Exhibit 10.1
Amegy Bank N.A.
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
January 9, 2007
Infinity Energy Resources, Inc.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
     Re: Loan Agreement
Ladies and Gentlemen:
     This letter sets forth the Loan Agreement (this “Loan Agreement”) among
Infinity Energy Resources, Inc. (“Borrower”), a Delaware corporation; Infinity
Oil and Gas of Texas, Inc., a Delaware corporation, and Infinity Oil & Gas of
Wyoming, Inc., a Wyoming corporation (collectively “Guarantors”); and Amegy Bank
N.A. (“Lender”), with respect to loans from Lender to Borrower and obligations
of Borrower and Guarantors to Lender.
     Loan. (a) Subject to the terms and conditions set forth in this Loan
Agreement and the other agreements, instruments, and documents executed and
delivered in connection herewith (collectively the “Loan Documents”), Lender
agrees to make a revolving loan in the maximum amount of $50,000,000.00 to
Borrower (the “Revolving Loan”) on the terms set forth in the Revolving
Promissory Note attached as Exhibit A (the “Revolving Note”), for the purposes
set forth below. Subject to the terms and conditions hereof, Borrower may
borrow, repay, and reborrow on a revolving basis from time to time during the
period commencing on the date hereof and continuing through 11:00 a.m. (Dallas,
Texas time) on January 9, 2009 (the “Termination Date”), such amounts as
Borrower may request under the Revolving Loan; provided, however, the total
principal amount outstanding at any time shall not exceed the lesser of (i) the
aggregate sums permitted under the Borrowing Base (as defined below), which is
initially set at $27,000,000.00, or (ii) $50,000,000.00. All sums advanced under
the Revolving Loan, together with all accrued but unpaid interest thereon, shall
be due and payable in full on the Termination Date. Borrower has the right to
request a one year extension of the Termination Date in connection with the
October 1 Borrowing Base redetermination each year. Any extension is subject to
appropriate credit approval of Lender and may be subject to additional
conditions. Lender has not yet committed to any extension of the Termination
Date.
          (b) The unpaid principal balance of the Revolving Note shall bear
interest from the date advanced until paid or until default or maturity at the
rates per annum elected by Borrower from the following options under the terms
of the Revolving Note: (i) the sum of the

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 2 of 32
Stated Rate plus the Applicable Margin, or (ii) the sum of the LIBOR Rate plus
the LIBOR Spread; provided that in no event shall such rate exceed the Maximum
Rate (as defined below). The Applicable Margin and the LIBOR Spread will vary
based on the Borrowing Base Utilization (as defined below) as in effect from
time to time, with each change in the applicable rate resulting from a change in
the Borrowing Base Utilization to take effect on the day such change in the
Borrowing Base Utilization occurs. “Borrowing Base Utilization” is defined as an
amount expressed as a percentage, equal to the quotient of (i) the sum of
(A) the aggregate principal amount of the Revolving Loan outstanding, plus
(B) the aggregate undrawn amount of all outstanding Letters of Credit (as
defined below), divided by (ii) the Borrowing Base. Based on the Borrowing Base
Utilization, the Applicable Margin and the LIBOR Spread will vary as set forth
below:

                  Borrowing Base Utilization   Applicable Margin   LIBOR Spread
Greater than or equal to 85%
    0.50 %     3.25 %
Less than 85%, but greater than or equal to 66%
    0.25 %     3.00 %
Less than 66%, but greater than or equal to 33%
    0.00 %     2.75 %
Less than 33%
    0.00 %     2.50 %

The “Stated Rate” shall be equal to the greater of (i) the interest rate
publicly announced by Lender from time to time as its general reference rate of
interest, which prime rate shall change upon any change in such announced or
published general reference interest rate and which prime rate may not be the
lowest interest rate charged by the Lender, or (ii) the sum of the rate of
interest, then most recently published in the Money Rates section of The Wall
Street Journal as the “federal funds” rate for reserves traded among commercial
banks for overnight use, plus one-half of one percent (0.5 %); and the “LIBOR
Rate” means the rate of interest per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) equal to the average of the offered quotations appearing
at Page or Ticker US0001M, US0002M, US0003M, or US0006M, as the case may be for
the applicable Interest Period (as defined in the Revolving Note) in Bloomberg
Financial Markets Commodities News as published by Bloomberg L.P. (or such other
similar news reporting service as Lender may subscribe to at the time such LIBOR
Rate is determined), at which deposits in U.S. dollars are offered by the major
London clearing banks in the London interbank offered market for a period of
time equal or comparable to one, two, three, or six months and in an amount
equal to or comparable to the principal amount of the LIBOR Balance (as defined
in the Revolving Note) to which such interest period relates.
          (c) Advances on the Revolving Loan may be used only for the following
purposes: (i) for the Closing Date Advances (as defined below), (ii) for the
Approved Plan of Development (as defined below), (iii) the issuance of Letters
of Credit (as defined below), (iv) auction letters and letters of guarantee; and
(v) for other business purposes approved by Lender in advance. On or after the
date of the closing of this Loan Agreement, Borrower may request advances on the
Revolving Loan for the following purposes only (the “Closing Date

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 3 of 32
Advances”):
               (i) Borrower may advance up to $8,000,000.00 for the purpose of
paying Borrower’s and Guarantors’ past-due accounts payable (the “Accounts
Payable”);
               (ii) Borrower may advance on the Revolving Loan to pay closing
costs, expenses, and fees incurred in connection with this Loan Agreement; and
               (iii) Borrower may advance up to $500,000.00 for working capital.
          (d) Except for the Closing Date Advances, all subsequent advances on
the Revolving Loan shall be used only to fund the budgeted capital expenditures
under the Approved Plan of Development. As used in this Loan Agreement,
“Approved Plan of Development” means the written and scheduled plan of
development approved by Lender, with respect to budgeted capital expenditures
and expected schedule for Guarantors’ development activities with respect to
those proved oil and gas properties and undeveloped oil and gas properties in
Comanche and Erath Counties, Texas, Routt County, Colorado, and Sweetwater
County, Wyoming (the “Project Areas”). The initial Approved Plan of Development
approved by Lender is attached as Schedule 1(d) to this Loan Agreement. The
Approved Plan of Development may not be materially modified without Lender’s
prior written consent. If Borrower wishes to so modify the Approved Plan of
Development, Borrower shall provide an amended Plan of Development for Lender’s
approval at least ten (10) days before it is proposed to be effective; and
Lender must respond to such request for written consent within such ten-day
period. Borrower and Guarantors shall use all “Free Operating Cash Flow” (as
defined below) for the purpose of funding the capital expenditures under the
Approved Plan of Development.
          (e) At the request of Borrower, Lender may from time to time issue one
or more letters of credit for the account of Borrower, Guarantors, or any
affiliates (the “Letters of Credit”). Borrower’s availability on the Revolving
Loan will be reduced by the aggregate undrawn amount of all unexpired Letters of
Credit. Any fundings under any Letters of Credit will be treated as an advance
on the Revolving Loan and will be secured by the Security Documents (as defined
below). At no time may the aggregate undrawn amount of all outstanding Letters
of Credit exceed twenty percent (20%) of the Borrowing Base. All Letters of
Credit shall be for a term of up to one year (or longer if necessary for
regulatory requirements) but shall expire not later than five days prior to the
Termination Date, unless adequately secured by cash collateral held by Lender.
Borrower will sign and deliver Lender’s customary forms for the issuance of
Letters of Credit. Borrower agrees to pay to Lender a Letter of Credit Fee equal
to the Letter of Credit Fee Rate per annum set forth below, calculated on the
aggregated stated amount of each Letter of Credit for the stated duration
thereof (computed on the basis of actual days elapsed as if each year consisted
of 360 days). The Letter of Credit Fee Rate will vary as set forth below based
on the Borrowing Base Utilization:

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 4 of 32

          Borrowing Base Utilization   Letter of Credit Fee Rate
Greater than or equal to 85%
    3.25 %
Less than 85%, but greater than or equal to 66%
    3.00 %
Less than 66%, but greater than or equal to 33%
    2.75 %
Less than 33%
    2.50 %

Any renewal or extension of a Letter of Credit will be treated as a new issuance
for the purpose of the Letter of Credit Fee. These Letter of Credit Fees are
payable quarterly in arrears within fifteen (15) days of the end of each
calendar quarter.
          (f) At the request of Borrower and in the sole discretion of Lender,
Lender may from time to time issue one or more auction letters or letters of
guarantee in connection with auctions or other purchases of oil and gas
properties by Borrower. Each auction letter and letter of guarantee will have an
expiration date not longer than five (5) days from the date of the letter.
Notwithstanding any provision to the contrary, Borrower’s availability on the
Revolving Loan will be reduced by the aggregate maximum amount stated in all
unexpired auction letters and letters of guarantee until Lender is satisfied
that (i) Borrower was unsuccessful in the auction or purchase, or (ii) Borrower
consummates the purchase of the oil and gas properties. Any fundings pursuant to
an auction letter or letter of guarantee will be treated as an advance on the
Revolving Loan and will be secured by the Security Documents.
          (g) Borrower agrees to pay to Lender the following fees that are
non-refundable and earned by Lender upon execution of this Loan Agreement unless
otherwise stated:
               (i) Upon execution of the term sheet, Borrower previously paid
Lender a Due Diligence Fee in the amount of $50,000.00.
               (ii) Upon execution of this Loan Agreement, Borrower agrees to
pay Lender an Arrangement Fee in the amount of $270,000.00; provided, however,
that the Due Diligence Fee shall be credited to this Arrangement Fee at closing.
               (iii) Borrower agrees to pay to Lender a Non-Use Fee equal to the
applicable Non-Use Fee Rate set forth below per annum (computed on the basis of
actual days elapsed and as if each calendar year consisted of 360 days), payable
quarterly in arrears, multiplied by an amount determined daily equal to the
difference between the Borrowing Base and the sum of (i) the aggregate
outstanding principal balance of the Revolving Loan at such time, plus (ii) the
aggregate undrawn amount on all outstanding Letters of Credit. The Non-Use Fee
Rate will vary as set forth below based on the Borrowing Base Utilization:

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 5 of 32

          Borrowing Base Utilization   Non-Use Fee Rate
Greater than or equal to 85%
    0.750 %
Less than 85%, but greater than or equal to 66%
    0.625 %
Less than 66%, but greater than or equal to 33%
    0.500 %
Less than 33%
    0.375 %

This Non-Use Fee is payable quarterly within fifteen (15) days of the end of
each calendar quarter.
          (h) The Revolving Loan, all other loans now or hereafter made by
Lender to Borrower, and any renewals or extensions of or substitutions for those
loans, will be referred to collectively as the “Loans.” The Revolving Note, all
other promissory notes now or hereafter payable by Borrower to Lender, and any
renewals or extensions of or substitutions for those notes, will be referred to
collectively as the “Notes.”
     2. Collateral. (a) Payment of the Notes and the Hedge Liabilities (as
defined below) will be secured by the first liens and first security interests,
subject to Permitted Encumbrances (as defined below) created or described in the
following (collectively the “Security Documents”): (i) a Deed of Trust and
Security Agreement of even date, executed by Infinity Oil and Gas of Texas,
Inc., in favor of Lender, and covering oil and gas properties located in Erath
and Comanche Counties, Texas; (ii) a Deed of Trust and Security Agreement of
even date, executed by Infinity Oil & Gas of Wyoming, Inc. in favor of Lender,
and covering oil and gas properties located in Routt County, Colorado; (iii) a
Deed of Trust and Security Agreement of even date, executed by Infinity Oil &
Gas of Wyoming, Inc. in favor of Lender, and covering oil and gas properties
located in Sweetwater County, Wyoming; and (iv) any other security documents now
or hereafter executed in connection with the Loans. The three deeds of trust
described above shall collectively be referred to as the “Deeds of Trust”; and
all oil and gas properties now or hereafter mortgaged to Lender by Borrower or
Guarantors, including the oil and gas properties covered by the Deeds of Trust,
will be referred to as the “Properties.” If requested by Lender, Borrower and
Guarantors will execute in favor of Lender mortgages, deeds of trust, security
agreements, or amendments, in Proper Form (as defined below), mortgaging any
additional oil and gas properties and all additional interests in the Properties
acquired by Borrower or Guarantors so that Lender will continuously maintain
under mortgage not less than ninety percent (90%) of the aggregate present value
(as calculated by Lender in its sole discretion in accordance with the methods
set forth below for the Borrowing Base) assigned to Borrower’s and Guarantors’
oil and gas properties based upon Lender’s in-house evaluation.

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 6 of 32
          (b) Payment of the Notes and the Hedge Liabilities will also be
guaranteed by each of the Guarantors pursuant to Commercial Guaranties in Proper
Form (collectively the “Guaranties”).
          (c) In connection with the Deeds of Trust and at such time as Lender
requires Borrower to mortgage additional oil and gas properties, Borrower and
Guarantors shall, upon request of Lender, deliver to Lender title opinions
and/or other title information acceptable to Lender covering at least eighty-one
percent (81%) of the present value (as determined by Lender in the manner set
forth for Borrowing Base determinations below) of the Properties and the oil and
gas properties which are to become Properties, along with such other information
regarding title as Lender shall reasonably request, all in Proper Form and from
attorneys or landmen acceptable to Lender. Lender reserves the right to
immediately exclude any oil and gas property from the Borrowing Base if Lender
learns of any material title issue with respect to the oil and gas property or
if Lender’s review of Borrower’s and Guarantors’ title to the oil and gas
property indicates that Borrower’s title is unacceptable to Lender, in its sole
discretion.
          (d) During the continuance of an Event of Default (as defined below),
Lender reserves the right to require Borrower and Guarantors to set up a lockbox
account to be managed by Lender for the purpose of collection of production
proceeds attributable to Borrower’s and Guarantors’ interest in the Properties.
Borrower and Guarantors agree that upon Lender’s election to require the lockbox
after an Event of Default, Lender will receive the proceeds of oil and gas
produced from or attributable to Borrower’s and Guarantors’ interest in the
Properties for application as set forth in Section 3.2 of the Deed of Trust; and
Borrower and Guarantors hereby direct all production purchasers or operators
distributing proceeds to pay Borrower’s and Guarantors’ distributions
attributable to Borrower’s and Guarantors’ interest in the Properties directly
to Lender, if Lender so elects. All production proceeds attributable to the
Properties received in the lockbox account by Lender with respect to production,
severance, ad valorem, or other taxes on production proceeds (excluding income
taxes) or that are attributable to another person’s or entities’ interest in the
Properties shall be released immediately to Borrower upon Borrower’s request.
All production proceeds attributable to Borrower’s and Guarantors’ interest in
the Properties received in the lockbox account by Lender in excess of the
current scheduled monthly payment and any other fees or expenses owed to Lender
will be transferred to Borrower at the end of each month for its use consistent
with the provisions of this Loan Agreement, so long as there is no existing
Event of Default. If the production proceeds attributable to Borrower’s and
Guarantors’ interest in the Properties received by Lender during any month are
not sufficient to make the scheduled monthly payment, Borrower will pay Lender
the deficiency within ten (10) days of notice from Lender of such shortfall.
Contemporaneously with the execution of this Loan Agreement, Guarantors will
sign and deliver to Lender letters in lieu of transfer orders to all purchasers
of production directing those parties to pay all proceeds attributable to
Guarantors’ interest in the Properties to the lockbox account, and these
letters, signed in blank, will be held by Lender until such time as Lender
elects to require the lockbox after an Event of Default.

 

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Infinity Energy Resources, Inc.
January 9, 2007
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          (e) Unless a security interest would be prohibited by law or would
render a nontaxable account taxable, Borrower and Guarantors grant to Lender a
contractual possessory security interest in, and hereby assigns, pledges, and
transfers to Lender all of Borrower’s and Guarantors’ rights in any deposits or
accounts now or hereafter maintained with Lender (whether checking, savings, or
any other account), excluding, however, accounts maintained by Borrower and
Guarantors at Lender for the purpose of revenue distribution to third parties
entitled to those revenues, including payroll accounts and any other accounts
held by Borrower or Guarantors for the benefit of a third party. While an Event
of Default is outstanding, Borrower and Guarantors authorize Lender, to the
extent permitted by applicable law, to charge or setoff any sums owing on the
Loans or the Hedge Liabilities against any and all such deposits and accounts;
and Lender shall be entitled to exercise the rights of offset and banker’s lien
against all such accounts and other property or assets of Borrower and
Guarantors with or in the possession of Lender to the extent of the full amount
of the Loans and the Hedge Liabilities.
     3. Borrowing Base. (a) On or about April 1 and October 1 of each year,
commencing April 1, 2007, Lender may determine or redetermine, in its sole
discretion, a Borrowing Base. In addition, Lender may require an unscheduled
redetermination once during each six month period, and Borrower shall have the
right to request an unscheduled redetermination of the Borrowing Base by Lender
once per six-month period between scheduled redeterminations, and Lender shall
conduct such redetermination using the methods described in this section. The
term “Borrowing Base” refers to the designated loan value (as calculated by
Lender in its sole discretion) assigned to the discounted present value of
future net income accruing to Borrower’s and Guarantors’ oil and gas properties
(and related gathering systems and processing and plant operations) based upon
Lender’s in-house evaluation. Lender’s determination of the Borrowing Base will
use such methodology, assumptions, and discount rates customarily used by Lender
with respect to credits of a similar size and nature in assigning collateral
value to oil and gas properties and will be based upon such other credit factors
or financial information available to Lender at the time of each determination,
including, without limitation, current market conditions and Borrower’s and
Guarantors’ assets, liabilities, cash flow, liquidity, business, properties,
prospects, management, and ownership. Borrower and Guarantors acknowledge that
increases in the Borrowing Base are subject to appropriate credit approval by
Lender.
          (b) The outstanding principal balance owing on the Revolving Note,
plus the aggregate undrawn amount of all Letters of Credit, may not exceed the
Borrowing Base at any time, subject to the payout provisions below in the event
of a Borrowing Base decrease. A decrease in the Borrowing Base will result in an
immediate decrease in Lender’s commitment under the Revolving Loan. If the
redetermined Borrowing Base is less than the sum of the outstanding principal
then owing on the Revolving Note, plus the aggregate undrawn amount of all
Letters of Credit, Lender will notify Borrower of the amount of the Borrowing
Base and the amount of the deficiency. Within thirty (30) days after notice is
sent by Lender, Borrower shall remedy the deficiency by either: (i) making a
lump sum payment on the Revolving Note

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 8 of 32
to reduce the principal outstanding plus Letters of Credit to an amount equal to
or less than the new Borrowing Base; (ii) committing to make six equal monthly
installment payments to reduce the principal plus Letters of Credit to an amount
equal to or less than the new Borrowing Base; or (iii) mortgaging additional
collateral, which must be acceptable to Lender as to type, value, and title.
          (c) At the time of any redetermination, Lender reserves the right to
establish an equal Monthly Commitment Reduction (“MCR”) amount by which the
Borrowing Base shall be automatically reduced effective as of the fifth (5th)
day of each successive calendar month until the next Borrowing Base
redetermination. Lender’s determination of the MCR will use such methodology,
assumptions, and discount rates customarily used by Lender with respect to
credits of a similar size and nature in determining commitment reductions and
will be based upon such other credit factors or financial information available
to Lender at the time of each determination, including, without limitation, the
economic half-life of the Properties, and Borrower’s and Guarantors’ assets,
liabilities, cash flow, liquidity, business, properties, prospects, management,
and ownership. The MCR will initially be set at zero dollars ($0). If the
outstanding principal balance owing on the Revolving Note, plus the aggregate
undrawn amount of all unexpired and outstanding Letters of Credit, shall exceed
the Borrowing Base solely because of an MCR reduction, Borrower shall within ten
(10) days of such event make a single lump sum payment in an amount not to
exceed the MCR to reduce the sum of the outstanding principal balance owing on
the Revolving Note, plus the aggregate undrawn amount of all unexpired and
outstanding Letters of Credit, to an amount below the Borrowing Base. If the
outstanding principal balance owing on the Revolving Note, plus the aggregate
undrawn amount of all unexpired and outstanding Letters of Credit, shall exceed
the Borrowing Base because of a Borrowing Base redetermination (or a Borrowing
Base redetermination combined with a required MCR), Borrower shall have the
right to cure set forth in subsection (b) above; provided, however, that if the
MCR was applicable before the Borrowing Base redetermination, then the MCR
amount will be due in a lump sum within ten (10) days of notice from Lender and
Lender may continue the MCR at the same amount or change the MCR effective on
the redetermination date.
          (d) If Borrower or Guarantors sell, transfer, or otherwise dispose of
any oil and gas properties included in the Borrowing Base that have an aggregate
sales price in excess of five percent (5%) of the most recent Borrowing Base in
any fiscal year, Lender reserves the right to redetermine the Borrowing Base in
accordance with this Section 3, which redetermination will be in addition to any
special redeterminations permitted to Lender under subsection (a) above. Any
Borrowing Base deficiency resulting from the sale of any oil and gas properties
shall be immediately reduced by a single lump sum payment in an amount not to
exceed the net proceeds from the sale of the oil and gas properties, and any
remaining deficiency after the Borrowing Base redetermination shall be cured by
Borrower pursuant to subsection (b) above.
     4. Hedges and Swaps. (a) Definitions. As used in this Loan Agreement and
the Loan

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 9 of 32
Documents, the following terms have the meanings assigned below:
               (i) “ISDA Agreement” means any International Swaps and
Derivatives Association, Inc. master agreement or any similar agreement (with
all related schedules, annexes, exhibits, amendments, and confirmations), now
existing or hereafter entered into by Borrower or Guarantors, as amended,
modified, replaced, consolidated, extended, renewed, or supplemented from time
to time.
               (ii) “Hedge Transaction” means all Transactions (as defined in
the ISDA Agreement) and any other derivative transaction, including, without
limitation, any commodity swap (including price protection for future production
of oil, gas, or other hydrocarbons or mineral or mining interests and rights
therein), commodity option, interest rate swap (including rate hedge products),
basis or currency or cross-currency rate swap, forward rate, cap, call, floor,
put, collar, future rate, forward agreement, spot contract, or other credit,
price, foreign exchange, rate, equity, equity index option, bond option,
interest rate option, rate protection agreement, currency option, or other
option, or commodities derivative, exchange, risk management, or protection
agreement, or commodity, securities, index, market, or price-linked transaction
or agreement, or any option with respect to any such transaction or similar
transaction or combination of any of the foregoing, now existing or hereafter
entered into by Borrower, Guarantors, or any of them, whether linked to one or
more interest rates, foreign currencies, commodity prices, equity prices,
indexes, or other financial measures and whether such transactions or
combinations thereof are governed by or subject to any ISDA Agreement or other
similar agreement or arrangement, including all obligations and liabilities
thereunder, and including all renewals, extensions, amendments, and other
modifications or substitutions.
               (iii) “Hedge Liabilities” means any and all liabilities and
obligations of every nature and howsoever created, direct, indirect, absolute,
contingent, or otherwise, whether now existing or hereafter arising, created, or
accrued, of Borrower, Guarantors, or any of them, from time to time owed or
owing to Lender or Hedge Provider in connection with any ISDA Agreement and each
Transaction (as defined in the ISDA Agreement) and each Confirmation (as defined
in the ISDA Agreement) or any Hedge Transaction, including, but not limited to,
obligations and liabilities arising in connection with or as a result of early
or premature termination, cancellation, rescission, buy back, reversal, or
assignment or other transfer of a Hedge Transaction, and including any
obligations or liabilities under any Letters of Credit issued in connection with
Hedge Transactions to which another entity is a counter-party, whether for
principal, interest (including interest which, but for the filing of a petition
in bankruptcy with respect to such obligor, would have accrued on such
obligation, whether or not a claim is allowed for such interest in the related
bankruptcy proceedings), reimbursement obligations, fees, expenses,
indemnification, or otherwise.
               (iv) “Hedge Provider” means any affiliate of Lender or any other
party now or hereafter contracting with Lender with respect to Hedge
Transactions for Borrower.

 

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January 9, 2007
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          (b) ISDA Agreement. Borrower, Guarantors, and Lender or Hedge Provider
may enter into an ISDA Agreement, governing certain Hedge Transactions available
to Borrower or Guarantors from Lender or Hedge Provider. Borrower and Guarantors
may enter into Transactions (as defined in the ISDA Agreement) subject to the
provisions of Confirmations (as defined in the ISDA Agreement). Upon payment in
full of the Notes and termination of any obligation of Lender to make further
advances on the Revolving Loan, and upon either termination of all Hedge
Transactions with Lender or Hedge Provider or Borrower and Guarantors providing
appropriate support and security for then-outstanding Hedge Liabilities on terms
satisfactory to Lender in its sole discretion, including substitution on the
outstanding Hedge Transactions on terms acceptable to Lender of a counterparty
meeting the requirements of Section 4(e)(iv) below and that is otherwise
acceptable to Lender (such liabilities to thereafter be deemed “Supported Hedge
Liabilities”), this Loan Agreement may be terminated and the Security Documents
released.
          (c) Security. Borrower and Guarantors agree that the Security
Documents shall secure payment of all Hedge Liabilities. Borrower, Guarantors,
and Lender hereby agree that the Loans and the Hedge Liabilities shall rank pari
passu and shall collectively be secured by the Security Documents on a pro rata
basis. Lender shall hold the Properties and all related collateral under the
Security Documents, along with all payments and proceeds arising therefrom, for
the benefit of Lender, as security for the payment of all Loans and as security
for all Hedge Liabilities on a ratable basis. The benefit of the Security
Documents and of the provisions of this Loan Agreement relating to the
collateral shall also extend to and be available to Lender and Hedge Provider to
the extent either is a counter-party to any Hedge Transactions on a pro rata
basis with respect to any obligations, liabilities, or indebtedness of Borrower
or Guarantors.
          (d) Termination. If and to the extent any Hedge Transaction is used in
calculation of the Borrowing Base, such Hedge Transaction cannot be cancelled,
liquidated, or “unwound” without the prior written consent of Lender.
          (e) Hedging Limitations. Borrower and Guarantors shall not enter into
any Hedge Transaction related to crude oil, natural gas, or other commodities,
except hedging required by Lender and except for Hedge Transactions which meet
the following requirements:
               (i) Hedge Transactions resulting in a cap on the price to be
received by Borrower and Guarantors, involving in the aggregate at any time not
more than eighty percent (80%) of Guarantors’ anticipated production from their
proved developed producing oil and gas properties (as forecast in Lender’s most
recent engineering valuation of the Properties); provided, however, that
(1) Hedge Transactions relating to oil volumes from the Wolf Mountain 15-2-7-87
well in Routt County, Colorado, shall be limited to not more than forty percent
(40%) of Guarantors’ anticipated production from that well until such time as
the well constitutes twenty percent (20%) or less of the total present value of
Guarantors’ proved developed producing oil and gas properties (as forecast in
Lender’s most recent engineering valuation of

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 11 of 32
the Properties), and (2) there shall be no limitation on the volume of Hedge
Transactions resulting only in a floor price per barrel or mcf; and
               (ii) Hedge Transactions that would not result in a fixed price
per barrel or mcf lower than the base case price used by Lender in the
most-recent engineering evaluation of Guarantors’ oil and gas properties,
adjusted for variances between the hedging price and Guarantors’ actual product
price as determined by Lender, in each case as disclosed by Lender to Borrower,
or otherwise at hedging prices acceptable to Lender as disclosed to Borrower;
and
               (iii) Hedge Transactions that are each for a period not to exceed
forty-eight (48) months; and
               (iv) To the extent that Lender requires Hedge Transactions in
connection with a Borrowing Base, Hedge Transactions where, in each case, the
underlying contracts are with Lender or Hedge Provider, as counterparty, with a
counter-party (or the parent entity thereof) who at the time the contract is
made has long-term obligations rated BBB or better by Standard & Poor’s Ratings
Group or Baa or better by Moody’s Investors Services, Inc., or with a
counter-party that is otherwise approved by Lender in writing; and
               (v) Hedge Transactions that are not effective at concurrent or
overlapping periods of time on the same volumes of production on both a physical
and financial basis, unless the combined volumes are in compliance with the
volume limitations set forth above.
Borrower may enter into swaps, collars, floors, caps, options, corridors, or
other contracts, as such terms are commonly known within the capital markets,
which are intended to reduce or eliminate the risk of fluctuation in interest
rates for the purpose and effect of fixing and capping interest rates on a
principal amount of indebtedness of Borrower; provided that (A) the floating
rate index of each such contract generally matches the index used to determine
the floating rates of interest on the corresponding indebtedness of Borrower to
be hedged by such contract and the interest rate exposure would not cause the
notional amount of all such Hedge Transactions then in effect for the purpose of
hedging interest rate exposure to exceed one hundred percent (100%) of the total
consolidated indebtedness of Borrower projected to be outstanding for any period
covered by such Hedge Transaction, and (B) Borrower shall not establish or
maintain any margin accounts with respect to such contracts.
          (f) Required Hedges. On or before three (3) business days after the
date of this Loan Agreement, Guarantors will enter into Hedge Transactions
covering crude oil and natural gas meeting the following requirements: (i) Hedge
Transactions resulting in at least seventy percent (70%) of Guarantors’
anticipated production from their proved developed producing oil and gas
properties (as forecast in Lender’s most recent engineering valuation of the
Properties) in the aggregate; (ii) Hedge Transactions for a period of not less
than forty-eight (48) months; (iii) Hedge Transactions resulting in a fixed
price or floor price per barrel or mcf

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 12 of 32
equal to the prevailing NYMEX swap price or, if approved by Lender, a regional
basis swap price, or otherwise at hedging prices acceptable to Lender; and
(iv) Hedge Transactions that are assignable to Lender as additional security for
the Loans.
          (g) Speculation. Borrower and Guarantors shall not invest for
speculative purposes in any Hedge Transactions or in any other options, futures,
or derivatives.
          (h) Additional Collateral. If a Hedge Transaction is entered into with
an outside counter-party, Borrower and Guarantors shall, if requested by Lender,
collaterally assign and pledge in favor of Lender a first-priority continuing
security interest in the applicable trading account and the hedging contract as
additional security for the Loans. In connection therewith, Borrower and
Guarantors shall execute and deliver to Lender such security agreements, control
agreements, and financing statements as deemed appropriate by Lender to create
and perfect the continuing security interest therein.
     5. Conditions Precedent. (a) The obligation of Lender to make the initial
advance on the Revolving Loan is subject to Borrower’s satisfaction, in Lender’s
sole discretion, of the following conditions precedent:
               (1) Lender’s receipt and satisfactory review by Lender of the
September 30, 2006 financial statements of Borrower and Guarantors, on a
consolidated and consolidating (except for the cash flow statement) basis,
including a balance sheet, a statement of operations, and a cash flow statement,
prepared in conformity with generally accepted accounting principles in effect
on the date such statement was prepared, consistently applied (“GAAP”).
               (2) Lender’s receipt and satisfactory review by Lender of the
Approved Plan of Development.
               (3) Lender’s receipt and satisfactory review of evidence from
Borrower that the aggregate Accounts Payable that are more than thirty (30) days
outstanding are less than or equal to $8,000,000.00.
               (4) Borrower and Guarantors shall have performed and be in
compliance in all material respects, with all covenants and agreements required
by this Loan Agreement or the other Loan Documents to be performed prior to
closing, and all representations and warranties contained in this Loan Agreement
or the other Loan Documents must be true in all material respects.
               (5) the negotiation, execution, and delivery of Loan Documents in
Proper Form, including, but not limited to, the following:

  (i)   this Loan Agreement;

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 13 of 32

  (ii)   the Revolving Note;     (iii)   the Deeds of Trust;     (iv)   the
Guaranties;     (v)   Borrowing Resolution;     (vi)   Guarantor Resolutions;
and     (vii)   Letters in Lieu.

               (6) satisfactory evidence that Lender holds perfected liens and
security interests in all collateral for the Loans, subject to no other liens or
security interests except Permitted Encumbrances. “Permitted Encumbrances” shall
mean the following (i) those liens and security interests existing and disclosed
to Lender in Schedule 5(a)(6) attached, (ii) liens for taxes not delinquent or
being contested in good faith, (iii) mechanic’s and materialman’s liens with
respect to obligations not overdue or being contested in good faith, (iv) liens
resulting from deposits to secure the payments of workers’ compensation or
social security, (v) purchase money security interests or construction liens and
that are in an aggregate amount not to exceed $500,000.00, (vi) capital leases
entered into in the ordinary course of business, and (vii) liens that arise in
the ordinary course of business under or in connection with operating
agreements, oil and gas leases, farm-out agreements, contracts for the sale,
transportation, or exchange of oil and natural gas, unitization and pooling
declarations and agreements, area of mutual interest agreements, marketing
agreements, processing agreements, development agreements, gas balancing or
deferred production agreements, injection, repressuring, and recycling
agreements, salt water or other disposal agreements, seismic or other
geophysical permits or agreements, and other agreements which are usual and
customary in the oil and gas business and are for claims which are not
delinquent or which are being contested in good faith.
               (7) receipt and satisfactory review by Lender of Reserve Reports
for the Borrowing Base properties.
               (8) except as disclosed in Schedule 5(a)(8) attached, there shall
not have occurred a material adverse change in the business, assets, liabilities
(actual and contingent), operations, or condition (financial or otherwise) of
Borrower or Guarantors, from that reflected in Borrower’s financial statements
for the quarter ended September 30, 2006, or in the SEC Reports. “SEC Reports”
means those filing made by the Borrower with the Securities and Exchange
Commission including annual reports on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K.
               (9) except as disclosed in Schedule 5(a)(9) attached, there being
no order or injunction or other pending or threatened litigation which would
reasonably be expected to materially adversely affect the ability of Borrower or
Guarantors to perform under the Loan Documents.

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 14 of 32
               (10) Lender shall have completed and approved a review of title
to, and the status of the environmental condition of, Borrower’s and Guarantors’
oil and gas properties, including the Borrowing Base properties, and the results
of such review shall be acceptable to Lender in its sole discretion.
               (11) Lender’s receipt and review, with results satisfactory to
Lender and its counsel, of information regarding litigation, tax, accounting,
insurance, pension liabilities (actual or contingent), real estate leases,
material contracts, debt agreements, property ownership, and contingent
liabilities of Borrower, Guarantors, and any subsidiaries.
               (12) Lender’s receipt of satisfactory evidence that Borrower and
Guarantors have no outstanding indebtedness required by GAAP to be disclosed in
their financial statements for the quarter ended September 30, 2006, which has
not been so disclosed, and all outstanding obligations and liabilities incurred
since September 30, 2006 have been incurred in the ordinary course of business.
               (13) Lender’s receipt and review, with results satisfactory to
Lender and its counsel, of a schedule showing information regarding any existing
litigation affecting Borrower or the Properties.
               (14) Lender’s receipt of releases of the mortgages and UCC
financing statements in connection with Borrower’s Senior Secured Notes
Facility. “Senior Secured Notes Facility” means certain senior secured notes and
warrants to purchase shares of Borrower’s common stock pursuant to that certain
Securities Purchase Agreement, dated as of January 13, 2005, by and among the
Borrower and HFTP Investment, L.L.C., AG Domestic Convertibles, L.P., and AG
Offshore Convertibles, Ltd., as amended, restated, supplemented or otherwise
modified and in effect as of the date of this Loan Agreement.
               (15) Borrower’s establishment of an operating account with Lender
for advances on the Revolving Loan.
               (16) Borrower shall deliver legal opinions in Proper Form, from
Borrower’s and Guarantors’ counsel, regarding Borrower’s and Guarantors’
authority, the enforceability of the Loan Documents, and other matters
reasonably required by Lender.
          (b) Lender will not be obligated to make the Loans or any subsequent
advance on the Loans, if, prior to the time that a loan or advance is made,
(i) there has been any material adverse change in Borrower’s or any Guarantors’
financial condition since the most-recent financial statements furnished to
Lender, (ii) any representation or warranty made by Borrower or Guarantors in
this Loan Agreement or the other Loan Documents is untrue or incorrect in any
material respect as of the date of the advance or loan, (iii) Lender has not
received all Loan Documents appropriately executed by Borrower, Guarantors, and
all other proper parties, (iv) Lender has requested that Borrower or Guarantors
execute additional loan or security documents

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 15 of 32
and those documents have not yet been properly executed, delivered, and
recorded, (v) Borrower is not in compliance with the Borrowing Base and all
reporting requirements, or (vi) an Event of Default (as defined below) has
occurred and is continuing.
     6. Representations and Warranties. Each of Borrower and Guarantors hereby
represent and warrant to Lender as follows:
          (a) The execution, delivery, and performance of this Loan Agreement,
the Notes, the Security Documents, and all of the other Loan Documents by
Borrower and by Guarantors, to the extent they are party thereto, have been duly
authorized by their respective boards of directors, and this Loan Agreement, the
Notes, the Security Documents, and all of the other Loan Documents constitute
legal, valid, and binding obligations of Borrower and Guarantors, to the extent
they are party thereto, enforceable in accordance with their respective terms;
          (b) The execution, delivery, and performance of this Loan Agreement,
the Notes, the Security Documents, and the other Loan Documents, and the
consummation of the transaction contemplated, do not require the consent,
approval, or authorization of any third party and do not and will not conflict
with, result in a violation of, or constitute a default under (i) any provision
of Borrower’s or Guarantors’ respective articles of incorporation or bylaws, or
(ii) any other agreement or instrument binding upon Borrower or any Guarantors,
or (iii) any law, governmental regulation, court decree, or order applicable to
Borrower or any Guarantors, except with respect to (ii) and (iii) for matters
that would not reasonably be expected to have a material adverse effect on
Borrower, any Guarantors, or the Properties;
          (c) Each financial statement of Borrower and Guarantors, now or
hereafter supplied to Lender, was (or will be) prepared in accordance with GAAP,
and discloses and fairly presents (or will disclose and fairly present) in all
material respects Borrower’s and Guarantors’ financial condition, on a
consolidated and consolidating (except for cash flow statements) basis, as of
the date of each such statement, and except as disclosed in the SEC Reports,
there has been (or will have been) no material adverse change in such financial
condition subsequent to the date of the most recent financial statement supplied
to Lender;
          (d) Except as disclosed in Schedule 5(a)(9) attached, there are no
actions, suits, or proceedings pending or, to Borrower’s or Guarantors’
knowledge, threatened against or affecting Borrower, any Guarantors, or the
Properties, before any court or governmental department, commission, or board,
which would reasonably be expected to have a material adverse effect on the
Properties or the operations or financial condition of Borrower or any
Guarantors;
          (e) Borrower and Guarantors have filed all material federal, state,
and local tax reports and returns required by any law or regulation to be filed
and have either duly paid all taxes, duties, and charges indicated due on the
basis of such returns and reports, or made

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 16 of 32
adequate provision for the payment thereof, and the assessment of any material
amount of additional taxes in excess of those paid and reported is not
reasonably expected, except as disclosed in Schedule 6(e) attached;
          (f) Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time (“ERISA”); Borrower has not violated any
provision of any “defined benefit plan” (as defined in ERISA) maintained or
contributed to by Borrower (each a “Plan”); no “Reportable Event” as defined in
ERISA has occurred and is continuing with respect to any Plan initiated by
Borrower, unless the reporting requirements have been waived by the Pension
Benefit Guaranty Corporation; and Borrower has met its minimum funding
requirements under ERISA with respect to each Plan;
          (g) Borrower and Guarantors have provided to Lender copies of all
material agreements affecting Borrower’s and Guarantors’ oil and gas properties
or their operations, including all gas balancing agreements and advance payment
contracts;
          (h) Borrower certifies that Schedule 6(h) sets forth a true and
correct organizational chart showing all subsidiaries or other entities owned by
Borrower and the ownership in each; and
          (i) Schedule 6(i) sets forth, as of the date of this Loan Agreement, a
true and complete list of all existing ISDA Agreements and Hedge Transactions of
Borrower and Guarantors, the material terms thereof (including the type, term,
effective date, termination date, and notional volumes and prices), the net
mark-to-market value thereof as reflected in the most-recent SEC Reports, all
credit support agreements relating thereto (including any margin required or
supplied), and the counter-party to each such Hedge Transactions.
     7. Covenants. Until the Loans and the Hedge Liabilities and all other
obligations and liabilities of Borrower under this Loan Agreement, the Notes,
the Security Documents, and the other Loan Documents are fully paid and
satisfied (except for unasserted indemnification obligations thereunder and
except for Hedge Liabilities that are Supported Hedge Liabilities under
Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise
consents in writing:
          (a) (i) Except as contemplated in subclause (vi) below, maintain their
existence in good standing in their respective states of incorporation, maintain
their authority to do business in all states in which any is required to
qualify, except where such failure to qualify would not reasonably be expected
to have a material adverse effect on Borrower or any Guarantors, and maintain
full legal capacity to perform all their respective obligations under this Loan
Agreement and the Loan Documents, () continue to operate their business as
presently conducted, () not permit any changes in Borrower’s directors that
alter a majority of the current directors, () except as contemplated in
subclause (vi) below, not permit their dissolution,

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 17 of 32
liquidation, or other termination of existence or forfeiture of right to do
business, () not form any subsidiary without notifying Lender in writing at
least thirty (30) days in advance, () not permit a merger or consolidation
(unless Borrower or Guarantor, as the case may be, is the surviving entity), and
() not acquire all or substantially all of the assets of any other entity
without first notifying Lender in writing at least thirty (30) days in advance.
          (b) Manage the Properties in an orderly and efficient manner
consistent with good business practices, and perform and comply in all material
respects with all statutes, rules, regulations, and ordinances imposed by any
governmental unit upon the Properties or Borrower, Guarantors, and their
operations including, without limitation, compliance with all applicable laws
relating to the environment.
          (c) Maintain insurance as customary in the industry or as reasonably
required by Lender, including but not limited to, casualty, comprehensive
property damage, and commercial general liability, and other insurance,
including worker’s compensation (if necessary to comply with law), naming Lender
as an additional insured or a loss payee, and containing provisions prohibiting
their cancellation without prior written notice to Lender, and provide Lender
with evidence of the continual coverage of those policies prior to the lapse of
any policy.
          (d) Not sell, assign, transfer, or otherwise dispose of all or any
interest in the Properties or any other collateral, except for (i) the sale of
hydrocarbons in the ordinary course of business, (ii) the sale or transfer of
equipment or inventory in the ordinary course of business or that is no longer
necessary for the business of Borrower or that is obsolete or replaced by
equipment of at least comparable value and use, and (iii) the sale of oil and
gas properties having an aggregate sales price not in excess of five percent
(5%) of the then-applicable Borrowing Base per fiscal year, without the prior
written consent of Lender, provided that Lender shall not unreasonably withhold
its consent for any sale, farmout, farmin, or other disposition of any oil and
gas properties or any interest therein, so long as: (x) the net sales proceeds
received by Borrower are equal to or greater than the Borrowing Base value
attributable to the sold properties according to the most-recent Borrowing Base
review by Lender; (y) any resulting Borrowing Base deficiency after exclusion of
the sale properties from the Borrowing Base is immediately eliminated by a
single lump sum payment; and (z) there is no existing Event of Default.
          (e) Promptly inform Lender of (i) any and all material adverse changes
in Borrower’s or any Guarantors’ financial condition, (ii) all litigation and
claims which could reasonably be expected to materially and adversely affect the
financial condition of Borrower, any Guarantor, or the Properties, (iii) all
actual or contingent material liabilities of Borrower or any Guarantors,
(iv) any change in name, identity, or structure of Borrower or any Guarantors,
and (v) any uninsured or partially insured loss reasonably estimated in excess
of $500,000.00 of any collateral through fire, theft, liability, or property
damage.
          (f) Maintain full and accurate books and records and a standard system
of accounting in accordance with GAAP, and permit Lender to examine, audit, and
make and take

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 18 of 32
away copies or reproductions of Borrower’s and Guarantors’ books and records,
reasonably required by Lender, at all reasonable times; and permit such persons
as Lender may designate at reasonable times to visit and inspect the Properties
and examine all records with respect to the Properties, and pay for the
reasonable cost of such inspections required by Lender.
          (g) Pay and discharge when due all indebtedness and obligations,
including without limitation, all assessments, taxes, governmental charges,
levies, and liens, of every kind and nature, imposed upon Borrower, Guarantors,
or the Properties, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a material lien or charge upon the
Properties, income, or profits, and pay all trade payables and other current
liabilities incurred in the ordinary course of business within ninety (90) days
of their due date; provided, however, Borrower and Guarantors will not be
required to pay and discharge any such assessment, tax, charge, levy, lien, or
claim so long as (i) the legality of the same shall be contested in good faith
by appropriate judicial, administrative, or other legal proceedings, and
(ii) Borrower or Guarantors have established adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in accordance with
GAAP.
          (h) Not directly or indirectly create, incur, assume, or permit to
exist any indebtedness (including guaranties), secured or unsecured, absolute or
contingent, except for (i) the indebtedness to Lender, (ii) any trade payables,
taxes, and liabilities incurred in the ordinary course of business, (iii) any
indebtedness already incurred and disclosed in Borrower’s financial statements
for the quarter ended September 30, 2006, (iv) Borrower’s obligations with
respect to the potential payment of a purchase price adjustment and its
indemnification obligations under the Purchase Agreement dated December 1, 2006
between Borrower and Q Consolidated Oil Well Services, LLC, (v) obligations
under capital leases, transportation deficiencies, or gas imbalances,(vi)
indebtedness of up to $500,000.00 for the financing of insurance premiums,
(vii) intercompany indebtedness among the Borrower and Guarantors, (viii) the
obligations related to Borrower’s Nicaraguan concessions disclosed in
Schedule 7(h) attached, (ix) obligations related to Hedge Transactions permitted
by this Loan Agreement, and (x) additional indebtedness not to exceed
$500,000.00 in the aggregate.
          (i) Not mortgage, assign, hypothecate, pledge, or encumber, and not
create, incur, or assume any lien or security interest on or in, the Properties
(or any interest in the Properties), any oil and gas properties included in the
calculation of the Borrowing Base, or any of Borrower’s or Guarantors’ property
or assets, except (i) those in favor of Lender, and (ii) Permitted Encumbrances.
          (j) Except for transactions among Borrower and Guarantors, not make
any loans, advances, dividends, or other distributions, other than in the
ordinary course of business, to any party, including without limitation,
shareholders, officers, directors, partners, joint venturers, members, managers,
relatives, and affiliates, or any profit sharing or retirement plan.

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 19 of 32
          (k) Not purchase, acquire, redeem, or retire any stock or other
ownership interest in Borrower; and not permit any transaction or contract with
any affiliates or related parties, except in the ordinary course of business and
except at arms length and on market terms.
          (l) Promptly open and maintain at least three depository accounts with
Lender, and discuss with Lender moving their primary depository accounts and
principal banking relationship to Lender.
          (m) Timely develop the proved oil and gas properties and undeveloped
oil and gas properties in the Project Areas in accordance with the Approved Plan
of Development and make capital expenditures on such oil and gas properties in
accordance with the Approved Plan of Development. Except to the extent of delays
beyond the reasonable control of Borrower, such as acts of god, governmental
inaction, restraint, or delay, unavailability of equipment, inability to obtain
permits or other regulatory approvals, and the unavailability of rigs, for which
Borrower provides evidence of such delays to Lender, Borrower and Guarantors
shall diligently proceed to drill and complete each producing and injection well
under the Approved Plan of Development and use reasonable diligence to connect
each gas well to gathering systems and pipelines to permit the sale and
marketing of natural gas in the ordinary course of business.
          (n) Meet with the Lender from time to time as reasonably requested by
Lender to review all operational activities of Borrower and Guarantors with
respect to the Properties, the Approved Plan of Development, the Project Areas,
and all financial reports. Each review shall be in scope reasonably satisfactory
to Lender, but will include at a minimum, an update by Borrower on the
development activities made pursuant to the Approved Plan of Development, any
requests by Borrower that changes be made to the Approved Plan of Development,
any cost or expense overruns or savings, any mechanical problems incurred, and
any differences in reserves or production estimates.
          (o) Indemnify Lender against all losses, liabilities, withholding and
other taxes, claims, damages, or expenses (other than income taxes) relating to
the Loans, the Loan Documents, or Borrower’s use of the Loan proceeds, including
but not limited to reasonable attorneys and other professional fees and
settlement costs, but excluding, however, those caused solely by or resulting
solely from any gross negligence or willful misconduct by Lender; and this
indemnity shall survive the termination of this Loan Agreement.
          (p) Comply in all material respects with all applicable provisions of
ERISA, except as set forth in Schedule 7(p) attached, not violate in any
material respect any provision of any Plan, meet their minimum funding
requirements under ERISA with respect to each Plan, and notify Lender in writing
of the occurrence and nature of any Reportable Event or Prohibited Transaction,
each as defined in ERISA, or any funding deficiency with respect to any Plan.
          (q) If Borrower acquires any wholly-owned subsidiary or owns any
issued and outstanding capital stock or partnership interests of any companies
or partnerships, Borrower

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 20 of 32
shall sign and deliver to Lender within fifteen (15) days after such acquisition
a pledge agreement in Proper Form, creating a first-priority security interest
covering the issued and outstanding capital stock or partnership interests of
all existing and hereafter acquired companies, subsidiaries, or partnerships of
Borrower, and Borrower shall cause each wholly-owned subsidiary to sign and
deliver to Lender within fifteen (15) days after such acquisition a guaranty in
substantially the same form as signed by Guarantors in connection with this Loan
Agreement, guaranteeing payment of the Loans.
          (r) Execute and deliver, or cause to be executed and delivered, any
and all other agreements, instruments, or documents which Lender may reasonably
request in order to give effect to the transactions contemplated under this Loan
Agreement and the Loan Documents, and to grant, perfect, and maintain liens and
security interests on or in the Properties and related collateral, and promptly
upon Lender’s request cure any defects in the execution and delivery of any Loan
Documents.
     8. Financial Covenants. Until the Loans and the Hedge Liabilities and all
other obligations and liabilities of Borrower under this Loan Agreement, the
Notes, the Security Documents, and the other Loan Documents are fully paid and
satisfied (other than unasserted indemnification obligations thereunder and
except for Hedge Liabilities that are Supported Hedge Liabilities under
Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise
consents in writing, maintain the following financial covenants to be calculated
on a consolidated basis commencing with the fiscal quarter ending March 31,
2007:
          (a) Maintain at the end of each fiscal quarter an Interest Coverage
Ratio greater than or equal to 3.0 to 1.0. “Interest Coverage Ratio” is defined
as the ratio of (i) the sum of Borrower’s and Guarantors’ most recent quarter’s
net income, plus interest expense for the same period, plus income taxes for the
same period, plus depreciation, depletion, amortization, and other non-cash
charges for the same period, divided by (ii) interest expense for the same
period.
          (b) Maintain at the end of each fiscal quarter a Current Ratio greater
than or equal to 1.0 to 1.0. “Current Ratio” is defined as the ratio of
(i) Borrower’s and Guarantors’ current assets, plus availability on the
Revolving Loan, divided by (ii) current liabilities (excluding current
maturities of long-term debt); provided, however, that the marked to market
values for hedging positions in accordance with FASB 133 shall be excluded from
this calculation until such time as the gains or losses from the hedges are
actually realized and the hedges expire.
          (c) Maintain at the end of each fiscal quarter a Debt Service Coverage
Ratio greater than or equal to 1.25 to 1.0. “Debt Service Coverage Ratio” is
defined as the ratio of (i) the sum of Borrower’s and Guarantors’ most recent
quarter’s net income, plus depletion, depreciation, amortization, and other
non-cash charges for the same period, plus income taxes for the same period,
minus gains from the sale of assets (or plus losses from the sale of assets),

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 21 of 32
divided by (ii) the sum of the current maturities of long term debt (excluding
the Revolving Loan) for the same period, plus the monthly commitment reductions
for the same period as required by Lender.
          (d) Maintain at the end of each fiscal quarter a Funded Debt to EBITDA
Ratio less than or equal to (i) 4.25 to 1.0 for the fiscal quarter ending
March 31, 2007, (ii) 4.0 to 1.0 for the fiscal quarter ending June 30, 2007, and
(iii) 3.5 to 1.0 for each fiscal quarter thereafter. “Funded Debt to EBITDA
Ratio” is defined as the ratio of (i) the total amount outstanding on the Loans,
divided by (ii) the sum of Borrower’s and Guarantors’ most recent quarter’s net
income annualized, plus income taxes for the same period annualized, plus
interest expense on the Loans for the same period annualized, plus depletion,
depreciation, and amortization for the same period annualized, plus other
non-cash charges for the same period annualized, minus gains from the sale of
assets (or plus losses from the sale of assets) for the same period annualized;
provided, however, that EBITDA from acquisitions may only be included in this
covenant after Lender has reviewed and approved pro-forma financial statements
demonstrating the effect of the acquisition.
          (e) Maintain at the end of each fiscal quarter a Collateral Coverage
Ratio greater than or equal to 1.33 to 1.0. “Collateral Coverage Ratio” is
defined as the ratio of (i) the aggregate present value of Guarantors’ proved
developed producing oil and gas properties (as determined by Lender assuming
NYMEX prices minus the differentials), divided by (ii) the total amount
outstanding on the Loans.
          (f) Not permit quarterly general and administrative expenses on a
consolidated basis to exceed $700,000.00 (excluding non-cash items) per fiscal
quarter during 2007.
          (g) Shall use all “Free Operating Cash Flow” to the extent thereof,
for the purpose of funding the capital expenditures under the Approved Plan of
Development. “Free Operating Cash Flow” is defined as net cash flow from
operating activities, minus payments for general and administrative expenditures
permitted under the Loan Agreement, minus interest expense, fees, expenses, and
principal, if any, paid during such period in respect of Revolving Loan, and
minus the Permitted Nicaraguan Contributions (as defined below), if any.
          (h) Shall not use any Free Operating Cash Flow or other cash, or make
any loans, advances, capital contributions, or other distributions, for or with
respect to Borrower’s Nicaraguan concessions; provided, however, that (1) this
provision shall not limit or prevent draws under two letters of credit dated
May 19, 2006, in the amounts of $408,450.00 and $443,100.00, respectively,
issued by Cornerstone Bank, in favor of Direccion General de Hidrocarburos,
Insituto Nicaraguense de Energia, for the account of Borrower, and (2) so long
as there is no existing Event of Default or Borrowing Base deficiency, Borrower
may use Free Operating Cash Flow or other cash, or make loans, advances, capital
contributions, or other distributions, for or with respect to Borrower’s
Nicaraguan concessions, in an aggregate amount

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 22 of 32
not to exceed $200,000.00 per fiscal year (collectively the “Permitted
Nicaraguan Contributions”). Borrower shall notify Lender in writing when
Permitted Nicaraguan Contributions are made, including the source for those
contributions.
Unless otherwise specified, all accounting and financial terms and covenants set
forth above are to be determined according to GAAP, consistently applied.
     9. Reporting Requirements. Until the Loans and the Hedge Liabilities and
all other obligations and liabilities of Borrower under this Loan Agreement, the
Notes, the Security Documents, and the other Loan Documents are fully paid and
satisfied (other than unasserted indemnification obligations thereunder or with
respect to the Hedge Liabilities, all such outstanding Hedge Liabilities are
Supported Hedge Liabilities under Section 4 (b) above), Borrower and Guarantors
shall, unless Lender otherwise consents in writing, furnish to Lender:
          (a) As soon as available, and in any event within one hundred twenty
(120) days of the end of each fiscal year, audited annual financial statements
for Borrower and Guarantors on a consolidated basis, consisting of at least a
balance sheet, an income statement or statement of operations, a cash flow
statement, and a statement of changes in owners’ equity, along with an auditor’s
opinion from EKS&H or another independent certified public accountant acceptable
to Lender and certified by an authorized officer of Borrower (i) as being true
and correct in all material aspects to his knowledge, (ii) as fairly reporting
the financial condition of Borrower and Guarantors as of the close of the fiscal
year and the results of their operations for the year, and (iii) as having been
prepared in accordance with GAAP; and unaudited annual financial statements for
Borrower and Guarantors on a consolidating basis, consisting of at least a
balance sheet, an income statement or statement of operations, and a statement
of changes in owners’ equity, certified by an authorized officer of Borrower
(i) as being true and correct in all material aspects to his knowledge, (ii) as
fairly reporting the financial condition of Borrower and Guarantors as of the
close of the fiscal year and the results of their operations for the year, and
(iii) as having been prepared in accordance with GAAP;
          (b) As soon as available, and in any event within sixty (60) days of
the end of each fiscal quarter, quarterly financial statements for Borrower and
Guarantors on a consolidated and consolidating (except for the cash flow
statement) basis, consisting of at least a balance sheet, an income statement or
statement of operations, a cash flow statement, and a statement of changes in
owners’ equity, for the quarter and for the period from the beginning of the
fiscal year to the close of the quarter, certified by an authorized officer of
Borrower (i) as being true and correct in all material aspects to his knowledge,
(ii) as fairly reporting the financial condition of Borrower and Guarantors as
of the close of the fiscal quarter and the results of their operations for the
quarter, and (iii) as having been prepared in accordance with GAAP, subject to
normal year-end adjustments and the absence of footnotes;
          (c) With the quarterly and annual financial statements required above,
a quarterly compliance certificate in the form of Exhibit B attached, signed by
an authorized

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 23 of 32
officer of Borrower and certifying compliance with the financial covenants and
other matters in this Loan Agreement;
          (d) On or before March 1 of each year, a report dated as of January 1,
prepared by an independent petroleum engineer or engineering firm or other
designee acceptable to Lender, and on or before August 15 of each year, a report
dated as of July 1, prepared by or on behalf of Borrower, both reports to be
prepared on a consistent basis in accordance with the customary standards and
procedures of the petroleum industry, estimating the quantity of oil, gas, and
associated hydrocarbons recoverable from the Properties and all of Borrower’s
and Guarantors’ oil and gas properties, and the projected income and expense
attributable to the Properties and all of Borrower’s and Guarantors’ oil and gas
properties, including, without limitation, a description of reserves, net
revenue interests and working interests attributable to the reserves, rates of
production, gross revenues, operating expenses, ad valorem taxes, capital
expenditures necessary to cause the Properties and all of Borrower’s and
Guarantors’ oil and gas properties to achieve the rate of production set forth
in the report, net revenues and present value of future net revenues
attributable to the reserves and production therefrom, a statement of the
assumptions upon which the determinations were made and any other matters
related to the operations of the Properties and all of Borrower’s and
Guarantors’ oil and gas properties and the estimated income therefrom;
          (e) Within fifteen (15) days of Lender’s request, copies of Borrower’s
federal, state, and local income tax filings or returns, with all schedules,
attachments, forms, and exhibits;
          (f) As soon as available, and in any event within thirty (30) days
after the end of each calendar quarter, a hedging report setting forth as of the
last business day of such prior fiscal quarter end, a summary of Borrower’s and
Guarantors’ existing hedging positions under all Hedge Transactions (including
forward agreements or contracts of sale which provide for prepayment for
deferred shipment or delivery of oil, gas, and other commodities), including the
type, term, effective date, termination date, and notional volumes and prices
for such volumes, the hedged prices, interest rates, or exchange rates, as
applicable, and any new credit support agreements relating thereto not
previously disclosed to Lender;
          (g) Within five (5) days of Lender’s request, Borrower shall provide
to Lender full and complete copies of all agreements, documents, and instruments
evidencing all existing Hedge Transactions and such other information regarding
Hedge Transactions as Lender may reasonably request;
          (h) Within sixty (60) days of the end of each month, a production
report, on a lease-by-lease or unit basis, showing the gross proceeds from the
sale of oil, gas, and associated hydrocarbons produced from the Properties, the
quantity of oil, gas, and associated hydrocarbons sold, the severance, gross
production, occupation, or gathering taxes deducted from or paid out of the
proceeds, the lease operating expenses, intangible drilling costs, and capital
expenditures, the number of wells operated, drilled, or abandoned, the name,
address, telephone number, and

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 24 of 32
contact of the first purchaser of production for all of the Properties, and such
other information as Lender may reasonably request;
          (i) As soon as available, and in any event within thirty (30) days
after the end of each calendar quarter, a gas balancing report, in Proper Form
and duly certified by an authorized representative of Borrower as being true and
correct in all material aspects to his or her knowledge;
          (j) At any time upon request by Lender, a list showing the name and
address of each purchaser of oil, gas, and associated hydrocarbons produced from
or attributable to the Properties;
          (k) Within thirty (30) days of the date of this Loan Agreement,
evidence of the payment in full of the Accounts Payable, including lien releases
to the extent necessary.
          (l) If requested by Lender, Borrower shall provide evidence that the
budgeted capital expenditures for oil and gas properties have been completed as
scheduled in accordance with the Approved Plan of Development, along with the
associated paid vendor invoices.
          (m) If requested by Lender, Borrower shall provide evidence that it
reasonably expects to have the funds available to fund the budgeted capital
expenditures under the Approved Plan of Development.
          (n) Within five (5) days after Borrower learns of any such occurrence,
a written report of any pending or threatened litigation which would reasonably
be expected to have a material adverse effect upon Borrower, Guarantors, the
Properties, or Borrower’s or any Guarantors’ financial condition or which
asserts damages or claims in an amount in excess of $100,000;
          (o) Within five (5) days after Borrower learns of any default under
one or more Hedge Transactions that results in an obligation of Borrower or any
Guarantors to make one or more material payments, written notice of the default
and copies of all documentation relating to the default;
          (p) As soon as possible and in any event within five (5) days after
the occurrence of any Event of Default, or any event which, with the giving of
notice or lapse of time or both, would constitute an Event of Default, the
written statement of the President or the Chief Financial Officer of Borrower
setting forth the details of such Event of Default and the action which Borrower
proposes to take with respect thereto; and

 

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Infinity Energy Resources, Inc.
January 9, 2007
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          (q) Such other information respecting the condition and the
operations, financial or otherwise, of Borrower, Guarantors, and the Properties
as Lender may from time to time reasonably request.
     10. Events of Default. (a) The occurrence at any time of any of the
following events or the existence of any of the following conditions, and the
expiration of any notice, cure, or grace period provided in Section 10(b) below,
shall be called an “Event of Default”:
               (1) Failure to make punctual payment when due of any sums owing
on any of the Notes or any of the other secured indebtedness (as described in
the Deeds of Trust) or any other amounts owed by Borrower to Lender; or
               (2) Failure of any of the Obligated Parties (as defined below) to
perform in any material respect any of the obligations, covenants, or
agreements, contained in this Loan Agreement or any of the other Loan Documents;
or any representation or warranty made by Borrower or Guarantors proves to have
been false, misleading, or erroneous when made in any material respect; or
               (3) A material default by Borrower or Guarantors under any ISDA
Agreement or with respect to any Hedge Liabilities; or non-payment when due or
the material breach by Borrower or Guarantors or any Obligated Parties of any
term, provision, or condition contained in any Hedge Transaction or any
confirmation or other transaction consummated thereunder, whether or not Lender
is a party thereto; or
               (4) If Borrower or any Guarantor causes production payments for
oil and gas produced from or attributable to Borrower’s oil and gas properties
to be directed to any party other than the lockbox maintained by Lender
following the establishment of the lockbox under Section 2(d) of this Loan
Agreement; or
               (5) A failure by Borrower to resolve a Borrowing Base deficiency
in accordance with Section 3(b) of this Loan Agreement; or
               (6) Levy, execution, attachment, sequestration, or other writ
against any material portion of the real or personal property representing the
security for the Loans; or
               (7) Any “Event of Default” under the Notes or any of the other
Loan Documents, the Events of Default defined in the Notes and Loan Documents
being cumulative to those contained in this Loan Agreement; or
               (8) Except as expressly permitted by this Loan Agreement, the
transfer, whether voluntarily or by operation of law, of all or any portion of
the Properties without obtaining Lender’s consent; or

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 26 of 32
               (9) The failure of any of the Obligated Parties to pay any money
judgment in excess of $500,000.00, against that party before the expiration of
thirty (30) days after the judgment becomes final, unless such judgment has been
stayed, or the failure of any of the Obligated Parties to obtain dismissal
within ninety (90) days of any involuntary proceeding filed against that party
under any Debtor Relief Laws (as defined below); or
               (10) Borrower’s liquidation, termination of existence, merger or
consolidation with another (unless Borrower is the surviving entity), forfeiture
of right to do business, except where such forfeiture would not reasonably be
expected to have a material adverse effect on Borrower or any Guarantors, or
appointment of a trustee or receiver for any substantial part of its property or
the filing of an action seeking to appoint a trustee or receiver for same; or
               (11) A filing by any of the Obligated Parties of a voluntary
petition in bankruptcy, or taking advantage of any Debtor Relief Laws; or an
answer admitting the material allegations of a petition filed against any of the
Obligated Parties, under any Debtor Relief Laws; or an admission by any of the
Obligated Parties in writing of an inability to pay its or their debts as they
become due; or the calling of any meeting of creditors of any of the Obligated
Parties for the purpose of considering an arrangement or composition; or
               (12) Any of the Obligated Parties revokes or disputes the
validity of or liability under any of the Loan Documents, including any guaranty
or security document.
          (b) The term “Obligated Parties” means Borrower, Guarantors, any other
party liable, in whole or in part, for the payment of any of the Notes, whether
as maker, endorser, guarantor, surety, or otherwise, and any party executing any
deed of trust, mortgage, security agreement, pledge agreement, assignment, or
other contract of any kind executed as security in connection with or pertaining
to the Notes or the Loans. The term “Debtor Relief Laws” means any applicable
liquidation, conservatorship, receivership, bankruptcy, moratorium,
rearrangement, insolvency, reorganization, or similar laws affecting the rights
or remedies of creditors generally, as in effect from time to time.
     11. Remedies. (a) Upon the occurrence and during the continuance of any one
or more of the foregoing Events of Default, the entire unpaid principal balances
of the Notes, together with all accrued but unpaid interest thereon, and all
other indebtedness then owing by Borrower to Lender, shall, at the option of
Lender, upon written notice to Borrower, become immediately due and payable
without further presentation, demand for payment, notice of intent to
accelerate, notice of acceleration or dishonor, protest or notice of protest of
any kind, all of which are expressly waived by Borrower. Any and all rights and
remedies of Lender pursuant to this Loan Agreement or any of the other Loan
Documents may be exercised by Lender, at its option, upon the occurrence and
during the continuance of an Event of Default. All remedies of Lender may be
exercised singularly, concurrently, or consecutively, without waiver or
election.

 

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Infinity Energy Resources, Inc.
January 9, 2007
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     (b) Upon any event described in Subsection 10 (a)(1) above regarding
payment of sums owing to Lender, Lender shall provide Borrower with an invoice
for the payment due and Borrower shall have five (5) days grace after the due
date in order to cure the default prior to acceleration of the Notes and
exercise of any remedies. Upon any other event described in Subsection 10
(a) above, Lender shall provide Borrower with written notice of the default and
Borrower shall have twenty (20) days after notice in order to cure the default
prior to acceleration of the Notes and exercise of any remedies; except Borrower
shall have no cure period for any voluntary filing by Borrower under any Debtor
Relief Laws, for any voluntary transfer of any portion of the Properties,
without obtaining Lender’s partial release, for any liquidation or termination
of existence of Borrower, or for any Event of Default that is not capable of
cure during that period, and provided that Lender is not obligated to provide
written notice of any default which Borrower reports to Lender, but Borrower
shall have the benefit of any applicable grace or cure period required herein.
     (c) All rights of Lender under the terms of this Loan Agreement shall be
cumulative of, and in addition to, the rights of Lender under any and all other
agreements between Borrower and Lender (including, but not limited to, the other
Loan Documents), and not in substitution or diminution of any rights now or
hereafter held by Lender under the terms of any other agreement.
     12. Waiver and Amendment. Neither the failure nor any delay on the part of
Lender to exercise any right, power, or privilege herein or under any of the
other Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power, or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. No waiver of any provision in this Loan Agreement or in any of the
other Loan Documents and no departure by Borrower therefrom shall be effective
unless the same shall be in writing and signed by Lender, and then shall be
effective only in the specific instance and for the purpose for which given and
to the extent specified in such writing. No modification or amendment to this
Loan Agreement or to any of the other Loan Documents shall be valid or effective
unless the same is signed by the party against whom it is sought to be enforced.
     13. Savings Clause. Regardless of any provision contained in this Loan
Agreement, the Notes, or any of the Loan Documents, it is the express intent of
the parties that at no time shall Borrower or any of the Obligated Parties pay
interest in excess of the Maximum Rate (or any other interest amount which might
in any way be deemed usurious), and Lender will never be considered to have
contracted for or to be entitled to charge, receive, collect, or apply as
interest on any of the Notes, any amount in excess of the Maximum Rate (or any
other interest amount which might in any way be deemed usurious). In the event
that Lender ever receives, collects, or applies as interest any such excess, the
amount which would be excessive interest will be applied to the reduction of the
principal balances of the Notes, and, if the principal balances of the Notes are
paid in full, any remaining excess shall forthwith be paid to Borrower.

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 28 of 32
In determining whether the interest paid or payable exceeds the Maximum Rate (or
any other interest amount which might in any way be deemed usurious), Borrower
and Lender shall, to the maximum extent permitted under applicable law:
(i) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense or fee rather
than as interest; (ii) exclude voluntary prepayments and the effect thereof; and
(iii) amortize, pro rate, or spread the total amount of interest throughout the
entire contemplated term of the Notes so that the interest rate is uniform
throughout the term. The term “Maximum Rate” means the maximum interest rate
which may be lawfully charged under applicable law.
     14. Notices. Any notice or other communications provided for in this Loan
Agreement shall be in writing and shall be given to the party at the address
shown below:

     
Lender:
  Amegy Bank N.A.
 
  Attention: Tim E. Merrell, Senior Vice President
 
  1807 Ross Avenue, Suite 400
 
  Dallas, Texas 75201
 
  Fax Number (214) 754-9687
 
   
With a copy to counsel for Lender:
  Paul D. Bradford
 
  Harris, Finley & Bogle, P.C.
 
  777 Main Street, Suite 3600
 
  Fort Worth, Texas 76102-5341
 
  Fax Number (817) 332-6121
 
   
Borrower and Guarantors:
  Infinity Energy Resources, Inc.
 
  Infinity Oil and Gas of Texas, Inc.
 
  Infinity Oil & Gas of Wyoming, Inc.
 
  Attention: James A. Tuell, President
 
  633 Seventeenth Street, Suite 1800
 
  Denver, Colorado 80202
 
  Fax Number (720) 932-5409
 
   
With a copy to counsel for Borrower and Guarantors:
  Deborah J. Friedman
Davis Graham & Stubbs LLP
 
  1550 Seventeenth Street, Suite 500
 
  Denver, Colorado 80202
 
  Fax Number (303) 893-1379

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 29 of 32
Any such notice or other communication shall be deemed to have been given on the
day it is personally delivered or, if mailed, on the third day after it is
deposited in an official receptacle for the United States mail, or, if faxed, on
the date it is received by the party. Any party may change its address for the
purposes of this Loan Agreement by giving notice of such change in accordance
with this paragraph.
     15. Miscellaneous. (a) This Loan Agreement shall be binding upon and inure
to the benefit of Lender, Borrower, and Guarantors, and their respective heirs,
personal representatives, successors, and assigns; provided, however, that
Borrower and Guarantors may not, without the prior written consent of Lender,
assign any rights, powers, duties, or obligations under this Loan Agreement or
any of the other Loan Documents.
          (b) THIS LOAN AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS.
BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR
CLAIM RELATED TO THIS LOAN AGREEMENT, THE NOTES, THE LOANS, THE GUARANTIES, OR
THE PROPERTIES SHALL BE IN COURT IN DALLAS COUNTY, TEXAS.
          (c) If any provision of this Loan Agreement or any other Loan
Documents is held to be illegal, invalid, or unenforceable under present or
future laws, such provision shall be fully severable and the remaining
provisions of this Loan Agreement or any of the other Loan Documents shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance.
          (d) All covenants, agreements, undertakings, representations, and
warranties made in this Loan Agreement and the other Loan Documents shall
survive any closing hereunder.
          (e) All documents delivered by Borrower or Guarantors to Lender must
be in Proper Form. The term “Proper Form” means in form, substance, and detail
satisfactory to Lender in its sole discretion.
          (f) Without limiting the effect of any provision of any Loan Document
which provides for the payment of expenses and attorneys fees upon the
occurrence of certain events, Borrower shall pay all costs and expenses
(including, without limitation, the reasonable attorneys fees of Lender’s legal
counsel) in connection with (i) the preparation of this Loan Agreement and the
other Loan Documents, and any and all extensions, renewals, amendments,
supplements, extensions, or modifications thereof, (ii) any action reasonably
required in the course of

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 30 of 32
administration of the Loans, (iii) resolution of any disputes with Borrower or
Guarantors related to the Loans or this Loan Agreement, and (iv) any action in
the enforcement of Lender’s rights upon the occurrence of an Event of Default.
          (g) If there is a conflict between the terms of this Loan Agreement
and the terms of any of the other Loan Documents, the terms of this Loan
Agreement will control.
          (h) Lender shall have the right, with the consent of Borrower (unless
an Event of Default has occurred and is continuing, in which case no consent is
needed), which will not be unreasonably withheld, (i) to assign the Loans or
commitment and be released from liability thereunder, and (ii) to transfer or
sell participations in the Loans or commitment with the transferability of
voting rights limited to principal, rate, fees, and term.
          (i) This Loan Agreement may be separately executed in any number of
counterparts, each of which will be an original, but all of which, taken
together, shall be deemed to constitute one agreement, and Lender is authorized
to attach the signature pages from the counterparts to copies for Lender and
Borrower. At Lender’s option, this Loan Agreement and the Loan Documents may
also be executed by Lender, Borrower, and Guarantors in remote locations with
signature pages faxed to Lender and Borrower. Lender, Borrower, and Guarantors
agree that the faxed signatures are binding upon the parties thereto, and the
parties further agree to promptly deliver the original signatures for this Loan
Agreement and all Loan Documents by overnight mail or expedited delivery. It
will be an Event of Default if they fail to promptly deliver all required
original signatures.
     16. Notice of Final Agreement. (a) In connection with the Loans, Borrower,
Guarantors, and Lender have executed and delivered this Loan Agreement and the
Loan Documents (collectively the “Written Loan Agreement”).
          (b) It is the intention of Borrower, Guarantors, and Lender that this
paragraph be incorporated by reference into each of the Loan Documents.
Borrower, Guarantors, and Lender each warrant and represent that their entire
agreement with respect to the Loans is contained within the Written Loan
Agreement, and that no agreements or promises have been made by, or exist by or
among, Borrower, Guarantors, and Lender that are not reflected in the Written
Loan Agreement.
          (c) THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 31 of 32
     If the foregoing correctly sets forth our agreement, please so acknowledge
by signing and returning the additional copy of this Loan Agreement enclosed to
me.

            Yours very truly,

Amegy Bank N.A.
      By:   /s/ Tim E. Merrell       Tim E. Merrell,        Senior Vice
President   

 

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Infinity Energy Resources, Inc.
January 9, 2007
Page 32 of 32
Accepted and agreed to this 9th day of January, 2007:

          BORROWER:
 
        Infinity Energy Resources, Inc.  
 
       
By:
  /s/ James A. Tuell    
 
       
 
  James A. Tuell, President    
 
        GUARANTORS:
 
        Infinity Oil and Gas of Texas, Inc.
 
       
By:
  /s/ James A. Tuell    
 
       
 
  James A. Tuell, President    
 
        Infinity Oil & Gas of Wyoming, Inc.
 
       
By:
  /s/ James A. Tuell    
 
       
 
  James A. Tuell, President    

Exhibits and Schedules
Exhibit A — Revolving Note
Exhibit B — Compliance Certificate
Schedule 1(d) — Approved Plan of Development
Schedule 5(a)(6) — Liens and security interests
Schedule 5(a)(8) — Material adverse change
Schedule 5(a)(9) — Order, injunction, or other pending or threatened actions,
suits, or proceedings
Schedule 6(e) — Additional taxes
Schedule 6(h) — Organizational Chart
Schedule 6(i) — Hedge Transactions
Schedule 7(h) — Obligations on Nicaraguan concessions
Schedule 7(p) — ERISA issues