WWW.EXFILE.COM -- GMX RESOURCES INC. -- FORM 8-K -- 15524


    
EXHIBIT
      10.1

    
 

    SECOND
      AMENDED AND RESTATED

    LOAN
      AGREEMENT

     

    


     

    dated
      effective as of

    October
      31, 2007

    


     

    among

    


     

    GMX
      RESOURCES INC.,

    as
      Borrower,

    


     

    AND

     

    


     

    CAPITAL
      ONE, NATIONAL ASSOCIATION,

    as
      Administrative Agent,

     

     

    AND

     

    THE
      BANKS
      LISTED ON THE SIGNATURE PAGE,

    as
      Banks

     

    
 

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SECOND
      AMENDED AND RESTATED LOAN AGREEMENT

     

    THIS
      SECOND AMENDED AND RESTATED LOAN AGREEMENT (this “Agreement”), dated effective
      as of October 31, 2007, 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 for the Banks (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, 2000, 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 the Banks are 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 (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 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 Second 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 one hundred twenty five million ($125,000,000.00)
      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.

     

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

     

    
      
        
        

      

      
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    “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 at least fifteen (15) days before its effective
      date.  Each determination of the Borrowing Base shall be effective
      until 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

     

    
      
        
        

      

      
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    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 $90,000,000.00.  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.

     

    “Closing
      Date” shall mean the date on which the Notes are executed and delivered by
      the Borrower to the Banks and all the 

     

    
      
        
        

      

      
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    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
      Indebtedness.

     

    “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 Indebtedness, or otherwise pertaining to
      this
      Agreement (including without limitation the letter of credit applications
      described in Subsection 2.1(f) 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.

     

    “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 

     

    
      
        
        

      

      
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    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.

     

    “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 

     

    
      
        
        

      

      
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    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.

     

    “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
      

     

    
      
        
        

      

      
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    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.

     

    “Interest
      expense” shall mean, for each period, the sum of all interest, fees, charges
      and related expenses 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, 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.

     

    “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 

     

    
      
        
        

      

      
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    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 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 

     

    
      
        
        

      

      
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    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:

     

     

    
      	
              Percentage
                Outstanding

            	 	
              Applicable
                LIBO 

              Rate
                Margin 

            
	 	 	 
	
              0
                to 50%

            	 	
              1.50%

            
	
              above
                50% to 90%

            	 	
              1.75%

            
	
              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 October 1, 2007, 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 

     

    
      
        
        

      

      
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    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.

     

    “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.

     

     “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), 

     

    
      
        
        

      

      
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    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 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 Prior Loan
      Agreement, 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).

     

    
      
        
        

      

      
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    “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
      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 

     

    
      
        
        

      

      
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    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 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.

     

    
      
        
        

      

      
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    “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 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.

     

    “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


     

    
      
        
        

      

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

     

    "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.

     

    "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 

     

    
      
        
        

      

      
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    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).

     

    “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 October 31, 2007, the balance owed was
      $1,781,000.00.

     

    “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).

     

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

     

    
      
        
        

      

      
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    “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 face amount of
      all standby letters of credit permitted to be issued under this Agreement,
      cannot exceed the Commitment Limit.  The line of credit is represented
      by the Notes in the aggregate principal amount of one hundred twenty-five
      million ($125,000,000.00) dollars, 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.

     

    (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 

     

    
      
        
        

      

      
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    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 Ken Kenworthy Sr. 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 

     

    
      
        
        

      

      
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    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.

     

    (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, 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 

     

    
      
        
        

      

      
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    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
      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 

     

    
      
        
        

      

      
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    accordance
      with Subsection 9.1(a) except as provided in the next sentence, 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 the expiration date, payable quarterly
      in
      arrears on each June 30, September 30, December 31 and March 31 (and on the
      Maturity Date).  From the fee for each standby letter of credit the
      Agent shall retain as a fronting fee, for its own account as letter of credit
      Issuing Bank, one-quarter of one (0.25%) percent on the face amount (i.e.,
      the
      first 0.25% of the Applicable LIBO Rate Margin).  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 undisbursed amount of all standby
      letters of credit then outstanding would exceed the Letter of Credit Sublimit,
      or (y) if the face amount thereof plus the aggregate of all Advances then
      outstanding plus the aggregate undisbursed amount of all standby letters of
      credit 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.  The Agent shall
      promptly send to each Bank by federal wire 

     

    
      
        
        

      

      
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    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.

     

    (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 

     

    
      
        
        

      

      
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    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 Subsection 9.1(a) hereof to the Banks, an upfront
      commitment/origination fee equal to seventy thousand ($70,000.00) dollars,
      being
      one-quarter of one percent (0.25%) percent of the $28,000,000.00 incremental
      increase in the Commitment Limit from the Prior Loan Agreement (i.e., the
      increase to the Closing Date’s new Borrowing Base of $90,000,000.00 from the
      previous Borrowing Base of $62,000,000.00).  Further, the Borrower
      shall pay the Agent, for disbursement pro rata to the 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 October 1, 2007
      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 December 31, 2007 (for the period from the Closing Date through such
      date) and on the last day of each succeeding March, June, September and December
      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.

     

    (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 

     

    
      
        
        

      

      
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    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.

    


    (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.

     

    (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,


     

    
      
        
        

      

      
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    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.  The Borrower confirms and agrees
      that said existing Collateral Documents securing the Indebtedness, this
      Agreement and the Notes 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 

     

    
      
        
        

      

      
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    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.

     

    (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 

     

    
      
        
        

      

      
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    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.

     

    (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, 

     

    
      
        
        

      

      
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    including
      interest and penalties, or is contesting the same in good faith by appropriate
      proceedings and has provided adequate reserves for the payment
      thereof.

     

    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.

     

    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.

     

    (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


     

    
      
        
        

      

      
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    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 updated report by MHA Petroleum Consultants,
      Inc., dated effective as of October 1, 2007, and the third party engineering
      report prepared by MHA Petroleum Consultants, Inc., in  association
      with Sproule Associates Inc., dated effective as of January 1, 2007) 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.

     

    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


     

    
      
        
        

      

      
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    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 new Loan), except the PVOG
      Production Payment (on the terms described in the definition thereof) and 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.  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.

     

    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:

     

    
      	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.

     

    
      
        
        

      

      
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    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), (i) and
      (n)
      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.

     

    (b)  Borrower’s
      Quarterly 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.

     

    
      
        
        

      

      
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    (c)  Semi-Annual
      Engineering Reports - as soon as available and in any event by April 1 and
      October 1 of each year, a semi-annual engineering report covering the Borrowing
      Base properties, with an effective date of December 31 for the April 1 report
      and no more than 60 days earlier for the October 1 report, in form and substance
      acceptable to the Agent.  The report for the April 1 determination
      shall be reviewed by an independent third party petroleum engineers firm
      acceptable to the Agent.  The 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 and price tracking monthly reports pertaining to the 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,
      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.

     

    (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.

     

    
      
        
        

      

      
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    (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.

     

    (m)  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 

     

    
      
        
        

      

      
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    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)  Concurrently
      with the furnishing of the annual and quarterly financial statements described
      above, 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.

     

    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 

     

    
      
        
        

      

      
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    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 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.

     

    
      
        
        

      

      
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    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.

     

    (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 

     

    
      
        
        

      

      
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    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.

     

    (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.

     

    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 

     

    
      
        
        

      

      
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    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.

     

    (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.

     

    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
      

     

    
      
        
        

      

      
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    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:

     

    (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.

     

    (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
      annually on the following basis.  During 2007 the Borrower’s minimum
      net worth requirement shall be $135,961,144.00.  Thereafter, this
      minimum net worth requirement shall be changed annually by the Agent after
      the
      end of each fiscal year as to the amount to be met during the new calendar
      year,
      with the amount to be met during the new calendar year (tested quarterly as
      of
      the last day of each fiscal quarter) being increased (but not reduced) by the
      sum of (x) fifty (50%) percent of the Borrower’s prior fiscal year’s positive
      net income 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.

     

    
      
        
        

      

      
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    (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.

     

    (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)(x)
      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 agrees that such Other
      Revenues will be released by the Agent to 

     

    
      
        
        

      

      
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    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.

    


    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

     

    
      
        
        

      

      
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    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.

            


    

    


    
      	
               

            	
              (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 

            


    

     

    
      
        
        

      

      
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                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.

              


      

       

    

    
      	
               

            	
              (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.

            


    

     

    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

            


    

     

    
      
        
        

      

      
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                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.

            


    

    


    
      	
               

            	
              (d)

            	
              The
                pledge of the Collateral and any other Liens in favor of the Agent
                to
                secure on a paripassu 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).]

            


    

    


    
      
        
        

      

      
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              (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).

            


    

    


    
      	
               

            	
              (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
                

            


    

     

    
      
        
        

      

      
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              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.

            


    

     

    
      	
               

            	
              (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.

            


    

    


    
      
        
        

      

      
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          -

        
          

        

      

      
        
        

      

    

    


    
      	
               

            	
              (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.

            


    

    


    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 

     

    
      
        
        

      

      
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    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.

     

    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 

     

    
      
        
        

      

      
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    (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).

    


    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 each
      of
      Ken Kenworthy, Jr. (as CEO and President) and Ken Kenworthy Sr. (as CFO and
      EVP); provided, however, that the cessation of active employment of one
      such officer due to death or disability or the retirement of Ken Kenworthy
      Sr.
      (as CFO and EVP) 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 33% of the total voting power of the capital
      stock
      of the Borrower then outstanding.

     

    
      
        
        

      

      
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    (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).

     

    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).

     

    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 

     

    
      
        
        

      

      
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    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.

            


    

    


    
      	
               

            	
              (e)

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

            


    

    


    
      	
               

            	
              (f)

            	
              Updated
                Collateral Documents.  Duly executed restatements of, or
                supplements to, or confirmation of, mortgages or deeds of trust,
                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.

            


    

    


    
      	
               

            	
              (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.

            


    

    


    
      
        
        

      

      
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              (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.

            


    

     

    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.

     

    
      
        
        

      

      
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    Section
      7.3  Post-Closing
      Items.  (a)  Reserved.

     

    (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:

     

    
      	
               

            	
              (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.

            


    

    


    
      
        
        

      

      
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              (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.

     

    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 principal or interest installment on any Note,
                any
                unused facility fee, any commitment fee, engineering fee or any other
                Indebtedness 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 or (y) when
                due of
                any mandatory prepayment under Subsection 2.4(b) or Subsection
                2.4(c).

            


    

    


    
      	
               

            	
              (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 

            


    

     

    
      
        
        

      

      
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                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.

            


    

    


    
      	
               

            	
              (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.

            


    

    


    
      
        
        

      

      
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              (f)

            	
              Other
                Debt to Other Lenders.  The Borrower defaults (x) under the
                PVOG Production Payment, (y) under any Qualified Subordinate 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 Hedging Obligations) 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 

            


    

     

    
      
        
        

      

      
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              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.

            


    

    


    
      	
               

            	
              (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
                

            


    

     

    
      
        
        

      

      
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              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 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
                

            


    

    


    
      
        
        

      

      
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              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.

            


       

    

    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)(x).  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.

     

    
      
        
        

      

      
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    (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
      be
      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 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 

     

    
      
        
        

      

      
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    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 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 

     

    
      
        
        

      

      
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    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 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, 

     

    
      
        
        

      

      
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    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.

     

    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.

     

    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, 

     

    
      
        
        

      

      
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    and
      shall
      not be required upon the occurrence and during the continuance of an Event
      of
      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


     

    
      
        
        

      

      
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    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.

     

    (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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          78
          -

        
          

        

      

      
        
        

      

    

    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 


    
      
        
        

      

      
        -
          79
          -

        
          

        

      

      
        
        

      

    

    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 LOUISIANA AND THE FEDERAL EASTERN DISTRICT COURT IN LOUISIANA,
      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 

     

    
      
        
        

      

      
        -
          80
          -

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        -
          81
          -

        
          

        

      

      
        
        

      

    

    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
      October 31, 2007), 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, the fee payable
      under
Subsection 2.5(a) to the Banks, and pertaining to letters of credit
      issued under the Prior Loan Agreement which remain outstanding on and after
      the
      Closing Date.

     

    
      
        
        

      

      
        -
          82
          -

        
          

        

      

      
        
        

      

    

    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/ Ken
              L. Kenworthy, Sr.	 
	 	 	Name: Ken
              L. Kenworthy, Sr.	 
	 	 	Title: Executive
              Vice President and CFO	 
	 	 	 	 


    

     

    
      	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 	 
	 	 	 	 


    

     

    
      	 	UNION
              BANK OF CALIFORNIA, N.A.	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ Jarrod
              Bourgeois	 
	 	 	Name:
              Jarrod
              Bourgeois 	 
	 	 	Title:
              Vice
              President 	 
	 	 	 	 


    

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    
      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
                October 31, 2007

            


    

    


    
      	
               

            	
              Commitments
                of the Banks

            


    

    


     

    
      	 Name
              and Address of Bank	
              Commitment
                of Bank 

            	
              
                 

              

            	 
	 	 	 	 	 
	1.	
              Capital
                One, National Association

            	
              $75,000,000.00

            	
               

            	 
	 	
              5718
                Westheimer, Suite 600

            	 	 	 
	 	
              Houston,
                Texas  77057

            	 	 	 
	 	 	 	 	 
	 	
              Attention:   Mr.
                Eric Broussard

            	 	 	 
	 	 	 	 	 
	 	
              Facsimile
                Number: (713) 435-5106

            	 	 	 
	 	
              Telephone
                Number: (713) 435-5278

            	 	 	 
	 	 	 	 	 
	2.	
              Union
                Bank of California, N.A.

            	
              $50,000,000.00

            	 	 
	 	
              500
                North Akard, Suite 4200

            	 	 	 
	 	
              Dallas,
                Texas  75201

            	 	 	 
	 	
              Attention:  Mr.
                Jarrod Bourgeois

            	 	 	 
	 	 	 	 	 
	 	
              Facsimile
                Number:  (214) 922-4209

            	 	 	 
	 	
              Telephone
                Number: (214) 922-4200

            	 	 	 
	 	 	 	 	 
	 	 	 	 	 


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    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
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    (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 Second Amended and Restated Loan Agreement, dated as of October
      31, 2007, 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

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    "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 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        ADDENDUM
          II

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    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.

     

    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: 

              
                 

                GMX
                  Resources Inc.

                9400
                  North Broadway, Suite 600

                Oklahoma
                  City, Oklahoma  73114

              

            	
               Bank:

               

              _________________________________

              _________________________________

              _________________________________

              _________________________________

            


    

                                                                      

     

    
      

    

     

    
      	Principal
              Amount:  	
              Maturity
                Date of Note:

            	
              Date
                of Note

            
	U.S.
              $ __________________ 	
              July
                15, 2011

            	
               October,
                2007

            


    

     

        

    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 second amended and restated loan agreement dated as
      of
      October 31, 2007 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 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
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    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.

     

    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


     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        
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    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.

     

    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
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        
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    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.

     

    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 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        
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    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:  Ken
                L. Kenworthy, Sr.

              Title:    Executive
                Vice President & CFO 

            


    

                                                            

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        
          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 Ken
      L.
      Kenworthy, Sr., to me personally known, and who being by me duly sworn, did
      say
      that he is the authorized Executive Vice President & CFO 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 October, 2007.  Witness my hand and
      official seal.

     

    
      	
              WITNESSES:

              


              


              _____________________

               Name:                                                              

              


              _____________________                                                            

              Name:
 	
              __________________________________ 

              Name:  Ken L. Kenworthy,
                Sr. 

            


    

    


    


    ________________________________________

    NOTARY
      PUBLIC

    


    


    Seal

    


    My
      Commission expires:__________________

    Commission
      number: ____________________

    


     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

     

    FORM
      OF
      ASSIGNMENT AND ACCEPTANCE


     

    Dated
      Effective _____________, 200__

    


     

    Reference
      is made to the Second Amended and Restated Loan Agreement dated effective as
      of
      October 31, 2007, 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  :

              
[Name
                of Assignor]

               

              [Name
                of Assignee]

            	
              Amount
                of Note

               

               [Note
                ($          )] 

               

               [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: