TABLE OF CONTENTS

 

		Page
ARTICLE I Definitions and Incorporation by Reference		1
Section 1.1	Definitions	1
Section 1.2	Other Definitions	31
Section 1.3	Incorporation by Reference of Trust Indenture Act	32
Section 1.4	Rules of Construction	33
ARTICLE II The Notes		34
Section 2.1	Form, Dating and Terms	34
Section 2.2	Execution and Authentication	39
Section 2.3	Registrar and Paying Agent	40
Section 2.4	Paying Agent to Hold Money in Trust	40
Section 2.5	Holder Lists	40
Section 2.6	Transfer and Exchange	41
Section 2.7	Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S	43
Section 2.8	Mutilated, Destroyed, Lost or Wrongfully Taken Notes	45
Section 2.9	Outstanding Notes	46
Section 2.10	Cancellation	47
Section 2.11	Payment of Interest; Defaulted Interest	47
Section 2.12	Computation of Interest	48
Section 2.13	CUSIP Numbers	48
ARTICLE III Covenants		48
Section 3.1	Payment of Notes	48
Section 3.2	Reports	49
Section 3.3	Incurrence of Indebtedness and Issuance of Preferred Stock	49
Section 3.4	Restricted Payments	53
Section 3.5	Liens	57
Section 3.6	Dividend and Other Payment Restrictions Affecting Subsidiaries	57
Section 3.7	Assets Sales	59
Section 3.8	Transactions with Affiliates	61
Section 3.9	Change of Control	63
Section 3.10	Future Subsidiary Guarantees	65
Section 3.11	Business Activities	65
Section 3.12	Designation of Restricted and Unrestricted Subsidiaries	65
Section 3.13	Maintenance of Office or Agency	65
Section 3.14	Corporate Existence	66
Section 3.15	Payment of Taxes and Other Claims	66
Section 3.16	Compliance Certificate	66
Section 3.17	Further Instruments and Acts	67
Section 3.18	Statement by Officers as to Default	67
Section 3.19	Payments for Consent	67

 

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ARTICLE IV Successor Company		67
Section 4.1	Merger, Consolidation or Sale of Assets	67
ARTICLE V Redemption of Notes		68
Section 5.1	Optional Redemption	68
Section 5.2	Applicability of Article	69
Section 5.3	Election to Redeem; Notice to Trustee	69
Section 5.4	Selection by Trustee of Notes to Be Redeemed	69
Section 5.5	Notice of Redemption	70
Section 5.6	Deposit of Redemption Price	71
Section 5.7	Notes Payable on Redemption Date	71
Section 5.8	Notes Redeemed in Part	71
ARTICLE VI Defaults and Remedies		72
Section 6.1	Events of Default	72
Section 6.2	Acceleration	74
Section 6.3	Other Remedies	74
Section 6.4	Waiver of Past Defaults	75
Section 6.5	Control by Majority	75
Section 6.6	Limitation on Suits	75
Section 6.7	Rights of Holders to Receive Payment	76
Section 6.8	Collection Suit by Trustee	76
Section 6.9	Trustee May File Proofs of Claim	76
Section 6.10	Priorities	76
Section 6.11	Undertaking for Costs	77
Section 6.12	Additional Payments	77
Section 6.13	Waiver of Stay, Extension and Usury Laws	77
ARTICLE VII Trustee		78
Section 7.1	Duties of Trustee	78
Section 7.2	Rights of Trustee	79
Section 7.3	Individual Rights of Trustee	80
Section 7.4	Trustee’s Disclaimer	80
Section 7.5	Notice of Defaults	81
Section 7.6	Reports by Trustee to Holders	81
Section 7.7	Compensation and Indemnity	81
Section 7.8	Replacement of Trustee	82
Section 7.9	Successor Trustee by Merger	83
Section 7.10	Eligibility; Disqualification	83
Section 7.11	Preferential Collection of Claims Against Company	83
ARTICLE VIII Legal Defeasance and Covenant Defeasance		83
Section 8.1	Option to Effect Legal Defeasance or Covenant Defeasance	83
Section 8.2	Legal Defeasance and Discharge	83
Section 8.3	Covenant Defeasance	84

 

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Section 8.4		Conditions to Legal or Covenant Defeasance	85
Section 8.5		Deposited Cash and Government Securities to be Held in Trust; Other Miscellaneous Provisions	86
Section 8.6		Repayment to Company	86
Section 8.7		Reinstatement	87
ARTICLE IX Amendments			87
Section 9.1		Without Consent of Holders	87
Section 9.2		With Consent of Holders	88
Section 9.3		Compliance with Trust Indenture Act	89
Section 9.4		Revocation and Effect of Consents and Waivers	89
Section 9.5		Notation on or Exchange of Notes	90
Section 9.6		Trustee To Sign Amendments	90
ARTICLE X Subsidiary Guarantee			90
Section 10.1		Subsidiary Guarantee	90
Section 10.2		Limitation on Liability; Termination, Release and Discharge	91
Section 10.3		Limitation of Guarantors’ Liability	93
Section 10.4		Contribution	93
ARTICLE XI Satisfaction and Discharge			93
Section 11.1		Satisfaction and Discharge	93
ARTICLE XII Miscellaneous			94
Section 12.1		Trust Indenture Act Controls	94
Section 12.2		Notices	94
Section 12.3		Communication by Holders with other Holders	95
Section 12.4		Certificate and Opinion as to Conditions Precedent	95
Section 12.5		Statements Required in Certificate or Opinion	96
Section 12.6		When Notes Disregarded	96
Section 12.7		Rules by Trustee, Paying Agent and Registrar	96
Section 12.8		Legal Holidays	96
Section 12.9		GOVERNING LAW	97
Section 12.10		No Recourse Against Others	97
Section 12.11		Successors	97
Section 12.12		Multiple Originals	97
Section 12.13		Qualification of Indenture	97
Section 12.14		Severability	97
Section 12.15		No Adverse Interpretation of Other Agreements	97
Section 12.16		Table of Contents; Headings	97
EXHIBIT A	Form of the Note
EXHIBIT B	Form of the Exchange Note
EXHIBIT C	Form of Subsidiary Guarantee

 

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CROSS-REFERENCE TABLE

 

TIA Section		Indenture Section
310(a)(1)		7.10
(a)(2)		7.10
(a)(3)		N.A.
(a)(4)		N.A.
(b)		7.8; 7.10
(c)		N.A.
311(a)		7.11
(b)		7.11
(c)		N.A.
312(a)		2.5
(b)		12.3
(c)		12.3
313(a)		7.6
(b)(1)		7.6
(b)(2)		7.6
(c)		7.6
(d)		7.6
314(a)		3.2; 12.2
(b)		N.A.
(c)(1)		11.4
(c)(2)		11.4
(c)(3)		N.A.
(d)		N.A.
(e)		12.5
315(a)		7.1
(b)		7.5; 12.2
(c)		7.1
(d)		7.1
(e)		6.11
316(a)(last sentence)		12.6
(a)(1)(A)		6.5
(a)(1)(B)		6.4
(a)(2)		N.A.
(b)		6.7
317(a)(1)		6.8
(a)(2)		6.9
(b)		2.4
318(a)		12.1

 

N.A. means Not Applicable.

 

Note:  This Cross-Reference Table shall not, for any purpose, be deemed to be part of this Indenture.

 

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INDENTURE dated as of October 7, 2009, among VENOCO, INC., a Delaware corporation (the “ Company ”), the GUARANTORS (as defined herein) and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as trustee (the “ Trustee ”).

 

Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of (i) the Company’s 11.50% Senior Notes due 2017, issued on the date hereof (the “ Initial Notes ”), (ii) if and when issued, an unlimited principal amount of additional 11.50% Senior Notes due 2017 in a non-registered offering or in a registered offering of the Company that may be offered from time to time subsequent to the Issue Date (the “ Additional Notes ”) and (iii) if and when issued, the Company’s 11.50% Senior Notes due 2017 that may be issued from time to time in exchange for Initial Notes or any Additional Notes in an offer registered under the Securities Act as provided in the Registration Rights Agreement (as hereinafter defined) (the “ Exchange Notes ,” and together with the Initial Notes and Additional Notes, the “ Notes ”).

 

ARTICLE I

 

Definitions and Incorporation by Reference

 

Section 1.1             Definitions .

 

“ Acquired Debt ” means, with respect to any specified Person:

 

(1)           Indebtedness of any other Person existing at the time such other Person was merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and

 

(2)           Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

 

“ Additional Assets ” means:

 

(1)           any assets used or useful in the Oil and Gas Business;

 

(2)           the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or

 

(3)           Capital Stock constituting a minority in any Person that at such time is a Restricted Subsidiary;

 

provided, however , that any such Restricted Subsidiary described in clause (2) or (3) is primarily engaged in the Oil and Gas Business.

 

“ Additional Interest ” has the meaning set forth in the Registration Rights Agreement.  The Trustee shall be under no obligation to determine or calculate the Additional Interest, whether the Additional Interest is due and payable, or to give notice with respect

 

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thereto.  The Trustee may conclusively assume, in the absence of written notice to the contrary from the Company or a Holder or Holders of Notes, that no Additional Interest is due and payable.

 

“ Additional Notes ” has the meaning ascribed to it in the second introductory paragraph of this Indenture.

 

“ Adjusted Consolidated Net Tangible Assets ” means (without duplication), as of the date of determination, the remainder of:

 

(1)           the sum of:

 

(a)           discounted future net revenues from proved oil and gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with Commission guidelines before any provincial, territorial, state, federal or foreign income taxes, as estimated by the Company in a reserve report prepared as of the first day of the fiscal year following the fiscal year for which audited financial statements are available and giving effect to applicable commodity Hedging Obligations, as increased by, as of the date of determination, the estimated discounted future net revenues from

 

(i)            estimated proved oil and gas reserves acquired since such year end, which reserves were not reflected in such year end reserve report, and

 

(ii)           estimated oil and gas reserves attributable to upward revisions of estimates of proved oil and gas reserves since such year end (including previously estimated development costs incurred during the period and the accretion of discount since the prior year end) due to exploration, development or exploitation activities,

 

in each case calculated in accordance with Commission guidelines (utilizing the prices utilized in such year-end reserve reports), and decreased by, as of the date of determination, the estimated discounted future net revenues from

 

(iii)          estimated proved oil and gas reserves produced or disposed of since such year end, and

 

(iv)          estimated oil and gas reserves attributable to downward revisions of estimates of proved oil and gas reserves since such year end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions,

 

in each case calculated on a pre-tax basis and substantially in accordance with Commission guidelines, in each case as estimated by the Company’s petroleum engineers or any independent petroleum engineers engaged by the Company for that purpose; provided, however , that, in the case of each of the determinations made pursuant to clauses (i) through (iv), such increases and decreases shall be as estimated by the Company’s engineers, except that if as a result of such acquisitions, dispositions, discoveries, extensions or revisions, there is a Material

 

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Change, then such increases and decreases in the discounted future net revenues shall be confirmed in writing by an independent petroleum engineer;

 

(b)           the capitalized costs that are attributable to oil and gas properties of the Company and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on the Company’s books and records as of a date no earlier than the date of the Company’s latest available annual or quarterly financial statements;

 

(c)           the Net Working Capital on a date no earlier than the date of the Company’s latest annual or quarterly financial statements; and

 

(d)           the greater of:

 

(i)            the net book value of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest annual or quarterly financial statements, and

 

(ii)           the appraised value, as estimated by independent appraisers, of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest audited financial statements ( provided that the Company shall not be required to obtain such appraisal solely for the purpose of determining this value); minus

 

(2)           the sum of:

 

(a)           Minority Interests;

 

(b)           any net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company’s latest audited financial statements;

 

(c)           to the extent included in (1)(a) above, the discounted future net revenues, calculated in accordance with Commission guidelines (utilizing the prices utilized in the Company’s year end reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto); and

 

(d)           the discounted future net revenues, calculated in accordance with Commission guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the discounted future net revenues specified in (a)(i) above, would be necessary to fully satisfy the payment obligations of the Company and its Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto).

 

If the Company changes its method of accounting from the full cost method to the successful efforts or a similar method of accounting, “ Adjusted Consolidated Net Tangible

 

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Assets ” will continue to be calculated as if the Company were still using the full cost method of accounting.

 

“ Adjusted Net Assets ” of a Guarantor at any date means the amount by which the fair value of the properties and assets of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under its Subsidiary Guarantee, of such Guarantor at such date.

 

“ Affiliate ” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person.  For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control.  For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings.

 

“ Asset Sale ” means:

 

(1)           the sale, lease, conveyance or other disposition of any properties or assets (including by way of a Production Payment or sale and leaseback transaction); provided that the disposition of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by Sections 3.9 and/or 4.1 and not by Section 3.7 ; and

 

(2)           the issuance of Equity Interests in any of the Company’s Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries.

 

Notwithstanding the preceding, the following items will not be deemed to be Asset Sales:

 

(1)           any single transaction or series of related transactions that involves properties or assets having a fair market value of less than $10,000,000;

 

(2)           a transfer of assets between or among any of the Company and its Restricted Subsidiaries;

 

(3)           an issuance or sale of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary;

 

(4)           a disposition of Hydrocarbons or mineral products inventory in the ordinary course of business;

 

(5)           a disposition of obsolete or worn out equipment or equipment that is no longer useful in the conduct of the business of the Company and its Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business;

 

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(6)           dispositions of past due accounts and notes receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof;

 

(7)           the licensing or sublicensing of intellectual property or other general intangibles and licenses, leases or subleases of other property in the ordinary course of business and which do not materially interfere with the business of the Company and its Restricted Subsidiaries;

 

(8)           the sale or transfer (whether or not in the ordinary course of business) of crude oil and natural gas properties or direct or indirect interests in real property; provided , that at the time of such sale or transfer such properties do not have associated with them any proved reserves;

 

(9)           the farm-out, lease or sublease of developed or undeveloped crude oil or natural gas properties owned or held by the Company or such Restricted Subsidiary in exchange for crude oil and natural gas properties owned or held by another Person;

 

(10)         the sale or other disposition of cash or Cash Equivalents;

 

(11)         a Restricted Payment that is permitted by Section 3.4 or is a Permitted Investment;

 

(12)         any trade or exchange by the Company or any Restricted Subsidiary of oil and gas properties or other properties or assets for oil and gas properties or other properties or assets owned or held by another Person, provided that the fair market value of the properties or assets traded or exchanged by the Company or such Restricted Subsidiary (together with any cash) is reasonably equivalent to the fair market value of the properties or assets (together with any cash) to be received by the Company or such Restricted Subsidiary, and provided further , that any net cash received must be applied in accordance with Section 3.7 ;

 

(13)         the creation or perfection of a Lien (but not the sale or other disposition of the properties or assets subject to such Lien); and

 

(14)         a surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind.

 

“ Attributable Debt ” in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended.  Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP.

 

“ Bankruptcy Law ” means Title 11, United States Code or any similar Federal or state law for the relief of debtors.

 

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

 

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particular “person” (as that term is used in Section 12(d)(3) of the Exchange Act), such “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 upon the occurrence of a subsequent condition.  The terms “ Beneficially Owns ” and “Beneficially Owned” have correlative meanings.

 

“ Board of Directors ” means:

 

(1)           with respect to a corporation, the board of directors of the corporation;

 

(2)           with respect to a partnership, the board of directors of the general partner of the partnership; and

 

(3)           with respect to any other Person, the board or committee of such Person serving a similar function.

 

“ Board Resolution ” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the applicable Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee.

 

“ Business Day ” means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York or another place of payment for the Notes are authorized or required by law to close.

 

“ Capital Lease Obligations ” 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 in accordance with GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation at the time any determination thereof is to be made as determined in accordance with GAAP, and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty.

 

“ Capital Stock ” means:

 

(1)           in the case of a corporation, corporate stock;

 

(2)           in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

 

(3)           in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and

 

(4)           any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

 

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“ Cash Equivalents ” means:

 

(1)           United States dollars;

 

(2)           securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government ( provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than six months from the date of acquisition;

 

(3)           certificates of deposit and Eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers’ acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500,000,000 and a Thomson Bank Watch Rating of “B” or better;

 

(4)           repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;

 

(5)           commercial paper having the highest rating obtainable from Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and in each case maturing within six months after the date of acquisition; and

 

(6)           money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition.

 

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

 

(1)           any “person” or “group” of related persons (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company (or its successor by merger, consolidation or purchase of all or substantially all of its assets) (for the purposes of this clause, such person or group shall be deemed to Beneficially Own any Voting Stock of the Company held by an entity, if such person or group “ Beneficially Owns ”, directly or indirectly, more than 50% of the voting power of the Voting Stock of such entity);

 

(2)           the 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 assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than an entity the majority of the Voting Stock of which is owned by a Permitted Holder; or

 

(3)           the adoption of a plan or proposal for the liquidation or dissolution of the Company.

 

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

 

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“ Commission ” or “SEC” means the Securities and Exchange Commission.

 

“ Comparable Treasury Issue ” means the U.S. Treasury security selected by an Independent Investment Banker as having a maturity most nearly equal to the period from the Redemption Date to October 1, 2013, at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities; provided that if such period is less than one year, then the U.S. Treasury security having a maturity of one year shall be used.

 

“ Comparable Treasury Price ” means, with respect to any Redemption Date, (1) the average of four Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if the Trustee or, at the election of the Trustee, an agent selected by the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations.

 

“ Consolidated Cash Flow ” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus:

 

(1)           an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus

 

(2)           provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus

 

(3)           consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (excluding any interest attributable to Dollar-Denominated Production Payments but including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings), and net of the effect of all payments made or received pursuant to Hedging Obligations, to the extent that any such expense was deducted in computing such Consolidated Net Income; plus

 

(4)           depreciation, depletion and amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period), impairment and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, depletion and amortization, impairment and other non-cash expenses were deducted in computing such Consolidated Net Income; plus

 

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(5)           unrealized non-cash losses resulting from foreign currency balance sheet adjustments required by GAAP to the extent such losses were deducted in computing such Consolidated Net Income; minus

 

(6)           non-cash items increasing such Consolidated Net Income for such period, other than items that were accrued in the ordinary course of business (to the extent included in determining Consolidated Net Income); and minus

 

(7)           the sum of (x) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments and (y) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar- Denominated Production Payments,

 

in each case, on a consolidated basis and determined in accordance with GAAP.

 

“ Consolidated Net Income ” means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

 

(1)           the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included, but only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;

 

(2)           the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, Rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, partners or members;

 

(3)           the cumulative effect of a change in accounting principles will be excluded;

 

(4)           income resulting from transfers of assets (other than cash) between such Person or any of its Restricted Subsidiaries, on the one hand, and an Unrestricted Subsidiary, on the other hand, will be excluded;

 

(5)           any gain (loss) realized upon the sale or other disposition of any property, plant or equipment of such Person or its consolidated Restricted Subsidiaries (including pursuant to any sale and leaseback transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of any Capital Stock of any Person will be excluded;

 

(6)           any extraordinary gain or loss will be excluded;

 

(7)           any asset impairment writedowns on Oil and Gas Properties under GAAP or Commission guidelines will be excluded; and

 

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(8)           any unrealized non-cash gains or losses or charges in respect of hedge or non-hedge derivatives (including those resulting from the application of FAS 133) will be excluded.

 

In addition, notwithstanding the preceding, for the purposes of Section 3.4 only, there shall be excluded from Consolidated Net Income any nonrecurring charges relating to any premium or penalty paid, write-off of deferred finance costs or other charges in connection with redeeming or retiring any Indebtedness prior to its Stated Maturity.

 

“ Company ” has the meaning ascribed to it in the first introductory paragraph of this Indenture.

 

“ Credit Agreement ” means that certain Second Amended and Restated Credit Agreement, dated as of March 30, 2006, among the Company, the Guarantors, the financial institutions parties thereto, Bank of Montreal, as Administrative Agent and Lead Syndication Agent, and Harris Nesbitt Corp., as Lead Arranger, providing for revolving credit borrowings, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced (including through capital markets transactions) from time to time.

 

“ Credit Facilities ” means, (i) the Credit Agreement, (ii) the Term Loan Agreement and (iii) one or more other debt facilities or commercial paper facilities, in case of clause (iii) with banks or other institutional lenders or institutional investors providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, as provided for in one or more agreements or instruments, in each case as amended, restated, modified, supplemented, increased, renewed, refunded, replaced (including replacement after the termination of such credit facility), supplemented, restructured or refinanced (including through capital markets transactions) in whole or in part from time to time in one or more agreements or instruments.

 

“ Custodian ” means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.

 

“ Default ” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

 

“ Definitive Note ” means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.1 hereof, in the form of Exhibit A hereto except that such Note shall not bear the Global Note legend specified in Section 2.1(d)(ii) .

 

“ Disqualified Stock ” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature.  Notwithstanding the preceding sentence, any

 

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Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 3.4 .

 

“ Distribution Compliance Period ” means the 40-day restricted period as defined in Regulation S.

 

“ Dollar-Denominated Production Payments ” means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith.

 

“ Domestic Subsidiary ” means any Restricted Subsidiary of the Company other than a Foreign Subsidiary.

 

“ DTC ” means The Depository Trust Company, its nominees and their respective successors and assigns, or such other depositary institution hereinafter appointed by the Company.

 

“ Equity Interests ” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

 

“ Equity Offering ” means any public or private sale of Capital Stock (other than Disqualified Stock and the sale of Capital Stock upon the exercise of options and other rights under the Company’s equity incentive plans) made for cash on a primary basis by the Company after the date of this Indenture.

 

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

 

“ Exchange Notes ” has the meaning ascribed to it in the second introductory paragraph of this Indenture.

 

“ Existing Indebtedness ” means the aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness incurred under clauses (i), (iii) and (vi) of Section 3.3(b) ) in existence on the date of this Indenture, until such amounts are repaid.

 

“ Fixed Charge Coverage Ratio ” means with respect to any specified Person for any four-quarter reference period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period; provided, however , that:

 

(1)           if the Company or any Restricted Subsidiary:

 

(a)           has incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to

 

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the need to calculate the Fixed Charge Coverage Ratio is an incurrence of Indebtedness, Consolidated Cash Flow and Fixed Charges (taking into account any interest rate agreements applicable to such Indebtedness) for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation will be computed based on (i) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or (ii) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation) and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; or

 

(b)           has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period that is no longer outstanding on such date of determination or if the transaction giving rise to the need to calculate the Fixed Charge Coverage Ratio involves a discharge of Indebtedness (in each case other than Indebtedness incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and the related commitment terminated), Consolidated Cash Flow and Fixed Charges for such period will be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such discharge had occurred on the first day of such period;

 

(2)           if since the beginning of such period the Company or any Restricted Subsidiary will have made any Asset Sale or if the transaction giving rise to the need to calculate the Fixed Charge Coverage Ratio is an Asset Sale:

 

(a)           the Consolidated Cash Flow for such period will be reduced by an amount equal to the Consolidated Cash Flow (if positive) directly attributable to the assets which are the subject of such Asset Sale for such period or increased by an amount equal to the Consolidated Cash Flow (if negative) directly attributable thereto for such period; and

 

(b)           Fixed Charges for such period will be reduced by an amount equal to the Fixed Charges directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Sale for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Fixed Charges for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale);

 

(3)           if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) will have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary or is merged with or into the Company) or

 

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an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, including a single asset or all or substantially all of an operating unit, division or line of business, Consolidated Cash Flow and Fixed Charges for such period will be calculated after giving pro forma effect thereto (including the incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and

 

(4)           if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) will have made any Asset Sale or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, Consolidated Cash Flow and Fixed Charges for such period will be calculated after giving pro forma effect thereto as if such Asset Sale or Investment or acquisition of assets occurred on the first day of such period.

 

For purposes of this definition, whenever pro forma effect is to be given to any calculation under this definition, the pro forma calculations will be determined in the reasonable judgment of a responsible financial or accounting officer of the Company (including pro forma expense and cost reductions and any pro forma expense and cost reductions that have occurred or are reasonably expected to occur, in the reasonable judgment of the chief financial officer of the Company (regardless of whether those cost savings or operating improvements could then be reflected in pro forma financial statements in accordance with Regulation S X promulgated under the Securities Act or any regulation or policy of the Commission related thereto)).  If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness will be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any interest rate agreement applicable to such Indebtedness if such interest rate agreement has a remaining term in excess of 12 months).

 

“ Fixed Charges ” means, with respect to any specified Person for any period, the sum, without duplication, of:

 

(1)           the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (excluding any interest attributable to Dollar-Denominated Production Payments but including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings), and net of the effect of all payments made or received pursuant to Hedging Obligations; plus

 

(2)           the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus

 

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(3)           any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus

 

(4)           all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company; plus

 

(5)           the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness incurred by such plan or trust; provided, however , that there will be excluded therefrom any such interest expense of any Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by the Company or any Restricted Subsidiary;

 

in each case, on a consolidated basis and in accordance with GAAP.

 

“ Foreign Subsidiary ” means any Restricted Subsidiary of the Company that was not formed under the laws of the United States or any state of the United States or the District of Columbia and that conducts substantially all of its operations outside the United States.

 

“ GAAP ” means generally accepted accounting principles in the United States, which are in effect on the date of this Indenture, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession.  All ratios and computations based on GAAP contained in the Indenture will be computed in conformity with GAAP.

 

“ Government Securities ” means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which obligations or guarantee the full faith and credit of the United States of America is pledged.

 

“ Guarantee ” a guarantee, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness and any obligation, direct or indirect, contingent or otherwise, of such Person:

 

(1)           to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); or

 

(2)           entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);

 

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provided, however , that the term “ Guarantee ” will not include endorsements for collection or deposit in the ordinary course of business.  When used as a verb, “guarantee” has a correlative meaning.

 

“ Guarantors ” means each of:

 

(1)           Whittier Pipeline Corporation, TexCal Energy (LP) LLC, TexCal Energy (GP) LLC, TexCal Energy South Texas L.P. and Catco Energy LLC; and

 

(2)           any other Restricted Subsidiary of the Company that becomes a Guarantor in accordance with the provisions of this Indenture;

 

and their respective successors and assigns, in each case, until the Subsidiary Guarantee of such Person has been released in accordance with the provisions of this Indenture.

 

“ Hedging Obligations ” means, with respect to any specified Person, the obligations of such Person incurred in the normal course of business and consistent with past practices and not for speculative purposes under:

 

(1)           interest rate swap agreements, interest rate cap agreements and interest rate collar agreements entered into with one or more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in interest rates with respect to Indebtedness incurred and not for purposes of speculation;

 

(2)           foreign exchange contracts and currency protection agreements entered into with one or more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in currency exchanges rates with respect to Indebtedness incurred and not for purposes of speculation;

 

(3)           any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of oil, natural gas or other commodities used, produced, processed or sold by that Person or any of its Restricted Subsidiaries at the time; and

 

(4)           other agreements or arrangements designed to protect such Person or any of its Restricted Subsidiaries against fluctuations in interest rates, commodity prices or currency exchange rates.

 

“ Holder ” means a Person in whose name a Note is registered.

 

“ Hydrocarbons ” means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom.

 

“ Indebtedness ” means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:

 

(1)           in respect of borrowed money;

 

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(2)           evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

 

(3)           in respect of bankers’ acceptances;

 

(4)           representing Capital Lease Obligations and all Attributable Debt;

 

(5)           representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or

 

(6)           representing any Hedging Obligations,

 

if and to the extent any of the preceding items (other than Attributable Debt, letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP.  In addition, the term “ Indebtedness ” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person (including, with respect to any Production Payment, any warranties or Guarantees of production or payment by such Person with respect to such Production Payment, but excluding other contractual obligations of such Person with respect to such Production Payment).  Subject to the preceding sentence, neither Dollar-Denominated Production Payments nor Volumetric Production Payments shall be deemed to be Indebtedness.

 

The amount of any Indebtedness outstanding as of any date will be:

 

(1)           the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;

 

(2)           in the case of any Hedging Obligation, the termination value of the agreement or arrangement giving rise to such Hedging Obligation that would be payable by such Person at such date; and

 

(3)           the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness.

 

The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date.

 

In addition, “ Indebtedness ” of any Person shall include Indebtedness described in the preceding paragraph that would not appear as a liability on the balance sheet of such Person if:

 

(1)           such Indebtedness is the obligation of a partnership or joint venture that is not a Restricted Subsidiary (a “ Joint Venture ”);

 

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(2)           such Person or a Restricted Subsidiary of such Person is a general partner of the Joint Venture (a “ General Partner ”); and

 

(3)           there is recourse, by contract or operation of law, with respect to the payment of such Indebtedness to property or assets of such Person or a Restricted Subsidiary of such Person; and then such Indebtedness shall be included in an amount not to exceed:

 

(a)           the lesser of (i) the net assets of the General Partner and (ii) the amount of such obligations to the extent that there is recourse, by contract or operation of law, to the property or assets of such Person or a Restricted Subsidiary of such Person; or

 

(b)           if less than the amount determined pursuant to clause (a) immediately above, the actual amount of such Indebtedness that is recourse to such Person or a Restricted Subsidiary of such Person, if the Indebtedness is evidenced by a writing and is for a determinable amount and the related interest expense shall be included in Fixed Charges to the extent actually paid by such Person or its Restricted Subsidiaries.

 

“ Indenture ” means this Indenture as amended or supplemented from time to time.

 

“ Independent Investment Banker ” means UBS Securities LLC and its successors, at the Company’s option, or, if such firm or its successors, if any, are unwilling or unable to select the Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Company.

 

“ Initial Notes ” has the meaning ascribed to it in the second introductory paragraph of this Indenture.

 

“ Investment ” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that endorsements of negotiable instruments and documents in the ordinary course of business shall in each case not be deemed to be an Investment.

 

For purposes of Section 3.4 :

 

(1)           “ Investment ” will include the portion (proportionate to the Company’s Equity Interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market value of the net assets of such Restricted Subsidiary of the Company at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however , that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent “ Investment ” in an Unrestricted Subsidiary in an amount (if positive) equal to (a) the Company’s “ Investment ” in such Subsidiary at the time of such redesignation less (b) the portion (proportionate to the Company’s Equity Interest in such

 

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Subsidiary) of the fair market value of the net assets (as determined by the Board of Directors of the Company in good faith) of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and

 

(2)           any property transferred to or from an Unrestricted Subsidiary will be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors of the Company.

 

If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Voting Stock of any Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such entity is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value (as determined by the Board of Directors of the Company in good faith) of the Capital Stock of such Subsidiary not sold or disposed of.

 

“ Issue Date ” means October 7, 2009.

 

“ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement not intended as a security agreement.

 

“ Make-Whole Price ” means an amount equal to the greater of:

 

(1)           100% of the principal amount of the Notes to be redeemed; and

 

(2)           the sum of the present values of (A) the redemption price of the Notes at October 1, 2013 and (B) the remaining scheduled payments of interest from the Redemption Date to October 1, 2013 (not including any portion of such payments of interest accrued as of the Redemption Date) discounted back to the Redemption Date on a semi-annual basis (assuming a 360 day year consisting of twelve 30 day months) at the Treasury Rate plus 50 basis points,

 

plus, in the case of both (1) and (2), accrued and unpaid interest and Additional Interest, if any, to the Redemption Date.  Unless the Company defaults in payment of the Make-Whole Price, on and after the applicable Redemption Date, interest will cease to accrue on the Notes to be redeemed.

 

“ Material Change ” means an increase or decrease (excluding changes that result solely from changes in prices and changes resulting from the incurrence of previously estimated future development costs) of more than 25% during a fiscal quarter in the discounted future net revenues from proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries, calculated in accordance with clause (1)(a) of the definition of Adjusted Consolidated Net Tangible Assets; provided, however , that the following will be excluded from the calculation of Material Change:

 

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(1)           any acquisitions during the fiscal quarter of oil and gas reserves that have been estimated by independent petroleum engineers and with respect to which a report or reports of such engineers exist; and

 

(2)           any disposition of properties existing at the beginning of such fiscal quarter that have been disposed of in compliance with Section 3.7 .

 

“ Minority Interest ” means the percentage interest represented by any shares of stock of any class of Capital Stock of a Restricted Subsidiary of the Company that are not owned by the Company or a Restricted Subsidiary of the Company.

 

“ Net Cash Proceeds ”, with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale (after taking into account any available tax credits or deductions and any tax sharing arrangements).

 

“ Net Income ” means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:

 

(1)           any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with:  (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and

 

(2)           any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).

 

“ Net Proceeds ” means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of:

 

(1)           all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP (after taking into account any available tax credits or deductions and any tax sharing agreements), as a consequence of such Asset Sale;

 

(2)           all payments made on any Indebtedness which is secured by any assets subject to such Asset Sale, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Sale, or by applicable law be repaid out of the proceeds from such Asset Sale;

 

(3)           all distributions and other payments required to be made to holders of Minority Interests in Subsidiaries or joint ventures as a result of such Asset Sale; and

 

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(4)           the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Sale and retained by the Company or any Restricted Subsidiary after such Asset Sale.

 

“ Net Working Capital ” means (a) all current assets of the Company and its Restricted Subsidiaries except current assets from commodity price risk management activities arising in the ordinary course of business, less (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities included in Indebtedness and any current liabilities from commodity price risk management activities arising in the ordinary course of business, in each case as set forth in the consolidated financial statements of the Company prepared in accordance with GAAP.

 

“ Non-Recourse Debt ” means Indebtedness:

 

(1)           as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) is the lender;

 

(2)           no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and

 

(3)           as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries.

 

“ Non-U.S. Person ” means a person who is not a U.S. person, as defined in Regulation S.

 

“ Notes ” has the meaning ascribed to it in the second introductory paragraph of this Indenture.

 

“ Note Register ” means the register of Notes, maintained by the Registrar, pursuant to Section 2.3.

 

“ Obligations ” means any principal, premium, if any, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization, whether or not a claim for post-filing interest is allowed in such proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement obligations, damages, Guarantees, and other liabilities or amounts payable under the documentation governing any Indebtedness or in respect thereto.

 

“ Officer ” means the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer or the Secretary of the Company.

 

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“ Officers’ Certificate ” means a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company.

 

“ Oil and Gas Business ” means:

 

(1)           the acquisition, exploration, development, operation and disposition of interests in oil, natural gas and other Hydrocarbon properties;

 

(2)           the gathering, marketing, treating, processing (but not refining), storage, selling and transporting (including the ownership and operation of common carrier pipelines) of any production from those interests; and

 

(3)           any activity necessary, appropriate or incidental to the activities described above.

 

“ Opinion of Counsel ” means a written opinion from legal counsel reasonably acceptable to the Trustee.  The counsel may be an employee of or counsel to the Company or the Trustee.

 

“ Permitted Business Investment ” means Investments made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business, including through agreements, transactions, interests or arrangements that permit one to share risk or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties, including without limitation:

 

(1)           direct or indirect ownership of crude oil, natural gas, other related hydrocarbon and mineral properties or any interest therein or gathering, transportation, processing, storage or related systems; and

 

(2)           the entry into operating agreements, joint ventures, processing agreements, working interests, royalty interests, mineral leases, farm-in agreements, farm-out agreements, development agreements, production sharing agreements, area of mutual interest agreements, contracts for the sale, transportation or exchange of crude oil and natural gas and related Hydrocarbons and minerals, unitization agreements, pooling arrangements, joint bidding agreements, service contracts, partnership agreements (whether general or limited), or other similar or customary agreements, transactions, properties, interests or arrangements and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the Oil and Gas Business, excluding, however, Investments in corporations and publicly traded limited partnerships.

 

“ Permitted Holders ” means:

 

(1)           Timothy M. Marquez and Bernadette B. Marquez, individually or as Trustees of the Marquez Trust dated February 26, 2002;

 

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(2)           any beneficiary of the Marquez Trust dated February 26, 2002 or any Person who is of lineal or collateral consanguinity to Timothy M. Marquez or Bernadette B. Marquez; and

 

(3)           entities 80% or more of the Voting Stock of which is directly or indirectly owned by any of the preceding Persons, but only for so long as such Persons directly or indirectly own 80% or more of the Voting Stock of such entities.

 

“ Permitted Investment ” means an Investment by the Company or any Restricted Subsidiary in:

 

(1)            a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary;

 

(2)           another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary;

 

(3)           cash and Cash Equivalents;

 

(4)           receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business;

 

(5)           payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business;

 

(6)           stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments or pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of a debtor;

 

(7)           any acquisition of assets solely in exchange for the issuance of Capital Stock (other than Disqualified Stock) of the Company;

 

(8)           Investments made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 3.7 ;

 

(9)           Investments in existence on the Issue Date and any renewal or replacement thereof on terms and conditions not materially less favorable than that being renewed or replaced;

 

(10)         Hedging Obligations permitted to be incurred in compliance with Section 3.3 ;

 

(11)         any Investment by the Company or any of its Restricted Subsidiaries, together with all other outstanding Investments pursuant to this clause (11), having an aggregate fair market value on the date such Investment was made and without giving effect to any

 

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subsequent change in value, in an amount not to exceed as of the date of such incurrence, the greater of (i) $10,000,000 and (ii) 2½% of Adjusted Consolidated Net Tangible Assets;

 

(12)         Guarantees issued in accordance with Section 3.3 ;

 

(13)         prepaid expenses, surety and performance bonds and lease, tax, utilities, workers’ compensation, performance and similar deposits made in the ordinary course of business;

 

(14)         Investments owned by a Person if and when it is acquired by the Company and becomes a Restricted Subsidiary; provided, however , that such Investments are not made in contemplation of such acquisition;

 

(15)         Permitted Business Investments;

 

(16)         Investments in any units of any oil and gas royalty trust;

 

(17)         advances by the Company or any Restricted Subsidiary to any of its full-time employees for housing loans and for the payment or relocation expenses which do not exceed $2,000,000 at any time outstanding in the aggregate to all employees of the Company and its Restricted Subsidiaries; and

 

(18)         Investments made as a result of the receipt of non-cash consideration from a sale of assets that was made pursuant to and in compliance with clause (12) of the proviso of the definition of “Asset Sale.”

 

“ Permitted Liens ” means, with respect to any Person:

 

(1)           Liens securing Indebtedness incurred under clauses (i) and (xiii) of Section 3.3(b)  and other related obligations of the Company and the Restricted Subsidiaries under Credit Facilities;

 

(2)           pledges or deposits by such Person under workmen’s compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import or customs duties or for the payment of rent, in each case incurred in the ordinary course of business;

 

(3)           Liens imposed by law, including carriers’, warehousemen’s and mechanics’ Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings if a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made in respect thereof;

 

(4)           Liens for taxes, assessments or other governmental charges not yet subject to penalties for nonpayment or which are being contested in good faith by appropriate

 

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proceedings, provided that appropriate reserves required pursuant to GAAP have been made in respect thereof;

 

(5)           Liens in favor of the issuers of surety or performance bonds or letters of credit or bankers’ acceptances issued pursuant to the request of and for the account of such Person in the ordinary course of its business, except to the extent that that such letters of credit relate to trade payables and such obligations are not satisfied within 5 Business Days of such incurrence;

 

(6)           encumbrances, 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 properties or Liens incidental to the conduct of the business of such Person or to the ownership or lease of its properties which 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;

 

(7)           Liens securing Hedging Obligations of the Company and its Restricted Subsidiaries;

 

(8)           leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries;

 

(9)           judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired;

 

(10)         Liens for the purpose of securing the payment of all or a part of the purchase price of, or Capitalized Lease Obligations with respect to, or the repair, improvement or construction cost of, assets or property acquired or repaired, improved or constructed in the ordinary course of business; provided that:

 

(a)           the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be incurred under this Indenture and does not exceed the cost of the assets or property so acquired or repaired, improved or constructed plus fees and expenses in connection therewith; and

 

(b)           such Liens are created within 180 days of repair, improvement, construction or acquisition of such assets or property and do not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto (including improvements);

 

(11)         Liens arising solely by virtue of any statutory or common law provisions relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained or deposited with a depositary institution; provided that:

 

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(a)           such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board; and

 

(b)           such deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depositary institution;

 

(12)         Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business;

 

(13)         Liens not otherwise described in item (1) above existing on the Issue Date;

 

(14)         Liens on property at the time the Company acquired the property, including any acquisition by means of a merger or consolidation with or into the Company; provided, however , that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such acquisition; provided further , however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary;

 

(15)         Liens on property or shares of stock of a Person at the time such Person becomes a Restricted Subsidiary; provided, however , that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming a Restricted Subsidiary; provided further , however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary;

 

(16)         Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Guarantor;

 

(17)         Liens securing the Notes, the Subsidiary Guarantees and other Obligations arising under this Indenture;

 

(18)         Liens securing Permitted Refinancing Indebtedness of the Company or a Restricted Subsidiary incurred to refinance Indebtedness of the Company or a Restricted Subsidiary that was previously so secured; provided that any such Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the Indebtedness being refinanced or is in respect of property or assets that is the security for a Permitted Lien hereunder;

 

(19)         Liens in respect of Production Payments and Reserve Sales;

 

(20)         Liens on pipelines and pipeline facilities that arise by operation of law;

 

(21)         farmout, carried working interest, joint operating, unitization, royalty, sales and similar agreements relating to the exploration or development of, or production from, oil and gas properties entered into in the ordinary course of business;

 

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(22)         Liens reserved in oil and gas mineral leases for bonus or rental payments and for compliance with the terms of such leases;

 

(23)         Liens encumbering assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such assets;

 

(24)         Liens arising under this Indenture in favor of the Trustee for its own benefit and similar Liens in favor of other trustees, agents and representatives arising under instruments governing Indebtedness permitted to be incurred under this Indenture, provided, however, that such Liens are solely for the benefit of the trustees, agents or representatives in their capacities as such and not for the benefit of the holders of the Indebtedness; and

 

(25)         additional Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $10,000,000 at any one time outstanding.

 

“ Permitted Refinancing Indebtedness ” means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that:

 

(1)           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 being extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith);

 

(2)           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 extended, refinanced, renewed, replaced, defeased or refunded;

 

(3)           if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or the Subsidiary Guarantees, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes or the Subsidiary Guarantees on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and

 

(4)           such Indebtedness is not incurred by a Restricted Subsidiary of the Company if the Company is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided, however , that a Restricted Subsidiary that is also a Guarantor may Guarantee Permitted Refinancing Indebtedness incurred by the Company, whether or not such Restricted Subsidiary was an obligor or guarantor of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.

 

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Notwithstanding the preceding, any Indebtedness incurred under Credit Facilities pursuant to Section 3.3 shall be subject only to the refinancing provision in the definition of Credit Facilities and not pursuant to the requirements set forth in the definition of Permitted Refinancing Indebtedness.

 

“ Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

 

“ Preferred Stock ”, as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation.

 

“ Production Payments ” means, collectively, Dollar-Denominated Production Payments and Volumetric Production Payments.

 

“ Production Payments and Reserve Sales ” means the grant or transfer by the Company or a Restricted Subsidiary of the Company to any Person of a royalty, overriding royalty, net profits interest, production payment (whether volumetric or dollar denominated), partnership or other interest in oil and gas properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties, including any such grants or transfers pursuant to incentive compensation programs on terms that are reasonably customary in the oil and gas business for geologists, geophysicists and other providers of technical services to the Company or a Subsidiary of the Company.

 

“ Redemption Date ” when used with respect to any Note to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture.

 

“ Reference Treasury Dealer ” means UBS Securities LLC and three additional primary U.S. government securities dealers in New York City (each a “Primary Treasury Dealer”) selected by the Company, and their respective successors (provided, however, that if any such firm or any such successor, as the case may be, shall cease to be a primary U.S. government securities dealer in New York City, the Company shall substitute therefor another Primary Treasury Dealer).

 

“ Reference Treasury Dealer Quotations ” means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee or, at the election of the Trustee, an agent selected by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee or such agent by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date.

 

“ Registered Exchange Offer ” has the meaning set forth for such term in the Registration Rights Agreement.

 

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“ Registration Rights Agreement ” means that certain exchange and registration rights agreement dated as of the date of this Indenture by and between the Company, the Guarantors and the initial purchasers set forth therein and future registration rights agreements with respect to Additional Notes.

 

“ Restricted Investment ” means an Investment other than a Permitted Investment.

 

“ Restricted Notes ” means Notes bearing the Private Placement Legend.

 

“ Restricted Subsidiary ” of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.

 

“ sale and leaseback transaction ” means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person.

 

“ Secured Indebtedness ” means Indebtedness that is secured by a Lien on the property or assets of the relevant obligor.

 

“ Securities Act ” means the Securities Act of 1933, as amended.

 

“ Senior Debt ” means:

 

(1)           all Indebtedness of the Company or any of its Restricted Subsidiaries outstanding under Credit Facilities and all Hedging Obligations with respect thereto;

 

(2)            any other Indebtedness of the Company or any of its Restricted Subsidiaries permitted to be incurred under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to the Notes or any Subsidiary Guarantee; and

 

(3)           all Obligations with respect to the items listed in the preceding clauses (1) and (2).

 

Notwithstanding anything to the contrary in the preceding sentence, Senior Debt will not include:

 

(a)           any intercompany Indebtedness of the Company or any of its Subsidiaries to the Company or any of its Affiliates; or

 

(b)           any Indebtedness that is incurred in violation of this Indenture.

 

For the avoidance of doubt, “Senior Debt” will not include any trade payables or taxes owed or owing by the Company or any Restricted Subsidiary.

 

“ Significant Subsidiary ” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture.

 

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“ Stated Maturity ” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date scheduled for the payment thereof.

 

“ Subordinated Obligation ” means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement or any Indebtedness of a Guarantor (whether outstanding on the Issue Date or thereafter incurred) which is subordinate or junior in right of payment to the Subsidiary Guarantee pursuant to a written agreement, as the case may be.

 

“ Subsidiary ” of any Person means any corporation, association, partnership, joint venture, limited liability company or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership and joint venture interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person.  Unless otherwise specified herein, each reference to a Subsidiary will refer to a Subsidiary of the Company.

 

“ Subsidiary Guarantee ” means any guarantee by a Guarantor of the Company’s payment Obligations under this Indenture and on the Notes.

 

“ Term Loan Agreement ” means that certain Term Loan Agreement, dated as of May 7, 2007, among the Company, the guarantors parties thereto, the financial institutions parties thereto, Credit Suisse, Cayman Islands Branch, as Administrative Agent, and UBS Securities LLC, as Syndication Agent, as amended, restated, modified, renewed, refunded, replaced or refinanced (including through capital markets transactions) from time to time.

 

“ TIA ” or “ Trust Indenture Act ” means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb), as in effect on the Issue Date.

 

“ Treasury Rate ” means, with respect to any Redemption Date, (1) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated “H. 15(159)” or any successor publication that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded U.S. Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Stated Maturity, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined, and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding to the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue

 

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(expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date.  The Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date.

 

“ Trustee ” means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor.

 

“ Trust Officer ” shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

 

“ Unrestricted Subsidiary ” means:

 

(1)          any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Company in the manner provided below; and

 

(2)           any Subsidiary of an Unrestricted Subsidiary.

 

The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if:

 

(1)           such Subsidiary or any of its Subsidiaries does not own any Capital Stock or Indebtedness of or have any Investment in, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary;

 

(2)           all the Indebtedness of such Subsidiary and its Subsidiaries shall, at the date of designation, and will at all times thereafter, consist of Non-Recourse Debt;

 

(3)           such designation and the Investment of the Company in such Subsidiary complies with Section 3.4 ;

 

(4)           such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries taken as a whole;

 

(5)           such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation:

 

(a)           to subscribe for additional Capital Stock of such Person; or

 

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(b)           to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and

 

(6)           on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company than those that might have been obtained from Persons who are not Affiliates of the Company.

 

Any such designation by the Board of Directors of the Company shall be evidenced for purposes of this Indenture by filing with the Trustee a Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complies with the foregoing conditions.  If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date.

 

The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could incur at least $1.00 of additional Indebtedness under Section 3.3(a)  on a pro forma basis taking into account such designation.

 

“ Volumetric Production Payments ” means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all related undertakings and obligations.

 

“ Voting Stock ” of any Person as of any date means the Capital Stock of such Person that is at the time entitled (without regard to the occurrence of any contingency) to vote in the election of the Board of Directors of such Person.

 

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

 

(1)           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

 

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

 

Section 1.2             Other Definitions .

 

Term		Defined in Section
“Additional Restricted Notes”		2.1(b)
“Affiliate Transaction”		3.8(a)
“Agent Member”		2.1(e)(iii)
“Asset Sale Offer”		3.7(d)

 

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Term		Defined in Section
“Asset Sale Offer Amount”		3.7(e)
“Asset Sale Offer Period”		3.7(e)
“Asset Sale Payment Date”		3.7(e)
“Authenticating Agent”		2.2
“Certificate of Destruction”		2.10
“Change of Control Offer”		3.9
“Change of Control Payment”		3.9
“Change of Control Purchase Date”		3.9
“Change of Control Settlement Date”		3.9
“Company Order”		2.2
“Corporate Trust Office”		3.13
“Covenant Defeasance”		8.3
“Defaulted Interest”		2.11
“Event of Default”		6.1
“Excess Proceeds”		3.7(c)
“Exchange Global Note”		2.1(b)
“Funding Guarantor”		10.4
“General Partner”		1.1 (definition of “ Indebtedness ”)
“Global Notes”		2.1(b)
“incur”		3.3(a)
“Joint Venture”		1.1 (definition of “ Indebtedness ”)
“Legal Defeasance”		8.2
“Payment Default”		6.1(6)(a)
“Paying Agent”		2.3
“Permitted Debt”		3.3(b)
“Private Placement Legend”		2.1(d)
“protected purchaser”		2.8
“QIB”		2.1(b)
“Registrar”		2.3
“Regulation S”		2.1(b)
“Regulation S Global Note”		2.1(b)
“Regulation S Note”		2.1(b)
“Resale Restriction Termination Date”		2.6(a)
“Restricted Payment”		3.4(a)
“Rule 144A”		2.1(b)
“Rule 144A Global Note”		2.1(b)
“Rule 144A Note”		2.1(b)
“Securities Custodian”		2.1(b)
“Special Interest Payment Date”		2.11(a)
“Special Record Date”		2.11(a)
“Successor Company”		4.1

 

Section 1.3             Incorporation by Reference of Trust Indenture Act .  This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture.  The following TIA terms have the following meanings:

 

“ Commission ” means the SEC.

 

“ indenture securities ” means the Notes.

 

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“ indenture security holder ” means a Holder of a Note.

 

“ indenture to be qualified ” means this Indenture.

 

“ indenture trustee ” or “institutional trustee” means the Trustee.

 

“ obligor ” on the Notes means the Company, the Guarantors and any other obligor on the Notes.

 

All other TIA terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by Commission’s Rule have the meanings assigned to them by such definitions.

 

Section 1.4             Rules of Construction .  Unless the context otherwise requires:

 

(1)           a term has the meaning assigned to it;

 

(2)           an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

 

(3)           “or” is not exclusive;

 

(4)           “including” means including without limitation;

 

(5)           words in the singular include the plural and words in the plural include the singular;

 

(6)           the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the Company dated such date prepared in accordance with GAAP; and

 

(7)           the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, in each case, at the date of determination, whichever is greater.

 

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ARTICLE II

 

The Notes

 

Section 2.1             Form, Dating and Terms .

 

(a)           The aggregate principal amount of Notes that may be authenticated and delivered under this Indenture is unlimited.  The Initial Notes issued on the date hereof will be in an aggregate principal amount of $150,000,000.  In addition, the Company may issue, from time to time in accordance with the provisions of this Indenture, including, without limitation, Section 3.3 hereof, Additional Notes and Exchange Notes.  Furthermore, Notes may be authenticated and delivered upon registration or transfer, or in lieu of, other Notes pursuant to Section 2.6 , 2.8 , 2.9 , 5.8 or 9.5 or in connection with an Asset Sale Offer pursuant to Section 3.7 or a Change of Control Offer pursuant to Section 3.9 .

 

With respect to any Additional Notes, the Company shall set forth in a Board Resolution and an Officer’s Certificate, the following information:

 

(1)           the aggregate principal amount of such Additional Notes to be authenticated and delivered pursuant to this Indenture;

 

(2)           the issue price and the issue date of such Additional Notes, including the date from which interest shall accrue; and

 

(3)           whether such Additional Notes shall be Restricted Notes issued in the form of Exhibit A hereto and/or shall be issued in the form of Exhibit B hereto.

 

The Initial Notes, the Additional Notes and the Exchange Notes shall be considered collectively as a single class for all purposes of this Indenture.  Holders of the Initial Notes, the Additional Notes and the Exchange Notes will vote and consent together on all matters to which such Holders are entitled to vote or consent as one class, and none of the Holders of the Initial Notes, the Additional Notes or the Exchange Notes shall have the right to vote or consent as a separate class on any matter to which such Holders are entitled to vote or consent.

 

(b)           The Initial Notes are being offered and sold by the Company pursuant to a Purchase Agreement, dated October 2, 2009, among the Company, the Guarantors, UBS Securities LLC, BMO Capital Markets Corp., Credit Suisse Securities (USA) LLC, RBS Securities Inc. and the other initial purchasers named therein.  The Initial Notes and any Additional Notes (if issued as Restricted Securities) (the “ Additional Restricted Notes ”) will be resold initially only to (A) qualified institutional buyers (as defined in Rule 144A under the Securities Act (“ Rule 144A ”)) in reliance on Rule 144A (“ QIBs ”) and (B) Persons other than U.S. Persons (as defined in Regulation S under the Securities Act (“ Regulation S ”)) in reliance on Regulation S.  Such Initial Notes and Additional Restricted Notes thereafter be transferred to, among others, QIBs and purchasers in reliance on Regulation S in accordance with the procedure described herein.

 

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Initial Notes and Additional Restricted Notes offered and sold to qualified institutional buyers in the United States of America in reliance on Rule 144A (the “ Rule 144A Notes ”) shall be issued in the form of a permanent global Note, without interest coupons, substantially in the form of Exhibit A , which is hereby incorporated by reference and made a part of this Indenture, including appropriate legends as set forth in Section 2.1(d)  (the “ Rule 144A Global Note ”), deposited with the Trustee, as custodian for DTC or its nominee (the “ Securities Custodian ”), duly executed by the Company and authenticated by the Trustee as hereinafter provided.  The Rule 144A Global Note may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount to be represented by a single certificate.  The aggregate principal amount of the Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as Securities Custodian, as hereinafter provided.

 

Initial Notes and Additional Notes offered and sold outside the United States of America (the “ Regulation S Notes ”) in reliance on Regulation S shall be issued in the form of a permanent global Note, without interest coupons, substantially in the form of Exhibit A , including appropriate legends as set forth in Section 2.1(d)  (the “ Regulation S Global Note ”) deposited with the Trustee as Securities Custodian, duly executed by the Company and authenticated by the Trustee as hereinafter provided.  The Regulation S Global Note may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount to be represented by a single certificate.  The aggregate principal amount of the Regulation S Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided.

 

Exchange Notes exchanged for interests in the Rule 144A Notes and the Regulation S Notes will be issued in the form of a permanent global Note, without interest coupons, substantially in the form of Exhibit B , which is hereby incorporated by reference and made a part of this Indenture, deposited with the Trustee as hereinafter provided, including the appropriate legend set forth in Section 2.1(d)  (the “ Exchange Global Note ”).  The Exchange Global Note may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount to be represented by a single certificate.

 

The Rule 144A Global Note, the Regulation S Global Note and the Exchange Global Note are sometimes collectively herein referred to as the “ Global Notes .”

 

If a Holder has given wire transfer instructions to the Company, the Company will, or if the Company is not then the Paying Agent, the Company will cause the Paying Agent to, pay all principal, interest, Additional Interest, if any, and premium, if any, on that Holder’s Notes in accordance with the instructions; all other payments of the principal of (and premium, if any), interest and Additional Interest, if any, on the Notes shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose pursuant to Section 2.3 ; provided, however , that, at the option of the Company, each installment of interest and Additional Interest, if any, may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Note Register.  Payments in respect of Notes represented by a Global Note (including principal, premium and interest and Additional Interest,

 

35

 

if any) will be made by wire transfer of immediately available funds to the accounts specified by DTC.

 

The Notes may have notations, legends or endorsements required by law, stock exchange Rule or usage, in addition to those set forth on Exhibit A and Exhibit B and in Section 2.1(d) .  The Company shall approve the forms of the Notes and any notation, endorsement or legend on them.  Each Note shall be dated the date of its authentication.  The terms of the Notes set forth in Exhibit A and Exhibit B are part of the terms of this Indenture and, to the extent applicable, the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to be bound by such terms.

 

(c)           Denominations .  The Notes shall be issuable only in fully registered form, without coupons, and only in denominations of $1,000 and any integral multiple thereof.

 

(d)           Legends .  Unless and until (i) an Initial Note or an Additional Restricted Note is sold under an effective registration statement or (ii) an Initial Note or an Additional Restricted Note is exchanged for an Exchange Note in connection with an effective registration statement, in each case pursuant to the Registration Rights Agreement or a similar agreement,

 

(i)            the Initial Note or Additional Restricted Note, as the case may be, shall bear the following legend (the “ Private Placement Legend ”) on the face thereof:

 

THE NOTES AND THE GUARANTEES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 OF REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.

 

(ii)           the Initial Note or Additional Restricted Note, as the case may be, shall bear the following legend on the face thereof:

 

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THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTION 1271 ET SEQ. OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS NOTE, (1) THE ISSUE PRICE IS $950.30; (2) THE AMOUNT OF THE ORIGINAL ISSUE DISCOUNT IS $49.70; (3) THE ISSUE DATE IS OCTOBER 7, 2009; AND (4) THE YIELD TO MATURITY IS 12.50% PER ANNUM.

 

(iii)                                The Global Notes, whether or not an Initial Note, shall bear the following legend on the face thereof:

 

“UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“ DTC ”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.”

 

(e)                                   Book-Entry Provisions .

 

(i)                                      This Section 2.1(e)  shall apply only to Global Notes deposited with the Trustee, as custodian for DTC.

 

(ii)                                   Each Global Note initially shall (x) be registered in the name of DTC for such Global Note or the nominee of DTC, (y) be delivered to the Trustee as custodian for DTC and (z) bear legends as set forth in Section 2.1(d).

 

(iii)                                Members of, or participants in, DTC (“ Agent Members ”) shall have no rights under this Indenture with respect to any Global Note held on their behalf by DTC or by the Trustee as the custodian of DTC or under such Global Note, and DTC may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever.  Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification,

 

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proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of a Holder of a beneficial interest in any Global Note.

 

(iv)                               In connection with any transfer of a portion of the beneficial interest in a Global Note pursuant to subsection (f) of this Section 2.1 to beneficial owners who are required to hold Definitive Notes, the Securities Custodian shall reflect on its books and records the date and a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Definitive Notes of like tenor and amount.

 

(v)                                  In connection with the transfer of an entire Global Note to beneficial owners pursuant to subsection (f) of this Section 2.1 , such Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by DTC in exchange for its beneficial interest in such Global Note, an equal aggregate principal amount of Definitive Notes of authorized denominations.

 

(vi)                               The registered Holder of a Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes.

 

(f)                                     Definitive Notes .

 

(i)                                      Except as provided below, owners of beneficial interests in Global Notes will not be entitled to receive Definitive Notes.  If required to do so pursuant to any applicable law or regulation, beneficial owners may obtain Definitive Notes in exchange for their beneficial interests in a Global Note upon written request in accordance with DTC’s and the Registrar’s procedures.  In addition, Definitive Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Note if (a) DTC notifies the Company that it is unwilling or unable to continue as depositary for such Global Note or DTC ceases to be a clearing agency registered under the Exchange Act, at a time when DTC is required to be so registered in order to act as depositary, and in each case a successor depositary is not appointed by the Company within 90 days of such notice or (b) an Event of Default has occurred and is continuing and the Trustee has received a request from DTC.

 

(ii)                                   Any Definitive Note delivered in exchange for an interest in a Global Note pursuant to Section 2.1(e)(iv)  or (v)  shall, except as otherwise provided by Section 2.6(c) , bear the Private Placement Legend set forth in Section 2.1(d) .

 

(iii)                                In connection with the exchange of a portion of a Definitive Note for a beneficial interest in a Global Note, the Trustee shall cancel such Definitive Note, and the Company shall execute, and the Trustee shall authenticate and deliver, to the

 

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transferring Holder a new Definitive Note representing the principal amount not so transferred.

 

Section 2.2                                       Execution and Authentication .  One Officer of the Company shall sign the Notes for the Company by manual or facsimile signature.  If an Officer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless, after giving effect to any exchange of Initial Notes for Exchange Notes.

 

A Note shall not be valid until an authorized signatory of the Trustee manually authenticates the Note.  The signature of the Trustee on a Note shall be conclusive evidence that such Note has been duly and validly authenticated and issued under this Indenture.  A Note shall be dated the date of its authentication.

 

At any time and from time to time after the execution and delivery of this Indenture, the Trustee shall authenticate and make available for delivery:  (1) Initial Notes for original issue on the Issue Date in an aggregate principal amount of $150,000,000, (2) Additional Notes for original issue and (3) Exchange Notes for issue only in an exchange offer pursuant to the Registration Rights Agreement, and only in exchange for Initial Notes or Additional Notes of an equal principal amount, in each case upon a written order of the Company signed by two Officers of the Company or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company (the “Company Order”).  Such Company Order shall specify the amount of the Notes to be authenticated and the date on which the original issue of Notes is to be authenticated and whether the Notes are to be Initial Notes, Additional Notes or Exchange Notes.

 

The Trustee may appoint an agent (the “ Authenticating Agent ”) reasonably acceptable to the Company to authenticate the Notes.  Unless limited by the terms of such appointment, any such Authenticating Agent may authenticate Notes whenever the Trustee may do so.  Each reference in this Indenture to authentication by the Trustee includes authentication by the Authenticating Agent.

 

In case the Company or any Guarantor, pursuant to Article IV or Section 10.2 , shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which any Company or any Guarantor shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article IV , any of the Notes authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Notes executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Notes surrendered for such exchange and of like principal amount; and the Trustee, upon Company Order of the successor Person, shall authenticate and deliver Notes as specified in such order for the purpose of such exchange.  If Notes shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section 2.2 in exchange or substitution for or upon registration of transfer of any Notes, such successor Person, at the option of the Holders but without expense

 

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to them, shall provide for the exchange of all Notes at the time outstanding for Notes authenticated and delivered in such new name.

 

Section 2.3                                       Registrar and Paying Agent .  The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange (the “ Registrar ”) and an office or agency where Notes may be presented for payment (the “ Paying Agent ”).  The Company shall cause each of the Registrar and the Paying Agent to maintain an office or agency in the Borough of Manhattan, The City of New York.  The Registrar shall keep a register of the Notes and of their transfer and exchange (the “ Note Register ”).  The Company may have one or more co-registrars and one or more additional paying agents.  The term “Paying Agent” includes any additional paying agent.

 

The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA.  The agreement shall implement the provisions of this Indenture that relate to such agent.  The Company shall notify the Trustee of the name and address of each such agent.  If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.7 .  The Company or any of its Restricted Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent.

 

The Company initially appoints the Trustee as Registrar and Paying Agent for the Notes.

 

Section 2.4                                       Paying Agent to Hold Money in Trust .  By no later than 11:00 a.m. (New York City time) on the date on which any principal of, premium, if any, on or interest and Additional Interest, if any, on, any Note is due and payable, the Company shall deposit with the Paying Agent a sum sufficient in immediately available funds to pay such principal, premium, interest and Additional Interest, if any, when due.  The Company shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by such Paying Agent for the payment of principal of, or premium, if any, on, and interest and Additional Interest, if any, on, the Notes and shall notify the Trustee in writing of any default by the Company or any Guarantor in making any such payment.  If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund.  The Company at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent.  Upon complying with this Section 2.4 , the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money delivered to the Trustee.  Upon any bankruptcy, reorganization or similar proceeding with respect to the Company, the Trustee shall serve as Paying Agent for the Notes.

 

Section 2.5                                       Holder Lists .  The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders.  If the Trustee is not the Registrar, or to the extent otherwise required under the TIA, the Company shall furnish to the Trustee, in writing at least five Business Days before each interest

 

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payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders.

 

Section 2.6                                       Transfer and Exchange .

 

(a)                                   The following provisions shall apply with respect to any proposed transfer of a Rule 144A Note prior to the date which is one year after the later of the date of its original issue and the last date on which the Company or any Affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the “ Resale Restriction Termination Date ”):

 

(i)                                      a transfer of a Rule 144A Note or a beneficial interest therein to a QIB shall be made upon the representation of the transferee in the form as set forth on the reverse of the Note that it is purchasing for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and

 

(ii)                                   a transfer of a Rule 144A Note or a beneficial interest therein to a Non-U.S. Person shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.7(a)  from the proposed transferor and, if requested by the Company or the Trustee, the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them.

 

(b)                                  The following provisions shall apply with respect to any proposed transfer of a Regulation S Note prior to the expiration of the Distribution Compliance Period:

 

(i)                                      a transfer of a Regulation S Note or a beneficial interest therein to a QIB shall be made upon: (A) the delivery by the transferor of a written certificate substantially in the form set forth in Section 2.7(b) ; and (B) the representation of the transferee, in the form of assignment on the reverse of the certificate, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and

 

(ii)                                   a transfer of a Regulation S Note or a beneficial interest therein to a Non-U.S. Person shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.7(a)  from the proposed transferor and, if

 

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requested by the Company or the Trustee, receipt by the Trustee or its agent of an opinion of counsel, certification and/or other information satisfactory to each of them.

 

After the expiration of the Distribution Compliance Period, interests in the Regulation S Note may be transferred without requiring the certification set forth in Section 2.7 or any additional certification.

 

(c)                                   Private Placement Legend .  Upon the transfer, exchange or replacement of Notes not bearing a Private Placement Legend, the Registrar shall deliver Notes that do not bear a Private Placement Legend unless such transferee is an affiliate (as defined in Rule 144) of the Company.  Upon the transfer, exchange or replacement of Notes bearing a Private Placement Legend, the Registrar shall deliver only Notes that bear a Private Placement Legend unless there is delivered to the Registrar an Opinion of Counsel to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act.

 

(d)                                  The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.1 or this Section 2.6 .  The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable prior written notice to the Registrar.

 

(e)                                   Obligations with Respect to Transfers and Exchanges of Notes:

 

(i)                                      To permit registrations of transfers and exchanges, the Company shall, subject to the other terms and conditions of this Article II , execute, and the Trustee shall authenticate, Definitive Notes and Global Notes at the Registrar’s or co-registrar’s request.

 

(ii)                                   No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to Sections 3.7 , 3.9 , 5.8 or 9.5 ).

 

(iii)                                The Registrar or co-registrar shall not be required to register the transfer or exchange of (i) any Notes selected for redemption (except in the case of Notes to be redeemed in part, the portion of the Note not to be redeemed) or (ii) any Notes for a period beginning 15 days before a selection of Notes to be redeemed.

 

(iv)                               Prior to the due presentation for registration of transfer of any Note, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of, premium, if any, on and interest and Additional Interest, if any, on, such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary.

 

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(v)                                  Any Definitive Note delivered in exchange for an interest in a Global Note pursuant to Section 2.1(e)  shall, except as otherwise provided by Section 2.6(c) , bear the Private Placement Legend set forth in Section 2.1(d) .

 

(vi)                               All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.

 

(f)                                     No Obligation of the Trustee .

 

(i)                                      The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in, DTC or other Person with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Notes (or other Note or property) under or with respect to such Notes.  All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Notes shall be given or made only to or upon the order of the registered Holders (which shall be DTC or its nominee in the case of a Global Note).  The rights of beneficial owners in any Global Note shall be exercised only through DTC subject to the applicable rules and procedures of DTC.  The Trustee may rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners.

 

(ii)                                   The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among DTC participants, members or beneficial owners in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

 

Section 2.7                                       Form of Certificates to be Delivered in Connection with Certain Transfers .

 

(a)

 

[Date]

 

Venoco, Inc.
c/o U.S. Bank National
                   Association, as Trustee
950 17th Street, 12th Floor
Denver, Colorado  80202
Attention:  Corporate Trust Services

 

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Re:                               Venoco, Inc.

11.50% Senior Notes due 2017 (the “Notes”)

 

Ladies and Gentlemen:

 

In connection with our proposed sale of $                       aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the United States Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, we represent that:

 

(i)                                      the offer of the Notes was not made to a person in the United States;

 

(ii)                                   either (1) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (2) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States;

 

(iii)                                no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903 or Rule 904 of Regulation S, as applicable;

 

(iv)                               the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and

 

(v)                                  we have advised the transferee of the transfer restrictions applicable to the Notes.

 

In addition, if the sale is made during the Distribution Compliance Period, we confirm that the interest sold will be held immediately thereafter through the Euroclear System or Clearstream Banking, socíeté anonyme.

 

You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.  Terms used in this certificate have the meanings set forth in Regulation S.

 

Very truly yours,
[Name of Transferor]
By:
Authorized Signature

 

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(b)

 

[Date]

 

Venoco, Inc.
c/o U.S. Bank National
      Association, as Trustee
950 17th Street, 12th Floor
Denver, Colorado  80202
Attention:  Corporate Trust Services

 

Re:           Venoco, Inc.

11.50% Senior Notes due 2017 (the “Notes”)

 

Ladies and Gentlemen:

 

This Certificate relates to $                           principal amount of the above captioned Notes held in definitive form (the “Securities”) by                                            (the “Transferor”).

 

The Transferor has requested the Trustee by written order to exchange or register the transfer of a Security or Securities.

 

In connection with such request and in respect of each such Security, the Transferor does hereby certify that such Security is being transferred to person whom the Transferor reasonably believes to be a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act), in reliance on Rule 144A under the Securities Act and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction, that is purchasing for its own account or for the account of another qualified institutional buyer, in each case to whom notice is given that the transfer is being made in reliance on Rule 144A.

 

	Very truly yours,
	[Name of Transferor]
	By:
	Authorized Signature

 

Section 2.8              Mutilated, Destroyed, Lost or Wrongfully Taken Notes .  If a mutilated Note is surrendered to the Registrar or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the requirements of Section 8 405 of the Uniform Commercial Code are met, such that the Holder (a) satisfies the Company or the Trustee within a reasonable time after such Holder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (b) makes such request to the Company or Trustee prior to the Note being acquired by a protected purchaser as defined in Section 8 303 of the Uniform Commercial Code (a “ protected purchaser ”) and (c) satisfies any other reasonable requirements of the Trustee.  If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar

 

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from any loss which any of them may suffer if a Note is replaced, and, in the absence of notice to the Company or the Trustee that such Note has been acquired by a protected purchaser, the Company shall execute and, upon a Company Order, the Trustee shall authenticate and make available for delivery, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or wrongfully taken Note, a new Note of like tenor and principal amount, bearing a number not contemporaneously outstanding.

 

In case any such mutilated, destroyed, lost or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note.

 

Upon the issuance of any new Note under this Section 2.8 , the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith.

 

Every new Note issued pursuant to this Section in lieu of any mutilated, destroyed, lost or wrongfully taken Note shall constitute an original additional contractual obligation of the Company, any Guarantor (if applicable) and any other obligor upon the Notes, whether or not the mutilated, destroyed, lost or wrongfully taken Note shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder.

 

The provisions of this Section 2.8 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Notes.

 

Section 2.9              Outstanding Notes .  Notes outstanding at any time are all Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.9 as not outstanding.  A Note ceases to be outstanding in the event the Company or a Subsidiary of the Company holds the Note, provided, however , that (i) for purposes of determining which are outstanding for consent or voting purposes hereunder, the provisions of Section 12.6 shall apply and (ii) in determining whether the Trustee shall be protected in making a determination whether the Holders of the requisite principal amount of outstanding Notes are present at a meeting of Holders of Notes for quorum purposes or have consented to or voted in favor of any request, demand, authorization, direction, notice, consent, waiver, amendment or modification hereunder, or relying upon any such quorum, consent or vote, only Notes which a Trust Officer of the Trustee actually knows to be held by the Company or an Affiliate of the Company shall not be considered outstanding.

 

If a Note is replaced pursuant to Section 2.8 , it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a protected purchaser.

 

If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a Redemption Date or maturity date money sufficient to pay all principal, premium, if any, and interest and Additional Interest, if any, payable on that date with respect to

 

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the Notes (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture, then on and after that date such Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue.

 

Section 2.10            Cancellation .  The Company at any time may deliver Notes to the Trustee for cancellation.  The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment.  The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment or cancellation and destroy such Notes in accordance with its internal policies, including delivery of a certificate (a “ Certificate of Destruction ”) to the Company describing such Notes disposed (subject to the record retention requirements of the Exchange Act).  The Company may not issue new Notes to replace Notes it has paid or delivered to the Trustee for cancellation for any reason other than in connection with a transfer or exchange.

 

Section 2.11            Payment of Interest; Defaulted Interest .  Interest and Additional Interest, if any, on any Note which is payable, and is punctually paid or duly provided for, on any interest payment date shall be paid to the Person in whose name such Note (or one or more predecessor Notes) is registered at the close of business on the regular record date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 2.3 .

 

Any interest and Additional Interest, if any, on any Note which is payable, but is not paid when the same becomes due and payable and such nonpayment continues for a period of 30 days shall forthwith cease to be payable to the Holder on the regular record date, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Notes (such defaulted interest and interest thereon herein collectively called “ Defaulted Interest ”) shall be paid by the Company, at its election in each case, as provided in clause (a) or (b) below:

 

(a)            The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective predecessor Notes) are registered at the close of business on a Special Record Date (as defined below) for the payment of such Defaulted Interest, which shall be fixed in the following manner.  The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date (not less than 30 days after such notice) of the proposed payment (the “ Special Interest Payment Date ”), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided.  Thereupon the Trustee shall fix a record date (the “ Special Record Date ”) for the payment of such Defaulted Interest, which date shall be not more than 15 days and not less than 10 days prior to the Special Interest Payment Date and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment.  The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special Interest Payment Date therefor to be given in

 

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