished to Lender pursuant to Section 6.2(b), subject to review and approval of such computations by Lender. Each change in the Applicable Margin shall be effective as of the first day of the calendar mouth following each Determination Date, and shall remain in effect until the date that is the first day of the calendar month following the next Determination Date for which a change in the Applicable Margin occurs; provided, however , if Parent or any New Parent, whichever is then the ultimate parent company, shall fail to deliver any required financial statements or Compliance Certificate within the time period required by Section 6.2(b), the Applicable Margin shall be the highest percentage amount as set forth in the above table until the appropriate financial statements and related Compliance Certificate are so delivered. The Applicable Rate in effect from the date hereof through the date on which the next Compliance Certificate is delivered or to be delivered pursuant to Section 6.2(b) shall be determined based upon Pricing Level 3.

“ Base Rate ” means the higher of (a) the variable per annum rate of interest so designated from time to time by Lender as its “prime rate”, and (b) the Federal Funds Rate plus one-half percent (0.5%) per annum. The “prime rate” is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. Changes in the Base Rate resulting from changes in the “prime rate” shall take place immediately without notice or demand of any kind.

“ Base Rate Loan ” means a Loan that bears interest at the Adjusted Base Rate.

“ Beneficial Owner ” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular

 

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“person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

“ Borrower ” and “ Borrowers ” have the meanings set forth in the introductory paragraph hereto.

“ Borrowing ” means a borrowing of new Loans of a single Type (and, in the case of Libor Loans, with the same Interest Period) pursuant to Section 2.2 or a Continuation or Conversion of existing Loans into a single Type (and, in the case of Libor Loans, with the same Interest Period) pursuant to Section 2.3.

“ Borrowing Base ” means, at any particular time eighty percent (80%)  of Eligible Accounts; provided, however, that (a) only Collateral for which Borrower’s representations and warranties under this Agreement and the other Loan Documents are true and correct at the time of calculation shall be included in the aggregate Borrowing Base, (b) if Lender at any time determines a method of valuation of Eligible Accounts overstates the actual fair market value thereof at the time, upon notice to Borrower, Lender may recalculate those values to fair market value, and (c) in no event shall the Borrowing Base ever exceed the Maximum Credit Amount.

“ Borrowing Base Certificate ” means a certificate substantially in the form attached hereto as Exhibit E, appropriately completed, together with a reasonably detailed aged schedule of all Accounts as of the date specified in such certificate, listing face amounts and dates of invoices of each such Account and the name and address of each Account Debtor obligated on such Account (and, upon reasonable advance request of Lender, copies of invoices, credit reports, export credit insurance, letters of credit and any other matters and information relating to the Eligible Accounts).

“ Borrowing Base Deficiency ” has the meaning given to such term in Section 2.7(c).

“ Borrowing Notice ” means a written or telephonic request, or a written confirmation, made by Borrower which meets the requirements of Section 2.2.

“ Business Day ” means a day, other than a Saturday or Sunday, on which commercial banks are open for business with the public in Houston, Texas. Any Business Day in any way relating to Libor Loans (such as the day on which an Interest Period begins or ends) must also be a day on which, in the judgment of Lender, significant transactions in dollars are carried out in the interbank eurocurrency market.

“ Capital ” means Forbes Energy Capital Inc., a Delaware corporation.

“ Capital Expenditures ” means all expenditures and liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions, or additions thereto which have a useful life of more than one year, including the direct or indirect acquisition of such assets by way of increased product or service charges, offset items or otherwise the principal portion of payments with respect to Capital Lease Obligations.

 

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“ Capital Lease ” means a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

“ Capital Lease Obligation ” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the stated maturity shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.

“ Cash Equivalents ” means Investments in:

(a) marketable obligations, maturing within twelve months after acquisition thereof, issued or unconditionally guaranteed by the United States of America or an instrumentality or agency thereof and entitled to the full faith and credit of the United States of America;

(b) demand deposits, and time deposits (including certificates of deposit) maturing within twelve months from the date of deposit thereof, with any office of Lender;

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

(d) open market commercial paper, maturing within 270 days after acquisition thereof, which are rated at least P-1 by Moody’s or A-1 by S & P; and

(e) money market or other mutual funds (i) that are rated AA or better by S&P or (ii) substantially all of the assets of which comprise securities of the types described in subsections (a) through (d) above.

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

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

(a) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of either (a) any New Parent and its Subsidiaries taken as a whole or (b) the Parent and its Subsidiaries taken as a whole, in either case, to any “person” (as that term is used in Section 13(d) of the Exchange Act) other than the Permitted Holders;

(b) the adoption of a plan relating to the liquidation or dissolution of any New Parent or the Parent, whichever is then the ultimate parent company;

(c) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any Person, other than a Permitted Holder, becomes the

 

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Beneficial Owner, directly or indirectly, of more than 35% of the Voting Stock of any New Parent or the Parent, whichever is then the ultimate parent company, measured by voting power rather than number of shares;

(d) the consummation of the first transaction (including, without limitation, any merger or consolidation) the result of which is that a Person other than a Permitted Holder becomes the Beneficial Owner, directly or indirectly, of more of the Voting Stock of any New Parent or the Parent, whichever is then the ultimate parent company, (measured by voting power rather than number of shares) than is at the time Beneficially Owned by the Permitted Holders in the aggregate; or

(e) after an initial public offering of any New Parent or the Parent, the first day on which a majority of the members of the Board of Directors of such New Parent of the Parent, as the case may be, are not Continuing Directors.

For the avoidance of doubt, a Change of Control will not be deemed to have occurred solely as a result of the formation of and the transfer of ownership of any Equity Interests of the Parent or any New Parent to any New Parent; provided that none of the events set forth in paragraphs (a) through (e) above have occurred.

“ Closing Date ” means the date on which all of the conditions precedent set forth in Section 4.1 shall have been satisfied or waived.

“ Collatera l” means all property of any kind which is subject to a Lien in favor of Lender or which, under the terms of any Security Document, is purported to be subject to such a Lien, in each case that secures the Secured Obligations.

“ Commitment Fee Rate ” means twenty five one-hundredths of one percent (0.25%).

“ Commitment Period ” means the period from and including the Closing Date until the Maturity Date (or, if earlier, the day on which the obligations of Lender to make Loans hereunder and the obligations of Lender to issue Letters of Credit hereunder have been terminated or the Note first becomes due and payable in full).

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

“ Continuation ” shall refer to the continuation pursuant to Section 2.3 hereof of a Libor Loan as a Libor Loan from one Interest Period to the next Interest Period.

“ Continuation/Conversion Notice ” means a written or telephonic request, or a written confirmation, made by Borrower which meets the requirements of Section 2.3.

 

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“ Continuing Directors ” means, as of any date of determination, any member of the Board of Directors of any New Parent or the Parent, whichever is then the ultimate parent company, who:

(1) was a member of such Board of Directors of the Parent on the Closing Date or was a member of any such New Parent’s Board of Directors on the date such New Parent was required to become a party to this Agreement; or

(2) was nominated for election or appointed or elected to the Board of Directors of any such New Parent or the Parent, whichever is then the ultimate parent company, with the approval of a majority of the Continuing Directors who were members of the Board of Directors of such New Parent or the Parent at the time of such nomination or election.

“ Conversion ” shall refer to a conversion pursuant to Section 2.3 or ARTICLE III of one Type of Loan into another Type of Loan.

“ Default ” means any Event of Default and any default, event or condition which would, with the giving of any requisite notices and the passage of any requisite periods of time to permit the curing of such default, event or condition, constitute an Event of Default.

“ Default Rate ” means, at the time in question (a) with respect to any Base Rate Loan, the rate per annum equal to two percent (2%) above the Adjusted Base Rate then in effect for such Loan and (b) with respect to any Libor Loan, the rate per annum equal to two percent (2%) above the Adjusted Libor Rate then in effect for such Loan, provided in each case that no Default Rate charged by any Person shall ever exceed the Highest Lawful Rate.

“ Determination Date ” has the meaning given to such term in the definition of Applicable Margin.

“ Disclosure Schedule ” means Schedule 1 hereto.

“ Disposition ” or “ Dispose ” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

“ Dividend ” means (a) any dividend or other distribution made by a Restricted Person on or in respect of any Equity Interests in such Restricted Person or any other Restricted Person, or (b) any payment made by a Restricted Person to purchase, redeem, acquire or retire any Equity Interest in such Restricted Person or any other Restricted Person.

“ Eligible Accounts ” means all Accounts of Borrower except the following:

(a) any Account which arises out of a sale to an Account Debtor which is an Affiliate of Borrower.

 

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(b) any Account which has not yet been invoiced or any Account the goods giving rise to which have not been delivered or the services giving rise to which have not been performed, or which otherwise does not represent a completed sale or performance.

(c) any Account balances due or unpaid more than 120 days after its original invoice date or which has an original due date which is more than 120 days after its original invoice date.

(d) any Account owed by an Account Debtor which has asserted any defense or contested any liability with respect to such Account, or any Account which otherwise is or may become subject to any right of set off by the Account Debtor thereof provided that to the extent the Account exceeds the amount of the right of set off, the positive balance shall be included as an Eligible Account.

(e) any Account owed by an Account Debtor more than 50% (in dollar amount) of whose Accounts are not Eligible Accounts on account of clause (c) above.

(f) any Account owed by an Account Debtor which has commenced a voluntary case under the bankruptcy or insolvency laws of any jurisdiction, or made an assignment for the benefit of creditors, or against which a decree or order for relief has been entered by a court in an involuntary case under any bankruptcy or insolvency laws of any jurisdiction, or against which any other petition or other application for relief under any bankruptcy or insolvency laws of any jurisdiction has been filed, or which has suspended business or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs of which Borrower has knowledge.

(g) any Account which arises out of a sale made or services performed outside of the United States or which is owed by an Account Debtor located outside the United States unless (i) supported by an irrevocable letter of credit satisfactory to Lender (as to form, substance and issuer or a domestic confirming bank) that has been delivered to Lender and is directly drawable by Lender or (ii) is insured by foreign export credit insurance from a reputable, third party insurance company reasonably satisfactory to Lender.

(h) any Account the sale for which is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or otherwise contingent on or subject to the fulfillment of any condition.

(i) any Account the Account Debtor of which is the United States or any department, agency or instrumentality thereof unless Borrower duly assigns its rights to payment of such Account to Lender pursuant to the Assignment of Claims Act of 1940, as amended.

(j) any Account to the extent but only to the extent that, but for this clause (j), the Eligible Accounts owed by any Account Debtor and its Affiliates would exceed 25% of the outstanding aggregate principal balance of all Eligible Accounts, in which event the principal balance of the Accounts of such Account Debtor and its Affiliates in excess of 25% shall be not be Eligible Accounts unless approved by Lender in its sole discretion.

(k) any Account owed by an Account Debtor which is also an employee or sales agent or independent contractor directly related to Borrower or any of its Affiliates.

 

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(l) any Account subject to a Lien other than a Permitted Lien.

(m) any Account to the extent not valid, binding and enforceable against the Account Debtor thereof in accordance with its terms.

(n) any Account to the extent not subject to an enforceable and duly perfected first priority Lien (subject to the Permitted Liens) in favor of Lender.

“ Environmental Laws ” means any and all Laws relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

“ Equity Interests ” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

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

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

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

“ Event of Default ” has the meaning given to such term in Section 9.1.

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

“ Excluded Taxes ” means (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or in which its Lending Office is located and (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which Borrower is located.

 

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“ Facility Usage ” means, at the time in question, the aggregate principal amount of outstanding Loans and existing LC Obligations at such time.

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

“ Fiscal Quarter ” means a three-month period ending on March 31, June 30, September 30 or December 31 of any year.

“ Fiscal Year ” means a twelve-month period ending on December 31 of any year.

“ GAAP ” means those generally accepted accounting principles and practices which are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor) and which, in the case of Restricted Persons and their Consolidated Subsidiaries, are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the Initial Financial Statements. If any change in any accounting principle or practice is required by the Financial Accounting Standards Board (or any such successor) in order for such principle or practice to continue as a generally accepted accounting principle or practice, all reports and financial statements required hereunder with respect to any Restricted Person or with respect to any Restricted Person and its Consolidated Subsidiaries may be prepared in accordance with such change, but all calculations and determinations to be made hereunder may be made in accordance with such change only after notice of such change is given to Lender. Notwithstanding the foregoing, for periods as of or prior to December 31, 2007, Borrower’s annual financial statements were prepared on a combined basis.

“ Governmental Authority ” means the government of the United States or any other nation, or of 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 (including any supra-national bodies such as the European Union or the European Central Bank).

“ Guarantor ” means any Person who has guaranteed some or all of the Obligations pursuant to a guaranty listed on the Security Schedule or any other Person who has guaranteed some or all of the Obligations and who has been accepted by Lender as a Guarantor or any Subsidiary of Borrower which now or hereafter executes and delivers a guaranty to Lender pursuant to Section 6.15.

 

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

“ Hedging Obligations ” means, with respect to any specified Person, the obligations of such Person under:

(a) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;

(b) other agreements or arrangements designed to manage interest rates or interest rate risk; and

(c) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.

“ Highest Lawful Rate ” means the maximum nonusurious rate of interest that Lender is permitted under applicable Law to contract for, take, charge, or receive with respect to such Obligations. All determinations herein of the Highest Lawful Rate, or of any interest rate determined by reference to the Highest Lawful Rate, shall be made separately for Lender as appropriate to assure that the Loan Documents are not construed to obligate any Person to pay interest to Lender at a rate in excess of the Highest Lawful Rate applicable to Lender.

“ Indebtedness ” of any Person means Liabilities in any of the following categories (without duplication):

(o) Liabilities for borrowed money;

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

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

(r) Liabilities which (i) would under GAAP be shown on such Person’s balance sheet as a liability, and (ii) are payable more than one (1) year from the date of creation or incurrence thereof (other than reserves for taxes and reserves for contingent obligations);

(s) Liabilities constituting principal under Capital Leases Obligations;

(t) Liabilities arising under conditional sales or other title retention agreements relating to property purchased by such Person;

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

 

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

(w) Liabilities with respect to letters of credit or applications or reimbursement agreements therefor;

(x) Liabilities with respect to banker’s acceptances;

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

(z) Liabilities arising under the Hedging Obligations.

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

“ Indenture ” means that certain Indenture dated as of February 12, 2008 among Parent, Capital, Borrower and Indenture Trustee.

“ Indenture Trustee ” means Wells Fargo Bank, National Association.

“ Independent Director ” means a member of the Board of Directors of any New Parent or the Parent, whichever is then the ultimate parent company, who qualifies as “independent” within the meaning of the listing requirements of either the New York Stock Exchange or Nasdaq Stock Market.

“ Initial Financial Statements ” means the audited annual combined financial statements of Borrower dated as of and for the period ending on December 31, 2007.

“ Intercreditor Agreement ” means that certain Intercreditor and Subordination Agreement dated as of the date hereof between Lender and Indenture Trustee, as collateral agent for the holders of the Senior Secured Notes.

“ Interest Payment Date ” means (a) with respect to each Base Rate Loan, the last day of each calendar quarter, and (b) with respect to each Libor Loan, the last day of the Interest Period that is applicable thereto; provided that the last day of each calendar month shall also be an Interest Payment Date for each such Loan so long as any Event of Default exists under Section 9.1(a) or (b).

“ Interest Period ” means, with respect to each Libor Loan, the period specified in the Borrowing Notice or Continuation/Conversion Notice applicable to such Libor Loan, beginning on and including the date specified in such Borrowing Notice or Continuation/ Conversion Notice (which must be a Business Day), and ending three (3) months thereafter, as Borrower

 

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may elect in such notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) any Interest Period which begins on the last Business Day in a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day in a calendar month; and (c) notwithstanding the foregoing, any Interest Period which would otherwise end after the last day of the Commitment Period shall end on the last day of the Commitment Period (or, if the last day of the Commitment Period is not a Business Day, on the next preceding Business Day).

“ Internal Revenue Code ” means the United States Internal Revenue Code of 1986, as amended from time to time and any successor statute or statutes, together with all rules and regulations promulgated with respect thereto.

“ Investment ” means any investment, made directly or indirectly, in any Person, whether by purchase, acquisition of Equity Interests of another Person, Indebtedness or other obligations or by loan, advance, capital contribution or otherwise and whether made in cash, by the transfer of property, or by any other means.

“ Law ” means any statute, law, regulation, ordinance, rule, treaty, judgment, order, decree, permit, concession, franchise, license, agreement or other governmental restriction of the United States or any state or political subdivision thereof or of any foreign country or any department, province or other political subdivision thereof. Any reference to a Law includes any amendment or modification to such Law, and all regulations, rulings, and other Laws promulgated under such Law.

“ LC Application ” means any application for a Letter of Credit hereafter made by Borrower to Lender.

“ LC Collateral ” has the meaning given to such term in Section 2.13(a).

“ LC Conditions ” has the meaning given to such term in Section 2.8.

“ LC Documents ” means the Continuing Agreement For Letters of Credit, Application for Standby Letters of Credit and any other agreements, certificates, documents, instruments and writings at any time delivered or executed in connection with a Letter of Credit.

“ LC Obligations ” means, at the time in question, the sum of all Matured LC Obligations plus the maximum amounts which Lender might then or thereafter be called upon to advance under all Letters of Credit then outstanding.

“ LC Sublimit ” means $3,000,000.

“ Lender ” means Citibank, N.A., a national association and the successor of Lender as holder of the Note.

“ Lender Schedule ” means Schedule 4 hereto.

 

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“ Lending Office ” means the office or offices of Lender described as such in Schedule 4 or such other office as Lender may from time to time specify to Borrower.

“ Letter of Credit ” means any letter of credit issued by Lender hereunder at the application of Borrower.

“ Letter of Credit Termination Date ” means the date which is seven (7) days prior to the Maturity Date or if such day is not a Business Day, the next preceding Business Day.

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

“ Libor Loan ” means a Loan that bears interest at the Adjusted Libor Rate.

“ Libor Rate ” means, for any Libor Loan within a Borrowing and with respect to the related Interest Period therefor, (a) the interest rate per annum (carried out to the fifth decimal place) equal to the rate determined by Lender to be the offered rate that appears on the page of the Telerate Screen that displays an average British Bankers Association Interest Settlement Rate (such page currently being Telerate Successor Page 3750) for deposits in U.S. dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (b) in the event the rate referenced in the preceding subsection (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum (carried out to the fifth decimal place) equal to the rate determined by Lender to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in U.S. dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (c) in the event the rates referenced in the preceding subsections (a) and (b) are not available, the rate per annum determined by Lender as the rate of interest at which deposits in U.S. dollars (for delivery on the first day of such Interest Period) in same day funds in the approximate amount of the applicable Libor Loan and with a term equivalent to such Interest Period would be offered by its London branch to major banks in the offshore U.S. dollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period.

“ Lien ” means, with respect to any property or assets, any right or interest therein of a creditor to secure Liabilities owed to it or any other arrangement with such creditor which provides for the payment of such Liabilities out of such property or assets or which allows such creditor to have such Liabilities satisfied out of such property or assets prior to the general creditors of any owner thereof, including any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien, mechanic’s or materialman’s lien, or any other charge or encumbrance for security purposes, whether arising by Law or agreement or otherwise, but excluding any right of offset which arises without agreement in the ordinary course of

 

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business. “Lien” also means any filed financing statement, any registration of a pledge (such as with an issuer of uncertificated securities), or any other arrangement or action which would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists.

“ Loan Documents ” means this Agreement, the Note, the Security Documents, the Letters of Credit, the LC Applications, and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith (exclusive of term sheets and commitment letters).

“ Loans ” has the meaning given to such term in Section 2.1.

“ Material Adverse Change ” means a material and adverse change, from the state of affairs presented in the Initial Financial Statements or as represented or warranted in any Loan Document, to (a) the Consolidated financial condition of Parent or any New Parent, whichever is then the ultimate parent company, and its Consolidated Subsidiaries (b) the Consolidated business, assets, operations, properties or prospects, considered as a whole of Parent or any New Parent, whichever is then the ultimate parent company, (c) Borrowers’ and the Guarantors’ ability, taken as a whole, to timely pay the Obligations, or (d) the enforceability of the material terms of any material Loan Documents against the Restricted Persons.

“ Matured LC Obligations ” means all amounts paid by Lender on drafts or demands for payment drawn or made under or purported to be made under any Letter of Credit and all other amounts due and owing to Lender under any LC Application for any Letter of Credit, to the extent the same have not been repaid to Lender (with the proceeds of Loans or otherwise).

“ Maturity Date ” means 12:00 o’clock Noon, Houston, Texas time on April 10, 2012, or such earlier date and time on which the Commitment terminates as provided in this Agreement.

“ Maximum Credit Amount ” means the amount of $20,000,000.

“ Moody’s ” means Moody’s Investors Service, Inc., or its successor.

“ New Parent ” means any one or more new parent companies formed by the owners of the Equity Interests of the Parent which holds directly or indirectly 100% the Equity Interests of the Parent.

“ Note ” has the meaning given to such term in Section 2.1.

“ Obligations ” means all Liabilities from time to time owing by any Restricted Person to Lender under or pursuant to any of the Loan Documents, including all LC Obligations. “Obligation” means any part of the Obligations.

“ Operating Lease ” means any lease (other than a lease constituting a Capital Lease Obligation) of real or personal property.

“ Other Taxes ” has the meaning assigned to such term in Section 3.7(b).

 

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“ Parent ” means Forbes Energy Services LLC, a Delaware limited liability company.

“ Participant ” has the meaning assigned to such term in Section 10.5(b).

“ Permitted Affiliate Lease ” means a lease for any premises or buildings occupied by a Restricted Person on the issue date of the final offering circular dated February 7, 2008 relating to the Senior Secured Notes (the “Final Offering Circular”) that has been entered into with an Affiliate of such a Restricted Person, the terms of which are fully and accurately summarized in all material respects under the caption “Transactions with Related Persons” in the Final Offering Circular, and any amendment, extension or other modification thereto; provided that any such amendment, extension or modification (a) is on terms that are no less favorable to such Restricted Person than those that would have been obtained in a comparable transaction by the Restricted Person with an unrelated Person or, if there is no such comparable transaction, on terms that are fair and reasonable to the Restricted Person, and reflect an arms’-length negotiation as determined by Independent Directors of such Restricted Person or Parent or New Parent, whichever is then the ultimate parent company and (b) is not, in the good faith determination of such Independent Directors materially worse for the Restricted Person.

“ Permitted Affiliate Store Transactions ” means purchases from or returns to the oil field supply store owned by Alice Environmental Services, LP by any Restricted Person, as such transactions are described under “Transactions with Related Persons” in the Final Offering Circular, in each case on terms that are no less favorable to any such Restricted Person than those that would have been obtained in a comparable transaction by any such Restricted Person or, if there is no such comparable transaction, on terms that are fair and reasonable to any such Restricted Person and reflect an arms’-length negotiation as determined by the Independent Directors of such Restricted Person or its Parent or any New Parent, whichever is then the ultimate parent company.

“ Permitted Business ” means any business that is the same as or similar, reasonably related, complimentary or incidental to the business in which the Restricted Persons are engaged on the Closing Date.

“ Permitted Holder ” means (a) John E. Crisp, Charles C. Forbes and Janet L. Forbes and (b) any Affiliate or family member of a Person set forth in clause (a) of this definition.

“ Permitted Investments ” means:

(aa) Cash Equivalents;

(bb) property used in the ordinary course of business of the Restricted Persons;

(cc) current assets arising from the sale or lease of goods and services in the ordinary course of business by the Restricted Persons or from sales permitted under Section 7.5;

(dd) Investments by Borrower in any wholly owned Subsidiary which is a Guarantor;

 

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(ee) the acquisition and holding of Accounts owing to any Restricted Person if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary terms;

(ff) the endorsement of negotiable instruments held for collection in the ordinary course of business;

(gg) making lease, utility and other similar deposits in the ordinary course of business;

(hh) Investments by Parent or any New Parent in the Equity Interests of its Subsidiaries;

(ii) additional Investments by the Restricted Persons in the Equity Interests of Subsidiaries acquired or created after the date hereof;

(jj) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent Accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

(kk) loans and advances made by any Restricted Person in the ordinary course of business to its directors, officers and employees for expenses (including moving expenses related to transfer) incidental to carrying on the business of the Restricted Persons or advances not to exceed $500,000 at any one time outstanding;

(ll) loans made by Restricted Persons to directors, officers and employees the proceeds of which are used by such directors, officers and employees to purchase Equity Interests of any Restricted Person (and extensions, renewals, modifications or replacements of the foregoing to the extent the principal amount thereof is not increased), provided that the aggregate amount of loans made pursuant to this clause (l) shall be approved by Lender in its sole discretion;

(mm) the Investments existing on the date hereof specified in Section 7.8 of the Disclosure Schedule;

(nn) advances and extensions of trade credit in the ordinary course of business;

(oo) other Investments in an aggregate amount not to exceed Five Million Dollars ($5,000,000);

(pp) guarantees constituting, or guarantees of, Indebtedness permitted by this Agreement, including guarantees of Senior Secured Notes;

(qq) any investment resulting from the acquisition of assets or Equity Interests solely in exchange for the issuance of Equity Interests of Parent or any New Parent, whichever is then the ultimate parent company;

(rr) Investments resulting from the receipt of non-cash consideration from a sale of assets not precluded under the Loan Documents; and

 

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(ss) Investments represented by Hedging Obligations.

“ Permitted Liens ” means:

(tt) statutory Liens for taxes, assessments or other governmental charges or levies which are not yet delinquent or which are being contested in good faith by appropriate action and for which adequate accruals have been maintained in accordance with GAAP;

(uu) landlords’, operators’, carriers’, warehousemen’s, repairmen’s, mechanics’, materialmen’s, or other like Liens which do not secure Indebtedness, in each case only to the extent arising in the ordinary course of business and only to the extent securing obligations which are not delinquent or which are being contested in good faith by appropriate proceedings and for which adequate accruals have been maintained in accordance with GAAP;

(vv) minor defects and irregularities in title to any property, so long as such defects and irregularities neither secure Indebtedness nor materially impair the value of such property or the use of such property for the purposes for which such property is held;

(ww) deposits of cash or securities to secure the performance of bids, trade contracts (other than Indebtedness), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(xx) Liens under the Security Documents;

(yy) Liens securing the Senior Secured Notes and obligations under related documentation, which Liens have been relegated to a second priority position pursuant to the Intercreditor Agreement or as to which Lender elects not to take a security interest;

(zz) with respect only to property subject to any particular Security Document, Liens burdening such property which are expressly allowed by such Security Document;

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

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

(ccc) conventional provisions contained in any contracts or agreements affecting properties under which Borrower or any of its Subsidiaries is required immediately before the expiration, termination or abandonment of a particular property to reassign to such Person’s predecessor in title all or a portion of such Person’s rights, titles and interests in and to all or portion of such property;

 

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

(eee) Liens under joint operating agreements, pooling or unitization agreements or similar contractual arrangements arising in the ordinary course of the business of Borrower or its Subsidiaries to secure amounts owing under such agreements and contracts, which amounts are not more than 90 days past due or are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor;

(fff) (i) Liens on fixed or capital assets acquired, constructed or improved by Borrower; provided, that (A) such Liens secure Indebtedness permitted under Section 7.1(f), (B) such Liens and the Indebtedness secured thereby are incurred substantially simultaneously with the acquisition, construction or improvement of such fixed or capital assets or within 180 days thereafter, (C) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (D) the amount of Indebtedness secured thereby is not more than 100% of the purchase price, and (ii) Liens in the nature of precautionary financing statements filed against leased property by lessors holding Capital Lease Obligations included in Indebtedness permitted under Section 7.1;

(ggg) Liens in favor of the Parent or any New Parent, whichever is then the ultimate parent company, or their Subsidiaries;

(hhh) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Parent or any New Parent, whichever is then the ultimate parent company, or their Subsidiaries; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Parent or any New Parent, whichever is then the ultimate parent company, or their Subsidiaries;

(iii) Liens on property (including Equity Interests) existing at the time of acquisition of the property by the Parent or any New Parent, whichever is then the ultimate parent company, or their Subsidiaries; provided that such Liens were in existence prior to, such acquisition, and not incurred in contemplation of, such acquisition;

(jjj) Liens to secure Indebtedness, the incurrence of which is represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Parent or any New Parent, whichever is then the ultimate parent company, or their Subsidiaries in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (q), not to exceed $10,000,000 million at any time outstanding, covering only the assets constructed or acquired with or financed by such Indebtedness;

 

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(kkk) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;

(lll) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other assets relating to such letters of credit and products and proceeds thereof;

(mmm) Liens upon specific items of inventory or other goods and proceeds of the Parent or any New Parent, whichever is then the ultimate parent company, or their Subsidiaries to secure obligations in respect of bankers’ acceptances issued or created for the account of any such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business;

(nnn) Liens securing Hedging Obligations;

(ooo) Liens arising from precautionary UCC financing statements in connection with operating leases or consignment of goods; and

(ppp) Liens incurred in the ordinary course of business of the Parent or any New Parent, whichever is then the ultimate parent company, or their Subsidiaries with respect to obligations that do not exceed $10,000,000 million at any one time outstanding.

“ Permitted Refinancing Indebtedness ” means any Indebtedness of the Parent or any New Parent, whichever is then the ultimate parent company, or their Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge other Indebtedness of Parent or any New Parent, whichever is then the ultimate parent company, or its Subsidiaries (other than intercompany Indebtedness), as the case may be; provided that:

(qqq) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);

(rrr) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged;

(sss) if the Indebtedness being extended, renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the Senior Secured Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Senior Secured Notes on terms at least as favorable, taken as a whole, to the holders of Senior Secured Notes as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; and

 

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(ttt) such Indebtedness is incurred either by Parent or any New Parent, whichever is then the ultimate parent company, or its Subsidiary which is the obligor on the Indebtedness being extended, renewed, refunded, refinanced, replaced, defeased or discharged.

“ Permitted Tax Distributions ” means:

(uuu) with respect to each tax year or portion thereof that the Parent or any New Parent, whichever is then the ultimate parent company, qualifies (or any predecessor in interest qualified) to be treated as a partnership not taxable as a corporation, a grantor trust, a disregarded entity, an “S” corporation or a qualified subchapter “S” subsidiary for U.S. federal income tax purposes or subject to treatment on a comparable basis for purposes of state, local or foreign tax law (a “Flow Through Entity”), the distribution by the Parent or any New Parent to the holders of its Equity Interests of an amount equal to the product of (x) the amount of aggregate net taxable income of the Parent or any New Parent allocated to the holders of its Equity Interests for such period and (y) the Presumed Tax Rate for such period; provided that to the extent that the aggregate net taxable income of the Parent or any New Parent for a taxable year actually reported to the holders of the Equity Interests is less than the aggregate net taxable income assumed in calculating such amounts for a taxable year, the holders of such Equity Interests can return an amount equal to the product of such shortfall and the Presumed Tax Rate used in such calculations, or an amount equal to such product shall be deducted from the next scheduled Permitted Tax Distributions payable to such holders for later years; and

(vvv) if the Parent or any New Parent is not a Flow Through Entity, the payment of the combined federal, state and local income taxes that would be paid by such entity if it were a separate Delaware corporation filing separate federal, state and local income tax returns with respect to its taxable income for such period (or, to the extent applicable because there are corporate subsidiaries, if it were the common parent of an affiliated group filing consolidated or combined returns with respect to the taxable income of such entity, the Parent or any New Parent, whichever is then the ultimate parent company, and their consolidated corporate subsidiaries for such period).

For purposes of such computation, it will be assumed that any net operating loss carryforwards or other carryforwards or tax attributes, such as alternative minimum tax carryforwards, that arise in any period will be available to offset taxable income payable in later years (regardless of any change in status as a Flow Through Entity). Notwithstanding anything to the contrary, for purposes of clause (b) above, the applicable taxable income or taxes shall not include taxable income or taxes resulting from any change in the status from a Flow Through Entity to an entity taxable as a corporation.

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

“ Presumed Tax Rate ” means 39.6% or, if there is a change in applicable federal, state or local tax rates, such other rate as the chief financial officer of the Parent or any New Parent,

 

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whichever is then the ultimate parent company, certifies in writing to the Lender to be a reasonable approximation of the highest, net marginal federal, state and local income taxation rates payable by the holders of Equity Interests of the Parent or any New Parent, as applicable, or with respect to the aggregate net taxable income.

“ Regulation D ” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect.

“ Reserve Requirement ” means, at any time, the maximum rate at which reserves (including any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against “Eurocurrency liabilities” (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the Adjusted Libor Rate is to be determined, or (b) any category of extensions of credit or other assets which include Libor Loans.

“ Responsible Officer ” means, with respect to Borrower, the Chief Executive Officer, President or Chief Financial Officer of Borrower, and with respect to any other Restricted Person, if such Restricted Person is a limited liability company, a Manager of such Restricted Person, and if such Restricted Person is a corporation, the President or Chief Financial Officer of such Restricted Person.

“ Restricted Person ” means any of Borrower, each Subsidiary of Parent or New Parent, if applicable, and each Guarantor.

“ S & P ” means Standard & Poor’s Ratings Services (a division of The McGraw Hill Companies), or its successor.

“ SEC ” means the U.S. Securities and Exchange Commission or any successor commission or agency.

“ Secured Obligations ” means all Obligations.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder.

“ Security Documents ” means all security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing statements, continuation statements, extension agreements and other agreements or instruments now, heretofore, or hereafter delivered by any Restricted Person to Lender in connection with this Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Obligations or the performance of any Restricted Person’s other duties and obligations under the Loan Documents.

“ Security Schedule ” means Schedule 2 hereto.

 

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“ Senior Secured Notes ” means the 11% Senior Secured Notes initially issued pursuant to that Indenture and any exchange notes issued pursuant thereto.

“ Senior Secured Notes Offering ” means the private placement of $205,000,000 of the Senior Secured Notes (or such other amount as Borrower, Lender and an initial purchaser of the Senior Secured Notes may agree).

“ Subordinated Indebtedness ” means any secured or unsecured Indebtedness of Parent or Borrower which expressly contains in the instruments evidencing such Indebtedness or in the indenture or other similar instrument under which it is issued (which indenture or other similar instrument shall be binding on all holders of such Indebtedness) subordination provisions (in form and substance satisfactory to Lender in its sole discretion) substantially to the effect that the holder agrees that the Indebtedness evidenced by such instrument, and any renewals or extensions thereof, shall at all times and in all respects be subordinate and junior in right of payment to the Obligations.

“ Subsidiary ” means, with respect to any Person, any corporation, association, partnership, limited liability company, joint venture, or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) owned more than fifty percent (50%) by such Person or which shares of interests having ordinary voting power (other than Equity Interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned by such Person.

“ Taxes ” has the meaning given to such term in Section 3.7(a).

“ Termination Event ” means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Section 4043(c)(5) or (6) of ERISA or (ii) any other reportable event described in Section 4043(c) of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) or 4043(b)(4) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an ERISA Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a termination under Section 4041(c) of ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA Plan.

“ Threshold Amount ” means $500,000.

“ Tribunal ” means any government, any arbitration panel, any court or any governmental department, commission, board, bureau, agency or instrumentality of the United States of America or any state, province, commonwealth, nation, territory, possession, county, parish, town, township, village or municipality, whether now or hereafter constituted or existing.

“ Type ” means, with respect to any Loans, the characterization of such Loans as either Base Rate Loans or Libor Loans.

 

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“ UCC ” means the Uniform Commercial Code in effect in the State of New York from time to time.

“ Voting Stock ” of any specified Person as of any date means the Equity Interests of such Person that is at the time entitled to vote in the election of the directors, managers or trustees, as applicable of such Person or that is convertible into such voting Equity Interests.

“ Weighted Average Life to Maturity “ means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

(www) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by

(xxx) the then outstanding principal amount of such Indebtedness.

Section 1.2. Exhibits and Schedules; Additional Definitions . All Exhibits and Schedules attached to this Agreement are a part hereof for all purposes. Reference is hereby made to the Security Schedule for the meaning of certain terms defined therein and used but not defined herein, which definitions are incorporated herein by reference.

Section 1.3. Terms Generally; References and Titles . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “ include ,” “ includes ” and “ including ” shall be deemed to be followed by the phrase “without limitation.” The word “ will ” shall be construed to have the same meaning and effect as the word “ shall .” Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “ herein ,” “ hereof ” and “ hereunder ,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time and (f) the words “ asset ” and “ property ” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. References to any document, instrument, or agreement (a) shall include all exhibits, schedules, and other attachments thereto, and (b) shall include all documents, instruments, or agreements issued or executed in replacement thereof. Titles appearing at the beginning of any subdivisions are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The phrases “this section” and “this subsection” and similar phrases refer

 

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only to the sections or subsections hereof in which such phrases occur. The word “or” is not exclusive. Accounting terms have the meanings assigned to them by GAAP, as applied by the accounting entity to which they refer. References to “days” shall mean calendar days, unless the term “Business Day” is used. Unless otherwise specified, references herein to any particular Person also refer to its successors and permitted assigns.

Section 1.4. Calculations and Determinations . All calculations under the Loan Documents of interest chargeable with respect to Libor Loans and of fees shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 360 days. All other calculations of interest made under the Loan Documents shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 360 days. Each determination by Lender of amounts to be paid under ARTICLE III or any matters which are to be determined hereunder by Lender (such as any Libor Rate, Adjusted Libor Rate, Business Day or Interest Period) shall, in the absence of manifest error, be conclusive and binding. Unless otherwise expressly provided herein or unless Lender otherwise consents all financial statements and reports furnished to Lender hereunder for periods ending after the date hereof shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP with respect to Parent or any New Parent, whichever is then the ultimate parent company, and its Subsidiaries on a Consolidated basis.

Section 1.5. Joint Preparation; Construction of Indemnities and Releases . This Agreement and the other Loan Documents have been reviewed and negotiated by sophisticated parties with access to legal counsel and no rule of construction shall apply hereto or thereto which would require or allow any Loan Document to be construed against any party because of its role in drafting such Loan Document. All indemnification and release provisions of this Agreement shall be construed broadly (and not narrowly) in favor of the Persons receiving indemnification or being released.

ARTICLE II - The Loans and Letters of Credit

Section 2.1. Commitments to Lend; Note . Subject to the terms and conditions hereof, Lender agrees to make loans to Borrower (herein called “ Loans ”) upon Borrower’s request from time to time during the Commitment Period, provided that (i) subject to Section 3.3, Section 3.4, and Section 3.6, Loans of the same Type and as part of the same Borrowing, and (ii) after giving effect to such Loans, the Facility Usage does not exceed either the Borrowing Base then in effect or the Maximum Credit Amount taking into account all payments and reductions required by Section 2.7. The obligation of Borrower to repay to Lender the aggregate amount of all Loans made by Lender, together with interest accruing in connection therewith, shall be evidenced by a single promissory note (herein called “ Note ”) made by Borrower payable to the order of Lender in the form of Exhibit A with appropriate insertions. Subject to the terms and conditions hereof, Borrower may borrow, repay and reborrow hereunder. If at any time the outstanding Loans exceeds either the Facility Usage or the Maximum Credit Amount as shown on any Borrowing Base Certificate or as indicated by Lender’s own records, Borrower shall, on the date of the delivery of such Borrowing Base Certificate to Lender or on the date of notice from Lender as to Lender’s records, prepay on the Note such amount as may be necessary to eliminate such excess, plus all accrued but unpaid

 

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interest thereon. The amount of principal owing on the Note at any given time shall be the aggregate principal amount of all Loans theretofore made by Lender minus all payments of principal theretofore received by Lender on the Note. Interest on the Note shall accrue and be due and payable as provided herein. The Note shall be due and payable as provided herein, and shall be due and payable in full on the Maturity Date. The sums advanced under the Note shall be used for general corporate purposes, working capital and issuance of Letters of Credit.

Section 2.2. Requests for New Loans . Borrower must give to Lender written notice of any requested Borrowing of new Loans to be advanced by Lender. Each such notice constitutes a “ Borrowing Notice ” hereunder and must:

(a) specify (i) the aggregate amount of any such Borrowing of new Base Rate Loans and the date on which such Base Rate Loans are to be advanced, or (ii) the aggregate amount of any such Borrowing of new Libor Loans, the date on which such Libor Loans are to be advanced (which shall be the first day of the Interest Period which is to apply thereto), and the length of the applicable Interest Period; and

(b) be received by Lender not later than 12:00 o’clock Noon, Houston, Texas time, on (i) the day on which any such Base Rate Loans are to be made, or (ii) the third Business Day preceding the day on which any such Libor Loans are to be made.

Each such written request or confirmation must be made in the form and substance of the “Borrowing Notice” attached hereto as Exhibit B, duly completed.

Section 2.3. Continuations and Conversions of Existing Loans . Borrower may make the following elections with respect to Loans already outstanding: to convert Base Rate Loans to Libor Loans, to convert Libor Loans to Base Rate Loans on the last day of the Interest Period applicable thereto, and to continue Libor Loans beyond the expiration of such Interest Period by designating a new Interest Period to take effect at the time of such expiration. In making such elections, Borrower may combine existing Loans made pursuant to separate Borrowings into one new Borrowing or divide existing Loans made pursuant to one Borrowing into separate new Borrowings, provided that Borrower may have no more than five (5) Borrowings of Libor Loans outstanding at any time. To make any such election, Borrower must give to Lender written notice (or telephonic notice promptly confirmed in writing) of any such Conversion or Continuation of existing Loans, with a separate notice given for each new Borrowing. Each such notice constitutes a “ Continuation/Conversion Notice ” hereunder and must:

(a) specify the existing Loans which are to be Continued or Converted;

(b) specify (i) the aggregate amount of any Borrowing of Base Rate Loans into which such existing Loans are to be continued or converted and the date on which such Continuation or Conversion is to occur, or (ii) the aggregate amount of any Borrowing of Libor Loans into which such existing Loans are to be continued or converted, the date on which such Continuation or Conversion is to occur (which shall be the first day of the Interest Period which is to apply to such Libor Loans), and the length of the applicable Interest Period; and

 

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(c) be received by Lender not later than 12 o’clock Noon, Houston, Texas time, on (i) the day on which any such Continuation or Conversion to Base Rate Loans is to occur, or (ii) the third Business Day preceding the day on which any such Continuation or Conversion to Libor Loans is to occur.

Each such written request or confirmation must be made in the form and substance of the “Continuation/Conversion Notice” attached hereto as Exhibit C, duly completed. Each such telephonic request shall be deemed a representation, warranty, acknowledgment and agreement by Borrower as to the matters which are required to be set out in such written confirmation. Each Continuation/Conversion Notice shall be irrevocable and binding on Borrower. During the continuance of any Default, Borrower may not make any election to convert existing Loans into Libor Loans or continue existing Loans as Libor Loans. If (due to the existence of a Default or for any other reason) Borrower fails to timely and properly give any Continuation/Conversion Notice with respect to a Borrowing of existing Libor Loans at least three days prior to the end of the Interest Period applicable thereto, such Libor Loans shall automatically be converted into Base Rate Loans at the end of such Interest Period. No new funds shall be repaid by Borrower or advanced by Lender in connection with any Continuation or Conversion of existing Loans pursuant to this section, and no such Continuation or Conversion shall be deemed to be a new advance of funds for any purpose; such Continuations and Conversions merely constitute a change in the interest rate applicable to already outstanding Loans.

Section 2.4. Use of Proceeds . Borrower shall use all Loans in accordance with the uses specified in Section 2.1, to refinance Matured LC Obligations, and provide working capital for its operations and for other general business purposes. Borrower shall use all Letters of Credit, including uses on behalf of other Restricted Persons, for its general corporate purposes. In no event shall the funds from any Loan or any Letter of Credit be used directly or indirectly by any Person for personal, family, household or agricultural purposes or for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any “margin stock” (as such term is defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock. Borrower represents and warrants that Borrower is not engaged principally, or as one of Borrower’s important activities, in the business of extending credit to others for the purpose of purchasing or carrying such margin stock.

Section 2.5. Interest Rates and Fees; Payment Dates; Retroactive Adjustments of Applicable Interest Rates .

(a) Interest Rates . Subject to subsection (b) below, (i) each Base Rate Loan shall bear interest on each day outstanding at the Adjusted Base Rate in effect on such day, and (ii) each Libor Loan shall bear interest on each day during the related Interest Period at the related Adjusted Libor Rate in effect on such day.

(b) Default Rate . If an Event of Default shall have occurred and be continuing under Section 9.1(a), Section 9.1(b), Section 9.1(j)(i), Section 9.1(j)(iii) or Section 9.1(j)(iv), all outstanding Loans shall bear interest at the applicable Default Rate. In addition, if an Event of Default shall have occurred and be continuing (other than under Section 9.1(a), Section 9.1(b),

 

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Section 9.1(j)(i), Section 9.1(j)(iii) or Section 9.1(j)(iv)), Lender may, by notice to Borrower, elect to have the outstanding Loans bear interest at the applicable Default Rate, whereupon such Loans shall bear interest at the applicable Default Rate until the earlier of (i) the first date thereafter upon which there shall be no Event of Default continuing and (ii) the date upon which Lender shall have rescinded such notice.

(c) Commitment Fees . In consideration of Lender’s commitment to make Loans, Borrower will pay to Lender a commitment fee determined on a daily basis by applying the Commitment Fee Rate to the unused portion of the Maximum Credit Amount on each day during the Commitment Period, determined for each such day by deducting from the amount of the Maximum Credit Amount at the end of such day the Facility Usage. This commitment fee shall be due and payable in arrears on the last day of each Fiscal Quarter and at the end of the Commitment Period.

(d) Payment Dates . On each Interest Payment Date relating to Base Rate Loans, Borrower shall pay to Lender all unpaid interest which has accrued on the Base Rate Loans to but not including such Interest Payment Date. On each Interest Payment Date relating to a Libor Loan, Borrower shall pay to Lender all unpaid interest which has accrued on such Libor Loan to but not including such Interest Payment Date.

(e) Retroactive Adjustments of Applicable Interest Rates . If, as a result of any restatement of or other adjustment to the financial statements of Parent or any New Parent, whichever is then the ultimate parent company, and its Consolidated Subsidiaries or for any other reason, Borrower or Lender determines that (i) the Leverage Ratio as calculated by Parent or any New Parent, whichever is then the ultimate parent company, as of any applicable date was inaccurate and (ii) a proper calculation of the Leverage Ratio would have resulted in higher pricing for such period, Borrower shall immediately and retroactively be obligated to pay to Lender promptly on demand by Lender (or, after the occurrence of an actual or deemed entry of an order for relief with respect to Borrower under the Bankruptcy Code of the United States, automatically and without further action by Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This subsection shall not limit the rights of Lender under this Section 2.5 or Section 2.10(a) or under ARTICLE IX. Borrower’s obligations under this subsection shall survive the termination of this Agreement and the other Loan Documents and the repayment of all other Obligations hereunder.

Section 2.6. Optional Prepayments . Borrower may, (a) upon one Business Days’ notice to Lender with respect to any Base Rate Loan and (b) upon three (3) Business Days’ notice to Lender with respect to any Libor Loan, from time to time and without premium or penalty pay amounts outstanding under the Loans, in whole or in part, provided (i) that the aggregate amounts of all partial payments of principal on the Loans equals $250,000 or any higher integral multiple of $250,000, and (ii) that if Borrower pays any Libor Loan on any day other than the last day of the Interest Period applicable thereto, it shall pay to Lender any amounts due under Section 3.5. Each payment of principal under this section shall be accompanied by all interest then accrued and unpaid on the