THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933 OR THE SECURITIES LAWS OF ANY STATE (COLLECTIVELY, THE “LAWS”). THE
      SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
      ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      UNDER THE APPLICABLE LAWS OR (II) AN OPINION OF COUNSEL IN FORM, SUBSTANCE
      AND
      SCOPE REASONABLY ACCEPTABLE TO THE ISSUER, TO THE EFFECT THAT SUCH REGISTRATION
      IS NOT REQUIRED DUE TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
      OF THE APPLICABLE LAWS.
      

     

    DATE
      OF ISSUANCE: JULY 2, 2008 

     

    $2,500,000

     

    KNIGHT
      ENERGY CORP. 

     

    15%
      SENIOR SECURED PROMISSORY NOTE

    DUE
      MAY20, 2010 

     

    This
      15%
      Senior Secured Promissory Note (the “Note”) is issued by Knight Energy Corp., a
      Maryland corporation (the “Company”), pursuant to that certain Note Purchase
      Agreement (the “Agreement”) entered into concurrently herewith by and between
      the Company and HD Special-Situations, LP (the “Lender”). Capitalized terms used
      herein and not otherwise defined shall have the meanings set forth in the
      Agreement. 

     

    1.
      Payment
      Obligation.
      For
      value received, the Company promises to pay to the Lender or its permitted
      successors and assigns (collectively, the “Holder”), (i) the principal amount of
      Two Million Five Hundred Thousand Dollars ($2,500,000) and (ii) interest on
      the
      outstanding principal amount at the rate of fifteen percent (15%) per annum
      (the
“Rate”), payable as described below (subject to increase pursuant to Section
      4(s) of the Agreement). The principal amount of this Note, together with all
      accrued and unpaid interest, shall be due and payable in full on May 20, 2010
      (the “Maturity Date”); provided, however, that if the entire net Purchase Price
      has not been expended by the Company on the Assets (as defined in the Agreement)
      as provided in Section 4(f) of the Agreement within one (1) year after the
      date
      of issuance of this Note, the Company shall notify the Holder in writing of
      such
      occurrence and shall offer to repay the outstanding principal amount of this
      Note in an amount equal to the unexpended net Purchase Price (which offer may
      be
      accepted or rejected by the Holder, in its sole discretion); and provided
      further, that in the event of the occurrence of an Event of Default (as defined
      below), including any Event of Default based on a failure of the Company at
      any
      time to meet the Collateral Coverage Ratio required by the Agreement, fifty
      percent (50%) of the Company’s and its subsidiaries’ Free Cash Flow (as defined
      below) each month shall be used to repay the outstanding principal amount of
      this Note and all other 15% Senior Secured Promissory Notes issued by the
      Company to the Lender (collectively, the “Notes”), allocated among the Notes
      according to their principal amounts on a pari
      passu basis,
      until (i) the Company has cured the Event of Default or it has been waived
      or
      (ii) all principal with respect to this Note has been paid in full. For purposes
      of the foregoing, “Free Cash Flow ” shall mean the Company’s and its
      subsidiaries’ EBITDA (in accordance with GAAP) during the applicable (i.e.
      preceding) month, minus interest, mutually agreed upon capital expenditures,
      cash taxes and principal payments made during such month to the Lender under
      the
      Notes. During such times as payments are owed by the Company under this
      provision, the Company shall calculate such Free Cash Flow, and shall pay such
      amounts as are owed under this provision, within fifteen (15) days after the
      end
      of the succeeding month. Such remedy shall be in addition to all other rights
      and remedies available to the Holder under the Closing Documents, as well as
      any
      other rights or remedies afforded by law or equity. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Interest
      on this Note in the amount of Thirty-one Thousand Two Hundred Fifty Dollars
      ($31,250) shall be paid on the first business day of each month after its date
      of issuance (prorated for any partial period and any reductions in principal
      amount) in arrears. Accrual of interest on the outstanding principal amount
      shall commence on the date hereof and shall continue until full payment of
      the
      outstanding principal amount has been made or duly provided for. Payments on
      this Note are payable to the Holder in whose name this Note (or one or more
      successor Notes) is registered on the records of the Company regarding
      registration and transfer of this Note (the “Note Register”); provided, however,
      that the Company's obligation to a transferee of this Note arises only if such
      transfer, sale or other disposition is made in accordance with the terms and
      conditions of the Agreement. The Company may prepay the principal amount of
      this
      Note at any time, without premium or penalty, provided that it has given the
      Holder written notice of its intent to prepay at least ninety (90) days prior
      to
      the proposed date of prepayment. 

     

    2.
      Provisions as to Payment.
      Payments on this Note are payable in immediately available funds in currency
      of
      the United States of America at the address last appearing on the Note Register
      of the Company as designated in writing by the Holder hereof from time-to-time.
      The Company shall pay the outstanding principal amount and all accrued and
      unpaid interest due upon this Note on the Maturity Date, less any amounts
      required by law to be deducted or withheld, to the Holder of this Note appearing
      of record and addressed to such Holder at the last address appearing on the
      Note
      Register. The forwarding of such funds shall constitute full payment of all
      outstanding principal and accrued interest hereunder and shall satisfy and
      discharge the liability for principal and interest on this Note to the extent
      of
      the sum represented by such payment plus any amounts so deducted or withheld.
      Except as otherwise expressly provided herein, all payments under this Note
      shall be credited first to reimburse the Holder for any cost or expense
      reimbursable hereunder, then to the payment of accrued interest, and third
      to
      the payment of principal. 

     

    3.
      Withholding.
      The
      Company shall be entitled to withhold from all payments of principal or interest
      pursuant to this Note any amounts required to be withheld under applicable
      provisions of the United States income tax or other applicable laws at the
      time
      of such payments. 

    


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    4.
      Transfer
      of Note; Opinion of Counsel; Legend.
      

     

    (a)
      This
      Note has been issued subject to investment representations of the original
      Holder and may be transferred only as provided in the Agreement. Prior to
      presentment of this Note for transfer, the Company and any agent of the Company
      may treat the person in whose name this Note is duly registered on the Note
      Register as the Holder hereof for the purpose of receiving payments as herein
      provided and for all other purposes, whether or not this Note be overdue, and
      neither the Company nor any such agent shall be affected or bound by notice
      to
      the contrary. 

     

    (b)
      The
      Holder understands and acknowledges by its acceptance hereof that (i) this
      Note
      has not been, and is not being, registered under the 1933 Act or any state
      securities laws and (ii) neither the Company nor any other person is under
      any
      obligation to register this Note under the 1933 Act or any state securities
      laws
      or to comply with the terms and conditions of any exemption thereunder. By
      acceptance of this Note, the Holder makes to the Company all of the
      representations and warranties that are made by the Lender in Section 2 of
      the
      Agreement and the Holder agrees to be subject to and bound by all of the
      agreements between the Company and the Lender set forth in the Agreement


    


    5.
      Obligations of the Company Herein Are Unconditional.
      The
      Company’s obligations to repay this Note at the time, place, interest rate and
      in the currency hereinabove stated are absolute and unconditional. This Note
      and
      all other Notes now or hereafter issued in replacement of this Note on the
      same
      or similar terms are direct obligations of the Company. 

     

    6.
      Waiver of Demand, Presentment, Etc. The
      Company hereby expressly waives demand and presentment for payment, notice
      of
      nonpayment, protest, notice of protest, notice of dishonor, bringing of suit
      and
      diligence in taking any action to collect amounts called for hereunder and
      shall
      be directly and primarily liable for the payment of all sums owing and to be
      owing hereunder, regardless of and without any notice, diligence, act or
      omission as or with respect to the collection of any amount called for herein.
      No delay or omission of any Holder hereof in exercising any right or remedy
      hereunder shall constitute a waiver of any such right or remedy. A waiver on
      one
      occasion shall not operate as a bar to, or waiver of, any such right or remedy
      on any future occasions. 

     

    7.
      Attorney’s Fees; Reimbursable Expenses.
      The
      Company agrees to pay all costs and expenses, including, without limitation,
      reasonable attorney's fees, which may be reasonably incurred by the Holder
      in
      collecting any amount due under this Note or in enforcing any of the Holder’s
      rights as described herein or under the Security Agreement (as amended by the
      Amendment), and the Subsidiary Guaranty (as amended by the Subsidiary Amendment)
      and/or the Subsidiary Security Agreement . 

    


    8.
      Default.
      If one
      or more of the following described "Events of Default" shall occur:


     

    (a)
      The
      Company or CHD shall fail to make payment within three (3) business days of
      the
      due date of any amount then due and owing under any of the Closing Documents;
      

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (b)
      Any
      of the representations or warranties made by the Company or CHD in any of the
      Closing Documents, or in any certificate or other written statement heretofore
      or hereafter furnished by or on behalf of the Company or CHD in connection
      with
      the execution and delivery of any of the Closing Documents shall be false or
      misleading in any material respect at the time made and the Holder shall have
      provided written notice to the Company of the alleged misrepresentation or
      breach of warranty and the same shall continue uncured for a period of seven
      (7)
      days after such written notice from the Holder; 

     

    (c)
      If
      the Company or CHD shall fail to perform or observe, in any material respect,
      any covenant, term, provision, condition, agreement or obligation under any
      of
      the Closing Documents not covered by clause (a) or (b) above and such failure
      shall continue uncured for a period of thirty (30)
      days
      after written notice from the Holder to the Company;

     

    (d)
      The
      Company or CHD shall: (i) become insolvent; (ii) admit in writing its inability
      to pay its debts generally or as they become due, (iii) make an assignment
      for
      the benefit of creditors or commence proceedings for its dissolution or
(iv)
      apply for, or consent to the appointment of, a trustee, liquidator, or receiver
      for all or a substantial part of its property or business; 

     

    (e)
      A
      trustee, liquidator or receiver shall be appointed for the Company or CHD or
      for
      a substantial part of their property or business without the Company's or CHD’s
      consent (as applicable) and such appointment is not discharged within sixty
      (60)
      days after such appointment; 

     

    (f)
      Any
      governmental agency, or any court of competent jurisdiction at the instance
      of
      any governmental agency, shall assume custody or control of the whole or any
      substantial portion of the properties or assets of the Company or CHD and such
      custody or control shall not be released within sixty (60) days thereafter;
      

     

    (g)
      Any
      money judgment, writ or note of attachment, or similar process in excess of
      $50,000 in the aggregate shall be entered or filed against the Company or CHD
      or
      any of their properties or assets and shall remain unpaid, unvacated, unbonded
      or unstayed for a period of fifteen (15) days, or in any event later than five
      (5) days prior to the date of any proposed sale of the Company’s or CHD’s assets
      pursuant thereto; 

     

    (h)
      Bankruptcy, reorganization, insolvency or liquidation proceedings or other
      proceedings for relief under any bankruptcy law or any law for the relief of
      debtors shall be instituted by or against the Company or CHD and, if instituted,
      shall not be dismissed within sixty (60)
      days
      after such institution, or the Company or CHD shall by any action or answer
      approve of, consent to, or acquiesce in any such proceedings or admit the
      material allegations of, or default in answering a petition filed in, any such
      proceeding; 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (i)
      The
      Company or CHD shall have received a notice of default on the payment of any
      debt(s) aggregating in excess of $50,000 beyond any applicable grace period;
      

     

    (j)
      There
      shall be a change in control of the Company through one or more persons or
      entities who are not affiliated with the Company as of the Closing Date
      acquiring a majority of the Company’s outstanding shares; 

     

    (k)
      The
      Lender shall reasonably believe that there has been a Material Adverse Effect;
      

     

    (l)
      Charles L. Hill shall cease to provide full-time services to CHD in an executive
      capacity; 

     

    (m)
      HD
      Special-Situations, LP shall fail to have a fully-perfected, first-priority
      security interest in all of the Collateral (as defined in the Security Agreement
      and Subsidiary Security Agreement) and the Mortgaged Properties (as defined
      in
      the Deed of Trust); or 

     

    (n)
      The
      Company shall fail to timely file (including any filing extension to which
      the
      Company may be entitled based on a timely filing on Form 12b-25) any filing
      required to be made with the SEC; 

     

    then,
      or
      at any time thereafter, and in each and every such case, unless such Event
      of
      Default has been waived in writing by the Holder (which waiver in one instance
      shall not be deemed to be a waiver in another instance or for any other prior
      or
      subsequent Event of Default), at the option of the Holder and in its sole
      discretion, the Holder may immediately accelerate the maturity hereof, whereupon
      all principal and accrued interest hereunder shall be immediately due and
      payable, without presentment, demand, protest or notice of any kind, all of
      which are hereby expressly waived by the Company (anything herein or in any
      other instrument to the contrary notwithstanding), and the Holder may
      immediately enforce any and all of the Holder's rights and remedies provided
      herein or any other rights or remedies afforded by law or equity. After the
      occurrence of an Event of Default, until such Event of Default has been cured
      or
      waived, the Rate shall automatically increase to nineteen percent (19%).


     

    9.
      Security.
      Repayment of this Note is secured by a first-priority security interest in
      the
      assets granted by the Company and CHD in the Security Agreement (as amended
      by
      the Amendment), the Subsidiary Security Agreement and the Deed of Trust (as
      amended by the Amendment to Deed of Trust), respectively. An Event of Default
      under the terms of this Note shall also constitute an event of default under
      the
      Security Agreement (as amended), the Subsidiary Security Agreement and the
      Deed
      of Trust (as amended). 

     

    10.
      Enforceability;
      Maximum Interest Rate.
      

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (a)
      In
      case any provision of this Note is held by a court of competent jurisdiction
      to
      be excessive in scope or otherwise invalid or unenforceable, such provision
      shall be adjusted rather than voided, if possible, so that it is enforceable
      to
      the maximum extent possible, and the validity and enforceability of the
      remaining provisions of this Note shall not in any way be affected or impaired
      thereby. 

     

    (b)
      Notwithstanding anything to the contrary contained in this Note, the Company
      shall not be obligated to pay, and the Holder shall not be entitled to charge,
      collect, receive, reserve or take interest (“interest” being defined, for
      purposes of this paragraph, as the aggregate of all charges which constitute
      interest under applicable law that are contracted for, charged, reserved,
      received or paid under this Note) in excess of the maximum rate allowed by
      applicable law (the “Maximum Lawful Rate”). During any period of time in which
      the Rate exceeds such Maximum Lawful Rate, interest shall accrue and be payable
      only at such Maximum Lawful Rate; provided, however, that if at any time
      thereafter the Rate is less than the Maximum Lawful Rate, the Company shall,
      to
      the extent permitted by law, continue to pay interest to the account of the
      Holder at the Maximum Lawful Rate until such time as the total interest received
      by the Holder is equal to the total interest which the Holder would have
      received had the Rate been (but for the operation of this provision) the
      interest rate payable. Thereafter, the interest rate payable for the account
      of
      the Holder shall be the Rate unless and until the Rate again would exceed the
      Maximum Lawful Rate, in which event this provision shall again apply. In no
      event shall the total interest received by the Holder exceed the amount which
      the Holder could lawfully have received had the interest been calculated for
      the
      term during which the Holder actually received interest from the Company at
      the
      Maximum Lawful Rate. If the Holder has received interest hereunder in excess
      of
      the Maximum Lawful Rate, such excess amount shall be applied to the reduction
      of
      the principal balance hereof or to other amounts (other than interest) payable
      hereunder to the Holder, and if no such principal or other amounts are then
      outstanding, such excess or part thereof remaining shall be repaid by the Holder
      to the Company. For purposes of this Note, the term “applicable law” shall mean
      that law in effect from time-to-time and applicable to the transaction between
      the Company and the Holder which lawfully permits the charging and collection
      of
      the highest permissible rate of interest on such transaction and this Note,
      including the laws of the State of California and, to the extent controlling,
      laws of the United States of America. 

     

    11. Entire
      Agreement.
      This
      Note, together with the Agreement, the Security Agreement, the Amendment, the
      Subsidiary Security Agreement, the Subsidiary Amendment and any exhibits or
      schedules attached thereto, and any addenda to any of the foregoing, constitute
      the full and entire understanding between the Company and the Holder with
      respect to the subject matter hereof and thereof and supersede all prior
      negotiations, agreements and understandings, written or oral, with respect
      to
      such subject matter. No provision of this Note shall be amended, waived,
      discharged or terminated other than by a written instrument signed by the
      Company and the Holder. 

     

    12. Governing
      Law.
      This
      Note shall be governed by and construed in accordance with the laws of the
      State
      of California as applied to contracts made and to be fully performed in such
      state, without regard to the conflicts of laws provisions thereof. 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    13. Headings.
      The
      headings in this Note are for convenience only, and shall not be used in the
      construction of this Note. 

    


    IN
      WITNESS WHEREOF, the Company has caused this Note to be duly executed by its
      duly authorized officer on the date first written above. 

     

    
      	
              KNIGHT
                ENERGY CORP.

            
	 	 
	
              By:

            	 
	
              Title:

            	 
	 	 
	
              By:

            	 
	
              Title:

            	 


    

     

    
      
        
        

      

      
        7