Exhibit 10.1


 


DEBTOR-IN-POSSESSION
LOAN AND SECURITY AGREEMENT


 


Between


 


PRB
ACQUISITION, LLC


 


As
Lender


 


and


 


PRB
OIL AND GAS, INC., and


 


PRB
ENERGY, INC.


 


Debtors
and Debtors-in-Possession


 


As
Borrowers


 


Dated as of May 19, 2008


 

















 


DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT


 


Dated
as of May 19, 2008


 


THIS DEBTOR-IN-POSSESSION
LOAN AND SECURITY AGREEMENT (the “Agreement”) is entered into by and between
PRB ENERGY, INC. (“Energy”) and PRB OIL AND GAS, INC. (“Oil  & Gas”),
each a Colorado corporation and a debtor and debtor-in-possession in bankruptcy
(individually and/or collectively, “Borrower”), and PRB ACQUISITION, LLC, a
Colorado limited liability company (“Lender”).


 


RECITALS


 


WHEREAS, on or about March 5,
2008 (the “Petition Date”), Borrower and certain affiliates (collectively, the “Debtors”)
filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
(as hereinafter defined), thereby commencing Chapter 11 Case No. 08-12661,
which is jointly administered under Case No. 08-12658 (the “Bankruptcy
Case”) with the United States Bankruptcy Court for the District of Colorado
(the “Bankruptcy Court”);


 


WHEREAS, Borrower and its
jointly administered affiliates continue to operate as debtors-in-possession
pursuant to Sections 1107 and 1108 of the Bankruptcy Code;


 


WHEREAS, Borrower has
requested that Lender enter into certain financing arrangements with Borrower
pursuant to Section 364(c)(1), (c)(2), (c)(3) and (d) of the
Bankruptcy Code for such purposes as are hereinafter described in this
Agreement;


 


WHEREAS, Borrower has
obtained debtor-in-possession financing from PRB Funding, LLC pursuant to that
certain Interim Order Authorizing Post-Petition Financing and Limited Use of
Cash Collateral [Docket No. 133 in the Bankruptcy Case], but Borrower has
been unable to obtain additional debtor-in-possession financing on an unsecured
basis or on terms as favorable or more favorable than the terms provided
herein, and an immediate need exists for Borrower to obtain funds to continue
in the operation of their business;


 


WHEREAS, to provide security
for, and to assure the repayment of the Obligations (as hereinafter defined),
Borrower has agreed to grant to Lender and any of its successors and assigns,
inter alia, security interests in and liens against all of Borrower’s property
and interests, whether real or personal, tangible or intangible, but excluding
the Excluded Assets (as defined herein), on the terms and conditions set forth
herein and in accordance with Sections 364(c)(1), (c)(2), and (c)(3), and (d) of
the Bankruptcy Code;


 


WHEREAS, on or about May       ,
2008, Borrower has filed with the Bankruptcy Court a motion to authorize
Borrower to enter into this Agreement and to approve the DIP Facility and all
corresponding terms and provisions;


 


WHEREAS, Lender is willing
to provide such financial arrangements to Borrower, subject to the terms and
conditions of this Agreement and subject to the terms 


 


1

















 


and
conditions set forth in the DIP Order (as defined herein) approving the
proposed financing; and


 


NOW, THEREFORE, in
consideration of the mutual conditions and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows.


 


DEFINITIONS


 


As used in this Agreement:


 


“Account” or “Accounts”
means all now owned or hereafter acquired right, title and interest in all
accounts, as such term is defined in the UCC, and any and all supporting obligations
with respect to any of the foregoing.


 


“Account Debtor” means a
Person to whom Borrower sells inventory, goods or services in the ordinary
course of business, including without limitation, each Person who is obligated
on a Receivable.


 


“Additional Documents” has
the meaning set forth in Section 3.2(c).


 


“Agreement” means this
Debtor-in-Possession Loan and Security Agreement, including all Schedules,
exhibits and other attachments hereto, as the same may be amended,
supplemented, extended or restated from time to time.


 


“Agreement Date” means the
date as of which this Agreement is dated.


 


“Applicable Law” means all
applicable provisions of constitutions, statutes, rules, regulations and orders
of governmental bodies and orders and decrees of courts and arbitrators.


 


“Automatic Stay” means the
automatic stay imposed under Section 362 of the Bankruptcy Code.


 


“Bankruptcy Code” means the
United States Bankruptcy Code, as in effect from time to time.


 


“Borrowing” means a
borrowing of Loan Advances.


 


“Budget” means a  cash flow budget through June 30, 2008 on a receipts
and disbursements basis satisfactory in form and substance to Lender, which is
attached hereto as Exhibit “A.”


 


“Business Day” means any day
other than a Saturday, Sunday or other day on which banks in the State of
Colorado are authorized or required to close.


 


“Chattel Paper” means all “chattel
paper” as defined in Article 9 of the UCC including, without limitation, “electronic
chattel paper” or “tangible chattel paper,” as each term is defined in Article 9
of the UCC.


 


2

















 


“Closing Date” means the
date of the initial funding under this Agreement.


 


“Collateral” means all of
Borrower’s assets, including, without limitation, all of the following property
and interests in property of Borrower, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising, and whether
constituting pre-petition property or post-petition property: (i) all
Receivables; (ii) all Inventory; (iii) all Equipment; (iv) all
Contract Rights; (v) all General Intangibles; (vi) all Investment
Property; (vii) each Deposit Account maintained with a bank, savings and
loan association, credit union or like organization, other than an account
evidenced by a certificate of deposit that is an instrument under the UCC (a
list of Borrower’s Deposit Accounts is set forth in Schedule 1 hereto); (viii) all
Goods and other property, whether or not delivered, (a) the sale or lease
of which gives or purports to give rise to any Receivable, including, but not
limited to, all merchandise returned or rejected by or repossessed from
customers, or (b) securing any Receivable, including, without limitation,
all rights as an unpaid vendor or lienor (including, without limitation, stoppage in
transit, replevin and reclamation) with respect to such Goods and other
property; (ix) all mortgages, deeds to secure debt and deeds of trust on
real or personal property, guaranties, leases, security agreements, and other
agreements and property which secure or relate to any Receivable or other
Collateral, or are acquired for the purpose of securing and enforcing any item
thereof; (x) all documents of title, policies and certificates of
insurance, securities, Chattel Paper (including electronic chattel paper and
tangible chattel paper) and other Documents and Instruments; (xi) all other
Goods and personal property, whether tangible or intangible, wherever located,
including money, supporting obligations, letters of credit, and each Letter-of-Credit
right; (xii) all files, correspondence, computer programs, tapes, discs and
related data processing software which contain information identifying or
pertaining to any of the Receivables, or any Account Debtor, or showing the
amounts thereof or payments thereon or otherwise necessary or helpful in the
realization thereon or the collection thereof; (xiii) any “commercial tort
claims” as that term is defined in the UCC, as set forth on Schedule 1 attached
hereto; (xiv) all Intellectual Property; (xv) to the extent not included in any
of the foregoing, the DJ Basin Collateral; and (xvi) any and all products and
proceeds of the foregoing (including, but not limited to, any claim to any item
referred to in this definition, and any claim against any third party for loss
of, damage to or destruction of any or all of, the Collateral or for proceeds
payable under, or unearned premiums with respect to, policies of insurance) in
whatever form, including, but not limited to, cash, negotiable instruments and
other instruments for the payment of money, Chattel Paper, security agreements
and other documents, other than the Excluded Assets.


 


“Commitment Fee” means the
fee referred to in Section 2.1.


 


“Contract Rights” means any
rights under contracts not yet earned by performance and not evidenced by an
instrument or Chattel Paper.


 


“Debentures” means the two
pre-petition debentures, each in the principal amount of $7,500,000.00, one of
which was issued to DKR Soundshore Oasis Holding Fund and the other of which
was issued to West Coast Opportunity Fund.


 


3

















 


“Default” shall mean an
event or condition the occurrence of which would, with the lapse of time or the
giving of notice, or both, become an Event of Default.


 


“Deposit Account” has the
meaning given to it in the UCC.


 


“Deposit Account Control
Agreement” means the Deposit Account Control Agreement among Borrower, Lender
and the bank named therein, pursuant to which Lender shall have been granted a
first priority lien and security interest in the deposit account more
particularly described therein.


 


“Development Loan” means, in
respect of the properties that are the subject of the DJ Basin Collateral,  a discretionary loan or loans that Lender may
make to Borrower under the terms of this Agreement, provided, however that the
proceeds of such loan or loans shall be made only (i) for capital
expenditures on pipeline, gathering system and related infrastructure and
expenditures associated therewith, (ii) in connection with permitting of
wells and obtaining any approvals, consents or the like required by applicable
laws or regulations, (iii) in furtherance of assessing, analyzing or
evaluating the prospects of the properties comprised by the DJ Basin
Collateral, and/or (iv) any other expenditure deemed appropriate by Lender, and shall in
all cases only be made by Lender in Lender’s sole and absolute discretion with
no ability of Borrower to require or demand any advance.


 


“Development Loan Advance”
means any advance of the Development Loan.


 


“DIP Facility” means the
credit facility established under this Agreement.


 


“DIP Facility Account” shall
mean that certain bank account, indentified in Schedule 1, into which all
proceeds of the Loan Advances and the Development Loan Advances shall be
deposited and for which Lender shall have control pursuant to a Deposit Account
Control Agreement and for which no other party shall have a Lien.


 


“DIP Order” shall mean the
order entered by the Bankruptcy Court in the Bankruptcy Case after a final
hearing under Bankruptcy Rule 4001(c)(2), pursuant to Section 364(c) and
(d) of the Bankruptcy Code, as to which no stay pending appeal has been
entered, and no motion to reconsider filed, and which has not been vacated,
modified or reversed, (i) authorizing the Borrower to incur post-petition
secured indebtedness and to grant Liens under the DIP Facility in accordance
with this Agreement and any other Loan Documents, (ii) providing for the
super-priority of the Obligations, including without limitation, a specific
grant of a security interest to Lender in all Collateral, as well as the right
to the proceeds from all Collateral in accordance with this Agreement and any
other Loan Documents, (iii) providing “adequate protection” pursuant to Section 364(d) of
the Bankruptcy Code to such creditors whose Liens have been primed, (iv) authorizing
the payment by the Borrower of all fees and expenses contemplated by this
Agreement and any other Loan Documents, including, but not limited to, those
certain fees set forth in Article II herein, each as set forth in such
order, and in all respects to be satisfactory to Lender, and (v) authorizing
the Due Diligence Fee (as defined herein).


 


4

















 


“DJ Basin Collateral” means
those certain oil and gas leases and related agreements identified in the
Borrower’s Schedules filed with the Bankruptcy Court for property in the Denver
Julesberg Basin on the Colorado/Nebraska Border acquired from Western Gas
Resources, Inc. and Lance Oil & Gas on or about December 28,
2006, as more particularly described in Schedule 1 hereto, but expressly
excluding those oil and gas leases separately described on Schedule 1 that
Borrower will allow to lapse.


 


“Documents” means all “documents”
as defined in Article 9 of the UCC.


 


 “Dollar” and “$” means freely transferable
United States dollars.


 


“Equipment” means (a) all
“equipment” as defined in Article 9 of the UCC and (ii) all
accessions or additions thereto, all parts thereof, whether or not at any time
of determination incorporated or installed therein or attached thereto, and all
replacements therefor, wherever located, now or hereafter existing, including
any fixtures.


 


“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended from time to time, including
(unless the context otherwise requires) any rules or regulations
promulgated thereunder.


 


“ERISA Event” means (a) the
occurrence of a reportable event, within the meaning of Section 4043 of
ERISA, unless the 30-day notice requirement with respect thereto has been
waived by the PBGC; (b) the provision by the administrator of any ERISA
Plan of a notice of intent to terminate such ERISA Plan, pursuant to Section 4041(a)(2) of
ERISA (including any such notice with respect to a plan amendment referred to
in Section 4041(e) of ERISA); (c) the cessation of operations at
a facility in the circumstances described in Section 4068(f) of
ERISA; (d) the withdrawal by any Borrower or any ERISA Affiliate from a
Multiple Employer Plan (as defined in ERISA) during a plan year for which it
was a substantial employer, as defined in 4001(a)(2) of ERISA; (e) the
failure by any Borrower or any ERISA Affiliate to make a material payment to an
ERISA Plan required under Section 302(f)(1) of ERISA; (f) the
adoption of an amendment to an ERISA Plan requiring the provision of initial or
additional security to such ERISA Plan, pursuant to Section 307 of ERISA;
or (g) the institution by the PBGC of proceedings to terminate an ERISA
Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition which might constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, an ERISA
Plan.


 


“ERISA Plan” means any
employee benefit or other plan established or maintained, or to which
contributions have been made, by any Borrower or any Subsidiary and covered by
Title IV of ERISA or to which Section 412 of the IRC applies.


 


“Estate” means the
bankruptcy estate created in the Bankruptcy Case pursuant to 11 U.S.C. §
541(a).


 


“Event of Default” means an
event described in Section 9.1 of the Agreement provided that any
requirement for notice or lapse of time or any other condition has been
satisfied.


 


5

















 


“Excluded Assets” shall mean
any of Borrower’s oil and gas leases, gathering lines, and gathering equipment
located in the State of Wyoming as of April 22, 2008, the asset pool for
which is set forth in Schedule 1 hereto, which assets are excluded from the
Collateral.  Excluded Assets shall not
include the DJ Basin Collateral and any oil and gas leases, gathering lines,
and gathering equipment related thereto and its Certificate of Deposit
maintained with Colorado State Bank and pledged as security to Bank of Oklahoma
and further encumbered by a junior security interest in favor of the Debenture
Holders.


 


“Financing Statements” means
any and all Uniform Commercial Code financing statements, in form and substance
satisfactory to Lender, naming Lender as secured party, and Borrower as debtor,
whether executed and delivered by Borrower or Lender or otherwise authorized by
Borrower.


 


“General Intangibles” has
the same meaning given to it in the UCC.


 


“Goods” means all “goods” as
defined in Article 9 of the UCC.


 


“Governmental Approvals”
means all authorizations, consents, approvals, licenses and exemptions of,
registrations and filings with, and reports to, all governmental bodies,
whether federal, state, local or foreign national or provincial and all
agencies thereof.


 


“Guaranty Obligation” means
as to any Person, any obligation of such Person guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends or other obligations (the “Primary
Obligations”) of any other person (the “Primary Obligor”) in any manner,
whether directly or indirectly, including, without limitation, any obligation
of such Person, whether or not contingent (a) to purchase any such Primary
Obligation or any Property constituting direct or indirect security therefore, (b) to
advance or supply funds (i) for the purchase or payment of any such
primary obligation or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of
the Primary Obligor, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such Primary Obligation
of the ability of the Primary Obligor to make payment of such Primary
Obligation, or (d) otherwise to assure or hold harmless the owner of any
such Primary Obligation against loss in respect thereof; provided, that,
notwithstanding the foregoing, the term Guaranty Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guaranty Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the Primary Obligation in respect
of which such Guaranty Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.


 


“Indebtedness” means at any
time and with respect to any Person, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including Inventory, and services purchased, and trade payables,
other expense accruals and deferred compensation items arising, in the ordinary
course of business, including negotiated trade terms and Chapter 11 expense
accruals), (c) all obligations of 


 


6

















 


such
Person evidenced by notes, bonds, debentures or other similar instruments
(other than performance, surety and appeal bonds arising in the ordinary course
of business), (d) all indebtedness of such Person created or arising under
any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all capital lease obligations
of such Person, (f) all reimbursement, payment or similar obligations of
such Person, contingent or otherwise, under acceptance, letter of credit or
similar facilities, (g) all Guaranty Obligations of such Person in respect
of indebtedness of others referred to in clauses (a) through (f) above,
and (h) all indebtedness referred to in clauses (a) through (g) above
secured by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property owned
by such Person, even though such Person has not assumed or become liable for
the payment of such indebtedness.


 


“Instruments” means all “instruments”
as defined in Article 9 of the UCC.


 


“Intellectual Property”
means all now owned or hereafter acquired right, title and interest in trade
names, trademarks, trade secrets, service marks, data bases, software and software
systems, including the source and object codes, information systems, discs,
tapes, customer lists, telephone numbers, credit memoranda, goodwill, patents,
patent applications, patents pending, copyrights, royalties, literary rights,
licenses, and franchises, together with (a) all income, royalties,
damages, claims and payments now or hereafter due and/or payable under and with
respect thereto, including, without limitation, damages and payments for past
and future infringements thereof, (b) rights to sue for past, present and
future infringements thereof, and (c) all rights corresponding to any of
the foregoing throughout the world.


 


“Interest Rate” means a
fixed rate of eighteen percent (18%) per annum; or, after the occurrence of an
Event of Default, a fixed rate of twenty-one percent (21%) per annum.


 


“Interested Party” means any
employee, agent, owner, partner, member, or shareholder of Borrower.


 


“Internal Revenue Code” or “IRC”
means the Internal Revenue Code of 1986, as in effect from time to time.


 


“Inventory” means all
inventory as such term is defined in the UCC and shall include, without
limitation, all documents evidencing and General Intangibles.


 


“Investment Property” has
the meaning given to it in the UCC.


 


“Letter-of-Credit right” has
the meaning given to it in the UCC.


 


“Lien” means: (a) any
mortgage, deed to secure debt, deed of trust, lien, pledge, charge, lease,
conditional sale or other title retention agreement, or other security
interest, security title or encumbrance of any kind in respect of any property
of such Person, or upon the income or profits therefrom, (b) any
arrangement, express or implied, under 


 


7

















 


which
any property is transferred, sequestered or otherwise identified for the
purpose of subjecting the same to the payment of debt or performance of any
other obligation in priority to the payment of general, unsecured creditors,
and (c) the filing of, or any agreement to give, any financing statement
under the Uniform Commercial Code or its equivalent in any jurisdiction,
excluding informational financing statements relating to leased property.


 


“Loan Documents” means
collectively this Agreement, the DIP Order and each other instrument, agreement
or document executed by Borrower related thereto, and any and all amendments,
restatements, modifications and/or supplements to all such documents.


 


“Loans” means any one or
more advances under the DIP Facility.


 


“Material Adverse Effect”
means a material adverse effect on (a) the business, assets, properties,
financial condition, contingent liabilities or material agreements of Borrower
taken as a whole, including, but not limited to, the oil and gas industry as a
whole, (b) the value of the Collateral, (c) the Security Interest or
the priority of the Security Interest, (d) the respective ability of
Borrower to perform any material obligations under this Agreement or any other
Loan Document to which it is a party, and/or (e) the legality, validity,
binding effect, enforceability or admissibility into evidence of any Loan
Document or the ability of Lender to enforce any rights or remedies under or in
connection with any Loan Document.


 


“Maximum Amount” shall mean $400,000.00 or such lesser
or greater amount as shall be agreed upon from time to time in writing by
Lender and Borrower.


 


“Maximum
Development Loan Amount” shall mean $1,000,000.00 or such lesser or greater
amount as shall be agreed upon from time to time in writing by Lender and
Borrower.


 


“Maximum
Total Amount” shall mean the sum of the Maximum Amount and the Maximum
Development Loan Amount.


 


“Maximum
Lawful Rate of Interest” means a rate of interest equal to the highest rate of
interest that may be charged under applicable laws or regulations in effect
from time to time.


 


“Notice of Borrowing” means a telephonic or electronic
notice followed by a confirming same-day written notice requesting a Borrowing,
which is given by telex or facsimile transmission in accordance with the
applicable provisions of this Agreement and which specifies (a) the amount
of the requested Borrowing, and (b) the date of the requested Borrowing.


 


“Obligations” means, in each case whether now in existence or hereafter
arising, (a) the principal of, and interest and premium, if any, on, the
Loans, and (b) all other indebtedness, liabilities, obligations, covenants
and duties of Borrower to Lender of every kind, nature and description arising
under this Agreement, or any of the other Loan Documents, or in connection with
the DIP Facility, whether direct or indirect, absolute or contingent, due or
not due, contractual or tortious, liquidated or unliquidated, and 


 


8

















 


whether or not evidenced by any note, and whether or
not for the payment of money, including without limitation, fees, costs,
charges, indemnities and expenses required to be paid or reimbursed pursuant to
this Agreement or any of the Loan Documents.


 


“PBGC”
means the Pension Benefit Guaranty Corporation and any entity succeeding to any
or all of its functions under ERISA.


 


“Permitted Liens” means: (a) allowed
Liens securing taxes, assessments and other governmental charges or levies
(excluding any Lien imposed pursuant to any of the provisions of ERISA) or the
allowed claims of materialmen, mechanics, carriers, warehousemen or landlords
for labor, materials, supplies or rentals incurred in the ordinary course of
business but, in the case of warehousemen or landlords, only if such liens are
junior to the Security Interest in any of the Collateral, (b) allowed
Liens consisting of deposits or pledges made in the ordinary course of business
in connection with, or to secure payment of, obligations under workers’
compensation, unemployment insurance or similar legislation or under payment or
performance bonds, (c) other allowed Liens on real property owned by
Borrower in the nature of zoning restrictions, easements, and rights or
restrictions of record on the use of real property, which do not materially
detract from the value of such property or impair the use thereof in the
business of Borrower, (d) purchase money Liens, (e) the Liens arising
under the Debentures, each in the principal amount of $7,500,000.00, which
Liens were granted to DKR Soundshore Oasis Holding Fund and West Coast
Opportunity Fund, and (f) the Lien of PRB Funding, LLC in the principal
amount of up to $575,000.00.


 


“Person” means any
individual, limited liability company, corporation, partnership, association,
trust or unincorporated organization, trustee, a government or any agency or
political subdivision thereof, or any other legal entity.


 


“Plan of Reorganization”
shall mean a plan of reorganization proposed by Borrower or any other Person in
the Bankruptcy Case.


 


“Post-Petition” means any
event, matter or item that arose on or after the Petition Date.


 


“Pre-Petition” means any
event, matter or item that arose prior to the Petition Date.


 


“Receivable” means and
includes (a) any and all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as Accounts,
Contract Rights, Chattel Paper, General Intangibles, or otherwise) including,
but not limited to, Accounts, Letters-of-credit rights, Chattel Paper, tax
refunds, insurance proceeds, Contract Rights, notes, drafts, Instruments,
Documents, acceptances, and all other debts, obligations and liabilities in
whatever form from any Person, (b) all guarantees, security and Liens for
payment thereof, (c) all Goods, whether now owned or hereafter acquired,
and whether sold, delivered, undelivered, in transit or returned, which may be
represented by, or the sale or lease of which may have given rise to, any such
right to payment or other debt, obligation or liability, and (d) all
proceeds of any of the foregoing.


 


9
















 


“Revenues” shall mean all
money, funds, cash, proceeds, or payments of any kind received by Borrower from
all sources, including without limitation, all proceeds of Collateral,
including insurance proceeds, and all proceeds from the sale of Inventory or other
Collateral, whether received in cash, by check, by other instrument, or
otherwise.


 


“Security” shall have the
same meaning as in Section 2(1) of the Securities Act of 1933, as
amended.


 


“Security Interest” means
the Liens of Lender on and in the Collateral created or effected hereby or by
any of the other Loan Documents, the DIP Order, or pursuant to the terms hereof
or thereof.


 


“Term” means the period of
time commencing on the Agreement Date and ending June 30, 2008.


 


“Termination Date” means the
earliest to occur of: (a) September 30, 2008, (b) an Event of
Default, or (c) confirmation of a Plan of Reorganization.


 


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


 


General.  Unless
otherwise defined, all terms used in this Agreement that are defined in the UCC
shall have the meaning give them in the UCC. 
All terms of an accounting nature not specifically defined in this
Agreement shall have the meaning ascribed them by GAAP.  References to any legislation or statute or
code, or to any provision thereof, shall include any modification or
reenactment of, or any legislative, statutory or code provision substituted
for, such legislation, statute or code or provision thereof.  References to any Person include its
successor or permitted substitutes and assigns.


 


ARTICLE I - LOANS, RENEWAL AND
TERMINATION


 


1.1           DIP Facility.


 


(a)           Lender agrees, during the Term and for so long as no
Default or Event of Default exists and subject to the terms of this Agreement,
to make Loan Advances to Borrower in an aggregate amount not to exceed the
Maximum Amount.  The proceeds of Loan
Advances shall be used only for those items on the Budget, which Lender has
approved, which includes the expenses of Oil & Gas and certain
expenses of Energy, and which shall be limited to (a) general and
administrative expenses related to the business of Oil & Gas, (b) fees
incurred by the Borrower’s professionals as allocated by the Budget, and (c) certain,
limited, expenses relating to corporate overhead and governance.


 


(b)           During the Term, the Lender
may make one or more advances of the Development Loan in its sole and absolute
discretion.  Borrower acknowledges and
agrees that it shall have no ability to require or demand any advance from
Lender.


 


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1.2           Borrowing Procedures (Excluding Development Loans).


 


(a)           Subject to the provisions of Section 8.1 of this
Agreement, as applicable, and provided that there does not then exist a Default
or an Event of Default, Borrower may, from time to time, request that Lender
make Loan Advances to Borrower in accordance with the terms of this
Agreement.  Lender shall fund requests
for Loan Advances as follows: (i) by the close of business on the first
Business Day after such request is received if the request is received prior to
1:00 p.m. prevailing Mountain Time; and (ii) by the close of the
second Business Day after such request is received if the request is received
after that time.


 


(b)           The initial request for a Loan Advance shall be made
by transmission to Lender of a fully executed Borrowing Certificate on or
before the Closing Date substantially in the form of Exhibit “B” (the “Borrowing
Certificate”), which certificate shall specify (i) the amount to be
borrowed (which shall be equal to or less than the Maximum Amount in effect as
of the Closing Date), and (ii) the use of the proceeds (including an
itemized list of all checks, ACH or wire transactions, or other items to be
funded with such proceeds); provided, that, Lender shall at any time have the
right to review and comment, in the exercise of its reasonable discretion to
the extent necessary to insure Borrower’s compliance with the Budget, on the
amount of such request.  Borrower shall
make no more than two (2) requests for Loan Advances per calendar week.


 


(c)           Subsequent requests for Loan Advances shall be made by
transmission to Lender of a fully executed Borrowing Certificate as provided in
Section 1.2(b), executed by an authorized officer of Borrower.  Borrower agrees that the delivery of any such
Borrowing Certificate shall constitute a certification by Borrower that (i) the
requested Loan and the intended use thereof are consistent with the terms of
this Agreement and is necessary for Borrower to satisfy its obligations as set
forth on the then current Budget, (ii) the proceeds of all prior Loans
have been applied in conformity with the requirements of this Agreement, (iii) all
of the representations contained in Article 5 of this Agreement are true
and correct, (iv) Borrower has observed and performed in all material
respects all applicable covenants and agreements contained herein and in the
other Loan Documents and the DIP Order, and satisfied each condition to such
Loan contained herein or in the other Loan Documents or in the DIP Order (as
applicable), to be observed, performed or satisfied by Borrower, (v) the
making of the requested Loan is in compliance with all provisions of this
Agreement and the other Loan Documents, (vi) such authorized officer has
no knowledge of any Default or Event of Default, and (vii) the conditions
set forth in Article 8 of this Agreement are satisfied.


 


(d)           Borrower shall reimburse Lender and hold Lender
harmless from any loss or expense that Lender may sustain or incur as a
consequence of the failure of Borrower to borrow additional Loans after
Borrower has requested (or is deemed to have requested) such additional Loans,
including any such loss or expense arising from the liquidation or
re-employment of funds obtained by Lender to maintain the Loans or from fees
payable to terminate the deposits from which such funds were obtained.


 


(e)           It is expressly understood and agreed
that the Maximum Amount is a maximum ceiling on Loan Advances to Borrower;
provided, however, that it is agreed that should the Obligations ever exceed
the ceiling so determined or any other limitation 


 


11

















 


set forth in this
Agreement, such amounts shall nevertheless constitute Obligations secured by
the Security Interest of Lender and, as such, shall be entitled to all benefits
thereof and security therefor.


 


(f)            All Loan Advances shall be deposited only into the DIP
Facility Account, which is a bank account that is subject to the Deposit
Account Control Agreement and shall not be transferred into a bank account for
which any other creditor has custody, control or a Lien.


 


1.3           Interest.  Interest
shall accrue on the outstanding principal balance of the Loans at the Interest
Rate.  All interest accrued on the
outstanding principal balance of the Loans shall be calculated on the basis of
a year of three hundred sixty (360) days and the actual number of days elapsed
in each month.  Accrued interest shall be
added to the outstanding principal balance of the Loans on the first Business
Day of each calendar month following the month in which such interest accrues.


 


1.4           Allocation of Payments and Limit of Interest. 
Any amounts received by Lender from Borrower shall be applied pro tanto to the Obligations as follows:  first to pay any interest, fees costs,
charges, indemnities, and expenses then due to Lender under the Loan Documents,
until paid in full, and second, to repay the principal amount of all
outstanding Obligations until paid in full. 
Upon the occurrence and during the continuance of an Event of Default,
all Revenues received by Lender from Borrower shall be applied pro tanto to the
Obligations in such manner as Lender shall determine in its sole
discretion.  Lender does not intend to
charge interest at a rate in excess of the highest rate permitted by Applicable
Law.  Interest on any outstanding
principal balance shall be spread over the entire period that such principal
balance is outstanding.  Any excess
interest charges paid by Borrower to Lender shall be applied to reduce the
outstanding principal balance of the Obligations.


 


1.5           Termination.


 


(a)           This Agreement shall expire on the Termination Date.


 


(b)           Upon the termination of this Agreement for any reason
as herein provided, Borrower shall pay, discharge and satisfy, no later than
the effective date of such termination, the Loan Advances, all accrued and
unpaid interest and fees, and all other non-contingent Obligations then
outstanding.


 


(c)           All undertakings, agreements, covenants, warranties and
representations of Borrower contained in this Agreement and the other Loan
Documents shall survive any such termination, and Lender shall retain each and
every Security Interest, and all other rights and remedies of Lender under this
Agreement and the other Loan Documents, notwithstanding such termination, until
Borrower has paid the amounts described in Section 1.5(b).


 


(d)           Notwithstanding the payment in full of the Loans, all
accrued and unpaid interest and fees, and all other non-contingent Obligations
outstanding, Lender shall not be required to terminate its Security Interests
unless, with respect to any loss or damage Lender may incur as a result of
dishonored checks or other items of payment 


 


12

















 


received by Lender from Borrower or any Account Debtor
and applied to the Obligations, Lender shall have retained such monetary
reserves and its Security Interest for such period of time as Lender, in its
reasonable discretion, may deem necessary to protect Lender from any such loss
or damage.


 


1.6           Priority of All Advances and Loans 
All advances and loans, including, but not limited to, all fees,
interest, and expenses, and any other portion of the Obligations, whether such
Obligations are within or in excess of the Maximum Total Amount, made hereunder
by Lender to Borrower shall constitute and be deemed an allowed cost and
expense of administration in the Bankruptcy Case and shall be entitled to
priority under Section 364(c)(1), Section 364(c)(2), Section 364(c)(3),
and Section 364(d) of the Bankruptcy Code ahead of all other costs
and expenses of administration of the kind specified in Sections 105, 326, 330,
331, 503(b), 506(c), 507(a), 507(b) or 726 of the Bankruptcy Code, except
as may be otherwise provided in the DIP Order or pursuant to the Corrected
Interim Order Authorizing Post-Petition Financing and Use of Cash Collateral
dated April 11, 2008 (Docket No. 154) (the “Interim PRB Funding Order”);
provided, however, that the Lender’s Liens, other than its Lien upon the DIP
Facility Account, shall be subordinate in priority to the Permitted Liens.


 


ARTICLE II - FEES


 


2.1           Commitment Fee.  In order to induce Lender to enter into this
Agreement and to make the Loans, Borrower agrees to pay to Lender a Commitment
Fee in an amount equal to three percent (3%) of (a) the Maximum Amount,
which Commitment Fee shall be due and payable, fully earned and non-refundable
upon entry of the DIP Order and payable on the Termination Date; and (b) any
amount advanced to Borrower in excess of the Maximum Amount, which shall then
be due and payable, fully earned and non-refundable upon the funding of such
additional Loan Advances.


 


2.2           Costs and Expenses.  Borrower
agrees to reimburse Lender for all reasonable out-of-pocket expenses incurred
by Lender in connection with the DIP Facility established by this Agreement,
any and/or all of the Loan Documents, the Loans, including, but not limited to,
filing fees, tax, lien and judgment search fees, fees of outside auditors, bank
fees, reasonable outside accountants’ fees and expenses, appraisers, reasonable
outside attorneys’ fees and expenses, and any other reasonable fees or
expenses.  All of the foregoing expenses
shall be due and payable no later than the Termination Date.


 


2.3           Due Diligence Fee.  In order to induce Lender to enter into this
Agreement and provide Borrower with the DIP Facility, Borrower agrees to pay to
Lender a Due Diligence Fee in an amount equal to $100,000.00, which Due
Diligence Fee shall be due and fully earned upon entry of the DIP Order and
payable on the Termination Date.  The Due
Diligence Fee shall accrue as part of the DIP Facility on top of and in
addition to the Maximum Total Amount.


 


2.4           Priority of Fees.  All fees, whether such fees are within or in
excess of the Maximum Total Amount, incurred hereunder shall constitute and be
deemed an allowed cost and expense of administration in the Bankruptcy Case and
shall be entitled to 


 


13

















 


priority
under Section 364(c)(1), Section 364(c)(2), Section 364(c)(3),
and Section 364(d) of the Bankruptcy Code ahead of all other costs
and expenses of administration of the kind specified in Sections 105, 326, 330,
331, 503(b), 506(c), 507(a), 507(b) or 726 of the Bankruptcy Code, except
as may be otherwise provided in the DIP Order or the Interim PRB Funding Order;
provided, however, that the Lender’s Liens, other than its Lien upon the DIP
Facility Account, shall be subordinate in priority to the Permitted Liens.


 


ARTICLE III - GRANT OF SECURITY
INTEREST


 


3.1           Grant of Security Interest. 
To secure the payment, performance and observance of the Obligations,
the Borrower grants and hereby assigns, mortgages, hypothecates and pledges, to
Lender all of the Collateral, and grants to Lender a continuing security
interest in, and a Lien upon, and a right of set off against, all of the
Collateral.  The Borrower acknowledges
that the Security Interest and Lien granted to the Lender pursuant to this Article III
is and continues to be an allowed, valid and perfected, first priority Security
Interest and Lien upon the Collateral subject only to the Permitted Liens
(other than the DIP Facility Account which shall not be subject to the
Permitted Liens).


 


3.2           Continued Priority of Security Interest.


 


(a)           The Security Interest granted by Borrower shall at all
times be valid, perfected and enforceable against Borrower and all third
parties in accordance with the terms of this Agreement, as security for the
Obligations, and the Collateral shall not be at any time subject to any Liens
that are prior to, or on parity with or junior to the Security Interest, other
than Permitted Liens or as may be provided in the DIP Order.


 


(b)           Borrower shall, at its sole cost and expense, take all
action that may be necessary or desirable, or that Lender may reasonably
request, so as at all times to maintain the validity, perfection,
enforceability and rank of the Security Interest in the Collateral in
conformity with the requirements of Section 3.2(a), or to enable Lender to
exercise or enforce its rights hereunder.


 


(c)           Borrower covenants and agrees with Lender that from
and after the Agreement Date and until the Termination Date, at any time upon
the request of Lender, Borrower shall execute (or cause to be executed) and
deliver to Lender, any and all financing statements, original financing
statements in lieu of continuation statements, fixture filings, security
agreements, pledges, assignments, endorsements of certificates of title, and
all other documents (the “Additional Documents”) upon which Borrower’s
signature may be required that Lender may request in its discretion, in form
and substance satisfactory to Lender, to perfect and continue the perfection of
or better perfect Lender’s Liens in the Collateral (whether now owned or
hereafter arising or acquired), and in order to consummate fully all of the
transactions contemplated hereby and under the other Loan Documents.  To the maximum extent permitted by Applicable
Law, Borrower authorizes Lender to execute any such Additional Documents in
Borrower’s name and authorizes Lender to file such executed Additional
Documents in any appropriate filing office. 
Borrower authorizes Lender to transmit, communicate or, as applicable,
file any financing statement under the UCC, record, in-lieu financing 


 


14

















 


statement, amendment,
correction statement, continuation statement, termination statement or other
instrument describing the Collateral as defined herein, as “all personal
property of Debtor” or “all assets of Debtor” or words of similar effect in
such jurisdictions and in such filing offices as Lender may deem necessary or
desirable in order to perfect any security interest granted by Borrower under
this Agreement and the other Loan Documents without signature.  Borrower hereby ratifies, to the extent
necessary, Lender’s authorization to file a financing statement if such
financing statement has been pre-filed by Lender prior to the Agreement
Date.  Prior to repayment in full and
final discharge of the Obligations, Borrower shall not terminate, amend or file
a correction statement with respect to any financing statement filed pursuant
to this Section 3.2(c) without Lender’s prior written consent.


 


(d)           Borrower shall promptly notify Lender in
writing upon incurring or otherwise obtaining a commercial tort claim, as that
term is defined in the UCC, after the date hereof against any third party and,
upon request of Lender, promptly amend Schedule 1 to this Agreement, authorize the
filing of additional or amendments to existing financing statements and do such
other acts or things deemed necessary or desirable by Lender to give Lender a
security interest in any such commercial tort claim.


 


(e)           Borrower shall mark its books and records
as directed by Lender and as may be necessary or appropriate to evidence,
protect and perfect the Security Interest and shall cause its financial
statements to reflect the Security Interest.


 


(f)            Lender shall not be required to file any
UCC-1 financing statements, mortgages or any other document, or take any other
action (including possession of any of the Collateral) in order to validate or
perfect the liens and security interests granted to Lender hereunder or under
any of the other Loan Documents, as all such Liens and security interests shall
be deemed automatically perfected as of the date of the DIP Order.  If Lender shall, in its discretion, choose to
file such UCC-1 financing statements (or amendments to or continuations of any
existing financing statements), mortgages and otherwise confirm perfection of
such Liens, all such financing statements, mortgages or similar instruments
shall be deemed to have been filed or recorded at the time and on the date of
entry of the DIP Order.  Lender may, in its
discretion, file a certified copy of the DIP Order in any filing or recording
office in any jurisdiction in which the Borrower (a) has or maintains any
Collateral; (b) has or maintains an office; or (c) is organized.


 


3.3           Liens Under DIP Order. 
The Liens and security interests granted to Lender pursuant to the
provisions of this Agreement and pursuant to any of the other Loan Documents
shall be in addition to all Liens conferred upon Lender by the Bankruptcy Court
pursuant to the terms of the DIP Order. 
Anything contained in this Agreement or any other Loan Document to the
contrary notwithstanding, except for the sale of the Excluded Collateral or
except as otherwise specifically permitted herein, the Borrower has no
authority, express or implied, to dispose of any item or portion of the
Collateral.


 


3.4           Priority of Liens; Further Assistance. 
Except as otherwise provided herein or in the DIP Order, the PRB Funding
Order, the Liens granted pursuant to the terms of 


 


15

















 


this Agreement and the
other Loan Documents, and the Liens conferred upon Lender pursuant of the DIP
Order, secure the payment of all principal, interest, fees, expenses and all
other Obligations, and shall constitute (i) pursuant to Section 364(c)(1) of
the Bankruptcy Code, an allowed “super-priority” administrative expense claim
except as provided in the DIP Order or in the Interim PRB Funding Order, (ii) pursuant
to Section 364(c)(2) of the Bankruptcy Code, an allowed first
priority Lien upon or security interest in all of the Collateral that is not
otherwise encumbered by a validly perfected security interest or Lien in
existence on the Petition Date that has not been primed including the DIP
Facility; (iii) pursuant to Section 364(d)(1) of the Bankruptcy
Code, an allowed first priority, priming Lien upon or security interest in all
of the Collateral in existence on the Petition Date and the proceeds thereof
except for the Permitted Liens; and (iv) pursuant to Section 364(c)(3) of
the Bankruptcy Code, an allowed second priority Lien upon or security interest
in all of the Collateral that was in existence on the Petition Date and subject
to a validly perfected and unavoidable security interest or Lien that has not
been primed.


 


3.5           Priority of Liens on DIP Facility Account. 
Notwithstanding any term or provision of this Agreement to the contrary,
Lender shall have control over the DIP Facility Account and Lender’s Liens
shall be higher in priority than any other Lien, including, but not limited to,
any Permitted Lien, with all other Liens subordinate in priority to Lender’s
Lien on the DIP Facility Account.


 


3.6           Waiver of Surcharge. 
Borrower hereby irrevocably waives any and all right to surcharge the
Collateral, whether under Section 506(c) of the Bankruptcy Code or
under any other Applicable Law.


 


ARTICLE IV – [INTENTIONALLY
OMITTED]


 


ARTICLE V
- REPRESENTATIONS AND WARRANTIES


 


Borrower represents and
warrants to Lender, as of April 22, 2008 and at all times that Lender
makes Loans to Borrower, as follows:


 


5.1           Lien Priority and Nature of Certain Collateral.


 


(a)           Liens.  Lender has a
perfected first priority security interest in the Collateral and, except for
the Liens described on Schedule 1 and the other Permitted Liens, none of the
properties and assets of Borrower is subject to any Lien.  Other than the Financing Statements of Lender
pursuant to this Agreement, no financing statement under the Uniform Commercial
Code of any state or other instrument evidencing a Lien that names Borrower as debtor
has been filed (and has not been terminated) in any state or other
jurisdiction, and Borrower has not signed any such financing statement or other
instrument or any security agreement authorizing any secured party thereunder
to file any such financing statement or instrument, except to perfect the Liens
listed on Schedule 1 and the other Permitted Liens.


 


16

















 


(b)           Title.  Except as set
forth on Schedule 1, Borrower has valid and legal title to or leasehold
interest in all personal property, real property, and other assets used in its
business.


 


(c)           Receivables.  Each
Receivable has arisen from the sale and delivery of goods or from services
rendered by Borrower, is genuine, complete and, in all other respects, what it
purports to be.


 


(d)           Equipment.  All Equipment
is in good order and repair in all material respects and is located on Oil &
Gas’ premises.  A detailed list of the
Equipment is listed on Schedule 1 hereto.


 


(e)           Real Estate.  Borrower owns
or leases no real property other than that described on Schedule 1.


 


5.2           Bank Accounts.  The
information on Schedule 1 is a complete and correct list of all checking
accounts, deposit accounts, and other bank accounts maintained by
Borrower.  The bank account designated as
the DIP Facility Account on Schedule 1 is the account in which Borrower shall
deposit Loan Advances and which is also subject to the Deposit Account Control
Agreement.


 


5.3           Organization and Authority.  Borrower (a) is duly organized and validly
existing under the laws of the jurisdiction of its incorporation or formation,
as the case may be, and is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which the failure to so qualify could
reasonably be expected to have a Material Adverse Effect; (b) subject to
the entry of the DIP Order, has the requisite corporate power and authority to
effect the transactions contemplated hereby and by the other Loan Documents;
and (c) subject to the entry of the DIP Order, has all requisite corporate
power and authority and the legal right to own, pledge, mortgage and operate
its Collateral, to lease the Collateral it operates as lessee and to conduct
its business as now or currently proposed to be conducted.


 


5.4           Due Execution; Binding
Obligation.  Upon entry
by the Bankruptcy Court of the DIP Order, the execution, delivery and
performance by Borrower of each of the other Loan Documents to which it is a
party, and the commencement of the Bankruptcy Case are within the power of
Borrower and have been duly authorized by all necessary corporate action.  Upon entry of the DIP Order, this Agreement
has been duly executed and delivered by Borrower.  This Agreement is, and each of the other Loan
Documents to which Borrower is or will be a party, when delivered hereunder or
thereunder, will be, a legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms and the Orders,
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors’ rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).


 


5.5           Financial Statements.  Any financial statements delivered pursuant
to this Agreement or the other Loan Documents, taken as a whole and in light of
the 


 


17

















 


circumstance in which made,
contain no untrue statement of a material fact and do not omit to state a
material fact necessary to make such statements not misleading.


 


5.6           Insurance.  All policies of insurance of any kind or
nature owned by or issued to any Borrower, including, without limitation,
policies of life, fire, theft, product liability, public liability, property
damage, other casualty, employee fidelity, workers’ compensation, employee
health and welfare, title, property and liability insurance, are in full force
and effect and are of a nature and provide such coverage as in the reasonable
opinion of such Borrower, is sufficient and as is customarily carried by
companies of the size and character of such Borrower.


 


5.7           Licenses, etc.  Subject to Section 365 of the Bankruptcy
Code, Borrower has obtained and holds in full force and effect, either directly
or indirectly, all franchises, licenses, permits, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other rights,
consents and approvals which are necessary for the operation of its businesses
as presently conducted, except where the failure to so obtain the foregoing
could not, individually or in the aggregate, have a Material Adverse Effect.


 


5.8           Significant Contracts.  On or before ten (10) Business Days from
the Closing Date, Borrower shall deliver to Lender a full list which shall be a
complete and correct list of all contracts, agreements, and other documents
pursuant to which Borrower receives revenues in excess of Ten Thousand and
No/100ths Dollars ($10,000.00) per fiscal year or has committed to make
expenditures in excess of Ten Thousand and No/100ths Dollars ($10,000.00) per
fiscal year.


 


5.9           Litigation.  Except for
the Bankruptcy Case and as disclosed on Schedule 1 hereto, which shall include
a list of claimants asserting mechanic’s and/or materialman’s lien, (i) there
is no litigation, arbitration, legal or administrative proceeding, tax audit,
investigation, or other action or proceeding of any nature pending against any
Borrower or any of the Collateral, and (ii) to the best of Borrower’s
knowledge, information, and belief, there is no litigation, arbitration, legal
or administrative proceeding, tax audit, investigation, or other action or
proceeding of any nature threatened against any Borrower. Borrower is not
subject to any outstanding court, arbitration, or administrative order, writ,
or injunction.


 


5.10         ERISA.  Borrower is in compliance in all material
respects with all applicable provisions of ERISA.  No ERISA Event has occurred with respect to
any ERISA Plan or is reasonably expected to occur with respect to any ERISA
Plan.


 


5.11         Intellectual Property.  Borrower owns or possesses adequate licenses
or other rights to use all patents, trademarks, trade names, service names,
service marks, copyrights, licenses, permits, franchises, registrations,
formulas, trade secrets, or other intangible property rights and know-how
necessary to entitle it to conduct its business as presently being conducted,
and the use thereof by Borrower does not infringe upon the rights of any other
Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.


 


18

















 


5.12         Survival of Warranties; Cumulative. 
All representations and warranties contained in this Agreement or any of
the other Loan Documents shall survive the execution and delivery of this
Agreement, any investigation made by or on behalf of Lender, or any Borrowing
hereunder, and shall be deemed to have been made again to Lender on the date of
each additional Borrowing or other credit accommodation under this Agreement,
except to the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties shall have been
true and accurate on and as of such earlier date), and shall be conclusively
presumed to have been relied on by Lender regardless of any investigation made
or information possessed by Lender.  The representations
and warranties set forth in this Agreement and in the other Loan Documents
shall be cumulative and shall be in addition to any other representations or
warranties which Borrower shall now or hereafter give, or cause to be given, to
Lender.


 


ARTICLE VI - AFFIRMATIVE COVENANTS


 


Until this Agreement has
been terminated and all Obligations have been paid in full, Borrower covenants
and agrees with Lender as follows:


 


6.1           Financial Reports.  Borrower
shall deliver to Lender, on the third Business Day of every week, a statement
of all receipts and disbursements and a variance statement of actual receipts
and disbursements to the Budget. 
Borrower shall also deliver on such day an additional week’s operating
forecast in the same form as the then existing Budget.


 


6.2           Additional Documentation. 
Borrower shall execute and deliver to Lender all additional documents,
reports, and other items that Lender may, from time to time, reasonably
determine are necessary or appropriate to evidence the Loans or to continue or
perfect Lender’s Security Interest in the Collateral including, but not limited
to:


 


(a)           additional Deposit Account Control
Agreements;


 


(b)           a copy of any management
letter, if any, or report by independent public accountants with respect to the
financial condition, operations, business or prospects of such Borrower, if
any, promptly following the delivery thereof to Borrower or to the Board of
Directors or management of Borrower;


 


(c)           copies of all pleadings,
motions, applications, judicial information, financial information and other
documents filed by or on behalf of Borrower with the Bankruptcy Court or the
United States Trustee in the Bankruptcy Case, or distributed by or on behalf of
Borrower to the Committee promptly after the same is available;


 


(d)           Borrower shall provide Lender
with weekly variance reports, in form satisfactory to Lender, which reports
shall include a detailed accounting of any variance between the actual monthly
operating results versus the projected results in each category described in
the Budget concurrently with the delivery to Lender of the above-referenced
weekly financial statements and reports; and


 


19
















 


(e)           Borrower shall prepare and
deliver to Lender all additional documents, reports, and other items in
Borrower’s possession that Lender may, from time to time, reasonably determine
are necessary or appropriate to manage the Loans and assess the prospective
nature of the assets, including, but not limited to, additional financial
information, drilling and well data, reports and logs,
production reports and reserves reports, reservoir data and type curve
analyses.


 


6.3           Books and Records.  Borrower
shall keep accurate and complete records of the Collateral and permit Lender
to:  (a) visit Borrower’s business
locations at intervals to be determined by Lender; and (b) inspect, audit
and make extracts from or copies of Borrower’s books, records, journals, receipts,
computer tapes and disks.  All
governmental authorities are authorized to furnish Lender with copies of
reports of examinations of Borrower made by such parties.  Banks, Account Debtors and other third
parties (without waiving any attorney-client privilege) with whom Borrower has
contractual relationships pertaining to the Collateral or the Loan Documents,
are authorized to furnish Lender with copies of such contracts and related
materials.  Lender is authorized, in its
own name or any other name, to communicate with Account Debtors in order to
verify the existence, amount and terms of any Receivable.


 


6.4           Over-Advance.  If, at any
time, the aggregate unpaid principal amount of any of the Loans exceeds any
applicable limit set forth in this Agreement, Borrower shall immediately pay to
Lender the amount of any such excess and all accrued interest and other charges
owing to Lender with respect thereto.


 


6.5           Breach or Default.  Borrower
shall notify Lender immediately upon the occurrence of any circumstance which:  (a) makes any representation or warranty
of Borrower contained in this Agreement or any other Loan Document incorrect or
misleading in any material respect; or (b) constitutes an Event of
Default.


 


6.6           Maintenance of Assets.  Borrower
shall maintain all of its real and personal property in good repair, working
order and condition, shall make all necessary replacements to such property so
that the value and the operating efficiency of such property will be preserved,
and shall prevent any personal property from becoming a fixture to real estate
(unless owned by Borrower and encumbered by a mortgage, deed of trust, security
deed or similar agreement in favor of Lender).


 


6.7           Insurance.  Borrower
shall procure and continuously maintain: 
(a) “All Risk Extended Coverage” property insurance covering
Borrower’s tangible personal property for the full replacement value thereof; (b) “All
Risk Extended Coverage” business interruption insurance in an amount acceptable
to Lender; (c) liability insurance in an amount acceptable to Lender; and (d) such
other customary insurance coverages as are reasonably specified by Lender from
time to time.  Each property and business
interruption insurance policy shall contain a standard Lender’s Loss Payable
Endorsement in favor of Lender, providing for, among other things, thirty (30)
days prior written notice to Lender of any cancellation, non-renewal or
modification of such coverage.  Borrower
shall deliver to Lender certified copies of such policies and all required
endorsements, or other evidence of such insurance acceptable to Lender.  All amounts received by Lender from any such
insurance policies may be applied by Lender to the Obligations.  If Borrower fails to procure required
insurance or such insurance is 


 


20

















 


canceled or otherwise lapses, Lender may procure such
insurance and add the cost of such insurance to the principal balance of the
Loans.


 


6.8           Use of Proceeds.  Borrower
shall use the proceeds of all Loan Advances, and all other loans or
accommodations made by Lender for Borrower for only those purposes described on
the Budget without permitted variance, and not for any purpose prohibited by
law or by the terms and conditions of this Agreement or any of the Loan
Documents or of the DIP Order; and expressly excluding use of the proceeds for
the investigation or prosecution of any claim and/or cause of action against
Lender, including but not limited to any and/or all claims and causes of action
arising (i) under Sections 549 and/or 550 of the Bankruptcy Code; (ii) under
a theory of equitable subordination or recharacterization; or (iii) that
challenges the Security Interest or the Obligations.


 


6.9           Further Assurances.  Borrower will
promptly cure, or cause to be cured, defects in the execution and delivery of
the Loan Documents (including this Agreement) resulting from any act or failure
to act by Borrower or any of the employees or officers thereof.  Borrower, at its expense, will promptly
execute and deliver to Lender, or cause to be executed and delivered to Lender,
all such other and further documents, agreements, and Instruments in compliance
with or accomplishment of the covenants and agreements of Borrower in the Loan
Documents, including this Agreement, or to correct any technical omissions in
the Loan Documents, or to obtain any consents that are necessary in connection
with or in accomplishment of the covenants and agreements of Borrower, all as
may be necessary or appropriate in connection therewith as may be requested by
Lender.


 


6.10         Access to Advisors. 
Borrower shall make its asset advisor and restructuring consultant (or
chief restructuring officer), if any, available to Lender to discuss (i) the
status of discussions and negotiations for any sale or other disposition of the
business or assets, as applicable, and (ii) the operations, financial
performance, expense reduction program and cash flow reports, as applicable, of
the Borrower and such other matters as Lender may reasonably request.


 


6.11         Compliance with the DIP Order. 
Borrower shall, at all times, comply with all terms, conditions and
provisions of the DIP Order.


 


ARTICLE VII - BORROWER’S NEGATIVE
COVENANTS


 


Borrower covenants and
agrees with Lender as follows:


 


7.1           Disposition of Assets.  Without
receiving Lender’s prior written consent, Borrower shall not:  (a) encumber the Collateral in favor of
any party other than Lender, whether voluntarily or involuntarily, other than
the Permitted Liens, except for any encumbrance that is expressly junior by its
terms (and agreed to as such by the holder of such encumbrance) in priority and
all other respects to all of the rights of Lender; or (b) sell, consign,
lease or remove from Borrower’s business locations any of Borrower’s assets
excluding any of the Excluded Assets.


 


7.2           Consent to Amendment of DIP Order. 
Borrower shall not seek to amend, supplement or modify any of the terms
of the DIP Order.


 


21

















 


7.3           Other Court Filings and Applications. 
Borrower shall not apply to the Bankruptcy Court for authority to use “cash
collateral” or to take any action that is prohibited by the terms of any of the
Loan Documents or otherwise refrain from taking any action that is required to
be taken by the terms of any of the Loan Documents or permit any debt or claim
to be pari passu with or senior to any of the
Obligations, except as provided by this Agreement or the DIP Order or as
otherwise consented to by Lender in writing.


 


7.4           Limitation on Investments,
Loans and Advances.  Borrower
shall not make any advance, loan, extension of credit or capital contribution
to, or purchase any stock, bonds, notes, debentures or other securities of or
any assets constituting a business unit of or make any other investment (each,
an “Investment”) in, any entity, except:


 


(a)           Investments in
cash equivalents;


 


(b)           Investments
existing on the Petition Date;


 


(c)           extensions of
trade credit and prepaid expenses made in the ordinary course of business; and


 


(d)           Investments
received in connection with the creation and collection of Accounts in the
ordinary course of business.


 


7.5           Transactions with Affiliates.  Borrower shall not sell or transfer any
Collateral or assets to, or otherwise engage in any other transactions with,
any of its Affiliates (as defined in the Bankruptcy Code), except that Borrower
may engage in any such transaction which is otherwise permitted under this
Agreement, is consistent with past practices, or otherwise in the ordinary
course of business at prices and on terms and conditions not less favorable
than could be obtained in a comparable arm’s-length transaction from unrelated
third parties.


 


7.6           Lines of Business.  Borrower shall not engage to any substantial
extent in any line or lines of business activity other than businesses of the
same general type as those in which Borrower is engaged on the date of this
Agreement or which are related thereto.


 


7.7           Chapter 11 Claims; Payment
of Pre-Petition Date Claims.  Borrower shall not incur, create, assume,
suffer to exist or permit any other superpriority claim or Lien which is pari passu with or senior to the claims of Lender granted
pursuant to this Agreement and the DIP Order, or make any payments of
Pre-Petition obligations other than (a) as permitted under the DIP Order
and (c) as otherwise permitted or required under this Agreement.


 


7.8           Capital Expenditures.  Borrower shall not make or commit to make any
capital expenditure that is not approved by Lender in writing.


 


7.9           Use of Proceeds.  Borrower shall not use the proceeds of the
Loans or the Collateral to commence or prosecute any investigation, action or
objection with respect to 


 


22

















 


the superpriority claims or
Liens granted to Lender pursuant to this Agreement and the DIP Order or any
other claims of any kind against Lender.


 


7.10         Limitation on Indebtedness.  Borrower shall not create, incur, assume or
suffer to exist any Indebtedness, except:


 


(a)           Indebtedness in favor of
Lender under this Agreement and the other Loan Documents;


 


(b)           Indebtedness outstanding on
the Petition Date;


 


(c)           Indebtedness first incurred
after the Petition Date in respect of the Permitted Liens; or


 


(d)           Indebtedness that by its
terms is junior in all respects to all of the Obligations.


 


7.11         Limitation on Guaranty
Obligations.  Borrower
shall not create, incur or assume any new Guaranty Obligation.


 


7.12         Prohibition on Fundamental Changes.  Borrower shall not enter into any
acquisition, merger, consolidation or amalgamation, or liquidate, wind up or
dissolve (or suffer any liquidation or dissolution), or make any material
change in their present methods of conducting business or create or acquire any
new subsidiary.


 


ARTICLE VIII - CONDITIONS
PRECEDENT


 


8.1           Loan Advance. 
Notwithstanding any other provision of this Agreement or any of the
other Loan Documents and without affecting in any manner the rights of Lender
under other Sections of this Agreement, it is understood and agreed that the
establishment of the DIP Facility and any obligation of Lender to make the
Loans is subject to the satisfaction of the following conditions:


 


(a)           the DIP Order, in form and substance satisfactory to
Lender, shall have been entered by the Bankruptcy Court, shall be in full force
and effect and shall not have been vacated, reversed, modified, appealed stayed
or subject to any motion to reconsider in any respect;


 


(b)           all requisite corporate action and proceedings in connection with this
Agreement and the other Loan Documents shall be satisfactory in form and substance
to Lender, and Lender shall have received all information and copies of all
documents, including records of requisite corporate action and proceedings
which Lender may have requested in connection therewith, which such documents
shall, if requested by Lender or its counsel, be certified by appropriate
corporate officers;


 


(c)           the representations and warranties contained in this
Agreement and in each of the other Loan Documents shall be true, in all
material respects, on and as of the date of the signing of this Agreement and
on the date of each extension of credit or the making of any Loans pursuant to
this Agreement, with the same effect as though such 


 


23

















 


representations and warranties had been made on and as
of each such date, and on each such date, no Event of Default, and no
condition, event or act which with the giving of notice or the passage of time
or both would constitute an Event of Default, shall have occurred and be
continuing or shall exist; it being
understood that a dispute as to existence of an Event of Default pursuant to Section 9.1(r) (prior
to determination of such dispute by the Bankruptcy Court) shall not constitute
a failure of a condition precedent to the making of further Advances;


 


(d)           there shall be no Material Adverse Effect, as
determined by Lender in its discretion, in the financial condition or business
of Borrower nor any material decline, as determined by Lender in its
discretion, in the market value of any Collateral or a substantial or material
portion of the assets of Borrower, and no change or event shall have occurred
which would impair the ability of the Borrower to perform its obligations
hereunder or under any of the other Loan Documents to which it is a party or of
Lender to enforce the Obligations or realize upon the Collateral, other than
the filing of the Bankruptcy Case and the financial history described in the
motion to approve the DIP Order;


 


(e)           Lender shall have received and approved the Budget;


 


(f)            Lender shall have received this Agreement and all
other Loan Documents and all Instruments and documents to be delivered
hereunder and thereunder by the date hereof, each of which shall have been duly
executed by all respective parties thereto and each of which shall be in full
force and effect and in form and substance satisfactory to Lender;


 


(g)           no Default or Event of Default shall have occurred and
be continuing on the date of such request or after giving effect to such Loan
on such date;


 


(h)           all representations and warranties have been true and
accurate from and since May 17, 2008, that Borrower has not violated any
of terms and provisions herein that constitute Affirmative and/or Negative
Covenants from and since May 17, 2008, nor that any of the events or
occurrences that would constitute an Event of Default have occurred from and
since May 17, 2008, irrespective that this Agreement had yet to be
approved by the Bankruptcy Court;


 


(i)            Lender shall have received and be satisfied with all
of the information and items set forth on Schedule 1 and any amendment and/or
supplement thereto;


 


(j)            Lender shall have received a request for an advance
under the DIP Facility pursuant to Section 1.2 hereof;


 


(k)           each advance shall be for the purpose of funding the
items set forth on the Budget to the extent authorized by the DIP Order; and/or


 


(l)            the amount of the Obligations after giving effect to
the requested Loan shall not exceed the Maximum Amount.


 


24

















 


ARTICLE IX - EVENTS OF DEFAULT;
REMEDIES


 


9.1           Events of Default.  The
occurrence or existence of any one or more of the following events or
conditions, whether voluntary or involuntary, shall constitute an Event of
Default:


 


(a)           Borrower fails to pay when due (whether due at stated
maturity, upon acceleration or as otherwise provided herein) any installment of
principal, over advance, interest, premium, if any, and fees on any of the
Loans, or otherwise owing under this Agreement;


 


(b)           Borrower fails to pay any of the other Obligations on
the due date thereof (whether due at stated maturity, upon acceleration or as
otherwise provided herein) and such failure shall continue for a period of ten (10) days
after Lender’s giving Borrower written notice thereof;


 


(c)           Borrower, in any material respect, fails or neglects
to perform, keep or observe any covenant contained in this Agreement or the
other Loan Documents (other than a covenant which is dealt with specifically
elsewhere in this Section 9.1) and the breach of such other covenant in
this Agreement or the other Loan Documents is not cured within ten (10) days
after the sooner to occur of Borrower’s receipt of notice of such breach from
Lender or the date on which such failure or neglect first becomes known to any
officer of Borrower;


 


(d)           any representation or warranty made by or on behalf of
Borrower, or other information provided by or on behalf of Borrower to Lender,
was incorrect or misleading in any material respect at the time it was made or
provided;


 


(e)           any Loan Document is terminated other than as provided
for in this Agreement or becomes void or unenforceable, or any Security
Interest ceases to be a valid and perfected first priority security interest in
any portion of the Collateral, other than as a result of the Permitted Liens;


 


(f)            (i) a trustee shall be appointed in the Bankruptcy Case or a
responsible officer or an examiner with expanded powers shall be appointed in
the Bankruptcy Case (powers beyond those set forth in Section 1106(a)(3) and
(4) of the Bankruptcy Code) under Section 1106(b) of the
Bankruptcy Code and the order appointing such trustee, responsible officer, or
examiner shall not have been stayed, reversed or vacated within thirty (30)
days after the entry thereof; (ii) Borrower shall seek confirmation by the
Bankruptcy Court of or the Bankruptcy Court shall confirm any proposed Plan of
Reorganization that proposes to treat the Obligations in any manner other than
payment-in-full on the effective date of such Plan of Reorganization, other
than a Plan of Reorganization or other plan proposed or accepted in writing by
Lender; (iii) Borrower shall file any motion to alter, amend, vacate,
supplement, modify, or reconsider, in any respect, the DIP Order or, without
Lender’s prior written consent; or (iv) the Bankruptcy Court shall grant
in the Bankruptcy Case administrative or super-priority claim status pursuant
to Sections 361, 363 and/or 364(c)(1) of the Bankruptcy 


 


25

















 


Code of equal or superior priority to any Person other than to Lender,
except as provided in the DIP Order or the Interim PRB Order;


 


(g)           the dismissal of the Bankruptcy Case, or the conversion of the Bankruptcy
Case from one under Chapter 11 to one under Chapter 7 of the Bankruptcy Code;


 


(h)           the entry of an Order by the Bankruptcy Court granting relief from or
modifying the Automatic Stay with a value exceeding $10,000.00, individually or
$50,000.00 in the aggregate, (i) to allow any creditor to execute upon or
enforce a Lien on any Collateral, or (ii) with respect to any Lien of or
to permit the granting of any Lien on any Collateral to any State or local
environmental or regulatory agency or authority;


 


(i)            the commencement of a suit or action against Lender that asserts, by or
on behalf of Borrower, the Environmental Protection Agency, any state
environmental protection or health and safety agency or any official committee,
any claim or legal or equitable remedy which seeks the avoidance or
subordination of the Obligations or the Security Interest;


 


(j)            the material and adverse modification of the DIP Order authorizing
Borrower to execute this Agreement and the other Loan Documents;


 


(k)           if Borrower makes any payment on account of debt or claim, or on account
of any interest, principal, premium or otherwise, except (i) as expressly
permitted by this Agreement or by the DIP Order, or (ii) as set forth in
the Budget;


 


(l)            (i) any material covenant, agreement or obligation of Borrower
contained in or evidenced by any of the Loan Documents shall cease to be
enforceable or shall be determined by a court of competent jurisdiction to be
unenforceable in accordance with its terms or Borrower shall file a pleading
with the Bankruptcy Court asserting the same; (ii) Borrower shall deny or
disaffirm their obligations under any of the Loan Documents or Security
Interest granted in connection therewith or ratified or reaffirmed thereby; or (iii) any
Security Interest in any of the Collateral granted under the Loan Documents
shall be determined by a court of competent jurisdiction to be voidable,
invalid or unperfected, or subordinated or not given the priority contemplated
by this Agreement;


 


(m)          subject to Section 365
of the Bankruptcy Code, Borrower shall fail to obtain, maintain or comply in
all material respects with any order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any Governmental Authority and such failure could reasonably be
expected to have a Material Adverse Effect;


 


(n)           Borrower, without the prior
consent of Lender, shall (i) determine, whether by vote of its Board of
Directors or otherwise, to suspend the operation of its business in the
ordinary course or liquidate all or substantially all of its assets, or (ii) file
a motion or other application in the Bankruptcy Case seeking authority to do
any of the foregoing, except with respect to the Excluded Assets;


 


26

















 


(o)           Borrower or any official
committee in the Bankruptcy Case files a motion to approve a sale of Borrower
or any Collateral (other than the sale of Inventory in the ordinary course of
business) on terms to which Lender has not given its prior written consent,
unless such motion provides for immediate repayment in cash of all Obligations
under this Agreement;


 


(p)           there exists at any time a
negative variance of more than (i) the greater of (A) fifteen percent
(15%) or (B) $10,000.00 between the actual disbursements of Borrower for
any two-week period versus the projected disbursements with respect to each
expense line item described in the Budget for the same period or (ii) $100,000.00
on an aggregate basis from and after the Agreement Date with respect to the net
cash flow line item in the Budget for Oil & Gas and Energy
collectively;


 


(q)           the
termination of one or more of Borrower’s senior management members, whether
voluntarily or otherwise; and/or


 


(r)            The
Bankruptcy Court determines after a hearing on notice to Borrower and the
committee that Borrower has failed to negotiate with Lender the
definitive terms for exit financing and/or a Plan of Reorganization in
accordance with its statutory and fiduciary duties as a debtor-in-possession;
provided, however, that nothing herein shall prevent or restrict Borrower from
negotiating and/or entering into exit financing and/or a Plan or Reorganization
with one or more third parties.   In the event of dispute under this provision, the Borrower and the
committee shall and hereby do consent to an expedited hearing on three (3) days’
notice.


 


9.2           Lender’s Remedies.  In addition to any other rights and remedies
that Lender may have, whether under state, Federal or local law or by virtue of
any agreement between Borrower and Lender, upon the occurrence and during the
continuance of an Event of Default, Lender may:


 


(a)           Without notice to, or demand upon, Borrower:


 


(i)            discontinue making any further Loans;


 


(ii)           terminate this Agreement;


 


(iii)          declare all Obligations to be immediately due and
payable, whereupon the principal of the Loans together with accrued interest
thereon and all other Obligations of Borrower accrued hereunder and under any
other Loan Document, shall become forthwith due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by Borrower, anything contained herein or in any other
Loan Document to the contrary notwithstanding;


 


(iv)          take possession of and sweep any and all funds located
in the DIP Facility Account; and


 


(v)           renew, modify or extend any Receivable, grant waivers
or indulgences with respect to any Receivable, accept partial payments on 


 


27

















 


any Receivable, release, surrender or substitute any
security for payment of any Receivable, or compromise with, or release, any
party liable on any Receivable in such a manner as Lender may, in its sole
discretion deem advisable, all without affecting or diminishing Borrower’s
Obligations to Lender.


 


(b)           With ten (10) days notice to Borrower, which notice
shall be filed with the Bankruptcy Court:


 


(i)            require Borrower, at Borrower’s expense, to assemble
the Collateral and make the Collateral available to Lender at locations
reasonably convenient to Lender and Borrower;


 


(ii)           take possession of all or any portion of the
Collateral, wherever located, and enter on any of the premises where any of the
Collateral may be and remove, repair and store any of the Collateral until it
is sold or otherwise disposed of (Lender shall have the right to store, without
charge, all or any portion of the Collateral at any of Borrower’s business
locations); and/or


 


(iii)          sell
or otherwise dispose of all or any portion of the Collateral at public or
private sale for cash or credit, with such notice as may be required by law (in
the absence of any contrary requirement, Borrower agrees that ten (10) days
prior notice of a public or private sale of the Collateral is reasonable), in
lots or in bulk, all as Lender, in its sole discretion, may deem
advisable.  Lender shall have the right
to conduct any such sales, without charge, at Borrower’s business
locations.  Lender may purchase all or
any portion of the Collateral at public sale and, if permitted by law, at
private sale and, in lieu of actual payment of the purchase price, may offset
the amount of such price against the outstanding amount of the Loans and any
other amounts owing from Borrower to Lender. 
Proceeds realized from the sale of any Collateral will be applied in the
following order:  (A) to the
reasonable costs, expenses and attorneys’ fees incurred by Lender in connection
with the collection, acquisition, protection and sale of the Collateral; (B) to
any accrued and unpaid interest owing from Borrower to Lender; and (C) to
any other amounts owing from Borrower to Lender.  Borrower agrees that Borrower will remain
fully liable for any deficiency owing to Lender after the proceeds of the
Collateral have been applied to the Loans and all other amounts owing from
Borrower to Lender.


 


(c)           If any of the Collateral shall require repair,
maintenance, preparation, or the like, or is in process or other unfinished
state, Lender shall have the right, but not the obligation, to repair or
perform such maintenance, preparation, processing or completion of
manufacturing to place the same in such saleable condition as Lender shall deem
appropriate, but Lender shall have the right to sell or dispose of such
Collateral with or without such processing.


 


28

















 


(d)           If, following the entry of the DIP Order, an Event of
Default has occurred and is continuing, Borrower hereby irrevocably waives any
right it may have to use cash collateral under Section 363 of the
Bankruptcy Code without Lender’s written consent.


 


(e)           Subject to the terms and condition set forth herein
and in the DIP Order, the Borrower hereby waives application of the automatic
stay to Lender and, as to Lender, any of the Collateral so that Lender may
exercise any and/or all of it remedies hereunder or under Applicable Law.


 


(f)            After the occurrence of any Event of Default, and
irrespective of any cure period, upon the request of Lender, Borrower shall
engage a Chief Restructuring Officer or other restructuring specialist (“CRO”)
reasonably acceptable to Lender. The CRO will report to Borrower’s Chief
Executive Officer and/or Chief Operating Officer. Any such retention shall be
subject to approval by the Court after notice to creditors and parties in
interest.


 


(g)           Each and every right, power
and remedy hereby specifically given to Lender shall be in addition to every
other right power and remedy specifically given under this Agreement, the other
Loan Documents, the DIP Order or now or hereafter existing at law or in equity,
or by statute and each and every right, power and remedy whether specifically
herein given or otherwise existing may be exercised from time to time or
simultaneously and as often and in such order as may be deemed expedient by
Lender.  All such rights, powers and
remedies shall be cumulative and the exercise or the beginning of exercise of
one shall not be deemed a waiver of the right to exercise of any other or
others.  No delay or omission of Lender
in the exercise of any such right, power or remedy and no renewal or extension
of any of the Obligations shall impair any such right, power or remedy or shall
be construed to be a waiver of any Default or Event of Default or an
acquiescence therein.  In the event that
Lender shall bring any suit to enforce any of its rights hereunder and shall be
entitled to judgment, then, in such suit, Lender may recover reasonable
expenses, including attorney fees, and the amounts thereof shall be included in
such judgment.


 


(h)           In case Lender shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been
determined adversely to Lender, then, and in every such case, Borrower and
Lender shall be restored to their former positions and rights hereunder with
respect to the Collateral subject to the Liens granted under this Agreement and
the DIP Order, and all rights, remedies and powers of Lender shall continue as
if no such proceeding had been instituted.


 


ARTICLE X - JURY TRIAL WAIVER;
OTHER WAIVERS AND CONSENTS; AND GOVERNING LAW


 


10.1         Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver.


 


29
















 


(a)           The provisions
of this Agreement shall be governed by and construed in accordance with the
laws of the State of Colorado, without reference to applicable conflict of law
principals.


 


(b)           Borrower and
Lender irrevocably consent to the nonexclusive jurisdiction of the Bankruptcy
Court, to the nonexclusive jurisdiction of the state courts of Colorado and to
the nonexclusive jurisdiction of the United States District Court for the
District of Colorado if the Bankruptcy Case is dismissed or relief from the Automatic
Stay is obtained for the purpose of any suit, action or other proceeding
arising out of or based upon this Agreement or any of the Loan Documents or the
subject matter hereof.


 


(c)           Borrower and
Lender waive, to the extent not
prohibited by applicable law that cannot be waived, and agree not to assert, by
way of motion, as a defense or otherwise, in any such proceeding brought in any
of the above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an inconvenient
forum, that the venue of such proceeding is improper, or that this Agreement or
any of the Loan Documents, or the subject matter hereof or thereof, may not be
enforced in or by such court.


 


(d)           Borrower
and Lender consent to service of process in any such proceeding in any manner
at the time permitted by the Bankruptcy Code or the laws of the State of
Colorado and agree that service of process by registered or certified mail,
return receipt requested, at its address specified herein is reasonably
calculated to give actual notice.


 


(e)           Borrower
and Lender waive, to the extent not prohibited by applicable law that cannot be
waived, any right either may have to claim or recover in any such proceeding
any special, exemplary, punitive or consequential damages.


 


(f)            Borrower hereby releases and exculpates Lender, its
officers, directors, members, managers, agents, attorneys, employees and
designees (collectively, with Lender, the “Lender Released Parties”), and none
of the Lender Released Parties shall have any liability to Borrower (whether in
contract, tort, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct.  In any such litigation,
Lender shall be entitled to the benefit of the rebuttable presumption that it
acted at all times in good faith and with the exercise of ordinary care in the
performance by it of the terms of this Agreement.


 


10.2         Waiver of Claims and Counterclaims. 
In no event shall Lender have any liability to Borrower for lost profits
or other special, consequential, incidental, exemplary or punitive damages in
connection with this Agreement or any of the other Loan Documents or the
transactions contemplated hereby or thereby, and Borrower expressly waives any
and all right to assert any such claims. 
Borrower further waives all rights to 


 


30

















 


interpose any claims, deductions, setoffs, recoupment,
or counterclaims of any nature (other than compulsory counterclaims) in any
action or proceeding with respect to this Agreement, the Obligations, the
Collateral or any matter arising therefrom or relating hereto or thereto;
including, but not limited to those claims and causes of action referenced in Section 6.8.  No officer of Lender has any authority to
waive, condition, or modify the provisions of this section.


 


10.3         Indemnification.  Borrower
agrees to indemnify, save and hold harmless Lender and all other Lender
Released Parties from and against: (i) the use or contemplated use of the
proceeds of any of the Loans, any transaction contemplated by this Agreement or
the other Loan Documents; (ii) any administrative or investigative
proceeding by any governmental agency arising out of or related to a claim,
demand, action or cause of action described in clause (i) above; and (iii) any
and all liabilities, losses, costs or expenses (including reasonable attorneys’
fees and disbursements and other professional services) that any party
indemnified hereunder suffers or incurs as a result of any foregoing claim,
demand, action or cause of action; provided, however, that no such indemnitee
shall be entitled to indemnification for any loss caused by its own willful
misconduct.  Any obligation or liability
of Borrower to any such indemnitee under this section shall survive the
expiration or termination of this Agreement and the repayment of the Loans and
performance of all Obligations.


 


10.4         Waiver of Marshalling Rights. 
Borrower waives any right of marshalling of assets of Borrower,
including without limitation, any such right with respect to the Collateral.


 


ARTICLE XI - MISCELLANEOUS


 


11.1         Power of Attorney.  Borrower
irrevocably appoints Lender, and any person designated by Lender, as Borrower’s
true and lawful attorney-in-fact to:  (a) endorse
for Borrower, in Lender’s or Borrower’s name, any draft or other order for the payment
of money payable to Borrower; and (b) execute and file or submit for
recording, in Lender’s or Borrower’s name, Financing Statements describing the
Collateral.  Lender shall not be liable
to Borrower for any action taken by Lender or its designee under this power of
attorney, except to the extent that such action was taken by Lender in bad
faith or with willful misconduct. 
Borrower agrees that a carbon, photographic, electronic or other
reproduction of a Financing Statement or this Agreement may be filed by Lender
as a Financing Statement.


 


11.2         Outstanding Loan Balance. 
The outstanding principal amount of, and accrued interest on, the Loans
and the Interest Rate applicable to the Loans from time to time, shall be, at
all times, ascertained from the records of Lender and shall be conclusive
absent manifest error.


 


11.3         Modifications and Course of Dealing. 
This Agreement constitutes the entire agreement of Borrower and Lender
relative to the subject matter hereof and supersedes in their entirety any
prior agreements or understandings, whether written or oral, pertaining to the
subject matter hereof.  No modification
of or supplement to this Agreement shall bind Lender unless in writing and
signed by an authorized officer of 


 


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Lender.  The
enumeration in this Agreement of Lender’s rights and remedies is not intended
to be exclusive, and such rights and remedies are in addition to and not by way
of limitation of any other rights or remedies that Lender may have under the
Uniform Commercial Code or other Applicable Law.  No course of dealing and no delay or failure
of Lender to exercise any right, power or privilege under any of the Loan
Documents will affect any other or future exercise of such right, power or
privilege.  The exercise of any one
right, power or privilege shall not preclude the exercise of any others, all of
which shall be cumulative.


 


11.4         Assignment and Participation. 
Borrower may not assign or transfer any of its rights or delegate any of
its obligations under this Agreement or any of the other Loan Documents.  Lender shall have the right, from time to
time, without notice to Borrower, to sell, assign or otherwise transfer all or
any part of its interest in this Agreement, the other Loan Documents, and the
Loans to any other party, or enter into participation arrangements with any
other party.  Borrower authorizes Lender
to deliver to potential assignees or participants Borrower’s financial
information and all other information delivered to Lender in furtherance of or
pursuant to the terms of this Agreement.


 


11.5         Delegation of Duties.  Lender may
execute any of its duties under this Agreement or the other Loan Document by or
through agents, employees or attorneys-in-fact. 
Lender shall not be responsible for the negligence or misconduct of any
agent or attorney-in-fact selected by Lender as long as such selection was made
in good faith.


 


11.6         Notices.  Except as
otherwise provided herein, whenever any notice, demand, request or other communication
shall or may be given to or served upon any party by any other party, or
whenever any party desires to give or serve upon any other party any
communication with respect to this Agreement, each such communication shall be
in writing and shall be deemed to have been validly served, given or delivered (a) upon
the earlier of actual receipt and five (5) Business Days after deposit in
the United States mail, registered or certified mail, return receipt requested,
with proper postage prepaid, (b) upon transmission, when sent by telecopy
or other similar facsimile transmission (with such telecopy or facsimile
promptly confirmed by delivery of a copy by personal delivery or United States
mail as otherwise provided in this Section 11.6), (c) one (1) Business
Day after deposit with a reputable overnight courier with all charges prepaid
or (d) when hand-delivered, all of which shall be addressed to the party
to be notified and sent to the address or facsimile number indicated in the
signature page to this Agreement or to such other address (or facsimile
number) as may be substituted by the giving of notice of such
substitution.   Delivery of a copy of any
notice under this Section 11.6 to an individual designated on the
signature page as “with a copy to” shall not be deemed notice to a party.


 


11.7         Payment of Expenses and Taxes. 
Borrower agrees (a) to pay or reimburse Lender for all its
out-of-pocket costs and expenses reasonably incurred in connection with the
preparation and execution of, any amendment, supplement or modification to, and
the enforcement or preservation of any rights under, this Agreement, the other
Loan Documents, and the DIP Order, and the consummation of the transactions
contemplated hereby and thereby, including, without limitation the reasonable
fees and disbursements of counsel to Lender and other professionals engaged by
Lender, (b) to pay or reimburse 


 


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Lender for all its costs and expenses reasonably
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents, the DIP Order and any such other
documents following the occurrence and during the continuance of a Default or
an Event of Default, including, without limitation, the reasonable fees and
disbursements of counsel to Lender and other professionals engaged by Lender, (c) to
pay, and indemnify and hold harmless Lender from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents, the DIP Order and any
such other documents, (d) to pay, and indemnify and hold harmless Lender
(and its directors, officers, employees and agents) from and against any and
all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance,
preservation of rights and administration of this Agreement, the other Loan
Documents, the DIP Order or the use of the proceeds of the Loans (all the
foregoing in this clause (d), collectively, the “Indemnified Liabilities”),
provided, that Borrowers shall have no obligation hereunder to Lender with
respect to Indemnified Liabilities determined by the final judgment of a court
of competent jurisdiction to have resulted from the gross negligence or willful
misconduct of Lender or its directors, officers, employees or agents. The
agreements in this Section 11.7 shall survive repayment of the Loans and
all other Obligations payable hereunder.


 


11.8         Binding Effect; Severability. 
This Agreement shall not be deemed to create any right in any party
except as provided herein and shall inure to the benefit of, and be binding
upon, the successors and assigns of Borrower and Lender.  All of Borrower’s obligations under this
Agreement are absolute and unconditional and shall not be subject to any offset
or deduction whatsoever.  The provisions
of this Agreement are intended to be severable. 
If any provision of this Agreement is held invalid or unenforceable in
whole or in part, such provision will be ineffective to the extent of such
invalidity or unenforceability without in any manner effecting the validity or
enforceability of the remaining provisions of this Agreement.


 


11.9         Final Agreement.  This
Agreement and the other Loan Documents are intended by Borrower and Lender to
be the final, complete, and exclusive expression of the agreement between them,
except as may be provided in the DIP Order. 
This Agreement supersedes any and all prior oral or written agreements
relating to the subject matter hereof. 
No modification, rescission, waiver, release, or amendment of any
provision of this Agreement or any provision of any of the other Loan Documents
shall be made, except by a written agreement signed by Borrower and a duly
authorized officer of Lender.


 


11.10       Counterparts.  This
Agreement may be executed in any number of counterparts, and by Lender and
Borrower in separate counterparts, each of which shall be an original, but all
of which shall taken together constitute one and the same 


 


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agreement. The parties hereby acknowledge and agree
that facsimile signatures of this Agreement shall have the same force and
effect as original signatures.


 


11.11       Captions.  The captions
contained in this Agreement are for convenience of reference only, are without
substantive meaning and should not be construed to modify, enlarge, or restrict
any provision.


 


11.12       Right of Set-off.  Subject to the giving of the notice as
described in Article 9, notwithstanding the provisions of Section 362
of the Bankruptcy Code, and any other rights and remedies of Lender now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance
of any Event of Default, Lender is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to
Borrower or to any other Person, any such notice being hereby expressly waived,
to set-off any other indebtedness or other obligation at any time held or owing
by Lender to or for the credit or the account of any Borrower against and on
account of the Obligations of Borrower to Lender under this Agreement or under
any of the other Loan Documents, and all other claims of any nature or
description arising out of or connected with this Agreement or any other Loan
Document, irrespective of whether or not Lender shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.


 


11.13       Maximum Lawful Rate. Notwithstanding
any provision of this Agreement or the other Loan Documents to the contrary, it
is the intent of Lender and Borrower, that neither Lender nor any successor or
assign shall be entitled to receive, collect, reserve or apply, as interest,
any amount in excess of the amount determined by application of the Maximum
Lawful Rate of Interest.  In the event
this Agreement or the other Loan Documents calls for an interest payment that
exceeds the amount determined by application of the Maximum Lawful Rate of
Interest, such interest shall not be received, collected, charged or reserved
until such time as that interest together with all other interest then payable,
falls within the amount determined by application of the Maximum Lawful Rate of
Interest.  In the event Lender receives
any such interest in excess of the amount determined by the application of the
Maximum Lawful Rate of Interest, such amount which would be excessive interest
shall be deemed a partial prepayment of principal and treated hereunder as
such, or, if the principal indebtedness is paid in full, any remaining excess
funds shall immediately be paid to Borrower. 
In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the amount determined by application of the
Maximum Lawful Rate of Interest, Borrower and Lender shall, to the greatest
extent permitted under applicable law, (a) exclude voluntary prepayments
and the effects thereof, and (b) amortize, prorate, allocate, and spread,
in equal parts, the total amount of interest throughout the entire term of the
indebtedness; provided, however, that if the indebtedness is paid in full then
to the end of the full contemplated term hereof; and if the interest received
for the actual period of existence hereof exceeds the amount determined by
application of the applicable Maximum Lawful Rate of Interest, Lender shall
refund to Borrower the amount of such excess or credit the amount of such
excess against the principal portion of the indebtedness as of the date it was
received, and, in such event, Lender shall not be subject to any penalties
provided by any laws for contracting for, charging, reserving, collecting 


 


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or receiving interest in
excess of the amount determined by the application of the applicable Maximum
Lawful Rate of Interest.


 


11.14       Limitation of Liability.  No claim may be made by Borrower or any other
entity against Lender or any of its affiliates, lenders, investors, directors,
officers, employees, attorneys or agents for any special, indirect,
consequential or punitive damages in respect of any claim for breach of
contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement or any act, omission or event
occurring in connection herewith; and Borrower hereby waives, releases and
agrees not to sue upon any claim for any such damages, whether or not accrued
and whether or not known or suspected to exist in its favor.


 


11.15       DIP Order Controls.  This Agreement and the other
Loan Documents are each subject to the terms and provisions contained in the
DIP Order to the same extent and effect as if the DIP Order were fully set
forth herein and therein; and in the event that any term or provision of this
Agreement or any other Loan Document conflicts or is inconsistent with any term
or provision of any DIP Order, the term and provision of the applicable DIP
Order shall control and be given effect.


 


11.16       Bankruptcy Court Approval.  This Agreement and Borrower’s and Lender’s
obligations and duties hereunder is expressly conditioned upon approval by the
Bankruptcy Court and entry of the DIP Order.


 


[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]


 


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The undersigned, pursuant to
due authority, have caused this Agreement to be executed as of the date set
forth above.


 


 


	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  PRB
  OIL AND GAS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  William F. Hayworth

  
	
   

  	
  Name:
  William F. Hayworth

  
	
   

  	
  Title:
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PRB
  ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  William F. Hayworth

  
	
   

  	
  Name:
  William F. Hayworth

  
	
   

  	
  Title:
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  PRB
  ACQUISITION, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Charles
  W. Singleton

  
	
   

  	
  Name:
  Charles W. Singleton

  
	
   

  	
  Title:
  Vice-Preseident

  



 


Signature
Page for Debtor-in-Possession Loan and Security Agreement