**Exhibit 10.2**

 

 

 

**SECONDAMENDED AND RESTATED CREDIT AGREEMENT**

** **

**AMONG**

** **

**CYMRI,L.L.C.**

**(F/K/ATHE CYMRI CORPORATION)**

** **

**AND**

** **

**TRIUMPHENERGY, INC.**

**collectively,as Borrowers**

** **

**AND**

** **

**TEXASCAPITAL BANK, N.A.**

**asLender**

** **

**EffectiveAugust 5, 2008**

 

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**REDUCINGREVOLVING LINE OF CREDIT OF UP TO $25,000,000**

 

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** **

**TABLE OF CONTENTS**

** **
| ** **                                     | ** **                                      | **Page** |
|------------------------------------------------|-------------------------------------------------|----------|
| **ARTICLE  I DEFINITIONS AND INTERPRETATION**  | **1**                                           |
| 1.1                                            | Terms Defined  Above                            | 1        |
| 1.2                                            | Additional  Defined Terms                       | 1        |
| 1.3                                            | Undefined  Financial Accounting Terms           | 13       |
| 1.4                                            | References                                      | 14       |
| 1.5                                            | Articles and  Sections                          | 14       |
| 1.6                                            | Number and  Gender                              | 14       |
| 1.7                                            | Incorporation of  Exhibits                      | 14       |
|                                           |                                            |     |
| **ARTICLE  II TERMS OF FACILITY**              | **14**                                          |
| 2.1                                            | Revolving Line  of Credit                       | 14       |
| 2.2                                            | Use of Loan  Proceeds                           | 15       |
| 2.3                                            | Interest                                        | 15       |
| 2.4                                            | Repayment of  Loans and Interest                | 15       |
| 2.5                                            | Outstanding  Amounts                            | 15       |
| 2.6                                            | Time, Place, and  Method of Payments            | 15       |
| 2.7                                            | Borrowing Base  Determinations                  | 16       |
| 2.8                                            | Mandatory  Prepayments                          | 16       |
| 2.9                                            | Voluntary  Prepayments of Loans                 | 17       |
| 2.10                                           | Commitment Fee                                  | 17       |
| 2.11                                           | Facility Fee                                    | 18       |
| 2.12                                           | Reimbursement  for Engineering Expenses         | 18       |
| 2.13                                           | Loans to Satisfy  Obligations of Borrowers      | 18       |
| 2.14                                           | Security  Interest in Accounts; Right of Offset | 18       |
| 2.15                                           | General  Provisions Relating to Interest        | 19       |
| 2.16                                           | Letters in Lieu  of Transfer Orders             | 20       |
| 2.17                                           | Power of  Attorney                              | 20       |
| 2.18                                           | Letters of  Credit                              | 20       |
| 2.19                                           | Letter of Credit  Fee                           | 20       |
|                                           |                                            |     |
| **ARTICLE  III CONDITIONS**                    | **21**                                          |
| 3.1                                            | Receipt of Loan  Documents and Other Items      | 21       |
| 3.2                                            | Each Loan and  Letter of Credit                 | 23       |
|                                           |                                            |     |
| **ARTICLE  IV REPRESENTATIONS AND WARRANTIES** | **25**                                          |
| 4.1                                            | Due  Authorization                              | 25       |
| 4.2                                            | Existence                                       | 25       |
| 4.3                                            | Valid and  Binding Obligations                  | 25       |
| 4.4                                            | Security  Instruments                           | 25       |
| 4.5                                            | Title to Assets                                 | 25       |
| 4.6                                            | Score and  Accuracy of Financial Statements     | 25       |
| 4.7                                            | No Material  Misstatements                      | 26       |
| 4.8                                            | Liabilities,  Litigation, and Restrictions      | 26       |
| 4.9                                            | Authorizations;  Consents                       | 26       |
| 4.10                                           | Compliance with  Laws                           | 26       |

 

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| 4.11                                 | ERISA                                                    | 26     |
|--------------------------------------|----------------------------------------------------------|--------|
| 4.12                                 | Environmental  Laws                                      | 26     |
| 4.13                                 | Compliance with  Federal Reserve Regulations             | 27     |
| 4.14                                 | Investment  Company Act Compliance                       | 27     |
| 4.15                                 | Anti-Terrorism  Laws                                     | 27     |
| 4.16                                 | Proper Filing of  Tax Returns; Payment of Taxes Due      | 28     |
| 4.17                                 | Refunds                                                  | 28     |
| 4.18                                 | Material and Gas  Contracts                              | 28     |
| 4.19                                 | Intellectual  Property                                   | 28     |
| 4.20                                 | Casualties or  Taking of Property                        | 28     |
| 4.21                                 | Locations of  Borrowers                                  | 29     |
| 4.22                                 | Subsidiaries                                             | 29     |
| 4.23                                 | Purchasers of  Production                                | 29     |
|                                 |                                                     |   |
| **ARTICLE  V AFFIRMATIVE COVENANTS** | **29**                                                   |
| 5.1                                  | Maintenance and  Access to Records                       | 29     |
| 5.2                                  | Quarterly  Financial Statements; Compliance Certificates | 29     |
| 5.3                                  | Annual Financial  Statements                             | 29     |
| 5.4                                  | Oil and Gas  Reserve Reports                             | 29     |
| 5.5                                  | Title Opinions;  Title Defects                           | 30     |
| 5.6                                  | Post-Closing  Item                                       | 30     |
| 5.7                                  | Notices of  Certain Events                               | 31     |
| 5.8                                  | Letters in Lieu  of Transfer Orders; Division Orders     | 32     |
| 5.9                                  | Additional  Information                                  | 32     |
| 5.10                                 | Compliance with  Laws                                    | 32     |
| 5.11                                 | Payment of  Assessments and Charges                      | 32     |
| 5.12                                 | Maintenance of  Corporate Existence and Good Standing    | 32     |
| 5.13                                 | Payment of Note;  Performance of Obligations             | 33     |
| 5.14                                 | Further  Assurances                                      | 33     |
| 5.15                                 | Initial Fees and  Expenses of Counsel to Lender          | 33     |
| 5.16                                 | Subsequent Fees  and Expenses of Lender                  | 33     |
| 5.17                                 | Operation of Oil  and Gas Properties                     | 33     |
| 5.18                                 | Maintenance and  Inspection of Properties                | 34     |
| 5.19                                 | Maintenance of  Insurance                                | 34     |
| 5.20                                 | INDEMNIFICATION                                          | 34     |
| 5.21                                 | Operating  Accounts                                      | 35     |
| 5.22                                 | Hedging  Transaction Reports                             | 35     |
| 5.23                                 | **[Reserved]**                                           | **35** |
| 5.24                                 | Production and  Expense Reports                          | 35     |
| 5.25                                 | Operating Budget  Forecasts                              | 35     |
|                                 |                                                     |   |
| **ARTICLE  VI NEGATIVE COVENANTS**   | **36**                                                   |
| 6.1                                  | Indebtedness                                             | 36     |
| 6.2                                  | Contingent  Obligations                                  | 36     |
| 6.3                                  | Liens                                                    | 36     |
| 6.4                                  | Sales of Assets                                          | 36     |
| 6.5                                  | Leasebacks                                               | 37     |
| 6.6                                  | Sale or Discount  of Receivables                         | 37     |
| 6.7                                  | Loans or  Advances                                       | 37     |

 

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| 6.8                                | Investments                                             | 37     |
|------------------------------------|---------------------------------------------------------|--------|
| 6.9                                | Dividends and  Distributions                            | 37     |
| 6.10                               | Issuance of  Stock; Changes in Corporate Structure      | 37     |
| 6.11                               | Transactions  with Affiliates                           | 38     |
| 6.12                               | Lines of  Business                                      | 38     |
| 6.13                               | Plan Obligations                                        | 38     |
| 6.14                               | Current Ratio                                           | 38     |
| 6.15                               | EBITDA to Fixed  Charges                                | 38     |
| 6.16                               | Tangible Net  Worth                                     | 38     |
|                               |                                                    |   |
| **ARTICLE  VII EVENTS OF DEFAULT** | **38**                                                  |
| 7.1                                | Enumeration of  Events of Default                       | 38     |
| 7.2                                | Remedies                                                | 40     |
|                               |                                                    |   |
| **ARTICLE  VIII MISCELLANEOUS**    | **41**                                                  |
| 8.1                                | Transfers;  Participations                              | 41     |
| 8.2                                | Survival of  Representations, Warranties, and Covenants | 41     |
| 8.3                                | Notices and  Other Communications                       | 41     |
| 8.4                                | Parties in  Interest                                    | 42     |
| 8.5                                | Rights of Third  Parties                                | 42     |
| 8.6                                | Renewals;  Extensions                                   | 42     |
| 8.7                                | No Waiver;  Rights Cumulative                           | 42     |
| 8.8                                | Survival Upon  Unenforceability                         | 42     |
| 8.9                                | Amendments;  Waivers                                    | 42     |
| 8.10                               | Controlling  Agreement                                  | 43     |
| 8.11                               | Disposition of  Collateral                              | 43     |
| 8.12                               | **GOVERNING  LAW**                                      | 43     |
| 8.13                               | **JURISDICTION  AND VENUE**                             | 43     |
| 8.14                               | **WAIVER  OF RIGHTS TO JURY TRIAL**                     | 43     |
| 8.15                               | **ENTIRE  AGREEMENT**                                   | 44     |
| 8.16                               | CYMRI as Agent                                          | 44     |
| 8.17                               | Amended and  Restated Agreement                         | 44     |
| 8.18                               | **PATRIOT  ACT**                                        | 44     |
| 8.19                               | Counterparts                                            | 44     |
|                               |                                                    |   |
| **LIST OF EXHIBITS**               | ** **                                              |
| ** **                         | ** **                                              |
| Exhibit I                     | Form of Note                                       |   |
| Exhibit II                    | Form of Borrowing  Request                         |   |
| Exhibit III                   | Form of Compliance  Certificate                    |   |
| Exhibit IV                    | Disclosures                                             |   |
| Exhibit V                     | Borrowing Base Oil and  Gas Properties                  |   |
| Exhibit VI                         | Purchasers of Production                                |   |
|                                    |                                                         |        |  |

 

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**SECOND AMENDED AND RESTATED CREDIT AGREEMENT**

** **

**THIS SECOND AMENDED AND RESTATEDCREDIT AGREEMENT**is made and entered into effective the 5thday of August, 2008, by and among **CYMRI, L.L.C.**,a Nevada limited liability company **(F/K/A THE CYMRI CORPORATION**, a Texascorporation) (“***CYMRI***”)and **TRIUMPH ENERGY, INC.**, aLouisiana corporation (“***Triumph***”)(each individually, a “***Borrower***”and, collectively, the “***Borrowers***”),and **TEXAS CAPITAL BANK**, **N.A.** (the “***Lender***”).

 

**WITNESSETH:**

** **

In consideration of the mutual covenants and agreements hereincontained, the Borrowers and the Lender hereby agree as follows:

 

# **ARTICLE I**

# ** **

# **DEFINITIONS ANDINTERPRETATION**

# ** **

1.1           TermsDefined Above. As used in this Credit Agreement, the terms “***Borrower***,” “***Borrowers***,” “***CYMRI***,” “***Triumph***”and “***Lender***”shall have the meaning assigned to them hereinabove.

 

1.2           AdditionalDefined Terms. As used in this Credit Agreement, each of the followingterms shall have the meaning assigned thereto in this Section, unless thecontext otherwise requires:

 

“***Affiliate***”means any Person directly or indirectly controlling, or under common controlwith, any Borrower and includes any Subsidiary of any Borrower and any “affiliate”of any Borrower within the meaning of Reg. §240.12b-2 of the SecuritiesExchange Act of 1934, as amended, with “control,” as used in this definition,meaning possession, directly or indirectly, of the power to direct or cause thedirection of management, policies or action through ownership of votingsecurities, contract, voting trust, or membership in management or in the groupappointing or electing management or otherwise through formal or informalarrangements or business relationships.

 

“***Agreement***”means this Second Amended and Restated Credit Agreement, as it may be amended,supplemented, restated or otherwise modified from time to time.

 

“***Anti-Terrorism Laws***” shall mean anyapplicable laws relating to terrorism or money laundering, including ExecutiveOrder No. 13224, the USA PATRIOT Act, the applicable laws comprising orimplementing the Bank Secrecy Act, and the applicable laws administered by theUnited States Treasury Department’s Office of Foreign Asset Control (as any ofthe foregoing applicable laws may from time to time be amended, renewed,extended, or replaced).

 

“***Assignment ofNotes and Liens – Sterling Bank***” means that certain Assignmentof Notes, Liens and Security Interests dated of even date of this Agreement

 

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from Sterling Bank, to Lender, in form satisfactory toLender, in its sole discretion, covering the promissory note, liens andsecurity interests from Borrowers to Sterling Bank pursuant to the SterlingBank Credit Agreement.

 

 “***Available Commitment***” means, at anytime, an amount equal to the remainder, if any, of (a) the Borrowing Basein effect at such time *minus*(b) theLoan Balance at such time.

 

“***Base Rate***”means, at any time, theprime rate established in *The Wall StreetJournal’s* “*Money Rates*”or similar table.  If multiple prime ratesare quoted in the table, then the highest prime rate will be the BaseRate.  In the event that the prime rateis no longer published by *The Wall StreetJournal* in the “*Money Rates*”or similar table, then Lender may select an alternative published index basedupon comparable information as a substitute Base Rate.  Upon the selection of a substitute Base Rate,the applicable interest rate shall thereafter vary in relation to thesubstitute index.  Each change inany interest rate provided for herein based upon the Base Rate resulting from achange in the Base Rate shall take effect without notice to the Borrowers atthe time of such change in the Base Rate.

 

“***Borrowing Base***”means, at any time with regard to the Borrowing Base Oil and Gas Properties,the amount determined by the Lender in accordance with ***Section 2.7*** andthen in effect.

 

“***Borrowing BaseOil and Gas Properties***” means those Oil and Gas Properties ofBorrowers that are included in the Reserve Reports provided in connection withthis Agreement and the Oil and Gas Properties of Borrowers that will, withexecution of the Loan Documents, be subject to liens created by certain of theSecurity Instruments to secure the Obligations, which initial Borrowing BaseOil and Gas Properties are described in ***Exhibit V*** attached hereto and made apart hereof together with such additional Oil and Gas Properties as aresubsequently added to the Borrowing Base pursuant to ***Section 2.8***,as such ***Exhibit V*** or any exhibitto any Security Instruments may be amended or supplemented from time to time.

 

“***BorrowingRequest***” means each written request, in substantially the formattached hereto as ***Exhibit II***,by CYMRI to the Lender for a borrowing or prepayment pursuant to ***Sections 2.1, 2.8*** or ***2.9***, each of whichshall:

 

### (a)           be signed by a Responsible Officer ofCYMRI;

###  

### (b)           specify the amount requested orprepaid and the date of the borrowing or prepayment (which shall be a BusinessDay); and

###  

### (c)           be delivered to the Lender no laterthan 11:00 a.m., Central Standard or Daylight Savings Time, as the casemay be, on the Business Day of the requested borrowing or prepayment.

 

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“***Business Day***”means a day other than a Saturday, Sunday, legal holiday for commercial banksunder the laws of the State of Texas, or any other day when banking issuspended in the State of Texas.

 

***“Change of Control”***means, with respect to Guarantor or either Borrower, an event or series ofevents by which the holders of the Equity Interests of Guarantor or eitherBorrower, as applicable, as of the Closing Date cease to own and control,directly and indirectly, at least fifty-one percent (51%) of either Guarantor’sor Borrower’s Equity Interest ownership, as applicable.

 

“***Closing Date***”means the effective date of this Agreement when all conditions precedenthereunder have been satisfied.

 

“***Collateral***”means the Mortgaged Property, the Pledged Collateral and the Collateral asthose terms are defined in the Security Instruments and any other Property nowor at any time used or intended as security for the payment or performance ofall or any portion of the Obligations, including pursuant to the SecurityInstruments.

 

“***Commitment***”means the obligation of the Lender, subject to applicable provisions of thisAgreement, to make Loans to or for the benefit of the Borrowers pursuant to ***Section 2.1*** andto issue Letters of Credit pursuant to ***Section 2.18***.

 

“***Commitment Fee***”means each fee payable to the Lender by the Borrowers pursuant to ***Section 2.10****.*

 

“***CommitmentPeriod***” means the period from and including the Closing Date to,but not including, the Maturity Date.

 

“***Commodity HedgeAgreement***” means any crude oil, natural gas, or otherhydrocarbon floor, collar, cap, price protection, or swap agreement, in formand substance between any Borrower and a Person acceptable to the Lender in itssole discretion.

 

“***CommonlyControlled Entity’***means any Person which is under commoncontrol with any Borrower within the meaning of Section 4001 of ERISA.

 

“***ComplianceCertificate***” means each certificate, substantially in the formattached hereto as ***Exhibit III***,executed by a Responsible Officer of CYMRI and furnished to the Lender fromtime to time in accordance with ***Sections 5.2*** and ***5.3***.

 

“***ContingentObligation***” means, as to any Person, any obligation of suchPerson guaranteeing or in effect guaranteeing any Indebtedness, leases,dividends, or other obligations of any other Person (for purposes of thisdefinition, a “***primaryobligation***”) in any manner, whether directly or indirectly, including,without limitation, any obligation of such Person, regardless of whether suchobligation is contingent, (a) to purchase any primary obligation or anyProperty constituting direct or indirect security therefor, (b) to advanceor supply funds (i) for the purchase or payment of any primary obligation,or (ii) to maintain working or equity capital of any other Person inrespect of 

 

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any primary obligation, or otherwise to maintain thenet worth or solvency of any other Person, (c) to purchase Property,securities or services primarily for the purpose of assuring the owner of anyprimary obligation of the ability of the Person primarily liable for suchprimary obligation to make payment thereof, or (d) otherwise to assure orhold harmless the owner of any such primary obligation against loss in respectthereof, with the amount of any Contingent Obligation being deemed to be equalto the stated or determinable amount of the primary obligation in respect ofwhich such Contingent Obligation is made or, if not stated or determinable, themaximum reasonably anticipated liability in respect thereof as determined bysuch Person in good faith.

 

“***Current Assets***”means all assets which would, in accordance with GAAP, be included as currentassets, on a consolidated basis, on the balance sheet of the Borrowers as ofthe date of calculation.

 

“***CurrentLiabilities***” means all liabilities which would, in accordancewith GAAP, be included as current liabilities, on a consolidated basis, on thebalance sheet of the Borrowers as of the date of calculation.

 

“***CYMRI***”has the meaning given to such term in the preamble of this Agreement andincludes each successor and assignee.

 

“***Default***”means any event or occurrence which with the lapse of time or the giving ofnotice or both would become an Event of Default.

 

“***Default Rate***”means a per annum interest rate equal to the Base Rate *plus*four percent (4%), but in no eventexceeding the Highest Lawful Rate.

 

“***Defensible Title***” means withrespect to each Property, title that (a) entitles the Person to receive(free and clear of all royalties appearing or not appearing of record, alloverriding royalties and all net profits interests or other burdens on ormeasured by production of Hydrocarbons) not less than the net revenue interestset forth on Exhibit V (or in such other certificate or writingprovided to Lender representing the interests in the Properties, including,without limitation, any mortgage) in all Hydrocarbons produced, saved andmarketed from the Property for the productive life of the Property, free andclear of any Lien other than the Permitted Liens and any Liens, which are infavor of Lender and its Affiliates or are permitted hereunder; and (b) obligatessuch Person to bear costs and expenses relating to the maintenance, developmentand operation of such Property in an amount not greater than the workinginterest set forth on Exhibit V for the productive life of suchProperty.

 

“***Dollars***”and “***$***”means dollars in lawful currency of the United States of America.

 

“***EBITDA***”means, for any period, Net Income for such period plus Interest Expense,federal and state income taxes, depreciation, depletion, amortization, andother non-cash expenses, including the effects of FASB 133 and 143 for suchperiod deducted in the determination of Net Income for such period.

 

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“***EnvironmentalComplaint***” means any written complaint, order, directive, claim,citation, notice of environmental report or investigation, or other notice byany Governmental Authority or any other Person with respect to (a) airemissions, (b) spills, releases, or discharges to soils, any improvementslocated thereon, surface water, groundwater, or the sewer, septic, wastetreatment, storage, or disposal systems servicing any Property of eitherBorrower, (c) solid or liquid waste disposal, (d) the use,generation, storage, transportation, or disposal of any Hazardous Substance, or(e) other environmental, health, or safety matters affecting any Propertyof either Borrower or the business conducted thereon.

 

“***EnvironmentalLaws***” means (a) the following federal laws as they may becited, referenced, and amended from time to time: the Clean Air Act, the CleanWater Act, the Safe Drinking Water Act, the Comprehensive EnvironmentalResponse, Compensation and Liability Act, the Endangered Species Act, theResource Conservation and Recovery Act, the Occupational Safety and Health Act,the Hazardous Materials Transportation Act, the Superfund Amendments andReauthorization Act, and the Toxic Substances Control Act; (b) any and allequivalent environmental statutes of any state in which Property of eitherBorrower is situated, as they may be cited, referenced and amended from time totime; (c) any rules or regulations promulgated under or adoptedpursuant to the above federal and state laws; and (d) any other equivalentfederal, state, or local statute or any requirement, rule, regulation, code,ordinance, or order adopted pursuant thereto, including, without limitation,those relating to the generation, transportation, treatment, storage,recycling, disposal, handling, or release of Hazardous Substances.

 

“***Equity Interests***” means with respectto any Person, any shares, interests, participation, or other equivalents(however designated) of corporate stock, membership interests, or partnershipinterests (or any other ownership interests) of such Person.

 

“***ERISA***”means the Employee Retirement Income Security Act of 1974, as amended from timeto time, and the regulations thereunder and interpretations thereof.

 

“***Event ofDefault***” means any of the events specified in ***Section 7.1***.

 

“***Facility Fee***”has the meaning given to such term in ***Section 2.11*** hereof.

 

“***FinancialStatements***” means statements of the financial condition of theBorrowers and Guarantor on a consolidated basis and on a consolidating basis asat the point in time and for the period indicated and consisting of at leaststatements of income, retained earnings, changes in equity and cash flow forsuch period as well as a balance sheet as of the end of such period for theBorrowers and Guarantor and, when required by applicable provisions of thisAgreement to be reviewed by certified public accountants acceptable to theLender and footnotes to any of the foregoing, all of which shall be prepared inaccordance with GAAP for Borrowers and Guarantor, consistently applied and incomparative form with respect to the corresponding period of the precedingfiscal period.

 

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“***Floating Rate***”means an interest rate per annum equal to the Base Rate from time to time ineffect plus one percent (1%), but in no event exceeding the Highest LawfulRate.

 

“***GAAP***”means generally accepted accounting principles established by the FinancialAccounting Standards Board or the American Institute of Certified PublicAccountants and in effect in the United States from time to time.

 

“***Gas***” or “***gas***”means and includes, in each case, natural gas, casinghead gas, coal bed methanegas, coal mine methane gas and all methane gas found in the coal seams or otherstrata in communication with the coal.

 

“***Governing Body***”means, in the case of a corporation, its board of directors, in the case of alimited liability company, its members or its managers, depending on how themanagement of such Business Entity is allocated in its Governing Documents, inthe case of a general partnership or joint venture, the partners or the jointventurers thereof, respectively, in the case of a limited partnership, theapplicable Governing Body of the general partner thereof, if such generalpartner is a Business Entity, and in the case of any other Business Entity notspecified herein, the designees thereof that, pursuant to the Governing Documentsof such Business Entity, fulfill the responsibilities typically discharged by aboard of directors of a corporation.

 

“***Governing Documents***” means, (a) inthe case of a corporation, its certificate of incorporation or formation,articles of incorporation and bylaws, as amended, (b) in the case of alimited liability company, its certificate of formation, its limited liabilitycompany agreement, and its operating agreement or regulations (or similardocumentation as denominated under the laws of the jurisdiction in which it isformed), (c) in the case of a general partnership or joint venture, theapplicable partnership agreement or joint venture agreement, (d) in thecase of a limited partnership, its certificate of formation and partnershipagreement, and (e) in the case of any other entity not specified in thisAgreement, the applicable documentation typically used in the jurisdictionwhere such entity has been formed for purposes of initially forming such entityaccording to the laws of such jurisdiction and thereafter operating andmanaging such entity.

 

“***GovernmentalAuthority***” means any nation, country, commonwealth, territory,government, state, county, parish, municipality, or other political subdivisionand any entity exercising executive, legislative, judicial, regulatory, oradministrative functions of or pertaining to government.

 

“***Guarantor***” means StratumHoldings, Inc., a Nevada corporation.

 

“***Guaranty***” means an unlimitedguaranty agreement in form and content satisfactory to Lender.

 

“***HazardousSubstances***” means flammables, explosives, radioactive materials,hazardous wastes, asbestos, or any material containing asbestos,polychlorinated biphenyls (PCBs), toxic substances or related materials,petroleum, petroleum products, 

 

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associated oil or natural gas exploration, production,and development wastes, or any substances defined as “hazardous substances,” “hazardousmaterials,” “hazardous wastes,” or “toxic substances” under the ComprehensiveEnvironmental Response, Compensation and Liability Act, as amended, theSuperfund Amendments and Reauthorization Act, as amended, the HazardousMaterials Transportation Act, as amended, the Resource Conservation andRecovery Act, as amended, the Toxic Substances Control Act, as amended, or anyother law or regulation now or hereafter enacted or promulgated by anyGovernmental Authority.

 

“***Highest Lawful Rate***”means the maximum non-usurious interest rate, if any (or, if the context sorequires, an amount calculated at such rate), that at anytime or from time totime may be contracted for, taken, reserved, charged, or received underapplicable laws of the State of Texas or the United States of America,whichever authorizes the greater rate, as such laws are presently in effect or,to the extent allowed by applicable law, as such laws may hereafter be ineffect and which allow a higher maximum non-usurious interest rate than suchlaws now allow.

 

“***Hydrocarbons***” means oil, Gas,drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons,gaseous hydrocarbons, and all products refined or separated therefrom.

 

“***Indebtedness***”means, as to any Person, without duplication, (a) all liabilities(excluding reserves for deferred income taxes, deferred compensationliabilities, and other deferred liabilities and credits) which in accordancewith GAAP would be included in determining total liabilities as shown on theliability side of a balance sheet, (b) all obligations of such Personevidenced by bonds, debentures, promissory notes, or similar evidences ofindebtedness, (c) all other indebtedness of such Person for borrowedmoney, and (d) all obligations of others, to the extent any suchobligation is secured by a Lien on the assets of such Person (whether or notsuch Person has assumed or become liable for the obligation secured by suchLien).

 

“***InsolvencyProceeding***” means application (whether voluntary or institutedby another Person) for or the consent to the appointment of a receiver,trustee, conservator, custodian, or liquidator of any Person or of all or asubstantial part of the Property of such Person, or the filing of a petition(whether voluntary or instituted by another Person) commencing a case underTitle 11 of the United States Code, seeking liquidation, reorganization, orrearrangement or taking advantage of any bankruptcy, insolvency, debtor’srelief, or other similar law of the United States, the State of Texas, or anyother jurisdiction.

 

“***IntellectualProperty***” means patents, patent applications, trademarks,tradenames, copyrights, technology, know-how, and processes.

 

“***Intercreditor Agreement***”means an intercreditor agreement in connection with Lender’s agreement to shareits Liens on a *pari passu* basis with acounterparty under a Permitted Commodity Hedge Agreement, in form and contentsatisfactory to Lender.

 

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“***InterestExpense***” means, for any period, the total interest expense(including, without limitation, interest expense attributable to capitalizedleases) of the Borrowers for such period, determined in accordance with GAAP.

 

“***Investment***”means, for any Person (a) the acquisition (whether for cash, property,services or securities or otherwise) of Equity Interests of any other Person orany agreement to make any such acquisition (including any “short sale” or anysale of any securities at a time when such securities are not owned by thePerson entering into such short sale), (b) the making of any deposit with,or advance, loan or capital contribution to, assumption of Indebtedness of,purchase or other acquisition of any other Indebtedness or equity participationor interest in, or other extension of credit to, any other Person (includingthe purchase of assets from another Person subject to an understanding oragreement, contingent or otherwise, to resell such assets to such Person, (c) thepurchase or acquisition (in one or a series of transactions) of assets ofanother Person that constitutes a business unit, or (d) the entering intoof any guarantee of, or other contingent obligation (including the deposit ofany Equity Interests to be sold) with respect to, Indebtedness or otherliability of any other Person and (without duplication) any amount committed tobe advanced, lent or extended to such Person.

 

“***L/C Exposure***”means, at any time, the aggregate maximum amount available to be drawn underoutstanding Letters of Credit at such time.

 

“***L/C Limit***” means $500,000.

 

“***Letter ofCredit***” means any standby letter of credit issued by the Lenderfor the account of the Borrowers pursuant to ***Section 2.18***.

 

“***Letter ofCredit Application***” means the standard letter of creditapplication employed by the Lender from time to time in connection with Lettersof Credit.

 

“***Letter ofCredit Fee***” means each fee payable to the Lender by theBorrowers pursuant to ***Section 2.19***upon or in connection with the issuance of a Letter of Credit.

 

“***Lien***”means any interest in Property securing an obligation owed to, or a claim by, aPerson other than the owner of such Property, whether such interest is based oncommon law, statute, or contract, and including, but not limited to, the lienor security interest arising from a mortgage, encumbrance, pledge, securityagreement, conditional sale or trust receipt, or a lease, consignment, orbailment for security purposes (other than true leases or true consignments),liens of mechanics, materialmen, and artisans, maritime liens and reservations,exceptions, encroachments, easements, rights of way, covenants, conditions,restrictions, leases, and other title exceptions and encumbrances affectingProperty which secure an obligation owed to, or a claim by, a Person other thanthe owner of such Property (for the purpose of this Agreement, the Borrowershall be deemed to be the owner of any Property which it has acquired or holdssubject to a conditional sale agreement, financing lease, or other arrangementpursuant to which title to the Property has been retained by or vested in someother Person for security purposes), and 

 

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the filing or recording of any financing statement orother security instrument in any public office.

 

“***LimitationPeriod***” means any period while any amount remains owing on theNote and interest on such amount, calculated at the applicable interest rate,plus any fees or other sums payable under any Loan Document and deemed to beinterest under applicable law, would exceed the amount of interest which wouldaccrue at the Highest Lawful Rate.

 

“***Loan***”means any loan made by the Lender to or for the benefit of the Borrowerpursuant to this Agreement and any payment made by the Lender under a Letter ofCredit.

 

“***Loan Balance***”means, at any time, the outstanding principal balance of the Note at such time,plus the L/C Exposure at such time.

 

“***Loan Documents***”means this Agreement, the Note, the Letters of Credit Applications, the Lettersof Credit, the Security Instruments, the Subordination Agreement and all otherdocuments and instruments now or hereafter delivered pursuant to the terms ofor in connection with this Agreement, the Note, the Letters of CreditApplications, the Letters of Credit, or the Security Instruments, and allrenewals and extensions of, amendments and supplements to, and restatements andother modifications of, any or all of the foregoing from time to time ineffect.

 

“***Loan Parties***” means theBorrowers and the Guarantor.

 

“***MaterialAdverse Effect***” means (a) any adverse effect on thebusiness, operations, properties, financial condition, or prospects of theBorrowers and the Guarantor, taken as a whole, which materially increases therisk that any of the Obligations will not be repaid as and when due, or (b) anymaterial adverse effect upon any material portion of the Collateral in Lender’sreasonable judgment.

 

“***Maturity Date***”means the second anniversary of the Closing Date.

 

“***Monthly Borrowing Base Reduction***”is defined in ***Section 2.7(a)***.

 

“***Net Income***”means, for any period, the net income (or loss) of the Borrower, on aconsolidated basis, for such period, determined in accordance with GAAP.

 

“***Net Proceeds***”means (a) with respect to any sale, lease, transfer or other dispositionof any asset by any Person, the aggregate amount of cash and non-cash proceedsfrom such transaction received by, or paid to or for the account of, suchPerson, net of customary and reasonable out-of-pocket costs, fees, andexpenses, and (b) with respect to the issuance of equity securities, debtsecurities, or similar instruments, or the incurrence of Indebtedness, the cashand non-cash proceeds received from such issuance or incurrence, net ofattorneys’ fees, investment banking fees, accountants fees, underwritingdiscounts and commissions and other customary fees and expenses actuallyincurred in connection with such issuance. Non-cash proceeds include any proceeds 

 

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received by way of deferred payment of principalcalculated on a combined basis as of such time pursuant to a note,installment receivable, purchase price adjustment receivable, orotherwise, but only as and when received.

 

“***Note***”means the promissory note of the Borrowers, in the form attached hereto as ***Exhibit I***,together with all renewals, extensions for any period, increases, andrearrangements thereof.

 

“***Obligations***”means, without duplication, (a) all Indebtedness evidenced by the Note, (b) theReimbursement Obligations, (c) the undrawn, unexpired amount of alloutstanding Letters of Credit, (d) the obligation of the Borrower for thepayment of Commitment Fees, Letter of Credit Fees, and reimbursement ofengineering expenses, (e) indemnity obligations of Borrowers and (f) allother obligations and liabilities of the Borrower to the Lender, now existingor hereafter incurred, under, arising out of or in connection with any LoanDocument, and to the extent that any of the foregoing includes or refers to thepayment of amounts deemed or constituting interest, only so much thereof asshall have accrued, been earned and which remains unpaid at each relevant time ofdetermination.

 

“***Oil and GasProperties***” means fee, leasehold, or other interests in or undermineral estates or oil, gas, and other liquid or gaseous hydrocarbon leaseswith respect to Properties situated in the United States or offshore from anyState of the United States, including, without limitation, overriding royaltyand royalty interests, leasehold estate interests, net profits interests,production payment interests, and mineral fee interests, together withcontracts executed in connection therewith and all tenements, hereditaments,appurtenances and Properties appertaining, belonging, affixed, or incidentalthereto.

 

“***Permitted Commodity Hedge Agreements***”means crude oil, natural gas, or other hydrocarbon Commodity Hedge Agreements; *provided that* (i) such agreement is in form andsubstance and with a Person acceptable to the Lender, in its discretion, (ii) eachtransaction under such agreement must also be approved by the Lender, (iii) suchagreements shall not be entered into with respect to Borrowers’ Borrowing BaseOil and Gas Properties constituting more than 80% of the present value ofestimated future net revenues, computed using a discount factor of 9%, of allproved developed producing Borrowing Base Oil and Gas Properties, and (iv) thatthe floor prices in such agreements are not less than the prices used by theLender in its most recent Borrowing Base determination,

 

“***Permitted Liens***”means (a) Liens for taxes, assessments, or other governmental charges orlevies not yet due or which (if foreclosure, distraint, sale, or other similarproceedings shall not have been initiated) are being contested in good faith byappropriate proceedings, and such reserve as may be required by GAAP shall havebeen made therefor, (b) Liens (including, but not limited to, pledges ordeposits) in connection with workers’ compensation, unemployment insurance orother social security (other than Liens created by Section 4068 of ERISA),old-age pension, or public liability obligations which are not yet due or whichare being contested in good faith by appropriate 

 

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proceedings, if such reserve as may be required byGAAP shall have been made therefor, (c) Liens in favor of vendors,carriers, warehousemen, repairmen, mechanics, workmen, materialmen,construction, or similar Liens arising by operation of law in the ordinarycourse of business in respect of obligations which are not yet due or which arebeing contested in good faith by appropriate proceedings, if such reserve asmay be required by GAAP shall have been made therefor, (d) Liens in favorof operators and non-operators under joint operating agreements or similarcontractual arrangements arising in the ordinary course of the business of theBorrower to secure amounts owing, which amounts are not yet due or are beingcontested in good faith by appropriate proceedings, if such reserve as may berequired by GAAP shall have been made therefor, (e) Liens under productionsales agreements, division orders, operating agreements, and other agreementscustomary in the oil and gas business for processing, producing, and sellinghydrocarbons securing obligations not constituting Indebtedness and providedthat such Liens do not secure obligations to deliver hydrocarbons at somefuture date without receiving full payment therefor within 90 days of delivery,(f) easements, rights of way, restrictions, and other similarencumbrances, and minor defects in the chain of title which are customarilyaccepted in the oil and gas financing industry, none of which interfere withthe ordinary conduct of the business of the Borrower or materially detract fromthe value or use of the Property to which they apply, (g) Liens in favorof the Lender, (h) any Liens securing Indebtedness subordinated to theObligations pursuant to the Subordination Agreement and (i) *pari passu* Liens in connection with Permitted CommodityHedge Agreements, but subject to an Intercreditor Agreement.

 

“***Person***”means an individual, corporation, partnership, trust, unincorporatedorganization, government, any agency or political subdivision of anygovernment, or any other form of entity.

 

“***Plan***”means, at any time, any employee benefit plan which is covered by ERISA and inrespect of which the Borrower or any Commonly Controlled Entity is (or, if suchplan were terminated at such time, would under Section 4069 of ERISA bedeemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

“***Pledge Agreement***” means apledge agreement dated of even date of this Agreement executed by Guarantor infavor of Lender covering the Equity Interests in each Borrower.

 

“***PrincipalOffice***” means the principal office of the Lender in Houston,Texas, presently located at One Riverway, Suite 2450, Houston, Texas77056.

 

“***Property***”means any interest in any kind of property or asset, whether real, personal ormixed, tangible or intangible.

 

“***Purchasers of Production***” means the Personslisted on ***Exhibit VI***and all other Persons who purchase Hydrocarbons attributable or allocable toBorrowers’ interests in the Borrowing Base Oil and Gas Properties.

 

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“***Rate Management Transaction***”means any rate swap, basis swap, forward rate transaction, commodity swap,commodity option, equity or equity index swap, equity or equity index option,bond option, interest rate option, foreign exchange transaction, cap transaction,floor transaction, collar transaction, forward transaction, currency swaptransaction, cross-currency rate swap transaction, currency option or any othersimilar transaction (including any option with respect to any of thesetransactions) or any combination thereof, whether linked to on or more interestrates, foreign currencies, commodity prices, equity prices or other financialmeasures.

 

“***Regulation D***” meansRegulation D of the Board of Governors of the Federal Reserve System, as thesame may be amended or supplemented from time to time.

 

“***Regulatory Change***”means the passage, adoption, institution, or amendment of any federal, state,local, or foreign Requirement of Law (including, without limitation, RegulationD), or any interpretation, directive, or request (whether or not having theforce of law) of any Governmental Authority or monetary authority charged withthe enforcement, interpretation, or administration thereof, occurring after theClosing Date and applying to a class of banks including the Lender.

 

“***Reimbursement Obligation***”means the obligation of the Borrowers to provide to the Lender or reimburse theLender for any amounts payable, paid, or incurred by the Lender with respect toLetters of Credit.

 

“***Release of Hazardous Substances***”means any emission, spill, release, disposal, or discharge, except inaccordance with a valid permit, license, certificate, or approval of therelevant Governmental Authority, of any Hazardous Substance into or upon (a) theair, (b) soils or any improvements located thereon, (c) surface wateror groundwater, or (d) the sewer or septic system, or the waste treatment,storage, or disposal system servicing any Property of either Borrower.

 

“***Requirement of Law***”means, as to any Person, the certificate or articles of incorporation andby-laws, partnership agreements or other organizational or governing documentsof such Person, and any applicable law, treaty, ordinance, order, judgment,rule, decree, regulation, or determination of an arbitrator, court, or otherGovernmental Authority, including, without limitation, rules, regulations,orders, and requirements for permits, licenses, registrations, approvals, orauthorizations, in each case as such now exist or may be hereafter amended andare applicable to or binding upon such Person or any of its Property or towhich such Person or any of its Property is subject.

 

“***Reserve Report***” meanseach report delivered to the Lender pursuant to ***Section 5.4***.

 

“***Responsible Officer***”means, as to any Person, its President, Chief Executive Officer or ChiefFinancial Officer.

 

“***Security Instruments***”means the security instruments executed and delivered in satisfaction of thecondition set forth in ***Section 3.1(f)***,and all other documents and instruments at any time executed as security forall or any portion of the Obligations, as 

 

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such instruments may be amended, restated, supplemented or otherwisemodified from time to time.

 

“***Sterling Bank Credit Agreement***”means that certain Credit Agreement dated December 3, 2004 betweenSterling Bank, as lender, and CYMRI and Triumph, as borrowers, as amended bythe First Amendment thereto dated May 22, 2006, the Second Amendmentthereto dated September 7, 2006, the Third Amendment thereto dated November 29,2007, the Fourth Amendment thereto dated effective December 31, 2007 andthe Fifth Amendment thereto dated March 31, 2008.

 

“***Subordination Agreement***”means that certain Subordination Agreement dated as of even date herewith amongthe Lender, Borrower, Frank M. Cantrell, Jr. and any other subordinationagreement among the Lender, any Borrower and any Person (other than a LoanParty) that holds any Indebtedness for borrowed money of either Borrower inform satisfactory to Lender in its sole discretion.

 

“***Subsidiary***” means, asto any Person, other than an individual, of which shares of Equity Interestshaving ordinary voting power (other than Equity Interests having such poweronly by reason of the happening of a contingency) to elect a majority of theGoverning Body of such Person that are at the time owned, or the management ofwhich is otherwise controlled, directly or indirectly through one or moreintermediaries, or both, by such Person.

 

“***Superfund Site***” meansthose sites listed on the Environmental Protection Agency National PriorityList and eligible for remedial action or any comparable state registries orlist in any state of the United States.

 

“***Transferee***” means anyPerson to which the Lender has sold, assigned, transferred, or granted aparticipation in any of the Obligations, as authorized pursuant to ***Section 8.1***, andany Person acquiring, by purchase, assignment, transfer, or participation, fromany such purchaser, assignee, transferee, or participant, any part of suchObligations.

 

“***Triumph***” has themeaning given to such term in the preamble of this Agreement and includes eachsuccessor and assignee.

 

“***UCC***” means theUniform Commercial Code as from time to time in effect in the State of Texas.

 

“***USAPATRIOT Act***” shall mean the Uniting and Strengthening America byProviding Appropriate Tools Required to Intercept and Obstruct Terrorism Act of2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed,extended, amended or replaced.

 

## 1.3                                 UndefinedFinancial Accounting Terms. Undefined financial accounting terms used inthis Agreement shall be defined according to GAAP at the time in effect.

 

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## 1.4                                 References.  References in this Agreement to Exhibit,Article, or Section numbers shall be to Exhibits, Articles, or Sections ofthis Agreement, unless expressly stated to the contrary.  References in this Agreement to “hereby,” “herein,”“hereinafter,” “hereinabove,” “hereinbelow,” “hereof,” “hereunder” and words ofsimilar import shall be to this Agreement in its entirety and not only to theparticular Exhibit, Article, or Section in which such reference appears.

##  

## 1.5                                 Articlesand Sections. This Agreement, for convenience only, has been divided intoArticles and Sections; and it is understood that the rights and other legalrelations of the parties hereto shall be determined from this instrument as anentirety and without regard to the aforesaid division into Articles andSections and without regard to headings prefixed to such Articles or Sections.

##  

## 1.6                                 Numberand Gender.  Whenever the contextrequires, reference herein made to the single number shall be understood toinclude the plural; and likewise, the plural shall be understood to include thesingular.  Definitions of terms definedin the singular or plural shall be equally applicable to the plural orsingular, as the case may be, unless otherwise indicated. Words denoting sexshall be construed to include the masculine, feminine and neuter, when suchconstruction is appropriate; and specific enumeration shall not exclude thegeneral but shall be construed as cumulative.

##  

## 1.7                                 Incorporationof Exhibits. The Exhibits attached to this Agreement are incorporatedherein and shall be considered a part of this Agreement for all purposes.

##  

# **ARTICLE II**

# ** **

# **TERMS OF FACILITY**

# ** **

## 2.1                                 RevolvingLine of Credit.

##  

### (a)                                  Uponthe terms and conditions (including, without limitation, the right of theLender to decline to make any Loan so long as any Default or Event of Defaultexists) and relying on the representations and warranties contained in thisAgreement, the Lender agrees, during the Commitment Period, to make Loans, inimmediately available funds at the Principal Office, to or for the benefit ofthe Borrowers, from time to time on any Business Day designated by theBorrowers following receipt by the Lender of a Borrowing Request; *provided, however*, no Loan shall exceedthe then existing Available Commitment.

 

### (b)                                 Subjectto the terms of this Agreement, during the Commitment Period, the Borrowers mayborrow, repay, and reborrow such funds. Except for prepayments made pursuant to***Section 2.8***,each borrowing and prepayment of principal of Loans shall be in an amount atleast equal to $100,000.  Each borrowingor prepayment shall be deemed a separate borrowing or prepayment for purposesof the foregoing.

###  

### (c)                                  TheLoans made under this ***Section 2.1***shall be made and maintained at the Principal Office and shall be evidenced bythe Note.

 

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## 2.2                                 Useof Loan Proceeds.

##  

### (a)                                  Proceedsof all Loans shall be used solely for (i) the acquisition and developmentof the Borrowing Base Oil and Gas Properties, (ii) payment of fees andexpenses hereunder and (iii) for general corporate purposes.

###  

### (b)                                 Lettersof Credit shall be used solely for general corporate purposes *provided, however*, no Letter of Credit maybe used in lieu or in support of stay or appeal bonds.

###  

## 2.3                                 Interest.  Subject to the terms of this Agreement(including, without limitation, ***Section 2.15***), interest on the Loans shall accrueand be payable at a rate per annum equal to the Floating Rate. Interest on allLoans shall be computed on the basis of a year of 365 or 366 days, as the casemay be, and actual days elapsed (including the first day but excluding the lastday) during the period for which payable. Interest provided for herein shall becalculated on unpaid sums actually advanced and outstanding pursuant to theterms of this Agreement and only for the period from the date or dates of suchadvances until repayment. Notwithstanding the foregoing, interest on past-dueprincipal and, to the extent permitted by applicable law, past-due interest,shall accrue at the Default Rate, computed on the basis of a year of 365 or 366days, as the case may be, and actual days elapsed (including the first day butexcluding the last day) during the period for which payable, and shall bepayable upon demand by the Lender at any time as to all or any portion of suchinterest.

##  

## 2.4                                 Repaymentof Loans and Interest.  Accrued andunpaid interest on the outstanding Loans under the Note shall be due andpayable monthly commencing on the last day of August, 2008, and continuing onthe last day of each calendar month thereafter while any amount of theoutstanding principal balance remains outstanding, the payment in each instanceto be the amount of interest which has accrued and remains unpaid in respect ofthe outstanding principal balance.  Theoutstanding principal balance on the Note, together with all accrued and unpaidinterest thereon, shall be due and payable on the Maturity Date.

##  

## 2.5                                 OutstandingAmounts. The outstanding principal balance of the Note reflected by thenotations by the Lender on its records shall be deemed rebuttably presumptiveevidence of the principal amount owing on the Note. The liability for paymentof principal and interest evidenced by the Note shall be limited to principalamounts actually advanced and outstanding pursuant to this Agreement andinterest on such amounts calculated in accordance with this Agreement.

##  

## 2.6                                 Time,Place, and Method of Payments.  Allpayments required pursuant to this Agreement or the Note shall be made inlawful money of the United States of America and in immediately availablefunds, shall be deemed received by the Lender on the next Business Dayfollowing receipt if such receipt is after 2:00 p.m., Central Standard orDaylight Savings Time, as the case may be, on any Business Day, and shall bemade at the Principal Office. Except as provided to the contrary herein, if thedue date of any payment hereunder or under the Note would otherwise fall on aday which is not a Business Day, such date shall be extended to the nextsucceeding Business Day, and interest shall be payable for any principal soextended for the period of such extension.

 

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## 2.7                                 BorrowingBase Determinations.

##  

### (a)                                  TheBorrowing Base as of the Closing Date is acknowledged by the Borrowers and theLender to be $3,400,000.  The amount ofthe Borrowing Base (as adjusted from time to time under the terms of thisAgreement) shall be reduced by $125,000 on the first day of each monthbeginning September 1, 2008 (the “***Monthly Borrowing BaseReduction***”).

###  

### (b)                                 TheBorrowing Base shall be redetermined semi-annually on each May 1 and November 1of each calendar year beginning November 1, 2008, on the basis ofinformation supplied by the Borrowers in compliance with the provisions of thisAgreement, including, without limitation, Reserve Reports, and all otherinformation available to the Lender. In addition, the Lender shall, in thenormal course of business following a request of the Borrowers, redetermine theBorrowing Base attributable to the Borrowing Base Oil and Gas Properties; *provided, however*, the Lender shall not beobligated to respond to more than one such request during any calendar year,and in no event shall the Lender be required to redetermine the Borrowing Basemore than once in any three-month period, including, without limitation, eachscheduled semi-annual redetermination provided for above.  Notwithstanding the foregoing, the Lender mayat its discretion redetermine the Borrowing Base attributable to the BorrowingBase Oil and Gas Properties and the amount by which the Borrowing Base shall bereduced each calendar month as set forth in ***Section 2.7(a) ***at any time andfrom time to time.

###  

### (c)                                  Uponeach determination of the Borrowing Base by the Lender, the Lender shall notifythe Borrower in writing of such determination, and the Borrowing Base and theamount by which the Borrowing Base shall be reduced or increased socommunicated to the Borrowers shall become effective upon such writtennotification and shall remain in effect until the next subsequent determinationof the Borrowing Base and the amount by which the Borrowing Base shall bereduced.  Each time the Borrowing Base isredetermined by Lender, the Monthly Borrowing Base Reduction shall also beredetermined.

###  

### (d)                                 TheBorrowing Base shall represent the determination by the Lender, in accordancewith the applicable definitions and provisions herein contained and itscustomary lending practices for loans of this nature, of the value, for loanpurposes, of the Borrowing Base Oil and Gas Properties, subject, in the case ofany increase in the Borrowing Base, to the credit approval process of theLender.  Furthermore, the Borrowersacknowledge that the determination of the Borrowing Base contains an equitycushion, which is acknowledged by the Borrowers to be essential for theadequate protection of the Lender.

###  

## 2.8                                 MandatoryPrepayments.

##  

### (a)                                  Ifat any time the Loan Balance exceeds the Borrowing Base then in effect, theBorrowers shall, within 30 days of notice from the Lender of such occurrence, (i) prepay,or make arrangements acceptable to the Lender for the prepayment of, the amountof such excess for application on the Loan Balance, (ii) provideadditional 

 

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### collateral, of character and value satisfactory to theLender in its sole discretion, to secure the Obligations by the execution anddelivery to the Lender of security instruments in form and substancesatisfactory to the Lender, or (iii) effect any combination of thealternatives described in clauses (i) and (ii) of this Section andacceptable to the Lender in its sole discretion.  In the event that a mandatory prepayment isrequired under this Section and the Loan Balance is less than the amountrequired to be prepaid, the Borrowers shall repay the entire Loan Balance and,in accordance with the provisions of the relevant Letter of Credit Applicationsexecuted by the Borrower or otherwise to the satisfaction of the Lender,deposit with the Lender, as additional collateral securing the Obligations, anamount of cash, in immediately available funds, equal to the L/C Exposure minusthe Borrowing Base.  The cash depositedwith the Lender in satisfaction of the requirement provided in this Section maybe invested, at the sole discretion of the Lender and then only at the expressdirection of the Borrowers as to investment vehicle and maturity (which shallbe no later than the latest expiry date of any then outstanding Letter ofCredit), for the account of the Borrowers in cash or cash equivalentinvestments offered by or through the Lender.

###  

### (b)                                 Inaddition to the foregoing, the Borrowers shall immediately prepay the principalof the Note in an amount equal to:

###  

#### (i)                                     100%of Net Proceeds from the disposition of any asset, excluding sales permittedunder this Agreement;

####  

#### (ii)                                  100%of insurance proceeds in excess of $50,000 per occurrence in respect of anyinsurance policy required to be maintained by the Borrower under the terms ofthis Agreement unless Borrower reinvests such proceeds within ninety (90) daysof any insurable loss to replace the lost or damaged assets;

####  

#### (iii)                               50%of the Net Proceeds from the sale or issuance (after the date of thisAgreement) of any Equity Interest; and

####  

#### (iv)                              100%of any Indebtedness incurred by any Borrower, other than Indebtedness permittedunder ***Section 6.1***hereof.

####  

## 2.9                                 VoluntaryPrepayments of Loans. Subject to applicable provisions of this Agreement,the Borrower shall have the right at any time or from time to time to prepayLoans without prepayment penalty *provided,however*, (a) the Borrower shall pay all accrued and unpaidinterest on the amounts prepaid, and (b) no such prepayment shall serve topostpone the repayment when due of any Obligation.

##  

## 2.10                           CommitmentFee.  In addition to interest on theNote as provided herein and all other fees payable hereunder and to compensatethe Lender for maintaining funds available, the Borrower shall pay to theLender, in immediately available funds, on the first day of September, 2008,and on the first day of each calendar month thereafter during the CommitmentPeriod, a fee in the amount of one-quarter percent (0.25%) per annum,calculated on the basis of a year of 365 or 366 days, as the case may be, andactual days elapsed (including the first day but 

 

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## excluding the last day), on the average daily amountof the Available Commitment during the preceding month.

##  

## 2.11                           FacilityFee.  In addition to interest on theNote as provided herein and all other fees payable hereunder and to compensatethe Lender for the costs of the extension of credit hereunder, the Borrowershall pay to the Lender (i) on the Closing Date, in immediately availablefunds, a facility fee (the “Facility Fee”) in the amount of $17,000 and (ii) aFacility Fee equal to one-half of one percent (0.5%) on any future increase inthe Borrowing Base over the highest Borrowing Base previously in effect, on thedate of any such Borrowing Base redetermination.

##  

## 2.12                           Reimbursementfor Engineering Expenses.  Inaddition to interest and other fees payable hereunder and to compensate theLender for the costs of evaluating the Borrowing Base Oil and Gas Propertiesand reviewing the Reserve Reports, the Borrower shall reimburse the Lender$2,500 for all expenses relating to such reviews, in immediately availablefunds, on the date of each redetermination of the Borrowing Base, including onthe Closing Date.

##  

## 2.13                           Loansto Satisfy Obligations of Borrowers. The Lender may, but shall not beobligated to, make Loans for the benefit of the Borrowers and apply proceedsthereof to the satisfaction of any condition, warranty, representation, orcovenant of the Borrowers contained in this Agreement or any other LoanDocument.  Any such Loan shall beevidenced by the Note and shall be made at the Floating Rate.

##  

## 2.14                           SecurityInterest in Accounts; Right of Offset. As security for the payment and performance of the Obligations, eachBorrower hereby transfers, assigns, and pledges to the Lender and grants to theLender a security interest in all funds of each Borrower now or hereafter orfrom time to time on deposit with the Lender, with such interest of the Lenderto be retransferred, reassigned, and/or released by the Lender, as the case maybe, at the expense of the Borrowers upon payment in full and completeperformance by the Borrowers of all Obligations. All remedies as secured partyor assignee of such funds shall be exercisable by the Lender upon theoccurrence of any Event of Default, regardless of whether the exercise of anysuch remedy would result in any penalty or loss of interest or profit withrespect to any withdrawal of funds deposited in a time deposit account prior tothe maturity thereof. Furthermore, each Borrower hereby grants to the Lenderthe right, exercisable at such time as any Obligation shall mature, whether byacceleration of maturity or otherwise, of offset or banker’s lien against allfunds of the Borrowers now or hereafter or from time to time on deposit withthe Lender, regardless of whether the exercise of any such remedy would resultin any penalty or loss of interest or profit with respect to any withdrawal offunds deposited in a time deposit account prior to the maturity thereof.

 

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## 2.15                           GeneralProvisions Relating to Interest.

##  

### (a)                                  Itis the intention of the parties hereto to comply strictly with the usury lawsof the State of Texas and the United States of America.  In this connection, there shall never becollected, charged, or received on the sums advanced hereunder interest inexcess of that which would accrue at the Highest Lawful Rate. For purposes ofChapter 303 of the Texas Finance Code, the Borrowers agree that theHighest Lawful Rate shall be the “weekly ceiling” as defined in such Section,provided that the Lender may also rely, to the extent permitted by applicablelaws of the State of Texas or the United States of America, on alternativemaximum rates of interest under other laws of the State of Texas or the UnitedStates of America applicable to the Lender, if greater.

###  

### (b)                                 Notwithstandinganything herein or in the Note to the contrary, during any Limitation Period,the interest rate to be charged on amounts evidenced by the Note shall be theHighest Lawful Rate, and the obligation, if any, of the Borrowers for thepayment of fees or other charges deemed to be interest under applicable lawshall be suspended.  During any period orperiods of time following a Limitation Period, to the extent permitted byapplicable laws of the State of Texas or the United States of America, theinterest rate to be charged hereunder shall remain at the Highest Lawful Rateuntil such time as there has been paid to the Lender (i) the amount ofinterest in excess of that accruing at the Highest Lawful Rate that the Lenderwould have received during the Limitation Period had the interest rate remainedat the otherwise applicable rate, and (ii) all interest and fees otherwisepayable to the Lender but for the effect of such Limitation Period.

###  

### (c)                                  If,under any circumstances, the aggregate amounts paid on the Note or under this Agreementor any other Loan Document include amounts which by law are deemed interest andwhich would exceed the amount permitted if the Highest Lawful Rate were ineffect, the Borrowers stipulate that such payment and collection will have beenand will be deemed to have been, to the extent permitted by applicable laws ofthe State of Texas or the United States of America, the result of mathematicalerror on the part of the Borrowers and the Lender; and the Lender shallpromptly refund the amount of such excess (to the extent only of such interestpayments in excess of that which would have accrued and been payable on thebasis of the Highest Lawful Rate) upon discovery of such error by the Lender ornotice thereof from the Borrowers.  Inthe event that the maturity of any Obligation is accelerated, by reason of anelection by the Lender or otherwise, or in the event of any required orpermitted prepayment, then the consideration constituting interest underapplicable laws may never exceed the Highest Lawful Rate; and excess amountspaid which by law are deemed interest, if any, shall be credited by the Lenderon the principal amount of the Obligations, or if the principal amount of theObligations shall have been paid in full, refunded to the Borrowers.

###  

### (d)                                 Allsums paid, or agreed to be paid, to the Lender for the use, forbearance anddetention of the proceeds of any advance hereunder shall, to the extentpermitted by applicable law, be amortized, prorated, allocated, and spreadthroughout the full term hereof until paid in full so that the actual rate ofinterest is uniform but does not exceed the Highest Lawful Rate throughout thefull term hereof.

 

19

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## 2.16                           Lettersin Lieu of Transfer Orders. The Lender agrees that none of the letters inlieu of transfer or division orders provided by the Borrowers pursuant to ***Section 3.1(f)(v) ***or***Section 5.7***will be sent to the addressees thereof prior to the occurrence and continuanceof an Event of Default, at which time the Lender may, at its option and inaddition to the exercise of any of its other rights and remedies, send any orall of such letters.

##  

## 2.17                           Powerof Attorney.  Each Borrower herebydesignates the Lender as its agent and attorney-in-fact, to act in its name,place, and stead for the purpose of completing and, upon the occurrence andcontinuance of an Event of Default, delivering any and all of the letters inlieu of transfer orders delivered by the Borrower to the Lender pursuant to ***Section 3.1(f)(v) ***or***Section 5.7***,including, without limitation, completing any blanks contained in such lettersand attaching exhibits thereto describing the relevant Collateral. EachBorrower hereby ratifies and confirms all that the Lender shall lawfully do orcause to be done by virtue of this power of attorney and the rights grantedwith respect to such power of attorney. This power of attorney is coupled with the interests of the Lender inthe Collateral, shall commence and be in full force and effect as of theClosing Date and shall remain in full force and effect and shall be irrevocableso long as any Obligations remain outstanding or unpaid or any Commitmentexists.  The powers conferred on theLender by this appointment are solely to protect the interests of the Lender underthe Loan Documents and shall not impose any duty upon the Lender to exerciseany such powers.  The Lender shall beaccountable only for amounts that it actually receives as a result of theexercise of such powers and shall not be responsible to the Borrowers or anyother Person for any act or failure to act with respect to such powers, exceptfor gross negligence or willful misconduct.

##  

## 2.18                           Lettersof Credit.

##  

### (a)                                  Uponthe terms and conditions (including, without limitation, the right of theLender to decline to issue any Letter of Credit so long as any Default or Eventof Default exists) and relying on the representations and warranties containedin this Agreement, the Lender agrees, during the Commitment Period, to issueLetters of Credit following the receipt not less than two Business Days priorto the requested date for issuance of the relevant Letter of Credit, of aLetter of Credit Application executed by the Borrowers; *provided, however*, (a) no Letter ofCredit shall have an expiration date which is more than 360 days after theissuance thereof or subsequent to the Maturity Date, and (b) the Lendershall not be obligated to issue any Letter of Credit if (i) the faceamount thereof would exceed the Available Commitment, or (ii) after givingeffect to the issuance thereof, the L/C Exposure would exceed the L/C Limit.

###  

### (b)                                 Shouldthe Lender be called upon by the beneficiary of any Letter of Credit to honorall or any portion of the commitment thereunder, whether upon the presentationof drafts or otherwise, such payment by the Lender on account of such Letter ofCredit shall be treated, for all purposes, as a Floating Rate Loan and anadvance against the Note.

###  

## 2.19                           Letterof Credit Fee.  In addition tointerest on the Note as provided herein and all other fees payable hereunder,the Borrowers agree to pay to the Lender, on the date of issuance of eachLetter of Credit, a fee equal to the greater of $750 or two and one-halfpercent (2.50%) 

 

20

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## per annum, calculated on the basis of a year of 365 or366 days, as the case may be, and actual days elapsed (including the first daybut excluding the last day), on the face amount of such Letter of Credit duringthe period for which such Letter of Credit is issued; *provided, however*, in the event suchLetter of Credit is canceled prior to its original expiry date or a payment ismade by the Lender with respect to such Letter of Credit, the Lender shall,within 30 days after such cancellation or the making of such payment,rebate to the Borrowers the unearned portion of such fee. The Borrower alsoagrees to pay to the Lender on demand its customary letter of credittransactional fees, including, without limitation, amendment fees, payable withrespect to each Letter of Credit.

 

# **ARTICLE III**

# ** **

# **CONDITIONS**

# ** **

The obligations of the Lender to enter into this Agreement and to makeLoans and issue Letters of Credit are subject to the satisfaction of thefollowing conditions precedent:

 

## 3.1                                 Receiptof Loan Documents and Other Items The Lender shall have no obligation underthis Agreement unless and until all matters incident to the consummation of thetransactions contemplated herein, including, without limitation, the review bythe Lender or its counsel of the title of the Borrowers to their Oil and GasProperties, shall be satisfactory to the Lender, and the Lender shall havereceived, reviewed, and approved the following documents and other items,appropriately executed when necessary and, where applicable, acknowledged by oneor more Responsible Officers of the Borrower, all in form and substancesatisfactory to the Lender and dated, where applicable, of even date herewithor a date prior thereto and acceptable to the Lender:

##  

### (a)                                  multiplecounterparts of this Agreement as requested by the Lender;

###  

### (b)                                 theNote;

###  

### (c)                                  copiesof the Governing Documents and all amendments thereto of each Borrower andGuarantor accompanied by a certificate issued by the secretary or an assistantsecretary of each Borrower to the effect that each such copy is correct andcomplete;

###  

### (d)                                 certificatesof incumbency and signatures of all Responsible Officers of each Borrower andGuarantor who are authorized to execute Loan Documents on behalf of such entityeach such certificate being executed by a Responsible Officer of each Borrower;

###  

### (e)                                  copiesof corporate or company resolutions approving the Loan Documents andauthorizing the transactions contemplated herein and therein, duly adopted bythe Governing Body of each Borrower and Guarantor accompanied by certificatesof the secretary or an assistant secretary of each Borrower to the effect thatsuch copies are true and correct copies of resolutions duly adopted at ameeting or by unanimous consent of the Governing Body of each Borrower and thatsuch resolutions 

 

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### constitute all the resolutions adopted with respect tosuch transactions, have not been amended, modified, or revoked in any respect,and are in full force and effect as of the date of such certificate;

###  

### (f)                                    multiplecounterparts, as requested by the Lender, of the following Security Instrumentscreating, evidencing, perfecting, and otherwise establishing Liens in favor ofthe Lender in and to the Collateral or other items described below otherwisesecuring the Obligations:

###  

#### (i)                                     (A) Mortgage,Deed of Trust, Indenture, Security Agreement, Assignment of Production, andFinancing Statement executed by the CYMRI and (B) Act of Mortgage andSecurity Agreement executed by Triumph, collectively, covering not less than90% of the value of all Borrowing Base Oil and Gas Properties of the CYMRI andTriumph and all improvements, personal property, and fixtures related thereto;

####  

#### (ii)                                  FinancingStatements from each Borrower, as debtor, covering all of their personalproperty and fixtures;

####  

#### (iii)                               SecurityAgreement executed by the Borrowers pledging accounts, contract rights, and allother personal property of Borrower;

####  

#### (iv)                              undatedletters, in form and substance satisfactory to the Lender, executed by theBorrowers to each Purchaser of Production and disburser of the proceeds ofproduction from or attributable to the Borrowing Base Oil and Gas Propertieslisted on ***Exhibit VI***, togetherwith additional letters with the addressees left blank, authorizing and directingthe addressees to make future payments attributable to production from theBorrowing Base Oil and Gas Properties directly to the Lender;

####  

#### (v)                                 theStock Pledge Agreement from Guarantor covering all of its Equity Interests ineach Borrower, together with (A) the stock or membership certificatesevidencing such Equity Interests, if certificated and (B) blank transferpowers relating thereto;

####  

#### (vi)                              theGuaranty executed by Guarantor; and

####  

#### (vii)                           anexecuted Assignment of Notes and Liens – Sterling Bank.

####  

### (g)                                 unauditedFinancial Statements of the Borrower and Guarantor as of March 31, 2008;

###  

### (h)                                 certificatesdated as of a recent date from the Secretary of State or other appropriateGovernmental Authority evidencing the existence or qualification and goodstanding of each Borrower in its respective jurisdiction of formation and inany other jurisdictions where it does business;

 

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### (i)                                     resultsof searches of the UCC Records of the Secretary of State of the state offormation from a source acceptable to the Lender and reflecting no Liensagainst any of the Collateral as to which perfection of a Lien is accomplishedby the filing of a financing statement other than in favor of the Lender;

###  

### (j)                                     confirmation,acceptable to the Lender, that CYMRI and Triumph have Defensible Title to notless than 80% of the value of the Borrowing Base Oil and Gas Properties, freeand clear of Liens other than Permitted Liens;

###  

### (k)                                  alloperating, lease, sublease, royalty, sales, exchange, processing, farmout,bidding, pooling, unitization, communitization, and other agreements relatingto the Borrowing Base Oil and Gas Properties requested by the Lender;

###  

### (l)                                     engineeringreports covering the Borrowing Base Oil and Gas Properties;

###  

### (m)                               theopinion of Haynes & Boone, LLP, counsel to the Borrowers andGuarantor, and an opinion of counsel to Triumph that is licensed to practice inLouisiana, covering the Security Instruments that are required to be filed inthe State of Louisiana regarding, among other things, the perfection of Liensand enforceability thereof, in the form and substance acceptable to the Lenderin its discretion;

###  

### (n)                                 certificatesevidencing the insurance coverage required pursuant to ***Section 5.18***;

###  

### (o)                                 paymentof the initial Facility Fee;

###  

### (p)                                 paymentof the fees described in ***Section 5.14***;

###  

### (q)                                 anexecuted Subordination Agreement; and

###  

### (r)                                    suchother agreements, documents, instruments, opinions, certificates, waivers,consents, and evidence as the Lender may reasonably request.

###  

## 3.2                                 EachLoan and Letter of Credit.  Inaddition to the conditions precedent stated elsewhere herein, the Lender shallnot be obligated to make any Loan or issue any Letter of Credit unless:

##  

### (a)                                  CYMRIshall have delivered to the Lender a Borrowing Request at least one BusinessDay prior to the requested date for the relevant Loan, or a Letter of CreditApplication at least two Business Days prior to the requested issuance date forthe relevant Letter of Credit and each statement or certification made in suchBorrowing Request or Letter of Credit Application, as the case may be, shall betrue and correct in all material respects on the requested date for such Loanor the issuance of such Letter of Credit;

###  

### (b)                                 noEvent of Default or Default shall exist or will occur as a result of the makingof the requested Loan or the issuance of the requested Letter of Credit;

 

23

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### (c)                                  ifrequested by the Lender, the Borrowers shall have delivered evidencesatisfactory to the Lender substantiating any of the matters contained in thisAgreement which are necessary to enable the Borrower to qualify for such Loanor the issuance of such Letter of Credit;

###  

### (d)                                 theLender shall have received, reviewed, and approved such additional documentsand items as described in ***Section 3.1***as may be requested by the Lender with respect to such Loan or Letter ofCredit;

###  

### (e)                                  noMaterial Adverse Effect shall have occurred;

###  

### (f)                                    eachof the representations and warranties contained in this Agreement shall be trueand correct (unless they speak to a specific date or are based on facts whichhave changed by transactions contemplated or expressly permitted by thisAgreement) and shall be deemed to be repeated by the Borrowers as if made onthe requested date for such Loan or the issuance of such Letter of Credit;

###  

### (g)                                 allof the Security Instruments shall be in full force and effect and provide tothe Lender the security intended thereby;

###  

### (h)                                 neitherthe consummation of the transactions contemplated hereby nor the making of suchLoan nor the issuance of such Letter of Credit shall contravene, violate, orconflict with any Requirement of Law;

###  

### (i)                                     theLoan Parties shall hold Defensible Title to the Collateral and be the solebeneficial owner thereof;

###  

### (j)                                     theLender shall have received the reimbursement of all engineering expenses, and other fees payable to theLender hereunder and reimbursement from the Borrowers, or special legal counselfor the Lender shall have received payment from the Borrowers, for (i) allreasonable fees and expenses of counsel to the Lender for which the Borrowersare responsible pursuant to applicable provisions of this Agreement and forwhich invoices have been presented as of or prior to the date of the relevantLoan or Letter of Credit Application, and (ii) estimated fees charged byfiling officers and other public officials incurred or to be incurred inconnection with the filing and recordation of any Security Instruments, forwhich invoices have been presented as of or prior to the date of the requestedLoan or Letter of Credit Application; and

###  

### (k)                                  allmatters incident to the consummation of the transactions hereby contemplatedshall be satisfactory to the Lender.

 

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# **ARTICLE IV**

# ** **

# **REPRESENTATIONS AND WARRANTIES**

# ** **

To induce the Lender to enter into this Agreement and to make the Loansand issue Letters of Credit, each Borrower represents and warrants to theLender (which representations and warranties shall survive the delivery of theNote) that:

 

## 4.1                                 DueAuthorization. The execution and delivery by the Borrowers of thisAgreement and the borrowings hereunder, the execution and delivery by theBorrowers of the Note, the repayment of the Note and interest and fees providedfor in the Note and this Agreement, the execution and delivery of the SecurityInstruments by the Borrowers and the performance of all obligations of theBorrowers under the Loan Documents are within the power of the Borrowers, havebeen duly authorized by all necessary corporate or company action by theBorrower, and do not and will not (a) require the consent of anyGovernmental Authority, (b) contravene or conflict with any Requirement ofLaw, (c) contravene or conflict with any indenture, instrument, or other agreementto which either Borrower is a party or by which any Property of either Borrowermay be presently bound or encumbered, or (d) result in or require thecreation or imposition of any Lien in, upon or of any Property of eitherBorrower under any such indenture, instrument, or other agreement, other thanthe Loan Documents.

##  

## 4.2                                 Existence.Each Borrower is the type of business entity set forth in the preamble hereofand is duly organized, legally existing, and in good standing under the laws ofits state of formation and is duly qualified as a foreign business entity andis in good standing in all jurisdictions wherein the ownership of Property orthe operation of its business necessitates same, other than those jurisdictionswherein the failure to so qualify could not reasonably be expected to have aMaterial Adverse Effect.

##  

## 4.3                                 Validand Binding Obligations.  All LoanDocuments to which each Borrower and Guarantor is a party, when duly executedand delivered by each such Borrower and Guarantor, will be the legal, valid,and binding obligations of each such Borrower and Guarantor, as applicable,enforceable against each Borrower and Guarantor in accordance with theirrespective terms.

##  

## 4.4                                 SecurityInstruments.  The provisions of eachSecurity Instrument executed by the Borrowers and Guarantor are effective tocreate in favor of the Lender, a legal, valid, and enforceable Lien in allright, title, and interest of the Borrowers and Guarantor in the Collateraldescribed therein, which Liens, assuming the accomplishment of recording andfiling in accordance with applicable laws prior to the intervention of rightsof other Persons, shall constitute fully perfected first-priority Liens on allright, title, and interest of the Borrowers and Guarantor in the Collateraldescribed therein.

##  

## 4.5                                 Titleto Assets. The Borrowers and Guarantor have good and indefeasible title toall of their Properties, free and clear of all Liens except Permitted Liens.

##  

## 4.6                                 Scoreand Accuracy of Financial Statements. The consolidated and consolidatingFinancial Statements of the Borrowers and Guarantor as of March 31, 2008,present fairly the 

 

25

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## financial position and results of operations and cash flows of theBorrower and Guarantor as at the relevant point in time or for the periodindicated, as applicable.  No event orcircumstance has occurred since such dates which could reasonably be expectedto have a Material Adverse Effect.

##  

## 4.7                                 NoMaterial Misstatements. No information, exhibit, statement, or reportfurnished to the Lender by or at the direction of the Borrowers in connectionwith this Agreement contains any material misstatement of fact or omits tostate a material fact or any fact necessary to make the statements contained thereinnot misleading as of the date made or deemed made.

##  

## 4.8                                 Liabilities,Litigation, and Restrictions. Other than as listed under the heading “Liabilities”on ***Exhibit IV***attached hereto, the Borrowers have no liabilities, direct, or contingent,which may materially and adversely affect its business or operations or itsownership of the Collateral.  Except asset forth under the heading “Litigation” on ***Exhibit IV*** hereto, no litigation orother action of any nature affecting either Borrower or Guarantor is pendingbefore any Governmental Authority or, to the best knowledge of either Borrower,threatened against or affecting either Borrower or Guarantor which mightreasonably be expected to result in any impairment of its ownership of anyCollateral or have a Material Adverse Effect. To the best knowledge of the Borrowers, after due inquiry, no unusual orunduly burdensome restriction, restraint or hazard exists by contract,Requirement of Law, or otherwise relative to the business or operations ofeither Borrower or the ownership and operation of the Collateral other thansuch as relate generally to Persons engaged in business activities similar tothose conducted by the Borrowers and Guarantor.

##  

## 4.9                                 Authorizations;Consents.  Except as expresslycontemplated by this Agreement, no authorization, consent, approval, exemption,franchise, permit, or license of, or filing with, any Governmental Authority orany other Person is required to authorize or is otherwise required inconnection with the valid execution and delivery by the Borrowers and Guarantorof the Loan Documents or any instrument contemplated hereby, the repayment bythe Borrowers of the Note and interest and fees provided in the Note and thisAgreement, or the performance by the Borrowers of the Obligations.

##  

## 4.10                           Compliancewith Laws. The Borrowers and the Borrowers’ Property, including, withoutlimitation, the Borrowing Base Oil and Gas Properties, are in compliance withall applicable Requirements of Law, including, without limitation,Environmental Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA,except to the extent non-compliance with any such Requirements of Law could notreasonably be expected to have a Material Adverse Effect.

##  

## 4.11                           ERISA.The Borrowers do not maintain nor have they maintained any Plan. The Borrowersdo not currently contribute to or have any obligation to contribute to orotherwise have any liability with respect to any Plan.

##  

## 4.12                           EnvironmentalLaws.  To the best knowledge andbelief of the Borrowers, except as could not reasonably be expected to not havea Material Adverse Effect, or as described on ***Exhibit IV*** under the heading “EnvironmentalMatters:”

 

26

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### (a)                                  noProperty of either Borrower is currently on or has ever been on, or is adjacentto any Property which is on or has ever been on, any federal or state list ofSuperfund Sites;

###  

### (b)                                 noHazardous Substances have been generated, transported, and/or disposed of bythe Borrower at a site which was, at the time of such generation,transportation, and/or disposal, or has since become, a Superfund Site;

###  

### (c)                                  exceptin accordance with applicable Requirements of Law or the terms of a validpermit, license, certificate, or approval of the relevant GovernmentalAuthority, no Release of Hazardous Substances by either Borrower or from,affecting, or related to any Property of either Borrower or adjacent to anyProperty of either Borrower has occurred; and

###  

### (d)                                 noEnvironmental Complaint has been received by either Borrower.

###  

## 4.13                           Compliancewith Federal Reserve Regulations.  Notransaction contemplated by the Loan Documents is in violation of anyregulations promulgated by the Board of Governors of the Federal ReserveSystem, including, without limitation, Regulations T, U, or X.

##  

## 4.14                           InvestmentCompany Act Compliance.  No Borroweris, nor is any Borrower directly or indirectly controlled by or acting onbehalf of any Person which is, an “investment company” or an “affiliated person”of an “investment company” within the meaning of the Investment Company Act of1940, as amended.

##  

## 4.15                           Anti-TerrorismLaws.

##  

### (a)                                  NoBorrower nor any Affiliate of any Borrower is in violation of anyAnti-Terrorism Law or engages in or conspires to engage in any transaction  that evades or avoids, or has the purpose ofevading or avoiding, or attempts to violate, any of the prohibitions set forthin any Anti-Terrorism Law.

###  

### (b)                                 NoBorrower has engaged, nor does it intend to engage, in any business or activityprohibited by the Trading with the Enemy Act.

###  

### (c)                                  NoBorrower is (A) a Person whose property or interest in property is blockedor subject to blocking pursuant to Section 1 of Executive Order 13224, (B) engagedin any dealings or transactions prohibited by Section 2 of Executive Order13224, or otherwise associated with any such Person in any manner violative of Section 2,or (C) a Person on the list of Specially Designated Nationals and BlockedPersons or subject to the limitations or prohibitions under any other U.S.Department of Treasury’s Office of Foreign Assets Control regulation orexecutive order.

###  

### (d)                                 No part of the proceeds of the Loans will beused, directly or indirectly, for any payments to any governmental official oremployee, political party, official of a political party, candidate forpolitical office, or anyone else acting in an official capacity, in order toobtain, retain or direct business or obtain any improper advantage, inviolation of the United States Foreign Corrupt Practices Act of 1977, asamended.

 

27

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## 4.16                           ProperFiling of Tax Returns; Payment of Taxes Due.  Each Borrower and Guarantor has duly andproperly filed its United States income tax return and all other tax returnswhich are required to be filed and has paid all taxes due except such as arebeing contested in good faith and as to which adequate provisions anddisclosures have been made.  Therespective charges and reserves on the books of the Borrowers with respect totaxes and other governmental charges are adequate.

##  

## 4.17                           Refunds.  Except as described on ***Exhibit IV***underthe heading “Refunds,” no orders of, proceedings pending before, or otherrequirements of, the Federal Energy Regulatory Commission, the Texas RailroadCommission, or any Governmental Authority exist which could result in theBorrower being required to refund any material portion of the proceeds receivedor to be received from the sale of hydrocarbons constituting part of the BorrowingBase Oil and Gas Properties.

##  

## 4.18                           Materialand Gas Contracts. Except as described on ***Exhibit IV*** under the heading “GasContracts,” no Borrower (a) is obligated in any material respect by virtueof any prepayment made under any contract containing a “take-or-pay” or “prepayment”provision or under any similar agreement to deliver hydrocarbons produced fromor allocated to any of the Borrowing Base Oil and Gas Properties at some futuredate without receiving full payment therefor within 90 days of delivery, and (b) hasproduced gas, in any material amount, subject to, and neither Borrower nor anyof the Borrowing Base Oil and Gas Properties are subject to, balancing rightsof third parties or subject to balancing duties under governmentalrequirements, except as to such matters for which the Borrower has establishedmonetary reserves adequate in amount to satisfy such obligations and havesegregated such reserves from other accounts. Except as described on ***Exhibit IV***under the heading “Material Contracts,” no Borrower nor any of its BorrowingBase Oil and Gas Properties are subject to any contract or agreement which thedefault thereunder by a Borrower would cause such Borrower to fail to haveDefensible Title, other than where such failure could not reasonably beexpected to have a Material Adverse Effect.

##  

## 4.19                           IntellectualProperty. The Borrowers own or are licensed to use all IntellectualProperty necessary to conduct all business material to its condition (financialor otherwise), business, or operations as such business is currently conducted.No claim has been asserted or is pending by any Person with the respect to theuse of any such Intellectual Property or challenging or questioning thevalidity or effectiveness of any such Intellectual Property; and the Borrowersknow of no valid basis for any such claim. The use of such IntellectualProperty by the Borrowers do not infringe on the rights of any Person, exceptfor such claims and infringements as do not, in the aggregate, give rise to anymaterial liability on the part of the Borrowers.

##  

## 4.20                           Casualtiesor Taking of Property.  Except asdisclosed on ***Exhibit IV***under the heading “Casualties,” since June 30, 2008,neither the business nor any Property of either Borrower has been materiallyadversely affected as a result of any fire, explosion, earthquake, flood,drought, windstorm, accident, strike or other labor disturbance, embargo,requisition or taking of Property, or cancellation of contracts, permits, orconcessions by any Governmental Authority, riot, activities of armed forces, oracts of God.

 

28

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## 4.21                           Locationsof Borrowers.  The principal place ofbusiness and chief executive office of each Borrower is located at the addressset forth in ***Section 8.3***or at such other location as the Borrowers may have, by proper written noticehereunder, advised the Lender, provided that such other location is within astate in which appropriate financing statements from the Borrowers in favor ofthe Lender have been filed.

##  

## 4.22                           Subsidiaries.  No Borrower has Subsidiaries except thosedescribed on ***Exhibit IV***under the heading “Subsidiaries”.

##  

## 4.23                           Purchasersof Production.  The Persons who arepurchasing the Borrowers’ interests in oil and gas produced from the BorrowingBase Oil and Gas Properties as of the date of this Agreement are identified on ***Exhibit VI***attached hereto.

 

# **ARTICLE V**

# ** **

# **AFFIRMATIVE COVENANTS**

# ** **

So long as any Obligation remains outstanding or unpaid or anyCommitment exists, the Borrowers shall:

 

## 5.1                                 Maintenanceand Access to Records.  Keep adequaterecords, in accordance with GAAP, of all their transactions so that at anytime, and from time to time, its true and complete financial condition may bereadily determined, and promptly following the reasonable request of theLender, make such records available for inspection by the Lender and, at theexpense of the Borrowers, allow the Lender to make and take away copiesthereof.

##  

## 5.2                                 QuarterlyFinancial Statements; Compliance Certificates.  Deliver to the Lender, (a) on or beforethe 60th day after the close of each of the first three quarterlyperiods of each fiscal year of the Borrowers, a copy of the unaudited FinancialStatements of Guarantor and the Borrowers, on a consolidated basis and on aconsolidating basis, as at the close of such quarterly period and from thebeginning of such fiscal year to the end of such period, such FinancialStatements to be certified by a Responsible Officer of CYMRI as a fairpresentation of the condition of the Borrowers and Guarantor, subject tochanges resulting from normal year-end audit adjustments, and (b) on orbefore the 60th day after the close of each fiscal quarter, with theexception of the last fiscal quarter, a Compliance Certificate.

##  

## 5.3                                 AnnualFinancial Statements.  Deliver to theLender, on or before the 120th day after the close of each fiscalyear of the Borrowers, a copy of the annual audited Financial Statements ofGuarantor and the annual unaudited Financial Statements of the Borrowers, on aconsolidated basis and on a consolidating basis, satisfactory to the Lender anda Compliance Certificate.

##  

## 5.4                                 Oiland Gas Reserve Reports.

##  

### (a)                                  Deliverto the Lender no later than April 1 of each year during the term of thisAgreement, engineering reports in form and substance satisfactory to theLender, certified by any nationally- or regionally-recognized independentconsulting petroleum engineers acceptable to the Lender as fairly andaccurately setting forth (i) the proven and 

 

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### producing, shut-in, behind-pipe, and undeveloped oiland gas reserves (separately classified as such) attributable to the BorrowingBase Oil and Gas Properties as of January 1 of the year for which suchreserve reports are furnished, (ii) the aggregate present value of thefuture net income with respect to such Borrowing Base Oil and Gas Properties,discounted at a stated per annum discount rate of proven and producingreserves, (iii) projections of the annual rate of production, grossincome, and net income with respect to such proven and producing reserves, and (iv) informationwith respect to the “take-or-pay,” “prepayment,” and gas-balancing liabilitiesof the Borrowers.

###  

### (b)                                 Deliverto the Lender no later than October 1 of each year during the term of thisAgreement, engineering reports in form and substance satisfactory to the Lenderprepared by or under the supervision of a Responsible Officer of the Borrowerevaluating the Borrowing Base Oil and Gas Properties as of July 1 of theyear for which such reserve reports are furnished and updating the informationprovided in the reports pursuant to ***Section 5.4(a)***.

###  

### (c)                                  Eachof the reports provided pursuant to this Section shall be submitted to theLender together with additional data concerning pricing, quantities ofproduction from the Borrowing Base Oil and Gas Properties, volumes ofproduction sold, purchasers of production, gross revenues, expenses, and suchother information and engineering and geological data with respect thereto asthe Lender may reasonably request.

###  

## 5.5                                 TitleOpinions; Title Defects.  Cause atall times the Borrowing Base Oil and Gas Properties comprising at least ninetypercent (90%) of the discounted present value of future net revenue, computedusing a discount factor of 9%,  estimatedto be derived from the proved reserves to be produced from all of the BorrowingBase Oil and Gas Properties, as set forth in the most recent Reserve Reportsdelivered to Lender, to be subject to duly executed and recorded SecurityInstruments granting perfected first priority mortgage liens, securityinterests and assignments of production therein to the Lender and (b) havedemonstrated to the Lender, by the delivery of title information satisfactoryto the Lender, that Borrowers have Defensible Title, as represented in thisAgreement and the Security instruments, to their Borrowing Base Oil and GasProperties that are subject to the Security Instruments comprising at leasteighty-one percent (81%) of the discounted present value of future net revenue,computed using a discount factor of 9%, estimated to be derived from the proved reserves to be produced from allof the Borrowing Base Oil and Gas Properties, as set forth in the most recentReserve Reports delivered to the Lender and, promptly, but in any event within30 days after notice by the Lender of any defect, material in the opinion ofthe Lender in value, in the title of either Borrower to any of its BorrowingBase Oil and Gas Properties, clear such title defects, and, in the event anysuch title defects are not cured in a timely manner, pay all related costs andfees incurred by the Lender to do so.

##  

## 5.6                                 Post-ClosingItems.  Deliver to the Lender withinten (10) days after the Closing Date evidence satisfactory to the Lenderthat the Estis Well Service, L.L.C. Oil & Gas Lien against Triumphdated July 19, 2007 and recorded at #305650 of the official public recordsof Cameron Parish, Louisiana, has been released of record in the officialpublic records of said parish.  Borrowersshall deliver to Lender within ten (10) days after Closing evidencesatisfactory to the Lender that the Submersible Pump Specialists, Inc.Lien Affidavits against 

 

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## CYMRI (a) dated October 17, 2007 andrecorded at Volume 864/Page 440, Volume 864/Page 446 and Volume 864/Page 452,respectively, in the official public records of Karnes County, Texas, (b) datedDecember 18, 2007 and recorded at Volume 867/Page 627, Volume 867/Page 630,Volume 867/Page 634 and Volume 867/Page 639, respectively, in theofficial public records of Karnes County, Texas, (c) dated February 15,2008 and recorded at Volume 870/Page 774 and Volume 870/Page 779 andVolume 870/Page 784, respectively, in the official public records of KarnesCounty, Texas and (d) dated July 8, 2008 and recorded at Volume 879/Page 643and Volume 879/Page 651, respectively, in the official public records ofKarnes County, Texas, have been released of record in the official publicrecords of said county.

##  

## 5.7                                 Noticesof Certain Events. Deliver to the Lender, immediately upon having knowledgeof the occurrence of any of the following events or circumstances, a writtenstatement with respect thereto, signed by a Responsible Officer of theBorrowers and setting forth the relevant event or circumstance and the stepsbeing taken by the Borrowers with respect to such event or circumstance:

##  

### (a)                                  anyDefault or Event of Default;

###  

### (b)                                 anydefault or event of default under any contractual obligation of any Borrower,or any litigation, investigation, or proceeding between any Borrower and anyGovernmental Authority which, in either case, if not cured or if adverselydetermined, as the case may be, could reasonably be expected to have a MaterialAdverse Effect;

###  

### (c)                                  anylitigation or proceeding involving any Borrower as a defendant or in which anyProperty of any Borrower is subject to a claim and in which the amount involvedis $50,000 or more and which is not covered by insurance or in which injunctiveor similar relief is sought;

###  

### (d)                                 thereceipt by either Borrower of any written Environmental Complaint;

 

### (e)                                  anyactual, proposed, or threatened testing or other investigation by anyGovernmental Authority or other Person concerning the environmental conditionof, or relating to, any Property of either Borrower or adjacent to any Propertyof either Borrower following any allegation of a violation of an EnvironmentalComplaint;

###  

### (f)                                    anyRelease of Hazardous Substances by either Borrower or from, affecting, orrelated to any Property of either Borrower or adjacent to any Property ofeither Borrower except in accordance with applicable Requirements of Law or theterms of a valid permit, license, certificate, or approval of the relevantGovernmental Authority, or the violation of any Environmental Law, or therevocation, suspension, or forfeiture of or failure to renew, any permit,license, registration, approval, or authorization which could reasonably beexpected to have a Material Adverse Effect;

###  

### (g)                                 thechange in identity or address of any Person remitting to either Borrowerproceeds from the sale of hydrocarbon production from or attributable to anyBorrowing Base Oil and Gas Properties;

###  

### (h)                                 anychange in the senior management of either Borrower; and

 

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### (i)                                     anyother event or condition which could reasonably be expected to have a MaterialAdverse Effect.

###  

## 5.8                                 Lettersin Lieu of Transfer Orders; Division Orders.  Promptly upon request by the Lender at anytime and from time to time, and without limitation on the rights of the Lenderpursuant to ***Sections2.16*** and ***2.17***,execute such letters in lieu of transfer orders, in addition to the letterssigned by the Borrowers and delivered to the Lender in satisfaction of thecondition set forth in ***Section 3.1(f)(v) ***and/ordivision and/or transfer orders as are necessary or appropriate to transfer anddeliver to the Lender proceeds from or attributable to the Borrowing Base Oiland Gas Properties.

##  

## 5.9                                 AdditionalInformation.  Furnish to the Lender,promptly upon the request of the Lender, such additional financial or otherinformation concerning the assets, liabilities, operations, and transactions ofthe Borrowers as the Lender may from time to time request, including, withoutlimitation, updated lists of additional or new Purchases of Production; andnotify the Lender not less than ten Business Days prior to the occurrence ofany condition or event that may change the proper location for the filing ofany financing statement or other public notice or recording for the purpose ofperfecting a Lien in any Collateral, including, without limitation, any changein its or Guarantor’s name or the location of its principal place of businessor chief executive office; and upon the request of the Lender, execute, andcause Guarantor to execute, such additional Security Instruments as may benecessary or appropriate in connection therewith.

##  

## 5.10                           Compliancewith Laws.  Except to the extent thefailure to comply or cause compliance could not reasonably be expected to havea Material Adverse Effect, comply with all applicable Requirements of Law,including, without limitation, (a) the Natural Gas Policy Act of 1978, asamended, (b) ERISA, (c) Environmental Laws, and (d) all permits,licenses, registrations, approvals, and authorizations (i) related to anynatural or environmental resource or media located on, above, within, in thevicinity of, related to or affected by any Property of either Borrower, (ii) requiredfor the performance of the operations of either Borrower, or (iii) applicableto the use, generation, handling, storage, treatment, transport, or disposal ofany Hazardous Substances; and cause all employees, crew members, agents,contractors, subcontractors, and future lessees (pursuant to appropriate leaseprovisions) of either Borrower, while such Persons are acting within the scopeof their relationship with either Borrower, to comply with all suchRequirements of Law as may be necessary or appropriate to enable the Borrowersto so comply.

##  

## 5.11                           Paymentof Assessments and Charges.  Pay alltaxes, assessments, governmental charges, rent, and other Indebtedness which,if unpaid, might result in a Lien against the Property of either Borrower,except any of the foregoing being contested in good faith and as to whichadequate reserve in accordance with GAAP has been established or unless failureto pay could not reasonably be expected to have a Material Adverse Effect.

##  

## 5.12                           Maintenanceof Corporate Existence and Good Standing. Except where failure to maintain such existence or qualification couldnot reasonably be expected to have a Material Adverse Effect, maintain itsbusiness entity existence and qualification and good standing in its 

 

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## jurisdictions of formation and in all jurisdictionswherein the Property of Borrowers now owned or hereafter acquired or businessnow or hereafter conducted necessitates same.

##  

## 5.13                           Paymentof Note; Performance of Obligations. Pay the Note according to its terms and do and perform every act anddischarge all of their other Obligations.

##  

## 5.14                           FurtherAssurances.  Promptly cure anydefects in the execution and delivery of any of the Loan Documents and allagreements contemplated thereby, and execute, acknowledge, and deliver suchother assurances and instruments as shall, in the opinion of the Lender, benecessary to fulfill the terms of the Loan Documents.

##  

## 5.15                           InitialFees and Expenses of Counsel to Lender. On the Closing Date, promptly reimburse the Lender for all reasonablefees and expenses, including estimated recording fees, of Porter &Hedges, L.L.P., special counsel to the Lender, in connection with thepreparation of this Agreement and all documentation contemplated hereby, thesatisfaction of the conditions precedent set forth herein, the filing andrecordation of Security Instruments, and the consummation of the transactionscontemplated in this Agreement.

##  

## 5.16                           SubsequentFees and Expenses of Lender.  Uponrequest by the Lender, promptly reimburse the Lender (to the fullest extentpermitted by law) for all amounts reasonably expended, advanced, or incurred byor on behalf of the Lender to satisfy any obligation of the Borrowers under anyof the Loan Documents; to collect the Obligations; to ratify, amend, restate,or prepare additional Loan Documents, as the case may be; for the filing andrecordation of Security Instruments; to enforce the rights of the Lender underany of the Loan Documents; and to protect the Properties or business of theBorrowers and Guarantor, including, without limitation, the Collateral, whichamounts shall be deemed compensatory in nature and liquidated as to amount uponnotice to the Borrowers by the Lender and which amounts shall include, but notbe limited to (a) all court costs, (b) reasonable attorneys’ fees, (c) reasonablefees and expenses of auditors and accountants incurred to protect the interestsof the Lender, (d) fees and expenses incurred in connection with theparticipation by the Lender as a member of the creditors’ committee in a casecommenced under any Insolvency Proceeding, (e) fees and expenses incurredin connection with lifting the automatic stay prescribed in §362 Title 11 ofthe United States Code, and (f) fees and expenses incurred in connectionwith any action pursuant to §1129 Title 11 of the United States Code allreasonably incurred by the Lender in connection with the collection of any sumsdue under the Loan Documents, together with interest at the per annum interestrate equal to the Floating Rate, calculated on a basis of a calendar year of365 or 366 days, as the case may be, counting the actual number of dayselapsed, on each such amount from the date of notification that the same wasexpended, advanced, or incurred by the Lender until the date it is repaid tothe Lender, with the obligations under this Section surviving thenon-assumption of this Agreement in a case commenced under any InsolvencyProceeding and being binding upon either Borrower and/or a trustee, receiver,custodian, or liquidator of either Borrower appointed in any such case.

##  

## 5.17                           Operationof Oil and Gas Properties.  Develop,maintain, and operate their Oil and Gas Properties in a prudent and workmanlikemanner in accordance with industry standards and every Requirement of Law.

 

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## 5.18                           Maintenanceand Inspection of Properties. Maintain all of its tangible Properties in good repair and condition,ordinary wear and tear excepted; make all necessary replacements thereof andoperate such Properties in a good and workmanlike manner; and permit anyauthorized representative of the Lender to visit and inspect, at the expense ofthe Borrowers, any tangible Property of the Borrowers.

##  

## 5.19                           Maintenanceof Insurance.  Maintain insurancewith respect to the Collateral and their businesses against such liabilities,casualties, risks, and contingencies as is customary in the exploration andproduction industry and sufficient to prevent a Material Adverse Effect, andall such insurance shall be in amounts and from insurers acceptable to theLender in its sole discretion, and, upon any renewal of any such insurance andat other times upon request by the Lender (including on Closing Date), furnishto the Lender evidence, satisfactory to the Lender of the maintenance of suchinsurance.  The Lender shall be named asa loss payee and additional insured under all insurance required hereunder.

 

## 5.20                           INDEMNIFICATION.  DEFEND, INDEMNIFY AND HOLD THE LENDER AND ITSSHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS,ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THELENDER (COLLECTIVELY THE “LENDER PARTIES”) UNDER ANY LOAN DOCUMENT HARMLESSFROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES,PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS,JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND,AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUTLIMITATION, ATTORNEYS’ FEES AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, INWHOLE OR IN PART, FROM (A) THE PRESENCE OF ANY HAZARDOUS SUBSTANCES ON,UNDER, OR FROM ANY BORROWING BASE OIL AND GAS PROPERTIES OF THE BORROWER,WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED ON ORUNDERTAKEN ON OR OFF ANY BORROWING BASE OIL AND GAS PROPERTIES OF THEBORROWERS, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY THEBORROWERS OR ANY PREDECESSOR IN TITLE, EMPLOYEE, AGENT, CONTRACTOR, ORSUBCONTRACTOR OF THE BORROWERS OR ANY OTHER PERSON AT ANY TIME OCCUPYING ORPRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL,STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUSSUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANYRESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE BORROWERS, (D) ANYCONTAMINATION OF ANY BORROWING BASE OIL AND GAS PROPERTIES OR NATURAL RESOURCESARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE,TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWERS OR ANYEMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCHPERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWERS,IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN INACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE ANDENFORCEMENT OF ANY LOAN DOCUMENT, ANY 

 

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## ALLEGATION BY ANY BENEFICIARY OF A LETTER OF CREDIT OFA WRONGFUL DISHONOR BY THE LENDER OF A CLAIM OR DRAFT PRESENTED THEREUNDER, ORANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT ORTHE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OFTHE FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE, WHETHER SOLE ORCONCURRENT, ON THE PART OF THE LENDER PARTIES OR ANY OF ITS SHAREHOLDERS,OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, ATTORNEYS-IN-FACT, ORAFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE LENDER UNDER ANY LOAN DOCUMENTBUT NOT INCLUDING ANY OF THE FOREGOING ARISING FROM THE GROSS NEGLIGENCE ORWILLFUL MISCONDUCT OF THE LENDER PARTIES; WITH THE FOREGOING INDEMNITYSURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THISAGREEMENT, UNLESS ALL SUCH OBLIGATIONS HAVE BEEN SATISFIED WHOLLY IN CASH FROMTHE BORROWERS AND NOT BY WAY OF REALIZATION AGAINST ANY COLLATERAL OR THECONVEYANCE OF ANY PROPERTY IN LIEU THEREOF, PROVIDED THAT SUCH INDEMNITY SHALLNOT EXTEND TO ANY ACT OR OMISSION BY THE LENDER WITH RESPECT TO ANY PROPERTYSUBSEQUENT TO THE LENDER BECOMING THE OWNER OF SUCH PROPERTY AND WITH RESPECTTO WHICH PROPERTY SUCH CLAIM, LOSS, DAMAGE, LIABILITY, FINE, PENALTY, CHARGE,PROCEEDING, ORDER, JUDGMENT, ACTION, OR REQUIREMENT ARISES SUBSEQUENT TO THEACQUISITION OF TITLE THERETO BY THE LENDER.

##  

## 5.21                           OperatingAccounts.  Establish and maintainwith Lender all of their principal operating accounts and related depositaccounts.

##  

## 5.22                           Hedging Transaction Reports.  For each Commodity Hedge Agreement to whicheither Borrower is a party, if any, as permitted under this Agreement, deliverto Lender contemporaneously with the quarterly Financial Statements a detailedreport setting out such Borrower’s (i) position as of the end of suchcalendar quarter including, but not limited to, such Borrower’s settlementpayments and receipts during such calendar quarter and settlement payables andreceivables as of the end of such calendar quarter, (ii ) volumes hedged, (iii) pricesat which such volumes were hedged, (iii) the period covered under eachCommodity Hedge Agreement and (iv) any other information which Lender mayrequest.

##  

## 5.23                           **[Reserved]**.

##  

## 5.24                           Productionand Expense Reports.  Deliver toLender, on or before the sixtieth (60th) day after the end of eachcalendar month, a production and expense report covering quantities ofproduction from the Borrowing Base Oil and Gas Properties, volumes ofproduction sold, Purchasers of Production, gross revenues and expenses(including lease operating expenses).

##  

## 5.25                           OperatingBudget Forecasts.  Commencing September 30,2008, and continuing on the last day of each subsequent month, deliver toLender with a rolling revenue, lease operating expense, capital expenditure andgeneral and administrative expense forecast, in form satisfactory to Lender(the “Operating Budget Forecasts”), by month for the succeeding 

 

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## 12-month period covering Borrowers’ interests in theBorrowing Base Oil and Gas Properties. The Operating Budget Forecasts will include a brief discussion byBorrowers of all operating and financial variances from the prior OperatingBudget Forecast delivered to Lender.

 

# **ARTICLE VI**

# ** **

# **NEGATIVE COVENANTS**

# ** **

So long as any Obligation remains outstanding or unpaid or anyCommitment exists, no Borrower will:

 

## 6.1                                 Indebtedness.  Create, incur, assume, or suffer to exist anyIndebtedness, whether by way of loan or otherwise; *provided, however*, the foregoing restriction shall not applyto (a) the Obligations, (b) unsecured accounts payable incurred inthe ordinary course of business, which are not unpaid in excess of 90 daysbeyond invoice date or are being contested in good faith and as to which suchreserve as is required by GAAP has been made, accrued or deferred taxes andother liabilities not constituting borrowed money, (c) Permitted CommodityHedge Agreements, (d) Rate Management Transactions, in form and substanceand with a Person and on terms acceptable to the Lender in its sole discretion,(e) Indebtedness secured by Permitted Liens, (f) any otherIndebtedness subordinated to the Obligation on terms approved by Lender in itssole discretion, and (g) other unsecured Indebtedness not to exceed, inthe aggregate any time outstanding, an amount equal to $50,000 incurred in theordinary course of business.

##  

## 6.2                                 ContingentObligations.  Create, incur, assume,or suffer to exist any Contingent Obligation; *provided,however*, the foregoing restriction shall not apply to (a) performanceguarantees and performance surety or other bonds provided in the ordinarycourse of business, (b) trade credit incurred or operating leases enteredinto in the ordinary course of business, or (c) guarantees or other creditsupport by one Loan Party of Indebtedness or other obligations of another LoanParty.

##  

## 6.3                                 Liens.  Create, incur, assume, or suffer to exist anyLien on any of its Oil and Gas Properties or any other Property, whether nowowned or hereafter acquired; *provided,however*, the foregoing restrictions shall not apply to PermittedLiens.

##  

## 6.4                                 Salesof Assets.  Without the prior writtenconsent of the Lender, sell, transfer, or otherwise dispose of, in one or anyseries of transactions, any Collateral or other Property, whether now owned orhereafter acquired, or enter into any agreement to do so; *provided, however*, the foregoingrestriction shall not apply to (a) the sale of hydrocarbons or inventoryin the ordinary course of business provided that no contract for the sale ofhydrocarbons shall obligate either Borrower to deliver hydrocarbons producedfrom any of the Borrowing Base Oil and Gas Properties at some future datewithout receiving full payment therefor within 90 days of delivery, (b) thesale or other disposition of Property destroyed, lost, worn out, damaged, orhaving only salvage value or no longer used or useful in the business of theBorrower, (c) sales, transfers or dispositions between Loan Parties, (d) sales,transfers or dispositions of any Property other than Borrowing Base Oil and GasProperties, and (e) other sales or dispositions of Borrowing Base Oil andGas Properties not to exceed an aggregate purchase price of $100,000 during anycalendar year.

 

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## 6.5                                 Leasebacks.  Enter into any agreement to sell or transferany Borrowing Base Oil and Gas Properties and thereafter rent or lease aslessee such Property or other Property intended for the same use or purpose asthe Property sold or transferred.

##  

## 6.6                                 Saleor Discount of Receivables.  Exceptto minimize losses on bona fide debts previously contracted, discount or sellwith recourse, or sell for less than the greater of the face or market valuethereof, any of its notes receivable or accounts receivable.

##  

## 6.7                                 Loansor Advances.  Make or agree to makeor allow to remain outstanding any loans or advances to any Person; *provided, however*, the foregoingrestrictions shall not apply to (a) advances or extensions of credit inthe form of accounts receivable incurred in the ordinary course of business andupon terms common in the industry for such accounts receivable, (b) advancesto employees of the Borrowers for the payment of expenses in the ordinarycourse of business, or (c) prior to the occurrence of an Event of Default,(i) advances from one Borrower to the other Borrower, and (ii) advancesto Guarantor for the general and administrative expenses and other generalcorporate purposes of Guarantor, provided that such advances by Borrowers forany calendar month shall not exceed the aggregate combined amount of $25,000.

##  

## 6.8                                 Investments.Acquire Investments in, or purchase or otherwise acquire all or substantiallyall of the assets of, any Person; *provided,however*, the foregoing restriction shall not apply to the purchaseor acquisition of (a) Oil and Gas Properties, (b) Investments in theform of (i) debt securities issued or directly and fully guaranteed orinsured by the United States Government or any agency or instrumentalitythereof, with maturities of no more than one year, (ii) commercial paperof a domestic issuer rated at the date of acquisition at least P-2 by Moody’sInvestor Service, Inc. or A-2 by Standard & Poor’s Corporationand with maturities of no more than one year from the date of acquisition, or (iii) repurchaseagreements covering debt securities or commercial paper of the type permittedin this Section, certificates of deposit, demand deposits, eurodollar timedeposits, overnight bank deposits and bankers’ acceptances, with maturities ofno more than one year from the date of acquisition, issued by or acquired fromor through the Lender or any bank or trust company organized under the laws ofthe United States or any state thereof and having capital surplus and undividedprofits aggregating at least $100,000,000.00, (c) other short-termInvestments similar in nature and degree of risk to those described in clause (b) ofthis Section, or (d) money-market funds.

##  

## 6.9                                 Dividendsand Distributions.  Declare, pay, ormake, whether in cash or Property of either Borrower, any dividend ordistribution on, or purchase, redeem, or otherwise acquire for value, any shareof any class of its Equity Interests stock at any time, except that (i) Triumphmay make dividends or distributions to Cymri, and (ii) Borrowers may makesuch dividends or distributions to Guarantor to the same extent that they arepermitted to make loans and advances to Guarantor pursuant to ***Section 6.7***.

##  

## 6.10                           Issuanceof Stock; Changes in Corporate Structure. Issue or agree to issueadditional shares of Equity Interest, in one or any series of transactionsunless such shares are issued to Guarantor and subject to a contemporaneouslyperfected Lien in favor of Lender; enter into any transaction of consolidation,merger, or amalgamation; liquidate, wind up, or dissolve or 

 

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## suffer any liquidation or dissolution or enter or agree to enter intoany arrangement that would result in a Change of Control.

##  

## 6.11                           Transactionswith Affiliates. Directly or indirectly, enter into any transaction(including the sale, lease, or exchange of Property or the rendering ofservice) with any of its Affiliates, other than upon fair and reasonable termsno less favorable than could be obtained in an arm’s length transaction with aPerson which was not an Affiliate; *provided, however*,the foregoing restrictions shall not apply to, prior to the occurrence of anEvent of Default, advances to Guarantor permitted under ***Section 6.7***.

##  

## 6.12                           Linesof Business.  Expand, on its own orthrough any Subsidiary, into any line of business other than those in which theBorrowers are engaged as of the date hereof.

##  

## 6.13                           PlanObligations. Assume or otherwise become subject to an obligation tocontribute to or maintain any Plan or acquire any Person which has at any timehad an obligation to contribute to or maintain any Plan.

##  

## 6.14                           CurrentRatio.  Permit, as of the close ofany fiscal quarter, the ratio of (i) the sum of Current Assets plus theAvailable Commitment at such time to (ii) Current Liabilities (butexcluding current maturities under this credit facility) to be less than 1.00to 1.00.

##  

## 6.15                           EBITDAto Fixed Charges.  Permit, as of theclose of any fiscal quarter, calculated on a consolidated basis, the ratio of (a) EBITDA for such quarter, less taxes paid in cash for such quarter to (b) FixedCharges for such quarter to be less than 1.25 to 1.00 beginning with the fiscalquarter ending September 30, 2008.  “FixedCharges” means Interest Expense, plus the amount of required principalrepayments under this credit facility. This ratio shall be tested on an annualized basis for the first threefiscal quarters following the Closing Date and, beginning on the end of thefourth fiscal quarter following the Closing Date, on a rolling four-quarterbasis.

##  

## 6.16                           TangibleNet Worth. Permit, as of the close of any fiscal quarter, Borrowers’combined tangible net worth to be less than seventy-five percent (75%) of theircombined tangible net worth as of June 30, 2008, plus the aggregate totalof seventy-five percent (75%) of Borrowers’ positive Net Income determined on afiscal quarterly basis from and after July 1, 2008.

##  

# **ARTICLE VII**

# ** **

# **EVENTS OF DEFAULT**

# ** **

## 7.1                                 Enumerationof Events of Default.  Any of thefollowing events shall constitute an Event of Default:

##  

### (a)                                  Borrowersdefault in the payment when due of any installment of principal or interestunder this Agreement or the Note or in the payment when due of any fee or othersum payable under any Loan Document and such default shall have continued forfive days;

 

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### (b)                                 Borrowersdefault in the due observance or performance of any of their negative covenantsor obligations under the Loan Documents (including ***Article VI***hereunder);

###  

### (c)                                  Borrowersdefault in the due observance or performance of any of their affirmativecovenants or obligations under the Loan Documents (including ***Article V*** hereunder), and suchdefault shall continue for 30 days after the earlier of notice thereof to theBorrowers by the Lender or knowledge thereof by any Borrower;

###  

### (d)                                 anyrepresentation or warranty made by any Borrower in any of the Loan Documentsproves to have been untrue in any material respect or any representation,statement (including Financial Statements), certificate, or data furnished ormade to the Lender in connection herewith proves to have been untrue in anymaterial respect as of the date the facts therein set forth were stated orcertified;

###  

### (e)                                  defaultshall be made by any Borrower (as principal or guarantor or other surety) inthe payment or performance of any bond, debenture, note, Commodity HedgeAgreement, Rate Management Transaction, or other Indebtedness or under anycredit agreement, loan agreement, indenture, promissory note, or similaragreement or instrument executed in connection with any of the foregoing, andsuch default shall remain unremedied for in excess of the period of grace, ifany, with respect thereto;

###  

### (f)                                    anyBorrower or Guarantor shall (i) apply for or consent to the appointment ofa receiver, trustee, or liquidator of it or all or a substantial part of itsassets, (ii) file a voluntary petition commencing an InsolvencyProceeding, (iii) make a general assignment for the benefit of creditors, (iv) beunable, or admit in writing its inability, to pay its debts generally as theybecome due, or (v) file an answer admitting the material allegations of apetition filed against it in any Insolvency Proceeding;

###  

### (g)                                 anorder, judgment, or decree shall be entered against any Borrower by any courtof competent jurisdiction or by any other duly authorized authority, on thepetition of a creditor or otherwise, granting relief in any InsolvencyProceeding or approving a petition seeking reorganization or an arrangement ofits debts or appointing a receiver, trustee, conservator, custodian, or liquidatorof it or all or any substantial part of its assets, and such order, judgment,or decree shall not be dismissed or stayed within 60 days;

###  

### (h)                                 thelevy against any significant portion of the Property of any Borrower orGuarantor, or any execution, garnishment, attachment, sequestration, or otherwrit or similar proceeding which is not permanently dismissed or dischargedwithin 90 days after the levy;

###  

### (i)                                     afinal and non-appealable order, judgment, or decree shall be entered againstany Borrower for money damages and/or Indebtedness due in an amount in excessof $500,000, and such order, judgment, or decree shall not be dismissed orstayed within 60 days;

 

39

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### (j)                                     anyBorrower shall have (i) concealed, removed, or diverted, or permitted tobe concealed, removed, or diverted, any material portion of its Property, withintent to hinder, delay, or defraud its creditors or any of them, (ii) madeor suffered a transfer of any material portion of its Property which maybefraudulent under any bankruptcy, fraudulent conveyance, or similar law, (iii) madeany transfer of its Property to or for the benefit of a creditor at a time whenother creditors similarly situated have not been paid, or (iv) suffered orpermitted, while insolvent, any creditor to obtain a Lien upon any of itsProperty through legal proceedings or distraint which is not vacated within 30days from the date thereof;

###  

### (k)                                  anySecurity Instrument shall for any reason not, or cease to, create valid and perfectedfirst-priority Liens subject to Permitted Liens against the Collateralpurportedly covered thereby or any Borrower shall assert that any SecurityInstrument does not or discontinues to create valid Liens thereunder;

###  

### (l)                                     theoccurrence of a Material Adverse Effect and the same shall remain unremediedfor in excess of 30 days after notice given by the Lender; or

###  

### (m)                               theoccurrence of a Change of Control.

 

## 7.2                                 Remedies.

##  

### (a)                                  Uponthe occurrence of an Event of Default specified in ***Sections 7.1(f) ***or***7.1(g)***,immediately and without notice, (i) all Obligations shall automaticallybecome immediately due and payable, without presentment, demand, protest,notice of protest, default, or dishonor, notice of intent to acceleratematurity, notice of acceleration of maturity, or other notice of any kind,except as may be provided to the contrary elsewhere herein, all of which arehereby expressly waived by the Borrowers; (ii) the Commitment shallimmediately cease and terminate unless and until reinstated by the Lender inwriting; and (iii) the Lender is hereby authorized at any time and fromtime to time, without notice to the Borrowers (any such notice being expresslywaived by the Borrowers), to set-off and apply any and all deposits (general orspecial, time or demand, provisional or final) held by the Lender and any andall other indebtedness at any time owing by the Lender to or for the credit oraccount of the Borrowers against any and all of the Obligations although suchObligations may be unmatured.

###  

### (b)                                 Uponthe occurrence of any Event of Default other than those specified in ***Sections 7.1(f) ***and***7.1(g)***, (i) theLender may, by notice to the Borrower, declare all Obligations immediately dueand payable, without presentment, demand, protest, notice of protest, default,or dishonor, notice of intent to accelerate maturity, notice of acceleration ofmaturity, or other notice of any kind, except as may be provided to thecontrary elsewhere herein, all of which are hereby expressly waived by theBorrowers; (ii) the Commitment shall immediately cease and terminateunless and until reinstated by the Lender in writing; and (iii) the Lenderis hereby authorized at any time and from time to time, without notice to theBorrowers (any such notice being expressly waived by the Borrowers), to set-offand apply any and all deposits (general or special, time or demand, provisionalor final) held by the Lender and any and all other indebtedness at any time 

 

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### owing by the Lender to or for the credit or account ofthe Borrowers against any and all of the Obligations although such Obligationsmay be unmatured.

###  

### (c)                                  Uponthe occurrence of any Event of Default, the Lender may, in addition to theforegoing in this Section, exercise any or all of its rights and remediesprovided by law or pursuant to the Loan Documents.

# ** **

# **ARTICLE VIII**

# ** **

# **MISCELLANEOUS**

# ** **

## 8.1                                 Transfers;Participations.  The Lender may not,without the consent of the Borrowers, at any time, sell, transfer, assign, orgrant participations in the Obligations or any portion thereof; *provided, however,* (i) that Borrowers’consent will not be unreasonably withheld and (ii) no such consent shallbe required if an Event of Default has occurred and is continuing.  The Lender may forward to each Transferee andprospective Transferee all documents and information relating to suchObligations, whether furnished by the Borrowers or otherwise obtained, as theLender determines necessary or desirable. The Borrowers agree that eachTransferee, regardless of the nature of any transfer to it, may exercise allrights (including, without limitation, rights of set-off) with respect to theportion of the Obligations held by it as fully as if such Transferee were thedirect holder thereof; subject to any agreements between such Transferee andthe transferor to such Transferee.

##  

## 8.2                                 Survivalof Representations, Warranties, and Covenants.  All representations and warranties of theBorrowers and all covenants and agreements herein made shall survive the executionand delivery of the Note and the Security Instruments and shall remain in forceand effect so long as any Obligation is outstanding or any Commitment exists.

##  

## 8.3                                 Noticesand Other Communications. Except as to verbal notices expressly authorized herein,which verbal notices shall be confirmed in writing, all notices, requests, andcommunications hereunder shall be in writing (including by facsimile). Unlessotherwise expressly provided herein, any such notice, request, demand, or othercommunication shall be deemed to have been duly given or made when delivered byhand, or, in the case of delivery by mail, three days following deposit in themail, certified mail, return receipt requested, postage prepaid, or, in thecase of facsimile notice, when receipt thereof is acknowledged orally or bywritten confirmation report, addressed as follows:

##  

### (a)                                  ifto the Lender, to:

###  

Texas Capital Bank, N.A.

One Riverway, Suite 2450

Houston, Texas 77056

Attention:  Jonathan Gregory

Facsimile: (713) 439-5942

 

### (b)                                 ifto the Borrowers, to:

 

CYMRI, L.L.C.

Three Riverway, Suite 1500

Houston, Texas 77056

Attention:  Larry M. Wright

Facsimile:  (713) 975-6271

 

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Any party may, by proper written notice hereunder to the others, changethe individuals or addresses to which such notices to it shall thereafter besent.

 

## 8.4                                 Partiesin Interest.  Subject to therestrictions on changes in business entity structure set forth in ***Section 6.10***andother applicable restrictions contained herein, all covenants and agreementsherein contained by or on behalf of the Borrowers or the Lender shall bebinding upon and inure to the benefit of the Borrowers or the Lender, as thecase may be, and their respective legal representatives, successors, andassigns.

##  

## 8.5                                 Rightsof Third Parties.  All provisionsherein are imposed solely and exclusively for the benefit of the Lender and theBorrowers.  No other Person shall haveany right, benefit, priority, or interest hereunder or as a result hereof orhave standing to require satisfaction of provisions hereof in accordance withtheir terms, and any or all of such provisions may be freely waived in whole orin part by the Lender at any time if in its sole discretion it deems itadvisable to do so.

##  

## 8.6                                 Renewals;Extensions.  All provisions of thisAgreement relating to the Note shall apply with equal force and effect to eachpromissory note hereafter executed which in whole or in part represents arenewal or extension of any part of the Indebtedness of the Borrowers underthis Agreement, the Note, or any other Loan Document.

##  

## 8.7                                 NoWaiver; Rights Cumulative.  No courseof dealing on the part of the Lender, its officers or employees, nor anyfailure or delay by the Lender with respect to exercising any of its rightsunder any Loan Document shall operate as a waiver thereof.  The rights of the Lender under the LoanDocuments shall be cumulative and the exercise or partial exercise of any suchright shall not preclude the exercise of any other right.  Neither the making of any Loan nor theissuance of a Letter of Credit shall constitute a waiver of any of thecovenants, warranties, or conditions of the Borrowers contained herein.  In the event the Borrowers are unable tosatisfy any such covenant, warranty, or condition, neither the making of anyLoan nor the issuance of a Letter of Credit shall have the effect of precludingthe Lender from thereafter declaring such inability to be an Event of Defaultas hereinabove provided.

##  

## 8.8                                 SurvivalUpon Unenforceability.  In the eventany one or more of the provisions contained in any of the Loan Documents or inany other instrument referred to herein or executed in connection with theObligations shall, for any reason, be held to be invalid, illegal, orunenforceable in any respect, such invalidity, illegality, or unenforceabilityshall not affect any other provision of any Loan Document or of any otherinstrument referred to herein or executed in connection with such Obligations.

##  

## 8.9                                 Amendments;Waivers.  Neither this Agreement norany provision hereof may be amended, waived, discharged, or terminated orally,but only by an instrument in writing signed 

 

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## by the party against whom enforcement of the amendment, waiver, discharge,or termination is sought.

##  

## 8.10                           ControllingAgreement.  In the event of aconflict between the provisions of this Agreement and those of any other LoanDocument, the provisions of this Agreement shall control.

##  

## 8.11                           Dispositionof Collateral.  Notwithstanding anyterm or provision, express or implied, in any of the Security Instruments, therealization, liquidation, foreclosure, or any other disposition on or of any orall of the Collateral shall be in the order and manner and determined in the solediscretion of the Lender; *provided, however*,that in no event shall the Lender violate applicable law or exercise rights andremedies other than those provided in such Security Instruments or otherwiseexisting at law or in equity.

##  

## 8.12                           **GOVERNING LAW.  THIS AGREEMENT AND THE NOTE AND THE OTHERLOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BECONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXASWITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW; *PROVIDED, HOWEVER*, THAT (I) CHAPTER345 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOANACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY AND (II) EXCEPT,WITH REGARD TO THE SECURITY INSTRUMENTS TO THE EXTENT THAT THE LAWS OR ANYJURISDICTION IN WHICH THE MORTGAGED PROPERTIES NECESSARILY GOVERN.**

##  

## 8.13                           **JURISDICTION AND VENUE.  ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROMTHIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLEDISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON,HARRIS COUNTY, TEXAS.  EACH BORROWERHEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURTLOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVETO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHTAGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.**

##  

## 8.14                           **WAIVER OF RIGHTS TO JURY TRIAL.   EACH BORROWER AND THE LENDER HEREBYKNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVEALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OROTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR ANYOTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENTOF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTOR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION**

 

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## **ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERINGINTO THIS AGREEMENT.**

##  

## 8.15                           **ENTIRE AGREEMENT. THIS AGREEMENTCONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THESUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIESHERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF, INCLUDING,WITHOUT LIMITATION, THE PROPOSED TERM SHEET DATED JULY 16, 2008, FROM THELENDER TO THE BORROWERS FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THEOTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONGTHE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NOUNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.**

##  

## 8.16                           CYMRIas Agent.  Triumph hereby appointsCYMRI as its agent and attorney-in-fact to execute any certificates, requestsor other documents deliverable under this Agreement in the name of each suchparty, collectively as Borrowers, and Lender shall be authorized to rely on anysuch executed certificates, requests or other documents as acts of the partiesconstituting “Borrowers” without the need of further inquiry or investigation.

##  

## 8.17                           Amendedand Restated Agreement.  This Agreementamends and restates in its entirety, but does not extinguish, the Sterling BankCredit Agreement.  All SecurityInstruments, as defined in the Sterling Bank Credit Agreement shall constituteSecurity Instruments as defined in this Agreement, and they shall continue tosecure all Obligations of Borrowers hereunder.

##  

## 8.18                           **Patriot Act****.  TheLender hereby notifies Borrowers that if Lender is subject to the USA PatriotAct and pursuant to Section 326 thereof, it is required to obtain, verifyand record information that identifies Borrowers, including the name andaddress of Borrowers and other information allowing Lender to identifyBorrowers in accordance with such act.**

##  

## 8.19                           Counterparts.  For the convenience of the parties, thisAgreement may be executed in multiple counterparts, each of which for allpurposes shall be deemed to be an original, and all such counterparts shalltogether constitute but one and the same Agreement.

##  

**[*Signaturesappear on the following page*.]**

 

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IN WITNESS WHEREOF, this Agreement is deemed executed effective as ofthe date first above written.

 
| ** ** | **BORROWER:**                                    |
|------------|--------------------------------------------------|
| ** ** |                                             |
| ** ** | **CYMRI, L.L.C. (F/K/A THE CYMRI  CORPORATION)** |
| ** ** | ** **                                       |
| ** ** | ** **                                       |
|       | By:                                              | /s/ Larry M. Wright |
|       |                                             | Larry M. Wright |
|       |                                             | Chief Executive Officer |
|       |                                             |   |
|       |                                             |   |
| ** ** | **TRIUMPH ENERGY, INC.**                         |
| ** ** | ** **                                       |
| ** ** | ** **                                       |
|       | By:                                              | /s/ Larry M. Wright |
|       |                                             | Larry M. Wright |
|       |                                             | Chief Executive Officer |
|       |                                             |   |
|       |                                             |   |
| ** ** | **LENDER:**                                      |
|       |                                             |
| ** ** | **TEXAS CAPITAL BANK, N.A.**                     |
| ** ** | ** **                                       |
| ** ** | ** **                                       |
|       | By:                                              | /s/ Jonathan Gregory |
|       |                                             | Jonathan Gregory |
|       |                                             | Executive Vice  President |

 

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