Filed by Bowne Pure Compliance





Exhibit 10.1




THIRD AMENDED AND RESTATED

LOAN AGREEMENT




dated effective as of

June 12, 2008




among




GMX RESOURCES INC.,

as Borrower,




AND




CAPITAL ONE, NATIONAL ASSOCIATION,

as Administrative Agent, Arranger and Bookrunner




UNION BANK OF CALIFORNIA, N.A.,

as Syndication Agent




BNP PARIBAS,

as Documentation Agent




AND

THE BANKS LISTED ON THE SIGNATURE PAGE,

as Banks





 


 









 







THIRD AMENDED AND RESTATED LOAN AGREEMENT




THIS THIRD AMENDED AND RESTATED LOAN AGREEMENT (this “Agreement”), dated effective as of June
12, 2008, is made among GMX RESOURCES INC., an Oklahoma corporation (the “Borrower”), the BANKS
(as defined below), CAPITAL ONE, NATIONAL ASSOCIATION, a national banking association, as
administrative agent, arranger and bookrunner, for the Banks (and individually as a Bank), UNION
BANK OF CALIFORNIA, N.A., as syndication agent (and individually as a Bank), and BNP PARIBAS, as
documentation agent (and individually as a Bank) who agree as follows:



PRELIMINARY STATEMENT




WHEREAS, the Borrower and Capital One, National Association (under its former name Hibernia
National Bank, the “Initial Bank”), were parties to the Loan Agreement dated effective as of July
29, 2005, as amended by the Interim Agreement dated as of November 3, 2005, and the Second
Amendment thereto dated as of December 20, 2005 (as so amended, the “Initial Loan Agreement”).



WHEREAS, the Borrower and the Initial Bank amended the line of credit under said Initial Loan
Agreement, to provide for the participation by other banks in said line of credit on an agented
credit basis, to reflect the joinder of Union Bank of California as a Bank and an increase in the
Borrowing Base, and to permit certain subordinated borrowing by the Borrower, and in connection
therewith amended and restated said Initial Loan Agreement in its entirety as provided in the
following paragraph.



WHEREAS, the Borrower, the Agent and certain of the Banks were parties to the Amended and
Restated Loan Agreement dated effective as of June 7, 2006, as amended by the First Amendment dated
as of August 4, 2006, the Second Amendment dated as of August 14, 2006, the Third Amendment dated
as of December 21, 2006, the Fourth Amendment dated as of March 13, 2007 (but effective as of
December 31, 2006), and the Fifth Amendment dated as of July 31, 2007.



WHEREAS, the Borrower, the Agent and certain of the Banks renewed the line of credit under
said Amended and Restated Loan Agreement (as amended), and in connection therewith the Borrower,
the Agent and certain of the Banks are parties to the Second Amended and Restated Loan Agreement
dated effective as of October 31, 2007, as amended by the First Amendment dated as of December 20,
2007, and the Second Amendment dated as of February 11, 2008 (as so amended, the “Prior Loan
Agreement”).



WHEREAS, the Borrower, the Agent and the Banks desire to renew the line of credit under said
Prior Loan Agreement, and to reflect the joinder of BNP Paribas, Compass Bank and Fortis Capital
Corp. as Banks and an increase in the Borrowing Base, and to modify certain other covenants and
provisions, and in connection therewith to amend and restate said Prior Loan Agreement in its
entirety.


 


 









 





NOW, THEREFORE, in consideration of the premises, and the mutual agreements contained herein,
the Borrower, the Agent and the Banks do hereby (i) agree that nothing in this Third Amended and
Restated Loan Agreement shall constitute the satisfaction or extinguishment of the amount owed
under the line of credit promissory notes issued under said Prior Loan Agreement, nor shall it be a
novation of the amount owed under such line of credit promissory notes, and (ii) amend and restate
said Prior Loan Agreement in its entirety as follows:



ARTICLE 1




GENERAL TERMS




Section 1.1 Terms Defined Above. As used in this Agreement, the terms “Agreement”,
“Borrower”, “Initial Bank”, “Initial Loan Agreement”, and “Prior Loan Agreement” shall have the
meanings indicated above.



Section 1.2 Certain Definitions. As used in this Agreement, the following terms shall
have the meanings indicated (and as provided in Section 10.14), unless the context
otherwise requires:



“Advances” shall mean the borrowings on the Closing Date
under the Loan and all or any portion of such borrowings and other
or subsequent reborrowings under the Loan so long as same remain
outstanding and unpaid.



“Affiliate” shall mean, with respect to a specified Person,
another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common
control with the Person specified (and the term “control”
means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person
through the ability to exercise voting power) (and the terms
“controlling” and “controlled” have meanings
correlative thereto).



“Agent” shall mean Capital One, National Association in its
capacity as administrative agent of the Banks pursuant to
Article 9 and any successor administrative agent pursuant to
Section 9.1.



“Amount” shall mean two hundred fifty million
($250,000,000.00) dollars. Although the aggregate notional amount
of the Notes under this Agreement is the Amount, the Commitment
Limit is acknowledged by Borrower to be a lesser number, subject to
one or more future increases by the Banks in their sole discretion
and the Borrower’s request in conjunction with any future increases
in the Borrowing Base and further bank
management approvals, and subject to the fee payable on the
incremental increased portion under Section 2.5.




 


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“Applicable LIBO Rate Margin” shall have the meaning set
forth in the definition of “LIBO Rate”.



“Banks” shall mean the lenders listed on Schedule 1
hereto and on the signature pages of this Agreement, and their
respective successors and assigns in accordance with Section 9.6.



“Base Rate” shall mean, for any day, an interest rate per
annum equal to the Prime Rate in effect on such day. Without notice
to the Borrower, the Base Rate shall change automatically from time
to time as and in the amount by which the Prime Rate shall
fluctuate, with each such change in the Base Rate to be effective as
of the date of each change in the Prime Rate, adjusted daily.



“Borrowing Base” shall mean, at any time, the dollar amount
calculated as the maximum loan value of the Collateral as determined
by the Agent, in each case with the consent of the Required Banks or
all the Banks, as applicable, as provided below in this definition,
in their sole discretion, but based upon their respective customary
standards and practices from time to time in effect with respect to
secured oil and gas property lines of credit in determining the
discounted present value of the Collateral’s production and the
Borrower’s cash flows. Any good faith determination by the Agent
and the Banks of the Borrowing Base shall be final and conclusive as
to the Borrower. The Borrowing Base may be revised by Agent and the
Banks at any time to reflect changes in the Collateral or the
occurrence of events or economic conditions or otherwise pursuant to
Agent’s and the Banks’ customary standards and practices as such
exist at that particular time, and further will be subject to
scheduled semi-annual redeterminations (approximately April 1 and
October 1) during the term of this Loan. Additionally, the Borrower
may request once per any six month period between scheduled
redeterminations that an unscheduled redetermination be done by
Agent and the Banks, subject to Borrower’s payment to Agent for
distribution to the Banks of a fee in accordance with Section
2.5. The Agent shall notify the Borrower of the result of each
Borrowing Base redetermination and its effective date (which shall
not be retroactive without the Borrower’s written consent). Each
determination of the Borrowing Base shall be effective until


 


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redetermined by the Agent in accordance with this Agreement (or
until the Maturity Date). Such redetermination may lead to increased
or decreased credit availability to the Borrower under the revised
Borrowing Base schedule, and any increase shall be subject to Banks’
credit approval process. The Borrowing Base after any
redetermination may be subject to automatic Periodic Reductions
(with notice to Borrower) as provided and defined in Subsection
2.4 (c). Without limiting the foregoing, the Agent may exclude,
in its sole and absolute discretion, any property or portion of
production therefrom from the Borrowing Base, at any time, because
title information on, or the status of title to, such property is
not reasonably satisfactory to Agent, such property is not
Collateral, the Agent’s Lien therein is not first and prior to all
others, such property is subject to contractual agreements or
commitments not reasonably satisfactory to Agent, or such property
is not assignable. The Borrower acknowledges that the determination
of the Borrowing Base contains an equity cushion (market value in
excess of loan value), which is acknowledged by the Borrower to be
essential for the adequate protection of the Agent and the Banks.
On the Closing Date, the Borrowing Base is $140,000,000.00.
Thereafter, the Agent shall make a preliminary
redetermination of the Borrowing Base each March 1 and September 1
of each year (assuming timely delivery of requested information from
the Borrower), and otherwise at such times as deemed appropriate by
the Agent or the Required Banks (including as may be provided by
Section 3.3). The Agent promptly shall notify the Banks in
writing of each such preliminary redetermination. Each Bank shall
notify the Agent in writing of either its approval or disapproval of
any such preliminary redetermination of the Borrowing Base within
ten (10) Business Days after its receipt of such notice. Each
re-determination of the Borrowing Base which results in an increase
shall require the consent of all of the Banks; each other
redetermination of the Borrowing Base (which results in no change or
a decrease) shall require the consent of the Required Banks. Upon
approval of all the Banks or the Required Banks, as applicable, of
each redetermination, the Agent shall notify the Borrower as
provided above.



“Business Day” shall mean (a) for all purposes other than as
covered by clause (b) of this definition, a day other than a
Saturday, Sunday or legal holiday for commercial banks in either New
Orleans, Louisiana, or New York, New York, and (b) with
respect to all requests, notices and determinations in connection
with LIBO Rate Loans, a day which is a Business Day described in
clause (a) of this definition and which is a day for trading by and
between banks for dollar deposits in the London interbank market.


 


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“Closing Date” shall mean the date on which the Notes are
effective and delivered by the Borrower to the Banks and all the
other conditions in Section 7.1 are met or waived
(temporarily or otherwise).



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



“Collateral” shall mean the properties and property rights
described in the Collateral Documents described in Section
3.1 as primary security for the Secured Liabilities.



“Collateral Documents” shall mean collectively the documents
from time to time required by the Agent and the Banks to obtain the
security interest in the Collateral, or otherwise guarantee or
secure the Secured Liabilities, or otherwise pertaining to this
Agreement (including without limitation the letter of credit
applications described in Subsection 2.1(g) below), such
documents which exist on the Closing Date being described in Article
3 hereof, as all such documents are amended, restated or renewed
from time to time.



“Commitment Limit” shall mean, at any particular date, the
lesser of (x) the Amount (as it may be increased by the
Banks from time to time) or (b) the Borrowing Base as most recently
determined and in effect (including the effect of any Periodic
Reductions).



“Commitments” shall mean the commitments of each of the
Banks for the Loan set forth on Schedule 1 hereto as amended
from time to time.



“Companies” shall mean collectively, on the Closing Date,
the Borrower, Endeavor, and Diamond, and thereafter all such Persons
plus any Subsidiary formed or acquired after the Closing Date, and
“Company” shall mean any one of the Companies.



“Contracts” shall mean those agreements, contracts and other
instruments to which the Borrower’s interest in the oil, gas and
mineral leases comprising the Collateral are subject.


 


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“Convertible Debt” shall mean Debt of Borrower which (i)
does not exceed $135,000,000.00 in aggregate principal amount, (ii)
is unsecured by any Liens, (iii) has a stated (non-default) interest
rate of less than eight (8%) percent per annum, (iv) has a stated
maturity date no earlier than February 1, 2013, (v) sets forth
covenants that are no more restrictive on the Companies and their
operations and affairs than the covenants described in the
Preliminary OM, and (vi) is not subject to redemption, repurchase or
conversion in any part earlier than November 1, 2012, except for
the redemptions, repurchases or conversions described in the
Preliminary OM.



“Debt” shall mean any and all amounts and/or liabilities
owing from time to time by a Company to any Person, including any
Secured Party, direct or indirect, liquidated or contingent, now
existing or hereafter arising, including without limitation (i)
indebtedness for borrowed money or the deferred purchase price of
property; (ii) unfunded portions of commitments for money to be
borrowed; (iii) the amounts of all standby and commercial letters of
credit and bankers acceptances, matured or unmatured, issued on
behalf of such Company, and (without duplication) all drafts drawn
thereon; (iv) guaranties of the obligations of any other Person,
whether direct or indirect, whether by agreement to purchase the
indebtedness of any other Person or by agreement for the furnishing
of funds to any other Person through the purchase or lease of goods,
supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or
discharging the indebtedness of any other Person, or otherwise; (v)
indebtedness of the types described above secured by any Lien on any
property owned by such Company, to the extent attributable to such
Company’s interest in such property, even though such Company has
not assumed or become liable for the payment thereof personally;
(vi) the present value of all obligations for the payment of rent or
hire of property of any kind (real or personal) under leases or
lease agreements required to be capitalized under generally accepted
accounting principles, (vii) trade payables and operating leases
incurred in the ordinary course of business or otherwise; (viii)
Hedging Obligations; (ix) obligations of such Company owing in
respect of redeemable preferred stock; and (x) obligations of such
Company owing in connection with production payments.


 


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“Deed of Trust” shall mean the Texas Deed of Trust described
in Section 3.1(i), as amended, supplemented or restated from
time to time.



“Default” shall mean the occurrence of any of the events
specified in Article 8 hereof, whether or not any requirement for
notice or lapse of time or other condition precedent has been
satisfied.



“Default Rate” shall mean, on any particular date, the Base
Rate plus five (5%) percent per annum, but in no event to
exceed the Maximum Rate.



“Diamond” shall mean Diamond Blue Drilling Co., an Oklahoma
corporation and a wholly owned Subsidiary of the Borrower.



 “EBITDA” shall mean, for each period of four preceding
fiscal quarters, the sum of the Borrower’s (i) net income for that
period, plus (ii) any extraordinary loss and other expenses not
considered to be operating in nature reflected in such net income,
minus (iii) any extraordinary gain, interest income and
other income not considered operating in nature reflected in such
net income, plus (iv) depreciation, depletion, amortization
and all other non-cash expenses for that period, plus (v)
all interest, fees, charges and related expenses paid or payable
(without duplication) for that period to a lender in connection with
borrowed money or the deferred purchase price of assets that are
considered “interest expense” under generally accepted accounting
principles, together with the portion of rent paid or payable
(without duplication) for that period under capital lease
obligations that should be treated as interest in accordance with
Financial Accounting Standards Board Statement No. 13, plus
(vi) the aggregate amount of federal and state taxes on or measured
by income for that period (whether or not payable during that
period).



“Endeavor” shall mean Endeavor Pipeline Inc., an Oklahoma
corporation, and a wholly owned Subsidiary of the Borrower.



“ERISA” shall mean the Employee Retirement Income Security
Act of 1974, as amended.



“Event of Default” shall mean the occurrence of any of the
events specified in Article 8 hereof, provided that any requirement
for notice or lapse of time or any other condition precedent has
been satisfied.


 


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“Expedition” shall mean Expedition Natural Resources Inc.,
an Oklahoma corporation, formerly a wholly owned Subsidiary of the
Borrower, merged into the Borrower on or about July 29, 2005.



“Hedge Agreement” shall mean any agreement or arrangement
providing for payments which are related to, or the value of which
is dependent upon, fluctuations of interest rates, currency exchange
rates or forward rates, or fluctuations of commodity prices,
including without limitation any swap agreement, cap, collar, floor,
exchange transaction, forward agreement or exchange or protection
agreement or similar futures contract or swap or other derivative
agreement related to interest rates, currency exchange rates or
hydrocarbons or other commodities, or any option with respect to
such transaction.



“Hedging Obligations” of a Person shall mean any and all
obligations of such Person, whether absolute or contingent and
howsoever and whensoever created, arising or evidenced (including
all renewals, extensions and modifications thereof and substitutions
therefor), under any and all Hedge Agreements and any and all
cancellations, buybacks, reversals, terminations or assignments of
any Hedge Agreement.



“Indebtedness” shall mean any and all amounts, liabilities
or obligations owing from time to time by the Borrower to the Agent
or to all or any of the Banks pursuant to this Agreement, the Notes
and the Collateral Documents (including attorneys’ fees incurred in
connection with the execution, enforcement or collection of the
Borrower’s obligations hereunder or thereunder or any part thereof
and all fees payable in connection herewith to the Agent or to the
Banks), whether such amounts, liabilities or obligations be
liquidated or unliquidated, now existing or hereafter arising.



“Indemnified Parties” shall have the meaning provided in
Section 5.14.



“Intercreditor Agreement” shall mean the Intercreditor
Agreement among the Agent and the Banks, on the one hand, and the
Subordinated Holders, on the other, setting forth terms of
subordination substantially as set forth on Addendum II.




 


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“Interest expense” shall mean, for each period, the sum of
all interest, fees, charges and related expenses payable in cash
(without duplication) for that period to a lender in connection with
borrowed money or the deferred purchase price of assets that are
considered “interest expense” under generally accepted accounting
principles, plus the portion of rent paid or payable (without
duplication) for that period under capital lease obligations that
should be treated as interest in accordance with Financial
Accounting Standards Board Statement No. 13.



“Issuing Bank” shall mean Capital One, National Association,
and any successor issuing bank pursuant to Section 9.1.



“Letter of Credit Sublimit” shall mean ten million
($10,000,000.00) dollars.



“Letter of Credit Usage” shall mean, on any date of
determination, the sum of (i) the maximum aggregate amount that is
or at any time thereafter may become available for drawing under all
standby letters of credit then outstanding under this Agreement
plus (ii) the aggregate amount of all drawings under letters
of credit honored by the Issuing Bank and not theretofore reimbursed
by Borrower in any manner, either directly or out of the proceeds of
an Advance pursuant to Subsection 2.1(g).



“LIBO Rate” shall mean, during any Interest Period (as
defined below) for any Advance, an interest rate per annum equal to
the Reserve Adjusted LIBO Rate (as defined below) plus the
Applicable LIBO Rate Margin (as defined below). “Reserve
Adjusted LIBO Rate” shall mean with respect to each Interest
Period for a LIBO Rate Advance, an interest rate per annum equal to
the quotient (converted to a percentage, rounded upward to the
nearest whole multiple of 1/100 of 1% per annum) of (i) the rate per
annum as determined by the Agent at or about 10:00 a.m. Central Time
(or as soon thereafter as practicable) on the second Business Day
prior to the first day of each Interest Period, to be the annual
rate of interest for deposits in United States dollars for the
selected Interest Period as shown on the Dow Jones Telerate Matrix
page for British Bankers Association Interest Settlement Rates as of
two Business Days prior to the first day of such Interest Period,
divided by (ii) the amount by which 1.00 exceeds the LIBOR Reserve
Requirement (as defined below), expressed as a decimal, for such
Interest Period. “LIBOR Reserve Requirement” shall mean for
any day during an Interest Period for any LIBO Rate Advance, that
percentage (expressed as a decimal) which is specified by the Board
of Governors of the Federal Reserve


 


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System (or any successor) for determining the maximum reserve
requirement (including, but not limited to, any marginal reserve
requirement) for the Banks with respect to liabilities consisting of
or including “Eurocurrency liabilities” (as defined in Regulation D
of the Board of Governors of the Federal Reserve System) with a
maturity equal to such Interest Period. In determining this
percentage, the Agent may use any reasonable averaging and
attribution method. “Interest Period” shall mean the period
between the Business Day on which the LIBO Rate shall begin and the
day on which the LIBO Rate shall end. The duration of each Interest
Period for a LIBO Rate Advance shall be one (1) month, two (2)
months, or three (3) months, at the Borrower’s election, subject to
the following: (i) no Interest Period shall extend past the Maturity
Date; (ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next
succeeding Business Day, except that if the next succeeding
Business Day would occur in the next following calendar month, the
last day of such Interest Period shall be shortened to occur on the
next preceding Business Day; (iii) whenever the first day of any
Interest Period occurs on a day of an initial calendar month for
which there is no numerically corresponding day in the calendar
month that succeeds such initial calendar month by the number of
months in such Interest Period, such Interest Period shall end on
the last Business Day of such succeeding calendar month; and (iv) if
the Borrower fails to designate an Interest Period, the Interest
Period for a LIBO Rate Advance (recognizing that under
Subsection 2.1(b) below the Banks are not obligated to make
such a LIBO Rate Advance in the absence of such designation by the
Borrower) shall be deemed to be one month until a different
designation is made for a subsequent Interest Period. No Interest
Period for a LIBO Rate Advance shall have a duration of less than
one month, and if any such Interest Period would otherwise be a
shorter period, the relevant Advance shall be a Base Rate Advance
during such period. The “Applicable LIBO Rate Margin” shall
mean the following per annum interest rate from time to time,
determined for each fiscal quarter by reference to the Percentage
Outstanding for the immediately prior fiscal quarter, in accordance
with the following schedule:


 


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	 	 	Applicable LIBO
	Percentage Outstanding	 	Rate Margin
	 
	 	 	 	 
	0 to 50%

	 	 	1.75	%
	above 50% to 90%

	 	 	2.00	%
	above 90%

	 	 	2.25	%






The Applicable LIBO Rate Margin shall remain fixed during each
fiscal quarter of the Borrower’s fiscal year, determined on the
first day of each fiscal quarter depending upon the Percentage
Outstanding for the immediately prior quarter. (During the first
partial quarter of this Agreement, commencing on the Closing Date,
the Applicable LIBO Rate Margin shall be set using the Percentage
Outstanding under the Prior Loan Agreement for the period from April
1, 2008, through the Closing Date.) No more than four (4) LIBO Rate
tranches at any one time are permitted for the Notes. The Borrower
will comply with the provisions of Addendum I hereto,
relating to the LIBO Rate, which is an integral part of this
Agreement. The LIBO Rate shall remain fixed for the duration of the
LIBO Rate Interest Period selected. The Borrower shall not have the
right to voluntarily prepay Advances outstanding at the LIBO Rate
prior to the end of the applicable LIBO Rate Interest Period unless
the Borrower includes payment of amounts, if any, required to be
paid pursuant to paragraph 6 of Addendum I.



“Lien” shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of
the property, whether such interest is based on jurisprudence,
statute or contract, and including but not limited to the lien or
security interest arising from a mortgage, encumbrance, pledge,
security agreement, production payment, conditional sale, bond for
deed or trust receipt or a lease, consignment or bailment for
security purposes. The term “Lien” shall include reservations,
exceptions, encroachments, easements, servitudes, usufructs,
rights-of-way, covenants, conditions, restrictions, leases, and
other title exceptions and encumbrances affecting property. For the
purposes of this Agreement, the Borrower shall be deemed to be the
owner of any property which it has accrued or holds subject to a
conditional sale agreement, financing lease or other arrangement
pursuant to which title to the property has been retained by or
vested in some other Person for security purposes.


 


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“Loan” shall mean the line of credit and standby letters of
credit as described in Article 2 hereof.



“Loan Excess” shall mean, at any point in time, the amount,
if any, by which the outstanding principal balance of the Advances
plus the undisbursed amount of all outstanding standby letters of
credit issued pursuant to this Agreement exceeds the Commitment
Limit then in effect.



“Maturity Date” shall mean July 15, 2011, or such earlier
date on which the Loan is accelerated pursuant to Section
8.2 hereof.



“Maximum Rate” shall mean the maximum nonusurious interest
rate permitted under applicable law (determined under such laws
after giving effect to any items which are required by such laws to
be construed as interest in making such determination, including
without limitation if required by such laws, certain fees and other
costs), as such laws are presently in effect, or, to the extent
allowed by applicable law, as such laws may hereafter be in effect
and which allow a higher maximum non-usurious interest rate than
such laws now allow.



“Maximum Subordinated Amount” shall mean eighty million
($80,000,000.00) dollars, consisting of fifty million
($50,000,000.00) dollars of Qualified Redeemable Preferred Equity
and thirty million ($30,000,000.00) dollars of Qualified
Subordinated Debt.



“New Banks” shall mean the Banks which are parties to this
Agreement on the Closing Date and which were not parties to the
Prior Loan Agreement (being BNP Paribas, Compass Bank and Fortis
Capital Corp.).



 “Notes” shall mean the promissory notes executed by
the Borrower, each substantially in the form of Exhibit A
hereto, initially dated the Closing Date (and subsequently dated on
the date that additional Banks become a party to this Agreement),
payable to the order of each Bank in the amount of the Bank’s
Commitment, in representation of the Advances available to be made
under the line of credit Loan, together with any and all amendments,
modifications, extensions, renewals, increases or rearrangements
thereof or therefor. (The Notes dated the Closing Date payable to
the order of each Bank in the amount of the Bank’s Commitment as
shown on Schedule 1 hereto have been given in


 


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renewal and increase of the indebtedness previously evidenced by
those certain two Line of Credit Notes, each dated October 31, 2007,
issued under the Prior Loan Agreement, which were in turn given in
renewal, extension and increase of the indebtedness previously
evidenced by those certain two Line of Credit Notes, each dated June
7, 2006, issued under the Amended and Restated Loan Agreement of
even date therewith, which were in turn given in renewal, extension
and increase of the indebtedness previously evidenced by that
certain Line of Credit Note dated July 29, 2005, issued under the
Initial Loan Agreement.)



“Operator” shall mean each Person which is an operator of
any of the Borrower’s properties.



“Patriot Act” shall have the meaning set forth in
Section 4.22.



“Participation Agreement” shall mean the Participation
Agreement dated December 29, 2003, by and among Penn Virginia Oil &
Gas Corporation, the Borrower, and Expedition and Endeavor, as
amended by the First Amendment dated February 27, 2004, the Second
Amendment dated March 9, 2004, the Third Amendment dated April 6,
2004, the Amendment No. 4 dated August 11, 2004, the Amendment No. 5
dated February 25 and March 2, 2005, the Amendment No. 6 entered
January 3 and 13, 2006, and as further amended after the Closing
Date in accordance with this Agreement. PVOG is the successor to
Penn Virginia Oil and Gas Corporation under the Participation
Agreement.



“Percentage Outstanding” shall mean, for any fiscal quarter
(or lesser time period as applicable), the fraction (expressed as a
percentage) obtained by dividing (x) the average unpaid and
outstanding aggregate principal balance of the Advances under the
Notes plus the undisbursed amount of all standby letters of
credit during such quarter, by (y) the average of the Commitment
Limit for such quarter.



“Periodic Reduction” shall have the meaning provided in
Subsection 2.4(c).



“Permitted Commodity Hedge” shall mean non-speculative
transactions in futures, forwards, swaps or option contracts
(including both physical and financial settlement transactions),
engaged in by the Borrower or any Subsidiary as part of its normal
business operations with the purpose and effect of hedging prices


 


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as a risk management strategy or hedge against adverse changes in
the prices of natural gas or oil (including without limitation
commodity price hedges, swaps, caps, floors, collars and similar
agreements designed to protect the Borrower or such Subsidiary
against fluctuations in commodity prices or any option with respect
to any such transaction) and not intended primarily as a borrowing
of funds, provided that all times: (1) no such contract fixes a
price for a term of more than thirty six (36) months without the
prior written consent of the Required Banks; (2) the aggregate
monthly production covered by all such contracts (considered both
individually and in the aggregate) by the Borrower and all its
Subsidiaries (determined, in the case of contracts that are not
settled on a monthly basis, by a monthly proration acceptable to the
Agent) for any single month during the next six (6) month period (on
a rolling basis) does not exceed (x) for oil, one hundred (100%)
percent of the Borrower’s aggregate Existing Production (as defined
below) of oil sold for the immediately preceding month, and (y) for
gas, one hundred (100%) of Borrower’s aggregate Existing Production
of gas sold for the immediately preceding month; (3) the aggregate
production covered by all such contracts (considered both
individually and in the aggregate) by the Borrower and all its
Subsidiaries does not in the aggregate exceed (x) for oil, eighty
(80%) percent of the Borrower’s aggregate Projected Production (as
defined below) of oil anticipated to be sold in the ordinary course
of the Borrower’s business for the time period(s) covered by such
contracts, and (y), for gas, eighty (80%) percent of the Borrower’s
aggregate Projected Production of gas anticipated to be sold in the
ordinary course of the Borrower’s business for the time period(s)
covered by such contracts; (4) no such contract requires the
Borrower or such Subsidiary to put up money, assets, letters of
credit or other security against the event of its nonperformance
prior to actual default by the Borrower or such Subsidiary in
performing its obligations thereunder, other than letters of credit
issued under this Agreement; and (5) each such contract shall be
either with any Bank or an Affiliate of any Bank (without
restriction as to rating), or with a counterparty who (or have a
guarantor of the obligation of the counterparty who), at the time
the contract is made, has long-term obligations rated AA or Aa2 or
better, respectively, by Standard & Poor’s Corporation or Moody’s
Investors Services, Inc. (or a successor credit rating agency) or
with a counterparty otherwise approved in advance by the Required
Banks. As used herein, the term “Existing Production” means the
actual production


 


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of oil or gas (measured by volume unit or BTU equivalent, not sales
price), as applicable, sold in the ordinary course of the Borrower’s
business for a particular month from properties and interests owned
by the Borrower which are Collateral and which have attributable to
them proved developed oil or gas reserves as reflected in the most
recent engineering report delivered pursuant to Subsection
5.2(c), after deducting production from any properties or
interests sold that had been included in such report and after
adding actual production from any properties or interests owned by
the Borrower which have become Collateral and have not been
reflected in such report that are reflected in a separate or
supplemental report meeting requirements of such Subsection
5.2(c) or otherwise satisfactory to the Agent. As used herein,
the term “Projected Production” means the projected production of
oil or gas (measured by volume unit or BTU equivalent, not sales
price), as applicable, for the term of the contracts or a particular
month, as applicable, from properties and interests owned by the
Borrower which are Collateral and which have attributable to them
proved developed producing oil or gas reserves as reflected in the
most recent engineering report delivered pursuant to Subsection
5.2(c), after deducting projected production from any properties
or interests sold or under contract for sale that had been included
in such report and after adding projected production from any
properties or interests owned by the Borrower which have become
Collateral and had not been reflected in such report that are
reflected in a separate or supplemental report meeting requirements
of such Subsection 5.2(c) and otherwise satisfactory to the
Agent.



“Permitted Hedge Agreement” shall mean any Hedge Agreement
which is a Permitted Commodity Hedge or a Permitted Interest Hedge.



“Permitted Hedge Obligations” shall mean any and all present
and future amounts, obligations and liabilities, contingent or
otherwise, of the Borrower and its Subsidiaries under, collectively,
all Permitted Commodity Hedges and all Permitted Interest Hedges.



“Permitted Interest Hedge” shall mean any forward contract,
futures contract, swap, option or other financial agreement or
arrangement (including without limitation caps, floors, collars,
puts and similar agreements or any option with respect to any such
transaction) relating to, or the value of which is dependent upon,
interest rates, entered into by the Borrower with one or more


 


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financial institutions or one or more futures exchanges as part of
its normal business operations (recognizing that Borrower has not
done so in the past) with the purpose and effect of hedging interest
rates on a principal amount of the Borrower’s Debt that is accruing
interest at a variable rate as a risk-management strategy, and not
for purposes of speculation and not intended primarily as a
borrowing of funds, and which are designed to protect the Borrower
against fluctuations in interest rates with respect to Debt,
provided that at all times: (1) the aggregate notional amount of
such contracts never exceeds one hundred (100%) percent of the
anticipated outstanding principal balance of the Debt of the
Borrower to be hedged by such contracts or an average of such
principal balances calculated using a generally accepted method of
matching interest swap contracts to declining principal balances;
(2) the floating rate index of each such contract generally matches
the index used to determine the floating rates of interest on the
corresponding Debt of the Borrower to be hedged by such contract;
and (3) each such contract shall be either with any Bank or any
Affiliate of any Bank (without restriction as to rating), or with a
counterparty who (or have a guarantor of the obligation of the
counterparty who), at the time the contract is made, has long-term
obligations rated AA or Aa2 or better, respectively, by Standard &
Poors Corporation or Moody’s Investors Services, Inc. (or a
successor credit rating agency), or with a counterparty otherwise
approved in advance by the Required Banks.



“Person” shall mean any individual, corporation, limited
liability company, partnership, joint venture, association, joint
stock company, trust, unincorporated organization, government or any
agency or political subdivision thereof, or any other form of
entity.



“Plan” shall mean any plan subject to Title IV of ERISA and
maintained by the Borrower, or any such plan to which the Borrower
is required to contribute on behalf of its employees.



“Preliminary OM” shall mean the Preliminary Offering
Memorandum relating to the offer and sale of the Convertible Debt,
revised draft dated February 4, 2008.


 


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“Prime Rate” shall mean, at any particular date, the prime
or base rate as reflected in The Wall Street Journal (or if
such rate is not published or is no longer available, such other
index satisfactory to the Agent). Without notice to the Borrower,
the Prime Rate shall
change automatically from time to time as and in the amount by which
said index rate shall fluctuate, with each such change in the Prime
Rate to be effective as of the date of each change in such index
rate. The Wall Street Journal index rate is a reference
rate and does not necessarily represent the lowest or best rate
actually charged to any customer by the Agent or any Bank (or by
such institutions comprising said index).



“Prior Banks” shall mean the Banks which were parties to and
lenders under the Prior Loan Agreement (being Capital One, NA and
Union Bank of California, N.A.).



 “Prior Loan Agreement” shall have the meaning provided
in the Preliminary Statement of this Agreement.



“PVOG” shall mean Penn Virginia Oil & Gas, L.P., a wholly
owned subsidiary of Penn Virginia Corporation.



“PVOG Production Payment” shall mean the dollar denominated
production payment purchased by PVOG from the Borrower in the
original amount of $2,233,435.76, repayable solely from 75% of the
Borrower’s share of production revenues from only four certain wells
(Bryant #2, Bryant #3, Richardson #3 and Scott #1), without
interest. On June 1, 2008, the balance owed was $1,725,376.00.



“Qualified Redeemable Preferred Equity” shall mean
redeemable preferred stock issued by the Borrower which (i) does not
exceed in total consideration paid to or for the account of the
Borrower in connection therewith, when added to the total principal
amount of all Qualified Subordinated Debt issued by the Borrower,
the Maximum Subordinated Amount, (ii) is not redeemable in any part
earlier than five (5) years after its issuance date, except only at
the voluntary option of the Borrower and except for mandatory
redemption following a change of ownership or control or management
(as contemplated by Sections 6.13 or 6.12,
respectively), (iii) has a stated interest or dividend rate of less
than ten (10%) percent per annum, except for a default dividend rate
not exceeding twelve (12%) percent per annum, (iv) sets forth
covenants that in the judgment of the Agent and Agent’s counsel are
no more restrictive on the Companies and their operations and
affairs than the covenants contained in this Agreement, and (v) is
unsecured by any Liens.


 


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“Qualified Subordinated Debt” shall mean Debt of Borrower to
any one or more Subordinated Holders which (i) does not exceed in
aggregate principal amount, when added to the total consideration
paid to or for the account of the Borrower in connection with all
Qualified Redeemable Preferred Equity issued by the Borrower, the
Maximum Subordinated Amount, (ii) has a maturity date of greater
than one year after the Maturity Date, (iii) sets forth covenants
that in the judgment of the Agent and Agent’s counsel are no more
restrictive on the Companies and their operations and affairs than
the covenants contained in this Agreement, and (iv) is subordinated
to the Indebtedness and the Secured Hedge Obligations both as to
payment and as to liens and collateral pursuant to a written
Intercreditor Agreement in favor of and satisfactory to the Agent
and the Banks duly authorized and executed by each applicable
Subordinated Holder.



“Required Banks” shall mean Banks in the aggregate holding
at least sixty-six and two-thirds (66 2/3%) percent of the aggregate
unpaid principal amount of the Notes (or if no Advances are
outstanding then 66 2/3% of the aggregate Commitments).



 “Secured Hedge Agreements” shall mean all Hedging
Agreements, whether now in existence or hereafter arising, which
establish Secured Hedge Obligations by the Borrower or any
Subsidiary in favor of a Secured Hedge Provider.



“Secured Hedge Obligations” shall mean any Permitted Hedge
Obligations of the Borrower or any Subsidiary owing to any one or
more of the (present and future) Secured Hedge Providers, and
includes the due performance and compliance by the Borrower or any
Subsidiary with all the terms, conditions and agreements contained
in the Secured Hedge Agreement pertaining thereto.



“Secured Hedge Provider” shall mean any one or more of the
(present and future) Banks under this Agreement, or any Affiliate of
such Bank which is a party to one or more Secured Hedge Agreements
with the Borrower or any Subsidiary, so long as any such Bank is a
“Bank” under this Agreement at the time such Secured Hedge
Obligation is entered into with such Bank or Affiliate of such Bank
(even if such Bank subsequently ceases to be a “Bank” under this
Agreement for any reason).


 


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“Secured Liabilities” shall mean collectively the
Indebtedness and the Secured Hedge Obligations.



“Secured Parties” shall mean the Agent, the Banks and the
Secured Hedge Providers.



“Shared Collateral” shall have the meaning provided in
Section 3.4.



“Subordinated Holder” shall mean each Person which is owed
any portion of Qualified Subordinated Debt.



“Subsidiary” shall mean each corporation of which the
Borrower owns, directly or indirectly, fifty percent or more of the
outstanding capital stock, and each partnership, limited liability
company or other Person of which the Borrower owns, directly or
indirectly, fifty percent (50%) or more of the outstanding
partnership, membership or other ownership or voting interest.



Section 1.3 Accounting Terms. Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time (except for changes in
accounting principles or practice approved by independent certified public accountants for the
Borrower) on a basis consistent with the most recent financial statements of the Borrower.



ARTICLE 2




THE CREDIT




Section 2.1 Line of Credit and Letters of Credit. (a) Line of Credit.
Subject to and upon the terms and conditions contained in this Agreement, and relying on the
representations and warranties contained in this Agreement, on the Closing Date each Bank,
severally, agrees to make a revolving line of credit available to the Borrower in the maximum
aggregate principal amount equal to such Bank’s Commitment set forth in Schedule I hereto.
The aggregate amount of all Advances, plus the aggregate Letter of Credit Usage, cannot exceed the
Commitment Limit. The line of credit is represented by the Notes in the aggregate principal amount
of the Amount, payable to the order of the Banks. Principal and all accrued and unpaid interest on
the line of credit shall be payable in full on the Maturity Date, after which no further Advances
will be made. Payments may be debited from the Borrower’s accounts with the Agent as provided in
this Agreement.


 


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(b) Interest. The interest rate applicable to each Loan Advance beginning on the date
such Advance is made shall be either (i) the Base Rate, adjusted daily, or (ii) the LIBO Rate,
adjusted on the first day of each LIBO Rate Interest Period and remaining fixed for the duration of
the LIBO Rate Interest Period, selected at the Borrower’s option by written notice to Agent in
accordance with the terms hereof, but in no event shall the interest rate applicable to any Loan
Advance exceed the Maximum Rate. Effective on the first day following the end of any LIBO Rate
Interest Period, the Borrower may from time to time change the interest rate which is to apply to
the Advances or a portion thereof (including any yet to be made Advance which is made on the
effective date of the interest rate change) by notifying the Agent of the Borrower’s desire to
change the interest rate not less than three (3) Business Days prior to the date on which such
change shall be effective. No more than four (4) LIBO Rate tranches and one Base Rate tranche (all
Base Rate Advances constituting one tranche) shall be permitted for the Notes at any one time. In
the absence of any timely specific interest rate election by the Borrower (as provided above in
this Subsection 2.1(b) and in the definition of LIBO Rate), unless otherwise agreed by the Agent,
an Advance (if outstanding as a LIBO Rate Advance) will be automatically converted into a Base Rate
Advance on the last day of the then current LIBO Rate Interest Period for such Advance or (if not
then outstanding) an Advance shall bear interest at the Base Rate. The Borrower further will
comply with the provisions of Addendum I hereto, relating to the LIBO Rate, which is an
integral part of this Agreement. Interest on the Notes shall be payable (x) on Advances bearing
interest at the Base Rate monthly in arrears on the last day of each month, and (y) on LIBO Rate
Advances on the last day of each applicable LIBO Rate Interest Period for each LIBO Rate Advance.
Interest on (i) Base Rate Advances and all other Indebtedness except for LIBO Rate Advances shall
be calculated on the basis of a 365 (or in a leap year 366) day year and the actual number of days
elapsed, and (ii) on LIBO Rate Advances shall be calculated on the basis of a 360-day year by
applying the ratio of the annual interest rate over a year of 360 days, times the applicable
principal balance, times the actual number of days such applicable principal balance is
outstanding. Payments may be debited from the Borrower’s accounts with the Agent as provided in
this Agreement. The Maximum Rate shall be calculated based on a 365-day or 366-day year, as is
applicable.



(c) Draw Requests. In accordance with the provisions in this Section, the Banks will
make Advances to the Borrower from time to time on any Business Day on and after the Closing Date
until and including the last Business Day before the Maturity Date in such amounts as the Borrower
may request, up to the Commitment Limit, and the Borrower may make borrowings, repayments and
reborrowings in respect thereof. Requests for Advances must be made by written notice from the
Borrower sent to the Agent by mail, courier or facsimile in accordance with Section 10.1,
specifying the amount of the Advance, subject to Section 2.12. A request shall be fully
authorized by the Borrower if made by any one of James Merrill or Ken Kenworthy Jr. or other
individual designated by the Borrower as an authorized person in accordance with resolutions of the
Board of Directors of the Borrower certified to the Agent. The Agent and the Banks may rely fully
and completely upon the authority of the signatory of such request or confirmation unless such
authority is terminated by written notice to the Agent, and any such termination shall be effective
only prospectively. The request for any Advance by
the Borrower shall constitute a certification by the Borrower that all of the representations
and warranties contained in Article 4 (other than those representations and warranties, if
any, that are by their specific terms limited in application to a specific date) are true and
correct as of the date of such request and also as of the date of the Advance.


 


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(d) Timing. Requests for Advances at the Base Rate shall be made on written notice
from the Borrower to the Agent, received by the Agent no later than 10:00 a.m. (Central Time) on
the first Business Day before such Base Rate Advance specifying the amount thereof. Request for
Advances at the LIBO Rate shall be made on written notice from the Borrower to the Agent received
by the Agent no later than 11:00 a.m. (Central Time) on the third (3rd) Business Day before such
LIBO Rate Advance, specifying the amount thereof (including the amount of each tranche, if more
than one) and the LIBO Rate Interest Period (or Interest Periods, if more than one tranche). Each
such written notice by the Borrower shall be irrevocable by the Borrower. The Agent shall promptly
give each Bank notice of such proposed Advance.



(e) Funding. Not later than 12:00 noon (Central Time) on the date of any Advance,
each of the Banks shall make available to the Agent, in immediately available funds, the amount of
such Bank’s prorata portion (i.e., the percentage of its Commitment as compared to the aggregate of
the Commitments) of the amount of the requested Advance. Upon receipt from each Bank of such
amount, and upon fulfillment of the applicable conditions set forth in this Agreement in Article 7,
the Agent (on behalf of the Banks) will make available to the Borrower the aggregate amount of such
Advance in accordance with the further terms of this Section 2.1. The failure or refusal
of any Bank to make available to the Agent at the aforesaid time and place on any date of an
Advance the amount of its portion of the requested Advance shall not relieve any other Bank from
its several obligation hereunder to make available to the Agent the amount of such other Bank’s
portion of any requested Advance (but no Bank shall be responsible for the failure of any Bank to
make available to the Agent such other Bank’s portion of any requested Advance).



The Agent may, unless notified to the contrary by any Bank prior to the date of an Advance,
assume that each Bank has made available to the Agent on such date of the applicable Advance the
amount of each Bank’s portion of the Advance to be made on such date, and the Agent shall, in
reliance upon such assumption, make available to Borrower a corresponding amount. If any Bank
makes available to the Agent such amount on a date after the date of the applicable Advance, such
Bank shall pay to the Agent on demand an amount equal to the product of (i) the average computed
for the period referred to in clause (iii) below, of the weighted average interest rate paid by the
Agent for federal funds acquired by the Agent during each day included in such period, times (ii)
the amount of such Bank’s portion of such Advance, times (iii) a fraction, the numerator of which
is the number of days that elapse from and including such date of the Advance to the date on which
the amount of such Bank’s portion of such Advance shall become immediately available to the Agent,
and the denominator of which is 365; provided, that if such Bank has not paid to the Agent such
Bank’s portion of the Advance by 12:00 noon (Central Time) on the third (3rd) Business Day after
the Advance was made to the Borrower,



 


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then the interest rate in clause (i) above shall be the Prime Rate (adjusted daily) from and
after such second (2nd) Business Day after the Advance was made until and including the
date such Bank makes available to the Agent such Bank’s portion of the Advance; provided, further,
that if such Bank has not paid to the Agent such Bank’s portion of the Advance by 12:00 noon
(Central Time) on the fifth (5th) Business Day after the Advance was made to Borrower, then the
interest rate in clause (i) above shall be the Prime Rate (adjusted daily) plus three (3.0%)
percent per annum from and after such fifth (5th) Business Day after the Advance was
made until and including the date such Bank makes available to the Agent such Bank’s portion of the
Advance. A statement of the Agent submitted to each Bank with respect to any amounts owing under
this paragraph shall be prima facie evidence of the amount due and owing to the Agent by such Bank.
If any Bank fails to pay to Agent its portion of any Advance within thirty (30) days after an
Advance or if any Bank twice fails to timely make its portion of Advances to be made to the
Borrower available to the Agent before 12:00 noon (Central Time) on the dates Advances are made to
the Borrower (counting failures in reimbursement under Subsection 2.1(g) as a failure
hereunder), then, if requested to do so by the Borrower or any other Bank or the Agent, such Bank
shall sell all of its interests, rights and obligations under this Agreement (including all of its
Commitment and its portion of the Loan at the time owing to it) and the Note held by it to another
Bank or bank under Section 9.6 hereof, provided such a willing, qualified assignee
is identified by the requesting party.



Not later than 3:00 p.m. (Central Time) on the date properly and timely requested for the
Advance and upon fulfillment of the applicable conditions set forth in Article 7 of this Agreement,
the Agent will make such Advance available to the Borrower in same day funds in the account
maintained by the Borrower with the Agent and the credit advice resulting therefrom shall be mailed
by the Agent to the Borrower. The Borrower irrevocably agrees that the deposit of the proceeds
of any Advance in any account of Borrower with the Agent, or the Agent’s copy of any cashier’s
check representing all or any part of the proceeds of the disbursements, shall be deemed prima
facie evidence of the Borrower’s Indebtedness to the Banks under the Loan.



(f) Minimum. Notwithstanding anything in this Agreement to the contrary, the
aggregate principal amount of all LIBO Rate Advances having the same LIBO Rate Interest Period
shall be at least equal to $100,000.00; and if any LIBO Rate tranche would otherwise be in a lesser
principal amount for any period, such tranche shall bear interest at the Base Rate during such
period.



(g) Letters of Credit. As a portion of the line of credit availability up to the
Letter of Credit Sublimit (and subject to the Borrowing Base and the other terms and conditions
contained in this Agreement), the Issuing Bank will issue standby letters of credit for the account
of the Borrower (including for the commercial needs of any one or more of the Borrower’s
wholly-owned Subsidiaries from time to time in existence, so long as such entity is wholly owned
directly or indirectly) from time to time. The expiration of such letters of credit shall be on a
Business Day not later than one year after issuance, and further shall not extend beyond the
Maturity Date of the line of credit. The expiration date of a letter of credit may not be extended



 


-22-









 






on or after the Maturity Date and no letter of credit may be renewed, replaced or increased on
or after the Maturity Date. The Borrower shall pay to the Agent, for disbursement to the Banks in
accordance with Subsection 9.1(a), a fee for each standby letter of credit at the per annum
rate equal to the Applicable LIBO Rate Margin then in effect on the face amount of the letter of
credit for the period from the date of issuance to its expiration date, payable quarterly in
arrears on each June 30, September 30, December 31 and March 31 (and on the Maturity Date). In
addition, the Borrower shall pay the Agent as a fronting fee, which the Agent shall retain for its
own account as letter of credit Issuing Bank, one-quarter of one percent (0.25%) on the face
amount. The Borrower also shall pay to the Agent, for the account solely of the Issuing Bank,
additional amounts customarily charged by the Issuing Bank for the issuance and processing of
letters of credit. Each letter of credit shall be issued not later than the close of the Issuing
Bank’s business (Central Time) on the third (3rd) Business Day after receipt (including by
facsimile pursuant to Section 10.1 hereof) by the Issuing Bank of the Borrower’s written
application in substantially the form of the Issuing Bank’s then standard Application for
Irrevocable Standby Letter of Credit and Letter of Credit Agreement, executed by the Borrower (by
any one of the persons designated by the Borrower in writing to the Agent in accordance with the
terms of Subsection 2.1(d) below). Such application and agreement shall be Collateral
Documents under this Agreement, supplemental to and not in replacement of this Agreement and the
other Collateral Documents, provided that in the event of a conflict between such application and
agreement and this Agreement then this Agreement shall prevail (even if such application or
agreement is executed later). In the event such written application is telecopied to the Issuing
Bank, the Issuing Bank may but need not confirm such application before acting thereupon. The
Issuing Bank may rely fully and completely upon the authority of the signatory of such written
application and the contents thereof unless such authority is terminated by written notice to the
Issuing Bank, and any such termination of authority shall be effective only prospectively. Such
letters of credit will be documented on the Issuing Bank’s standard forms. No letter of credit
will be issued (x) if the face amount thereof plus the aggregate Letter of Credit Usage then
outstanding would exceed the Letter of Credit Sublimit, or (y) if the face amount thereof plus the
aggregate Letter of Credit Usage then outstanding plus the aggregate of all Advances then
outstanding would exceed the Commitment Limit. Payment by the Issuing Bank of a draw on a standby
letter of credit, if not reimbursed in full on the same day by the Borrower, automatically
(notwithstanding the limitation in Subsection 2.1(a) above) shall be an Advance as a part
of the Loan bearing interest from the date of such draw at the Base Rate. Upon its issuance of any
such letter of credit, the Issuing Bank shall promptly notify each other Bank of such issuance.
Immediately upon the issuance by the Issuing Bank of any letter of credit, the Issuing Bank shall
be deemed to have sold and transferred to each other Bank and each such other Bank shall be deemed
irrevocably and unconditionally to have purchased and received from the Issuing Bank, without
recourse or warranty, an undivided interest and participation in such letter of credit, each
drawing made thereunder and the obligations of the Borrower under this Agreement with respect
thereto, and any security therefor or guaranty pertaining thereto. The amount of such other Bank’s
participation shall be such other Bank’s prorata portion (i.e., such Bank’s Commitment as compared
to the aggregate of the Commitments).


 


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In the event that the Issuing Bank makes any payment under any letter of credit and the
Borrower shall not have reimbursed such amount in full to the Issuing Bank on the date of such
payment, the Issuing Bank shall promptly notify the Agent, which shall promptly notify each other
Bank of such failure, and each other Bank shall promptly and unconditionally pay to the Issuing
Bank the amount of such other Bank’s prorata portion (i.e., such Bank’s Commitment as compared to
the aggregate of the Commitments) of such unreimbursed payment in immediately available funds. If
the Agent so notifies, prior to 11:00 a.m. (Central Time) on any Business Day, each Bank shall make
such payment on such Business Day. The failure or refusal by any Bank to make reimbursement to the
Issuing Bank at the aforesaid time and place in the amount of its portion of such reimbursement
shall not relieve any other Bank from its several obligation hereunder to make reimbursement to the
Issuing Bank in the amount of such other Bank’s portion of such requested reimbursement (but no
Bank shall be responsible for the failure of any Bank to make reimbursement to the Issuing Bank of
such other Bank’s portion of such requested reimbursement). If any Bank makes reimbursement to the
Issuing Bank of such amount on a date after the aforesaid date for reimbursement, such Bank shall
pay to the Issuing Bank on demand an amount computed on the basis set forth in Subsection
2.1(e) above (substituting such reimbursement due date for the Advance Date), which
Subsection 2.1(e) shall be fully applicable to such failure.



The obligations of the other Banks to make reimbursement payments to the Issuing Bank with
respect to letters of credit issued by it shall be irrevocable and not subject to any qualification
or exception whatsoever. In determining whether to pay under any letter of credit, the Issuing
Bank shall have no obligation relative to the other Banks other than to confirm that any documents
required to be delivered under such Letter of Credit appear to have been delivered and that they
appear to comply on their face with the requirements of such letter of credit. Any action taken or
omitted to be taken by the Issuing Bank under or in connection with any letter of credit if taken
or omitted in the absence of gross negligence or willful misconduct shall not create for the
Issuing Bank any resulting liability to the Borrower or any Bank.



Letters of credit issued under the Prior Loan Agreement and still outstanding on the Closing
Date shall hereafter be counted under and governed by this Agreement.



Section 2.2 Business Days. If the date for any payment, prepayment, Periodic
Reduction, or fee payment hereunder falls on a day which is not a Business Day, then for all
purposes of this Agreement (unless otherwise provided herein) the same shall be deemed to have
fallen on the next following Business Day, and such extension of time shall in such case be
included in the computation of payments of interest.



Section 2.3 Payments. The Borrower shall make each payment hereunder and under the
Notes and any Collateral Documents in lawful money of the United States of America in same day
funds to the Agent at its main office in New Orleans, Louisiana, not later than 11:00 a.m. (Central
Time) on the day when due, or such other place in the United States as designated in writing by the
Agent, without any offset, counterclaim or any other deduction. The



 


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Agent shall promptly send to each Bank by federal wire transfer its respective proportionate
share of all amounts to which the Banks are entitled in accordance with Subsection 9.1(a).
The Borrower hereby authorizes the Agent to charge from time to time against the Borrower’s
accounts with the Agent any amount which is then so due, and acknowledges that such accounts will
be established for that purpose (among other purposes) under Section 5.16 and Section
5.17 and may be so used even in the absence of an Event of Default.



Section 2.4 Prepayment. (a) Voluntary. The Borrower may prepay the Loan in
full or in part at any time without payment of premium or penalty; provided, however, that (i) the
Borrower shall give the Agent notice of each such prepayment of all or any portion of a LIBO Rate
Advance no less than three (3) Business Days prior to prepayment, (ii) any LIBO Rate Advance may be
prepaid only on the last day of the Interest Period for such LIBO Rate Advance, unless the Borrower
includes payment of amounts, if any, required to be paid pursuant to paragraph 6 of Addendum
I, (iii) the Borrower shall give the Agent notice of each such prepayment of all or any portion
of a Base Rate Advance no less than one (1) Business Day prior to prepayment, (iv) the Borrower
shall pay all accrued and unpaid interest on the amounts prepaid, and (v) no such prepayment shall
serve to postpone the repayment when due of any other Indebtedness. Each such notice of a
prepayment under this Section shall be irrevocable and the amounts specified in each such notice
shall be due and payable on the date specified. Upon receipt of such notice, the Agent shall
promptly notify each Bank thereof. Each partial prepayment shall be in an aggregate principal
amount of (x) $100,000.00 or an integral multiple of $50,000.00 in excess thereof or (y) if the
outstanding principal balance of the Loan is less than the minimum amount set forth in the
preceding clause (x) of this sentence, then such lesser outstanding principal balance, as the case
may be.



(b) Mandatory. The Agent shall notify the Borrower of the result of each Borrowing
Base redetermination in accordance herewith. If at any time the Agent determines that a Loan
Excess exists, then within ninety (90) days of receipt by the Borrower of notice of such Loan
Excess the Borrower shall (x) prepay the Advances (together with accrued interest on the amount to
be prepaid to the date of payment) in an amount sufficient to reduce the Advances plus the face
amount of all standby letters of credit then outstanding to the then Commitment Limit, and/or (y)
execute, deliver and record or cause to be executed and delivered such additional Collateral
Documents pursuant to Section 3.1, sufficient to induce the Agent and the Banks to make an
increased redetermination of the Borrowing Base to an amount not less than the outstanding
principal balance of the Advances plus the face amount of all standby letters of credit then
outstanding. The Borrower specifically acknowledges that no additional grace period (beyond the
period stated in the preceding sentence) is applicable under this Agreement to any failure to make
such mandatory prepayment before such failure is an Event of Default hereunder.


 


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(c) Periodic Reductions in Borrowing Base. As part of a Borrowing Base
redetermination, the Agent may include as part of the Borrowing Base an automatic reduction
schedule, monthly or quarterly, in an amount determined by the Agent in its sole discretion, but
based upon the Agent’s customary standards and practices from time to time in effect with
respect to secured oil and gas property lines of credit, and with the approval of the Required
Banks. Such automatic reductions, each in the amounts so determined and so scheduled (each a
“Periodic Reduction”), shall cause an automatic reduction to the Borrowing Base on the
dates set in the schedule so determined by the Agent, which shall be the last day of a month or
quarter. Each reduction to the Borrowing Base by a Periodic Reduction shall be permanent, subject
to any increase agreed to as part of a subsequent Borrowing Base redetermination. As part of the
notification by the Agent to the Borrower of the result of a Borrowing Base redetermination, the
Agent shall notify the Borrower of the terms and schedule of any Periodic Reductions included
therein. Notwithstanding the foregoing provisions of Subsection 2.4(b), the Borrower shall
pay the amount of any Loan Excess that results from the application of each Periodic Reduction to
the Borrowing Base on the day that such Periodic Reduction takes effect. The Borrower specifically
acknowledges that the ninety (90) day grace period set forth in Subsection 2.4(b)
pertaining to a Loan Excess resulting from a Borrowing Base redetermination is not applicable to
any failure to make such mandatory prepayment triggered by a Loan Excess due to a Periodic
Reduction as provided in this Subsection 2.4(c). However, any changes in the Periodic
Reduction schedule shall not increase the amount of a Periodic Reduction which is to take effect
sooner than ninety (90) days after the effective date of that Borrowing Base redetermination which
includes such change in the Periodic Reduction schedule as a part thereof. On the Closing Date no
Periodic Reduction is in effect, subject to change as part of a subsequent Borrowing Base
redetermination.



Section 2.5 Fees. (a) The Borrower shall pay on the Closing Date to the Agent, for
disbursement pro rata in accordance with this sentence to the Banks, an upfront
commitment/origination fee equal to (i) for each New Bank, one quarter of one percent (0.25%) of
that New Bank’s allocated portion of the Commitment Limit, and (ii) for each Prior Bank, one eighth
of one percent (0.125%) of that Prior Bank’s allocated portion of the Commitment Limit. (Further,
the Borrower shall pay the Agent, for disbursement pro rata to the Prior Banks in accordance with
Subsection 9.1(a) of the Prior Loan Agreement, on the Closing Date an unused facility fee under the
Prior Loan Agreement in an amount equal to one-quarter of one percent (0.25%) per annum on (x) the
Commitment Limit under the Prior Loan Agreement less (y) the average outstanding aggregate
principal balance under the Advances under the Prior Loan Agreement plus the undisbursed amount of
all standby letters of credit outstanding, during the period from April 1, 2008 through the Closing
Date.)



(b) The Borrower shall pay the Agent, for disbursement in accordance with Subsection
9.1(a) hereof to the Banks, an unused facility fee quarterly in arrears beginning June 30, 2008
(for the period from the Closing Date through such date) and on the last day of each succeeding
September, December, March, and June and on the Maturity Date of the Loan, in an amount equal to
one-quarter of one percent (0.25%) per annum on (x) the Commitment Limit less (y) the average
outstanding aggregate principal balance of the Advances under the Notes plus the undisbursed amount
of all standby letters of credit then outstanding during such quarter (or lesser time period, as
applicable.)


 


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(c) Letter of credit fees are owed and paid as provided in Subsection 2.1(g).



(d) The Borrower shall pay to the Agent, for its own account, such fees as are agreed to in a
separate agreement between the Borrower and the Agent with respect to the Agent’s services provided
hereunder and in connection herewith.



(e) The Borrower shall pay the Agent, for disbursement to the Banks (equally, not pro rata), a
Borrowing Base redetermination fee in the amount equal to $7,500.00 for each Bank for each
unscheduled redetermination requested by the Borrower at the time of such request. (For the
avoidance of doubt, the Agent receives one fee under this subsection in its capacity as a Bank, but
not as Agent.)



(f) The Borrower acknowledges that any subsequent increases in the Commitment Limit after the
Closing Date (which will require the Borrower’s and the Banks’ unanimous mutual agreement) shall be
subject to the payment of an appropriate upfront commitment fee, not to exceed one-quarter of one
percent (0.25%), determined by the Banks on the incremental increased portion of the new Commitment
Limit in excess of its previous highest level on which an upfront fee was paid.



(g) All fees shall be paid on the dates due in immediately available funds. Fees paid shall
not be refundable under any circumstances.



Section 2.6 Use of Proceeds. The Borrower shall use the proceeds of the Loan (i) in
connection with the acquisition and development of oil and gas properties as well as general
corporate and working capital purposes (including letters of credit hereunder) and (ii) to loan
funds to Diamond in accordance with Subsection 6.3(h).



Section 2.7 Default Rate. Anything in the Notes or in any other agreement, document
or instrument to the contrary notwithstanding, effective upon an Event of Default or upon the
Maturity Date, the Agent and the Required Banks shall have the right to prospectively increase the
interest rate under the Notes to the Default Rate until the Notes are paid in full. Upon the
acceleration of the principal amount of the Indebtedness represented by the Notes, the accelerated
principal balance of the Loan shall bear interest from the date of acceleration up to the actual
payment (as well after as before judgment) at the Default Rate. All such interest at the Default
Rate shall be payable upon demand.



Section 2.8 Additional Regulatory Costs. If any governmental authority, central bank,
or other comparable authority shall at any time impose, modify or deem applicable any reserve
(including without limitation any imposed by the Board of Governors of the Federal Reserve System),
special deposit or similar requirement against assets of, deposits with or for the account of, or
credit extended by, the Agent or any Bank, or shall impose on the Agent or any Bank any other
condition affecting an Advance or the obligation of the Agent or any Bank to make an Advance; and
the result of any of the foregoing is to increase the cost to the Agent or such Bank of making or
maintaining the Advances to the Borrower, or to reduce the amount of



 


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any sum received or receivable by the Agent or any Bank under this Agreement or under the
Notes by an amount deemed by the Agent or such Bank to be material, then, within sixty (60) days
after demand by the Agent or such Bank, the Borrower shall pay to the Agent or such Bank, for its
own account, such additional amount or amounts as will compensate the Agent or such Bank for such
increased cost or reduction. The Agent or such Bank will promptly notify the Borrower of any event
of which it has knowledge, occurring after the date hereof, which will entitle the Agent or such
Bank to compensation pursuant to this Section. A certificate of the Agent or such Bank claiming
compensation under this Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error.



Section 2.9 Application of Payments to Indebtedness. Payments made under this
Agreement, the Notes or the Collateral Documents, whether made when due or after foreclosure on
Collateral, for application to the Indebtedness shall be applied to the Indebtedness as follows:




(i) To the Agent, with respect to fees and expenses accrued and outstanding (including
without limitation reasonable attorneys’ fees and expenses);




(ii) To the Banks, ratably according to their Commitments, with respect to fees, expenses
and late charges accrued and outstanding;




(iii) To the Banks, ratably according to their Commitments, with respect to interest accrued
and outstanding; and




(iv) To the Banks, ratably according to their Commitments, with respect to principal amounts
of the Loan due and payable.



Payments made pursuant to realization under the Collateral Documents are also subject to the
Section 3.4.



Section 2.10 Sharing of Payments among Banks. If any Bank, whether by setoff or
otherwise, has payment made to it upon its portion of the Loan, other than pursuant to Section
2.8 or Addendum 1, in a greater proportion than that received by any other Bank, such
Bank agrees, promptly upon demand, to purchase a portion of the Loan held by the other Banks so
that after such purchase each Bank will hold its ratable proportion of the Loan. If any Bank,
whether in connection with setoff or amounts which might be subject to setoff or otherwise,
receives collateral or other protection for its Indebtedness or such amounts which may be subject
to setoff, such Bank agrees, promptly upon demand, to take such action necessary such that all
Banks share in the benefits of such Collateral ratable in proportion to their Commitment. In case
any such payment is disturbed by legal process, or otherwise, appropriate further adjustment shall
be made. However, nothing in this Section 2.10 is intended, or shall be construed, to
amend the provisions of or alter the application of Section 3.4.


 


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Section 2.11 Hedge Agreement Quotes. Upon the Borrower’s request from time to time,
the Agent will provide to Borrower interest rate swap quotes for interest rate Hedge Agreements
pertaining to the Loan, not to exceed the Commitment Limit or the Maturity Date.



Section 2.12 Telephonic or Electronic Notice to Agent. Without in any way limiting
the obligation of the Borrower to confirm in writing any telephonic notice of borrowing or the like
given to the Agent, the Agent may act without liability upon the basis of telephonic notice of such
request believed by the Agent in good faith to be from an authorized officer of the Borrower prior
to receipt of written confirmation. In each such case, the Agent’s records with regard to any such
telephone notice shall be presumptive correct, absent manifest error. Additionally, the Borrower
may transmit notices of borrowing or letter of credit requests or the like by electronic
communication, if arrangements for doing so have been approved by the Agent.




Section 2.13 Lost Interest Recapture; Usury Savings.



(i) If, with respect to the Banks, the effective rate of interest contracted for under this
Agreement, the Notes and the Collateral Documents (the “Loan Documents”), including the
stated rates of interest and fees contracted for hereunder and any other amounts contracted for
under the Loan Documents which are deemed to be interest, at any time exceeds the Maximum Rate,
then the outstanding principal amount of the loans made by the Banks hereunder shall bear interest
at a rate which would make the effective rate of interest for the Banks under the Loan Documents
equal the Maximum Rate until the difference between the amounts which would have been due at the
stated rates and the amounts which were due at the Maximum Rate (the “Lost Interest”) has
been recaptured by the Banks.



(ii) If, when the loans made hereunder are repaid in full, the Lost Interest has not been
fully recaptured by a Bank pursuant to the preceding paragraph, then, to the extent permitted by
law, for the loans made hereunder by such Bank the interest rates charged under Section 2.1
hereunder shall be retroactively increased such that the effective rate of interest under the Loan
Documents was at the Maximum Rate since the effectiveness of this Agreement to the extent necessary
to recapture the Lost Interest not recaptured pursuant to the preceding sentence and, to the extent
allowed by law, the Borrower shall pay to such Bank the amount of the Lost Interest remaining to be
recaptured by such Bank.



(iii) NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND THE LOAN DOCUMENTS
TO THE CONTRARY, IT IS THE INTENTION OF THE BANKS AND THE BORROWER TO CONFORM STRICTLY TO ANY
APPLICABLE USURY LAWS. ACCORDINGLY, IF A BANK CONTRACTS FOR, CHARGES, OR RECEIVES (INCLUDING
WITHOUT LIMITATION FOLLOWING ACCELERATION OR PREPAYMENT) ANY CONSIDERATION WHICH CONSTITUTES
INTEREST IN EXCESS OF THE MAXIMUM RATE, THEN ANY SUCH EXCESS SHALL BE CANCELED
AUTOMATICALLY WITHOUT THE NECESSITY OF THE EXECUTION OF ANY NEW DOCUMENT AND, IF PREVIOUSLY
PAID, SHALL AT SUCH BANK’S OPTION BE APPLIED TO THE OUTSTANDING AMOUNT OF THE LOAN MADE HEREUNDER
BY SUCH BANK OR BE REFUNDED TO THE BORROWER.


 


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(iv) All sums paid or agreed to be paid to Banks for the use, forbearance or detention of the
Indebtedness shall, to the extent permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full term of the Indebtedness until payment in full so that the rate or
amount of interest on account of the Indebtedness does not exceed the applicable usury limit
allowed by applicable law through the full term hereof.



Section 2.14 Business Loans. The Borrower warrants and represents that the Loan and
Advances evidenced by the Notes are and shall be for business, commercial, investment, or other
similar purposes and not primarily for personal, family, household, or agricultural use, as such
terms are used in Chapter 306 of the Texas Finance Code. At all such times, if any, as Chapter 303
of the Texas Finance Code shall establish a Maximum Rate, the Maximum Rate shall be determined in
accordance with Chapter 303 of the Texas Finance Code based on the “weekly ceiling” (as such term
is defined in Chapter 303 of the Texas Finance Code) from time to time in effect.



ARTICLE 3




SECURITY FOR THE OBLIGATIONS





Section 3.1 Security. (a) The Loan shall be primarily secured by the following:



(i) Texas Deed of Trust, Mortgage, Assignment, Security Agreement and Financing Statement,
executed by the Borrower, granting a first priority mortgage, security interest and assignment of
production in the Borrower’s interests in various oil and gas properties in North Carthage Field in
Harrison and Panola Counties, State of Texas (and after the Closing Date in future locations as
Borrower and Agent and Required Banks may agree from time to time) and collateral relating thereto,
together with UCC Financing Statements pertaining thereto.



(ii) New Mexico Line of Credit Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement, executed by the Borrower, granting a first priority mortgage, security
interest and assignment of production in the Borrower’s interests in various oil and gas properties
in Lea and Roosevelt Counties, New Mexico, and collateral relating thereto, together with UCC
Financing Statements pertaining thereto.




(iii) Certain deposit accounts (and funds therein) maintained with the Agent.


 


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(iv) Security Agreement executed by the Borrower, granting a first priority security interest
in 100% of the outstanding shares of each of Endeavor and of Diamond,
together with a UCC financing statement pertaining thereto, and together with the original
stock certificates for the shares of Endeavor and Diamond, each duly endorsed in blank and
delivered to the Agent with an executed stock power.




(v) Guaranty Agreement executed by Endeavor.



(vi) Collateral documents executed by Endeavor, granting a first priority lien and security
interest in its gas gathering system, together with a UCC Financing Statement pertaining thereto.




(vii) Guaranty Agreement executed by Diamond.



(viii) Security Agreement executed by Diamond, granting a first priority lien and security
interest in its personal property, together with a UCC Financing Statement pertaining thereto.




(ix) Liens assigned by IBC Bank to the Agent.



(x) Such additional deeds of trust, mortgage and other collateral documents executed after the
Closing Date encumbering such properties as the Borrower and the Agent and Required Banks may agree
from time to time.



(xi) Undated letters (in lieu of division or transfer orders) executed by Borrower, in form
and substance satisfactory to the Agent, to each purchaser of production or disburser of the
proceeds of production from or attributable to the Collateral, together with additional letters
with the addressees left blank, authorizing and directing that payment of all production proceeds
attributable to the Collateral and other properties in the Borrowing Base be made directly to the
Agent. Such letters shall be held by Agent and not delivered, as provided in Subsection
8.2(c), until the occurrence of an Event of Default.



(b) The Borrower confirms that the Collateral Documents secure all of the Indebtedness to the
Agent and to each of the Banks. The Borrower, the Agent and the Banks acknowledge that the
Collateral Documents described in Section 3.1 above secure both such Indebtedness and the
Secured Hedge Obligations. The Banks confirm the application of Section 3.4 to govern the
Collateral Documents, the Indebtedness and the Secured Hedge Obligations.



Section 3.2 Confirmation. (a) The Borrower hereby reaffirms its original intention
as stated in the Collateral Documents executed prior to the Closing Date that said existing
Collateral Documents secure the Indebtedness as extended and renewed from time to time, including
without limitation this Agreement and the Notes executed by the Borrower pursuant to this
Agreement, and all the other Secured Liabilities. The Borrower confirms and agrees that said
existing Collateral Documents securing the Secured Liabilities include without limitation the
documents described in Section 3.1 above. The Borrower hereby ratifies and confirms in all
respects the existing Collateral Documents executed by it, which remain in full
force and effect in accordance with all of their terms, conditions and provisions in favor of
the Agent, for the ratable benefit of the Banks, and are hereby renewed and carried forward to
secure the Indebtedness under this Agreement. To the extent necessary, the Borrower hereby grants
anew all liens and security interests set forth in such Collateral Documents executed by it to
Agent, for the ratable benefit of the Banks, as security for the Indebtedness.


 


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(b) The Borrower will confirm the application of any Intercreditor Agreement to the
Collateral. The Borrower hereby confirms that the Intercreditor Agreement dated July 31, 2007
continues in full force and effect and application after this restated Agreement.



Section 3.3 Acquisition Collateral. (a) After each acquisition by the Borrower or
any Subsidiary of any interest in oil, gas and other mineral properties (wherever located)
involving an expenditure (in money or property) the total amount of which (whether in one
transaction or a series of related transactions) either (x), when added to the total consideration
paid by the Borrower or any Subsidiary to or for the account of any Person in connection with all
such acquisitions during the six months immediately preceding such acquisition date, exceeds two
million five hundred thousand ($2,500,000.00) dollars, or (y) when added to the total consideration
paid by the Borrower and any Subsidiary to or for the account of any Person in connection with all
such acquisitions during the period from the Closing Date through and including such acquisition
date, exceeds five million ($5,000,000.00) dollars, the Borrower at its expense will promptly, and
in no event later than ninety (90) days after such acquisition, complete the execution and
recordation of appropriate Collateral Documents in favor of the Agent, for the ratable benefit of
the Secured Parties, and the submission of Title Opinions in favor of the Agent reasonably
acceptable to the Agent, covering all such acquired properties.



(b) In connection with and at the time of each redetermination of the Borrowing Base, the
Borrower at its expense will promptly, and in no event later than ninety (90) days after such
redetermination, complete the execution and recordation of appropriate Collateral Documents in
favor of the Agent, for the ratable benefit of the Secured Parties, covering all rights of way,
easements, surface leases or other property rights utilized in the operation of the pipeline and
gathering systems which are material to the operation and sale of the Collateral (including without
limitation the production, transportation or marketing of Collateral hydrocarbons). As part of the
foregoing requirement, the Borrower shall cause such rights of way and other interests to be
recorded in the appropriate land title records.



(c) In connection with and at the time of each redetermination of the Borrowing Base, the
Borrower at its expense will promptly, and in no event later than ninety (90) days after such
redetermination, (i) complete the execution and recordation of appropriate Collateral Documents in
favor of the Agent, for the ratable benefit of the Secured Parties, covering any property
included within the Borrowing Base which is not already encumbered as Collateral, and (ii) submit
title opinions in favor of the Agent reasonably acceptable to the Agent covering any wells within
the Borrowing Base not previously covered by accepted title opinions, provided that clause (ii) is
subject to the exception set forth in the following sentence. Upon the



 


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Borrower’s request and demonstration of good cause satisfactory to the Agent and the Required
banks (in their sole and absolute discretion, as part of the process of the Borrowing Base
redetermination), a portion of the property within the Borrowing Base may be exempted from this
covenant for acceptable title opinions. The continuing justification for each such exemption
shall be reconsidered as part of each redetermination of the Borrowing Base. Nonetheless, the
Borrower expressly acknowledges that, as provided in the definition of the Borrowing Base, the
Agent may exclude, in its sole and absolute discretion, any property or portion of production
therefrom from the Borrowing Base, at any time, because title information on, or the status of
title to, such property is not reasonably satisfactory to Agent, such property is not collateral,
the Agent’s lien or security interest therein is not first and prior to all others, or such
property is not assignable.



Section 3.4 Sharing among Secured Liabilities. (a) The Agent and the Banks hereby
agree that upon the foreclosure, sale, set-off or other realization against any of the Collateral
which secures the Secured Liabilities (and not securing by its terms just the Indebtedness) (the
“Shared Collateral”), the Secured Parties shall share in all of the proceeds of such Shared
Collateral on a pari passu basis, ratably according to the Secured Liabilities owing to each
Secured Party as specified in the following sentence. Proceeds from realization against such
Shared Collateral shall be applied by the Agent as follows:



(i) To the Agent, with respect to fees and expenses accrued and outstanding (including without
limitation reasonable attorneys’ fees and expenses); and



(ii) To the Secured Parties, ratably according to the Secured Liabilities owing to the Secured
Parties.



The Banks by unanimous consent may determine from time to time whether any, and which
portions, of the Collateral is to be Shared Collateral beyond the Collateral described in
Section 3.1.



(b) If any Secured Party has payment made to it of proceeds arising from the foreclosure,
sale, set-off or other realization on any of the Shared Collateral pursuant to the remedies
provided by the Collateral Documents in a greater proportion than that received by any other
Secured Party (except for the Agent as specified in Subsection (a) above), such Secured Party shall
(and each Bank agrees to cause any of its Affiliates which are such a Secured Party to) take such
action as is necessary such that all Secured Parties shall share in the benefits of such Shared
Collateral ratably in proportion to the Secured Liabilities owing to each Secured Party. In case
any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall
be made. The foregoing sharing pertains solely to the realization against the Shared Collateral
and the proceeds therefrom, and is not a general sharing arrangement regarding the Secured Hedge
Providers and the Agent and the Banks for other purposes (including without limitation payments by
the Borrower and Subsidiaries from the Borrower’s and Subsidiaries’ general funds, including funds
derived from the Shared Collateral or the other Collateral). The



 


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Agent and the Banks shall have the right to receive, and the Borrower and Subsidiaries shall
have the right and obligation to pay, all amounts owing as part of the Indebtedness to be paid by
the Borrower and Subsidiaries to the Agent and the Banks as and when due. The Secured Hedge
Providers shall have the right to receive, and the Borrower and Subsidiaries shall have the right
and obligation to pay, all amounts owing as part of the Secured Hedge Obligations to be paid by the
Borrower and Subsidiaries to the Secured Hedge Providers as and when due. The foregoing sharing
arrangement pertains only to the proceeds arising from the foreclosure, sale, set-off or other
realization pursuant to the remedies provided by the applicable Collateral Documents by the Agent,
the Banks and the Secured Hedge Providers on any of the Collateral which secures all the Secured
Liabilities.



(c) Should any payment or distribution from any such realization upon any Shared Collateral or
proceeds thereof (except payments permitted by Subsection (b) above) be received by any Secured
Party before either the Indebtedness has, or the Secured Hedge Obligations have, as the case may
be, been paid and satisfied in full and terminated such that no further liabilities will be
incurred thereunder, that Secured Party shall (and each Bank shall cause any of its Affiliates
which is a Secured Party to) deliver the same to the Agent in precisely the form received (except
for the endorsement, without recourse, or assignment of that Secured Party where necessary), for
application on the Secured Liabilities ratably as provided in Subsection (a) above, and, until so
delivered, the same shall be held in trust by that Secured Party as property of the Agent.



(d) The agreement by the Agent and the Banks to so share the Shared Collateral with the
Secured Hedge Providers is expressly conditioned upon and limited by (i) the right of the Agent and
the Banks, at any time and from time to time, to enter into such agreement or agreements with the
Borrower and Subsidiaries as the Agent and the Banks may deem proper extending the time of payment
or increasing or renewing or otherwise altering the terms of all or any of the Indebtedness without
notice to the Secured Hedge Providers and without in any way impairing or affecting this Agreement,
(ii) the right of the Agent to release any portion or portions of the Collateral (including the
Shared Collateral) from to time as the Agent and the Banks may agree, and in connection therewith
for the Agent to have the express power to release any Secured Hedged Provider’s lien on the Shared
Collateral under the Collateral Documents insofar as it secures the Secured Hedge Obligations,
without notice to or such Secured Hedge Provider’s consent, so long as such Collateral is
simultaneously released insofar as it secures the Indebtedness; and (iii) the right of the Agent
and the Banks holding the Indebtedness to control all decisions and determinations in enforcing the
Collateral Documents so long as any portion of the Indebtedness remains outstanding, and decisions
and determinations of the Required Banks in enforcing the Collateral Documents and in guiding the
Agent in such matters shall be binding upon the Secured Hedge Providers, including without
limitation when and whether to realize upon the Collateral (including the Shared Collateral), and
when and whether to authorize the Agent at the pro rata expense of all the Secured Parties (to the
extent not reimbursed by the Borrower) to retain attorneys to seek judgment on the Collateral
Documents. This Section 3.4 is expressly limited by the requirements and definitions in
this Agreement for the creation of a
Secured Hedge Obligation, and notwithstanding any provision in any commodity, interest rate or
currency rate protection agreement to the contrary, liabilities thereunder which do not meet the
requirements and definitions in this Agreement for the creation of a Secured Hedge Obligations
shall not be secured by the Collateral or otherwise entitled to the benefits of this Section
3.4.


 


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(e) This sharing of the Shared Collateral with respect to the Secured Liabilities shall remain
in full force and effect not withstanding any filing of a petition for relief by or against the
Borrower under the Federal Bankruptcy Code or similar laws from time to time in effect and shall
apply with full force and effect with respect to all such Shared Collateral covered by the
Collateral Documents acquired by the Borrower or any Grantor after the date of such petition and
all Indebtedness and Secured Hedge Obligations incurred after the date of such petition. Such
sharing shall apply with full force and effect with respect to all Shared Collateral covered by the
Collateral Documents from time to time, including without limitation pursuant to supplements or
amendments to the Collateral Documents after the date hereof, subject to the foregoing preserved
right of the Agent and the Banks for partial releases. In the event of any liquidation,
dissolution, receivership, insolvency or bankruptcy proceeding, any payment or distribution of any
kind or character, either in cash or other property, which shall be payable or deliverable upon or
with respect to any or all of the Shared Collateral shall be paid or delivered directly to the
Agent for application as provided in Subsection (a).



(f) Neither the Agent nor any of its directors, officers, agents or employees shall be liable
to any Secured Hedge Provider for any action taken or omitted to be taken by it under or in
connection with this Agreement, except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, the Agent (i) may treat a Secured Hedge Provider
as the payee of its Secured Hedge Obligations until the Agent receives written notice of the
assignment or transfer thereof, signed by such Secured Hedge Provider in a form satisfactory to the
Agent; (ii) may consult with legal counsel (including counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants
or experts; (iii) makes no warranty or representation to any Secured Hedge Provider and shall not
be responsible to any Secured Hedge Provider for any statements, warranties or representations made
in or in connection with this Agreement or the Collateral Documents; (iv) shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or the Collateral Documents, or to inspect any property (including the
books and records) of the Borrower and Subsidiaries; (v) shall not be responsible to any Secured
Hedge Provider for the due execution, legality, validity, enforce ability, genuineness, sufficiency
or value of this Agreement or the Collateral Documents; and (vi) shall incur no liability under or
in respect to this Agreement or the Collateral Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by facsimile, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties. The Agent shall
not have a fiduciary relationship in respect of any Secured Hedge Provider by reason of this
Agreement. The Agent shall not have any implied duties to the Secured Hedge Providers, or any
obligation to the Secured Hedge



 


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Providers to take any action under this Agreement or the Collateral Documents except any
actions specifically provided by such documents to be taken by it. The Agent shall have the same
rights and privileges under this Agreement as any other Secured Hedge Provider and may exercise the
same as though it were not the Agent; and the term “Secured Hedge Provider” shall, unless otherwise
expressly indicated, include the Agent in its individual capacity when applicable. The granting of
benefits under this Agreement and the Collateral Documents to the Secured Hedge Providers is
expressly conditioned upon the benefits and protections provided to the Agent under Article 9 of
this Agreement applying with each force and effect to the Secured Hedge Providers.



ARTICLE 4




REPRESENTATIONS AND WARRANTIES




In order to induce the Agent and the Banks to enter into this Agreement, the Borrower
represents and warrants to the Agent and the Banks (which representations and warranties will
survive the extensions of credit under this Agreement) that:



Section 4.1 Existence. (a) The Borrower is a corporation duly organized, legally
existing, duly registered and in good standing under the laws of its state of formation (Oklahoma)
and is duly qualified in all other jurisdictions wherein the property it owns or the business it
transacts make such qualification necessary and the failure to so qualify would have a material
adverse effect on its financial condition, business or operations.



(b) Each of Endeavor, Diamond and any other Subsidiary is a corporation duly organized,
legally existing and in good standing under the laws of the state of incorporation (Oklahoma) and
is duly qualified as a foreign corporation in all other jurisdictions wherein the property it owns
or the business it transacts makes such qualification necessary and the failure to so qualify would
have a material adverse effect on its financial condition, business or operations.



Section 4.2 Names, Numbers and Offices of Borrower. (a) The Borrower is not doing
business under any name (including trade names) other than the exact name of the Borrower set forth
above, and has never done business previously under any other name. The Borrower’s Subsidiaries do
business only under their exact names as provided in this Agreement.



(b) Each Company’s location of its state of organization are accurately set forth in the
Collateral Documents. Each Company’s chief executive office has been continuously located in the
State of Oklahoma on and after its respective formation.



Section 4.3 Power and Authorization. Each Company is duly authorized and empowered to
execute, deliver and perform this Agreement, the Notes and the Collateral Documents executed by it.
All corporate action on the part of each Company (including all shareholder action) requisite for
the due creation and execution of the Loan and this Agreement, the Notes and Collateral Documents
have been duly and effectively taken.


 


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Section 4.4 Review of Documents; Binding Obligations. Each Company has reviewed this
Agreement, the Notes and the Collateral Documents with counsel for the Companies and has had the
opportunity to discuss the provisions thereof with the Agent prior to execution. This Agreement,
the Notes and the Collateral Documents constitute valid and binding obligations of the Companies
which are party thereto, enforceable in accordance with their terms (except that enforcement may be
subject to any applicable bankruptcy, insolvency or similar laws generally affecting the
enforcement of creditors’ rights). Each Company further represents and warrants that it is in
compliance with all of the affirmative and negative covenants contained in this Agreement and the
Collateral Documents.



Section 4.5 No Legal Bar or Resultant Lien. This Agreement, the Notes and the
Collateral Documents do not and will not violate any provisions of any Company’s articles of
incorporation or bylaws, will not violate any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which any Company is subject, and will not result in the
creation or imposition of any Lien upon any property of any Company other than as contemplated by
this Agreement.



Section 4.6 No Consent. The Companies’ execution, delivery and performance of this
Agreement, the Notes and the Collateral Documents do not require the consent or approval of any
other Person, including without limitation any regulatory authority or governmental body of the
United States or any state thereof or any political subdivision of the United States or any state
thereof.



Section 4.7 Financial Condition. All financial statements of the Borrower and any
affiliates delivered to the Agent and the Banks fairly and accurately present the financial
condition of the parties for whom such statements are submitted and the financial statements of the
Borrower and any affiliates have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, and there are no contingent
liabilities not disclosed thereby which would adversely affect the financial condition of Borrower
or any affiliates. Since the close of the period covered by the latest financial statement
delivered to the Agent and the Banks with respect to Borrower and any affiliates, there has been no
material adverse change in the assets, liabilities, or financial condition of Borrower or any
affiliates. No event has occurred (including, without limitation, any litigation or administrative
proceedings) and no condition exists or, to the knowledge of Borrower, is threatened, which (i)
might render Borrower unable to perform its obligations under this Agreement, the Notes or the
Collateral Documents, or (ii) would constitute a Default hereunder, or (iii) might adversely affect
the financial condition of the Borrower or any affiliates or the validity or priority of the Lien
of the Collateral Documents. Each Company is solvent and has the ability to pay its Debts when and
as due.



Section 4.8 Taxes and Governmental Charges. Each Company has filed all tax returns and
reports required to be filed and have paid all taxes, assessments, fees and other governmental
charges levied upon it or upon its property or income which are due and payable,
including interest and penalties, or is contesting the same in good faith by appropriate
proceedings and has provided adequate reserves for the payment thereof.


 


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Section 4.9 Defaults. The Companies are not in default under any indenture, mortgage,
deed of trust, agreement or other instrument to which such Company is a party or by which it or any
of its property is bound, including without limitation the contracts pertaining to the Qualified
Subordinated Debt, the Qualified Redeemable Preferred Equity or the Convertible Debt.



Section 4.10 Liabilities and Litigation. (a) Except for liabilities incurred in the
normal course of business, the Borrower and its Subsidiaries have no material (individually or in
the aggregate) liabilities, direct or contingent, except as disclosed in the most recent financial
statements furnished to the Agent. Except as disclosed in the most recent financial statements
furnished to the Agent, there is no litigation, legal or administrative proceeding, investigation
or other action of any nature pending or, to the knowledge of Borrower, threatened against or
affecting any Company which involves the possibility of any judgment or liability not fully covered
by insurance which may materially and adversely affect the business or the property of the Borrower
or such Subsidiary or its ability to carry on business as now conducted.



(b) Without limiting the foregoing, on the Closing Date there is no litigation, legal or
administrative proceeding, investigation or other action pending or, to the knowledge of Borrower,
threatened against or affecting the Borrower involving non-compliance by the Borrower or its
properties with any Applicable Environmental Laws (as defined in Section 4.17).



(c) Without limiting the foregoing, there is no litigation, legal or administrative
proceeding, investigation or other action pending, or to the knowledge of Borrower, threatened
against or affecting the Borrower involving allegations that Borrower has failed to adequately
develop its properties.



Section 4.11 Federal Regulations. None of the Loan proceeds will be used for the
purpose of, and the Borrower is not engaged in the business of extending credit for the purpose of,
purchasing or carrying any “margin stock” as defined in Regulation U of the Board of Governors of
the Federal Reserve System (12 C.F.R. Part 221), or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry a margin stock or for any other
purpose which might constitute this transaction a “purpose credit” within the meaning of said
Regulation U. The Borrower is not engaged principally, or as one of the Borrower’s important
activities, in the business of extending credit for the purpose of purchasing or carrying margin
stocks. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will
take any action which might cause this Agreement to violate Regulation U or any other regulation of
the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of
1934 or any rule or regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect. No part of the proceeds of the
Loan will be used, directly or indirectly, to fund a personal loan to or for the benefit of a
director or executive officer of the Borrower or any Subsidiary.


 


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Section 4.12 Utility or Investment Company. No Company is engaged in the generation,
transmission, or distribution and sale of electric power; operation of a local distribution system
for the sale of natural or other gas for domestic, commercial, industrial, or other use; ownership
or operation of a pipeline for the transmission or sale of natural or other gas, crude oil or
petroleum products (except for ownership of interests in gathering line systems); provision of
telephone or telegraph service to others; production, transmission, or distribution and sale of
steam or water; operation of a railroad; or provision of sewer service to others; or any other
activity which cause such Company to be subject to regulation as a utility. The Borrower is not an
“investment company” within the meaning of the Investment Company Act of l940, as amended.



Section 4.13 Compliance with the Law. Each Company (i) is not in violation of any
law, judgment, decree, order, ordinance, or governmental rule or regulation to which such Company
or any of its property is subject; and (ii) has not failed to obtain any license, permit, franchise
or other governmental authorization necessary to the ownership of any of its property or the
conduct of its business; in each case, which violation or failure could reasonably be anticipated
to materially and adversely affect the business, prospects, profits, property or condition
(financial or otherwise) of such Company.



Section 4.14 ERISA. The Borrower is in compliance in all material respects with the
applicable provisions of ERISA, and no “reportable event”, as such term is defined in Section 4043
of ERISA, has occurred with respect to any Plan of the Borrower.



Section 4.15 Other Information. All information, reports, papers and data given to
the Agent and the Banks by the Borrower pursuant to this Agreement and in connection with the
Borrower’s application for the Loan and the Agent’s commitment letter are accurate and correct in
all material respects, and together constitute a complete and accurate presentation of all facts
material thereto. All financial projections given to the Agent were prepared in good faith based
on facts and circumstances existing at the time of preparation and were believed by the Borrower
to be accurate in all material respects. No information, exhibit or report furnished by the
Borrower to the Agent in connection with the negotiation of this Agreement contains any material
misstatement of fact or fails to state a material fact or any fact necessary to make the statement
contained therein not materially misleading.



Section 4.16 Collateral. (a) Each of the Borrower, Endeavor and Diamond has good and
marketable title to the Collateral granted by it, and the Collateral Documents constitute the
legal, valid and perfected Liens on the Collateral, free of all Liens except those permitted by
this Agreement in Section 6.2.


 


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(b) The Borrower has, with respect to the Collateral, the working interests and net revenue
interests therein as reported to the Agent in connection with the negotiation of this
Agreement. Without limiting the preceding sentence, except as otherwise specifically
disclosed to the Agent in writing, all of the proved reserves (whether producing or not, and
whether proved developed or proved undeveloped) included in the reserve reports covering the
Borrower’s properties in the States of Texas and New Mexico most recently delivered to the Agent
(on the Closing Date, the third party engineering report prepared by MHA Petroleum Consultants,
Inc., dated effective as of January 1, 2008) are owned as so reported, are encumbered Collateral in
favor of the Agent, and are properly described in the Collateral Documents. Except as otherwise
specifically disclosed to the Agent in writing with respect to any particular part of the
Borrower’s properties, (i) the Borrower is not obligated, whether by virtue of any payment under
any contract providing for the sale by the Borrower of hydrocarbons which contains a “take or pay”
clause or under any similar arrangement or by virtue of any production payment or otherwise, to
deliver hydrocarbons produced or to be produced from the Borrower’s properties at any time after
the Closing Date without then or thereafter receiving full payment therefor, except for Permitted
Hedge Agreements; (ii) none of the Borrower’s properties is subject to any contractual or other
arrangement whereby payment for production is to be deferred for a substantial period after the
month in which such production is delivered; (iii) none of the Borrower’s properties is subject to
an arrangement or agreement under which any purchaser or other Person is currently entitled to
“make-up” or otherwise receive material deliveries of hydrocarbons at any time after the Closing
Date without paying at such time the full contract price therefor; and (iv) no Person is currently
entitled to receive any material portion of the interest of the Borrower in any hydrocarbons or to
receive cash or other payments from the Borrower to “balance” any disproportionate allocation of
hydrocarbons under any operating agreement, cash balancing and storage agreement, gas processing or
dehydration agreement, or other similar agreements. For purposes of this paragraph, “material”
shall mean two hundred ($200,000.00) dollars (or more) or an amount of property with an equivalent
value.



(c) None of the Collateral is subject to any calls on production of hydrocarbons or any
gathering or transportation dedications or commitments of any kind.



(d) Endeavor has good and marketable title to the gas gathering system servicing the
Collateral in East Texas.



(e) On the Closing Date all of the natural gas produced by the Borrower from (and as)
Collateral in East Texas for which the Borrower is the operator is sold by the Borrower to Endeavor
at the wellhead.



(f) The Borrower is in compliance with (i) the requirement in Subsection 3.3(c) that
all properties included within the Borrowing Base from time to time are timely encumbered as
Collateral, and (ii) the representation in Subsection 4.21(d).


 


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Section 4.17 Environmental Matters. No friable asbestos, or any substance containing
asbestos deemed hazardous by federal or state regulations on the date of this Agreement, has been
installed in any Collateral constituting real property. Such real property
and the Companies are not in violation of or subject to any existing, pending, or threatened
investigation or inquiry by any governmental authority or to any remedial obligations under any
applicable laws pertaining to health or the environment (hereinafter sometimes collectively called
“Applicable Environmental Laws”), including without limitation the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (as amended, hereinafter called “CERCLA”), the Resource Conservation
and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as amended,
hereinafter called “RCRA”), and this representation and warranty would continue to be true and
correct following disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to such property and known to the Borrower. No
hazardous substances or solid wastes have been disposed of or otherwise released on or to such
property. The terms “hazardous substance” and “release” as used in this Agreement shall have the
meanings specified in CERCLA, and the terms “solid waste” and “disposal” (or “disposed”) shall have
the meanings specified in RCRA; provided, in the event that the laws of any applicable state
establish a meaning for “hazardous substance,” “release,” “solid waste,” or “disposal” which is
broader than that specified in either CERCLA or RCRA, such broader meaning shall apply.



Section 4.18 Governmental Requirements. Any Collateral constituting real (immovable)
property is in compliance with all current governmental requirements affecting such property,
including, without limitation, all current coastal zone protection, zoning and land use
regulations, building codes and all restrictions and requirements imposed by applicable
governmental authorities with respect to the construction of any improvements on such property and
the contemplated use of such property.



Section 4.19 Contracts. (a) The Contracts when considered as a whole do not
materially affect the rights, benefits or security of the Agent and the Banks under the Collateral
Documents and the Contracts do not contain any provision which would prevent the Agent’s practical
realization of the benefits of the Collateral Documents as to the Collateral. After giving effect
to the Contracts, the net revenue interests of the Borrower in the Collateral are not less than
those set forth in the Collateral Documents.



(b) The Borrower has provided to the Agent true, accurate and complete copies of the
Participation Agreement (including all amendments).



Section 4.20 Affiliates. (a) On the Closing Date, the Borrower has no Subsidiaries
other than Endeavor and Diamond, and each of those Subsidiaries has no Subsidiary. None of the
Companies has an ownership (direct or beneficial) interest in any Person (whether stock,
partnership interest, membership interest or otherwise) other than as stated in the preceding
sentence or as disclosed to the Agent in writing . The Borrower owns and controls 100% of the
ownership and voting rights in Endeavor and Diamond. The Borrower has
furnished to the Agent true, accurate and complete copies of the organizational documents
(articles of incorporation and bylaws) of the Companies.


 


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(b) None of the Collateral is owned by, or has record title to it in the name of, another
company than Borrower, and as to the gathering system Endeavor, and as to the drilling rigs and
related equipment Diamond.



Section 4.21 Debt and Preferred Stock. (a) The Borrower has no Debt for borrowed
money from any Person (other than this Loan), except (i) the PVOG Production Payment (on the terms
described in the definition thereof), (ii) the Qualified Subordinated Debt (on terms meeting the
definition thereof) described in the Intercreditor Agreement dated as of July 31, 2007, among the
Agent, the Banks, The Bank of New York Trust Company, N.A., as Noteholder Collateral Agent, and The
Prudential Insurance Company of America, and (iii) the Convertible Debt (on terms meeting the
definition thereof). The Borrower has no material accounts payable more than sixty days old. The
only documents evidencing the PVOG Production Payment are the Participation Agreement (including
all amendments).



(b) On the Closing Date, the Borrower has no preferred stock issued and outstanding except the
9.25% Series B Cumulative Preferred Stock issued in August 2006.



(c) The Borrower has provided the Agent with true and complete copies of the documents
pertaining to the Qualified Subordinated Debt and the Convertible Debt (including all amendments to
either).



(d) The Borrower has not granted a Lien to the Subordinated Holders (or any collateral agent
therefor) on any asset or property which is not subject to the Liens securing the Secured
Liabilities. The Borrower has granted a Lien to the Subordinated Holders (or their collateral
agent) on all assets and property required by the term of the Qualified Subordinated Debt documents
and the Intercreditor Agreement.



Section 4.22 Patriot Act. To the extent applicable, each Company is in compliance, in
all material respects, with the (i) federal Trading with the Enemy Act, as amended, and each of the
foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and
(ii) Federal Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism (USA Patriot Act of 2001) (the “Patriot Act”). No part of the
proceeds of any Loan will be used, directly or indirectly, for any payments to any governmental
official or employee, political party, official of a political party, candidate for office or any
one use acting in an official capacity, in order to obtain, retain or direct business or obtain any
improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as
amended.



Section 4.23 Operations. On the Closing Date, the Operators of the Borrower’s Texas
properties are as follows:


 


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	Operator	 	Field
	 
	 	 
	PVOG

	 	Participation Agreement Areas I and II
	Borrower

	 	Participation Agreement Area III
	Hunt Petroleum Corporation

	 	Joe Roberson Units






Section 4.24 Continuing Accuracy. All of the representations and warranties contained
in this Article or elsewhere in this Agreement shall be true through and until the date on which
all obligations of Borrower under this Agreement, the Notes and the Collateral Documents and any
other documents executed in connection therewith are fully satisfied.



ARTICLE 5




AFFIRMATIVE COVENANTS




Unless the Agent’s and the Required Banks’ (or if required by Section 10.4 hereof, all
of the Banks’) prior written consent to the contrary is obtained, the Borrower will at all times
comply with the covenants contained in this Article 5 (including where applicable, without the
necessity of expressly so stating in each instance, causing its Subsidiaries to comply with such
covenant), from the date hereof and for so long as any part of the Indebtedness is outstanding.



Section 5.1 Performance of Obligations. The Borrower will repay the Indebtedness
according to the reading, tenor and effect of the Notes and this Agreement. The Borrower will do
and perform every act required of it by this Agreement, the Notes or in the Collateral Documents at
the time or times and in the manner specified.



Section 5.2 Financial Statements and Reports. The Borrower will furnish or cause to
be furnished to the Agent from time to time: (and the Agent shall furnish promptly to each Bank
from time to time copies of all such documents received by the Agent from the Borrower, except that
documents under paragraphs (e) and (i) below shall be forwarded by Agent only upon request by a
Bank).



(a) Borrower’s Annual Reports — as soon as available and in any event within 120 days
after the close of each fiscal year of the Borrower, the consolidated audited balance sheet of the
Borrower as of the end of such year, the consolidated audited statement of income of the Borrower
for such year, the consolidated audited statement of changes in shareholder equity of the Borrower
for such year, and the consolidated audited statement of cash flow of Borrower for such year,
setting forth in each case in comparative form the corresponding figures for the preceding fiscal
year, accompanied by a report of the Borrower’s independent certified public accountants acceptable
to the Agent. Such annual reports shall be accompanied by the certificates of compliance required
by Section 5.3.


 


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(b) Borrower’s Quarterly Financial Reports — as soon as available and in any event
within 60 days after the end of each fiscal quarter in each fiscal year of the Borrower, the
unaudited consolidated balance sheet of the Borrower as of the end of such fiscal quarter, the
unaudited consolidated statement of income of the Borrower for the period from the beginning of the
fiscal year to the close of such fiscal quarter, the unaudited consolidated statement of changes in
shareholders equity of the Borrower for the period from the beginning of the fiscal year to the
close of such fiscal quarter, and the unaudited consolidated statement of cash flow of Borrower for
the period from the beginning of the fiscal year to the close of such fiscal quarter, setting forth
in each case in comparative form the corresponding figures for the corresponding period of the
preceding fiscal year (and showing without limitation any over or under produced imbalances of
production). Such internally prepared quarterly reports shall be accompanied by the certificates
of compliance required by Section 5.3.



(c) Semi-Annual Engineering Reports — as soon as available and in any event by March 1
and September 1 of each year, a semi-annual engineering report covering all of the Borrower’s
material oil and gas properties (and in any event including all of the Borrowing Base properties),
with an effective date of December 31 for the March 1 report and no more than 60 days earlier for
the September 1 report, in form and substance acceptable to the Agent. The March 1 report for the
April 1 determination shall be reviewed by an independent third party petroleum engineers firm
acceptable to the Agent. The September 1 report for the October 1 determination may be an internal
update report furnished by the Borrower with technical review in a meeting between the Borrower and
Agent’s Energy Technical Services. Without limiting the foregoing sentences, such reports shall
include a discussion of assumptions as to engineering, pricing and expenses, and an economic
evaluation together with the reserve value of each well of each property in the Borrowing Base, and
further categorized as Collateral or non-Collateral and as Proved Developed Producing Reserves,
Proved Developed Non-Producing Reserves, or Proved Undeveloped Reserves. (The Borrower
acknowledges that the Agent reserves the right to determine the Borrowing Base based on the
provisions hereof and Agent’s own evaluations of rates, volumes, prices, assumptions and other
factors regardless of this outside engineering data or then market prices.)



(d) Quarterly Reports — within 60 days after the end of each calendar quarter, three
production, operating and price tracking monthly reports pertaining to the Borrower’s oil and gas
properties (including without limitation all Borrowing Base properties) on a well by well basis in
form acceptable to the Agent’s Energy Technical Services, including production volumes, sales
volume, sales revenues, unit commodity prices, production taxes, operating expenses, capital
expenditures, and revenue and expense statements. Such report shall include the status of all gas
balancing (if any) affecting any of the Borrowing Base properties.



(e) Periodic Title Information — periodically as available and in any event no later
than the date for the delivery of the semi-annual engineering reports under Subsection
5.2(c), copies of drill site title opinions or division order title opinions covering newly
drilled wells included in the Collateral which are not covered by title opinions previously
delivered to
the Agent (i.e., wells drilled within the preceding period); and in addition promptly upon the
Agent’s request, detailed information concerning any and all requirements or exceptions set forth
in any title opinions concerning any of the Collateral.


 


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(f) Environmental — (I) promptly upon receipt thereof, complete documentation
pertaining to any fines levied during the prior year against the Borrower, or to the extent known
and available to the Borrower against an Operator of any Collateral, for non-compliance with all
applicable federal, state and local environmental laws and regulations; and (II) promptly upon
learning thereof, notice of Borrower’s acquisition of actual knowledge of the presence of any
hazardous materials or solid waste (as defined elsewhere in this Agreement) on or under any
Collateral.



(g) Notices — when required by the terms thereof, the notices required under
Section 5.11.



(h) Audit Reports —promptly upon receipt thereof, one copy of each report (if any)
submitted to the Borrower by independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower.



(i) Insurance Report — within 30 days after the end of each fiscal year of the
Borrower, an annual insurance coverage report detailing the insurance program maintained by or for
the Borrower.



(j) S.E.C. Reports —promptly upon becoming available, copies of all (i) regular,
periodic or special reports, schedules and other material which the Borrower may be required to
file with or deliver to any securities exchange or the Securities and Exchange Commission (or any
other governmental authority succeeding to the functions thereof) and (ii) material news releases
and annual reports relating to the Borrower. Such documents shall be deemed to have been delivered
on the date such document is included in materials otherwise filed with the Securities and Exchange
Commission electronically so as to be publicly available on an internet website to which the Agent
has access.



(k) Hedge Agreements — promptly after entering into such contract if requested by the
Agent but in any event at the end of each fiscal quarter, written notice of the fact that the
Borrower or a Subsidiary has entered into a Hedge Agreement, together with a list of all Hedge
Agreements of the Borrower and its Subsidiaries describing the material terms thereof. Absent a
specific request, this information may be provided as part of the Borrower’s Form 10-Q.



(l) Participation Agreement — promptly after execution thereof, copies of each
amendment or supplement to or replacement of the Participation Agreement.


 


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(m) EBITDA Monthly Certificates — for so long as the Borrower is obligated to deliver
same to the Subordinated Holder, as soon as available and in any event within 45 days
after the end of each month in each fiscal year, a certificate setting forth covenant
calculations demonstrating compliance with the Total Debt to EBITDA ratio under the Qualified
Subordinated Debt documents required to be delivered to the Subordinated Holder.



(n) Other Information — promptly upon the request of the Agent or any Bank, all
regular budgets and such other financial, technical or other information regarding the business and
affairs and financial condition of the Borrower as the Agent or such Bank may reasonably request
(for review and copying).



All balance sheets and other financial reports referred to above shall be in such detail as the
Agent or the Required Banks may reasonably request and shall conform to the standards described in
Section 1.3.



Section 5.3 Certificates of Compliance. (a) So long as not contrary to the then
current rules, regulations or recommendations of the American Institute of Certified Public
Accountants or similar body, concurrently with the furnishing of the annual financial statements
described above, the Borrower will cause to be furnished to the Agent a certificate from the
independent certified public accountants for the Borrower stating that in the ordinary course of
their audit of the Borrower, insofar as it relates to accounting matters, their audit has not
disclosed the existence of any condition which constitutes a Default, or if their audit has
disclosed the existence of any such condition, specifying the nature, period of existence and
status thereof; provided, however, that the independent certified public accountants shall not be
liable to the Agent and the Banks for their failure to discover a Default.



(b) Within 60 days after the end of each fiscal quarter, the Borrower will furnish to the
Agent, for distribution to the Banks, a certificate signed by the principal financial officer of
the Borrower, stating either that no Default occurred during such quarter (or if it did but no
longer exists, the nature and duration thereof) and that no Default then exists, or if a Default
exists, the nature, period of existence and status thereof, and specifically setting forth the
calculations showing the Borrower’s compliance with the financial covenants in Section
5.15.



Section 5.4 Taxes and Other Liens. Each Company will file all tax returns and reports
required to be filed and pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon income or upon any of its property
(including production, severance, windfall profit, excise and other taxes assessed against or
measured by the production of, or the value or proceeds of production of, the Collateral) as well
as all claims of any kind (including claims for labor, materials, supplies and rent) which, if
unpaid, might become a Lien upon any or all of its property; provided, however, such Company shall
not be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability
or validity thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted and if the contesting party shall have set up reserves therefor adequate under
generally accepted accounting principles (provided that such reserves may be set
up under generally accepted accounting principles) and so long as the payment of same is not a
condition to be met in order to maintain an oil, gas or mineral lease in force.


 


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Section 5.5 Maintenance and Compliance. The Borrower will, and will cause each
Subsidiary to, (i) maintain its corporate existence and rights and its current business operations;
(ii) observe and comply (to the extent necessary so that any failure will not materially and
adversely affect the business of such Person) with all valid existing and future laws, statutes,
codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, certificates,
franchises, permits, licenses, authorizations, directions and requirements (including without
limitation applicable statutes, regulations, orders and restrictions relating to environmental
standards or controls or to energy regulations) of all federal, state, county, municipal and other
governments, departments, commissions, boards, courts, authorities, officials and officers,
domestic or foreign; and (iii) maintain its properties (and any property leased by or consigned to
it or held under title retention or conditional sales contracts) in generally good and workable
condition at all times and make all repairs, replacements, additions, betterments and improvements
to its properties to the extent necessary so that any failure will not materially and adversely
affect the business of such Person.



Section 5.6 Further Assurances. The Borrower at its expense will, and will cause each
Subsidiary to, promptly (and in no event later than 30 days after written notice from the Agent is
received) cure any defects, errors or omissions in the creation, execution, delivery or contents of
this Agreement, the Notes or the Collateral Documents, and execute and deliver to the Agent upon
request all such other and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Companies in this Agreement, the Notes or in
the Collateral Documents or to further evidence and more fully describe the Collateral (including
without limitation any renewals, additions, substitutions, replacements or accessions to the
Collateral), or to correct any omissions in the Collateral Documents, or more fully state the
security obligations set out herein or in any of the Collateral Documents, or to perfect, protect
or preserve any Liens and the priority thereof created pursuant to any of the Collateral Documents,
or to make any recordings, to file any notices, or obtain any consents as may be necessary or
appropriate in connection with the transactions contemplated by this Agreement.



Section 5.7 Reimbursement of Expenses. The Borrower will pay all reasonable legal
fees and expenses incurred by the Agent and the Banks in connection with the preparation or
administration of this Agreement, the Notes and the Collateral Documents. The Borrower will upon
request promptly reimburse the Agent and the Banks for all amounts expended, advanced or incurred
by the Agent and the Banks to satisfy any obligation of the Borrower under this Agreement, or to
protect the property or business of any Company or to collect the Secured Liabilities, or to
enforce the rights of the Agent and the Banks under this Agreement, the Notes, the Collateral
Documents or the Secured Hedge Agreements, which amounts will include all court costs, attorneys’
fees and expenses, fees and expenses of engineers, auditors and accountants, travel expenses and
investigation expenses reasonably



 


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incurred by the Agent and the Banks in connection with any such matters, together with
interest at the Default Rate on each such amount from the date that is thirty (30) days after
demand by the Agent and the Banks therefor until the date of reimbursement to the Agent or such
Bank. The Borrower also agrees to pay, and to hold the Agent and the Banks harmless from any
failure or delay in paying, all recording taxes, documentary stamp taxes or other similar taxes, if
any, which may be payable or determined to be payable in connection with the execution and delivery
of this Agreement, the Notes, the Collateral Documents, the Secured Hedge Agreements, or any
modification or supplement thereof or thereto.



Section 5.8 Insurance. Each Company will maintain with financially sound and
reputable insurers, insurance with respect to its properties and businesses against such
liabilities, casualties, risks and contingencies and in such types and amounts as are reasonably
satisfactory to the Agent and customary in accordance with standard industry practice or as more
specifically provided in the Collateral Documents. Upon request of the Agent, the Borrower will
furnish or cause to be furnished to the Agent from time to time a summary of the insurance coverage
of the Companies in form and substance satisfactory to the Agent and if requested will furnish the
Agent original certificates of insurance and/or copies of the applicable policies.



Section 5.9 Accounts and Records. The Borrower will keep books of record and accounts
in which true and correct entries will be made as to all material matters of all dealings or
transactions in relation to the Companies’ business and activities.



Section 5.10 Right of Inspection. The Borrower will permit any officer, employee or
agent of the Agent or any Bank at such Person’s risk to visit and inspect any of the property of
the Companies, examine the books of record and accounts of the Companies, take copies and extracts
therefrom, and discuss the affairs, finances and accounts of the Companies with the Borrower’s
officers, accountants and auditors, and the Borrower will furnish information concerning the
Collateral, including schedules of all internal and third party information identifying the
Collateral (such as, for example, lease and well names and numbers assigned by the Borrower or the
Operator of any mineral properties, division orders and payment names and numbers assigned by
purchasers of the hydrocarbons, and internal identification names and numbers used by the Borrower
in accounting for revenues, costs and joint interest transactions attributable to the mineral
properties), all on reasonable notice, at such reasonable times without hindrance or delay and as
often as the Agent or any Bank may reasonably desire. The Borrower will furnish to the Agent
promptly upon request and in the form and content specified by the Agent lists of purchasers of
hydrocarbons and other account debtors, schedules of equipment and other data concerning the
Collateral as the Agent may from time to time specify.



Section 5.11 Notice of Certain Events. (a) The Borrower shall promptly notify the
Agent if the Borrower learns of the occurrence of any event which constitutes a Default, together
with a detailed statement by a responsible officer of the Borrower of the steps being taken to cure
the effect of such Default.


 


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(b) The Borrower shall promptly notify the Agent of any change in location of any Company’s
principal place of business or the office where it keeps its records concerning accounts and
contract rights or a change in its name, state of organization or organizational status.



(c) The Borrower shall promptly notify the Agent of the arising of any litigation or dispute
threatened against or affecting the Borrower or any Subsidiary which, if adversely determined,
would have a material adverse effect upon the financial condition or business of the Borrower or
such Subsidiary. In the event of such litigation, the Borrower will cause such proceedings to be
vigorously contested in good faith and, in the event of any adverse ruling or decision, the
Borrower shall prosecute all allowable appeals. The Agent may (but shall not be obligated to),
after prior notice to Borrower, commence, appear in, or defend any action or proceeding purporting
to affect the Loan, or the respective rights and obligations of Agent and the Banks and Borrower
pursuant to this Agreement, and the Borrower agrees to repay the Agent upon demand all necessary
expenses, including reasonable attorneys’ fees and expenses, incurred by the Agent in connection
with such proceedings or actions.



(d) The Borrower shall promptly notify the Agent of the occurrence of any material adverse
change in the value of any oil or gas property or properties which is or are included in and in the
aggregate represents at least five (5%) percent of the Borrowing Base, or from which any Company
otherwise derives at least five (5%) percent of its revenue. Without limiting the foregoing, the
Borrower shall promptly notify the Agent of any notice of default or cancellation from any lessor
of any mineral lease in the Collateral. This paragraph does not apply to changes in value
resulting from market price changes affecting the oil and gas industry generally.



(e) The Borrower shall promptly notify the Agent of the creation, incurrence, assumption,
existence or filing of any Lien on any Borrowing Base property now owned or hereafter acquired,
except for Liens permitted under Section 6.2.



(f) The Borrower shall promptly notify the Agent of each creation, acquisition, disposition,
dissolution, merger or other change in the status of or addition or removal of any Subsidiary, and
of each other investment in or acquisition of any ownership (direct or beneficial) interest in any
Person (whether stock, partnership interest, membership interest or otherwise by any Company).



(g) The Borrower shall promptly notify the Agent (if possible in advance) of any change in the
identity of the Operator of any of the Borrower’s properties.



(h) The Borrower shall promptly notify the Agent of any notice of default received from or
sent to (i) PVOG under the Participation Agreement or (ii) any Operator.



(i) The Borrower shall promptly notify the Agent of any event which would render any of the
representations and warranties set forth in Article 4 untrue or misleading in any
material respect, except as such representations and warranties relate to matters as are
changed as permitted by this Agreement.


 


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(j) The Borrower shall promptly notify the Agent of the occurrence of any event which
constitutes a default under the Qualified Subordinated Debt or the Qualified Redeemable Preferred
Equity.



(k) The Borrower shall promptly furnish the Agent with a copy of any notice of default or
waiver (retroactive or prospective) pertaining to the Qualified Subordinated Debt or the Qualified
Redeemable Preferred Equity.



(l) The Borrower shall promptly furnish the Agent with copies of each amendment, modification
or waiver pertaining to the Qualified Subordinated Debt or the Qualified Redeemable Preferred
Equity or any new agreement pertaining to either.



(m) The Borrower shall promptly furnish the Agent with (i) a copy of any notice of default or
waiver (retroactive or prospective) pertaining to the Convertible Debt, (ii) copies of each
amendment, modification or waiver pertaining to the Convertible Debt or any new agreement
pertaining thereto, and (iii) notice of each redemption, repurchase or conversion which occurs
pertaining to the Convertible Debt.



The foregoing requirements of notice shall not be construed to imply permission or consent by the
Agent and the Banks as to such events or to waive any representations, covenants and defaults set
forth in this Agreement.



Section 5.12 ERISA Information and Compliance. The Borrower will promptly furnish to
the Agent (i) promptly after the filing thereof with the United States Secretary of Labor or the
Pension Benefit Guaranty Corporation, copies of each annual and other report with respect to each
Plan or any trust created by the Borrower, and (ii) immediately upon becoming aware of the
occurrence of any “reportable event,” as such term is defined in Section 4043 of ERISA, or of any
“prohibited transaction,” as such term is defined in Section 4975 of the Code, in connection with
any Plan or any trust created by the Borrower, a written notice signed by the president or the
principal financial officer of the Borrower specifying the nature thereof, what action the Borrower
is taking or proposes to take with respect thereto, and, when known, any action taken by the
Internal Revenue Service with respect thereto. The Borrower will comply with all of the applicable
funding and other requirements of ERISA as such requirements relate to the Plans of the Borrower.



Section 5.13 Indemnification. (a) The Borrower will indemnify the Agent and the Banks
and other Indemnified Parties and hold the Agent and the Banks and other Indemnified Parties
harmless from claims of brokers with whom the Borrower has contracted in the execution hereof or
the consummation of the transactions contemplated hereby. The Agent and each Bank, severally, will
indemnify the Borrower and hold the Borrower harmless from claims of brokers
with whom the Agent or such Bank, respectively, has contracted in connection with the
transactions contemplated hereby.


 


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(b) The Borrower will indemnify the Agent and the Banks and other Indemnified Parties and hold
the Agent and the Banks and other Indemnified Parties harmless from any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, costs and expenses of whatever
kind or nature which may be imposed on, incurred by or asserted at any time against the Indemnified
Parties in any way relating to, or arising in connection with, the use or occupancy of any of the
Collateral or any breach of any representation, warranty or covenant under the terms of this
Agreement or the Collateral Documents. The foregoing shall survive the termination of this
Agreement.



Section 5.14 Environmental Indemnity. The Borrower shall defend, indemnify and hold
the Agent and each Bank and its respective shareholders, directors, officers, agents, employees,
subsidiaries and Affiliates (collectively the “Indemnified Parties”, and each as “Indemnified
Party”) harmless from and against all claims, demands, causes of action, liabilities, losses, costs
and expenses (including, without limitation, costs of suit, reasonable attorneys’ fees and fees of
expert witnesses) arising from or in connection with (i) the presence on or under all Collateral
constituting real (immovable) property of any hazardous substances or solid wastes (as defined
elsewhere in this Agreement), or any releases or discharges of any hazardous substances or solid
wastes on, under or from such property, or (ii) any activity carried on or undertaken on or off
such property, whether prior to or during the term of this Agreement, and whether by Borrower or
any predecessor in title or any officers, employees, agents, contractors or subcontractors of
Borrower or any predecessor in title, or any third persons at any time occupying or present on such
property, in connection with the handling, use, generation, manufacture, treatment, removal,
storage, decontamination, clean-up, transport or disposal of any hazardous substances or solid
wastes at any time located or present on or under such property. The foregoing indemnity shall
further apply to any residual contamination on or under such property, or affecting any natural
resources, and to any contamination of any property or natural resources arising in connection with
the generation, use, handling, storage, transport or disposal of any such hazardous substances or
solid wastes, and irrespective of whether any of such activities were or will be undertaken in
accordance with applicable laws, regulations, codes and ordinances. Without prejudice to the
survival of any other agreements of the Borrower hereunder, the provisions of this Section shall
survive the final payment of all Indebtedness and the termination of this Agreement and shall
continue thereafter in full force and effect.



Section 5.15 Financial Covenants. The Borrower shall comply with the following
financial covenants (determined in accordance with Section 1.3), except as specifically
stated otherwise:


 


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(a) Minimum Current Ratio. The Borrower shall maintain, on a quarterly basis as of
the last day of each fiscal quarter, a current ratio in an amount not less than 1.00 to 1.00. For
purposes of this Section, “current ratio” shall mean the ratio of (x) current assets plus
the unused and available portion of the Commitment Limit (being the amount, if any, by which
the Commitment Limit then in effect exceeds the sum of the principal balance of unpaid and
outstanding Advances and the total undisbursed amount of all letters of credit outstanding as of
such date of determination) to (y) current liabilities (excluding therefrom the outstanding balance
on the Loan). This calculation will not include the effects, if any, of marking to market Hedging
Obligations pursuant to Financial Accounting Standards Board Statement No. 133. Notwithstanding
the foregoing, the Convertible Debt shall not be considered a current liability upon satisfaction
of the Sale Price Condition (as described in the Preliminary OM in the provisions set forth under
“Conversion upon Satisfaction of Sale Price Condition”), unless and until one or more notes
constituting Convertible Debt are surrendered for conversion and then only to the extent of the
cash payment due on the conversion of the notes surrendered.



(b) Minimum Net Worth. The Borrower shall have a net worth of not less than the
amount established by the next sentence on the Closing Date, and thereafter shall maintain at all
times the minimum net worth requirement as changed quarterly on the following basis. On the
Closing Date, the Borrower’s minimum net worth requirement shall be $210,003,644.00. Thereafter,
this minimum net worth requirement shall be changed quarterly by the Agent after the end of each
fiscal quarter, with the amount to be met thereafter being increased (but not reduced) by the sum
of (x) fifty (50%) percent of the Borrower’s positive net income in each fiscal quarter
plus (y) one hundred (100%) percent of the net proceeds from stock or other equity
offerings of any nature by the Borrower or any Subsidiary (including without limitation any
Qualified Redeemable Preferred Equity). For purposes of this covenant, the non-cash effects, if
any, of Hedging Agreements pursuant to Financial Accounting Standards Board Rule No. 133
(Accounting for Derivative Instruments and Hedging Activities) will not be included.



(c) Minimum EBITDA to Interest Expense. The Borrower shall maintain, on a quarterly
basis as of the last day of each fiscal quarter, a ratio (on a rolling four fiscal quarter basis)
of EBITDA to Interest Expense during the four preceding fiscal quarters of not less than 3.00 to
1.00.



(d) Calculation. The Borrower acknowledges that any outstanding Qualified
Subordinated Debt and any Qualified Redeemable Preferred Equity shall be counted and included as
Debt for purposes of the financial covenants in this Section 5.15. Without limiting the
foregoing, the dividends payable under the Qualified Redeemable Preferred Equity shall be counted
and included within Interest Expense for purposes of the financial covenant in Subsection
5.15(c).



Section 5.16 Bank Accounts. (a) The Borrower shall maintain (and cause to be
maintained) with the Agent the Companies’ primary operating, money market/treasury management,
collection and disbursement accounts, including without limitation as provided in Section
5.17.


 


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(b) The Borrower hereby grants to the Agent for the benefit of the Secured Parties a
continuing security interest in all of Borrower’s deposit accounts now existing or hereafter
maintained with Agent as security for the Secured Liabilities, and all funds, investment property
and proceeds pertaining thereto.



(c) The Agent will be granted security interests by the Subsidiaries in all of their
respective deposit accounts (if any) (separate from the Borrower’s deposit accounts) maintained
with Agent as security for the Secured Liabilities, and all funds, investment property and proceeds
pertaining thereto.



Section 5.17 Revenues. (a) The Borrower and Endeavor each shall immediately deposit
daily all payments for oil or natural gas sales from the Borrower’s properties (whether or not such
property is Collateral), or for resales thereof by Endeavor, to a revenue clearing deposit account
with the Agent at all times. All such deposits shall be made no later than the first Business Day
after collection by such Company. Without limiting the foregoing, the Borrower shall use its best
efforts to cause all Operators of any Company’s Collateral or purchasers from the Borrower or any
Subsidiary (including Endeavor) which make payments for oil or natural gas sales or purchases by
electronic transfer payments to change such electronic payments to be made directly to Borrower’s
or such Subsidiary’s accounts with the Agent. (The foregoing covenant is separate from the Agent’s
right after an Event of Default to send letters in lieu of transfer orders signed by the Borrower
under Subsections 3.1(a)(xi) and 8.2(c) below.)



(b) The Borrower, the Agent and the Banks acknowledge that Collateral is comprised in part of
the Borrower’s undivided interests in mineral properties for which the Borrower is operator, and
accordingly a portion of the payments made to the Borrower from the sale of hydrocarbons from such
properties may be owed by the Borrower to the non-operator working interest owners or to royalty or
overriding royalty owners. In the event that revenues of another Person attributable to such other
Person’s working interest or royalty or overriding royalty interest (“Other Revenues”) are
deposited into the revenue clearing account at the Agent, then the Agent and the Banks agree that
such Other Revenues will be released by the Agent to such Persons (even if an Event of Default has
occurred and is continuing) upon the receipt by the Agent of appropriate evidence that such funds
are Other Revenues (i.e., are not the Borrower’s funds). The Agent and the Banks shall not be
liable, however, for any actions by Agent which are taken in compliance with the terms of this
Agreement and the Collateral Documents with respect to funds in the revenue clearing account that
are Other Revenues and which are taken before Agent received such evidence that such funds are
Other Revenues.



(c) Upon the occurrence of any Event of Default, the Borrower shall upon Agent’s or the
Required Banks’ request execute such division orders, transfer orders or letters in lieu thereof as
are necessary to direct that all payments of mineral production due to the Borrower from its
properties are paid directly to the Agent, including as further provided in the Deed of Trust.


 


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Section 5.18 Hedging Program. At all times when the Percentage Outstanding exceeds
seventy-five (75%), the Borrower shall enter into and maintain in effect a hedging program (the
“Hedging Program”) consisting of Permitted Hedge Agreements that are mutually satisfactory
to the Agent, the Required Banks and the Borrower. Without limiting the foregoing, the Borrower
acknowledges the Agent’s and the Banks’ general expectation that at such time the Permitted Hedge
Agreements comprising the Hedging Program (i) shall in no contract fix a price for a term of more
than three (3) years, and (ii) in the aggregate shall cover no more than eighty (80%) percent of
the Borrower’s projected oil and gas PDP production set forth in the most recent third party
engineering report.



Section 5.19 Payables. The Companies shall pay all accounts payable for which
applicable law grants the account holder a Lien against any property of such Company within 60 days
from the date such payable is due and owing; provided, however, such Company shall not be required
to pay any such account if the amount or validity thereof shall currently be contested in good
faith by appropriate proceedings diligently conducted and if such Company shall have set up
reserves therefore adequate under generally accepted accounting principles (provided that such
reserves may be set up under generally accepted accounting principles) and so long as such contest
proceedings conclusively operate to stay the sale of any property subject to such Lien to satisfy
such account.



Section 5.20 Diamond Loan. The Borrower shall cause any loan made by the Borrower to
Diamond to be unsecured.



Section 5.21 Diamond Limitation. The Borrower shall not, and shall not permit Diamond
or any Subsidiary, to own any drilling rig other than the three (3) drilling rigs owned by Diamond
on July 15, 2007. (The Borrower must also comply with Subsection 6.3(g) below.)



ARTICLE 6




NEGATIVE COVENANTS




Unless the Agent’s and the Required Banks’ (or if required by Section 10.4 hereof, all
of the Banks) prior written consent to the contrary is obtained, the Borrower will at all times
comply with the covenants contained in this Article 6 (including where applicable, without the
necessity of expressly so stating in each instance, causing its Subsidiaries to comply with such
covenant), from the date hereof and for so long as any part of the Indebtedness is outstanding.



Section 6.1 Debts, Guaranties and Other Obligations. Each Company will not incur,
create, assume or in any manner become or be liable in respect of any Debt direct or contingent,
except for:




	 	(a)	 	The Indebtedness to the Agent and the
Banks under this Agreement and the Notes.
	 




 


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	 	(b)	 	Customary trade payables or operating
leases, and endorsements of negotiable instruments for
deposit or collection, all from time to time incurred
in the ordinary course of business.
	 






	 	(c)	 	Debt under operating agreements,
unitization and pooling agreements and orders, farmout
agreements and gas balancing agreements, in each case
that are customary in the oil, gas and mineral
production business and that are entered into in the
ordinary course of business. [For the avoidance of
doubt, it is acknowledged that this covenant is
separate and independent of the Event of Default under
Subsection 8.1(n).]
	 






	 	(d)	 	Taxes, assessments or other government
charges which are not yet due or are being contested in
good faith by appropriate action promptly initiated and
diligently conducted, if such reserve as shall be
required by generally accepted accounting principles
shall have been made therefor.
	 
	 
	 	(e)	 	Hedging Obligations incurred under Permitted
Hedge Agreements.
	 
	 
	 	(f)	 	Debt owing by a Subsidiary to the Borrower.
	 
	 
	 	(g)	 	The PVOG Production Payment;
provided, the Borrower shall not (i) prepay any
portion of such Debt before it is due while a Default
has occurred and is continuing, (ii) allow the amount
owing thereunder to exceed at any one time
$2,050,000.00 outstanding, nor (iii) amend any of the
documents evidencing or pertaining to the PVOG
Production Payment as in effect on the Closing Date or
enter into any new agreements pertaining thereto which
affect the terms of the PVOG Production Payment
adversely to the Borrower, in each case without the
Agent’s and the Required Banks’ prior written consent.
	 






 


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	 	(h)	 	Qualified Subordinated Debt, and
Qualified Redeemable Preferred Equity, in combined
amounts (as provided in the definitions thereof) which
do not exceed the Maximum Subordinated Amount,
provided that the conditions in Sections
6.10 and 6.11 are satisfied.
	 






	 	(i)	 	Convertible Debt, on terms complying
with the definition thereof.
	 





Section 6.2 Liens. The Borrower will not, and will not allow or suffer any Subsidiary
to, create, incur, assume or permit to exist any Lien on any of its property now owned or hereafter
acquired, except for:




	 	(a)	 	Liens for taxes, assessments, or other
governmental charges not yet due or which are being
contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as
shall be required by generally accepted accounting
principles shall have been made therefor, and so long
as the payment of same is not a condition to be met in
order to maintain in force such Person’s interest in
such property or (if applicable) the Agent’s first Lien
therein.
	 






	 	(b)	 	Liens of landlords, vendors, carriers,
warehousemen, mechanics, laborers and materialmen
arising by law in the ordinary course of business for
sums either not more than 90 days past due or being
contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as
shall be required by generally accepted accounting
principles shall have been made therefor, and so long
as the payment of same is not a condition to be met in
order to maintain in force such Person’s interest in
such property or (if applicable) the Agent’s first Lien
therein.
	 






	 	(c)	 	Inchoate liens arising under ERISA to
secure the contingent liability of the Borrower
permitted by this Agreement.
	 




 


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	 	(d)	 	The pledge of the Collateral and any
other Liens in favor of the Agent to secure on a
pari passu basis, (i) the Indebtedness
of the Borrower to the Agent and the Banks and (ii) (in
some or all cases as determined by the Banks) the
Secured Hedge Obligations permitted hereby.
	 






	 	(e)	 	Minor imperfections of title or
non-monetary Liens that do not materially impair the
development, operation or value of property in its
intended use or the title thereto and which are of a
nature commonly existing with respect to properties of
a similar character as the Collateral.
	 






	 	(f)	 	Royalties, overriding royalties, net
profits interests, production payments, reversionary
interests, calls on production, preferential purchase
rights and other burdens on or deductions from the
proceeds of production, that do not secure Debt for
borrowed money and that are taken into account in
computing the net revenue interests and working
interests of the Borrower warranted in the Collateral
Documents.
	 






	 	(g)	 	Operating agreements, unitization and
pooling agreements and orders, farmout agreements, gas
balancing agreements and other agreements, in each case
that are customary in the oil, gas and mineral
production business in the general area of such
property and that are entered into in the ordinary
course of business in good faith. [For the avoidance
of doubt, it is acknowledged that this covenant is
separate and independent of the Event of Default under
Subsection 8.1(n).]
	 






	 	(h)	 	Judgment Liens arising in the ordinary
course of business (provided the litigation is actively
being contested in good faith and by appropriate
proceedings) and which do not constitute an Event of
Default under Subsection 8.1(j).
	 






 


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	 	(i)	 	Liens resulting from good faith
deposits to secure payments of workmen’s compensation
or other
social security programs (excluding Liens under
Section 4068 of ERISA) or to secure the performance
of bids, tenders, statutory obligations, surety and
appeal bonds, contracts (other than for payment of
debt) or operating leases, in each case made in the
ordinary course of business.
	 






	 	(j)	 	The PVOG Production Payment
(non-recourse to the Borrower except as provided in the
definition thereof).
	 






	 	(k)	 	Liens securing Qualified Subordinated
Debt, fully subordinated to the Liens securing the
Secured Liabilities under an Intercreditor Agreement
satisfactory to the Agent.
	 





The inclusion of this Section 6.2 shall not constitute in any way an acknowledgment by the Agent
and the Banks of the validity, legality, enforceability or binding effect on the Agent and the
Banks of such Liens, the sole purpose of this provision being to provide that the existence of any
such permitted Liens shall not in and of itself constitute an Event of Default under this
Agreement.



Section 6.3 Investments, Loans and Advances. The Borrower will not (directly or
indirectly through any Subsidiary), and will not allow or suffer any Subsidiary to, make or permit
to remain outstanding any loans or advances or extensions of credit to, or purchases or other
acquisitions of capital stock or ownership (direct or beneficial) interests or obligations of, or
other investments in, any Person (including without limitation any Subsidiary), except for:




	 	(a)	 	Investments in readily marketable
direct obligations of the United States of America or
any agency thereof.
	 






	 	(b)	 	Investments in either certificates of
deposit of maturities less than one year issued by the
Agent or any Bank, or, if no Bank is substantially
competitive (in terms of its certificate of deposit
interest rate for comparable amounts) with other banks
(having a credit rating equal or better than the
Banks), then certificates of deposit of maturities less
than one year issued by one or more of such other
banks.
	 




 


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	 	(c)	 	Investments in commercial paper of
maturities less than one year with the best rating by
Standard & Poors, Moody’s Investors Service, Inc., or
any other rating agency satisfactory to the Agent.
	 






	 	(d)	 	Routine advances to employees made in
the ordinary course of business, and that do not exceed
historical levels in a material manner.
	 






	 	(e)	 	Advances pursuant to operating
agreements, unitization and pooling agreements and
orders, farmout agreements and gas balancing
agreements, in each case that are customary in the oil,
gas and mineral production business and that are
entered into in the ordinary course of business.
	 






	 	(f)	 	Accounts receivable created or acquired
in the ordinary course of business and upon terms
common in the industry for such accounts.
	 






	 	(g)	 	The Borrower’s ownership of equity
interest in Endeavor, and in Diamond, provided
further that the Borrower shall not make further
investment (debt or equity) in Diamond after July 15,
2007, except to the extent of investment or a loan or
advance necessary to fund capital expenditures by
Diamond which are necessary and appropriate to maintain
the existing three (3) drilling rigs in service
(including the initial placement of the third drilling
rig in service). For the avoidance of doubt, the
Borrower acknowledges that the foregoing restriction
(and Section 5.21), without limitation,
requires the Agent’s and the Required Bank’s consent to
any investment, loan or advance to permit Diamond to
acquire an additional drilling rig.
	 






	 	(h)	 	Loans and advances made by the Borrower
to its Subsidiaries in the ordinary course of business
to be used in normal business operations of such
Subsidiary, provided that with respect to any loan to
Diamond, (i) such loans by the Borrower to Diamond
shall not violate the limit in paragraph (g)
of this Section, and (ii) such loan is otherwise in
compliance with Section 5.20.
	 




 


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For the avoidance of doubt, pursuant to the foregoing the Borrower shall not establish, acquire or
otherwise own any new Subsidiary after the Closing Date, without in each case the prior written
consent of the Agent and the Required Banks.



Section 6.4 Nature of Business. The Borrower will not permit any material change to
be made in the character of its business or the business of any Subsidiary as carried on at the
Closing Date (or as to a Subsidiary established or acquired after the Closing Date (in compliance
with Section 6.3) as carried on at such time of establishment or acquisition.



Section 6.5 Mergers and Consolidations. The Borrower will not, and will not allow or
suffer any Subsidiary to, acquire, merge with or consolidate with any Person or acquire by
purchase, lease or otherwise all or substantially all of the assets of any Person (whether or not
such acquisition, merger or consolidation requires any capital expenditures on the part of the
Borrower).



Section 6.6 ERISA Compliance. The Borrower will not at any time permit any Plan
maintained by it to engage in any “prohibited transaction” as such term is defined in Section 4975
of the Code; incur any “accumulated funding deficiency” as such term is defined in Section 302 of
ERISA; or terminate any such Plan in a manner which could result in the imposition of a Lien on the
property of the Borrower pursuant to Section 4068 of ERISA.



Section 6.7 Changes. Each Company will not without 30 days prior notice to the Agent
change the location of any of its Collateral, or change the location of its state of organization
or chief executive office or change its name.



Section 6.8 Sales. The Borrower will not, and will not allow or suffer any Subsidiary
to, sell, assign, transfer by bond for deed, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its property (whether now
owned or hereafter acquired) to any Person. The Borrower will not, and will not allow or suffer
any Subsidiary to, sell, assign, transfer by bond for deed, lease or otherwise dispose (including
by any sale-leaseback transaction) of any of its Collateral or any material portion of its other
property, business, or assets, including without limitation any producing mineral properties or
equity interests in a Subsidiary, except for sales of production (in compliance with the terms of
the Collateral Documents and this Agreement), collection of its accounts, sales of items of
equipment which are obsolete or otherwise no longer useful for such Person’s operations, and sales
of items of equipment to the extent the proceeds of such sale are promptly reinvested in the
acquisition of replacement equipment, in each case in the ordinary course of business. For
purposes of the preceding sentence, “material” means asset sales which exceed in the aggregate
$100,000.00 during any one fiscal year.


 


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Section 6.9 Agreements. Each Company will not enter into or be a party to any
contract or agreement for the purchase of materials, supplies or other property or services if such
contract or agreement shall require that such Company make payment for such materials, supplies or
other property irrespective of whether delivery thereof is made or whether such services are
rendered. Except in the ordinary course of business, each Company will not enter into any
arrangement with any gas pipeline company or any other purchaser of hydrocarbons regarding the
Collateral whereby the Company agrees that said gas pipeline company or purchaser may set off any
claim against the Company by withholding payment for any hydrocarbons actually delivered.



Section 6.10 Distributions or Redemption. (a) The Borrower will not (i) pay or
declare any dividend on any shares of any class of its stock (other than stock dividends), (ii)
make any other distribution or other shareholder expenditure on account of any shares of any class
of its stock, nor set aside any funds for such purpose, nor (iii) otherwise make or agree to pay
for or make (except as set forth in (b) below), directly or indirectly, any other distribution with
respect to any shares of any class of its stock, or any payment (whether in cash, securities or
other property), including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such shares or any option,
warrants or other right to acquire any such shares, except that if at the time thereof and
immediately after giving effect thereto no Default or Event of Default shall have occurred and be
continuing (or be created), and no Loan Excess shall then exist, the Borrower may declare, and
agree to declare and pay, dividends (interest expense) in cash to the holders of Qualified
Redeemable Preferred Equity, and the Borrower may make and pay such cash dividends so declared
within thirty (30) days of such declaration. For the avoidance of doubt, shares of Qualified
Redeemable Preferred Equity are Borrower’s stock for purposes of clauses (i), (ii) and (iii) above,
and the Borrower shall not elect (or agree to elect) any option to redeem any Qualified Redeemable
Preferred Equity without the prior written consent of the Required Banks.



(b) The Qualified Redeemable Preferred Equity issued by Borrower may include (as provided in
clause (ii) of the definition thereof) a provision providing for a mandatory redemption of such
stock following a change of ownership or control or management (as contemplated by Sections
6.13 or 6.12, respectively). Moreover, the Borrower may make a mandatory redemption payment on
the Qualified Redeemable Preferred Equity solely by reason of a change of ownership or control or
management (as contemplated by Sections 6.13 or 6.12, respectively), and such mandatory
redemption payment in itself is not an Event of Default (although nothing set forth in this
Agreement shall subordinate the Secured Parties’ rights to priority of payment). However, the
Borrower acknowledges that nothing set forth in this Section 6.10 (or in the definition of
Qualified Redeemable Preferred Equity or Subsection 8.1(o) below) modifies or restricts the
application of Section 6.12 and Section 6.13, and if a change in management or a
change in ownership or control, respectively, occurs within the meaning of those Sections then an
Event of Default occurs under Subsection 8.1(c) unless the Agent’s and the Required Banks’
prior written consent to the contrary is obtained (even though any mandatory redemption of
Qualified Redeemable Preferred Equity which also may arise due to
such change in management, ownership or control is not itself a breach of this Section 6.10
or an Event of Default).


 


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Section 6.11 Subordinated Financings. (a) The Borrower shall not make any cash or
other payment or transfer of property (i) on account of any Qualified Subordinated Debt except as
expressly permitted under the Intercreditor Agreement pertaining thereto and (ii) on account of any
Qualified Redeemable Preferred Equity except as expressly permitted under Section 6.10
hereof.



(b) The Borrower shall not enter into the initial closing and funding of any Qualified
Subordinated Debt or Qualified Redeemable Preferred Equity without the Agent’s prior written
approval as to the form and substance of the documentation pertaining thereto, based upon the
Agent’s receipt of a certificate of an officer of the Borrower attaching true, correct and complete
copies thereof (including without limitation a copy of the prospectus for any Qualified Redeemable
Preferred Equity). The Borrower shall not enter into or agree to any amendment, modification or
waiver of any term or condition of, or any of its rights under, the documents pertaining to any
issued Qualified Subordinated Debt or any issued Qualified Redeemable Preferred Equity, which
amendment, modification or waiver could, in the reasonable opinion of the Agent, materially and
adversely affect the interests of the Banks.



Section 6.12 Management. The Borrower will not permit or suffer a change in the key
management of the Borrower and its Affiliates to occur. For purposes of this Section, key
management shall mean the continued active full time employment of Ken Kenworthy, Jr. (as CEO and
President); provided, however, that the cessation of active employment of such officer due
to death or disability shall not be a Default hereunder so long as the Borrower hires or promotes a
replacement officer with experience and qualifications reasonably acceptable to the Agent and the
Required Banks within four (4) months of the former officer’s cessation of activity.



Section 6.13 Change of Ownership or Control. (a) No Person or group (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), other than existing management of
Borrower as of the Closing Date, shall become the beneficial owner of more than 50% of the total
voting power of the capital stock of the Borrower then outstanding.



(b) A majority of the members of the Board of Directors of the Borrower shall not cease to be
Continuing Directors. For purposes of this Section, the term “Continuing Directors” of a Person
means any member of such Person’s Board of Directors who: (x) was a member of such Person’s Board
of Directors on the Closing Date; or (y) was nominated for election or elected with the approval of
a majority of the Continuing Directors who were then members of such Person’s Board of Directors
(but excluding any such individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Continuing Directors).


 


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Section 6.14 Transactions with Affiliates. The Borrower will not sell, transfer,
lease or otherwise dispose of (including pursuant to any merger) any property or assets to, or
purchase, lease or otherwise acquire (including pursuant to a merger) any property or assets from,
or otherwise engage in any other transactions with, any Affiliates, except in the ordinary course
of business at prices and on terms and conditions not less favorable to the Borrower as could be
obtained on an arms-length basis from unrelated third persons in a comparable transaction.



Section 6.15 Subsidiaries. The Borrower will not allow or suffer any changes to be
made in the ownership structure of each Subsidiary, and shall not own and control directly or
indirectly less than one hundred (100%) percent of the ownership and voting rights in each
Subsidiary. The Borrower will not create, incur, assume or permit to exist any Lien on its equity
interest in any Subsidiary, other than in favor of the Agent.



Section 6.16 Restrictive Agreements. The Borrower will not directly or indirectly
enter into, incur or permit to exist, or permit any Subsidiary so to do, any agreement or other
arrangement that (i) prohibits, restricts or imposes any condition upon the ability of a Subsidiary
to create, incur or permit to exist any Lien upon any of its property or assets or (ii) prohibits,
restricts or imposes any condition upon the ability of any Subsidiary to pay dividends or other
distributions with respect to any shares of its equity securities or other ownership interest or to
repay to the Borrower any loans or advances, provided that (x) the foregoing shall not apply to
restrictions and conditions imposed by corporate law or by this Agreement, (y) clause (i) of this
Section shall not apply to customary provisions in leases restricting the transfer thereof and (z)
the foregoing shall not apply to prohibitions, restrictions and conditions imposed by the documents
pertaining to any issued Qualified Subordinated Debt (as such documents are approved in accordance
with Subsection 6.11(b) above).



Section 6.17 Convertible Debt. (a) The Borrower will not make any cash or other
payment (whether in securities or other property), including any sinking fund or similar deposit,
on account of the conversion, redemption, retirement, purchase, acquisition, cancellation or
termination of any of the Convertible Debt prior to February 1, 2013, whether optional or mandatory
by the Borrower, except that (1) the Borrower may issue common stock on conversion of any
Convertible Debt and (2) if at the time thereof and immediately after giving effect thereto no
Default or Event of Default shall have occurred and be continuing (or be created), and no Loan
Excess shall then exist, the Borrower may make any cash payment and may issue any other securities
required upon any conversion, redemption, retirement, purchase, acquisition, cancellation or
termination of the Convertible Debt consistent with the provisions set forth in the Preliminary
OM.



(b) The Borrower will not make any cash or other payment or transfer of property for interest
on account of any Convertible Debt if at the time thereof, or if immediately after giving effect
thereto, a Default or Event of Default shall have occurred and be continuing (or be created) or a
Loan Excess shall then exist.


 


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(c) The Borrower shall issue the Convertible Debt on terms that are consistent in all material
respects with the description of the Convertible Debt set forth in the Preliminary OM previously
provided to the Banks, subject to the limitations set forth in the definition of Convertible Debt.
The Borrower shall within two business days after the closing of such offering provide to Agent a
certificate of an officer of the Borrower attaching true, correct and complete copies of all final
documentation for such sale (including without limitation a copy of the final offering memorandum
and indenture for any Convertible Debt). The Borrower shall not enter into or agree to any
amendment, modification or waiver of any term or condition of, or any of its rights under, the
documents pertaining to any issued Convertible Debt, which amendment, modification or waiver could,
in the reasonable opinion of the Agent, materially and adversely affect the interests of the Banks.



ARTICLE 7




CONDITIONS OF LENDING




Section 7.1 Conditions of Lending. The obligation of the Banks to make the Loan (or
the Issuing Bank to issue a standby letter of credit) is subject to the accuracy of each and every
representation and warranty of the Borrower contained in this Agreement, the absence of a Default
or an Event of Default, and to the receipt of the following on or before the Closing Date by the
Agent (and the receipt by each Bank of a counterpart of this Agreement and its respective Note):




	 	(a)	 	Agreement. A duly executed
counterpart of this Agreement signed by all the parties
hereto.
	 






	 	(b)	 	Notes. The duly executed Notes
signed by the Borrower.
	 






	 	(c)	 	Good Standing. Certificates of
good standing of the Companies issued by the
Secretaries of State of Oklahoma, Texas, Louisiana and
New Mexico.
	 






	 	(d)	 	Corporate Certificates. A
certificate of the secretary of each Company (i)
setting forth resolutions of its board of directors in
form and substance satisfactory to the Agent and
Agent’s counsel with respect to the unanimous
authorization of this Agreement, the Notes and the
Collateral Documents to which it is a party, (ii)
attaching the articles of incorporation and bylaws of
such Company, and
(iii) setting forth the officers authorized to sign
such instruments.
	 




 


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	 	(e)	 	Fees. The fees required by
Subsections 2.5(a) and (d).
	 






	 	(f)	 	Updated Collateral Documents.
Duly executed second supplements to mortgages or deeds
of trust (adding additional mortgaged properties),
confirmations of security agreements and guaranty
agreements, and any other reasonably appropriate
Collateral Documents, all in form and substance and in
such number of counterparts as may be reasonably
required by the Agent. Title opinions pertaining
thereto will be delivered as provided in Section
7.3.
	 






	 	(g)	 	Stock Certificates. The
original stock certificates held by the Borrower for
its shares in Endeavor and Diamond, each duly endorsed
in blank and delivered to the Agent with executed stock
powers (previously delivered).
	 






	 	(h)	 	Lien Searches. UCC lien
searches satisfactory to the Agent from Oklahoma, Texas
and other pertinent states pertaining to the Companies.
	 






	 	(i)	 	Legal Opinion. Legal Opinion
from the Borrower’s counsel (Crowe & Dunlevy) in form,
scope and substance satisfactory to the Agent and
Agent’s counsel.
	 






	 	(j)	 	Legal Fees. Payment of the
reasonable legal fees and expenses incurred by the
Agent in accordance with Section 5.7.
	 






	 	(k)	 	Intercreditor Amendment. Duly
executed amendment to the Intercreditor Agreement,
whereby the Subordinated Holders consent to increase
the amount of principal and letter of credit
reimbursement obligations within the Senior
Indebtedness (as defined therein) to
$185,000,000.00, in form, scope and substance
satisfactory to the Agent and Agent’s counsel.
	 






 


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In the event that the Agent and the Required Banks in their sole and absolute discretion waive the
receipt of any items set forth above, the Borrower agrees that it nonetheless will promptly deliver
such item to the Agent and the Banks upon request within the time period reasonably specified by
the Agent. Until such conditions are satisfied, Section 11.3 shall apply.



Section 7.2 Certification. The obligation of the Banks to make the Loan is further
subject to the certification by the Borrower, which the Borrower hereby makes, that no Default or
Event of Default exists, and that no material adverse change (in the Agent’s and the Required
Banks’ sole determination) in the Collateral or other assets, liabilities, financial condition,
business operations, affairs or circumstances of the Companies or other facts, circumstances or
conditions (financial or otherwise) upon which Agent and the Banks has relied or utilized in making
its decision to make this Loan have occurred from those reflected in the most recent financial
statements furnished to the Agent prior to the Closing Date or otherwise existing at the time of
the issuance of Agent’s commitment letter.



Section 7.3 Post-Closing Items. (a) The Borrower will furnish the Agent no later
than ninety (90) days after the Closing Date, with title opinion and title opinion updates covering
the Borrower’s interest in material properties in the Borrowing Base (including without limitation
material additional properties covered by the second supplement to the Deed of Trust delivered on
the Closing Date) not previously covered by title opinions delivered to the Agent, in each case in
form, scope and substance satisfactory to the Agent and Agent’s counsel, and indicating that
Borrower has good and marketable title to the interests subject to no Liens other than the
Collateral Documents and those accepted by the Agent in writing.



(b) Certain properties included within the Borrowing Base from time to time at zero or low
value may not be covered by title opinions at the time of their inclusion in the Borrowing Base.
The Borrower acknowledges and agrees that the Agent has the right under the terms of this Agreement
to require title opinions on such Borrowing Base properties in the future at the time of a material
increase in the value attributed to such property in the Borrowing Base, and Borrower agrees
promptly to deliver such title opinions and acknowledges that in the absence thereof such
properties may be excluded by the Agent from the Borrowing Base (as provided in the definition of
Borrowing Base).



Section 7.4 Each Additional Advance. The obligation of the Banks to make additional
Advances on the line of credit or the Issuing Bank to issue standby letters of credit is subject to
the satisfaction of each of the following conditions:


 


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	 	(a)	 	Each of the representations and
warranties of the Companies contained in this Agreement
and the Collateral Documents shall be true and correct
on and as of the date of each subsequent Advance or
issuance, both before and after giving effect to the
proposed Advance or issuance and to the application
of the proceeds therefrom, as though made on and as
of such date, except as such representations and
warranties relate to matters that are changed as
permitted by this Agreement, or except to the extent
such representations and warranties by their terms
specifically refer and relate to an earlier date, in
which case such representations and warranties shall
have been true and correct on and as of such earlier
date.
	 






	 	(b)	 	At the time of such Advance, no Default
shall have occurred and be continuing.
	 






	 	(c)	 	There shall have occurred no material
adverse change (in the Agent’s and the Required Banks’
sole determination), either individually or in the
aggregate, in the assets, liabilities, financial
condition, business operations, affairs or
circumstances of the Borrower and the Subsidiaries
taken as a whole, except to the extent that such
changes are permitted by this Agreement.
	 






	 	(d)	 	If reasonably required by Agent, a
bringdown title search report by a landman or land
title service in the appropriate states, confirming the
absence of Lien filings against the Borrower since the
effective date of the preceding bringdown search.
	 





Section 7.5 Title Opinions. It is expressly acknowledged by the Borrower that the
waiver by the Borrower (on the basis of the Borrower’s business judgment) of any title requirements
contained in any title opinions delivered to the Agent from time to time in connection with this
Agreement, and funding by the Banks of Advances, shall not constitute a waiver by the Agent and the
Banks of any of the representations or warranties of the Borrower contained herein.




 


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ARTICLE 8




DEFAULT




Section 8.1 Events of Default. Any of the following events shall be considered an
“Event of Default” as that term is used herein:




	 	(a)	 	Principal and Interest
Payments. The Borrower fails to make payment (x)
when due of any interest installment on any Note, any
unused facility fee, any commitment fee, engineering
fee or any other Indebtedness (other than under clause
y or z below) incurred pursuant to this Agreement to
the Agent or any Bank, and such failure continues
unremedied for a period of three (3) Business Days
after the earlier of (i) notice thereof being given by
the Agent to the Borrower or (ii) such default
otherwise becoming known to the president or chief
financial officer of the Borrower, (y) when due of any
mandatory prepayment under Subsection 2.4(b)
or Subsection 2.4(c), or (z) when due of any
principal on any Note.







	 	(b)	 	Representations and Warranties.
Any representation or warranty made by or on behalf of
any Company contained in this Agreement, the Notes or
any of the Collateral Documents proves to have been
incorrect in any material respect as of the date
thereof; or any representation, statement (including
financial statements), certificate or data furnished or
made to the Agent and the Banks by any Person under
this Agreement, the Notes or any of the Collateral
Documents proves to have been untrue in any material
adverse respect as of the date as of which the facts
therein set forth were stated or certified. For
purposes of this paragraph, to the extent such
representation or warranty pertains to individual
properties, “material” shall mean two hundred thousand
($200,000.00) dollars or amount of property with an
equivalent value.







	 	(c)	 	Specific Covenants. The
Borrower fails to observe or perform at any time any
covenant or agreement
contained in Section 5.6, Section
5.8, Section 5.15, Section 5.16,
Section 5.17, or Article 6 of this
Agreement.





 


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	 	(d)	 	Covenants. The Borrower or
other Person (other than the Agent and the Banks)
defaults in the observance or performance of any of the
covenants or agreements contained in this Agreement,
the Notes or any of the Collateral Documents to be kept
or performed by the Borrower or such Person (other than
a default under Subsections (a) through (c) hereof),
and such default continues unremedied for a period of
30 days after the earlier of (i) notice thereof being
given by the Agent to the Borrower or such Person, as
applicable, or (ii) such default (and the fact that it
is a default) otherwise becoming known to the president
or chief financial officer of the Borrower or other
Person, as applicable.







	 	(e)	 	Other Debt to Agent or Bank.
The Borrower or any other Company defaults in the
payment of any amounts due to the Agent or any Bank not
covered under Subsection (a) above or in the observance
or performance of any of the covenants, or agreements
contained in any loan agreements, notes, leases,
collateral or other documents relating to any other
Debt of the Borrower to the Agent or any Bank
(including without limitation any Permitted Hedge
Obligations or other Hedge Agreements) other than the
Indebtedness, and any grace period applicable to such
default has elapsed.







	 	(f)	 	Other Debt to Other Lenders.
The Borrower defaults (x) under the PVOG Production
Payment, (y) under any Qualified Subordinated Debt, or
(z) in the payment of any amounts due to any Person
(other than the Agent and the Banks) or in the
observance or performance of any of the covenants or
agreements contained in any credit agreements, notes,
leases, collateral or other documents relating to any
Debt of the Borrower to any Person (other than the
Agent or any Bank) which is not Indebtedness (including
without limitation any





 


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Hedging Obligations, and the Convertible Debt) in
excess of $50,000.00, and in each case of clause
(x), (y) or (z) any grace period applicable to such
default has elapsed or if the effect of such default
is to cause, or permit the holder of such obligation
to be able to cause (whether or not so done), such
obligation to become due prior to its stated
maturity.




	 	(g)	 	Involuntary Bankruptcy or
Receivership Proceedings. A receiver, conservator,
liquidator or trustee of any Company, or of any of its
respective Collateral, is appointed by order or decree
of any court or agency or supervisory authority having
jurisdiction; or an order for relief is entered against
any Company under the Federal Bankruptcy Code; or any
Company is adjudicated bankrupt or insolvent; or any
material portion of the property of is sequestered by
court order and such order remains in effect for more
than 30 days after such party obtains knowledge
thereof; or a petition is filed against any Company
under any reorganization, arrangement, insolvency,
readjustment of debt, dissolution, liquidation or
receivership law of any jurisdiction, whether now or
hereafter in effect, and such petition is not dismissed
within 60 days.







	 	(h)	 	Voluntary Petitions. Any
Company files a case under the Federal Bankruptcy Code
or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect,
or consents to the filing of any case or petition
against it under any such law.







	 	(i)	 	Assignments for Benefit of
Creditors. Any Company makes an assignment for the
benefit of its creditors, or admits in writing its
inability to pay its debts generally as they become
due, or consents to the appointment of a receiver,
trustee or liquidator of any Company or of all or any
part of its property.





 


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	 	(j)	 	Undischarged Judgments.
Judgment for the payment of money in excess of
$50,000.00 (which is not covered by insurance) is
rendered by any court or other governmental body
against any Company, and such Company does not
discharge the same or provide for its discharge in
accordance with its terms, or procure a stay of
execution thereof within 30 days from the date of entry
thereof, and within said 30-day period or such longer
period during which execution of such judgment shall
have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal while
providing such reserves therefor as may be required
under generally accepted accounting principles.







	 	(k)	 	Attachment. A writ or warrant
of attachment or any similar process shall be issued by
any court against all or any material portion of the
property of any Company, and such writ or warrant of
attachment or any similar process is not released or
bonded within 30 days after its entry.







	 	(l)	 	Condemnation. The Collateral,
or any substantial portion thereof, is condemned or
expropriated under power of eminent domain by any
legally constituted governmental authority.







	 	(m)	 	Invalidity. Any Company shall
assert in writing that any material provision of this
Agreement, any Note or any of the Collateral Documents
shall for any reason be or cease to be valid and
binding on such Company after the Closing Date.







	 	(n)	 	Debt to Operator. On the last
day of any calendar month the Borrower has owed any
Operator (not counting the PVOG Production Payment) the
cumulative amount of $200,000.00 or greater for more
than forty-five consecutive days without the Agent’s
and the Required Banks’ written consent; provided,
however, such Debt shall not be an Event of Default and
such Company shall not be required to pay any such
account if the amount or validity





 


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thereof shall currently be contested in good faith
by appropriate proceedings diligently conducted and
if such Company shall have set up reserves therefore
adequate under generally accepted accounting
principles (provided that such reserves may be set
up under generally accepted accounting principles)
and so long as such contest proceedings conclusively
operate to stay and prevent the set off or
withholding of monies by such Operator and the sale
or seizure of any property subject to any Lien held
by such Operator to satisfy such account.




	 	(o)	 	Qualified Redeemable Preferred
Equity. (i) The Borrower defaults in the payment
of any amounts due under or in the observance or
performance of any of the covenants or agreements
contained in any documents pertaining to any Qualified
Redeemable Preferred Equity, and any grace period
applicable to such default has elapsed; or (ii) any
 shares of Qualified Redeemable Preferred Equity shall
for any reason become subject to mandatory redemption
by the Borrower before the fifth anniversary of the
date on which such shares are issued or if any event or
condition occurs that enables or permits (with or
without the giving of notice, the lapse of time or
both) the holder of any shares of any Qualified
Redeemable Preferred Equity to cause any of such shares
to be redeemable or to require the redemption thereof
by the Borrower (in each case after giving effect to
any applicable cure period), except as to all of this
clause (ii) for a mandatory redemption following a
change of ownership or control or management (as
contemplated by Sections 6.13 or 6.12,
respectively); or (iii) any judgment for redemption of
any shares of Qualified Redeemable Preferred Equity is
rendered by any court or other governmental body except
to enforce a mandatory redemption following a change of
ownership or control or management (as contemplated by
Sections 6.13 or 6.12, respectively). For the
avoidance of doubt, nothing in this Subsection modifies
or restricts the application of Section 6.10, 
Section 6.11, Section 6.12 or Section
6.13, nor does this Subsection modify or limit
Subsection 8.1(c) above.





 


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	 	(p)	 	Fundamental Change. A
“fundamental change” as defined in the Preliminary OM
occurs.






Section 8.2 Remedies. (a) Upon the happening of any Event of Default specified in the
preceding Section (other than Subsections (g) or (h) thereof), (i) all obligations, if any, of the
Banks to make Advances to the Borrower or issue letters of credit at the request of the Borrower
shall immediately cease and terminate, and (ii) the Agent shall at the direction, or may with the
consent, of the Required Banks by written notice to the Borrower declare the entire principal
amount of all Indebtedness then outstanding including interest accrued thereon to be immediately
due and payable without presentment, demand, protest, notice of protest or dishonor or other notice
of default of any kind, all of which are hereby expressly waived by the Borrower.



(b) Upon the happening of any Event of Default specified in Subsections (g) or (h) of the
preceding Section, (i) all obligations, if any, of the Banks to make Advances to the Borrower or
issue letters of credit at the request of the Borrower shall immediately cease and terminate, and
(ii) the entire principal amount of all obligations then outstanding including interest accrued
thereon shall, without notice or action by the Agent and the Banks, be immediately due and payable
without presentment, demand, protest, notice of protest or dishonor or other notice of default of
any kind, all of which are hereby expressly waived by the Borrower.



(c) In addition to the foregoing, the Agent may exercise any of the rights and remedies
established in the Collateral Documents or avail itself of any other rights and remedies provided
by applicable law, including without limitation completing and sending the letters described in
Subsection 3.1(a)(xi). In the event the Agent sends such letters, the Agent agrees that it
shall request such purchasers of production to remit any proceeds net of lease operating expenses
and production taxes. However, the Agent may accept any gross payments made despite such requests
without liability thereunder.



(d) In furtherance of the foregoing, to the extent that any standby letters of credit are
outstanding upon the occurrence of any Event of Default, the Agent may by written notice to the
Borrower require the Borrower to pay to the Agent immediately on such demand the full undisbursed
amount of such letters of credit to be held by the Agent as collateral for the payment of such
letters of credit. Such amount shall bear interest from demand until paid at the Default Rate
notwithstanding any interest rate provision to the contrary in any letter of credit application or
agreement between the Borrower and the Issuing Bank, even if executed after this Agreement.



Section 8.3 Set-Off. Upon the occurrence of any Event of Default, the Agent and the
Banks shall have the right to set-off any funds of the Borrower or any Company in the



 


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possession of the Agent or such Bank (including without limitation funds in the accounts
provided for in Article 5) against any amounts then due by the Borrower to the Agent or
such Bank pursuant to the Agreement (but the Borrower acknowledges that the Agent may apply funds
in such accounts against any interest, fee or mandatory principal prepayment amounts then due and
payable by the Borrower even without the occurrence of an Event of Default). The Borrower agrees
that any holder of a participation in any Note may exercise any and all rights of counter-claim,
set-off, banker’s lien and other liens with respect to any and all monies owing by Borrower to such
holder as fully as if such holder of a participation were a holder of a note in the amount of such
participation.



Section 8.4 Marshaling. The Companies shall not in any time hereafter assert any
right under any law pertaining to marshaling (whether of assets or liens) and the Borrower
expressly agrees that the Agent may execute or foreclose upon the Collateral Documents in such
order and manner as the Agent, in its sole discretion, deems appropriate.



ARTICLE 9




THE AGENT




Section 9.1 Appointment and Authorization. (a) Each Bank irrevocably appoints and
authorizes the Agent to receive all payments of principal, interest, fees and other amounts payable
by the Borrower under this Agreement and to remit same that is payable to the Banks promptly to the
Banks, to disburse the Advances from the Banks, and to take such action and to exercise such powers
under this Agreement, the Notes, and the Collateral Documents as are delegated to the Agent by the
Banks from time to time. The Agent shall promptly distribute to the Banks upon receipt all
payments and prepayments of principal, interest, fees (except for those fees which by their express
terms are payable on another basis) and other amounts paid by the Borrower under this Agreement
that are payable to the Banks, in proportion to the Banks’ Commitments. Similarly, the Banks shall
be obligated to fund Advances in proportion to their Commitments. If the Agent receives a payment
in immediately available funds by 11:00 a.m. (Central Time), the Agent will make available to each
Bank on the same date, by wire transfer of immediately available funds, such Bank’s ratable share
of such payment, and if such payment is received after 11:00 a.m. (Central Time) or in other than
immediately available funds, the Agent will make available to each Bank its ratable share of such
payment by wire transfer of immediately available funds on the next succeeding Business Day (or in
the case of uncollected funds, as soon as practicable after collected). If the Agent shall not
have made a required distribution to the Banks as required by the preceding sentence after
receiving a payment for the account of such Banks, the Agent shall pay to each such Bank, on
demand, its ratable share of such payment with interest thereon at the Federal Funds Rate (as
defined in the next sentence) for each day from the date such amount was required to be disbursed
by the Agent until the date repaid to such Bank. The Federal Funds Rate shall mean, for any day,
an interest rate per annum (expressed as a decimal, rounded upwards, if necessary, to the next
higher 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds
transactions with members of the


 


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Federal Reserve System arranged by federal funds brokers on such day, as published for such
day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Central Time) on such day
on such transactions received by the Agent from three federal funds brokers of recognized standing
selected by the Agent.



(b) The Agent or the Issuing Bank may resign at any time by written notice to the Banks and
the Borrower. The Agent or the Issuing Bank may be removed at any time with or without cause by
the Required Banks. The successor Agent or successor Issuing Bank shall be selected by the
Required Banks from among the remaining Banks. If no successor Agent or successor Issuing Bank has
been so appointed by the Required Banks (and approved by the Borrower as provided below) and has
accepted such appointment within thirty (30) days after such notice of resignation or removal, then
the retiring Agent or retiring Issuing Bank may, on behalf of the Banks and the Borrower, appoint a
successor Agent or successor Issuing Bank from among the remaining Banks. Any successor Agent or
successor Issuing Bank must be approved by the Borrower, which approval will not be unreasonably
withheld, delayed or conditioned. Upon the acceptance of any appointment as Agent or Issuing Bank
by a successor Agent or successor Issuing Bank, such successor Agent or successor Issuing Bank
shall thereupon succeed to and become vested with all the rights, powers, privileges, and duties of
the retiring Agent or retiring Issuing Bank, and the retiring Agent or retiring Issuing Bank shall
be discharged from its duties and obligations under this Agreement and the Collateral Documents,
except that the retiring Issuing Bank shall remain the Issuing Bank with respect to any letters of
credit outstanding hereunder on the effective date of its resignation or removal and the provisions
affecting the Issuing Bank with respect to such letters of credit shall inure to the benefit of the
retiring Issuing Bank until the termination of all such letters of credit. After any retiring
Agent’s or retiring Issuing Bank’s resignation or removal hereunder as Agent or Issuing Bank, the
provisions of this Article 9 shall inure to its benefit as to any actions taken or omitted to be
taken while it was acting as Agent or Issuing Bank.



(c) Each Bank irrevocably appoints and authorizes the Agent to hold this Agreement and the
Collateral Documents (but not the Notes, which will be held by the respective Banks), and to take
such action and exercise such powers under this Agreement, the Notes and the Collateral Documents
as are delegated to the Agent by the Banks from time to time. Any requests by the Borrower for
consent by the Banks or waiver or amendment of provisions of this Agreement shall be delivered by
the Borrower to the Agent, but favorable action on such requests shall require the approval of the
Required Banks or all of the Banks, as the case may be.



Section 9.2 Agent’s Reliance. Neither the Agent nor any of its directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken by it under or in
connection with this Agreement, the Notes or the Collateral Documents, except for its or their own
gross negligence or willful misconduct. Without limiting the generality of the foregoing, the
Agent: (i) may treat the payee of any of the Notes as the holder thereof until the



 


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Agent receives written notice of the assignment or transfer thereof, signed by such payee and
in form satisfactory to the Agent; (ii) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it and shall not be liable
for any action taken or omitted to be taken by it in good faith in accordance with the advice of
such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and
shall not be responsible to any Bank for any statements, warranties or representations made in or
in connection with this Agreement, the Notes and the Collateral Documents; (iv) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement, the Notes or the Collateral Documents (except receipt of items
expressly required to be delivered to the Agent hereunder), or to inspect any property (including
the books and records) of the Borrower; (v) shall not be responsible to any Bank for the due
execution, legality, validity, enforce ability, genuineness, sufficiency or value of this
Agreement, the Notes or the Collateral Documents; and (vi) shall incur no liability under or in
respect to this Agreement, the Notes or the Collateral Documents by acting upon any notice,
consent, certificate or other instrument or writing (which may be by facsimile, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper party or parties. The Agent
shall not have a fiduciary relationship in respect of any Bank by reason of this Agreement. The
Agent shall not have any implied duties to the Banks, or any obligation to the Banks to take any
action under this Agreement, the Notes, the Collateral Documents or the Intercreditor Agreement
except any actions specifically provided by such documents to be taken by it.



Section 9.3 Acts by Agent after Default, etc. In the event that the Agent shall have
been notified in writing by any of the Borrower or the Banks of any Event of Default (or in the
event that the officer of the Agent responsible for the Borrower’ account obtains actual knowledge
of an Event of Default), the Agent (i) shall immediately notify the Banks; (ii) shall take such
action and assert such rights under this Agreement as it is expressly required to do pursuant to
the terms of this Agreement with the consent of or direction by the Required Banks; (iii) may take
such other actions and assert such other rights as it deems advisable, in its discretion, for the
protection of the interests of the Banks pursuant to applicable laws with the consent of the
Required Banks; and (iv) shall inform all the Banks of the taking of action or assertion of rights
pursuant to this Section. Each Bank agrees with the Agent and the other Banks that the decisions
and determinations of the Required Banks in enforcing this Agreement, the Notes and the Collateral
Documents and guiding the Agent in those matters shall be binding upon all the Banks, including
without limitation authorizing the Agent at the pro rata expense of all the Banks (to the extent
not reimbursed by the Borrower) to retain attorneys to seek judgment on this Agreement, the Notes
and the Collateral Documents. Each Bank agrees with the other Banks that it will not, without the
consent of all the other Banks, separately seek to institute any legal action with respect to the
Loan. The Agent shall in all cases be fully protected in acting, or in refraining from acting,
hereunder and under any Collateral Document or the Intercreditor Agreement in accordance with
written instructions signed by the Required Banks (or, where required, all the Banks), and such
instructions and any action taken or failure to act pursuant thereto shall be binding on all of the
Banks and on all of the holders of Notes, provided, however, that the Agent shall not be required
to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or the Intercreditor Agreement or
applicable law.


 


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Section 9.4 Bank Credit Decision. Each Bank acknowledges that it has, independently
and without reliance upon the Agent or any other Bank and based on the financial statements
referred to herein and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it
will, independently and without reliance upon the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement, the Notes and the Collateral
Documents. No representation or warranty, express or implied, is made by the Agent as to the
accuracy or completeness of information provided by the Borrower to the Banks, and the Agent
assumes no responsibility for its accuracy or completeness.



Anything herein to the contrary notwithstanding, none of the bookrunner, arranger, syndication
agent or documentation agent listed on the cover page and page one hereof shall have any powers,
duties or responsibilities under this Agreement (or the Notes and the Collateral Documents),
except in its capacity, as applicable, as the Administrative Agent, the Issuing Bank or a Bank
hereunder. None of the bookrunner, arranger, syndication agent or documentation agent shall have
or be deemed to have any fiduciary relationship with any Bank. Each Bank acknowledges that it has
not relied, and will not rely, on the bookrunner, arranger, syndication agent, or documentation
agent in deciding to enter into this Agreement or in taking or not taking any action hereunder.



Section 9.5 Agent. The Agent shall have the same rights and powers under this
Agreement, the Notes and the Collateral Documents as any other Bank and may exercise the same as
though it were not the Agent; and the term “Bank” or “Banks” shall, unless otherwise expressly
indicated, include Agent in its individual capacity. The Agent may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any kind of business with
Borrower and its Subsidiaries as if the Agent were not the Agent and without any duty to account
therefor to the Banks. The Banks acknowledge that Section 3.4 shall govern the
relationship among the Secured Parties with respect to the Secured Liabilities. The Banks
acknowledge that the Intercreditor Agreement shall govern the relationship between the Agent and
the Banks and the Subordinated Holders with respect to loans made by the Subordinated Holders to
the Borrower.



Section 9.6 Assignments and Participations. (a) No Bank may assign to any other
Person any portion of its interests, rights and obligations under this Agreement (including,
without limitation, any portion of its Commitment or the Loan at the time owing to it and Note held
by it) unless each of the following conditions is or has been satisfied: (i) the Agent has given
its prior written consent (which consent will not be unreasonably withheld), (ii) the Borrower has
given its prior written consent (which consent will not be unreasonably withheld, and shall not be
required upon the occurrence and during the continuance of an Event of



 


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Default), (iii) each such assignment is of a constant, and not a varying, percentage of all
the assigning Bank’s rights and obligations under this Agreement, (iv) the assignment is for a
Commitment of $5,000,000.00 or more, (v) the parties to such assignment have executed and delivered
to the Agent an Assignment and Acceptance, substantially in the form of Exhibit B hereto
(the “Assignment and Acceptance”), together with any Note subject to such assignment, one
or more signature pages to this Agreement containing the signature of the assignee, one or more
signature pages to the Intercreditor Agreement (if in effect) containing the signature of the
assignee, and (following the Effective Date, as defined in the applicable Assignment and
Acceptance) payment by the assignee to the Agent for its own account of an assignment
administration fee in the amount of $3,500.00, (vi) either the assignor or assignee shall have paid
the Agent’s reasonable costs and expenses (including without limitation attorneys’ fees and
expenses) in connection with the assignment, (vii) the Agent shall have delivered to the Borrower a
fully executed copy of such Assignment and Acceptance, and (viii) the assignee is (A) a state or
national commercial bank located in the United States or (B) a bank organized under a jurisdiction
other than the United States, provided that such foreign bank has provided the Agent and the
Borrower with accurate and complete signed original forms prescribed by the Internal Revenue
Service certifying as to such Bank’s status for purposes of determining exemption from United
States withholding taxes with respect to all payments to be made to such Bank hereunder, and
provided further that such foreign bank shall not transfer its interests, rights and obligations
under this Agreement to any Affiliate of such foreign bank unless such Affiliate provides the Agent
and the Borrower with the aforesaid tax forms. Upon satisfaction of each of the foregoing
conditions and upon acceptance and notation by the Agent, from and after the Effective Date
specified in each Assignment and Acceptance, which Effective Date shall be at least five (5)
Business Days after the execution thereof, (x) the assignee thereunder shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and obligations of a
Bank, and (y) the assigning Bank shall, to the extent provided in such assignment, be released from
its obligations under this Agreement. Notwithstanding the foregoing, the restrictions contained
above in this Subsection 9.6(a) shall not apply to assignments to any Federal Reserve Bank, and the
conditions set forth in clauses (i) and (ii) above shall not apply to assignments by any Bank to
any Person which controls, is controlled by, or is under common control with, or is otherwise
substantially affiliated with that Bank.



(b) Upon its receipt of an Assignment and Acceptance executed by the parties to such
assignment together with any Note subject to such assignment and the written consent of the Agent
and the Borrower to such assignment, the Agent shall give prompt notice thereof to the Borrower and
the Banks. Within five (5) Business Days after receipt of such notice, the Borrower at its own
expense, shall execute and deliver to the Agent, in exchange for the surrendered Note, a new Note
to the order of such assignee(s) in an amount equal to the amount assumed by such assignee(s)
pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of
its obligations hereunder, a new Note to the order of the assigning Bank in an amount equal to the
amount retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of the surrendered Note, shall be dated the effective date
of such Assignment and Acceptance and shall otherwise be in the form of the assigned Note. The surrendered Note shall be canceled and
returned to the Borrower. The Agent shall have the right to substitute a revised Schedule 1 hereto
to reflect the respective Commitments following each such assignment.


 


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(c) Each Bank, without the consent of the Agent or the other Banks but with the prior written
consent of the Borrower (which consent will not be unreasonably withheld, and shall not be required
during the existence and continuance of an Event of Default), may sell participations to one or
more banks or other financial institutions (and such bank or banks or financial institution or
financial institutions shall be bound by the terms of this Agreement, including without limitation
this Section 9.6) in all or a portion of the Loan (including its Commitment) under this Agreement;
provided, that the selling Bank shall retain the sole right and responsibility to enforce the
obligations of the Borrower relating to the Loan and that the only rights granted to the
participant pursuant to such participation arrangements with respect to waivers, amendments or
modifications of this Agreement shall be the right to approve waivers, amendments, or modifications
which require the consent of all of the Banks as provided in Section 10.4 hereof. Notwithstanding
the foregoing, the Borrower’s consent shall not be required for any participation granted to any
Federal Reserve Bank.



Section 9.7 Indemnification of the Agent and Issuing Bank. The Banks ratably
(computed by reference to each Bank’s respective Commitment) shall indemnify the Agent, its
respective Affiliates, the Issuing Bank, its respective Affiliates, and the respective
shareholders, directors, officers, employees, agents and counsel of the foregoing (each an “Agent
Indemnitee”) and hold each Agent Indemnitee harmless from and against any and all claims (whether
groundless or otherwise), liabilities, losses, damages, costs and expenses of any kind (including,
without limitation, (i) the reasonable fees and disbursements of counsel and (ii) any expenses for
which the Agent has not been reimbursed by the Borrower as required by this Agreement) which may be
incurred by such Agent Indemnitee arising out of or related to this Agreement or the transactions
contemplated hereby, or the Agent’s actions taken hereunder (including the Agent Indemnitee’s own
negligence); provided, that no Agent Indemnitee shall have the right to be indemnified hereunder
for such Agent Indemnitee’s own gross negligence or willful misconduct, as determined by a court of
competent jurisdiction, or to the extent that such claim relates to the breach by such Agent
Indemnitee of its obligations under this Agreement. The foregoing shall survive the termination of
this Agreement.



ARTICLE 10




MISCELLANEOUS




Section 10.1 Notices. Any notice or demand which by provision of this Agreement or
any Collateral Document referencing this provision, is required or permitted to be given by one
party to the other party hereunder shall be given by (i) deposit, postage prepaid, in the mail,
registered or certified mail, or (ii) delivery to a recognized express courier service, or


 


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(iii) delivery by hand, or (iv) by facsimile, in each case addressed (until another address or
addresses is given in writing by such party to the other party) as follows:



	 	 	 
	If to Borrower:

	 	GMX Resources Inc.
	 

	 	9400 North Broadway, Suite 600
	 

	 	Oklahoma City, Oklahoma 73114
	 
	 	 
	 

	 	Attention: Chief Financial Officer
	 
	 	 
	 

	 	Facsimile Number: (405) 600-0600
	 
	 	 
	If to Agent:

	 	Capital One, National Association
	 

	 	5718 Westheimer, Suite 600
	 

	 	Houston, Texas 77057
	 
	 	 
	 

	 	Attention: Eric Broussard
	 
	 	 
	 

	 	Facsimile Number: (713) 435-5106
	 
	 	 
	If to Bank:

	 	At the addresses set forth
on Schedule 1 hereto.






All notices sent by facsimile transmission shall be deemed received by the addressee upon the
transmitter’s receipt of acknowledgment of receipt from the offices of such addressee (if before
5:00 p.m. on a Business Day; if later, then on the next Business Day).



Section 10.2 Entire Agreement. This Agreement, the Notes and the Collateral Documents
together with the letter agreement referred to in Subsection 2.5(d) set forth the entire
agreement between the Borrower and the Agent and the Banks with respect to the Indebtedness, and
supersede all prior written or oral understandings with respect thereto; provided, however, that
all written representations, warranties and certifications made by the Borrower to the Agent and
the Banks with respect to the Indebtedness and the security therefor shall survive the execution of
this Agreement. The Borrower is not relying on any representation by the Agent or any Bank, and no
representation has been made, that the Agent or any Bank will, at the time of a Default or at any
other time, waive, negotiate, discuss, or take or refrain from taking any action with respect to
such Default.



Section 10.3 Renewal, Extension or Rearrangement. All provisions of this Agreement
relating to the Notes shall apply with equal force and effect to each and all promissory notes or
security instruments hereinafter executed which in whole or in part represent a renewal, extension
for any period, increase or rearrangement of any part of the Notes.


 


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Section 10.4 Amendment. No amendment or waiver of any provision of this Agreement or
consent to any departure therefrom by the Borrower or the Banks shall be effective unless the same
shall be in writing and signed by the Borrower, the Agent and the Required Banks; provided, that
without the written consent of all of the Banks, no amendment or waiver to this Agreement, any Note
or any Collateral Document shall (i) change the scheduled payment dates or maturity of the Loan, or
(ii) change the principal of or decrease the rate or change the time of payment of interest or
fees or decrease any premium payable with respect to any Note, or change the currency in which the
Loan is to be paid, or (iii) increase the Commitments, or permit the Borrower to assign its rights
hereunder, or add additional borrowers hereunder, or (iv) release the Borrower, or affect the time,
amount or allocation of any required prepayments, or (v) effect the release of any Collateral
(other than as expressly permitted in the Collateral Documents or this Agreement) or subordinate
the rights of the Agent and the Banks with respect to Collateral, or (vi) reduce the proportion of
the Banks required to agree on each determination of the Borrowing Base, or on which portion of the
Collateral is Shared Collateral under Section 3.4 or (vii) reduce the proportion of the
Banks or the Required Banks (as applicable) required with respect to any consent, waiver,
determination or change made hereunder, (viii) change the definition of Required Banks or amend
this Section 10.4, or (ix) change any provisions hereof in a manner that would alter the
pro rata sharing of payments required by Section 2.9 and Section 2.10. No
amendment of any provision of this Agreement relating to the Agent shall be effective without the
written consent of the Agent, and no amendment of any provision of this Agreement relating to the
Issuing Bank issuing letters of credit shall be effective without the written consent of such
Issuing Bank. However, the Agent may waive or reduce payment of its own fee required under
Section 2.5(d) or clause (v) of Subsection 9.6(a) without obtaining the consent of
any of the Banks. The Borrower, the Agent and the Banks agree that no Bank will receive
compensation from the Borrower in order to obtain such Bank’s consent to an amendment or waiver in
a greater proportion than that received by any other Bank for the same matter (but this provision
does not restrict fees to the agents for their services in connection with this Agreement).



Section 10.5 Invalidity. In the event that any one or more of the provisions
contained in this Agreement, the Notes, or the Collateral Documents shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, the Notes or the Collateral Documents.



Section 10.6 Survival of Agreements. All representations and warranties of the
Borrower herein, and all covenants and agreements herein not fully performed before the effective
date of this Agreement, shall survive such date.



Section 10.7 Waivers. No course of dealing on the part of the Agent, any Bank, its
respective officers, employees, consultants or agents, nor any failure or delay by the Agent or any
Bank with respect to exercising any of its rights, powers or privileges under this Agreement, the
Notes or the Collateral Documents, shall operate as a waiver thereof.


 


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Section 10.8 Cumulative Rights. The rights and remedies of the Agent and the Banks
under this Agreement, the Notes and the Collateral Documents shall be cumulative, and the exercise
or partial exercise of any such right or remedy shall not preclude the exercise of any other right
or remedy.



Section 10.9 Time of the Essence. Time shall be deemed of the essence with respect to
the performance of all of the terms, provisions and conditions on the part of the Borrower, and the
Agent and the Banks to be performed hereunder.



Section 10.10 Successors and Assigns; Participants. All covenants and agreements made
by or on behalf of the Borrower in this Agreement, the Notes and the Collateral Documents shall
bind its successors and assigns and shall inure to the benefit of the Agent and the Banks and their
respective successors and assigns. The Borrower may not assign its rights or obligations under
this Agreement.



Section 10.11 Relationship Between the Parties. The relationship between the Agent
and the Banks, on the one hand, and the Borrower on the other, shall be solely that of lender and
borrower, and such relationship shall not, under any circumstances whatsoever, be construed to be a
joint venture, joint adventure, or partnership. Neither the Agent nor any Bank has a fiduciary
obligation to the Borrower with respect to this Agreement or the transactions contemplated hereby.



Section 10.12 Limitation of Liability. This Agreement, the Notes and the Collateral
Documents are executed by officers of the Agent and the Banks, and by acceptance of the Loan, the
Borrower agrees that for the payment of any claim or the performance of any obligations hereunder
resulting from any default by the Agent or any of the Banks, resort shall be had solely to the
assets and property of the Agent or such Bank, and no shareholder, officer, employee or agent of
the defaulting Agent or Bank shall be personally liable therefor.



Section 10.13 Titles of Articles, Sections and Subsections. All titles or headings to
articles, sections, subsections or other divisions of this Agreement or the exhibits hereto are
only for the convenience of the parties and shall not be construed to have any effect or meaning
with respect to the other content of such articles, sections, subsections or other divisions, such
other content being controlling as to the agreement between the parties hereto.



Section 10.14 Singular and Plural. Words used herein in the singular, where the
context so permits, shall be deemed to include the plural and vice versa. The definitions of words
in the singular herein shall apply to such words when used in the plural where the context so
permits and vice versa.



Section 10.15 GOVERNING LAW. THIS AGREEMENT IS, AND THE NOTES WILL BE, CONTRACTS MADE
UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE UNITED STATES OF
AMERICA (INCLUDING FEDERAL LAW THAT PERMITS A BANK TO CHARGE



 


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INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH BANK IS LOCATED) AND THE
STATE OF TEXAS. Without limiting the intent of the parties set forth above, (a) Chapter 346 of the
Texas Finance Code, as amended (relating to revolving loans and revolving tri-party accounts
(formerly Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)), shall not apply to this Agreement, the
Notes, or the transactions contemplated hereby and (b) to the extent that a Bank may be subject to
Texas law limiting the amount of interest payable for its account, such Bank shall utilize the
indicated (weekly) rate ceiling from time to time in effect, provided that such Bank may
also rely, to the extent permitted by applicable laws including without limitation the laws of the
United States, on alternative maximum rates of interest under other laws applicable to such Bank
for calculation of the Maximum Rate if the application thereof results in a greater Maximum Rate.



Section 10.16 Counterparts. This Agreement may be executed in two or more
counterparts, and it shall not be necessary that the signatures of all parties hereto be contained
on any one counterpart hereof; each counterpart shall be deemed an original, but all of which
together shall constitute one and the same instrument.



Section 10.17 WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. (a) THE BORROWER,
THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH
THE BORROWER, THE AGENT AND THE BANKS MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO
(i) THE NOTES, (ii) THIS AGREEMENT, (iii) THE COLLATERAL DOCUMENTS OR (iv) THE COLLATERAL. IT IS
AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST
ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO
THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER, THE
AGENT AND THE BANKS, AND THE BORROWER, THE AGENT AND THE BANKS HEREBY REPRESENT THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL
BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER, THE AGENT AND THE BANKS EACH
FURTHER REPRESENT THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING
OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.



(b) THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
COURTS OF TEXAS AND THE FEDERAL SOUTHERN DISTRICT COURT (HOUSTON DIVISION) IN TEXAS, AND AGREES
THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR BROUGHT TO ENFORCE THE PROVISIONS OF THE NOTES,
THIS AGREEMENT AND/OR THE COLLATERAL DOCUMENTS MAY BE BROUGHT IN ANY COURT HAVING SUBJECT MATTER
JURISDICTION. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY



 


-83-









 






OBJECTIONS THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT OR THAT ANY SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND
AGREES NOT TO PLEAD OR CLAIM THE SAME. THE BORROWER AGREES THAT NOTHING HEREIN SHALL LIMIT THE
AGENT’S AND THE BANKS’ RIGHT TO SUE IN ANY OTHER JURISDICTION.



(c) THE BORROWER HEREBY AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL) POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION 10.1 OR AT SUCH
OTHER ADDRESS AS TO WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. THE BORROWER AGREES
THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.



Section 10.18 AGREEMENT SUPERCEDES ALL PRIOR AGREEMENTS. THIS AGREEMENT, TOGETHER
WITH THE NOTES, THE COLLATERAL DOCUMENTS, AND ANY OTHER WRITTEN INSTRUMENTS EXECUTED PURSUANT TO
THIS AGREEMENT REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT
TO THE SUBJECT HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE
PARTIES HEREOF, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF.




THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



Section 10.19 Imaging. The Borrower understands and agrees that the Agent’s or a
Bank’s document retention policy may involve the imaging of executed loan documents and the
destruction of the paper originals, and the Borrower waives any right that it may have to claim
that the imaged copies of this Agreement and the Collateral Documents are not originals in any
court proceedings pertaining thereto.



Section 10.20 Patriot Act. The Agent and the Banks each hereby notifies the Borrower
that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record
information that identifies the Borrower and the other Companies, which information includes the
name and address of the Borrower and other information that will allow the Agent and the Banks each
to identify the Borrower in accordance with the Patriot Act.


 


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ARTICLE 11




RENEWAL




Section 11.1 No Novation. The Borrower confirms that this Agreement has been given in
renewal and extension of the Indebtedness to the Banks and the Issuing Bank under the Prior Loan
Agreement described in the Preliminary Statement to this Agreement, and that nothing in this
Agreement shall constitute the satisfaction or extinguishment of the amount owed thereunder, nor
shall it be a novation of the amount owed thereunder.



Section 11.2 No Defenses. The Borrower represents and warrants that there is no
defense, offset, compensation, counterclaim or reconventional demand with respect to amounts due
under, or performance of the terms of, the Prior Loan Agreement or the prior line of credit
promissory notes issued thereunder; and to the extent any such defense, offset, compensation,
counterclaim or reconventional demand or other causes of action might exist, known or unknown, such
items are hereby waived by the Borrower.



Section 11.3 Transition. Until the conditions precedent in Section 7.1 have
been met, the terms of the Prior Loan Agreement shall remain in full force and effect, and the
Borrower may borrow under the terms established thereunder (but only until and no later than June
20, 2008), so long as all of the conditions and requirements otherwise established in this
Agreement are met. The Borrower, the Agent and the Banks acknowledge that certain provisions of
the Prior Loan Agreement shall remain pertinent for a time after the effectiveness of this
Agreement, such as the Percentage Outstanding under the Prior Loan Agreement being used for the
determinations of the initial Applicable LIBO Rate Margin under this Agreement, the fee payable
under Subsection 2.5(a) to the Prior Banks, and pertaining to letters of credit issued
under the Prior Loan Agreement which remain outstanding on and after the Closing Date.


 


-85-









 





IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed as of
the date first above written.




SECTIONS 2.8, 5.13 and 5.14 contain AN INDEMNITY.



	 	 	 	 	 	 	 	 	 
	BORROWER:	 	GMX RESOURCES INC.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ James A. Merrill
	 	 	 	 	 
	 	 	 	 	Name:	 	James A. Merrill
	 	 	 	 	Title:	 	Chief Financial Officer and Treasurer
	 
	 	 	 	 	 	 	 	 
	AGENT:	 	CAPITAL ONE, NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Eric Broussard
	 	 	 	 	 
	 	 	 	 	Name:	 	Eric Broussard
	 	 	 	 	Title:	 	Senior Vice President
	 
	 	 	 	 	 	 	 	 
	BANKS:	 	CAPITAL ONE, NATIONAL ASSOCIATION,

as a Bank
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Eric Broussard
	 	 	 	 	 
	 	 	 	 	Name:	 	Eric Broussard
	 	 	 	 	Title:	 	Senior Vice President
	 
	 	 	 	 	 	 	 	 
	 	 	BNP PARIBAS
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Edward Pak	 	/s/ Robert Long
	 	 	 	 	 
	 

	 	 	 	Name:
	 	Edward Pak
	 	Robert Long
	 

	 	 	 	Title:
	 	Vice President
	 	Vice President
	 
	 	 	 	 	 	 	 	 
	 	 	COMPASS BANK
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Murray E. Brasseux
	 	 	 	 	 
	 	 	 	 	Name:	 	Murray E. Brasseux
	 	 	 	 	Title:	 	Executive Vice President





 


-86-









 





[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED LOAN AGREEMENT]




	 	 	 	 	 	 	 
	 	 	FORTIS CAPITAL CORP.
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Scott Myatt
	 	 	 	 	 
	 

	 	 	 	Name:
	 	Scott Myatt
	 

	 	 	 	Title:
	 	Vice President
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Darrell Holley
	 	 	 	 	 
	 

	 	 	 	Name:
	 	Darrell Holley
	 

	 	 	 	Title:
	 	Managing Director
	 
	 	 	 	 	 	 
	 	 	UNION BANK OF CALIFORNIA, N.A.
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Timothy Brendel
	 	 	 	 	 
	 

	 	 	 	Name:
	 	Timothy Brendel
	 

	 	 	 	Title:
	 	Asst. Vice President







 


-87-









 







LIST OF SCHEDULE





	1.	 	Commitments of the Banks






LIST OF ADDENDA





	1.	 	LIBO Rate Provisions

	 
	2.	 	Subordination Terms






LIST OF EXHIBITS





	A.	 	Form of Note

	 
	B.	 	Form of Assignment and Acceptance







 


 









 







SCHEDULE 1




Effective June 12, 2008




Commitments of the Banks




	 	 	 	 	 	 	 
	Name and Address of Bank	 	Commitment of Bank
	 
	 	 	 	 	 	 
	1.

	 	Capital One, National Association
	 	$	67,000,000.00	 
	 

	 	5718 Westheimer, Suite 600	 	 	 	 
	 

	 	Houston, Texas 77057	 	 	 	 
	 

	 	Attention: Eric Broussard	 	 	 	 
	 

	 	Facsimile Number: (713) 435-5106	 	 	 	 
	 

	 	Telephone Number: (713) 435-5278	 	 	 	 
	 
	 	 	 	 	 	 
	2.

	 	Union Bank of California, N.A.
	 	$	57,000,000.00	 
	 

	 	500 North Akard, Suite 4200	 	 	 	 
	 

	 	Dallas, Texas 75201	 	 	 	 
	 

	 	Attention: Jarrod Bourgeois	 	 	 	 
	 

	 	Facsimile Number: (214) 922-4209	 	 	 	 
	 

	 	Telephone Number: (214) 922-4200	 	 	 	 
	 
	 	 	 	 	 	 
	3.

	 	BNP Paribas
	 	$	54,000,000.00	 
	 

	 	1200 Smith Street, Suite 3100	 	 	 	 
	 

	 	Houston, Texas 77002	 	 	 	 
	 

	 	Attention: Edward Pak	 	 	 	 
	 

	 	Facsimile Number: (713) 659-6915	 	 	 	 
	 

	 	Telephone Number: (713) 982-1110	 	 	 	 
	 
	 	 	 	 	 	 
	4.

	 	Compass Bank
	 	$	36,000,000.00	 
	 

	 	24 Greenway Plaza, Suite 1400A	 	 	 	 
	 

	 	Houston, Texas 77046	 	 	 	 
	 

	 	Attention: Kathleen J. Bowen	 	 	 	 
	 

	 	Facsimile Number: (713) 968-8292	 	 	 	 
	 

	 	Telephone Number: (713) 968-8273	 	 	 	 
	 
	 	 	 	 	 	 
	5.

	 	Fortis Capital Corp.
	 	$	36,000,000.00	 
	 

	 	15455 N. Dallas Parkway, Suite 1400	 	 	 	 
	 

	 	Addison, Texas 75001	 	 	 	 
	 

	 	Attention: C. Scott Myatt	 	 	 	 
	 

	 	Facsimile Number: (214) 754-5982	 	 	 	 
	 

	 	Telephone Number: (214) 866-2522	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	$	250,000,000.00	 






 


 









 





ADDENDUM I




LIBO RATE PROVISIONS




1. The Agent shall determine the interest rate applicable to LIBO Rate Advances, and its
determination shall be conclusive in the absence of manifest error. The Agent shall endeavor to
notify the Borrower prior to the date on which an interest payment is due, provided that the
failure of the Agent to provide such notice shall not affect the Borrower’s obligation to pay
interest on such date.



2. If any applicable law or regulation, or the action of any applicable regulatory requirement
increases the reserves or capital required to be maintained by any Bank or the Agent with respect
to the Loan (including unfunded commitments and obligations on letter of credit), such Bank or the
Agent shall promptly deliver a certificate to the Borrower specifying the additional amount as will
compensate such Bank or the Agent for the additional costs, which certificate shall be conclusive
in the absence of manifest error. The Borrower shall pay the amount specified in such certificate
promptly upon receipt.



3. If the Agent gives notice to the Borrower that no LIBO bid rate is quoted to the Agent (or
otherwise that adequate and reasonable methods do not exist for ascertaining the LIBO Rate) for the
applicable Interest Period or in the applicable amounts (which notice
shall be conclusive and binding on the Borrower and the Banks absent manifest error), then (A) the
obligation of the Agent and the Banks to make a LIBO Rate Advance and the ability of the Borrower
to select the LIBO Rate for an Advance shall be suspended, and (B) the Borrower shall either prepay
all LIBO Rate Advances for which an interest rate is to be determined on such date or the Loan
shall thereafter bear interest at the Base Rate.



4. If any applicable domestic or foreign law, treaty, rule or regulation (whether now in
effect or hereinafter enacted or promulgated, including Regulation D of the Board of Governors of
the Federal Reserve System) or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof (whether or not having the
force of law):




(i) changes the basis of taxation of payments to any Bank or the Agent or any
principal, interest, or other amounts attributable to any LIBO Rate Advance (other than
taxes imposed on the overall net income of such Bank or the Agent);




(ii) changes, imposes, modifies, applies or deems applicable any reserve, special
deposit or similar requirements in respect of any such LIBO Rate Advance (excluding those
for which such Bank or the Agent is fully compensated pursuant to adjustments made in the
definition of LIBO Rate) or against assets of, deposits with or for the account of, or
credit extended by, any Bank or the Agent; or


 


 









 





ADDENDUM I

PAGE - 2 -





(iii) imposes on any Bank or the Agent or the interbank eurocurrency deposit and
transfer market any other condition or requirement affecting any such LIBO Rate Advance,



and the result of any of the foregoing is to increase the cost to such Bank or the Agent of funding
or maintaining any such LIBO Rate Advance (other than costs for which such Bank or the Agent is
fully compensated pursuant to adjustments made in the definition of LIBO Rate) or to reduce the
amount of any sum receivable by such Bank or the Agent in respect of any such LIBO Rate advance by
an amount deemed by such Bank or the Agent to be material, then such Bank or the Agent shall
promptly notify the Borrower in writing of the happening of such event and (1) Borrower shall upon
demand pay to such Bank or the Agent such additional amount or amounts as will compensate such Bank
or the Agent for such additional cost or reduction and (2) Borrower may elect, by giving to the
Agent not less than three Business Days’ notice, to change the interest rate applicable to such
Advance, and any other portion of the Loan bearing interest at the LIBO Rate, to the Base Rate.



5. Notwithstanding any other provision hereof, if any change in applicable laws, treaties,
rules or regulations or in the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for any Bank to maintain
Advances bearing interest at the LIBO Rate, or shall materially restrict the authority of any Bank
to purchase, sell or take certificates of deposit or offshore deposits of dollars, then, upon
notice by such Bank to Borrower and the Agent, such Bank’s portion of all LIBO Rate Advances which
are then outstanding and which cannot lawfully or practicably be maintained shall immediately cease
to bear interest at the LIBO Rate and shall commence to bear interest at the Base Rate. The
Borrower agrees to indemnify each Bank and hold it harmless against all costs, expenses, claims,
penalties, liabilities and damages which may result from any such change in law, treaty, rule,
regulation, interpretation or administration. The Borrower hereby agrees promptly to pay the Agent
for the account of such Bank, upon demand by such Bank, any additional amounts necessary to
compensate such Bank for any costs incurred by such Bank in making any conversion in accordance
with this Paragraph, including any interest or fees payable by such Bank to lenders of funds
obtained by it in order to make or maintain hereunder its portion of the Loan accruing interest
based on the LIBO Rate.



6. The Borrower will indemnify the Agent and each Bank against, and reimburse the Agent and
each Bank on demand for, any loss or expense incurred or sustained by the Agent and each Bank
(including without limitation, any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Agent and each Bank to fund or maintain
LIBO Rate Advances) as a result of (i) any payment or prepayment (whether authorized or required
hereunder or otherwise) of all or a portion of any LIBO Rate Advance on a day other than the day on
which the applicable Interest Period ends, (ii) any payment or prepayment, whether required
hereunder or otherwise, of the LIBO Rate Advances made after the delivery, but before the effective
date, of an election to have the LIBO Rate apply to LIBO



 


 









 





ADDENDUM I

PAGE - 3 -




Rate Advance, if such payment or prepayment prevents such election from becoming fully
effective, or (iii) the failure of any LIBO Rate Advance to be made by the Agent and each Bank or
of any such election to become effective due to any condition precedent to a LIBO Rate Advance not
being satisfied or due to any other action or inaction of Borrower. For purposes of this section,
funding losses arising by reason of liquidation or reemployment of deposits or other funds acquired
by the Agent or any Bank to fund or maintain LIBO Rate Advances shall be calculated as the
remainder obtained by subtracting: (1) the yield (reflecting both stated interest rate and
discount, if any) to maturity of obligations of the United States Treasury as determined by the
Agent or such Bank in an amount equal or comparable to such advance for the period of time
commencing on the date of the payment, prepayment or change of rate as provided above and ending on
the last day of the subject Interest Period, from (2) the LIBO Rate of the subject Interest Period,
times the number of days from the date of payment, prepayment or change of rate to the last
day of the subject Interest Period, divided by 360. Any payment due under this paragraph will be
paid to the Agent or such Bank within five days after demand therefor by the Agent or such Bank.




7. The Borrower covenants and agrees that:




(i) The Borrower will pay, within five days after notice thereof from Agent (on behalf
of itself or any Bank) and on an after-tax basis, all present and future income, stamp and
other taxes, levies, costs and charges whatsoever imposed, assessed, levied or collected on
or in respect of any LIBO Rate Advance whether or not legally or correctly imposed,
assessed, levied or collected (excluding taxes, levies, costs or charges imposed on or
measured by the overall net income of the Agent or any Bank) (all such non-excluded taxes,
levies, costs and charges being collectively called “Reimbursable Taxes”). Promptly
after the date on which payment of any Reimbursable Taxes is due pursuant to applicable law,
the Borrower will, at the request of the Agent, furnish to the Agent evidence in form and
substance satisfactory to the Agent that Borrower has met its obligation under this
paragraph.




(ii) The Borrower will indemnify the Agent and each Bank against, and reimburse the
Agent and each Bank on demand for, any Reimbursable Taxes paid by the Agent or such Bank and
any loss, liability, claim or expense, including interest, penalties and legal fees, that
the Agent and each Bank may incur at any time arising out of or in connection with the
failure of Borrower to make any payment of Reimbursable Taxes when due, unless such failure
is due to Agent or such Bank’s failure to give notice to Borrower of Borrower’s obligation
to pay such Reimbursable Taxes at least five days prior to the date when they are due. Any
payment due under this subsection will be paid to the Agent or such Bank within five days
after demand therefor by the Agent or such Bank.


 


 









 





ADDENDUM I

PAGE - 4 -





(iii) All payments on account of the principal of, and interest on, LIBO Rate Advances
and all other amounts payable by Borrower to the Agent and the Banks hereunder shall be made
free and clear of and without reduction by reason of any Reimbursable Taxes.




(iv) If Borrower is ever required to pay any Reimbursable Taxes with respect to any LIBO Rate
Advance, Borrower may elect, by giving to the Agent not less than three (3) Business Days’ notice,
to change the interest rate applicable to any such advance from the LIBO Rate to the Base Rate, but
such election shall not diminish Borrower’s obligation to pay all Reimbursable Taxes therefore
imposed, assessed, levied or collected.


 


 









 





ADDENDUM II




APPROVED SUBORDINATION TERMS




Reference is made to the Third Amended and Restated Loan Agreement, dated as of June 12, 2008,
by and among GMX Resources Inc., as Borrower, the Banks party thereto, and Capital One, National
Association, as Agent (the “Loan Agreement”). Capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in the Loan Agreement. In the event
that the subordination terms are in connection with a guaranty, the term “Guarantor” shall be
substituted for the term “Borrower”.



Following are the subordination terms to be applicable to Indebtedness or Guarantees permitted
pursuant to Section 6.1(h) of the Loan Agreement.



DEFINITIONS




“Insolvency Event” means any event with respect to the Borrower described in Sections
8.1(g), 8.1(h) or 8.1(i) of the Loan Agreement.



“Junior Creditors” means any holder of, or obligee under or in respect of, any Junior
Obligations.



“Junior Documents” means (i) [Identify the documents creating the subordinated
Indebtedness or subordinated Guarantees], (ii) each agreement, instrument or other document
executed or delivered in connection with the refinancing of any Junior Obligations, and (iii) each
agreement, instrument or other document executed or delivered in connection with any of the
foregoing.




“Junior Liens” means any Liens securing all or any portion of the Junior Obligations.



“Lien” means any interest in property securing an obligation owed to, or a claim by, a
Person other than the owner of the property, whether such interest is based on jurisprudence,
statute or contract, and including without limitation the lien or security interest arising from a
mortgage, pledge, security agreement, production payment, conditional sale, bond for deed or trust
receipt or a lease, consignment or bailment for security purposes. For the purposes of this
definition, the Borrower shall be deemed to be the owner of any property which it has accrued or
holds subject to a conditional sale agreement, financing lease or other arrangement pursuant to
which title to the property has been retained by or vested in some other Person for security
purposes.



“Junior Obligations” means all of the obligations and liabilities of the Borrower
under the Junior Documents, whether fixed, contingent, now existing or hereafter arising, created,
assumed or incurred, and including any obligation or liability in respect of any breach of any
representation or warranty and in respect of any rights of repurchase, redemption or rescission.


 


 









 





ADDENDUM II

PAGE - 2 -




“Remedies” means, with respect to any debt (including without limitation the Junior
Obligations) (i) the acceleration of the maturity of any such debt, (ii) the exercise of any put
right or other similar right to require the Borrower or any Subsidiary to repurchase any such debt
prior to the stated maturity thereof, (iii) the collection or commencement of proceedings against
the Borrower, any Subsidiary or any other Person obligated on such debt or any of their respective
property, to enforce or collect any such debt, (iv) taking possession of or foreclosing upon
(whether by judicial proceedings or otherwise) any Liens, or causing a marshaling of any property
of the Borrower or any Subsidiary, (v) the making of a demand and respect of any guaranty given by
any Person of such debt, (vi) exercising any other remedies with respect to such debt or any claim
with respect thereto, or (vii) the taking of any action against the Borrower, any Subsidiary or any
other Person obligated on or for such debt, or any of their respective assets, pertaining to the
terms of the agreements governing such debt (including documents regarding the Junior Liens).




“Senior Agent” means the Agent.



“Senior Creditors” means any holder of, or obligee under or in respect of, any Senior
Obligations.



“Senior Documents” means (i) the Loan Agreement, (ii) each agreement, instrument or
other document executed or delivered in connection with refinancing of Senior Obligations, (iii)
any Secured Hedge Agreement, and (iv) each agreement, instrument or other document executed or
delivered in connection with any of the foregoing.




“Senior Liens” means any Liens securing all or any portion of the Senior Obligations.



“Senior Obligations” means all of the obligations and liabilities of the Borrower
under the Senior Documents, whether fixed, contingent, now existing or hereafter arising, created,
assumed or incurred, and including (i) any obligation or liability in respect of any breach of any
representation or warranty and in respect of any rights of redemption or rescission and (ii) all
post-petition interest and make-whole premiums, whether or not allowed as a secured claim or as an
unsecured claim in any proceeding, including any proceeding arising under Title 11 of the United
States Code, arising in connection with an Insolvency Event.



PAYMENT PROVISIONS




1. Payment Defaults. No payment of Junior Obligations may be made by the Borrower in
the event that the principal of, or interest on, or any other amount payable in respect of, the
Senior Obligations is not paid when due, whether at maturity or at a date fixed for prepayment or
by declaration or otherwise (a “Payment Default”), unless and until such Payment Default
has been cured or waived or otherwise has ceased to exist.


 


 









 





ADDENDUM II

PAGE - 3 -




2. Non-Payment Defaults. No payment of Junior Obligations may be made by the Borrower
in the event that an Event of Default other than a Payment Default (a “Non-Payment
Default”) has occurred, and has not been cured or waived, provided that the Senior
Agent delivers written notice (a “Blockage Notice”) to the Borrower and to the Junior
Creditors directing the Borrower not to make payment of the Junior Obligations. Notwithstanding
the foregoing, unless (i) the Senior Obligations have been declared due and payable in their
entirety within ninety (90) days after the Blockage Notice is given as set forth above (the
“Blockage Period”) and (ii) such declaration has not been rescinded or waived upon
expiration of the Blockage Period, the Borrower will be required to pay to the Junior Creditors all
sums not paid to the Junior Creditors during the Blockage Period due to the prohibitions of this
paragraph (and upon the making of such payments any acceleration of the Borrower’s obligations with
regard to the Junior Obligations which was declared during the Blockage Period because of the
Borrower’s failure to make payments due to the prohibitions in this paragraph will be of no further
force or effect) and to resume all other payments due under the Junior Obligations as and when they
are due. Not more than one Blockage Notice may be given in any consecutive 365 day period,
irrespective of the number of defaults with respect to Senior Obligations that may occur during
such period. In no event may the number of days during which any Blockage Period is, or Blockage
Periods are, in effect exceed 180 days in the aggregate during any consecutive 365 day period.



3. Insolvency Events. Upon any distribution of assets of the Borrower as a result of
any dissolution, winding up, liquidation or reorganization (including as a result of an Insolvency
Event), all Senior Obligations must be paid in full in cash before any payment is made on account
of the Junior Obligations.



4. Turn-Over. If the Junior Creditors receive any payments in respect of the Junior
Obligations which they are not entitled to receive pursuant to the applicable subordination terms,
such payment must be delivered to the Senior Agent on behalf of the holders of the Senior
Obligations as their interests may appear.



LIEN PROVISIONS




5. Priority. The Senior Liens shall be senior and superior to the Junior Liens. The
foregoing priority shall remain irrespective of modifications, amendments, renewals or extensions
of the Senior Obligations, and irrespective of any advances made by either party to preserve the
collateral or the priority of their Liens in the Collateral.



6. No Contest. The Junior Creditors shall not contest the validity, perfection,
priority or enforceability of any Lien granted to the Senior Creditors by the Borrower or its
affiliates. The Junior Creditors shall not contest Remedies actions taken by the Senior Creditors.



7. Standstill. The Junior Creditors shall not exercise any Remedies in respect of the
Junior Liens until ninety (90) days after the first to occur of (i) the date the Agent receives
notice from the Junior Creditors of the occurrence of an Event of Default under the Junior
Obligations or (ii) the Borrower files or consents by answer or otherwise to the filing against it
of a petition for relief or reorganization or other partition in bankruptcy.



 


 









 





ADDENDUM II

PAGE - 4 -




8. Release of Collateral. The Junior Creditors shall agree and consent in advance to
the automatic release of the Junior Liens on any collateral upon a sale thereof in compliance with
the asset sale covenant in the Senior Documents.



OTHER PROVISIONS




9. Maturity. The maturity of the Junior Obligations shall be at least one year after
the Maturity Date.



10. Maximum Amount. The maximum aggregate principal amount of the Junior Obligations
outstanding at any time and from time to time, when added to the total amount of Qualified
Redeemable Preferred Equity issued by the Borrower, shall not exceed eighty million
($80,000,000.00) dollars.



11. No Cross Default. No Default under the Senior Obligations shall result in a
default under the Junior Obligations, except for a Payment Default on the Maturity Date. [THE
FOREGOING SENTENCE IS WAIVED AS TO THE $30,000,000.00 SENIOR SUBORDINATED SECURED NOTES, SERIES A,
ISSUED TO THE PRUDENTIAL INSURANCE COMPANY OF AMERICA.] Cross acceleration is permitted.



12. Filing Claims. The Senior Agent shall be irrevocably authorized to file any
required proof of claim if the Junior Creditors fail to do so in a timely manner.



13. Bankruptcy. The Junior Creditors shall agree and give advance consent with
respect to any of the following actions in any bankruptcy proceedings of the Borrower: (i) any use
of cash collateral approved by the Senior Creditors, (ii) any court-approved asset sale that is
also approved by the Senior Creditors, so long as the Junior Liens attach to the proceeds of the
sale in accordance with the Lien priorities agreed to in the Intercreditor Agreement, and (iii)
debtor-in-possession financings under which the Liens securing such debtor-in-possession financing
rank prior or equal to the Liens securing the Senior Obligations. [THE FOREGOING SENTENCE IS
WAIVED AS TO THE $30,000,000.00 SENIOR SUBORDINATED SECURED NOTES, SERIES A, ISSUED TO THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA.]



14. Amendments. No amendment to the subordination provisions is permitted without the
consent of the Senior Agent.




 


 









 







EXHIBIT A




FORM OF NOTE




LINE OF CREDIT NOTE




	 	 	 
	Borrower:	 	Bank:
	 
	 	 
	GMX Resources Inc.
	 	 
	 

	 	 
	9400 North Broadway, Suite 600
	 	 
	 

	 	 
	Oklahoma City, Oklahoma 73114
	 	 
	 

	 	 
	 
	 	 
	 

	 	 






 





					
	 	 	 	 	 
	Principal Amount:
	 	Maturity Date of Note:
	 	Date of Note
	U.S. $                    
	 	July 15, 2011
	 	June    , 2008






PROMISE TO PAY. GMX RESOURCES INC. (“Borrower”), an Oklahoma corporation, promises to pay
to the order of ____________ (“Bank”) at the main office in New Orleans, Louisiana (313 Carondelet Street) of
Capital One, National Association (“Agent”), in lawful money of the United States of America, the
sum of ____________ and 00/100 dollars (U.S. $____________), or such other or lesser amount as from time to time equals the
aggregate unpaid principal balance of loan advances made to Borrower by Bank on a revolving line of
credit basis as provided below, together with simple interest assessed on the variable rate(s)
basis provided below, with interest being assessed on the unpaid principal balance of this Note as
outstanding from time to time, commencing on the date hereof and continuing until this Note is paid
in full. Interest on Base Rate Advances under this Note shall be calculated on the basis of a 365
(or in a leap year 366) day year and the actual number of days elapsed, and on LIBO Rate Advances
under this Note shall be calculated on a 365/360 simple interest basis, that is, by applying the
ratio of the annual interest rate over a year of 360 days, times the outstanding principal balance,
times the actual number of days the principal balance is outstanding.



LOAN AGREEMENT. This Note is a Note referred to in and executed pursuant to that certain
third amended and restated loan agreement dated as of June
 ___, 2008 among Borrower, Agent and the
banks from time to time party thereto (as amended, renewed or restated from time to time, the “Loan
Agreement”), and is entitled to the benefits thereof. Unless otherwise defined herein, each
capitalized term used herein shall have the same meaning set forth in the Loan Agreement.
Reference is made to the Loan Agreement for provisions for the acceleration of the
maturity hereof on the occurrence of certain events specified therein, for mandatory prepayments
required of the Borrower in certain circumstances, and for all other pertinent provisions.

 


 









 





EXHIBIT A

PAGE - 2 -




LINE OF CREDIT. This Note evidences revolving line of credit advances that may be made
from time to time to Borrower under the Loan Agreement (including loan advances arising from draws
on standby letters of credit issued thereunder). Borrower agrees to be liable for all sums either
(a) advanced in accordance with the instructions of an authorized person as specified in the Loan
Agreement or (b) credited pursuant to the Loan Agreement to any of Borrower’s deposit accounts with
Agent. The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Agent’s or Bank’s internal records, including daily computer
print-outs. Advances shall only be made in accordance with the terms and conditions of the Loan
Agreement.



PAYMENT. Borrower will pay interest on Base Rate Advances at the Base Rate monthly in
arrears on the last day of each successive calendar month, but in no event greater than the Maximum
Rate (as such term is defined in the Loan Agreement). Borrower will pay interest on LIBO Rate
Advances at the applicable LIBO Rate on the last day of each applicable LIBO Rate Interest Period
for each LIBO Rate Advance, but in no event greater than the Maximum Rate. Borrower will pay the
balance of all outstanding principal on this Note, together with all accrued but unpaid interest,
at the Maturity Date. Borrower will pay Bank at Agent’s address shown above or at such other place
as Bank may designate in writing. All payments and prepayments made by Borrower hereunder shall be
made to Bank, in immediately available funds, before 11:00 a.m. (Central Time) on the day that such
payment is required, or otherwise is, to be made. Any payment received and accepted by Bank after
such time shall be considered for all purposes (including the calculation of interest to the extent
permitted by law) as having been made on the next following Business Day. Whenever any payment to
be made hereunder falls on a day other than a Business Day, then unless otherwise provided in the
Loan Agreement such payment shall be made on the next succeeding Business Day (without penalty or
default), and such extension of time shall in each case be included in the calculation of interest.
Unless otherwise agreed or required by applicable law, payments will be applied first to accrued
unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and
late charges.



VARIABLE INTEREST RATES. This Note bears interest on and after the date hereof to and
including the Maturity Date at the variable rate(s) per annum equal to the Base Rate or LIBO Rate,
as selected by Borrower in accordance with the Loan Agreement, but in no event greater than the
Maximum Rate. The interest rate on this Note is subject to change from time to time based on
changes in the Prime Rate and the LIBO Rate. If the index rate used in determining the Prime Rate
becomes unavailable during the term of this Note, Agent may designate a substitute index after
notice to Borrower. Agent will tell Borrower the Prime Rate upon Borrower’s request. Borrower
understands that Bank may make loans based on other rates as well. The interest rate change will
not occur more than once each day. Under no circumstances will the interest rate on this Note be
more than the Maximum Rate allowed by applicable law. The
unpaid principal balance of this Note shall bear interest from and after an Event of Default or the
Maturity Date until paid at the Default Rate from time to time in effect.



 


 









 




EXHIBIT A

PAGE - 3 -




PREPAYMENT. Borrower may prepay this Note in full or in part at any time by paying the
then unpaid principal balance of this Note, plus accrued simple interest and any unpaid late
charges through date of prepayment, subject to restrictions regarding permitted timing and advance
notice set forth in the Loan Agreement, but without penalty or premium. Borrower may be required
to prepay this Note from time to time in accordance with the Loan Agreement. If Borrower prepays
this Note in full, or if Bank accelerates payment, Borrower understands that, unless otherwise
required by law, any prepaid fees or charges will not be subject to rebate and will be earned by
Bank at the time this Note is signed.



LATE CHARGE. If Borrower fails to pay any payment under this Note in full within ten (10)
days of when due, Borrower agrees to pay Bank a late payment fee in an amount equal to 5.000% of
the delinquent interest due. Late charges will not be assessed following declaration of default
and acceleration of maturity of this Note.



DEFAULT. If any Event of Default occurs, Agent and Bank shall have all the rights and
remedies (including acceleration of the Maturity Date of this Note) available to them pursuant to
the Loan Agreement or applicable law.



ATTORNEYS’ FEES. If Bank refers this Note to an attorney for collection, or files suit
against Borrower to collect this Note, or if Borrower files for bankruptcy or other relief from
creditors, Borrower agrees to pay Agent’s and Bank’s reasonable attorneys’ fees.



DEPOSIT ACCOUNTS. As collateral security for repayment of this Note and all renewals and
extensions, as well as to secure any and all Indebtedness that Borrower may now or in the future
owe to Agent or any Bank in connection with the Loan Agreement, Borrower hereby grants Agent for
itself and the ratable benefit of the Banks a continuing security interest in any and all funds
that Borrower may now and in the future have on deposit with Agent or in certificates of deposit or
other deposit accounts as to which Borrower is an account holder (with the exception of IRA,
pension, and other tax-deferred deposits).



COLLATERAL. This Note is secured by the Collateral and Collateral Documents as provided in
the Loan Agreement.



WAIVERS. Borrower and each guarantor of this Note hereby waive presentment for payment,
protest, notice of protest and notice of nonpayment, and all pleas of division and discussion, and
severally agree that their obligations and liabilities to Bank hereunder shall be on a “solidary”
or “joint and several” basis. Borrower and each guarantor further severally agree that discharge
or release of any party who is or may be liable to Bank for the indebtedness represented hereby, or
the release of any collateral directly or indirectly securing repayment hereof, shall not have the
effect of releasing any other party or parties, who shall remain liable to Bank, or of releasing
any



 


 









 





EXHIBIT A

PAGE - 4 -




other collateral that is not expressly released by Bank. Borrower and each guarantor additionally
agree that Bank’s acceptance of payment other than in accordance with the terms of this Note, or
Bank’s subsequent agreement to extend or modify such repayment terms, or Bank’s failure or delay in
exercising any rights or remedies granted to Bank, shall likewise not have the effect of releasing
Borrower or any other party or parties from their respective obligations to Bank, or of releasing
any collateral that directly or indirectly secures repayment hereof. In addition, any failure or
delay on the part of Bank to exercise any of the rights and remedies granted to Bank shall not have
the effect of waiving any of Bank’s rights and remedies. Any partial exercise of any rights and/or
remedies granted to Bank shall furthermore not be construed as a waiver of any other rights and
remedies; it being Borrower’s intent and agreement that Bank’s rights and remedies shall be
cumulative in nature. A waiver or forbearance on the part of Bank as to one event of default shall
not be construed as a waiver or forbearance as to any other default. Borrower and each guarantor
of this Note further agrees that any late charges provided for under this Note will not be charges
for deferral of time for payment and will not and are not intended to compensate Bank for a grace
or cure period, and no such deferral, grace or cure period has been or will be granted to Borrower
in return for the imposition of any late charge. Borrower recognizes that Borrower’s failure to
make timely payment of amounts due under this Note will result in damages to Bank, including but
not limited to Bank’s loss of the use of amounts due, and Borrower agrees that any late charges
imposed by Bank hereunder will represent reasonable compensation to Bank for such damages. Failure
to pay in full any installment or payment timely when due under this Note, whether or not a late
charge is assessed, will remain and shall constitute an event of default hereunder.



SUCCESSORS AND ASSIGNS LIABLE. Borrower’s and each guarantor’s obligations and agreements
under this Note shall be binding upon Borrower’s and each guarantor’s respective successors, heirs,
legatees, devisees, administrators, executors and assigns. The rights and remedies granted to Bank
under this Note shall inure to the benefit of Bank’s successors and assigns, as well as to any
subsequent holder or holders of this Note.



CAPTION HEADINGS. Caption headings of the sections of this Note are for convenience
purposes only and are not to be used to interpret or to define their provisions. In this Note,
whenever the context so requires, the singular includes the plural and the plural also includes the
singular.



WAIVER OF JURY TRIAL. BANK AND BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE THE
RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER BANK OR
BORROWER AGAINST THE OTHER.


 


 









 





EXHIBIT A

PAGE - 5 -




GOVERNING LAW. THIS NOTE IS A CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA (INCLUDING FEDERAL LAW THAT PERMITS
BANK TO CHARGE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE BANK IS LOCATED) AND THE
STATE OF TEXAS. Without limiting the intent of the parties set forth above, Chapter 346 of the
Texas Finance Code, as amended (relating to revolving loans and revolving tri-party accounts
(formerly Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)), shall not apply to this Note, or the
transactions contemplated hereby.



AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS NOTE, AND THE LOAN AGREEMENT AND THE
COLLATERAL DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES, AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE
PARTIES HEREOF, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF.



THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.




SEVERABILITY. If any provision of this Note is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Note and the balance of this
Note shall be interpreted as if the deleted provision never existed.



RENEWAL. This Note is given in renewal of Indebtedness under a prior promissory note, and
nothing in this Note shall constitute the satisfaction or extinguishment of such Indebtedness, nor
shall it be a novation of the amount owed by Borrower under the Loan Agreement prior to its
restatement; rather this Note merely evidences a replacement of the amounts available to be
borrowed by Borrower from Bank under the Loan Agreement.



USURY SAVINGS. The usury savings provisions set forth in the Loan Agreement (including the
provisions of subparts (iii) and (iv) of Section 2.13 of the Loan Agreement), are hereby
incorporated into this Note by this reference.



PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING
THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE NOTE.



	 	 	 	 	 	 	 
	BORROWER:	 	GMX RESOURCES INC.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:
	 	James A. Merrill
	 

	 	 	 	Title:
	 	Chief Financial Officer and Treasurer





 


 









 





EXHIBIT A

PAGE - 6 -




	 	 	 	 	 	 	 
	STATE OF OKLAHOMA

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	 

	 	 	)	 	 	SS:
	 

	 	 	)	 	 	 
	COUNTY OF OKLAHOMA

	 	 	)	 	 	 






BEFORE ME, the undersigned Notary Public duly commissioned qualified and sworn within and for
the State and County written above, personally came and appeared James A. Merrill, to me personally
known, and who being by me duly sworn, did say that he is the authorized Chief Financial Officer
and Treasurer of GMX Resources Inc., whose name is subscribed to the foregoing Line of Credit Note
and that he executed the foregoing Line of Credit Note by authority of said corporation’s board of
directors on behalf of said corporation.



THUS DONE AND SIGNED before me and the two undersigned witnesses in the County and State
aforesaid, on this
 _____ 
day of June, 2008. Witness my hand and official seal.



	 	 	 
	WITNESSES:
	 	 
	 
	 	 
	 

	 	 
	Name:

	 	Name: James A. Merrill
	 
	 	 
	 
	 	 
	Name:
	 	 






	 	 	 	 	 
	 
	 	 	 	 
	 
	 	NOTARY PUBLIC
	 	 






Seal




	 	 	 
	My Commission expires:
	 	 
	 

	 	 
	Commission number:
	 	 
	 

	 	 







 


 









 







EXHIBIT B




FORM OF ASSIGNMENT AND ACCEPTANCE




Dated Effective                     , 200   




Reference is made to the Third Amended and Restated Loan Agreement dated effective as of June
12, 2008, as the same may be amended, modified or supplemented from time to time (as so amended,
modified or supplemented from time to time, the “Agreement”), among GMX Resources Inc., as
Borrower, Capital One, National Association, as Agent, and the banks party thereto (the “Banks”).
Capitalized terms which are used herein without definition and which are defined in the Agreement
shall have the same meanings herein as in the Agreement.



                     (the “Assignor”) and                      (the “Assignee”) agree as
follows:



1. Assignment. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, as of
the Effective Date (as hereinafter defined) a
 _____ 
% interest in and to all the Assignor’s rights and
obligations under the Agreement (including, without limitation, its Commitment, the Loan currently
owing to it and the Note held by it and the related participations in respect of issued letters of
credit).



2. Concerning the Assignor. The Assignor (i) represents that as of the date hereof,
its Commitment percentage (without giving effect to assignments thereof which have not yet become
effective) is
 _____ 
%, and the outstanding balance of its Loan (unreduced by any assignments thereof
which have not yet become effective) is $
 _____ 
; (ii) makes no representation or warranty
and assumes no responsibility with respect to any statements, warranties or representations made in
or in connection with the Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement or any other instrument or document furnished
pursuant thereto, other than that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes
no representation or warranty and assumes no responsibility with respect to the financial condition
of the Borrower or the performance or observance by the Borrower of any of its obligations under
the Agreement, the Note, or any Collateral Document or any other instrument or document furnished
pursuant thereto; and (iv) attaches the Note delivered to it under the Agreement and requests that
the Borrower exchange such Note for a new Note payable to each of the Assignor and the Assignee as
follows:


 


 









 





EXHIBIT B

PAGE - 2 -




	 	 	 
	Notes Payable to	 	 
	the Order of:	 	Amount of Note
	[Name of Assignor]
	 	[Note ($        )]
	[Name of Assignee]
	 	[Note ($        )]






3. Concerning the Assignee. The Assignee (i) represents and warrants that it is
legally authorized to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Agreement, together with copies of the financial statements referred to therein and
the most recent financial statements delivered pursuant thereto and such other documents and
information as it has deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (iii) agrees that it will, independently and without reliance upon
the Assignor, the Agent or any other Banks and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in taking or not taking
action under the Agreement; (iv) appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under the Agreement and the Note as are delegated to the
Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v)
agrees that it will perform in accordance with their terms all the obligations which the Agreement,
the Note, and the Collateral Documents require are to be performed by it as a Bank; and (vi)
attaches any U.S. Internal Revenue Service forms required under Section 9.6(a)(viii)(B) of the Loan
Agreement.



4. Substitution. The Assignee shall deliver to the Agent one or more signature pages
to the Loan Agreement, and one or more signatures to the Intercreditor Agreement (if in effect), in
each case containing the signature of the Assignee. The Assignee’s address for notices to be given
under the Loan Agreement, and to be noted on the revised Schedule 1 to the Loan Agreement, is:


 





 





 






Facsimile Number:                                        




5. Effective Date. The effective date for this Assignment and Acceptance shall be

 _____ 
(the “Effective Date”) (which Effective Date shall be at least five (5)
Business Days after the execution of this Assignment and Acceptance). Following the execution of
this Assignment and Acceptance, it will be delivered to the Agent for acceptance together with the
Agent’s fee and reasonable expenses as required by Loan Agreement Section 9.6(a)(v) and (vi).


 


 









 





EXHIBIT B

PAGE - 3 -




6. Obligations. Upon such acceptance and recording, from and after the Effective
Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Bank thereunder, and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Agreement, other than confidentiality requirements.



7. Payments. Upon such acceptance and recording, from and after the Effective Date,
the Agent shall make all payments in respect of the interest assigned hereby (including payments of
principal, interest and other amounts) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments for periods prior to the Effective Date (such as accrued
interest and fees up to but excluding the Effective Date) or with respect to the making of this
assignment directly between themselves.



8. GOVERNING LAW. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.



THE REST OF THIS PAGE IS LEFT BLANK INTENTIONALLY.




 


 









 








EXHIBIT B

PAGE - 4 -




9. Counterparts. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which when so
executed taken together shall constitute one and the same instrument.



	 	 	 	 	 
	 	 	[NAME OF ASSIGNOR]
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 

	 	 	 	Date:
	 
	 	 	 	 
	 	 	[NAME OF ASSIGNEE]
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 

	 	 	 	Date:







Each of the undersigned hereby consents to the assignment contemplated by this Assignment and
Acceptance.



	 	 	 	 	 
	 	 	GMX RESOURCES INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 

	 	 	 	Date:
	 
	 	 	 	 
	 	 	CAPITAL ONE, NATIONAL ASSOCIATION,

as Agent
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 

	 	 	 	Date: