Battalion Oil Corp (BATL, NYSE)
Annual report, fiscal year 2010


# UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Commission File Number: 000-50682



# RAM Energy Resources, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

5100 East Skelly Drive, Suite 650

Tulsa, Oklahoma

(Address of principal executive office)

(918) 663-2800

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.0001 par value

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☑

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. □

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer ☑

Non-accelerated filer ☐

Smaller reporting company ☐

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of March 16, 2011, there were outstanding 78,378,233 shares of registrant's $ 0.0001 par value common stock. Based upon the closing price for the registrant's common stock on the NASDAQ Capital Market as of June 30, 2010, the aggregate market value of shares of common stock held by non-affiliates of the registrant was approximately $85.0 million. Documents incorporated by reference: The information called for by Part III is incorporated by reference to the definitive proxy statement for the Registrant's 2011 annual meeting of stockholders, which will be filed with the Securities and Exchange Commission, or SEC, no later than 120 days after December 31, 2010.



## PART I

## Item 1. Business

## Overview

We have included definitions of technical terms important to an understanding of our business under “Glossary of Oil and Natural Gas Terms.”

Unless the context otherwise requires, all references in this report to “RAM Energy Resources,” “our,” “us,” and “we” refer to RAM Energy Resources, Inc. (formerly known as Tremisis Energy Acquisition Corporation) and its subsidiaries, as a combined entity.

We were incorporated in Delaware on February 5, 2004. Our operations are encompassed in our wholly owned primary subsidiaries, RAM Energy, Inc. and RAM Operating Company, Inc. and their respective subsidiaries. Our executive offices are located at 5100 East Skyde Drive, Suite 650, Tulsa, Oklahoma 74135 (918) 663-2800. We also have offices in Plano and Houston, Texas.

We are an independent oil and natural gas company engaged in the acquisition, development, exploitation, exploration and production of oil and natural gas properties, primarily in Texas, Louisiana and Oklahoma. Our producing properties are located in highly prolific basins with long histories of oil and natural gas operations. We have been active in our core producing areas of Texas, Oklahoma and Louisiana since our inception in 1987 and have grown through a balanced strategy of acquisitions, development and exploratory drilling. We have completed over 24 acquisitions of producing oil and natural gas properties and related assets for an aggregate purchase price in excess of $700.0 million. Through December 31, 2010, we have drilled or participated in the drilling of 846 oil and natural gas wells, approximately 94% of which were successfully completed and produced hydrocarbons in commercial quantities. Our management team has extensive technical and operating expertise in all areas of our geographic focus.

On December 8, 2010, we completed the sale to Milagro Producing, LLC, a privately owned company located in Houston, Texas, of all of our oil and natural gas properties and related assets located in the Bon斯ville and Newark East fields of Jack and Wise Counties, Texas. The effective date of the sale was October 1, 2010. The sale properties included all of our Bend Conglomerate shallow gas properties and all of our North Texas Barnett Shale properties, including both producing properties and undeveloped leasehold. We received net cash proceeds at closing of $42.3 million subject to customary post-closing adjustments. As of December 31, 2010, net proceeds including post-closing adjustments were $41.0 million. Proved reserves from these properties accounted for approximately 26.4 billion cubic feet equivalent (Bcfe) of natural gas, natural gas liquids and oil, or an estimated 13% of our year-end 2009 proved reserves of 204 Bcfe. Information as to our recent divestitures is set forth under Note B to the Consolidated Financial Statements.

Our oil and natural gas assets are characterized by a combination of developing and mature reserves and properties. We have mature oil and mature natural gas reserves located primarily in Wichita, Wilbarger and Starr Counties, Texas, Pontocto County, Oklahoma, and in several parishes in Louisiana.

As of December 31, 2010, our estimated net proved reserves were 24.4 MMBoE, of which approximately 54% were crude oil, 36% were natural gas, and 10% were natural gas liquids, or NGLs. The PV-10 Value of our proved reserves was approximately $364.2 million based on benchmark prices of $79.43 per Bbl of oil and $4.38 per Mcf of natural gas. The benchmark prices reflect the unweighted arithmetic average of the first-day-of-the-month price of oil and natural gas during each month of 2010, as required by SEC Release No. 33-9895, "Modernization of Oil and Gas Reporting," effective December 31, 2009. For more information regarding our PV-10 Value, including a reconciliation to the standardized measure of discounted future net cash flows relating to our estimated proved reserves, see Item 2. "Properties — Oil and Natural Gas Reserves." At December 31, 2010, our proved developed reserves comprised 62% of our total proved reserves.

At December 31, 2010, we owned interests in approximately 4,100 wells and were the operator of leases upon which approximately 3,200 of these wells are located. The PV-10 Value attributable to our interests in the properties we operate represented approximately 98% of our aggregate PV-10 Value as of December 31,



2010. We also own a drilling rig, various gathering systems, a natural gas processing plant, service rigs and a supply company that service our properties.

During the twelve months ended December 31, 2010, we drilled or participated in the drilling of 70 wells on our oil and natural gas properties, 62 of which were successfully completed as producing wells, one of which was a dry hole well and seven of which were either drilling or waiting to be completed at the end of that period. For the twelve months ended December 31, 2010, we generated Modified EBITDA of $51.0 million from production averaging nearly 5,921 Boe per day. For more information regarding our Modified EBITDA, including a reconciliation to our net income (loss), see Item 6. “Selected Financial Data.”

## Our Business Strategy and Strengths

Our primary objective is to enhance stockholder value by increasing our net asset value, net reserves and cash flow per share through acquisitions, development, exploitation, exploration and divestiture of oil and natural gas properties. Commencing June 2010, we initiated a comprehensive review of our strategic alternatives to determine the future direction of the Company. In the course of conducting this review, our development capital expenditures slowed to a lower level than originally projected. In late 2010, we decided to engage in strategic sales of certain of our non-core assets and refinance our indebtedness, as a result of which the pace of our development capital expenditures increased once again. The refinancing of our credit facility in March 2011 allows us to continue the development and exploitation of our existing properties and to pursue an increased exploration strategy while searching out selective acquisitions. As in the past, we intend to follow a balanced risk strategy by allocating capital expenditures in a combination of lower risk development and exploitation activities and higher potential exploration prospects. We intend to pursue acquisitions during periods of attractive acquisition values and emphasize development of our reserves during periods of higher acquisition values. Key elements of our business strategy include the following:

• Maintain a Policy of Capital Programs Funded Through Operating Cash Flow. In this continued period of financial industry uncertainty leading to more restrictive capital markets, we believe maintaining ample liquidity for capital drilling programs to be a critical component of our strategy. Our 2011 capital budget of $35.0 million is expected to be fully funded through operating cash flows.

• Concentrate on Our Existing Core Areas. We intend to focus a significant portion of our growth efforts in our existing core areas in Texas, Oklahoma and Louisiana. Our oil and natural gas properties in our core areas are characterized by long reserve lives and production histories in multiple oil and natural gas horizons. We have a diversified and promising reserve base. We believe our focus on and experience in our core areas may expose us to acquisition opportunities which may not be available to the entire industry.

• Develop and Exploit Existing Oil and Natural Gas Properties. Since inception our principal growth strategy has been to develop and exploit our acquired and discovered properties until we determine that it is no longer economically attractive to do so. As of December 31, 2010, we have identified over 400 development and extension drilling projects and more than 45 recompilation/workover projects on our existing properties and wells. We intend to continue our focus on workovers, recompilations and development capital expenditures in 2011.

• Complete Selective Acquisitions and Divestitures. We seek to acquire producing oil and natural gas properties, primarily in our core areas. Our experienced senior management team has developed our acquisition criteria designed to increase reserves, production and cash flow per share on an accretive basis. We will seek acquisitions of producing properties that will provide us with opportunities for reserve additions and increased cash flow through operating improvements, production enhancement and additional development and exploratory prospect generation opportunities. In addition, from time to time, we may engage in strategic divestitures when we believe our capital may be redeployed to higher return projects as was the case in 2010 when we disposed of over $50.0 million in assets.

• Maintain Emphasis on Exploration Activity to Build an Inventory of Opportunities. We are committed to maintaining our emphasis on exploration activities within the context of our balanced risk objectives.



We are encouraged by our success in our Osage concession and plan to continue exploration in that area. We will continue to acquire, review and analyze 3-D seismic data to generate additional exploratory prospects. Since 2006, we have drilled 28 gross (12.9 net) exploratory wells and experienced an 82% success rate. Our exploration efforts utilize available geological and geophysical technologies to reduce our exploration and drilling risks and, therefore, maximize our probability of success. Combined with our continued emphasis on development capital expenditures, we believe these exploratory opportunities will provide a basis for structured growth as commodity prices improve in the future.

We believe that the following strengths complement our business strategy:

• Management Experience and Technical Expertise. Our key management and technical staff possess, on average, over 27 years of experience in the oil and natural gas industry, a substantial portion of which has been focused on operations in our core areas. We believe that the knowledge, experience and expertise of our staff will continue to support our efforts to enhance stockholder value.

• Balanced Oil and Natural Gas Production. At year-end 2010, approximately 54% of our estimated proved reserves were oil, 36% were natural gas and 10% were NGLs. We believe this balanced commodity mix, combined with our prudent use of derivative contracts, will provide sufficient diversification of sources of cash flow and will lessen the risk of significant and sudden decreases in revenue from localized or short-term commodity price movements.

• Operating Efficiency and Control. We currently operate wells that represent approximately 98% of our aggregate PV-10 Value at December 31, 2010. Our high degree of operating control allows us to control capital allocation and expenses and the timing of additional development and exploitation of our producing properties.

• Drilling Expertise and Success. Our management and technical staff have a long history of successfully drilling oil and natural gas wells. Through December 31, 2010, we drilled or have participated in the drilling of 846 oil and natural gas wells with over 94% success rate. We expect to continue to grow by utilizing our drilling expertise and developing and finding additional reserves, although our success rate may decline as we drill more exploratory wells.

• Ownership and Control of Service and Supply Assets. In our Electra/Burbkumett mature oil field, we own and control service and supply assets, including a drilling rig, service rigs, a supply company, gathering systems and other related assets. We believe that ownership and use of these assets for our own account provides us with a significant competitive advantage with respect to availability, lead-time and cost of these services.

## Glossary of Oil and Natural Gas Terms

The definitions set forth below apply to the indicated terms as used in this report. All volumes of natural gas referred to herein are stated at the legal pressure base of the state or area where the reserves exist and at 60 degrees Fahrenheit and in most instances are rounded to the nearest major multiple.

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons.

Bcf. One billion cubic feet of natural gas.

Boe. Barrels of oil equivalent in which six Mcf of natural gas equals one Bbl of oil.

Btu. British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

Completion. The installation of permanent equipment for the production of oil or natural gas or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.



Development well. A well drilled within the proved areas of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

Dry hole or well. A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

Gross acres or gross wells. The total acres or wells, as the case may be, in which a working interest is owned.

MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

MBoe. One thousand Boe.

MMBoe. One million Boe.

Mcf. One thousand cubic feet of natural gas.

MMBbls. One million barrels of crude oil or other liquid hydrocarbons.

MMBtu. One million Btus.

MMcf. One million cubic feet of natural gas.

Net acres or net wells. The sum of the fractional working interests owned in gross acres or gross wells, as the case may be.

Operator. The individual or company responsible for the exploration, exploitation and production of an oil or natural gas well or lease.

PV-10 Value. When used with respect to oil and natural gas reserves, the estimated future gross revenues to be generated from the production of proved reserves, net of estimated production and future development costs, using the prices provided in the reserve report and costs in effect as of the date indicated, without giving effect to non-property related expenses such as general and administrative expenses, debt service and future income tax expenses or to depreciation, depletion and amortization, discounted using an annual discount rate of 10%.

Productive well. A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

Proved developed producing reserves. Proved developed reserves that are expected to be recovered from completion intervals currently open in existing wells and capable of production.

Proved developed reserves. Proved reserves that are expected to be recovered from existing wellbores, whether or not currently producing, without drilling additional wells. Production of such reserves may require a recompletion.

Proved reserves. Those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible — from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations — prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for estimation.

Proved undeveloped location. A site on which a development well can be drilled consistent with spacing rules for purposes of recovering proved undeveloped reserves.



Proved undeveloped reserves. Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

Recompletion. The completion for production of an existing wellbore in another formation from that in which the well has been previously completed.

Reserve life. A ratio determined by dividing our estimated existing reserves determined as of the stated measurement date by production from such reserves for the prior twelve month period.

Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

3-D seismic. The method by which a three dimensional image of the earth’s subsurface is created through the interpretation of reflection seismic data collected over a surface grid. 3-D seismic surveys allow for a more detailed understanding of the subsurface than do conventional surveys and contribute significantly to field appraisal, exploitation and production.

Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production.

Workover. Operations on a producing well to restore or increase production.

## FORWARD LOOKING STATEMENTS

This report, including information included in, or incorporated by reference from filings by us with the SEC, as well as information contained in written material, press releases and oral statements issued by us or on our behalf, contain, or may contain, certain statements that are “forward-looking statements” within the meaning of federal securities laws that are subject to a number of risks and uncertainties, many of which are beyond our control. This report modifies and supersedes documents filed by us before this report. In addition, certain information that we file with the SEC in the future will automatically update and supersede information contained in this report. All statements, other than statements of historical fact, included or incorporated by reference in this report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

Forward-looking statements may include statements about our:

• business strategy;

• reserves;

• technology;

• financial strategy;

• oil and natural gas realized prices;

• timing and amount of future production of oil and natural gas;

• the amount, nature and timing of capital expenditures;

• drilling of wells;

• competition and government regulations;



• marketing of oil and natural gas;

• property acquisitions and divestitures;

• costs of developing our properties and conducting other operations;

• general economic conditions;

• uncertainty regarding our future operating results; and

• plans, objectives, expectations and intentions contained in this report that are not historical.

All forward-looking statements speak only as of the date of this report, and, except as required by law, we do not intend to update any of these forward-looking statements to reflect changes in events or circumstances that arise after the date of this report. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. The market data and certain other statistical information used throughout this report are based on independent industry publications, government publications or other published independent sources. Some data are also based on our good faith estimates. Although we believe these third-party sources are reliable, we have not independently verified the information and cannot guarantee its accuracy and completeness.

## Item 1A. Risk Factors

We face a variety of risks that are inherent in our business and our industry, including operational, legal and regulatory risks. The following are the known, material risks that could affect our business and our results of operations.

## Risks Related to Our Business

## The volatility of oil and natural gas prices greatly affects our profitability.

Our revenues, operating results, profitability, future rate of growth and the carrying value of our oil and natural gas properties depend primarily upon the prevailing prices for oil and natural gas. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. Any substantial decline in the price of oil and natural gas will likely have a material adverse effect on our operations, financial condition and level of expenditures for the development of our oil and natural gas reserves, and may result in further write-downs of the carrying values of our oil and natural gas properties as a result of our use of the full cost accounting method.

Wide fluctuations in oil and natural gas prices may result from relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and other factors that are beyond our control, including:

• worldwide and domestic supplies of oil and natural gas;

• speculation in the price of commodities in the commodity futures market;

• weather conditions;

• the level of consumer demand;

• the price and availability of alternative fuels;

• the availability of drilling rigs and completion equipment;



• the availability of pipeline capacity;

• the price and volume of foreign imports;

• domestic and foreign governmental regulations and taxes;

• the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

• political instability or armed conflict in oil-producing regions; and

• the overall economic environment.

These factors and the volatility of the energy markets make it extremely difficult to predict future oil and natural gas price movements with any certainty.

Oil and natural gas prices could decline to a point where it would be uneconomic for us to sell our oil and natural gas at those prices, which could result in a decision to shut in production until the prices increase.

Our oil and natural gas properties will become uneconomic when oil and natural prices decline to the point at which our revenues are insufficient to recover our lifting costs. For example, in 2010, our average lifting costs were approximately $18.49 per Boe, or $3.08 per Mcfe. A market price decline below that price would result in our having to shut in certain production until prices increase.

A decline of oil and natural gas prices or a prolonged period of reduced oil and natural gas prices could result in a decrease in our exploration and development expenditures, which could negatively impact our future production.

We currently expect to have sufficient cash flows from operations to meet our projected non-acquisition capital expenditure needs for 2011. However, if oil and natural gas prices decline or reduce to lower levels for a prolonged period of time, we may be unable to continue to fund capital expenditures at historical levels due to the decreased cash flows that will result from such reduced oil and natural gas prices. Additionally, a decline in oil and natural gas prices or a prolonged period of lower oil and natural gas prices could result in a reduction of our borrowing base under our credit facilities, which will further reduce the availability of cash to fund our operations. As a result, we may have to reduce our capital expenditures in future years. A decrease in our capital expenditures will likely result in a decrease in our production levels.

## Reduced development capital expenditures in 2011 could result in decreased production in 2012.

In 2010, our capital expenditures related to development and exploitation activities were approximately $27.9 million. For 2011, we have budgeted $23.0 million for capital expenditures related to development and exploitation activities and related geological and geophysical costs, an 18% decrease over the prior year. This anticipated decline in capital expenditures for development and exploitation activities could result in a decrease in production in 2012 and possibly beyond, unless our development and exploitation capital expenditures are subsequently increased, we find increased productive reserves through our exploration program or we acquire more production through strategic acquisitions.

## Continued weakness in economic conditions or uncertainty in financial markets may have material adverse impacts on our business that we cannot predict.

U.S. and global economies and financial systems have continued to experience turmoil and upheaval characterized by extreme volatility in prices of securities, diminished liquidity and credit availability, inability to access capital markets, the bankruptcy, failure, collapse or sale of financial institutions, continued high levels of unemployment, and an unprecedented level of intervention by the U.S. federal government and other governments. Although some portions of the economy appear to have stabilized or even improved and there have been signs of the beginning of recovery, the extent and timing of a recovery, and whether it can be



sustained, are uncertain. Continued weakness in the U.S. or global economies could materially adversely affect our business and financial condition. For example:

- the demand for oil and natural gas in the U.S. has declined and may remain at low levels or further decline if economic conditions remain weak, and continue to negatively impact our revenues, margins, profitability, operating cash flows, liquidity and financial condition;

• the tightening of credit or lack of credit availability to our customers could adversely affect our ability to collect our trade receivables;

• our ability to access the capital markets may be restricted at a time when we would like, or need, to raise capital for our business, including for exploration and/or development of our reserves; and

• our commodity hedging arrangements could become ineffective if our counterparties are unable to perform their obligations or seek bankruptcy protection.

Oil prices have improved significantly in 2010 as compared to 2009 while natural gas prices continue to stagnate. Our profitability is directly related to the prices we receive for the sale of the oil and natural gas we produce. In early July 2008, commodity prices reached record levels in excess of $140.00 per barrel for crude oil and $13.00 per Mcf for natural gas. The 2008 year ended with market prices dropping to $44.00 for crude oil and $4.00 for natural gas, a 99% to 73% decline from the earlier highs. During 2009, market prices ended at a high of approximately $72.00 for crude oil and $4.00 for natural gas. As of December 31, 2010, crude oil prices continued to rise to approximately $87.00 while natural gas prices remained constant at approximately $4.00.

## Our success depends on acquiring or finding additional reserves.

Our future success depends upon our ability to find, develop or acquire additional oil and natural gas reserves that are economically recoverable. Our proved reserves will generally decline as reserves are produced, except to the extent that we conduct successful exploration or development activities or acquire properties containing proved reserves, or both. To increase reserves and production, we must commence exploratory drilling, undertake other replacement activities or utilize third parties to accomplish these activities. There can be no assurance, however, that we will have sufficient resources to undertake these actions, that our exploratory projects or other replacement activities will result in significant additional reserves or that we will succeed in drilling productive wells at low finding and development costs. Furthermore, although our revenues may increase if prevailing oil and natural gas prices increase significantly, our finding costs for additional reserves could also increase.

In accordance with customary industry practice, we rely in part on independent third party service providers to provide most of the services necessary to drill new wells, including drilling rigs and related equipment and services, horizontal drilling equipment and services, trucking services, tubular goods, fracing and completion services and production equipment. The oil and natural gas industry has experienced significant volatility in cost for these services in recent years and this trend is expected to continue into the future. Any future cost increases could significantly increase our development costs and decrease the return possible from drilling and development activities, and possibly render the development of certain proved undeveloped reserves uneconomical.

## The actual quantities and present values of our proved oil and natural gas reserves may be less than we have estimated.

This report and other SEC filings by us contain estimates of our proved oil and natural gas reserves and the estimated future net revenues from those reserves. These estimates are based on various assumptions, including assumptions required by the SEC relating to oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes, timing of operations, and availability of funds. The process of estimating oil and natural gas reserves is complex. The process involves significant decisions and assumptions in the evaluation of available geological, geophysical, engineering, and economic data for each reservoir. These estimates are dependent on many variables, and therefore changes often occur as these variables evolve.



Therefore, these estimates are inherently imprecise. For example, total revisions of our previous reserve estimates decreased proved reserves by 3.3 MMBoE or approximately 10% of our reserves at the beginning of the year. The revisions included a positive increase of 1.8 MMBoE or 5% of the beginning of the year reserves caused by higher oil and gas prices. This positive revision was offset by the downward revision of 1.1 MMBoE caused by the transfer of proved undeveloped to unproved categories as a result of changes to the company development plans during 2010, and 4.0 MMBoE of the downward revisions were mostly due to changes in well performance in our gas properties in South Texas.

Actual future production, oil and natural gas prices, revenues, production taxes, development expenditures, operating expenses, and quantities of producible oil and natural gas reserves will most likely vary from those estimated. Any significant variance could materially affect the estimated quantities of and present values related to proved reserves disclosed by us, and the actual quantities and present values may be less than we have previously estimated. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development activity, prevailing oil and natural gas prices, costs to develop and operate properties, and other factors, many of which are beyond our control. Our properties may also be susceptible to hydrocarbon drainage from production on adjacent properties.

As of December 31, 2010, approximately 38%, or 9.2 MMBoE, of our estimated proved reserves were proved undeveloped, and approximately 7%, or 1.7 MMBoE, were proved developed non-producing. In order to develop our proved undeveloped reserves, we estimate approximately $101.8 million of capital expenditures will be required. Production revenues from proved developed non-producing reserves will not be realized until sometime in the future and after some investment of capital. In order to bring production on-line for our proved developed non-producing reserves, we estimate capital expenditures of approximately $8.3 million will be required. The estimated abandonment costs associated with our Louisiana production facilities make up the balance of our anticipated capital expenditures. Although we have estimated our reserves and the costs associated with these reserves in accordance with industry standards, estimated costs may not be accurate, development may not occur as scheduled and actual results may not occur as estimated.

You should not assume that the PV-10 Value and standardized measure of discounted future net cash flows included in this report represent the current market value of our estimated proved oil and natural gas reserves. Management has based the estimated discounted future net cash flows from proved reserves on price and cost assumptions required by the SEC, whereas actual future prices and costs may be materially higher or lower. For example, our proved reserves and PV-10 Values as of December 31, 2010, were estimated using the 12-month unweighted arithmetic average of the first-day-of-the-month price of $79.43 per Bbl of oil (NYMEX West Texas Intermediate settle price) and $4.38 per Mcf of natural gas (Platts Henry Hub spot price). We then adjust these base prices to reflect appropriate basis, quality, and location differentials over that period in estimating our proved reserves. During 2010, our monthly average realized oil prices, excluding the effect of hedging, were as high as $86.84 per Bbl and as low as $71.92 per Bbl. For the same period, our monthly average realized natural gas prices before hedging were as high as $5.72 per Mcf and as low as $3.27 per Mcf. Many other factors will affect actual future net cash flows, including:

• Amount and timing of actual production;

• Supply and demand for oil and natural gas;

• Curtailments or increases in consumption by oil purchasers and natural gas pipelines; and

• Changes in government regulations or taxes.

The timing of production from oil and natural gas properties and of related expenses affects the timing of actual future net cash flows from proved reserves, and thus their actual present value. Our actual future net cash flows could be less than the estimated future net cash flows for purposes of computing PV-10 Values. In addition, the ten percent discount factor required by the SEC to be used to calculate PV-10 Values for reporting purposes is not necessarily the most appropriate discount factor given actual interest rates, costs of capital, and other risks to which our business and the oil and natural gas industry in general are subject.



We expect to obtain a substantial portion of our funds for property acquisitions and for the drilling and development of our oil and natural gas properties through a combination of cash flows from operations and borrowings. If such borrowed funds were not available to us, or if the terms upon which such funds would be available to us were unfavorable, our ability to acquire oil and natural gas properties, the further development of our oil and natural gas reserves, and our financial condition and results of operations, could be adversely affected.

We expect to fund a substantial portion of our future property acquisitions and our drilling and development operations with a combination of cash flows from operations and borrowed funds. To the extent such borrowed funds are not available to us at all, or if the terms under which such funds would be available to us would be unfavorable, our ability to acquire oil and natural gas properties and the further development of our oil and natural gas reserves could be adversely impacted. In such events, we may be unable to replace our reserves of oil and natural gas which, subsequently, could adversely affect our financial condition and results of operations.

The continued tightness in the financial and credit markets may expose us to counterparty risk with respect to our sales of oil and natural gas.

We sell our crude oil, natural gas and natural gas liquids to a variety of purchasers. Some of these parties may not be as creditworthy as we are and may experience liquidity problems. Nonperformance by a trade creditor could result in our incurring losses.

## Operating hazards and uninsured risks may result in substantial losses.

Our operations are subject to all of the hazards and operating risks inherent in drilling for, and the production of, oil and natural gas, including the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards such as oil spills, gas leaks, ruptures or discharges of toxic gases. The occurrence of any of these events could result in substantial losses to us due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations. In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks. There can be no assurance that any insurance will be adequate to cover any losses or liabilities. We cannot predict the continued availability of insurance, or its availability at premium levels that justify its purchase. In addition, we may be liable for environmental damage caused by previous owners of properties purchased by us, which liabilities would not be covered by our insurance.

## Our operations are subject to various governmental regulations that require compliance that can be burdensome and expensive.

Our operations are subject to various federal, state and local governmental regulations that may be changed from time to time in response to economic and political conditions. Matters subject to regulation include discharge from drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas wells below actual production capacity to conserve supplies of oil and natural gas. In addition, the production, handling, storage, transportation and disposal of oil and natural gas, by-products thereof and other substances and materials produced or used in connection with oil and natural gas operations are subject to regulation under federal, state and local laws and regulations primarily relating to protection of human health and the environment. These laws and regulations have continuously imposed increasingly strict requirements for water and air pollution control and solid waste management, and compliance with these laws may cause delays in the additional drilling and development of our properties. Significant expenditures may be required to comply with governmental laws and regulations applicable to us. We believe the trend of more expansive and stricter environmental legislation and regulations will continue. While historically we have not experienced any material adverse effect from regulatory delays, there can be no assurance that such delays will not occur in the future.



## Unusual weather patterns or natural disasters, whether due to climate change or otherwise, could negatively impact our financial condition.

Our business depends, in part, on normal weather patterns across the United States. Natural gas demand and prices are particularly susceptible to seasonal weather trends. Warmer than usual winters can result in reduced demand and high season-end storage volumes, which can depress prices to unacceptably low levels. In addition, because a majority of our properties are located in Texas, Louisiana and Oklahoma, our operations are constantly at risk of extreme adverse weather conditions such as hurricanes and tornadoes. Any unusual or prolonged adverse weather patterns in our areas of operations or markets, whether due to climate change or otherwise, could have a material and adverse impact on our business, financial condition and cash flow. In addition, our business, financial condition and cash flow could be adversely affected if the businesses of our key vendors, purchasers, contractors, suppliers or transportation service providers were disrupted due to severe weather, such as hurricanes or floods, whether due to climate change or otherwise.

## Climate change and government laws and regulations related to climate change could negatively impact our financial condition.

In addition to other climate-related risks set forth in this “Risk Factors” section, we are and will be, directly and indirectly, subject to the effects of climate change and may, directly or indirectly, be affected by government laws and regulations related to climate change. We cannot predict with any degree of certainty what effect, if any, possible climate change and new and developing government laws and regulations related to climate change will have on our operations, whether directly or indirectly. While we believe that it is difficult to assess the timing and effect of climate change and pending legislation and regulation related to climate change on our business, we believe that climate change and government laws and regulations related to climate change may affect, directly or indirectly, (i) the cost of the equipment and services we purchase, (ii) our ability to continue to operate as we have in the past, including drilling, completion and operating methods, (iii) the timeliness of delivery of the materials and services we need and the cost of transportation paid by us and our vendors and other providers of services, (iv) insurance premiums, deductibles and the availability of coverage, and (v) the cost of utility services, particularly electricity, in connection with the operation of our properties. In addition, climate change may increase the likelihood of property damage and the disruption of our operations, especially in coastal states. As a result, our financial condition could be negatively impacted by significant climate change and related governmental regulation, and that impact could be material.

## Regulation and recent court decisions related to greenhouse gas emissions could have an adverse effect on our operations and demand for oil and natural gas.

The U.S. Congress has previously considered legislation to reduce emissions of “greenhouse gases,” including carbon dioxide, methane and nitrous oxide among others, which some studies have suggested may be contributing to warming of the earth’s atmosphere. However, legislation to reduce greenhouse gases appears less likely in the near term. As a result, near term regulation of greenhouse gases, if any, is more likely to come from regulatory action by EPA or by the several states that have already taken legal measures to reduce emissions of greenhouse gases.

As a result of the U.S. Supreme Court’s decision on April 2, 2007 in Massachusetts, et al. v. EPA, 549 U.S. 497 (2007), finding that greenhouse gases fall within the Clean Air Act (“CAA”) definition of “air pollutant,” the Environmental Protection Agency (“EPA”) was required to determine whether emissions of greenhouse gases “endanger” public health or welfare. As a result, the EPA has adopted regulations requiring Clean Air Act (“CAA”) permitting of greenhouse gas emissions from stationary and mobile sources. On December 15, 2009, EPA promulgated its final rule, “Endangerment and Cause or Contribute Findings for Greenhouse Gas under Section 202(a) of the Clean Air Act,” finding that (i) the current and projected emissions of six key well-mixed greenhouse gases, including carbon dioxide and methane, constitute a threat to public health and welfare, and (ii) the combined emissions from motor vehicles cause and contribute to the climate change problem which threatens public health and welfare. These findings did not themselves impose any requirements on industry or other entities, but were a prerequisite to EPA’s adoption of greenhouse gas.



emission standards for motor vehicles. On May 7, 2010, EPA and the Department of Transportation's National Highway Traffic and Safety Administration, or NHTSA, promulgated a final action establishing a national program providing new standards for certain motor vehicles to reduce greenhouse gas emissions and improve fuel economy, with EPA adopting the standards under the CAA, and NHTSA adopting the standards as Corporate Average Fuel Economy standards under the Energy Policy and Conservation Act. While these motor vehicle regulations do not directly impact oil and natural gas production operations, the result of these actions are significant in that they automatically trigger application of certain CAA permit programs for stationary greenhouse gas emissions sources, potentially including oil and natural gas production operations. These programs, the Prevention of Significant Deterioration ("PSD") and Title V Operating Permit programs, have historically applied to sources of air pollutants "subject to regulation" with emissions exceeding 100 and 250 tons per year. To avoid the broad impact of such low permitting thresholds for greenhouse gas emission sources, on June 3, 2010, EPA promulgated its "Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule," to add new higher thresholds of 75,000 tons per year carbon dioxide equivalents ("CO₂e") for modifications and 100,000 tons per year CO₂e for new sources.

Additionally, EPA has promulgated separate regulations requiring greenhouse gas emission reporting from certain industry sectors, including natural gas production. On October 30, 2009, EPA promulgated a final mandatory greenhouse gas reporting rule which will assist EPA in developing policy approaches to greenhouse gas regulation. This reporting rule became effective on December 29, 2009. On November 30, 2010, EPA promulgated additional mandatory greenhouse gas reporting rules that apply specifically to oil and natural gas production for implementation in 2011.

Though under review by the D.C. Circuit, EPA’s rules promulgated thus far have survived petitions for stay, and are currently final and effective, and will remain so unless vacated or remanded by the court, or unless Congress adopts legislation preempting EPA’s regulatory authority to address greenhouse gases under the CAA.

Beyond legislative and regulatory developments, there have been several recent court cases impacting this area of risk related to greenhouse gas emissions. The final decisions in these cases may expose us to similar litigation risk.

The decisions in these cases may expose us, as potentially an emitter of significant direct and indirect emission sources of greenhouse gases, to similar litigation risk.

International treaties. Other nations have already agreed to regulate emissions of greenhouse gases pursuant to the United Nations Framework Convention on Climate Change, also known as the "Kyoto Protocol," an international treaty pursuant to which participating countries (not including the United States) agreed to reduce their emissions of greenhouse gases to below 1990 levels by 2012. Though the 16th meeting of the Council of the Parties in Mexico in November and December 2010 did not produce a legally binding final agreement, international negotiations continue, with the participation of the United States.

International developments, passage of state or federal climate control legislation or other regulatory initiatives, the implementation of regulations by EPA and analogous state agencies that restrict emissions of greenhouse gases in areas in which we conduct business, or further development of case law allowing claims based upon greenhouse gas emissions, could have an adverse effect on our operations and financial condition as a result of material increases in operating and production costs and litigation expense due to expenses associated with monitoring, reporting, permitting and controlling greenhouse gas emissions or litigating claims related to emissions of greenhouse gases, and the demand for oil and natural gas and increase the costs of our operations.

Potential legislative and regulatory actions relating to Federal income taxation and derivatives trading could increase our costs, reduce our revenue and cash flow from oil and natural gas sales, reduce our liquidity or otherwise alter the way we conduct our business.

In 2009, 2010 and 2011, the administration of President Obama made budget proposals which, if enacted into law by Congress, would potentially increase and accelerate the payment of federal income taxes by



independent producers of oil and natural gas. Proposals have included, but have not been not limited to, repealing the expensing of intangible drilling costs, repealing the deduction for the cost of qualified tertiary expenses, repealing the exception to the passive loss limitation for working interests in oil and natural gas properties, repealing the percentage depletion allowance, repealing the manufacturing tax deduction for oil and natural gas companies, and increasing the amortization period of geological and geophysical expenses. In 2009 and 2010, legislation which would have implemented the proposed changes was introduced but not enacted. It is unclear whether legislation supporting any of the above described proposals, or designed to accomplish similar objectives, will be introduced or, if introduced, would be enacted into law or, if enacted, how soon resulting changes would become effective. However, the passage of any legislation designed to implement changes in the U.S. federal income tax laws similar to the changes included in the budget proposals offered by the White House in 2009, 2010 and 2011 could eliminate certain tax deductions currently available with respect to oil and gas exploration and development, and any such changes (i) could make it more costly for us to explore for and develop our oil and natural gas resources and (ii) could negatively affect our financial condition and results of operations. On July 21, 2010, the President signed into law the "Wall Street Transparency and Accountability Act of 2010" (the "WSTA Act") which directs the Federal Reserve to create uniform standards for the management of certain risks associated with, among other things, the trading of certain derivatives over the counter ("OTC"). In recent years, we have maintained an active price and basis protection hedging program related to the oil and natural gas we produce. Additionally, we have used the OTC market exclusively for our oil and natural gas derivative contracts and have relied on our hedging activities to manage the risk of low commodity prices and to predict with greater certainty the cash flow from our hedged production. While the manner in which the Federal Reserve will implement the directives contained in the WSTA Act is unclear, we anticipate such implementation may include the imposition of clearing and standardization requirements for all derivatives currently traded on the OTC and could restrict trading positions in the energy futures markets. While the ultimate impact on us of such changes, if implemented, is unclear, we anticipate they may materially reduce our hedging opportunities and could negatively affect our revenues and cash flow during periods of low commodity prices.

## Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

We utilize hydraulic fracturing as a means to enhance the productive capability of our wells. Congress has previously considered legislation to amend the federal Safe Drinking Water Act to require the disclosure of chemicals used by the oil and natural gas industry in the hydraulic fracturing process. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into rock formations to stimulate natural gas production. Sponsors of bills previously proposed before the Senate and House of Representatives have asserted that chemicals used in the fracturing process could adversely affect drinking water supplies. That proposed legislation would require the reporting and public disclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, these bills, if adopted, could repeal the exemptions for hydraulic fracturing from the Safe Drinking Water Act. These legislative efforts have halted while EPA studies the issue of hydraulic fracturing in 2010, EPA initiated a Hydraulic Fracturing Research Study to address concerns that hydraulic fracturing may affect the safety of drinking water. As part of that process, EPA requested and received information from the major fracturing service providers regarding the chemical composition of fluids, standard operating procedures and the sites where they engage in hydraulic fracturing. In February 2011, EPA released its Draft Plan to Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources, proposing to study the lifecycle of hydraulic fracturing fluid and providing a comprehensive list of chemicals identified in fracturing fluid and flowback/produced water. These developments, as well as increased scrutiny of hydraulic fracturing activities by state authorities, may result in additional levels of regulation or level of complexity with respect to existing regulation at the federal and state levels that could lead to operational delays or increased operating costs and could result in additional regulatory burdens that could make it more difficult to perform hydraulic fracturing, which could result in limiting the productive capability of future wells in which we likely would utilize hydraulic fracturing and increase our costs of compliance and doing business.



We may not be able to borrow the full amount of the borrowing base under our revolving credit facilities because of the amount of our Modified EBITDA. The inability to fully borrow funds up to our borrowing base could reduce our capital expenditures.

As of December 31, 2010, our borrowing base under our old revolving credit facility was $145.0 million. As of the same date, we had outstanding advances under the revolving credit facility of $116.5 million, leaving an aggregate availability under our revolver of $28.5 million. However, because of the amount of our Modified EBITDA, the financial covenants set forth in our old credit facility would have limited us to additional borrowings under our revolving credit facility as of December 31, 2010, of $23.7 million. On March 14, 2011, we entered into a new revolving credit facility with a borrowing base of $150.0 million. Based on our Modified EBITDA for the four fiscal quarters ending December 31, 2010, our borrowings would not have been limited under the new revolving credit facility. Should our Modified EBITDA decline, we may be unable to borrow funds up to the full amount of our borrowing base. Our inability to borrow the full amount of our borrowing base under our revolving credit facility could reduce our current year capital expenditures if we do not meet our goal of funding our 2011 capital expenditures from our operating cash flow.

Our method of accounting for investments in oil and natural gas properties may result in a further impairment of asset value, which could affect our stockholder equity and net profit or loss.

We use the full cost method of accounting for our investment in oil and natural gas properties. Under the full cost method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves are capitalized into a "full cost pool." Capitalized costs in the pool are amortized and charged to operations using the units-of-production method based on the ratio of current production to total proved oil and natural gas reserves. To the extent that such capitalized costs, net of amortization, exceed the after tax present value of estimated future net revenues from our proved oil and natural gas reserves (using a 10% discount rate) at any reporting date, such excess costs are charged to operations. We incurred no impairment charge for 2010. In 2009, we recorded a $47.6 million charge for the impairment of our oil and natural gas properties. This amount was in addition to the $269.4 million charge we recorded in 2008. These writedowns are not reversible at a later date, even if the present value of our proved oil and natural gas reserves increases as a result of an increase in oil or natural gas prices. Further price declines could result in additional impairments of asset value.

Properties that we acquire may not produce as projected, and we may be unable to identify liabilities associated with the properties or obtain protection from sellers against them.

As part of our business strategy, we continually seek acquisitions of oil and natural gas properties. The successful acquisition of oil and natural gas properties requires assessment of many factors, which are inherently inexact and may be inaccurate, including the following:

• future oil and natural gas prices;

• the amount of recoverable reserves;

• future operating costs;

• future development costs;

• failure of titles to properties;

• costs and timing of plugging and abandoning wells; and

• potential environmental and other liabilities.

Our assessment will not necessarily reveal all existing or potential problems, nor will it permit us to become familiar enough with the properties to assess fully their capabilities and deficiencies. With respect to properties on which there is current production, we may not inspect every well location, potential well location or pipeline in the course of our due diligence. Inspections may not reveal structural and environmental problems such as pipeline corrosion or groundwater contamination. We may not be able to obtain or recover



on contractual indemnities from the seller for liabilities that it created. We may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations.

## We face intensive competition in our industry.

We operate in a highly competitive environment. We compete with major and independent oil and natural gas companies, many of whom have financial and other resources substantially in excess of those available to us. These competitors may be better positioned to take advantage of industry opportunities and to withstand changes affecting the industry, such as fluctuations in oil and natural gas prices and production, the availability of alternative energy sources and the application of government regulation.

Our use of derivative contracts is subject to risks that our counterparties may default on their contractual obligations to us and may cause us to forego additional future profits or result in our making cash payments.

Our use of derivative contracts could have the effect of reducing our revenues and the value of our common stock. To reduce our exposure to changes in the prices of oil and natural gas, we have entered into and will in the future enter into derivative contracts for a portion of our oil and natural gas production. Our derivative contracts are subject to mark-to-market accounting treatment, which means that the change in the fair market value of these instruments is reported as a non-cash item in our statement of operations each quarter, which typically result in significant variability in our net income. Derivative contracts expose us to the risk of financial loss and may limit our ability to benefit from increases in oil and natural gas prices in some circumstances, including the following:

• the counterparty to the derivative contract may default on its contractual obligations to us;

• there is a widening of the price differentials between delivery points for our production and the delivery point assumed in the derivative contract; or

• our production is less than our hedged volumes.

The ultimate settlement amount of these unrealized derivative contracts is dependent on future commodity prices. We may incur significant unrealized losses in the future from our use of derivative contracts to the extent market prices increase and our derivatives contracts remain in place. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Commodity Price Risk” appearing elsewhere in this report.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt obligations could harm our business, financial condition and results of operations.

Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash from operations and other resources in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, including the prices that we receive for oil and natural gas.

Our business may not generate sufficient cash flow from operations and future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to sell assets, seek additional equity or debt capital or restructure our debt. None of these remedies may, if necessary, be effected on commercially reasonable terms, or at all. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms. Our cash flow and capital resources may be insufficient for payment of interest on and principal of our debt in the future, which could cause us to default on our obligations and could impair our liquidity.



Restrictive debt covenants could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.

Our credit agreements contain a number of significant covenants that, among other things, restrict our ability to:

• dispose of assets;

• incur or guarantee additional indebtedness and issue certain types of preferred stock;

• pay dividends on our capital stock;

• create liens on our assets;

• enter into sale or leaseback transactions;

• enter into specified investments or acquisitions;

• repurchase, redeem or retire our capital stock or subordinated debt;

• merge or consolidate, or transfer all or substantially all of our assets and the assets of our subsidiaries;

• engage in specified transactions with subsidiaries and affiliates; or

• pursue other corporate activities.

We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under our credit agreements. Also, our credit agreements require us to maintain compliance with specified financial ratios and satisfy certain financial condition tests. Our ability to comply with these ratios and financial condition tests may be affected by events beyond our control and, as a result, we may be unable to meet these ratios and financial condition tests. These financial ratio restrictions and financial condition tests could limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business or the economy in general or otherwise conduct necessary corporate activities. A decline in oil and natural gas prices, or a prolonged period of oil and natural gas prices at lower levels, could eventually result in our failing to meet one or more of the financial covenants under our credit facilities, which could require us to refinance or amend the facilities resulting in the payment of consent fees or higher interest rates, or require us to raise additional capital at an inopportune time or on terms not favorable to us.

A breach of any of these covenants or our inability to comply with the required financial ratios or financial condition tests could result in a default under our credit agreements. A default under our credit agreements, if not cured or waived, could result in acceleration of all indebtedness outstanding under our credit agreements. The accelerated debt would become immediately due and payable. If that should occur, we may be unable to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us.

## Risks Related to Our Common Stock

We do not currently pay dividends on our common stock and do not anticipate doing so in the future.

We intend to retain any future earnings to fund our operations; therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Also, our credit facilities do not permit us to pay dividends on our common stock.

Substantial stock ownership by our executive officers, directors and other affiliates may limit the ability of our non-affiliate stockholders to influence the outcome of director elections and other matters requiring stockholder approval.

Persons who are our officers and directors beneficially own approximately 18% of our outstanding common stock. Accordingly, our insiders will have significant influence in the election of our directors and,



therefore, our policies and direction. This concentration of voting power could have the effect of delaying or preventing a change in our control or discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market price of our common stock or prevent our stockholders from realizing a premium over the market price for their shares of common stock.

You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock, which could have an adverse effect on our stock price.

We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue 100,000,000 shares of common stock and 1,000,000 shares of preferred stock with such designations, preferences and rights as determined by our board of directors. As of December 31, 2010, we had outstanding 78,386,983 shares of common stock. In addition, we have reserved an additional 1,960,271 shares for future issuance to our directors, officers and employees as restricted stock or stock option awards pursuant to our 2006 Long-Term Incentive Plan. The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with future acquisitions, future issuances of our securities for capital raising purposes or for other business purposes. Future sales of substantial amounts of our common stock, or the perception that sales could occur, could have a material adverse effect on the price of our common stock.

Certain provisions of Delaware law, our certificate of incorporation and bylaws could hinder, delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

Certain provisions of Delaware law, our certificate of incorporation and bylaws could have the effect of discouraging, delaying or preventing transactions that involve an actual or threatened change in control of our company. Delaware law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. In addition, our certificate of incorporation and bylaws include the following provisions:

Classified Board of Directors. Our board of directors is divided into three classes with staggered terms of office of three years each. The classification and staggered terms of office of our directors make it more difficult for a third party to gain control of our board of directors. At least two annual meetings of stockholders, instead of one, generally would be required to effect a change in a majority of the board of directors.

• Removal of Directors. Under Delaware law, directors that serve on a classified board, such as our directors, may be removed only for cause by the affirmative vote of the holders of at least a majority of the voting power of the outstanding shares of our capital stock entitled to vote.

- Number of Directors, Board Vacancies, Term of Office. Our certificate of incorporation and our bylaws provide that only the board of directors may set the number of directors. We have elected to be subject to certain provisions of Delaware law which vest in the board of directors the exclusive right, by the affirmative vote of a majority of the remaining directors, to fill vacancies on the board even if the remaining directors do not constitute a quorum. When effected, these provisions of Delaware law, which are applicable even if other provisions of Delaware law or the charter or bylaws provide to the contrary, also provide that any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, rather than the next annual meeting of stockholders as would otherwise be the case, and until his or her successor is elected and qualifies.

- Advance Notice Provisions for Stockholder Nominations and Proposals. Our bylaws require advance written notice for stockholders to nominate persons for election as directors at, or to bring other business before, any meeting of stockholders. This bylaw provision limits the ability of stockholders to make nominations of persons for election as directors or to introduce other proposals unless we are notified in a timely manner prior to the meeting.



• Amending the Bylaws. Our certificate of incorporation permits our board of directors to adopt, alter or repeal any provision of the bylaws or to make new bylaws. Our bylaws also may be amended by the affirmative vote of our stockholders.

• Authorized but Unissued Shares. Under our certificate of incorporation, our board of directors has authority to cause the issuance of preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of our stockholders. Nothing in our certificate of incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our common stock.

We could issue shares of preferred stock which could be entitled to dividend, liquidation and other special rights and preferences not shared by holders of our common stock or which could have anti-takeover effects.

We are authorized to issue up to 1,000,000 shares of preferred stock, which shares may be issued from time to time in one or more series as our board of directors, by resolution or resolutions, may from time to time determine. The voting powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof, if any, of each such series of our preferred stock may differ from those of any and all other series of preferred stock at any time outstanding, and, subject to certain limitations of our certificate of incorporation and Delaware law, our board of directors may fix or alter, by resolution or resolutions, the designation, number, voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, of each such series of our preferred stock. The issuance of any such preferred stock could materially adversely affect the rights of holders of our common stock and, therefore, could reduce the value of our common stock.

In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party. The ability of our board of directors to issue preferred stock could discourage, delay or prevent a takeover of us, thereby preserving our control by the current stockholders.

## Item 1B. Unresolved Staff Comments

None.

## Item 2. Properties

As we concentrate our holdings into areas that align with our objectives, we have determined to report our operations by state. Our principal properties in Texas primarily consist of the Electra/Burkbunett fields in Wichita and Wilbarger Counties and the La Copita field in Starr County. Our principal Oklahoma properties are the Northeast Fits and Allen fields in Pontotoc and Seminole Counties. In Louisiana, our most significant property is the Lake Enfermer field in Lafourche Parish. During 2010, we drilled 62 gross wells (54.0 net) that were capable of production and experienced a success rate of 99%.

The following table summarizes our estimated proved oil and gas reserves by area as of December 31, 2010, and our average daily production by area for calendar year 2010:

<table><tr><td></td><td>ProductionBoc</td><td>OilMBbls</td><td>GasMFCf</td><td>NGLMBbls</td><td>EquivalentMBoe</td><td>ProvedReserves</td></tr><tr><td>Texas</td><td>3,893</td><td>6,903</td><td>31,158</td><td>2,126</td><td>14,222</td><td>58%</td></tr><tr><td>Oklahoma</td><td>1,296</td><td>5,523</td><td>4,236</td><td>111</td><td>6,340</td><td>26%</td></tr><tr><td>Louisiana</td><td>532</td><td>409</td><td>16,555</td><td>—</td><td>3,168</td><td>13%</td></tr><tr><td>Other</td><td>200</td><td>251</td><td>1,659</td><td>138</td><td>666</td><td>3%</td></tr><tr><td></td><td>5,921</td><td>13,086</td><td>53,608</td><td>2,375</td><td>24,396</td><td>100%</td></tr></table>

## Texas Fields

The average daily production from our Texas fields was 3,893 Boe per day (66% of our total daily production) in 2010, a decrease of 15% over the previous year due to natural production declines not offset by



increased drilling. We drilled a total of 58 gross (51.1 net) wells in our Texas fields, all of which were completed as wells capable of production. An additional three gross (3.0 net) wells were drilled to their objective depth and awaiting completion or pipeline connection at year end. As of December 31, 2010, the proved reserves in our Texas fields were 14.2 MMBoE and account for 58% of our total proved reserves. Our most significant Texas fields are as follows:

Electra/Burbkurnett Fields. We drilled a total of 48 gross (48.0 net) wells during 2010 in our Electra/Burbkurnett fields in Wichita and Wilbarger Counties, Texas and have drilled more than 347 wells in these fields since November 1, 2004. We have budgeted $80.0 million in 2011 to continue development of this field. We own our own drilling rig and pulling units deployed exclusively for operations in these fields, and employ approximately 91 field personnel. We continue to focus on reducing operating costs in these fields and are also working to improve production performance through recombinations, workovers and improved water injection performance. As of December 31, 2010, the estimated proved reserves in these fields were 6.6 MMBoE (27% of our total proved reserves).

South Texas. During 2010, our net daily production from our South Texas properties averaged 1,355 Boe per day and make up 27% (6.6 MMBoE) of our total proved reserves. We drilled six gross (5.8 net) wells in our La Copita field in Starr County, Texas during 2010. All completions were successful with initial production rates up to 482 Boe per day from the Vicksburg formation. We are the operator of all of the wells in our La Copita field. Due to continued low natural gas prices, we have allocated only $2.0 million of our 2011 non-acquisition capital budget to South Texas.

## Oklahoma Fields

We produced an average of 1,296 Boe per day (22% of our total daily production) from our Oklahoma fields in 2010, a decrease of 19% over the previous year primarily due to natural production declines and weather-related interruptions. We drilled a total of three gross (2.9 net) wells in our Oklahoma fields, all of which were completed as wells capable of production. An additional three gross (2.8 net) wells were drilled to their objective depth and awaiting completion or pipeline connection at year end. As of December 31, 2010, the proved reserves in our Oklahoma fields were 6.3 MMBoE and account for 26% of our total proved reserves. Our most significant Oklahoma fields are as follows:

Northeast Fitts and Allen Fields. During 2010, we initiated the drilling of 3 gross (2.7 net) development wells in our Northeast Fitts unit in Pontotoc County, Oklahoma. No wells were drilled during 2009 in our Allen field of Pontotoc and Seminole Counties. The Northeast Fitts field produces from shallow McAlester and Hunton formations at depths less than 4,000 feet. We are the operator of the units and, as such, control the pace of operations. The majority of our value in the Northeast Fitts field is primarily a mature waterflood. Our Allen Field has future behind-pipe and undeveloped opportunities in shallow multi-pay reservoirs. The combined proved reserves from these two areas are 5.6 MMBoE (23% of our total proved reserves). We have budgeted $2.0 million for development costs in our Northeast Fitts and Allen fields in 2010.

## Louisiana Fields

The average daily production from our Louisiana fields was 532 Boe per day (9% of our total daily production) in 2010, a decrease of 6% over the previous year due to natural production declines. We drilled a total of one gross (0.2 net) wells in our Louisiana fields, which was non-productive. As of December 31, 2010, the proved reserves in our Louisiana fields were 3.2 MMBoE and account for 13% of our total proved reserves.



The following table summarizes our 2010 drilling activity:

<table><tr><td rowspan="2"></td><td colspan="3">Developed</td><td colspan="3">Exploratory</td></tr><tr><td>Gross Wells Drilled(1)</td><td>Net Wells Drilled(1)</td><td>Completion Rate (%)</td><td>Gross wells Drilled</td><td>Net Wells Drilled</td><td>Completion Rate (%)</td></tr><tr><td>Texas</td><td>57</td><td>50.1</td><td>100%</td><td>1</td><td>1.0</td><td>100%</td></tr><tr><td>Oklahoma</td><td>1</td><td>0.9</td><td>100%</td><td>2</td><td>2.0</td><td>100%</td></tr><tr><td>Louisiana</td><td>—</td><td>—</td><td>—</td><td>1</td><td>0.2</td><td>—</td></tr><tr><td>Other</td><td>1</td><td>—</td><td>100%</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>59</td><td>51.0</td><td>100%</td><td>4</td><td>3.2</td><td>75%</td></tr></table>

(1) Does not include seven gross (5.8 net) wells that were in the process of being completed at December 31, 2010, and does not include three gross (0.2 net) wells that were drilled in 2009 and waiting on pipeline connection.

## Development, Exploitation and Exploration Programs

Development and Exploitation Program. Our future production and performance depends to a large extent on the successful development of our existing reserves of oil and natural gas. We have identified multiple development projects on our existing properties (substantially all of which are located in our core areas), and these projects involve both the drilling of development wells and extension wells. We are the operator of leases covering approximately 2,500 of the wells capable of production in which we own interests, and as such we are able to control expenses, capital allocation and the timing of development activities on these properties. We also own interests in, and operate, approximately 700 injection wells. During the year ended December 31, 2010, we drilled or participated in the drilling of 62 gross (54.0 net) development wells capable of production. Capital expenditures in connection with these activities during this period aggregated approximately $27.9 million.

Another determinant of future performance is the exploitation of existing wells that can be recompiled or otherwise reworked to extract additional hydrocarbons. We have identified approximately 45 operated projects involving recompletions in existing wells that we operate, all of which involve reserves included in our proved reserves at December 31, 2010.

Exploration Program. Historically, an important component of our strategy to expand our reserves and production has been an active exploration program focused on adding long-lived oil and natural gas reserves from our core areas and other resource plays. We have obtained a concession in Osage County, Oklahoma on over 56,000 acres with 100% working interest. We have 3-D seismic data covering approximately 16,000 acres and have obtained permits for shooting approximately 20,000 additional acres. During 2011, assuming the continuation of existing commodity prices for oil and natural gas, we expect to conduct only limited exploratory drilling, primarily on our Osage concession.

We have an experienced technical staff, including geologists, landmen, engineers and other technical personnel devoted to prospect generation and identification of potential drilling locations. We seek to reduce exploration risk by exploring at moderate depths that are deep enough to discover sizeable oil and natural gas accumulations (generally less than 13,000 feet). Our established presence in our core areas has provided our staff with substantial expertise. Many of our exploration plays are based upon seismic data comparisons to our existing producing fields. For exploration prospects we generate, we typically will own a greater interest in these projects than our drilling partners, if any, and will operate the wells. As a result, we will be able to influence the areas of exploration and the acquisition of leases, as well as the timing and drilling of each well.

During the year ended December 31, 2010, we participated in the drilling of four gross (3.2 net) exploratory wells. For 2011, we have budgeted $8.0 million for geological and geophysical activities relating to exploitation and exploration projects and $9.0 million for exploration, including leasehold acquisition, seismic and exploratory drilling. We are encouraged by the results of our Osage concession exploratory project in 2010 and plan to increase our spending in 2011.



## Oil and Natural Gas Reserves

Our proved reserve estimates for crude oil and natural gas were prepared by Forrest A. Garb & Associates, an independent petroleum engineering firm, in accordance with the generally accepted petroleum engineering and evaluation principles and most recent definitions and guidelines established by the Securities and Exchange Commission ("SEC"). A copy of Forrest A. Garb & Associates' summary reserve report is attached as an exhibit to this report. All reserve definitions comply with the definitions of Rules 4-10 (a) (1)-(32) of SEC Regulation S-X.

To determine our estimated proved reserves, and as required by the SEC, we used the 12-month unweighted arithmetic average of the first-day-of-the-month price for the months of January through December 2010 calculated to be $4.38 per Mcf of natural gas and $79.43 per Bbl of oil. These prices were held constant for the life of the properties and adjusted for the appropriate market differentials.

As of December 31, 2010, our proved crude oil and natural gas reserves and PV-10 Value are presented below by reserve category. All of our proved reserves are located within the United States.

<table><tr><td></td><td>Oil</td><td>Gas</td><td>NGL</td><td>Reserve</td><td>PV-10</td></tr><tr><td></td><td>MBbl</td><td>MMBf</td><td>MBbl</td><td>MBoe</td><td>%</td></tr><tr><td>Proved developed producing</td><td>8,087</td><td>24,134</td><td>1,358</td><td>13,467</td><td>55%</td></tr><tr><td>Proved developed nonproducing</td><td>327</td><td>7,642</td><td>128</td><td>1,729</td><td>7%</td></tr><tr><td>Proved undeveloped</td><td>4,672</td><td>21,832</td><td>889</td><td>9,200</td><td>38%</td></tr><tr><td>Total proved</td><td>13,086</td><td>53,608</td><td>2,375</td><td>24,396</td><td>100%</td></tr><tr><td>Developed</td><td>8,414</td><td>31,776</td><td>1,486</td><td>15,196</td><td></td></tr><tr><td>% Developed</td><td>64%</td><td>59%</td><td>63%</td><td>62%</td><td></td></tr></table>

Our properties have a 13.7 year reserve-to-production ratio.

## Proved Undeveloped Reserves

At December 31, 2010, our total proved undeveloped reserves were 9.2 MMBoe, comprised of 5.6 MMBbl of crude oil and natural gas liquids and 21.8 Bcf of natural gas. As a result of our 2010 development activities, we converted approximately 760 MBoe, or 5%, of our 2009 proved undeveloped reserves to proved developed. The capital costs to develop these reserves were approximately $13.0 million. Also during 2010, we drilled wells at 40 locations that did not include proved reserves as of December 31, 2009. We did not add any new proved undeveloped locations during 2010. Our projected costs to develop our remaining proved undeveloped reserves are $16.3 million in 2011, $36.0 million in 2012, $22.0 million in 2013, $15.7 million in 2014 and $11.8 million in 2015.

## Unproved Reserves

The new SEC guidelines allow for the disclosure of probable and possible reserves, which are unproved reserves. Disclosure of unproved reserves is optional and we have elected not to disclose any unproved reserves in this report.

## Technologies Used to Establish Additions to Reserve Estimates

The revised rules permit the use of reliable technologies that have been field tested as evidence proven to establish with “reasonable certainty” quantities of proved reserves. They also permit assigning reserves to locations more than one offset away from standard development spacing if reasonable certainty can be established, and the estimates are economically producible. We evaluated the potential use of reliable technologies in connection with the preparation of our 2010 reserve estimates and have elected not to rely on the new rule as a means of assigning proved or unproved reserves. We are, however, actively using seismic interpretation to high grade our potential drilling locations. In future filings, we may use reliable technologies to assign reserves if the application can prove with a high degree of confidence that the estimated quantities can be recovered.



## Internal Controls over Reserves Estimate

Our policies regarding internal controls over the recording of reserves are structured to objectively and accurately estimate our oil and gas reserve quantities and values in compliance with SEC regulations. Responsibility for compliance in reserve bookings is delegated to our reservoir engineering group, which is led by our Senior Vice President of Operations.

Technical reviews are performed throughout the year by our engineering and geologic staff who evaluate pertinent geological and engineering data. This data in conjunction with economic data and ownership information is used in making a determination of proved reserve quantities. The reserve process is overseen by our Vice President of Business Development. Our internal reservoir engineering staff has an average experience of more than 20 years in the area of reserve estimating and reservoir evaluations. We have internal auditing guidelines and controls in place to monitor the reservoir data and reporting parameters used in preparing the year-end reserves. Technologies and economic data used include updated production data, well performance, formation logs, geological maps, reservoir pressure tests and wellbore mechanical integrity information. Final approval of the reserves is required by our Senior Vice President of Operations.

Our reserve estimates are certified by the independent petroleum engineering firm of Forrest A. Garb & Associates using their own engineering assumptions and the economic data which we provide. Forrest A. Garb & Associates is an independent petroleum engineering consulting firm that provides petroleum consulting services throughout the world. Forrest A. Garb is chairman of the board of his firm, and is a registered professional engineer with more than 50 years of practical petroleum industry experience. The Forrest A. Garb & Associates report is included as Exhibit 99.1.

In addition to third party reserve report preparation, our reserves are reviewed by senior management and the Audit Committee of our Board of Directors. Senior management, which includes the President and Chief Executive Officer, the Senior Vice President of Operations and the Senior Vice President and Chief Financial Officer, is responsible for reviewing and verifying that the estimate of proved reserves is reasonable, complete, and accurate. The Audit Committee reviews the final reserves estimate in conjunction with Forrest A. Garb & Associates' certified reserve report letter. They may also meet with the key representative from Forrest A. Garb & Associates to discuss their process and findings.

Estimated quantities of proved reserves and future net revenues are affected by oil and natural gas prices, which have fluctuated widely in recent years. There are numerous uncertainties inherent in estimating oil and natural gas reserves and their values, including many factors beyond the control of the producer. The reserve data set forth in this report represent only estimates. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers, including those used by us, may vary. In addition, estimates of reserves are subject to revisions based upon actual production, results of future development and exploration activities, prevailing oil and natural gas prices, operating costs and other factors, which revisions may be material. The PV-10 Value of our proved oil and natural gas reserves does not necessarily represent the current or fair market value of such proved reserves, and the 10% discount factor may not reflect current interest rates, our cost of capital or any risks associated with the development and production of our proved oil and natural gas reserves. Proved reserves include proved developed and proved undeveloped reserves.



## Reserve Reconciliation

Our total proved reserve reconciliation starting at year-end 2009 and ending year-end 2010 is as follows:

<table><tr><td></td><td>Oil MBbl</td><td>Gas MMcf</td><td>NGL MBbl</td><td>MBoe</td></tr><tr><td>Total proved</td><td></td><td></td><td></td><td></td></tr><tr><td>As of December 31, 2009</td><td>14,067</td><td>89,227</td><td>4,983</td><td>33,922</td></tr><tr><td>Extensions, discoveries and additions(a)</td><td>347</td><td>821</td><td>61</td><td>545</td></tr><tr><td>Sales(b)</td><td>(174)</td><td>(14,591)</td><td>(2,004)</td><td>(4,610)</td></tr><tr><td>Production</td><td>(995)</td><td>(4,816)</td><td>(364)</td><td>(2,161)</td></tr><tr><td>Revisions of previous estimates(c)</td><td>(159)</td><td>(17,033)</td><td>(301)</td><td>(3,300)</td></tr><tr><td>As of December 31, 2010</td><td>13,086</td><td>53,608</td><td>2,375</td><td>24,396</td></tr></table>

(a) We added 0.5 MMBoE in proved reserve extensions, discoveries and additions in 2010 primarily as a result of our development drilling in our Electra/Burbkumett field in North Texas and in our La Copita field in South Texas. A significant portion of these reserves is a result of drilling locations in our Electra/Burbkumett field that were not booked as proved locations at year-end 2009. The remainder of the extensions, discoveries and additions is primarily from wells drilled in South Texas not previously booked as proved and from an exploratory well in Osage County, Oklahoma.

(b) We divested 4.6 MMBoE of non-core natural gas assets in North Texas and Oklahoma during 2010.

(c) Total revisions of previous reserve estimates decreased proved reserves by 3.3 MMBoE or approximately 10% of our reserves at the beginning of the year. The revisions included a positive increase of 1.8 MMBoE or 5% of the beginning of the year reserves caused by higher oil and gas prices. This positive revision was offset by the downward revision of 1.1 MMBoE caused by the transfer of proved undeveloped to unproved categories as a result of changes to the company development plans during 2010, and 4.0 MMBoE of the downward revisions mostly due to changes in well performance in our gas properties in South Texas.

Our proved developed reserves, total proved reserves, estimated PV-10 Value and prices used after the effects of market differentials by year are as follows:

<table><tr><td rowspan="2"></td><td colspan="3">As of December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Reserve Data:</td><td></td><td></td><td></td></tr><tr><td>Proved developed reserves:</td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>8,414</td><td>8,814</td><td>9,235</td></tr><tr><td>Natural gas (MMcf)</td><td>31,776</td><td>46,159</td><td>57,635</td></tr><tr><td>Natural gas liquids (MBbls)</td><td>1,486</td><td>2,788</td><td>2,705</td></tr><tr><td>Total (MBoe)</td><td>15,196</td><td>19,295</td><td>21,546</td></tr><tr><td>PV-10 Value (in thousands)</td><td>$259,352</td><td>$222,516</td><td>$233,061</td></tr><tr><td></td><td colspan="3">As of December 31,</td></tr><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Total Proved reserves:</td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>13,086</td><td>14,067</td><td>14,285</td></tr><tr><td>Natural gas (MMcf)</td><td>53,608</td><td>89,227</td><td>96,952</td></tr><tr><td>Natural gas liquids (MBbls)</td><td>2,375</td><td>4,983</td><td>4,325</td></tr><tr><td>Total (MBoe)</td><td>24,396</td><td>33,922</td><td>34,769</td></tr><tr><td>PV-10 Value (in thousands)</td><td>$364,248</td><td>$336,053</td><td>$322,131</td></tr><tr><td>Prices used in calculating PV-10 Value:</td><td></td><td></td><td></td></tr><tr><td>$/Bbl (Oil)</td><td>$ 76.80</td><td>$ 58.63</td><td>$ 44.15</td></tr><tr><td>$/Mcf</td><td>$ 4.51</td><td>$ 3.76</td><td>$ 5.33</td></tr><tr><td>$/Bbl (NGL)</td><td>$ 45.62</td><td>$ 31.03</td><td>$ 23.59</td></tr></table>



The prices used in calculating the PV-10 values are net of the appropriate market differentials and are for the economic life of the properties.

The following is a summary of the standardized measure of discounted net cash flows using methodology provided for in Topic 932 of the Accounting Standards Codification (the "Codification") implemented by the Financial Accounting Standards Board ("FASB"), related to our estimated proved oil and natural gas reserves. For these calculations, estimated future cash flows from estimated future production of proved reserves for the years ended December 31, 2010 and 2009, were computed using benchmark prices based on the unweighted arithmetic average of the first-day-of-the-month prices for oil and natural gas during each month of 2010, as required by SEC Release No. 33-8995, "Modernization of Oil and Gas Reporting," effective December 31, 2009, while estimated cash flows in the reserve reports at December 31, 2008, were based on oil and natural gas spot prices as of the end of the period presented. Future development and production costs attributable to the proved reserves were estimated assuming that existing conditions would continue over the economic lives of the individual leases and costs were not escalated for the future. Estimated future income tax expenses were calculated by applying future statutory tax rates (based on the current tax law adjusted for permanent differences and tax credits) to the estimated future pretax net cash flows related to proved oil and natural gas reserves, less the tax basis of the properties involved. Future income tax expenses increased in 2010 because net operating loss carryforward was used to offset capital gains realized in the property divestitures and also due to a decrease in net operating loss carryforwards related to Internal Revenue Code Section 382 limitation by approximately $17.0 million net operating loss adjustment, leaving less net operating loss carryforward available for future years. Additionally, future development costs are less than the previous year. For further information regarding the standardized measure of discounted net cash flows related to our estimated proved oil and natural gas reserves for the years ended December 31, 2010, 2009 and 2008, please review Note M in the notes to our year-end 2010 financial statements appearing elsewhere in this report. The standardized measure of discounted future net cash flows relating to our estimated proved oil and natural gas reserves at December 31 is summarized as follows:

<table><tr><td rowspan="3"></td><td colspan="4">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td colspan="4">(In thousands)</td></tr><tr><td>Future cash inflows</td><td>$ 1,355,233</td><td>$ 1,314,714</td><td>$ 1,253,537</td><td></td></tr><tr><td>Future production costs</td><td>(548,638)</td><td>(535,784)</td><td>(472,191)</td><td></td></tr><tr><td>Future development costs</td><td>(117,860)</td><td>(148,956)</td><td>(145,086)</td><td></td></tr><tr><td>Future income tax expenses</td><td>(161,736)</td><td>(123,943)</td><td>(103,434)</td><td></td></tr><tr><td>Future net cash flows</td><td>526,999</td><td>506,031</td><td>532,826</td><td></td></tr><tr><td>10% annual discount for estimated timing of cash flows</td><td>(248,952)</td><td>(231,797)</td><td>(248,373)</td><td></td></tr><tr><td>Standardized measure of discounted future net cash flows</td><td>$ 278,047</td><td>$ 274,234</td><td>$ 284,453</td><td></td></tr></table>

We believe that the presentation of the PV-10 value is relevant and useful to investors because it presents the discounted future net cash flows attributable to our proved reserves prior to taking into account corporate future income taxes, and it is a useful measure of evaluating the relative monetary significance of our oil and natural gas properties. Further, investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other companies. We use this measure when assessing the potential return on investment related to our oil and natural gas properties. However, PV-10 value is not a substitute for the standardized measure of discounted future net cash flows. Our PV-10 value measure and the standardized measure of discounted future net cash flows do not purport to present the fair value of our oil and natural gas reserves as of the specified dates.



The following table provides a reconciliation of our PV-10 Value to our standardized measure:

<table><tr><td rowspan="2"></td><td colspan="4">At December 31,</td></tr><tr><td>2010</td><td colspan="2">2009</td><td>2008</td></tr><tr><td></td><td colspan="4">(In thousands)</td></tr><tr><td>PV-10 Value</td><td>$   364,248</td><td>$   336,053</td><td>$   322,131</td><td></td></tr><tr><td>Future income taxes</td><td>(161,736)</td><td>(123,943)</td><td>(103,434)</td><td></td></tr><tr><td>Discount of future income taxes at 10% per annum</td><td>75,535</td><td>62,124</td><td>65,756</td><td></td></tr><tr><td>Standardized Measure</td><td>$   278,047</td><td>$   274,234</td><td>$   284,453</td><td></td></tr></table>

In general, the volume of production from oil and natural gas properties declines as reserves are depleted. Except to the extent we acquire properties containing proved reserves or conduct successful exploration and development activities, our proved reserves will decline as reserves are produced. Our future oil and natural gas production is, therefore, highly dependent upon our level of success in finding or acquiring additional reserves.

## Net Production, Unit Prices and Costs

The following table presents certain information with respect to our oil and natural gas production and prices and costs attributable to all oil and natural gas properties owned by us for the periods shown. Average realized prices reflect the actual realized prices received by us, before and after giving effect to the results of our derivative contracts. Our derivative contracts are financial, and our production of oil, natural gas and NGLs, and the average realized prices we receive from our production, are not affected by our derivative contracts.

<table><tr><td rowspan="2"></td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Production volumes:</td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>995</td><td>1,138</td><td>1,187</td></tr><tr><td>Natural gas liquids (MBbls)</td><td>364</td><td>406</td><td>354</td></tr><tr><td>Natural gas (MMcf)</td><td>4,816</td><td>5,994</td><td>6,082</td></tr><tr><td>Total (MBoe)</td><td>2,161</td><td>2,542</td><td>2,554</td></tr><tr><td>Average realized prices (before effects of derivative contracts):</td><td></td><td></td><td></td></tr><tr><td>Oil (per Bbl)</td><td>$76.95</td><td>$58.24</td><td>$ 98.59</td></tr><tr><td>Natural gas liquids (per Bbl)</td><td>38.89</td><td>27.26</td><td>50.24</td></tr><tr><td>Natural gas (per Mcf)</td><td>4.21</td><td>3.47</td><td>7.87</td></tr><tr><td>Total per Boe</td><td>51.36</td><td>38.62</td><td>71.52</td></tr><tr><td>Effect of settlement of derivative contracts:</td><td></td><td></td><td></td></tr><tr><td>Oil (per Bbl)</td><td>$(6.14)</td><td>$ 4.94</td><td>$ (8.84)</td></tr><tr><td>Natural gas liquids (per Bbl)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Natural gas (per Mcf)</td><td>0.19</td><td>2.27</td><td>—</td></tr><tr><td>Total per Boe</td><td>(2.40)</td><td>7.57</td><td>(4.10)</td></tr><tr><td>Average realized prices (after effects of derivative contracts):</td><td></td><td></td><td></td></tr><tr><td>Oil (per Bbl)</td><td>$70.81</td><td>$63.18</td><td>$ 89.75</td></tr><tr><td>Natural gas liquids (per Bbl)</td><td>38.89</td><td>27.26</td><td>50.24</td></tr><tr><td>Natural gas (per Mcf)</td><td>4.40</td><td>5.74</td><td>7.87</td></tr><tr><td>Total per Boe</td><td>48.96</td><td>46.19</td><td>67.42</td></tr><tr><td>Expenses (per Boe):</td><td></td><td></td><td></td></tr><tr><td>Oil and natural gas production taxes</td><td>$ 2.81</td><td>$ 2.09</td><td>$ 4.10</td></tr><tr><td>Oil and natural gas production expenses</td><td>15.68</td><td>14.73</td><td>14.89</td></tr><tr><td>Amortization of full cost pool</td><td>12.11</td><td>12.06</td><td>17.89</td></tr><tr><td>General and administrative</td><td>6.85</td><td>6.56</td><td>7.95</td></tr><tr><td>Cash interest</td><td>8.32</td><td>5.28</td><td>10.11</td></tr><tr><td>Cash taxes</td><td>0.18</td><td>0.12</td><td>0.27</td></tr><tr><td>Impairment</td><td>—</td><td>18.73</td><td>105.66</td></tr></table>



## Table of Contents

Fields containing 15% or more of total proved reserves at December 31, 2010:

<table><tr><td rowspan="2"></td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>La Copita:</td><td></td><td></td><td></td></tr><tr><td>Production volumes:</td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>41</td><td>58</td><td>42</td></tr><tr><td>Natural gas liquids (MBbls)</td><td>126</td><td>118</td><td>112</td></tr><tr><td>Natural gas (MMcf)</td><td>1,682</td><td>1,586</td><td>1,670</td></tr><tr><td>Total (MBoe)</td><td>447</td><td>441</td><td>433</td></tr><tr><td>Average realized prices:</td><td></td><td></td><td></td></tr><tr><td>Oil (per Bbl)</td><td>$76.65</td><td>$58.41</td><td>$103.45</td></tr><tr><td>Natural gas liquids (per Bbl)</td><td>39.89</td><td>29.28</td><td>46.36</td></tr><tr><td>Natural gas (per Mcf)</td><td>4.32</td><td>3.95</td><td>8.91</td></tr><tr><td>Total per Boe</td><td>34.49</td><td>29.78</td><td>56.47</td></tr><tr><td>Oil and natural gas production expenses (per Boe)</td><td>$ 4.31</td><td>$ 3.62</td><td>$ 4.68</td></tr></table>

<table><tr><td rowspan="2"></td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Electra/Burkburnett:</td><td></td><td></td><td></td></tr><tr><td>Production volumes:</td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>471</td><td>537</td><td>560</td></tr><tr><td>Natural gas liquids (MBbls)</td><td>41</td><td>70</td><td>91</td></tr><tr><td>Natural gas (MMcf)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total (MBoe)</td><td>512</td><td>607</td><td>651</td></tr><tr><td>Average realized prices:</td><td></td><td></td><td></td></tr><tr><td>Oil (per Bbl)</td><td>$77.24</td><td>$57.99</td><td>$99.05</td></tr><tr><td>Natural gas liquids (per Bbl)</td><td>55.67</td><td>27.85</td><td>42.22</td></tr><tr><td>Natural gas (per Mcf)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total per Boe</td><td>75.49</td><td>54.51</td><td>91.15</td></tr><tr><td>Oil and natural gas production expenses (per Boe)</td><td>$28.21</td><td>$22.46</td><td>$22.71</td></tr></table>

## Acquisition, Development and Exploration Capital Expenditures

The following table presents information regarding our net costs incurred in our acquisitions of proved and unproved properties, and our development and exploration activities (in thousands):

<table><tr><td rowspan="2"></td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Proved property acquisition costs</td><td>$ 1,133</td><td>$ 1,311</td><td>$ 10,091</td></tr><tr><td>Unproved property acquisition costs</td><td>—</td><td>—</td><td>2,691</td></tr><tr><td>Development costs</td><td>27,850</td><td>28,239</td><td>57,084</td></tr><tr><td>Exploration costs</td><td>4,552</td><td>321</td><td>14,857</td></tr><tr><td>Total costs incurred</td><td>$ 33,535</td><td>$ 29,871</td><td>$ 84,723</td></tr></table>

## Finding Costs

The following table sets forth the estimated proved reserves we acquired or discovered, including revisions of previous estimates, during each stated period. In calculating finding costs, we include acquisition costs related to proved property acquisitions, development costs, and exploration costs with respect to



exploratory wells drilled and completed. Most of our drilling in 2010 was in our mature fields on proved undeveloped properties, which does not result in significant reserve additions. Because in 2010 we had no significant acquisitions of producing properties, discoveries were limited and no significant reserves were added, our finding cost in 2010 was substantially greater per Boe as compared to prior years. Our three-year average finding cost was $15.62 per Boe.

<table><tr><td rowspan="2"></td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Proved reserves acquired/discovered (MBoe)</td><td>545</td><td>3,957</td><td>4,984</td></tr><tr><td>Total cost per Boe of reserves acquired/discovered</td><td>$ 61.53</td><td>$ 7.55</td><td>$ 17.00</td></tr></table>

## Producing Wells

The following table sets forth the number of productive wells in which we owned an interest as of December 31, 2010. Productive wells consist of producing wells and wells capable of production, including wells awaiting pipeline connections or connection to production facilities. Wells that we complete in more than one producing horizon are counted as one well.

<table><tr><td></td><td>Gross</td><td>Net</td></tr><tr><td>Oil</td><td>2,624</td><td>2,124.7</td></tr><tr><td>Natural gas</td><td>604</td><td>329.4</td></tr><tr><td>Total</td><td>3,228</td><td>2,454.1</td></tr></table>

## Acreage

The following table sets forth our developed and undeveloped gross and net leasehold acreage as of December 31, 2010:

<table><tr><td></td><td>Gross</td><td>Net</td></tr><tr><td>Developed</td><td>111,969</td><td>60,298</td></tr><tr><td>Undeveloped</td><td>178,782</td><td>59,671</td></tr><tr><td>Total</td><td>290,751</td><td>119,969</td></tr></table>

Approximately 44% of our net acreage was located in our core areas as of December 31, 2010. Our undeveloped acreage includes leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether or not such acreage is held by production or contains proved reserves. A gross acre is an acre in which we own an interest. A net acre is deemed to exist when the sum of fractional ownership interests in gross acres equals one. The number of net acres is the sum of the fractional interests owned in gross acres.



## Drilling Activities

During the periods indicated, we drilled or participated in drilling the following wells:

<table><tr><td rowspan="3">Development wells:</td><td colspan="6">Year Ended December 31,</td></tr><tr><td colspan="2">2010(1)</td><td colspan="2">2009(2)</td><td colspan="2">2008(3)</td></tr><tr><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td></tr><tr><td>Productive</td><td>59</td><td>51</td><td>45</td><td>44</td><td>83</td><td>66.8</td></tr><tr><td>Non-productive</td><td>—</td><td>—</td><td>1</td><td>0.9</td><td>1</td><td>0.2</td></tr><tr><td>Exploratory wells:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Productive</td><td>3</td><td>3</td><td>—</td><td>—</td><td>6</td><td>5.1</td></tr><tr><td>Non-productive</td><td>1</td><td>0.2</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>63</td><td>54.2</td><td>46</td><td>44.9</td><td>90</td><td>72.1</td></tr></table>

(1) Does not include seven gross (5.8 net) wells that were in the process of being completed at December 31, 2010, and does include three gross (0.2 net) wells that were drilled in 2009 and waiting on pipeline connection.

(2) Does not include three gross (0.16 net) wells that were in the process of being completed at December 31, 2009, and does not include two gross (one net) wells that were drilled in 2008 and waiting on pipeline connection.

(3) Does not include seven gross (5.8 net) wells that were in the process of being completed at December 31, 2008.

## Divestitures

On December 8, 2010, we completed the sale to Milagro Producing, LLC, a privately owned company located in Houston, Texas, of all of our oil and natural gas properties and related assets located in the Bon斯ville and Newark East fields of Jack and Wise Counties, Texas. The effective date of the sale was October 1, 2010. The sale properties included all of our Bend Conglomerate shallow gas properties and all of our North Texas Barnett Shale properties, including both producing properties and undeveloped leasehold. We received net cash proceeds at closing of $42.3 million subject to customary post-closing adjustments. As of December 31, 2010, net proceeds including post-closing adjustments were $41.0 million. Proved reserves from these properties accounted for approximately 26.4 billion cubic feet equivalent (Bcfe) of natural gas, natural gas liquids and oil, or an estimated 13% of our year-end 2009 proved reserves of 204 Bcfe.

On December 30, 2010, we closed the sale of certain non-operated natural gas properties located in eastern Oklahoma for $8.0 million (prior to closing adjustments). The effective date of the sale was December 1, 2010. Our full cost pool at December 31, 2010 was reduced by the net proceeds, including closing adjustments, of $7.8 million in accordance with the full cost method of accounting. The proceeds were used to reduce outstanding borrowings under our revolving credit facility.

## Oil and Natural Gas Marketing and Derivative Activities

During the year ended December 31, 2010, Shell Trading (US) Company, or STUSCO, accounted for $68.1 million, or 61%, of our oil and natural gas revenue for that period. No other purchaser accounted for 10% or more of our oil and natural gas revenue during 2010. Our agreement with STUSCO covers all of our North Texas oil production. Effective August 1, 2008 through January 31, 2009, our agreement provided for payment, on a per barrel basis, of a price equal to STUSCO's posted price for North Texas Sweet plus a premium of $3.25. Effective during the period February through June 2009, our contract price was revised to STUSCO North Texas Sweet, plus or minus Platt's P-Plus Posting, minus $1.50. (Note: the P-Plus posted price is a fluctuating premium based on the NYMEX front-month, second-month, and third-month rolls. Shifts in the NYMEX forward curve are relative to fundamental market conditions such as petroleum stock levels at



Cushing and refinery demand.) For the period July 2009 through June 2010, our contract price was revised to STUSCO's posted price for West Texas Intermediate (WTI) plus $0.80. Effective for the period of July through December 2010, the contract price was renegotiated to STUSCO WTI plus $1.30.

We are also subject to a crude purchase contract with STUSCO covering all of our oil production in our Fitts and Allen fields in Oklahoma. Effective January through February 2010, our contract price was Sunoco's posted price for Oklahoma Sweet plus $0.25. Effective March through June 2010, our contract price increased to Sunoco OK Sweet plus $0.85, and effective July through December 2010, our price was renegotiated to Sunoco OK Sweet plus $1.15.

There are other purchasers in the fields and such other purchasers would be available to purchase our production should our current purchaser discontinue operations. We have no reason to believe that any such cessation is likely to occur.

To reduce exposure to fluctuations in oil and natural gas prices and to achieve more predictable cash flow, we periodically utilize various derivative strategies to manage the price received for a portion of our future oil and natural gas production. Our derivative strategies customarily involve the purchase of put options to provide a price floor for our production, put/call collars that establish both a floor and a ceiling price to provide price certainty within a fixed range, call options that establish a secondary floor above a put/call collar ceiling, or swap arrangements that establish an index-related price above which we pay the derivative counterparty and below which we are paid by the derivative counterparty. These contracts allow us to predict with greater certainty the effective oil and natural gas prices to be received for our production and benefit us when market prices are less than the base floor prices or swap prices under our derivative contracts. However, we will not benefit from market prices that are higher than the ceiling or swap prices in these contracts for our hedged production.

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for further information about our derivative positions at December 31, 2010.

## Competition

The oil and natural gas industry is highly competitive. We compete for the acquisition of oil and natural gas properties, primarily on the basis of the price to be paid for such properties, with numerous entities including major oil companies, other independent oil and natural gas concerns and individual producers and operators. Many of these competitors are large, well-established companies and have financial and other resources substantially greater than ours. Our ability to acquire additional oil and natural gas properties and to discover reserves in the future will depend upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.

## Title to Properties

We believe that we have satisfactory title to our properties in accordance with standards generally accepted in the oil and natural gas industry. As is customary in the oil and natural gas industry, we make only a cursory review of title to farmout acreage and to undeveloped oil and natural gas leases upon execution of any contracts. Prior to the commencement of drilling operations, a title examination is conducted and curative work is performed with respect to significant defects. To the extent title opinions or other investigations reflect title defects, we, rather than the seller of the undeveloped property, typically are responsible to cure any such title defects at our expense. If we were unable to remedy or cure any title defect of a nature such that it would not be prudent for us to commence drilling operations on the property, we could suffer a loss of our entire investment in the property. We have obtained title opinions or reports on substantially all of our producing properties. Prior to completing an acquisition of producing oil and natural gas leases, we perform a title review on a material portion of the leases. Our oil and natural gas properties are subject to customary royalty interests, liens for current taxes and other burdens that we believe do not materially interfere with the use of or affect the value of such properties.



## Facilities

Our executive and operating offices are located at Suite 650, Meridian Tower, 5100 E. Skelly Drive, Tulsa, Oklahoma 74135 which we occupy under a lease with a remaining term ending in January 2014, at an annual rental of approximately $0.4 million, subject to escalations for taxes and utilities. We also have an executive and operating office at 4965 Preston Park Blvd., Suite 800, in Plano, Texas, subject to a lease extending through 2013. Currently, rent under the lease is approximately $0.7 million annually. We have subleased a portion of our Plano office and will receive approximately $0.1 million annually. We also lease a small office in Houston, Texas. We believe that our facilities are adequate for our current needs.

## Regulation

General. Various aspects of our oil and gas operations are subject to extensive and continually changing regulation, as legislation affecting the oil and gas industry is under constant review for amendment or expansion. Numerous departments and agencies, both federal and state, are authorized by statute to issue, and have issued, rules and regulations binding upon the oil and gas industry and our individual members.

Regulation of Sales and Transportation of Natural Gas. The Federal Energy Regulatory Commission, or the FERC, regulates the transportation and sale for resale of natural gas in interstate commerce pursuant to the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. In the past, the federal government has regulated the prices at which natural gas can be sold. While sales by producers of natural gas can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Our sales of natural gas are affected by the availability, terms and cost of transportation. The price and terms for access to pipeline transportation are subject to extensive regulation and proposed regulation designed to increase competition within the natural gas industry, to remove various barriers and practices that historically limited non-pipeline natural gas sellers, including producers, from effectively competing with interstate pipelines for sales to local distribution companies and large industrial and commercial customers and to establish the rates interstate pipelines may charge for their services. Similarly, the Oklahoma Corporation Commission and the Texas Railroad Commission have been reviewing changes to their regulations governing transportation and gathering services provided by intrastate pipelines and gatherers. While the changes being considered by these federal and state regulators would affect us only indirectly, they are intended to further enhance competition in natural gas markets. We cannot predict what further action the FERC or state regulators will take on these matters; however, we do not believe that any actions taken will have an effect materially different than the effect on other natural gas producers with which we compete.

Additional proposals and proceedings that might affect the natural gas industry are pending before Congress, the FERC, state commissions and the courts. The natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less stringent regulatory approach recently pursued by the FERC and Congress will continue.

Oil Price Controls and Transportation Rates. Our sales of crude oil, condensate and natural gas liquids are not currently regulated and are made at market prices. The price we receive from the sale of these products may be affected by the cost of transporting the products to market.

Environmental. Our oil and natural gas operations are subject to pervasive federal, state, and local laws and regulations concerning the protection and preservation of the environment (e.g., ambient air, and surface and subsurface soils and waters), human health, worker safety, natural resources and wildlife. These laws and regulations affect virtually every aspect of our oil and natural gas operations, including our exploration for, and production, storage, treatment, and transportation of, hydrocarbons and the disposal of wastes generated in connection with those activities. These laws and regulations increase our costs of planning, designing, drilling, installing, operating, and abandoning oil and natural gas wells and appurtenant properties, such as gathering systems, pipelines, and storage, treatment and salt water disposal facilities.

In December 2009, the EPA promulgated a finding that serves as the foundation under the Clean Air Act to issue other rules that would result in federal greenhouse gas (“GHG”) regulations and emissions limits under the Clean Air Act, even without Congressional action. As part of this array of new regulations, in



September 2009 and December 2010, the EPA also promulgated a GHG monitoring and reporting rule that requires certain parties, including participants in the oil and gas industry, to monitor and report their GHG emissions, including methane and carbon dioxide, to the EPA. These regulations may apply to our operations. The EPA has promulgated two other rules that would regulate GHGs, one of which would regulate GHGs from stationary sources, and which will likely affect sources in the oil and gas exploration and production industry and pipeline industry.

The GHG reporting rule and the stationary source GHG permitting rules to regulate the emissions of GHGs constitute federal regulation of carbon dioxide emissions and other GHGs, and may affect the outcome of other climate change lawsuits pending in United States federal courts in a manner unfavorable to our industry. See “Risk factors — Risks relating to our business — Regulation related to greenhouse gas emissions could have an adverse effect on our operations and demand for oil and natural gas.”

We have expended and will continue to expend significant financial and managerial resources to comply with applicable environmental laws and regulations, including permitting requirements. Our failure to comply with these laws and regulations can subject us to substantial civil and criminal penalties, claims for injury to persons and damage to properties and natural resources, and clean-up and other remedial obligations. Although we believe that the operation of our properties generally complies with applicable environmental laws and regulations, the risks of incurring substantial costs and liabilities are inherent in the operation of oil and natural gas wells and appurtenant properties. We could also be subject to liabilities related to the past operations conducted by others at properties now owned by us, without regard to any wrongful or negligent conduct by us.

We cannot predict what effect future environmental legislation and regulation will have upon our oil and natural gas operations. The possible legislative reclassification of certain wastes generated in connection with oil and natural gas operations as “hazardous wastes” would have a significant impact on our operating costs, as well as the oil and natural gas industry in general. The cost of compliance with more stringent environmental laws and regulations, or the more vigorous administration and enforcement of those laws and regulations, could result in material expenditures by us to remove, acquire, modify, and install equipment, store and dispose of wastes, remediate facilities, employ additional personnel, and implement systems to ensure compliance with those laws and regulations. These accumulative expenditures could have a material adverse effect upon our profitability and future capital expenditures.

Regulation of Oil and Gas Exploration and Production. Our exploration and production operations are subject to various types of regulation at the federal, state and local levels. Such regulations include requiring permits and drilling bonds for the drilling of wells, regulating the location of wells, the method of drilling and casing wells, and the surface use and restoration of properties upon which wells are drilled. Many states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from oil and natural gas wells and the regulation of spacing, plugging and abandonment of such wells. Some state statutes limit the rate at which oil and natural gas can be produced from our properties.

## Employees

At December 31, 2010, we had 206 employees, of whom 42 were administrative, accounting or financial personnel and of whom 164 were technical and operations personnel. Our exploration staff includes three exploration geologists and six landmen. Our future success will depend partially on our ability to attract, retain and motivate qualified personnel. We are not a party to any collective bargaining agreement and we have not experienced any strikes or work stoppages. We consider our relations with our employees to be satisfactory.

## Available Information

Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website (www.ramenergy.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the SEC. Our SEC filings are



also available from the SEC’s website at: http://www.sec.gov. The references to our website address do not constitute incorporation by reference of the information contained on the website and should not be considered part of this report.

## Item 3. Legal Proceedings

From time to time, we are a party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in any legal proceedings, nor are we a party to any pending or threatened claims, that could reasonably be expected to have a material adverse effect on our financial condition or results of operations.

## Item 4. Reserved

## PART II

## Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

## Market for Common Stock

Our common stock is traded on the Nasdaq Capital Market under the symbol RAME. The following table sets forth the range of high and low closing bid prices for our common stock for the periods indicated.

<table><tr><td rowspan="2"></td><td colspan="2">Common Stock</td></tr><tr><td>High</td><td>Low</td></tr><tr><td>2011:</td><td></td><td></td></tr><tr><td>First Quarter (through March 14, 2011)</td><td>$ 2.45</td><td>$ 1.56</td></tr><tr><td>2010:</td><td></td><td></td></tr><tr><td>First Quarter</td><td>$ 2.23</td><td>$ 1.40</td></tr><tr><td>Second Quarter</td><td>2.30</td><td>1.49</td></tr><tr><td>Third Quarter</td><td>2.17</td><td>1.37</td></tr><tr><td>Fourth Quarter</td><td>1.92</td><td>1.38</td></tr><tr><td>2009:</td><td></td><td></td></tr><tr><td>First Quarter</td><td>$ 1.24</td><td>$ 0.40</td></tr><tr><td>Second Quarter</td><td>1.09</td><td>0.68</td></tr><tr><td>Third Quarter</td><td>1.30</td><td>0.64</td></tr><tr><td>Fourth Quarter</td><td>2.24</td><td>1.41</td></tr><tr><td>2008:</td><td></td><td></td></tr><tr><td>First Quarter</td><td>$ 5.10</td><td>$ 4.42</td></tr><tr><td>Second Quarter</td><td>6.73</td><td>4.80</td></tr><tr><td>Third Quarter</td><td>6.40</td><td>2.68</td></tr><tr><td>Fourth Quarter</td><td>2.75</td><td>0.74</td></tr></table>

## Holders

As of March 7, 2011, there were 98 holders of record of our common stock. We believe that at March 7, 2011, there were 5,921 beneficial holders of our common stock.

## Dividends

It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future. In addition, our credit facilities do not permit us to pay dividends on our common stock.



## Table of Contents

## Compensation Plan Information

The following table provides information for all equity compensation plans as of the fiscal year ended December 31, 2010, under which our equity securities were authorized for issuance:

<table><tr><td>Plan Category</td><td>Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)</td><td>Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b)</td><td>Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)</td></tr><tr><td>Equity compensation plans approved by security holders(1)</td><td>—</td><td>—</td><td>1,960,271(2)</td></tr><tr><td>Equity compensation plans not approved by security holders</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>—</td><td>—</td><td>1,960,271</td></tr></table>

(1) Shares awarded under all above plans may be newly issued, from our treasury or acquired in the open market.

(2) This number reflects shares available for issuance under our 2006 Long-Term Incentive Plan as of December 31, 2010.



## Stockholder Return Performance Presentation

The following graph and table compare the cumulative 5-year total return provided to our stockholders on our common stock beginning December 31, 2005, through December 31, 2010, relative to the cumulative total returns of the Nasdaq Composite index and the Dow Jones Wilshire MicroCap Exploration & Production index. The comparison assumes an investment of $100 (with reinvestment of all dividends) was made in our common stock on December 31, 2005, and in each of the indexes and its relative performance is tracked through December 31, 2010. The identity of the 50+ companies included in the Dow Jones Wilshire MicroCap Exploration & Production Index will be provided upon request.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among RAM Energy Resources, Inc., the NASDAQ Composite Index
and a Peer Group



*$100 invested on 12/31/05 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Copyright \( ^{(2011)} \)  Dow Jones & Co. All rights reserved.

<table><tr><td rowspan="2"></td><td colspan="5">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2007</td><td>2006</td></tr><tr><td>RAM Energy Resources, Inc.</td><td>$ 33</td><td>$ 37</td><td>$16</td><td>$ 91</td><td>$100</td></tr><tr><td>Nasdaq Composite</td><td>126</td><td>107</td><td>74</td><td>125</td><td>111</td></tr><tr><td>Dow Jones Wilshire MicroCap Exploration &amp; Production Index</td><td>64</td><td>41</td><td>30</td><td>67</td><td>83</td></tr></table>



## Item 6. Selected Financial Data

We acquired RAM Energy, Inc. effective May 8, 2006, by the merger of our wholly owned subsidiary with and into RAM Energy. For accounting and financial reporting purposes, the merger was accounted for as a reverse acquisition and, in substance, as a capital transaction, because we had no active business operations prior to consummation of the merger. Accordingly, for accounting and financial reporting purposes, the RAM Energy acquisition was treated as the equivalent of RAM Energy issuing stock for our net monetary assets accompanied by a recapitalization. Our net monetary assets have been stated at their fair value, essentially equivalent to historical costs, with no goodwill or other intangible assets recorded. The accumulated deficit of RAM Energy has been carried forward. Operations prior to the merger are those of RAM Energy.

We acquired Ascent Energy Inc. on November 29, 2007, by the merger of our wholly owned subsidiary with and into Ascent. The Ascent acquisition was accounted for under the purchase method of accounting. Upon completion of the Ascent acquisition, Ascent adopted the full cost method of accounting for exploration, development and production of oil and natural gas.

The selected consolidated financial information presented below should be read in conjunction with our consolidated financial statements and the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this report. Our financial position and results of operations for 2010, 2009, 2008 and 2007 may not be comparative to other periods as a result of certain divestitures and acquisitions, as more fully described in our consolidated financial statements included elsewhere in this report.

Selected Financial Data
(In thousands, except share data)

<table><tr><td rowspan="2"></td><td colspan="6">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2007(1)</td><td>2006</td><td></td></tr><tr><td>Revenues and Other Operating Income:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil sales</td><td>$     76,563</td><td>$     66,281</td><td>$     117,036</td><td>$     55,000</td><td>$     48,013</td><td></td></tr><tr><td>Natural gas sales</td><td>20,265</td><td>20,818</td><td>47,884</td><td>17,830</td><td>14,232</td><td></td></tr><tr><td>Natural gas liquids sales</td><td>14,156</td><td>11,068</td><td>17,770</td><td>9,047</td><td>5,770</td><td></td></tr><tr><td>Realized gains (losses) on derivatives</td><td>(5,193)</td><td>19,255</td><td>(10,472)</td><td>(2,669)</td><td>(4,650)</td><td></td></tr><tr><td>Unrealized gains (losses) on derivatives</td><td>6,386</td><td>(30,561)</td><td>33,257</td><td>(10,056)</td><td>6,239</td><td></td></tr><tr><td>Other</td><td>157</td><td>217</td><td>382</td><td>488</td><td>640</td><td></td></tr><tr><td>Total revenues and other operating income</td><td>112,334</td><td>87,078</td><td>205,857</td><td>69,640</td><td>70,244</td><td></td></tr><tr><td>Operating Expenses:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil and natural gas production taxes</td><td>6,063</td><td>5,320</td><td>10,480</td><td>4,869</td><td>3,329</td><td></td></tr><tr><td>Oil and natural gas production expenses</td><td>33,891</td><td>37,455</td><td>38,030</td><td>21,574</td><td>18,266</td><td></td></tr><tr><td>Depreciation and amortization</td><td>27,225</td><td>31,650</td><td>46,512</td><td>18,948</td><td>13,252</td><td></td></tr><tr><td>Accretion expense</td><td>1,527</td><td>1,976</td><td>2,207</td><td>704</td><td>535</td><td></td></tr><tr><td>Impairment</td><td>—</td><td>47,613</td><td>269,886</td><td>—</td><td>—</td><td></td></tr><tr><td>Share-based compensation</td><td>3,110</td><td>2,179</td><td>2,563</td><td>989</td><td>2,308</td><td></td></tr><tr><td>General and administrative, net of operator&#x27;s overhead fees</td><td>14,799</td><td>16,667</td><td>20,305</td><td>11,891</td><td>9,300</td><td></td></tr><tr><td>Total operating expenses</td><td>86,615</td><td>142,860</td><td>389,983</td><td>58,975</td><td>46,990</td><td></td></tr><tr><td>Operating income (loss)</td><td>25,719</td><td>(55,782)</td><td>(184,126)</td><td>10,665</td><td>23,254</td><td></td></tr><tr><td>Other Income (Expense):</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest expense</td><td>(22,655)</td><td>(18,590)</td><td>(24,182)</td><td>(20,757)</td><td>(17,050)</td><td></td></tr><tr><td>Interest income</td><td>27</td><td>82</td><td>208</td><td>1,047</td><td>309</td><td></td></tr><tr><td>Other income (expense)</td><td>321</td><td>(440)</td><td>(13,536)</td><td>(57)</td><td>—</td><td></td></tr><tr><td>Income (Loss) Before Income Taxes</td><td>3,412</td><td>(74,730)</td><td>(221,636)</td><td>(9,102)</td><td>6,513</td><td></td></tr><tr><td>Income Tax Provision (Benefit)</td><td>995</td><td>(16,347)</td><td>(91,683)</td><td>(7,852)</td><td>1,465</td><td></td></tr><tr><td>Net income (loss)</td><td>$     2,417</td><td>$      (58,383)</td><td>$      (129,953)</td><td>$      (1,250)</td><td>$     5,048</td><td></td></tr></table>



## (1) We acquired Ascent Energy Inc. in November 2007.

Selected Financial Data (continued)
(In thousands, except share data)

<table><tr><td rowspan="2"></td><td colspan="6">Year Ended December 31,</td></tr><tr><td colspan="2">2010</td><td colspan="2">2009</td><td colspan="2">2008</td></tr><tr><td>Cash dividends per share</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 0.02</td></tr><tr><td>Earnings (loss) per share:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>$ 0.03</td><td>$ (0.75)</td><td>$ (1.80)</td><td>$ (0.03)</td><td>$ 0.16</td><td></td></tr><tr><td>Diluted</td><td>0.03</td><td>(0.75)</td><td>(1.80)</td><td>(0.03)</td><td>0.16</td><td></td></tr><tr><td>Weighted average shares outstanding:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>78,426,179</td><td>77,601,057</td><td>72,234,750</td><td>42,087,617</td><td>30,900,213</td><td></td></tr><tr><td>Diluted</td><td>78,426,179</td><td>77,601,057</td><td>72,234,750</td><td>42,087,617</td><td>32,119,169</td><td></td></tr><tr><td>Statement of Cash Flow Data</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cash provided by (used in):</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Operating activities</td><td>$ 37,875</td><td>$ 32,372</td><td>$ 74,454</td><td>$ 17,042</td><td>$ 29,660</td><td></td></tr><tr><td>Investing activities</td><td>14,970</td><td>(23,921)</td><td>(82,568)</td><td>(241,192)</td><td>(25,317)</td><td></td></tr><tr><td>Financing activities</td><td>(52,937)</td><td>(8,486)</td><td>1,405</td><td>224,302</td><td>2,308</td><td></td></tr><tr><td>Other Data</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Capital expenditures(2)</td><td>$ 33,535</td><td>$ 29,871</td><td>$ 84,723</td><td>$ 344,795</td><td>$ 28,145</td><td></td></tr><tr><td>Modified EBITDA</td><td>50,969</td><td>58,287</td><td>103,641</td><td>42,352</td><td>33,419</td><td></td></tr></table>

(1) We acquired Ascent Energy Inc. in November 2007.

(2) Includes costs of acquisitions.

Our Modified EBITDA is determined by adding the following to net income (loss): interest expense, amortization and depreciation, accretion, income taxes, share-based compensation, impairment charges, settlement charges and unrealized gains (losses) on derivatives. The table below reconciles Modified EBITDA to net income (loss).

We present Modified EBITDA because we believe that it provides useful information regarding our continuing operating results. We rely on Modified EBITDA as a measure to review and assess our operating performance with corresponding periods, and as an assessment of our overall liquidity and our ability to meet our debt service obligations.

We believe that Modified EBITDA is useful to investors to provide disclosure of our operating results on the same basis as that used by our management. We also believe that this measure can assist investors in comparing our performance to that of other companies on a consistent basis without regard to certain items that do not directly affect our ongoing operating performance or cash flows. Modified EBITDA, which is not a financial measure under generally accepted accounting principles, or GAAP, has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for net income, cash flows from operating activities and other consolidated income or cash flows statement data prepared in accordance with GAAP.



Because of these limitations, Modified EBITDA should neither be considered as a measure of discretionary cash available to us to invest in the growth of our business, nor as a replacement for net income. We compensate for these limitations by relying primarily on our GAAP results and using Modified EBITDA as supplemental information.

<table><tr><td rowspan="2"></td><td colspan="6">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2007</td><td>2006</td><td></td></tr><tr><td></td><td colspan="6">(in thousands)</td></tr><tr><td>Reconciliation of Modified EBITDA to net income (loss):</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income (loss)</td><td>$ 2,417</td><td>$ (58,383)</td><td>$ (129,953)</td><td>$ (1,250)</td><td>$ 5,048</td><td></td></tr><tr><td>Plus: Interest expense</td><td>22,655</td><td>18,590</td><td>24,182</td><td>20,757</td><td>17,050</td><td></td></tr><tr><td>Plus: Amortization and depreciation expense</td><td>27,225</td><td>31,650</td><td>46,512</td><td>18,948</td><td>13,252</td><td></td></tr><tr><td>Plus: Accretion expense</td><td>1,527</td><td>1,976</td><td>2,207</td><td>704</td><td>535</td><td></td></tr><tr><td>Plus: Income tax expense (benefit)</td><td>995</td><td>(16,347)</td><td>(91,683)</td><td>(7,852)</td><td>1,465</td><td></td></tr><tr><td>Plus: Share-based compensation</td><td>3,110</td><td>2,179</td><td>2,563</td><td>989</td><td>2,308</td><td></td></tr><tr><td>Plus: Impairment charges</td><td>—</td><td>47,613</td><td>269,886</td><td>—</td><td>—</td><td></td></tr><tr><td>Plus: Settlement charge</td><td>(574)</td><td>448</td><td>13,184</td><td>—</td><td>—</td><td></td></tr><tr><td>Plus: Unrealized (gain) loss on derivatives</td><td>(6,386)</td><td>30,561</td><td>(33,257)</td><td>10,056</td><td>(6,239)</td><td></td></tr><tr><td>Modified EBITDA</td><td>$ 50,969</td><td>$ 58,287</td><td>$ 103,641</td><td>$ 42,352</td><td>$ 33,419</td><td></td></tr></table>

## Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

## General

We are an independent oil and natural gas company engaged in the acquisition, development, exploitation, exploration and production of oil and natural gas properties, primarily in Texas, Louisiana and Oklahoma. Through our RAM Energy subsidiary, we have been active in our core producing areas of Texas, Louisiana and Oklahoma since 1987. Our management team has extensive technical and operating expertise in all areas of our geographic focus.

On December 8, 2010, we completed the sale to Milagro Producing, LLC, a privately owned company located in Houston, Texas, of all of our oil and natural gas properties and related assets located in the Boonsville and Newark East fields of Jack and Wise Counties, Texas. The effective date of the sale was October 1, 2010. The sale properties included all of our Bend Conglomerate shallow gas properties and all of our North Texas Barnett Shale properties, including both producing properties and undeveloped leasehold. We received net cash proceeds at closing of $42.3 million subject to customary post-closing adjustments. As of December 31, 2010, net proceeds including post-closing adjustments were $41.0 million. Proved reserves from these properties accounted for approximately 26.4 billion cubic feet equivalent (Bcf) of natural gas, natural gas liquids and oil, or an estimated 13% of our year-end 2009 proved reserves of 204 Bcfe. Information as to our recent divestitures is set forth under Note B to the Consolidated Financial Statements.

Oil and natural gas prices have historically been volatile. In 2010, our average realized prices (before the impact of derivative financial instruments) for oil and natural gas were $76.95 per Bbl and $4.21 per Mcf, respectively, a significant improvement over 2009 average realized prices of $58.24 per Bbl and $3.47 per Mcf, respectively. A significant decline in annual average prices for oil and natural gas began during the last half of 2008. Spot natural gas prices declined to $5.71 per Mcf on December 31, 2008, from $12.27 per Mcf on June 30, 2008, a decrease of approximately 53%. Oil prices in the last six months of 2008 experienced a 68% decrease, declining to $44.60 per Bbl on December 31, 2008, from $138.32 per Bbl on June 30, 2008. Natural gas and oil prices continued to decline into the first quarter of 2009. Prices improved in the fourth quarter of 2009 for oil, increasing 28% to $73.36 per Bbl compared to $57.56 in the 2008 period. Natural gas prices continued to decline to $3.93 per Mcf in the fourth quarter of 2009 from $5.05 in the fourth quarter of



2008, a 22% drop. It is impossible to predict the frequency, duration or outcome of any volatile price movements or the long-term impact on drilling and operating costs and the impacts, whether favorable or unfavorable, to our results of operations and liquidity. We continue to monitor operations and planned capital budget expenditures as the economics of many projects may diminish as a result of prolonged natural gas price declines.

## Critical Accounting Policies

The preparation of our financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect our reported assets, liabilities and contingencies as of the date of the financial statements and our reported revenues and expenses during the related reporting period. Our actual results could differ from those estimates. See Note A to our Consolidated Financial Statements included in Item 8 of this report for further discussions of our significant accounting policies and recently adopted accounting standards.

We follow the full cost method of accounting for oil and natural gas operations. Under this method all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. As properties become evaluated, the related costs transfer to proved oil and natural gas properties using full cost accounting.

Under the full cost method the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% (the "Ceiling Limitation"). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, and certain production-related and ad valorem taxes are deducted. In calculating future net revenues, prices and costs are held constant indefinitely, except for changes that are fixed and determinable by existing contracts. The net book value is compared to the Ceiling Limitation on a quarterly and yearly basis. The excess, if any, of the net book value above the Ceiling Limitation is charged to expense in the period in which it occurs and is not subsequently reinstated. At December 31, 2008, the net book value of our oil and natural gas properties exceeded the Ceiling Limitation resulting in reduction in the carrying value of our oil and natural gas properties by $269.4 million, or $171.6 million net of tax, and at March 31, 2009, the net book value of our oil and natural gas properties exceeded the Ceiling Limitation resulting in reduction in the carrying value of our oil and natural gas properties by $47.6 million, or $30.3 million net of tax. We incurred no impairment charge in 2010.

Estimates of our crude oil and natural gas reserves are prepared by independent petroleum and geological engineers in accordance with guidelines established by the SEC. Proved reserves, estimated future net revenues and the present value of our reserves are estimated based upon a combination of historical data and estimates of future activity. There are numerous uncertainties inherent in estimating quantities of proved crude oil and natural gas reserves. Reserve estimates may be different from the quantities of crude oil and natural gas that are ultimately recovered. Estimates of proved crude oil and natural gas reserves may significantly affect the amount at which oil and natural gas properties are recorded and significantly affect our amortization and depreciation expense.

On December 31, 2008, the SEC issued Release No. 33-8995 amending its oil and natural gas reporting requirements for oil and natural gas producing companies. Companies were not permitted to comply at an earlier date. Among other things, Release No. 33-8995:

• Revises a number of definitions relating to proved oil and natural gas reserves to make them consistent with the Petroleum Resource Management System, which includes certain non-traditional resources in proved reserves;

• Permits the use of new technologies for determining proved oil and natural gas reserves;



• Requires the use of average prices for the trailing twelve-month period in the estimation of oil and natural gas reserve quantities and, for companies using the full cost method of accounting, in computing the Ceiling Limitation, in place of a single day price as of the end of the fiscal year;

• Permits the disclosure in filings with the SEC of probable and possible reserves and reserves sensitivity to changes in prices;

• Requires additional disclosures (outside of the financial statements) regarding the status of undeveloped reserves and changes in status of these from period to period; and

• Requires a discussion of the internal controls in place to assure objectivity in the reserve estimation process and disclosure of the technical qualifications of the technical person having primary responsibility for preparing the reserve estimates.

Our independent petroleum engineers utilized the new procedures in preparing the estimate of our proved reserves as of December 31, 2009 and 2010, as reflected in this report.

Topic 410 of the Codification addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and amends Statement of Financial Accounting Standards No. 19, now Topic 932 of the Codification. Topic 410 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. We determine our asset retirement obligation by calculating the present value of the estimated cash flows related to the liability.

As set forth in Topic 740 of the Codification, deferred income taxes are recognized at each period end for the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts based on tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. We routinely assess the realizability of our deferred tax assets. We consider future taxable income in making such assessments. If we conclude that it is more likely than not that some portion or all of the deferred tax assets will not be realized under accounting standards, it is reduced by a valuation allowance. However, despite our attempt to make an accurate estimate, the ultimate utilization of our deferred tax assets is highly dependent upon our actual production and the realization of taxable income in future periods.

We account for our derivative arrangements as set forth in Topic 815 of the Codification. Topic 815 requires the accounting recognition of all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. We may or may not elect to designate a derivative instrument as a hedge against changes in the fair value of an asset or a liability (a "fair value hedge") or against exposure to variability in expected future cash flows (a "cash flow hedge"). The accounting treatment for the changes in fair value of a derivative instrument is dependent upon whether or not a derivative instrument is a cash flow hedge or a fair value hedge, and upon whether or not the derivative is designated by us as a hedge. Changes in fair value of a derivative designated as a cash flow hedge are recognized, to the extent the hedge is effective, in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of a derivative instrument designated as a fair value hedge, to the extent the hedge is effective, have no effect on the statement of operations due to the fact that changes in fair value of the derivative offsets changes in the fair value of the hedged item. Where hedge accounting is not elected or if a derivative instrument does not qualify as either a fair value hedge or a cash flow hedge, changes in the fair value are recognized in earnings. We have not elected to designate our derivative instruments as hedges as required by Topic 815 in order to receive hedge accounting treatment. Accordingly, all gains and losses on the derivative instrument have been recorded in earnings.

During June 2008, the FASB issued authoritative guidance on whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in computing basic earnings per share. The guidance was effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Additionally, all prior period earnings per share must be adjusted retrospectively. As our restricted stock awards granted under our Long-Term Incentive Plan qualify as



participating securities, we adopted the guidance during 2009, which resulted in an increase in our basic and diluted weighted average shares outstanding.

We account for share-based payments under authoritative guidance, as set forth in Topic 718 of the Codification. Topic 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

We account for uncertain tax positions under the guidance set forth in Topic 740 of the Codification. This Topic prescribes guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. To recognize a tax position, the enterprise determines whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based solely on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

## New Accounting Pronouncements

On December 31, 2008, the SEC issued Release No. 33-8995, "Modernization of Oil and Gas Reporting," which revises disclosure requirements for oil and gas companies. In addition to changing the definition and disclosure requirements for oil and gas reserves, the new rules change the requirements for determining oil and gas reserve quantities. These rules permit the use of new technologies to determine proved reserves under certain criteria and allow companies to disclose their probable and possible reserves. The new rules also require companies to report the independence and qualifications of their reserves preparer or auditor and file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit. The new rules also require that oil and gas reserves be reported and the full cost ceiling limitation be calculated using a twelve-month average price rather than period-end prices. The new rules are effective for annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. Additionally, the FASB issued authoritative guidance on oil and gas reserve estimation and disclosures, as set forth in Topic 932 of the Codification to align with the requirements of the SEC's revised rules. We implemented the new disclosure requirements and the requirements for estimating reserves related to our oil and natural gas operations effective December 31, 2009, as disclosed in Note M to our Consolidated Financial Statements.

In January 2009, the FASB issued guidance on fair value disclosures to enhance disclosures surrounding the transfers of assets in and out of Level 1 and Level 2, to present more detail surrounding asset activity for Level 3 assets and to clarify existing disclosure requirements. The new guidance is set forth in Topic 820 of the Codification and is effective for us beginning January 1, 2010. Additional disclosure about purchases, sales, issuances, and settlement in the roll forward of activity in Level 3 fair value measurements is effective beginning January 1, 2011. Adoption of the guidance on January 1, 2010 did not, and adoption of the guidance on January 1, 2011 will not, have any impact on our financial position or statement of operations.

In February 2010, the FASB issued an update to authoritative guidance, as set forth in Topic 855 of the Codification, relating to subsequent events, which was effective upon the issuance of the update. We adopted this authoritative guidance during the first quarter of 2010. The update removes the requirement for U.S. Securities and Exchange Commission filers to disclose the date through which subsequent events have been evaluated in both issued and revised financial statements. The adoption of this update did not impact our financial position or statement of operations other than removing the disclosure.

In December 2010, the FASB issued an update to authoritative guidance, as set forth in Topic 805 of the Codification, relating to business combinations. This update provides clarification requiring public companies that have completed material acquisitions to disclose the revenue and earnings of the combined business as if the acquisition took place at the beginning of the comparable prior annual reporting period, and also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. We will be required to apply this guidance prospectively for business



combinations for which the acquisition date is on or after January 1, 2011. We do not expect the adoption of this new guidance to have a material impact on our financial position or statement of operations.

## Results of Operations

## Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009

As we concentrate our holdings into areas that align with our objectives, we have determined to report our operations by state, rather than by field as was reported in previous years. The following tables summarize our oil and natural gas production volumes, average sale prices and comparisons for the years ended December 31, 2010 and 2009:

<table><tr><td></td><td>Texas</td><td>Oklahoma</td><td>Louisiana</td><td>Other</td><td>Total</td></tr><tr><td>Year Ended December 31, 2010</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Aggregate Net Production</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>559</td><td>322</td><td>79</td><td>35</td><td>995</td></tr><tr><td>NGLs (MBbls)</td><td>341</td><td>10</td><td>—</td><td>13</td><td>364</td></tr><tr><td>Natural Gas (MMcf)</td><td>3,128</td><td>849</td><td>689</td><td>150</td><td>4,816</td></tr><tr><td>MBoe</td><td>1,421</td><td>473</td><td>194</td><td>73</td><td>2,161</td></tr><tr><td>Year Ended December 31, 2009</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Aggregate Net Production</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>664</td><td>356</td><td>83</td><td>35</td><td>1,138</td></tr><tr><td>NGLs (MBbls)</td><td>375</td><td>15</td><td>—</td><td>16</td><td>406</td></tr><tr><td>Natural Gas (MMcf)</td><td>3,821</td><td>1,266</td><td>743</td><td>164</td><td>5,994</td></tr><tr><td>MBoe</td><td>1,676</td><td>582</td><td>207</td><td>77</td><td>2,542</td></tr><tr><td>Change in MBoe</td><td>(255)</td><td>(109)</td><td>(13)</td><td>(4)</td><td>(381)</td></tr><tr><td>Percentage Change in MBoe</td><td>(15.2)%</td><td>(18.7)%</td><td>(6.3)%</td><td>(5.2)%</td><td>(15.0)%</td></tr></table>

<table><tr><td rowspan="2"></td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>Increase</td></tr><tr><td>Average sale prices:</td><td></td><td></td><td></td></tr><tr><td>Oil (per Bbl)</td><td>$76.95</td><td>$58.24</td><td>32.1%</td></tr><tr><td>NGL (per Bbl)</td><td>$38.89</td><td>$27.26</td><td>42.7%</td></tr><tr><td>Natural gas (per Mcf)</td><td>$ 4.21</td><td>$ 3.47</td><td>21.3%</td></tr><tr><td>Per Boe</td><td>$51.36</td><td>$38.62</td><td>33.0%</td></tr></table>

Oil and natural gas sales increased $12.8 million, or 13%, to $111.0 million for the year ended December 31, 2010, as compared to $98.2 million for the year ended December 31, 2009. This increase was driven by commodity price increases on a per Boe basis of 33% for the year ended December 31, 2010, as compared to 2009.

Production volumes decreased 15% overall during the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to natural production declines and weather-related interruptions. Production from our Texas fields decreased by 255 MBoe in the current year.

Drilling activity in our Texas fields included 58 gross (51.1 net) wells in 2010, all of which were completed as producing wells, and three gross (3.0 net) wells in the process of being completed at December 31, 2010. Production from our Oklahoma fields decreased by 109 MBoe over the prior year. Drilling activity in our Oklahoma fields included three gross (2.9 net) wells, all of which were completed as producing, and three gross (2.8 net) wells waiting on completion at December 31, 2010. Production from our Louisiana fields decreased by 13 MBoe over the prior year. Drilling activity in our Louisiana fields included



one gross (0.2 net) well, which was a dry hole, in 2010. Lower development capital expenditures resulted in decreased production in 2010 from natural production declines not offset by increased drilling. After adjusting our 2010 production by the contribution made by the properties sold in December 2010, we expect production from our remaining properties to remain relatively constant in 2011 with the exception of South Texas which is mainly gas and will continue to have declining production until prices improve.

The average realized sales price for oil was $76.95 per barrel for the year ended December 31, 2010, an increase of 32%, compared to $58.24 per barrel for 2009. The average realized sales price for NGLs was $38.89 for the year ended December 31, 2010, an increase of 43%, compared to $27.26 per barrel for 2009. The average realized sales price for natural gas was $4.21 per Mcf for the year ended December 31, 2010, an increase of 21%, compared to $3.47 per Mcf for 2009.

Realized and Unrealized Gain (Loss) from Derivatives. For the year ended December 31, 2010, our gain from derivatives was $1.2 million compared to a loss of $11.3 million for the year ended December 31, 2009. Our gains and losses for these periods were the net result of recording actual contract settlements, the premiums paid for our derivative contracts, and unrealized gains and losses attributable to mark-to-market values of our derivative contracts at the end of the periods. The significant shift from 2009 to 2010 was primarily a result of higher market prices in the 2010 period.

<table><tr><td rowspan="3"></td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td></td></tr><tr><td colspan="3">(In thousands)</td></tr><tr><td>Contract settlements and premium costs:</td><td></td><td></td><td></td></tr><tr><td>Oil</td><td>$ (6,110)</td><td>$ 5,626</td><td></td></tr><tr><td>Natural gas</td><td>917</td><td>13,629</td><td></td></tr><tr><td>Realized gains (losses)</td><td>(5,193)</td><td>19,255</td><td></td></tr><tr><td>Mark-to-market gains (losses):</td><td></td><td></td><td></td></tr><tr><td>Oil</td><td>4,817</td><td>(23,724)</td><td></td></tr><tr><td>Natural gas</td><td>1,569</td><td>(6,837)</td><td></td></tr><tr><td>Unrealized gains (losses)</td><td>6,386</td><td>(30,561)</td><td></td></tr><tr><td>Realized and unrealized gains (losses)</td><td>$ 1,193</td><td>$ (11,306)</td><td></td></tr></table>

Oil and Natural Gas Production Taxes. Our oil and natural gas production taxes were $6.1 million for the year ended December 31, 2010, compared to $5.3 million for the year ended December 31, 2009, due primarily to higher commodity prices during the 2010 period. Production taxes vary by state. Most are based on realized prices at the wellhead, while Louisiana production tax is based on volumes for natural gas and value for oil. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease directly. As a percentage of oil and natural gas sales, oil and natural gas production taxes were 5% for the year ended December 31, 2010 and 2009.

Oil and Natural Gas Production Expense. Our oil and natural gas production expense was $33.9 million for the year ended December 31, 2010, a decrease of $3.6 million, or 10%, from the $37.5 million for the year ended December 31, 2009, due primarily to cost-saving measures implemented in 2010. For the year ended December 31, 2010, our oil and natural gas production expense was $15.68 per Boe compared to $14.73 per Boe for the year ended December 31, 2009, an increase of 6%.

Depreciation and Amortization Expense. Our depreciation and amortization expense decreased $4.4 million, or 14%, for the year ended December 31, 2010, compared to the year ended December 31, 2009. The decrease was a result of a decrease in production during 2010, partially offset by a higher depletion rate per Boe. On an equivalent basis, our amortization of the full-cost pool of $26.2 million was $12.11 per Boe for the year ended December 31, 2010, an increase of less than 1% per Boe compared to $30.7 million, or $12.06 per Boe for the year ended December 31, 2009.



Accretion Expense. Topic 410 of the Codification includes, among other things, the accounting for asset retirement obligations. Accretion expense is a function of changes in the discounted liability from period to period. We recorded $1.5 million for the year ended December 31, 2010, compared to $2.0 million for the year ended December 31, 2009.

Impairment Charge. For the year ended December 31, 2010, we incurred no impairment charges. We incurred a $47.6 million impairment on the carrying value of our oil and gas properties for the year ended December 31, 2009. The impairment of our oil and gas properties was primarily due to a reduction in the tax affected estimated present value of future net revenues, caused by dramatic decline in natural gas prices, from our proved oil and gas reserves between December 31, 2008, and March 31, 2009.

Share-Based Compensation. From time to time, our board of directors grants restricted stock awards under our 2006 Long-Term Incentive Plan. Each of these grants vests in equal increments over the vesting period provided for the particular award. All currently unvested awards provide for vesting periods of from one to five years. The share-based compensation expense related to these grants is calculated using the closing price per share on each of the grant dates and the total share-based compensation on all these grants will be recognized over their respective vesting periods. For the year ended December 31, 2010, we recorded a total of $3.1 million share-based compensation expense compared to $2.2 million for the year ended December 31, 2009. The increase in share-based compensation expense was primarily due to additional grants and increased stock price during the 2010 period.

General and Administrative Expense. For the year ended December 31, 2010, our general and administrative expense was $14.8 million, compared to $16.7 million for the year ended December 31, 2009, a decrease of $1.9 million, or 11%. The decrease is primarily due to decreased professional fees and lower employee-related costs in 2010.

Interest Expense. We recorded interest expense of $22.7 million for the year ended December 31, 2010, compared to $18.6 million incurred during the previous year. Interest rates were higher in 2010 compared to 2009 due to the Second Amendment to our credit facility executed June 26, 2009. Our blended interest rate was 8.0% during 2010 compared to 7.6% in the 2009 period. As a result of higher interest rates for the period, our interest expense increased by $4.1 million for the year ended December 31, 2010, compared to 2009.

Other Income (Expense). Our other income was $0.3 million in 2010 compared to other expense of $0.4 million in 2009. For the year ended December 31, 2010, we reduced a contingency accrual by $0.6 million related to settlement of pending litigation offset by a charge relating to pipe inventory write-off. For the year ended December 31, 2009, we recorded $0.4 million charge to other expense primarily for expenses related to settlement of pending litigation.

Income Taxes. For the year ended December 31, 2010, we recorded an income tax provision of $1.0 million on a pre-tax income of $3.4 million. The income tax provision for 2010 included a $5.7 million decrease to deferred tax assets under Section 382 of the Internal Revenue Code related to net operating loss limitations and a decrease in the valuation allowance of $6.6 million for revisions to future taxable income projections. For the year ended December 31, 2009, we recorded an income tax benefit of $209 in an increase in valuation allowance of $9.5 million to reflect our estimate of reduced tax benefits expected to be realized from net deferred tax assets of the company. The effective tax rates for the year ended December 31, 2010 and 2009, were 29.2% and 21.9%, respectively.



## Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

The following tables summarize our oil and natural gas production volumes (in thousands), average sale prices and comparisons for the years ended December 31, 2009 and 2008:

<table><tr><td></td><td>Texas</td><td>Oklahoma</td><td>Louisiana</td><td>Other</td><td>Total</td></tr><tr><td>Year Ended December 31, 2009</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Aggregate Net Production</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>664</td><td>356</td><td>83</td><td>35</td><td>1,138</td></tr><tr><td>NGLs (MBbls)</td><td>375</td><td>15</td><td>—</td><td>16</td><td>406</td></tr><tr><td>Natural Gas (MMcf)</td><td>3,821</td><td>1,266</td><td>743</td><td>164</td><td>5,994</td></tr><tr><td>MBoe</td><td>1,676</td><td>582</td><td>207</td><td>77</td><td>2,542</td></tr><tr><td>Year Ended December 31, 2008</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Aggregate Net Production</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil (MBbls)</td><td>683</td><td>406</td><td>54</td><td>44</td><td>1,187</td></tr><tr><td>NGLs (MBbls)</td><td>338</td><td>14</td><td>—</td><td>2</td><td>354</td></tr><tr><td>Natural Gas (MMcf)</td><td>4,039</td><td>1,050</td><td>730</td><td>263</td><td>6,082</td></tr><tr><td>MBoe</td><td>1,693</td><td>595</td><td>176</td><td>90</td><td>2,554</td></tr><tr><td>Change in MBoe</td><td>(17)</td><td>(13)</td><td>31</td><td>(13)</td><td>(12)</td></tr><tr><td>Percentage Change in MBoe</td><td>(1.0)%</td><td>(2.2)%</td><td>17.6%</td><td>(14.4)%</td><td>(0.5)%</td></tr><tr><td></td><td></td><td></td><td>Year Ended December 31,</td><td></td><td></td></tr><tr><td></td><td></td><td></td><td>2009</td><td>2008</td><td>(Decrease)</td></tr><tr><td>Average sale prices:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Oil (per Bbl)</td><td></td><td></td><td>$ 58.24</td><td>$ 98.59</td><td>(40.9)%</td></tr><tr><td>NGL (per Bbl)</td><td></td><td></td><td>$ 27.26</td><td>$ 50.24</td><td>(45.7)%</td></tr><tr><td>Natural gas (per Mcf)</td><td></td><td></td><td>$ 3.47</td><td>$ 7.87</td><td>(55.9)%</td></tr><tr><td>Per Boe</td><td></td><td></td><td>$ 38.62</td><td>$ 71.52</td><td>(46.0)%</td></tr></table>

Oil and natural gas sales decreased $84.5 million, or 46%, to $98.2 million for the year ended December 31, 2009, as compared to $182.7 million for the year ended December 31, 2008. This decrease was driven by commodity price decreases, which on a per Boe basis declined 46% for the year ended December 31, 2009, as compared to 2008.

Production volumes were essentially flat during the year ended December 31, 2009, as compared to the year ended December 31, 2008. Texas production included our Boonsville and Barnett Shale fields, both in North Texas, which increased by 67 MBoe and 74 MBoe, respectively, in 2009 as compared to the prior year. Drilling activity in 2009 included one gross (one net) well in Boonsville and two gross (0.4 net) wells on our Tier 1 Barnett Shale acreage, with one gross (0.4 net) well completed as a producing well and one gross (0.04 net) well in the process of being completed at December 31, 2009. Offsetting production declines included our Electra/Burkburnett field in North Texas and our South Texas field, which decreased by 44 MBoe and 59 MBoe, respectively, in 2009 as compared to 2008 primarily as a result of normal production declines and a reduced pace of drilling in those fields. We drilled 39 gross (39.0 net) wells in Electra/Burkburnett in 2009.

The average realized sales price for oil was $58.24 per barrel for the year ended December 31, 2009, a decrease of 41%, compared to $98.59 per barrel for 2008. The average realized sales price for NGLs was $27.26 for the year ended December 31, 2009, a decrease of 46%, compared to $50.24 per barrel for 2008. The average realized sales price for natural gas was $3.47 per Mcf for the year ended December 31, 2009, a decrease of 56%, compared to $7.87 per Mcf for 2008.

Realized and Unrealized Gain (Loss) from Derivatives. For the year ended December 31, 2009, our loss from derivatives was $11.3 million compared to a gain of $22.8 million for the year ended December 31,



2008. Our gains and losses for these periods were the net result of recording actual contract settlements, the premiums paid for our derivative contracts, and unrealized gains and losses attributable to mark-to-market values of our derivative contracts at the end of the periods.

<table><tr><td rowspan="3">Contract settlements and premium costs:</td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2009</td><td>2008</td><td></td></tr><tr><td colspan="3">(In thousands)</td></tr><tr><td>Oil</td><td>$ 5,626</td><td>$ (10,497)</td><td></td></tr><tr><td>Natural gas</td><td>13,629</td><td>25</td><td></td></tr><tr><td>Realized gains (losses)</td><td>19,255</td><td>(10,472)</td><td></td></tr><tr><td>Mark-to-market gains (losses):</td><td></td><td></td><td></td></tr><tr><td>Oil</td><td>(23,724)</td><td>26,590</td><td></td></tr><tr><td>Natural gas</td><td>(6,837)</td><td>6,667</td><td></td></tr><tr><td>Unrealized gains (losses)</td><td>(30,561)</td><td>33,257</td><td></td></tr><tr><td>Realized and unrealized gains (losses)</td><td>$ (11,306)</td><td>$ 22,785</td><td></td></tr></table>

Oil and Natural Gas Production Taxes. Our oil and natural gas production taxes were $5.3 million for the year ended December 31, 2009, compared to $10.5 million for the year ended December 31, 2008, due primarily to lower commodity prices during the 2009 period. Production taxes vary by state. Most are based on realized prices at the wellhead, while Louisiana production tax is based on volumes for natural gas and value for oil. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease directly. As a percentage of oil and natural gas sales, oil and natural gas production taxes were 5% for the year ended December 31, 2009, compared to 6% for the year ended December 31, 2008.

Oil and Natural Gas Production Expense. Our oil and natural gas production expense was $37.5 million for the year ended December 31, 2009, a decrease of $0.5 million, or 2%, from the $38.0 million for the year ended December 31, 2008. For the year ended December 31, 2009, our oil and natural gas production expense was $14.73 per Boe compared to $14.89 per Boe for the year ended December 31, 2008, essentially flat. As a percentage of oil and natural gas sales, oil and natural gas production expense was 38% for the year ended December 31, 2009, as compared to 21% for the year ended December 31, 2008. The increase is due to declining commodity prices in the 2009 period.

Depreciation and Amortization Expense. Our depreciation and amortization expense decreased $14.9 million, or 32%, for the year ended December 31, 2009, compared to the year ended December 31, 2008. The decrease was a result of a lower amortization rate per Boe. On an equivalent basis, our amortization of the full-cost pool of $30.7 million was $12.06 per Boe for the year ended December 31, 2009, a decrease per Boe of 33% compared to $45.7 million, or $17.89 per Boe for the year ended December 31, 2008. This rate decrease per Boe resulted from lower capitalized costs subsequent to the asset impairment writedowns in the fourth quarter of 2008 and the first quarter of 2009.

Accretion Expense. Topic 410 of the Codification includes, among other things, the accounting for asset retirement obligations. Accretion expense is a function of changes in the discounted liability from period to period. We recorded $2.0 million for the year ended December 31, 2009, compared to $2.2 million for the year ended December 31, 2008.

Impairment Charge. We incurred a $47.6 million impairment on the carrying value of our oil and gas properties for the year ended December 31, 2009, as compared to $269.4 million for the year ended December 31, 2008. We also incurred a $0.5 million impairment on the carrying value of our inventory in 2008. The impairment of our oil and gas properties was primarily due to a reduction in the estimated present value of future net revenues from our proved oil and gas reserves resulting from a significant decline in commodity prices during the fourth quarter of 2008.



Share-Based Compensation. From time to time, our board of directors grants restricted stock awards under our 2006 Long-Term Incentive Plan. Each of these grants vests in equal increments over the vesting period provided for the particular award. All currently unvested awards provide for vesting periods of from one to five years. The share-based compensation expense related to these grants is calculated using the closing price per share on each of the grant dates and the total share-based compensation on all these grants will be recognized over their respective vesting periods. For the year ended December 31, 2009, we recorded a total of $2.2 million share-based compensation expense compared to $2.6 million for the year ended December 31, 2008. The decrease in share-based compensation expense was a result of the accelerated vesting in the 2008 period of restricted stock grants to John Cox, our senior vice president, who passed away in March 2008.

General and Administrative Expense. For the year ended December 31, 2009, our general and administrative expense was $16.7 million, compared to $20.3 million for the year ended December 31, 2008, a decrease of $3.6 million, or 18%. The decrease is primarily due to decreased professional fees and lower officer and employee bonuses in 2009.

Interest Expense. We recorded interest expense of $18.6 million for the year ended December 31, 2009, compared to $24.2 million incurred during the previous year. The decrease in interest expense was due to lower debt balances for the 2009 period and lower effective interest rates in the first half of 2009 compared to 2008, partially offset by higher interest rates during the second half of 2009 due to the Second Amendment to our credit facility executed June 26, 2009. Our debt was lower during 2009 because in the second quarter of 2008, we used $86.6 million in realized net proceeds from the exercise of 17,617,331 warrants in May 2008 to pay down the term facility, and $9.4 million in cash to pay down the revolver. Our blended interest rate was 7.6% during 2009 compared to 9.7% in the 2008 period. As a result of this paydown and lower interest rates for the period, our interest expense decreased by $5.6 million for the year ended December 31, 2009, compared to 2008.

Other Expense. Our other expense was $0.4 million in 2009 compared to $13.5 million in 2008. In 2008, we recorded a charge to other expense of $13.5 million for litigation expense related to a legal settlement. In September 2008, we entered into an agreement pursuant to which we agreed to pay $16.0 million in settlement of a pending class action lawsuit. We placed that amount in escrow in October 2008 in anticipation of a final court approved settlement in the second quarter of 2009. In conjunction with our May 8, 2006 acquisition of RAM Energy, the former stockholders of RAM Energy deposited in escrow 3,200,000 shares of their common stock to secure their potential indemnity obligations to us, including any loss we might sustain in this litigation or through an agreed settlement. At December 31, 2008, we recorded a contingent liability of $16.0 million for the settlement and a receivable of $2.8 million representing the market value of the escrow shares based on the closing price of $0.88 per share on December 31, 2008. The $13.5 million charge to other expense represents the difference between the settlement liability and the value of the escrowed shares. On March 5, 2009, the court approved the settlement and on April 6, 2009, the settlement became final. We recorded a $0.4 million charge to other expense in the first quarter of 2009 representing the adjustment to fair market value of the escrowed shares on the final settlement date of $0.74 per share.

Income Taxes. For the year ended December 31, 2009, we recorded an income tax benefit of $16.3 million on a pre-tax loss of $74.7 million. In 2009, we recorded an increase in valuation allowance of $9.5 million to reflect our estimate of reduced tax benefits expected to be realized from net deferred tax assets of the company. For the year ended December 31, 2008, we recorded an income tax benefit of $91.7 million on a pre-tax loss of $221.6 million. Included in the income tax benefit for 2008 is a $6.9 million decrease resulting from the reversal of an uncertain tax position and related accrued interest. The effective tax rate for the year ended December 31, 2009 was 21.9%. Excluding the reversal of the uncertain tax position, the effective tax rate was 38.3% for the year ended December 31, 2008. The lower effective tax rate in 2009 was a result of the increased valuation allowance, which caused a decrease in deferred tax benefit.



## Liquidity and Capital Resources

As of December 31, 2010, we had $28.5 million of nominal availability under our revolving credit facility; however, because of the amount of our Modified EBITDA for the preceding four fiscal quarters, the leverage ratio financial covenant in our old credit facility limited us to $23.7 million of additional borrowings as of December 31, 2010. In March 2011, we entered into new credit facilities including a $250.0 million first lien revolving credit facility with an initial $150.0 million borrowing base and a $75.0 million second lien term loan facility. Under our new credit facilities, through September 30, 2011, additional borrowings will not be limited by the leverage ratio covenant in our revolving loan agreement provided our Modified EBITDA for the preceding four fiscal quarters exceeds $47.4 million. Our Modified EBITDA for the four fiscal quarters ending December 31, 2010 was $51.0 million. Management believes that borrowings currently available to us under our credit facilities and anticipated cash flows from operations will be sufficient to satisfy our currently expected capital expenditures, working capital, and debt service obligations through 2011. At December 31, 2010, we had $197.1 million of indebtedness outstanding, including $116.5 million under our revolving credit facility, $80.2 million under our term loan facility and $0.4 million in other indebtedness. As of December 31, 2010, we had an accumulated deficit of $214.9 million and a working capital deficit of $12.4 million.

New Credit Facilities. In March 2011, we entered into new credit facilities. The new facilities, which replaced our previous facility, include a $250.0 million first lien revolving credit facility and a $75.0 million second lien term loan facility. SunTrust Bank is the administrative agent for the revolving facility, and Guggenheim Corporate Funding, LLC is the agent for the term loan facility. The initial borrowing base under the revolving credit facility at the closing is $150.0 million. Funds advanced under the revolving credit facility may be paid down and re-borrowed during the five-year term of the revolver, and initially bear interest at LIBOR plus a margin ranging from 2.5% to 3.25% based on a percentage of usage. The term loan portion of our credit facility provides for payments of interest only during its 5.5-year term, with the initial interest rate being LIBOR plus 9.0% with a 2.0% LIBOR Floor, or if any period we elect to pay a portion of the interest under our term loan "in kind," then the interest rate will be LIBOR plus 10.0% with a 2.0% LIBOR Floor, and with 7.0% of the interest amount paid in cash and the remaining 3.0% paid in kind by being added to principal.

Advances under our credit facilities are secured by liens on substantially all of our properties and assets. The credit facilities contain representations, warranties and covenants customary in transactions of this nature, including restrictions on the payment of dividends on our capital stock and financial covenants relating to current ratio, minimum interest coverage ratio, maximum leverage ratio and a required ratio of asset value to total indebtedness. We are required to maintain commodity hedges on a rolling basis for the first 12 months out with respect to not less than 60%, but not more than 85%, and for the next 18 months out with respect to not less than 50% but not more than 85%, of our projected quarterly production volumes, until the leverage ratio is less than or equal to 1.5 to 1.0. At December 31, 2010, our commodity hedging represented approximately 56% of our projected production volumes through June 30, 2013.

Our previous credit facility entered into November 2007 included a $500.0 million credit facility with Guggenheim Corporate Funding, LLC, for itself and on behalf of other institutional lenders. This facility included a $250.0 million revolving credit facility, a $200.0 million term loan facility, and an additional $50.0 million available under the term loan as requested by us and approved by the lenders. The entire amount of the $200.0 million term loan was advanced at closing. The borrowing base under our previous revolving credit facility was $145.0 million at December 31, 2010. Funds advanced under the revolving credit facility initially bore interest at LIBOR plus a margin ranging from 1.25% to 2.0% based on a percentage of usage. The term loan portion of our credit facility initially provided for payments of interest only during its five-year term, with the initial interest rate being LIBOR plus 7.5%.

On June 26, 2009, we renegotiated certain terms of our previous credit facility to provide us greater flexibility in complying with certain of the financial covenants under the loan agreement. In exchange for the added flexibility afforded by these changes to the credit facility, we agreed to increase the base cash interest rate on both the revolving credit facility and the term loan credit facility by 1.0% per annum established as a LIBOR Floor of 1.5% and pay an additional 2.75% per annum of non-cash payment in-kind or PIK, interest



on the term portion of the facility. Accrued PIK interest was added to the principal balance of the term loan on a monthly basis and was paid in connection with the closing of the new credit facilities in March 2011.

In May of 2008, we used $86.6 million in realized net proceeds from the exercise of 17,617,331 warrants to pay down the term facility to $113.4 million. In 2010 and 2009, we used $33.8 million and $4.0 million, respectively, in proceeds from asset sales to pay down the term facility. PIK interest of $1.6 million was added to the term facility in 2009, and PIK interest of $3.0 million was added to the term facility in 2010, bringing the balance to $80.2 million at December 31, 2010.

Our ability to comply with the financial covenants in our new credit facilities may be affected by events beyond our control and, as a result, in future periods we may be unable to meet these ratios and financial condition tests. These financial ratio restrictions and financial condition tests could limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business or the economy in general or otherwise conduct necessary corporate activities. A breach of any of these covenants or our inability to comply with the required financial ratios or financial condition tests could result in a default under our credit facilities. A default, if not cured or waived, could result in acceleration of all indebtedness outstanding under our credit facilities. The accelerated debt would become immediately due and payable. If that should occur, we may be unable to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us. At December 31, 2010, we were in compliance with all of the financial covenants under our credit facility.

Cash Flow From Operating Activities. Our cash flow from operating activities is comprised of three main items: net income (loss), adjustments to reconcile net income to cash provided (used) before changes in working capital, and changes in working capital. For the year ended December 31, 2010, our net income was $2.4 million, as compared to a net loss of $58.4 million for the year ended December 31, 2009. Adjustments (primarily non-cash items such as asset impairment charge, depreciation and amortization, unrealized gain or loss on derivatives, deferred income taxes and legal contingency expense) were $35.5 million for the year ended December 31, 2010, compared to $102.4 million for the year of 2009, a decrease of $66.9 million. Asset impairment charge, depreciation and amortization, legal contingency expense and change in unrealized (gains) losses, offset by change in deferred income taxes caused most of this decrease. Working capital changes for the year ended December 31, 2010, were a negative $0.05 million compared with negative changes of $11.7 million for the year ended December 31, 2009. For the year ended December 31, 2010, in total, net cash provided by operating activities was $37.9 million compared to $32.4 million of net cash provided by operations for the previous year.

Cash Flow From Investing Activities. For the year ended December 31, 2010, net cash provided by our investing activities consisted of $49.4 million in proceeds from sales of oil and natural gas properties and other equipment, offset by $34.4 million in payments for oil and gas properties and other equipment. For the year ended December 31, 2009, net cash used in our investing activities was $23.9 million. The change is primarily due to property divestitures in 2010 in conjunction with the execution of our strategic alternative initiative to reduce debt.

Cash Flow From Financing Activities. For the year ended December 31, 2010, net cash used in our financing activities was $52.9 million, compared to net cash used of $8.5 million for the year ended December 31, 2009. The cash used in 2010 included $52.1 million in net payments on long-term debt and $0.8 million for stock withheld to cover employee income taxes on the vesting of stock under our 2006 Long-Term Incentive Plan.

## Capital Commitments

During 2010, we had capital expenditures of $33.5 million relating to our oil and natural gas operations, of which $27.9 million was allocated to drilling new development wells and recompletion operations in existing wells, $4.5 million was for exploration costs, and $1.1 million was for acquisition costs.

We have budgeted $35.0 million for non-acquisition capital expenditures in 2011 related to:

• developmental drilling and recompletions ($18.0 million);



• exploration, including leasehold acquisition, seismic and exploratory drilling ($9.0 million); and

• geological, geophysical and contingencies ($8.0 million).

In our 2011 non-acquisition capital budget, we have allocated $8.0 million for continued development of our Electra/Burbkruemt area, $2.0 million for drilling on our South Texas properties and $8.0 million for reworking and production enhancement operations in our mature fields, including our Fitts and Allen fields in Oklahoma.

The amount and timing of our capital expenditures for calendar year 2011 may vary depending on a number of factors, including prevailing market prices for oil and natural gas, the favorable or unfavorable results of operations actually conducted, projects proposed by third party operators on jointly owned acreage, development by third party operators on adjoining properties, rig and service company availability, and other influences that we cannot predict.

Although we cannot provide any assurance, assuming successful implementation of our strategy, including the future development of our proved reserves and realization of our cash flows as anticipated, we believe that cash flows from operations and the availability under our revolving credit facility will be sufficient to satisfy our budgeted non-acquisition capital expenditures, working capital and debt service obligations for 2011. The actual amount and timing of our future capital requirements may differ materially from our estimates as a result of, among other things, changes in product pricing and regulatory, technological and competitive developments. Sources of additional financing available to us may include commercial bank borrowings, vendor financing and the sale of equity or debt securities. We cannot provide any assurance that any such financing will be available on acceptable terms or at all.

The credit markets are undergoing significant volatility. Many financial institutions have liquidity concerns, prompting government intervention to mitigate pressure on the credit markets. Our exposure to the current credit market crisis includes our revolving credit facility, counterparty risks related to our trade credit and risks related to our cash investments.

Our new revolving credit facility matures in March 2016. Our term loan facility matures in September 2016. Should the current tightness in the credit markets continue, future extensions of our credit facilities may contain terms that are less favorable than those of our current credit facility.

Current market conditions also elevate the concern over our cash deposits, which totaled approximately $0.04 million at December 31, 2010, but fluctuate throughout the year, and counterparty risks related to our trade credit. Our cash accounts and deposits with any financial institution that exceed the amount insured by the Federal Deposit Insurance Corporation are at risk in the event one of these financial institutions fails. We sell our crude oil, natural gas and NGLs to a variety of purchasers. Some of these parties are not as creditworthy as we are and may experience liquidity problems. Nonperformance by a trade creditor could result in losses.

The table below sets forth our contractual cash obligations as of December 31, 2010:

<table><tr><td rowspan="2"></td><td rowspan="2">Total</td><td rowspan="2">2011</td><td colspan="2">2012-2013</td><td rowspan="2">2014-2015</td><td rowspan="2">and after</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Contractual Cash Obligations</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Long-term debt</td><td>$ 197,092</td><td>$ 127</td><td>$ 167</td><td>$ 56</td><td>$ 196,742</td><td></td></tr><tr><td>Operating leases</td><td>3,462</td><td>1,189</td><td>2,213</td><td>60</td><td>—</td><td>—</td></tr><tr><td>Total contractual cash obligations</td><td>$ 200,554</td><td>$ 1,316</td><td>$ 2,380</td><td>$ 116</td><td>$ 196,742</td><td></td></tr></table>

## Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The carrying amounts reported in our consolidated balance sheets for cash and cash equivalents, trade receivables and payables, installment notes and variable rate long-term debt approximate their fair values.



## Interest Rate Sensitivity

We are exposed to changes in interest rates. Changes in interest rates affect the interest earned on our cash and cash equivalents and the interest rate paid on our borrowings. We have not used interest rate derivative instruments to manage our exposure to interest rate changes.

Our long-term debt as of December 31, 2010, is denominated in U.S. dollars. Our debt has been issued at variable rates, and as such, interest expense would be impacted by interest rate shifts. Under our old credit facility, the impact of a 100-basis point increase in LIBOR interest rates above the then current floor of 1.5% would have resulted in an increase in interest expense of $2.0 million annually based on the $196.7 million balance of our credit facility as of December 31, 2010. A 100-basis point decrease would have had no effect on interest expense until the market rate of LIBOR increased above the then current floor of 1.5%. The new revolving credit facility entered into March 2011 is not subject to LIBOR floors, and the impact of a 100-basis point increase in LIBOR interest rates would have resulted in an increase in interest expense of approximately $1.2 million annually based on the $116.5 million balance of our revolver as of December 31, 2010. LIBOR rates were less than 100-basis points as of December 31, 2010, so any decrease in interest rates would have resulted in a nominal decrease in interest expense under our revolver as of December 31, 2010. The term loan portion of our new credit facility includes a 2.0% LIBOR floor. The impact of a 100-basis point increase in LIBOR rates above our 2.0% floor would result in an increase in interest expense under our term loan of $0.8 million annually based on the $80.2 million balance of our term loan as of December 31, 2010. A 100-basis point decrease would have no effect on interest expense under our term loan until the LIBOR rate exceeds 2.0%.

## Commodity Price Risk

Our revenue, profitability and future growth depend substantially on prevailing prices for oil and natural gas. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow and raise additional capital. Lower prices may also reduce the amount of oil and natural gas that we can economically produce. We currently sell most of our oil and natural gas production under market price contracts.

To reduce exposure to fluctuations in oil and natural gas prices and to achieve more predictable cash flow, and as required by our lenders, we utilize various derivative strategies to manage the price received for a portion of our future oil and natural gas production. We have not established derivatives that create potential liability to us covering volumes in excess of our expected production.

Our derivative positions at December 31, 2010, consisting of put/call “collars” and put options, also called “bare floors” as they provide a floor price without a corresponding ceiling, are shown in the following table:

<table><tr><td rowspan="4"></td><td colspan="6">Crude Oil (Bbls)</td><td colspan="6">Natural Gas (Mmbtu)</td></tr><tr><td colspan="2">Flours</td><td colspan="2">Ceilings</td><td rowspan="3">Months Covered</td><td colspan="2">Flours</td><td colspan="2">Ceilings</td><td rowspace="3">Months Covered</td><td></td></tr><tr><td colspan="2">Per Day(1)</td><td colspan="2">Per Day(1)</td><td colspan="2">Per Day(2)</td><td colspan="2">Per Day(1)</td><td></td></tr><tr><td>2011</td><td>1,921</td><td>$80.00</td><td>1,921</td><td>$105.00</td><td>April - December January - June</td><td>6,219</td><td>$5.00</td><td>6,219</td><td>$9.48</td><td>January - September</td></tr><tr><td>2012</td><td>995</td><td>$80.00</td><td>995</td><td>$105.00</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td colspan="2">Bar Floors</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td>Per Day(1)</td><td>Price</td><td></td><td></td><td>Months Covered</td><td>Per Day(1)</td><td>Price</td><td></td><td></td><td></td></tr><tr><td>Year</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>2011</td><td></td><td>1,177</td><td>$60.00</td><td>January - September</td><td></td><td></td><td>1,841</td><td>$4.18</td><td>October - December</td><td></td><td></td></tr><tr><td>2012</td><td></td><td>—</td><td>$ —</td><td></td><td></td><td></td><td>2,486</td><td>$4.25</td><td>January - March</td><td></td><td></td></tr></table>

(1) Per day amounts are calculated based on a 365-day year for 2011 and on a 366-day year for 2012.



## Table of Contents

Based on December 31, 2010, NYMEX forward curves of natural gas and crude oil futures prices, adjusted for volatility by 67.5 basis points, we would expect to receive future cash payments of $1.1 million under our natural gas and crude oil derivative arrangements as they mature. If future prices of natural gas and crude oil were to decline by 10%, we would expect to receive future cash payments under our natural gas and crude oil derivative arrangements of $7.0 million, and if future prices were to increase by 10%, we would pay future cash payments of $5.6 million.



## INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

RAM Energy Resources, Inc.
Report of Independent Registered Public Accounting Firm 55
Consolidated Balance Sheets as of December 31, 2010 and 2009 56
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 57
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2010, 2009 and 2008 58
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 (59)
Notes to Consolidated Financial Statements 61



# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

RAM Energy Resources, Inc.

We have audited the accompanying consolidated balance sheets of RAM Energy Resources, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above presently fairly, in all material respects, the consolidated financial position of RAM Energy Resources, Inc. and subsidiaries at December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note A to the consolidated financial statements, in 2009, the Company adopted SEC Release 33-8995 and the amendments to ASC Topic 932, "Extractive Industries — Oil and Gas," resulting from ASU 2010-03 (collectively, the Modernization Rules).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of RAM Energy Resources, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2011 expressed an unqualified opinion on the effective operation of internal control over financial reporting.

/s/ UHY LLP

Houston, Texas

March 16, 2011



## RAM Energy Resources, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)

<table><tr><td rowspan="2"></td><td colspan="3">As of December 31,</td></tr><tr><td>2010</td><td>2009</td><td></td></tr><tr><td>ASSETS</td><td></td><td></td><td></td></tr><tr><td>CURRENT ASSETS:</td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 37</td><td>$ 129</td><td></td></tr><tr><td>Accounts receivable:</td><td></td><td></td><td></td></tr><tr><td>Oil and natural gas sales, net of allowance of $50 ($50 at December 31, 2009)</td><td>9,797</td><td>12,585</td><td></td></tr><tr><td>Joint interest operations, net of allowance of $479 ($641 at December 31, 2009)</td><td>631</td><td>1,303</td><td></td></tr><tr><td>Other, net of allowance of $48 ($48 at December 31, 2009)</td><td>155</td><td>193</td><td></td></tr><tr><td>Derivative assets</td><td>1,340</td><td>—</td><td></td></tr><tr><td>Prepaid expenses</td><td>1,657</td><td>1,970</td><td></td></tr><tr><td>Deferred tax asset</td><td>3,526</td><td>3,531</td><td></td></tr><tr><td>Inventory</td><td>3,382</td><td>3,900</td><td></td></tr><tr><td>Other current assets</td><td>4</td><td>27</td><td></td></tr><tr><td>Total current assets</td><td>20,529</td><td>23,638</td><td></td></tr><tr><td>PROPERTIES AND EQUIPMENT, AT COST:</td><td></td><td></td><td></td></tr><tr><td>Proved oil and natural gas properties and equipment, using full cost accounting</td><td>689,472</td><td>702,502</td><td></td></tr><tr><td>Other property and equipment</td><td>10,072</td><td>9,337</td><td></td></tr><tr><td></td><td>699,544</td><td>711,839</td><td></td></tr><tr><td>Less accumulated depreciation, amortization and impairment</td><td>(489,634)</td><td>(462,541)</td><td></td></tr><tr><td>Total properties and equipment</td><td>209,910</td><td>249,298</td><td></td></tr><tr><td>OTHER ASSETS:</td><td></td><td></td><td></td></tr><tr><td>Deferred tax asset</td><td>31,001</td><td>31,573</td><td></td></tr><tr><td>Deferred loan costs, net of accumulated amortization of $5,012 ($2,924 at December 31, 2009)</td><td>2,609</td><td>4,697</td><td></td></tr><tr><td>Other</td><td>952</td><td>1,956</td><td></td></tr><tr><td>Total assets</td><td>$ 265,001</td><td>$ 311,162</td><td></td></tr><tr><td>LIABILITIES AND STOCKHOLDERS&#x27; EQUITY (DEFICIT)</td><td></td><td></td><td></td></tr><tr><td>CURRENT LIABILITIES:</td><td></td><td></td><td></td></tr><tr><td>Accounts payable:</td><td></td><td></td><td></td></tr><tr><td>Trade</td><td>$ 17,149</td><td>$ 15,697</td><td></td></tr><tr><td>Oil and natural gas proceeds due others</td><td>9,414</td><td>10,113</td><td></td></tr><tr><td>Other</td><td>452</td><td>636</td><td></td></tr><tr><td>Accrued liabilities:</td><td></td><td></td><td></td></tr><tr><td>Compensation</td><td>1,948</td><td>2,664</td><td></td></tr><tr><td>Interest</td><td>2,448</td><td>2,933</td><td></td></tr><tr><td>Income taxes</td><td>699</td><td>655</td><td></td></tr><tr><td>Other</td><td>10</td><td>10</td><td></td></tr><tr><td>Derivative liabilities</td><td>—</td><td>4,471</td><td></td></tr><tr><td>Asset retirement obligations</td><td>639</td><td>711</td><td></td></tr><tr><td>Long-term debt due within one year</td><td>127</td><td>126</td><td></td></tr><tr><td>Total current liabilities</td><td>32,886</td><td>38,016</td><td></td></tr><tr><td>DERIVATIVE LIABILITIES</td><td>203</td><td>358</td><td></td></tr><tr><td>LONG-TERM DEBT</td><td>196,965</td><td>246,041</td><td></td></tr><tr><td>ASSET RETIREMENT OBLIGATIONS</td><td>30,770</td><td>26,363</td><td></td></tr><tr><td>OTHER LONG-TERM LIABILITIES</td><td>10</td><td>10</td><td></td></tr><tr><td>COMMITMENTS AND CONTINGENCIES</td><td>—</td><td>900</td><td></td></tr><tr><td>STOCKHOLDERS&#x27; EQUITY (DEFICIT):</td><td></td><td></td><td></td></tr><tr><td>Common stock, $0.0001 par value, 100,000,000 shares authorized, 82,597,829 and 80,748,674 shares issued, 78,386,983 and 76,951,883 shares outstanding at December 31, 2010 and 2009, respectively</td><td>8</td><td>8</td><td></td></tr><tr><td>Additional paid-in capital</td><td>226,042</td><td>222,979</td><td></td></tr><tr><td>Treasury stock — 4,210,846 shares (3,796,791 shares at December 31, 2009) at cost</td><td>(6,976)</td><td>(6,189)</td><td></td></tr><tr><td>Accumulated deficit</td><td>(214,907)</td><td>(217,324)</td><td></td></tr><tr><td>Stockholders&#x27; equity (deficit)</td><td>4,167</td><td>(526)</td><td></td></tr><tr><td>Total liabilities and stockholders&#x27; equity (deficit)</td><td>$ 265,001</td><td>$ 311,162</td><td></td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



## RAM Energy Resources, Inc.

## Consolidated Statements of Operations
(In thousands, except share and per share amounts)

<table><tr><td rowspan="2"></td><td colspan="4">Years Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>REVENUES AND OTHER OPERATING INCOME:</td><td></td><td></td><td></td><td></td></tr><tr><td>Oil and natural gas sales</td><td>$ 76,563</td><td>$ 66,281</td><td>$ 117,036</td><td></td></tr><tr><td>Oil</td><td>20,265</td><td>20,818</td><td>47,884</td><td></td></tr><tr><td>Natural gas</td><td>14,156</td><td>11,068</td><td>17,770</td><td></td></tr><tr><td>NGLs</td><td>110,984</td><td>98,167</td><td>182,690</td><td></td></tr><tr><td>Total oil and natural gas sales</td><td>(5,193)</td><td>19,255</td><td>(10,472)</td><td></td></tr><tr><td>Realized gains (losses) on derivatives</td><td>6,386</td><td>(30,561)</td><td>33,257</td><td></td></tr><tr><td>Unrealized gains (losses) on derivatives</td><td>157</td><td>217</td><td>382</td><td></td></tr><tr><td>Other</td><td>112,334</td><td>87,078</td><td>205,857</td><td></td></tr><tr><td>Total revenues and other operating income</td><td></td><td></td><td></td><td></td></tr><tr><td>OPERATING EXPENSES:</td><td></td><td></td><td></td><td></td></tr><tr><td>Oil and natural gas production taxes</td><td>6,063</td><td>5,320</td><td>10,480</td><td></td></tr><tr><td>Oil and natural gas production expenses</td><td>33,891</td><td>37,455</td><td>38,030</td><td></td></tr><tr><td>Depreciation and amortization</td><td>27,225</td><td>31,650</td><td>46,512</td><td></td></tr><tr><td>Accretion expense</td><td>1,527</td><td>1,976</td><td>2,207</td><td></td></tr><tr><td>Impairment</td><td>—</td><td>47,613</td><td>269,886</td><td></td></tr><tr><td>Share-based compensation</td><td>3,110</td><td>2,179</td><td>2,563</td><td></td></tr><tr><td>General and administrative, overhead and other expenses, net of operator&#x27;s overhead fees</td><td>14,799</td><td>16,667</td><td>20,305</td><td></td></tr><tr><td>Total operating expenses</td><td>86,615</td><td>142,860</td><td>389,983</td><td></td></tr><tr><td>Operating income (loss)</td><td>25,719</td><td>(55,782)</td><td>(184,126)</td><td></td></tr><tr><td>OTHER INCOME (EXPENSE):</td><td></td><td></td><td></td><td></td></tr><tr><td>Interest expense</td><td>(22,655)</td><td>(18,590)</td><td>(24,182)</td><td></td></tr><tr><td>Interest income</td><td>27</td><td>82</td><td>208</td><td></td></tr><tr><td>Other income (expense)</td><td>321</td><td>(440)</td><td>(13,536)</td><td></td></tr><tr><td>INCOME (LOSS) BEFORE INCOME TAXES</td><td>3,412</td><td>(74,730)</td><td>(221,636)</td><td></td></tr><tr><td>INCOME TAX PROVISION (BENEFIT)</td><td>995</td><td>(16,347)</td><td>(91,683)</td><td></td></tr><tr><td>Net income (loss)</td><td>$ 2,417</td><td>$ (58,383)</td><td>$ (129,953)</td><td></td></tr><tr><td>BASIC INCOME (LOSS) PER SHARE</td><td>$ 0.03</td><td>$ (0.75)</td><td>$ (1.80)</td><td></td></tr><tr><td>BASIC WEIGHTED AVERAGE SHARES OUTSTANDING</td><td>78,426,179</td><td>77,601,057</td><td>72,234,750</td><td></td></tr><tr><td>DILUTED INCOME (LOSS) PER SHARE</td><td>$ 0.03</td><td>$ (0.75)</td><td>$ (1.80)</td><td></td></tr><tr><td>DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING</td><td>78,426,179</td><td>77,601,057</td><td>72,234,750</td><td></td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



## RAM Energy Resources, Inc.

## Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2010, 2009, and 2008
(In thousands, except share amounts)

<table><tr><td rowspan="2"></td><td colspan="3">Common Stock</td><td colspan="3">Additional Paid-In Capital</td><td colspan="3">Treasury Stock</td><td rowspan="2">Accumulated Deficit</td><td rowspan="2">Stockholders&#x27; Equity (Deficit)</td></tr><tr><td>Shares</td><td>Amount</td><td></td><td>Shares</td><td>Amount</td><td></td><td>Shares</td><td>Amount</td><td></td></tr><tr><td>BALANCE, January 1, 2008</td><td>60,842,836</td><td>$ 6</td><td>$ 131,625</td><td></td><td>889,666</td><td>$ (3,945)</td><td>$ (28,988)</td><td>$</td><td>98,698</td><td></td><td></td></tr><tr><td>Long term incentive plan grants</td><td>1,104,800</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Long term incentive plan forfeitures</td><td>(141,393)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net loss</td><td>—</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>(129,953)</td><td></td><td>(129,953)</td></tr><tr><td>Warrants exercised</td><td>17,617,331</td><td>2</td><td>86,612</td><td></td><td></td><td></td><td></td><td></td><td></td><td>86,614</td><td></td></tr><tr><td>Repurchase of stock</td><td>—</td><td></td><td></td><td></td><td>1,774</td><td>(82)</td><td></td><td></td><td></td><td>(82)</td><td></td></tr><tr><td>Share-based compensation</td><td>—</td><td></td><td>2,563</td><td></td><td></td><td></td><td></td><td></td><td></td><td>2,563</td><td></td></tr><tr><td>BALANCE, December 31, 2008</td><td>79,423,574</td><td>8</td><td>220,800</td><td>891,440</td><td>(4,027)</td><td></td><td>(158,941)</td><td></td><td>57,840</td><td></td><td></td></tr><tr><td>Long term incentive plan grants</td><td>1,343,000</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Long term incentive plan forfeitures</td><td>(17,900)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net loss</td><td>—</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>(58,383)</td><td></td><td>(58,383)</td></tr><tr><td>Repurchase of stock</td><td>—</td><td></td><td></td><td></td><td>21,541</td><td>(28)</td><td></td><td></td><td></td><td>(28)</td><td></td></tr><tr><td>Receipt of common stock for settlement of contingent receivable</td><td>—</td><td></td><td></td><td></td><td>2,883,810</td><td>(2,134)</td><td></td><td></td><td></td><td>(2,134)</td><td></td></tr><tr><td>Share-based compensation</td><td>—</td><td></td><td>2,179</td><td></td><td></td><td></td><td></td><td></td><td></td><td>2,179</td><td></td></tr><tr><td>BALANCE, December 31, 2009</td><td>80,748,674</td><td>8</td><td>222,979</td><td>3,796,791</td><td>(6,189)</td><td></td><td>(217,324)</td><td></td><td>(526)</td><td></td><td></td></tr><tr><td>Long term incentive plan grants</td><td>1,871,655</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Long term incentive plan forfeitures</td><td>(22,500)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>—</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>2,417</td><td></td><td>2,417</td></tr><tr><td>Repurchase of stock</td><td>—</td><td></td><td></td><td></td><td>414,055</td><td>(787)</td><td></td><td></td><td></td><td>(787)</td><td></td></tr><tr><td>Share-based compensation</td><td>—</td><td></td><td>3,063</td><td></td><td></td><td></td><td></td><td></td><td></td><td>3,063</td><td></td></tr><tr><td>BALANCE, December 31, 2010</td><td>82,597,829</td><td>$ 8</td><td>$ 226,042</td><td></td><td>4,210,846</td><td>$ (6,976)</td><td>$ (214,907)</td><td>$</td><td>4,167</td><td></td><td></td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



## RAM Energy Resources, Inc.
Consolidated Statement of Cash Flows
(In thousands)

<table><tr><td rowspan="2"></td><td colspan="3">Years Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>OPERATING ACTIVITIES:</td><td></td><td></td><td></td></tr><tr><td>Net income (loss)</td><td>$ 2,417</td><td>$ (58,383)</td><td>$ (129,953)</td></tr><tr><td>Adjustments to reconcile net income (loss) to net cash provided by operating activities-</td><td></td><td></td><td></td></tr><tr><td>Depreciation and amortization</td><td>27,225</td><td>31,650</td><td>46,512</td></tr><tr><td>Amortization of deferred loan costs</td><td>2,088</td><td>1,642</td><td>1,197</td></tr><tr><td>Non-cash interest</td><td>3,086</td><td>1,605</td><td>—</td></tr><tr><td>Accretion expense</td><td>1,527</td><td>1,976</td><td>2,207</td></tr><tr><td>Impairment</td><td>—</td><td>47,613</td><td>269,886</td></tr><tr><td>Unrealized (gain) loss on derivatives, net of premium amortization</td><td>(1,498)</td><td>32,147</td><td>(31,762)</td></tr><tr><td>Deferred income tax provision (benefit)</td><td>577</td><td>(16,865)</td><td>(92,595)</td></tr><tr><td>Other expense (income)</td><td>(574)</td><td>448</td><td>13,184</td></tr><tr><td>Share-based compensation</td><td>3,110</td><td>2,179</td><td>2,563</td></tr><tr><td>Loss (gain) on disposal of other property, equipment and subsidiary</td><td>(38)</td><td>35</td><td>180</td></tr><tr><td>Undistributed losses on investment</td><td>—</td><td>—</td><td>165</td></tr><tr><td>Changes in operating assets and liabilities, net of acquisitions-</td><td></td><td></td><td></td></tr><tr><td>Accounts receivable</td><td>3,704</td><td>(650)</td><td>4,168</td></tr><tr><td>Prepaid expenses, inventory and other assets</td><td>1,857</td><td>905</td><td>(4,283)</td></tr><tr><td>Derivative premiums</td><td>(4,468)</td><td>(1,781)</td><td>(2,288)</td></tr><tr><td>Accounts payable and proceeds due others</td><td>543</td><td>(10,641)</td><td>14,606</td></tr><tr><td>Accrued liabilities and other</td><td>(1,527)</td><td>(15,387)</td><td>(3,124)</td></tr><tr><td>Restricted cash</td><td>—</td><td>16,000</td><td>(16,000)</td></tr><tr><td>Income taxes payable</td><td>44</td><td>256</td><td>231</td></tr><tr><td>Asset retirement obligations</td><td>(198)</td><td>(377)</td><td>(440)</td></tr><tr><td>Total adjustments</td><td>35,458</td><td>90,755</td><td>204,407</td></tr><tr><td>Net cash provided by operating activities</td><td>37,875</td><td>32,372</td><td>74,454</td></tr><tr><td>INVESTING ACTIVITIES:</td><td></td><td></td><td></td></tr><tr><td>Payments for oil and natural gas properties and equipment</td><td>(33,535)</td><td>(29,871)</td><td>(84,723)</td></tr><tr><td>Proceeds from sales of oil and natural gas properties</td><td>49,366</td><td>6,120</td><td>2,950</td></tr><tr><td>Payments for other property and equipment</td><td>(865)</td><td>(604)</td><td>(1,275)</td></tr><tr><td>Proceeds from sales of other property and equipment</td><td>4</td><td>434</td><td>23</td></tr><tr><td>Proceeds from sale of subsidiary, net of cash</td><td>—</td><td>—</td><td>308</td></tr><tr><td>Acquisition of Ascent, net of cash acquired</td><td>—</td><td>—</td><td>35</td></tr><tr><td>Other investments</td><td>—</td><td>—</td><td>114</td></tr><tr><td>Net cash provided by (used in) investing activities</td><td>14,970</td><td>(23,921)</td><td>(82,568)</td></tr><tr><td>FINANCING ACTIVITIES:</td><td></td><td></td><td></td></tr><tr><td>Payments on long-term debt</td><td>(98,490)</td><td>(36,156)</td><td>(175,306)</td></tr><tr><td>Proceeds from borrowings on long-term debt</td><td>46,340</td><td>30,022</td><td>90,253</td></tr><tr><td>Payments for deferred loan costs</td><td>—</td><td>(2,324)</td><td>(74)</td></tr><tr><td>Stock repurchased</td><td>(787)</td><td>(28)</td><td>(82)</td></tr><tr><td>Warrants exercised</td><td>—</td><td>—</td><td>86,614</td></tr><tr><td>Net cash provided by (used in) financing activities</td><td>(52,937)</td><td>(8,486)</td><td>1,405</td></tr><tr><td>DECREASE IN CASH AND CASH EQUIVALENTS</td><td>(92)</td><td>(35)</td><td>(6,709)</td></tr><tr><td>CASH AND CASH EQUIVALENTS, beginning of year</td><td>129</td><td>164</td><td>6,873</td></tr><tr><td>CASH AND CASH EQUIVALENTS, end of year</td><td>$ 37</td><td>$ 129</td><td>$ 164</td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



RAM Energy Resources, Inc. 

Consolidated State ments of Cash Flows (continued)
(In thousands) 

<table><tr><td rowspan="2"></td><td colspan="4">Years Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>SUPPLEMENTAL CASH FLOW INFORMATION:</td><td></td><td></td><td></td></tr><tr><td>Cash paid for income taxes</td><td>$ 380</td><td>$ 303</td><td>$ 682</td></tr><tr><td>Cash paid for interest</td><td>$ 17,988</td><td>$ 13,428</td><td>$ 25,813</td></tr><tr><td>DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES:</td><td></td><td></td><td></td></tr><tr><td>Asset retirement obligations</td><td>$ 3,006</td><td>$ (4,724)</td><td>$ 787</td></tr><tr><td>Receipt of common stock for settlement of contingent receivable</td><td>$ —</td><td>$ 2,134</td><td>$ —</td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



# RAM Energy Resources, Inc.
Notes to consolidated financial statements
December 31, 2010 and 2009

## A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF PRESENTATION

## 1. Nature of Operations and Organization

On May 8, 2006, Tremisis Energy Acquisition Corporation, or Tremisis, acquired RAM Energy, Inc., or RAM Energy, through the merger of a subsidiary of Tremisis into RAM Energy. The merger was accomplished pursuant to the terms of an Agreement and Plan of Merger dated October 20, 2005, as amended, among Tremisis, its subsidiary, RAM Energy and the stockholders of RAM Energy. Upon completion of the merger, RAM Energy became a wholly-owned subsidiary of Tremisis and Tremisis changed its name to RAM Energy Resources, Inc. (the "Company").

Tremisis was formed in February 2004 to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an unidentified operating business in either the energy or the environmental industry. Prior to the consummation of the merger, Tremisis did not engage in an active trade or business. Prior to the merger, RAM Energy was a privately held, independent oil and natural gas company engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties and the production of oil and natural gas.

The merger was accounted for as a reverse acquisition. Because Tremisis had no active business operations prior to consummation of the merger, the merger has been accounted for as a recapitalization of RAM Energy and RAM Energy has been treated as the acquirer and continuing reporting entity for accounting purposes. The assets and liabilities of Tremisis have been stated at historical cost, and added to those of RAM Energy.

On November 29, 2007, the Company acquired Ascent Energy Inc., an acquisition that significantly increased the size of the Company.

The Company operates exclusively in the upstream segment of the oil and gas industry with activities including the drilling, completion, and operation of oil and gas wells. The Company conducts the majority of its operations in the states of Texas, Louisiana and Oklahoma.

## 2. Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

## 3. Properties and Equipment

The Company follows the full cost method of accounting for oil and natural gas operations. Under this method all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. As properties become evaluated, the related costs transfer to proved oil and natural gas properties using full cost accounting. All capitalized costs were included in the amortization base as of December 31, 2010 and 2009.

Under the full cost method the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% (the "Ceiling Limitation"). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, and certain production-related and ad valorem taxes are deducted.



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

In calculating future net revenues, prices and costs are held constant indefinitely, except for changes that are fixed and determinable by existing contracts. The net book value is compared to the Ceiling Limitation on a quarterly and yearly basis. The excess, if any, of the net book value above the Ceiling Limitation is charged to expense in the period in which it occurs and is not subsequently reinstated. At December 31, 2010, the net book value of the Company's oil and natural gas properties did not exceed the Ceiling Limitation. At March 31, 2009, the net book value of the Company's oil and natural gas properties exceeded the Ceiling Limitation resulting in a reduction in the carrying value of the Company's oil and natural gas properties of $47.6 million. The after-tax effect of this reduction was $30.3 million. At December 31, 2009, the net book value of the Company's oil and natural gas properties did not exceed the Ceiling Limitation. At December 31, 2008, the net book value of the Company's oil and natural gas properties exceeded the Ceiling Limitation resulting in a reduction in the carrying value of the Company's oil and natural gas properties by $269.4 million. The after-tax effect of this reduction in 2008 was $171.6 million.

Additionally, during the Company’s assessment of its materials and supplies inventory it determined the book value of inventory exceeded the market value of the materials and supplies inventory at December 31, 2008. The assessment resulted in an impairment of $0.5 million for the year ended December 31, 2008.

The Company has capitalized internal costs of approximately $3.1 million, $3.2 million and $5.0 million for the years ended December 31, 2010, 2009, and 2008, respectively. Such capitalized costs include salaries and related benefits of individuals directly involved in the Company's acquisition, exploration and development activities based on the percentage of their time devoted to such activities.

Other property and equipment consists principally of furniture and equipment and leasehold improvements. Other property and equipment and related accumulated depreciation and amortization are relieved upon retirement or sale and the gain or loss is included in operations. Renewals and replacements that extend the useful life of property and equipment are treated as capital additions. Accumulated depreciation of other property and equipment at December 31, 2010 and 2009 is approximately $6.7 million and $5.8 million, respectively.

In accordance with authoritative guidance on accounting for the impairment or disposal of long-lived assets, as set forth in Topic 360 of the Accounting Standards Codification (the "Codification") implemented by the Financial Accounting Standards Board (the "FASB"), the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the asset.

## 4. Depreciation and Amortization

All capitalized costs of oil and natural gas properties and equipment, including the estimated future costs to develop proved reserves, are amortized using the unit-of-production method based on total proved reserves. Depreciation of other equipment is computed on the straight-line method over the estimated useful lives of the assets, which range from three to twenty years. Amortization of leasehold improvements is computed based on the straight-line method over the term of the associated lease or estimated useful life, whichever is shorter.

## 5. Natural Gas Sales and Gas Imbalances

The Company follows the entitlement method of accounting for natural gas sales, recognizing as revenues only its net interest share of all production sold. Any amount attributable to the sale of production in excess of or less than the Company's net interest is recorded as a gas balancing asset or liability. At December 31, 2010 and 2009, the Company's gas imbalances were immaterial.



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

## 6. Cash Equivalents

All highly liquid unrestricted investments with a maturity of three months or less when purchased are considered to be cash equivalents.

## 7. Credit and Market Risk

The Company sells oil and natural gas to various customers and participates with other parties in the drilling, completion and operation of oil and natural gas wells. Joint interest and oil and natural gas sales receivables related to these operations are generally unsecured. In 2010, 2009, and 2008 approximately 61%, 61% and 53%, respectively, of total revenues were to one customer. The Company provides an allowance for doubtful accounts for certain purchasers and certain joint interest owners' receivable balances when the Company believes the receivable balance may not be collected. Accounts receivable are presented net of the related allowance for doubtful accounts.

In 2010 and 2009 the Company had cash deposits in certain banks that at times exceeded the maximum insured by the Federal Deposit Insurance Corporation. The Company monitors the financial condition of the banks and has experienced no losses on these accounts.

## 8. Deferred Loan Costs

Deferred loan costs are stated at cost net of amortization computed using the straight-line method over the term of the related loan agreement, which approximates the interest method.

In March 2011, the Company entered into new credit facilities, which replaced the $500.0 million facility in place at December 31, 2010. See Note C-2. In accordance with Topic 470 of the Codification, the Company will be required to expense $1.3 million of existing deferred loan costs during the first quarter of 2011 upon retirement of the existing debt. The remaining deferred loan costs and the deferred loan costs incurred to issue the new facilities will be amortized over the term of the related new loan.

## 9. General and Administrative Expense

The Company receives fees for the operation of jointly owned oil and natural gas properties and records such reimbursements as reductions of general and administrative expense. Such fees totaled approximately $0.6 million, $0.6 million and $0.5 million for the years ended December 31, 2010, 2009, and 2008, respectively.

## 10. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas reserves, amortization relating to oil and natural gas properties, asset retirement obligations, contingent litigation settlements, derivative instrument valuations and income taxes. The Company evaluates its estimates and assumptions on a regular basis. Estimates are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates used in preparation of the Company's financial statements. In addition, alternatives can exist among various accounting methods. In such cases, the choice of accounting method can have a significant impact on reported amounts.



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

## 11. Oil and Natural Gas Reserves Estimates

Independent petroleum and geological engineers prepare estimates of the Company’s oil and natural gas reserves. Proved reserves, estimated future net revenues and the present value of the Company’s reserves are estimated based upon a combination of historical data and estimates of future activity. Consistent with Securities and Exchange Commission’s (“SEC”) requirements, the Company has based its estimate of proved reserves on spot prices on the date of the estimate for periods prior to December 31, 2009. However, in accordance with the SEC’s Release No. 33-8995, “Modernization of Oil and Gas Reporting,” and Topic 932 of the Codification, at December 31, 2009 and for subsequent periods, the Company calculates its estimate of proved reserves using a twelve month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each period within the twelve-month period prior to the end of the reporting period. The reserve estimates are used in the assessment of the Company’s Ceiling Limitation and in calculating depletion, depreciation and amortization. Significant assumptions are required in the valuation of proved oil and natural gas reserves which, as described herein, may affect the amount at which oil and natural gas properties are recorded. Actual results could differ materially from these estimates.

## 12. Fair Value of Financial Instruments

Cash and cash equivalents, trade receivables and payables, and installment notes: The carrying amounts reported on the consolidated balance sheets approximate fair value due to the short-term nature of these instruments.

Credit facilities: The carrying amount reported on the consolidated balance sheets approximates fair value because this debt instrument carries a variable interest rate based on market interest rates.

Derivative contracts: The carrying amount reported on the consolidated balance sheets is the estimated fair value of the Company’s derivative instruments. See Notes I and J.

## 13. Reclassifications

Certain reclassifications of previously reported amounts for 2009 and 2008 have been made to conform to the 2010 presentation. These reclassifications had no effect on net income or loss or cash flows from operating, investing or financing activities.

## 14. Derivatives

The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at fair value in accordance with authoritative guidance as set forth in Topic 815 of the Codification.

The Company entered into numerous derivative contracts to reduce the impact of oil and natural gas price fluctuations and as required by the terms of its credit facilities (see Notes C and J). The Company did not designate these transactions as hedges. Accordingly, all gains and losses on the derivative instruments during 2010, 2009 and 2008 have been recorded in the statements of operations.

## 15. Income (Loss) per Common Share

Basic and diluted income (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the period. A reconciliation of net income (loss) and



## RAM Energy Resources, Inc.

## Notes to consolidated financial statements — (Continued)

weighted average shares used in computing basic and diluted net income (loss) per share are as follows for the years ended December 31 (in thousands, except per share amounts):

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Net income (loss)</td><td>$ 2,417</td><td>$ (58,383)</td><td>$ (129,953)</td></tr><tr><td>Weighted average shares — basic</td><td>78,426,179</td><td>77,601,057</td><td>72,234,750</td></tr><tr><td>Dilutive effect of warrants</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Weighted average shares — dilutive</td><td>78,426,179</td><td>77,601,057</td><td>72,234,750</td></tr><tr><td>Basic income (loss) per share</td><td>$ 0.03</td><td>$ (0.75)</td><td>$ (1.80)</td></tr><tr><td>Diluted income (loss) per share</td><td>$ 0.03</td><td>$ (0.75)</td><td>$ (1.80)</td></tr></table>

## 16. Asset Retirement Obligations

Authoritative guidance, set forth in Topic 410 of the Codification, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The authoritative guidance requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. The Company determines its asset retirement obligation on its oil and gas properties by calculating the present value of the estimated cash flows related to the estimated liability. Periodic accretion of the discount of the estimated liability on the Company's oil and natural gas properties is recorded in the income statement.

The Company recorded the following activity related to the asset retirement obligations for the years ended December 31, 2010 and 2009 (in thousands):

<table><tr><td></td><td>2010</td><td>2009</td></tr><tr><td>Liability for asset retirement obligations, beginning of year</td><td>$ 27,074</td><td>$ 30,199</td></tr><tr><td>Accretion expense</td><td>1,527</td><td>1,976</td></tr><tr><td>Change in estimates</td><td>3,475</td><td>(4,498)</td></tr><tr><td>Obligations for wells acquired and wells drilled</td><td>191</td><td>864</td></tr><tr><td>Obligations for wells sold or retired</td><td>(858)</td><td>(1,467)</td></tr><tr><td>Liability for asset retirement obligations, end of year</td><td>31,409</td><td>27,074</td></tr><tr><td>Less: current asset retirement obligation</td><td>639</td><td>711</td></tr><tr><td>Long-term asset retirement obligations</td><td>$ 30,770</td><td>$ 26,363</td></tr></table>

## 17. Income Taxes

The Company accounts for income taxes under the liability method as prescribed by authoritative guidance set forth in Topic 740 of the Codification. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the basis differences reverse. The realizability of deferred tax assets are evaluated quarterly and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in the Company's tax returns.



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

## 18. Uncertain Tax Positions

The Company follows guidance in Topic 740 of the Codification for its accounting for uncertain tax positions. Topic 740 prescribes guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. To recognize a tax position, the Company determines whether it is more-likely-than-not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based solely on the technical merits of the position. A tax position that meets the more-likely-than-not threshold is measured to determine the amount of benefit to be recognized in the financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

A rollforward of activity from January 1, 2008 follows (in thousands):

<table><tr><td colspan="2">Uncertain Tax Positions:</td></tr><tr><td>Balance as of December 31, 2007</td><td>$ 6,855</td></tr><tr><td>Additions for tax positions of prior periods</td><td>127</td></tr><tr><td>Decreases in tax positions in prior period</td><td>—</td></tr><tr><td>Settlements</td><td>—</td></tr><tr><td>Additions based on tax positions related to the current year</td><td>—</td></tr><tr><td>Lapse of statute of limitations</td><td>(6,982)</td></tr><tr><td>Balance as of December 31, 2008</td><td>$ —</td></tr><tr><td>Additions for tax positions of prior periods</td><td>—</td></tr><tr><td>Decreases in tax positions in prior period</td><td>—</td></tr><tr><td>Settlements</td><td>—</td></tr><tr><td>Additions based on tax positions related to the current year</td><td>—</td></tr><tr><td>Lapse of statute of limitations</td><td>—</td></tr><tr><td>Balance as of December 31, 2009</td><td>$ —</td></tr><tr><td>Additions for tax positions of prior periods</td><td>—</td></tr><tr><td>Decreases in tax positions in prior period</td><td>—</td></tr><tr><td>Settlements</td><td>—</td></tr><tr><td>Additions based on tax positions related to the current year</td><td>—</td></tr><tr><td>Lapse of statute of limitations</td><td>—</td></tr><tr><td>Balance as of December 31, 2010</td><td>$ —</td></tr></table>

The Company has no liability for unrecognized tax benefits recorded as of December 31, 2010 and 2009, and there was no change to the Company's unrecognized tax benefits during the year ended December 31, 2010. Accordingly, there is no amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate and there is no amount of interest or penalties currently recognized in the statement of operations or statement of financial position as of December 31, 2010. In addition, the Company does not believe that there are any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months. The amount of interest related to unrecognized tax benefits which was decreased due to expirations of applicable statutes of limitations was $0.1 million during the year ended December 31, 2008. The Company recognizes related interest and penalties as a component of income tax expense.

Tax years open for audit by federal tax authorities and for state tax authorities as of December 31, 2010 are the years ended December 31, 2007, 2008, 2009 and 2010. Tax years ending prior to 2007 are open for



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

audit to the extent that net operating losses generated in those years are being carried forward or utilized in an open year.

## 19. New Accounting Pronouncements

On December 31, 2008, the SEC issued Release No. 33-8995, "Modernization of Oil and Gas Reporting," which revises disclosure requirements for oil and gas companies. In addition to changing the definition and disclosure requirements for oil and gas reserves, the new rules change the requirements for determining oil and gas reserve quantities. These rules permit the use of new technologies to determine proved reserves under certain criteria and allow companies to disclose their probable and possible reserves. The new rules also require companies to report the independence and qualifications of their reserves preparer or auditor and file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit. The new rules also require that oil and gas reserves be reported and the full cost ceiling limitation be calculated using a twelve-month average price rather than period-end prices. The new rules are effective for annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. Additionally, the FASB issued authoritative guidance on oil and gas reserve estimation and disclosures, as set forth in Topic 932 of the Codification to align with the requirements of the SEC's revised rules. The Company implemented the new disclosure requirements and the requirements for estimating reserves related to the Company's oil and natural gas operations effective December 31, 2009 as disclosed in Note M.

In January 2009, the FASB issued guidance on fair value disclosures to enhance disclosures surrounding the transfers of assets in and out of Level 1 and Level 2, to present more detail surrounding asset activity for Level 3 assets and to clarify existing disclosure requirements. The new guidance is set forth in Topic 820 of the Codification and is effective for the Company beginning January 1, 2010. Additional disclosure about purchases, sales, issuances, and settlement in the roll forward of activity in Level 3 fair value measurements is effective beginning January 1, 2011. Adoption of the guidance on January 1, 2010 did not, and adoption of the guidance on January 1, 2011 will not, have any impact the Company's financial position or statement of operations.

In February 2010, the FASB issued an update to authoritative guidance, as set forth in Topic 855 of the Codification, relating to subsequent events, which was effective upon the issuance of the update. The Company adopted this authoritative guidance during the first quarter of 2010. The update removes the requirement for U.S. Securities and Exchange Commission filers to disclose the date through which subsequent events have been evaluated in both issued and revised financial statements. The adoption of this update did not impact the Company's financial position or statement of operations other than removing the disclosure.

In December 2010, the FASB issued an update to authoritative guidance, as set forth in Topic 805 of the Codification, relating to business combinations. This update provides clarification requiring public companies that have completed material acquisitions to disclose the revenue and earnings of the combined business as if the acquisition took place at the beginning of the comparable prior annual reporting period, and also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The Company will be required to apply this guidance prospectively for business combinations for which the acquisition date is on or after January 1, 2011. The Company does not expect the adoption of this new guidance to have a material impact on its financial position or statement of operations.

## 20. Subsequent Events

In March 2011, the Company entered into new credit facilities. The facilities, which replaced the Company's previous $500.0 million facility, include a $250.0 million first lien revolving credit facility with an initial $150.0 million borrowing base and a $75.0 million second lien term loan facility. See Note C for



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

additional discussion on the new credit facilities. See Note A-8 for additional discussion on treatment of deferred loan costs related to the refinancing.

The Company evaluates events and transactions after the balance sheet date but before the financial statements are filed with the U.S. Securities and Exchange Commission. No events other than those described in these notes, have occurred that have required disclosure.

## B — SIGNIFICANT DIVESTITURES

## 1. North Texas Barnett Shale & Boonsville Divestitures

On December 8, 2010, the Company closed the sale on all of its oil and natural gas properties and related assets located in the Boonsville and Newark East fields of Jack and Wise Counties in Texas to Milagro Producing, LLC for $43.7 million (prior to closing adjustments). The effective date under the agreement was October 1, 2010. In accordance with the full cost method of accounting, the Company did not record a gain or loss on the sale. The full cost pool at December 31, 2010 was reduced by the net proceeds, including closing adjustments, of $41.0 million. Proceeds of $16.0 million were used to reduce the outstanding balance on the Company's revolving credit facility and the remaining net proceeds were used to reduce the outstanding balance on the Company's term loan. See Note C.

## 2. Eastern Oklahoma Divestiture

On December 30, 2010, the Company closed the sale on certain non-operated natural gas properties located in eastern Oklahoma for $8.0 million (prior to closing adjustments). The effective date under the agreement was December 1, 2010. The full cost pool at December 31, 2010 was reduced by the net proceeds, including closing adjustments, of $7.8 million in accordance with the full cost method of accounting. The proceeds were used to reduce outstanding borrowings under the Company's revolving credit facility. See Note C.

## C — LONG-TERM DEBT

Long-term debt at December 31 consists of the following (in thousands):

<table><tr><td></td><td>2010</td><td>2009</td></tr><tr><td>Credit facility</td><td>$ 196,521</td><td>$ 245,730</td></tr><tr><td>Accrued payment-in-kind interest</td><td>221</td><td>262</td></tr><tr><td>Installment loan agreements</td><td>350</td><td>175</td></tr><tr><td></td><td>197,092</td><td>246,167</td></tr><tr><td>Less amount due within one year</td><td>127</td><td>126</td></tr><tr><td></td><td>$ 196,965</td><td>$ 246,041</td></tr><tr><td colspan="3">The amounts of required principal payments as of December 31, 2010, are as follows (in thousands):</td></tr><tr><td>2011</td><td></td><td>$ 127</td></tr><tr><td>2012</td><td></td><td>104</td></tr><tr><td>2013</td><td></td><td>63</td></tr><tr><td>2014</td><td></td><td>34</td></tr><tr><td>2015</td><td></td><td>22</td></tr><tr><td>2016</td><td></td><td>196,742</td></tr><tr><td></td><td></td><td>$ 197,092</td></tr></table>



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

## 1. Senior Notes

In February 1998, the Company completed the sale of $115.0 million of 11.5% Senior Notes due 2008 in a public offering of which $28.4 million remained outstanding at December 31, 2007. These notes were retired at maturity on February 15, 2008 using proceeds from the Company's revolving credit facility.

## 2. Credit Facilities

Credit Facilities. In November 2007, in conjunction with the Ascent acquisition, the Company entered into a $500.0 million credit facility with Guggenheim Corporate Funding, LLC, for itself and on behalf of other institutional lenders. The facility included a $250.0 million revolving credit facility and a $200.0 million term loan facility and an additional $50.0 million available under the term loan as requested by the Company and approved by the lenders. The initial amount of the $200.0 million term loan was advanced at closing. The borrowing base under the revolving credit facility initially was set at $175.0 million, a portion of which was advanced at the closing of the Ascent acquisition. Borrowings under the facility were used to refinance RAM Energy's existing indebtedness, fund the cash requirements in connection with the closing of the Ascent acquisition, and for working capital and other general corporate purposes. Funds advanced under the revolving credit facility initially bore interest at LIBOR plus a margin ranging from 1.25% to 2.0% based on a percentage of usage. The term loan provided for payments of interest only during its term, with the initial interest rate being LIBOR plus 7.5%. Effective September 30, 2010, the borrowing base was redetermined at $165.0 million based on the value of the Company's proved reserves at June 30, 2010. As a result of the reduction in collateral, represented by the North Texas Barnett Shale and Boonsville asset sale, the Company's borrowing base of $165.0 million was reset at $145.0 million as of December 31, 2010. The Eastern Oklahoma asset sale had no impact on the Company's borrowing base. See Note B.

Advances under the facility were secured by liens on substantially all properties and assets of the Company and its subsidiaries. The loan agreement contained representations, warranties and covenants customary in transactions of this nature. During May 2008, the Company reduced its outstanding balance on the term facility by $86.6 million of net proceeds, which it realized upon the exercise of 17,617,331 warrants. See Note F.

On June 26, 2009, the Company entered into the Second Amendment to the credit facility. The Second Amendment amended certain definitions and certain financial and negative covenant terms providing greater flexibility for the Company through the remaining term of the facility. Additionally, the Second Amendment increased the interest rates applicable to borrowings under both the revolver and term loans. Advances under the revolver bore interest at LIBOR, with a minimum LIBOR rate, or "floor," of 1.5%, plus a margin ranging from 2.25% to 3.0% based on a percentage of usage. The term loan bore interest at LIBOR, also with a floor of 1.5%, plus a margin of 8.5%, and an additional 2.75% of payment-in-kind interest that was added to the term loan principal balance on a monthly basis and paid at maturity. The Company was in compliance with all of its covenants in the credit facility at December 31, 2010. At December 31, 2010, $116.5 million was outstanding under the revolving credit facility and $80.2 million was outstanding under the term facility, including $0.2 million accrued payment-in-kind interest.

In March 2011, the Company entered into new credit facilities. The new facilities, which replaced the Company's previous facility, include a $250.0 million first lien revolving credit facility and a $75.0 million second lien term loan facility. SunTrust Bank is the administrative agent for the revolving facility, and Guggenheim Corporate Funding, LLC is the agent for the term loan facility. The initial borrowing base under the revolving credit facility at the closing is $150.0 million. Funds advanced under the revolving credit facility may be paid down and re-borrowed during the five-year term of the revolver, and initially bear interest at LIBOR plus a margin ranging from 2.5% to 3.25% based on a percentage of usage. The term loan portion of the Company's credit facility provides for payments of interest only during its 5.5-year term, with the initial interest rate being LIBOR plus 9.0% with a 2.0% LIBOR floor, or if any period we elect to pay a portion of



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

the interest under our term loan “in kind,” then the interest rate will be LIBOR plus 10.0% with a 2.0% LIBOR floor, and with 7.0% of the interest amount paid in cash and the remaining 3.0% paid in kind by being added to principal. Due to refinancing of the Company’s outstanding debt prior to the issuance of the financial statements, the current portion of existing debt at December 31, 2010 is considered long-term.

The new credit facilities contain representations, warranties and covenants customary in transactions of this nature, including restrictions on the payment of dividends on our capital stock and financial covenants relating to current ratio, minimum interest coverage ratio, maximum leverage ratio and a required ratio of asset value to total indebtedness. The Company is required to maintain commodity hedges on a rolling basis for the first 12 months out with respect to not less than 60%, but not more than 85%, and for the next 18 months out with respect to not less than 50% but not more than 85%, of projected quarterly production volumes, until the leverage ratio is less than or equal to 1.5 to 1.0.

## D — LEASES

The Company leases office space and certain equipment under non-cancelable operating lease agreements that expire on various dates through 2014. Approximate future minimum lease payments for operating leases at December 31, 2010 are as follows (in thousands):

<table><tr><td colspan="2">Year Ending December 31,</td></tr><tr><td>2011</td><td>$ 1,189</td></tr><tr><td>2012</td><td>1,165</td></tr><tr><td>2013</td><td>1,048</td></tr><tr><td>2014</td><td>58</td></tr><tr><td>2015</td><td>2</td></tr><tr><td></td><td>$ 3,462</td></tr></table>

Rent expense of approximately $1.3 million, $1.3 million, and $1.2 million was incurred under operating leases in the years ended December 31, 2010, 2009, and 2008, respectively. In 2010, the Company sub-leased a portion of its leased office space for the duration of the operating lease agreement. Approximate future minimum lease receipts for the sub-lease at December 31, 2010 are $0.1 million, $0.2 million and $0.1 million for 2011, 2012 and 2013, respectively.

## E — DEFINED CONTRIBUTION PLAN

The Company sponsors a 401(k) defined contribution plan for the benefit of substantially all of its employees. The plan allows eligible employees to contribute up to 100% of their annual compensation, not to exceed the maximum amount permitted by IRS regulations. Employer contributions to the plan are discretionary. The Company provided matching contributions to the plan in 2010, 2009, and 2008 of $0.7 million, $0.7 million and $0.6 million, respectively.

## F — CAPITAL STOCK

On May 8, 2006, the shareholders of the Company approved the Company’s 2006 Long-Term Incentive Plan (the “Plan”), effective upon the consummation of the Company’s acquisition by merger of RAM Energy. Under the terms of the Plan, at such time as restricted stock awards vest, the grantee has the right to request the Company to repurchase, at the closing market price of the Company’s common stock as of the vesting date, the number of vested shares necessary to satisfy minimum income tax withholding requirements. Pursuant to this provision, since inception of the Plan in 2006, the Company has repurchased, upon vesting, a total of 587,861 shares of common stock at an average price of $2.84 per share. The shares purchased by the Company are held as treasury shares.



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

On February 13, 2007, the Company completed a public offering in which it issued 7,500,000 shares of its common stock, priced at $4.00 per share. Net proceeds of the offering were $27.4 million and were used to provide additional working capital for general corporate purposes, including acquisition, development, exploitation and exploration of oil and natural gas properties, and reduction of indebtedness.

On November 29, 2007, the Company acquired Ascent in exchange for the issuance of 18,783,344 shares of common stock, warrants to purchase 6,200,000 shares of common stock at an exercise price of $5.00 per share, exercisable on or prior to May 11, 2008, and $202.8 million in cash, including direct acquisition costs.

The Company had outstanding warrants to purchase 18,848,800 shares of its common stock (including the warrants issued in connection with the Ascent acquisition) at an exercise price of $5.00 per share, of which 17,617,331 were exercised prior to the May 12, 2008 expiration date, resulting in net proceeds to the Company of $86.6 million. Proceeds of the exercise were used to pay down the term loan portion of the Company's credit facility. The remaining 1,231,469 warrants expired and are no longer outstanding.

The Company had outstanding options to purchase up to 275,000 units at any time on or prior to May 11, 2009 at an exercise price of $9.90 per unit, with each unit consisting of one share of the Company's common stock and two warrants. All of the unit purchase options expired unexercised.

## G — INCOME TAXES

The (provision) benefit for income taxes is comprised of (in thousands):

<table><tr><td rowspan="2"></td><td colspan="4">Years Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Current</td><td>$ (418)</td><td>$ (518)</td><td>$ (912)</td><td></td></tr><tr><td>Deferred</td><td>(577)</td><td>16,865</td><td>92,595</td><td></td></tr><tr><td>(Provision) benefit for income tax</td><td>$ (995)</td><td>$ 16,347</td><td>$ 91,683</td><td></td></tr></table>

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The significant differences between pre-tax book income and taxable book income relate to non-deductible personal expenses, meals and entertainment expenses, state income taxes, change in valuation allowance, Section 382 net operating loss limitations and previously unrecognized tax benefits.



## RAM Energy Resources, Inc.

## Notes to consolidated financial statements — (Continued)

The sources and tax effects of the differences are as follows (in thousands):

<table><tr><td rowspan="2"></td><td colspan="3">Years Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Income tax benefit (expense) at the federal statutory rate (34%)</td><td>$ (1,160)</td><td>$ 25,408</td><td>$ 75,356</td></tr><tr><td>State income tax benefit, net of federal benefit</td><td>(124)</td><td>(508)</td><td>6,033</td></tr><tr><td>Meals and entertainment expense</td><td>(25)</td><td>(27)</td><td>(102)</td></tr><tr><td>Non-deductible dues</td><td>(69)</td><td>12</td><td>(33)</td></tr><tr><td>Previously unrecognized tax benefits</td><td>—</td><td>—</td><td>11,613</td></tr><tr><td>Interest on previously unrecognized tax benefits</td><td>—</td><td>—</td><td>(127)</td></tr><tr><td>Reduction in deferred tax asset for Section 382 net operating loss limitations</td><td>(5,731)</td><td>—</td><td>—</td></tr><tr><td>Change in valuation allowance</td><td>6,572</td><td>(7,433)</td><td>(2,234)</td></tr><tr><td>Share-based compensation</td><td>(393)</td><td>(559)</td><td>(119)</td></tr><tr><td>Other</td><td>(65)</td><td>(546)</td><td>1,296</td></tr><tr><td>Income tax benefit (provision)</td><td>$ (995)</td><td>$ 16,347</td><td>$ 91,683</td></tr></table>

The Company’s income tax benefit was computed based on the federal statutory rate and the average state statutory rates, net of the related federal benefit. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.



## RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

<table><tr><td rowspan="2"></td><td colspan="2">December 31,</td></tr><tr><td>2010</td><td>2009</td></tr><tr><td>Deferred tax assets:</td><td></td><td></td></tr><tr><td>Current:</td><td></td><td></td></tr><tr><td>Derivative liabilities</td><td>$ 2,298</td><td>$ 2,226</td></tr><tr><td>Accrued expenses and other</td><td>1,873</td><td>2,675</td></tr><tr><td>Total current deferred tax assets</td><td>$ 4,171</td><td>$ 4,901</td></tr><tr><td>Valuation allowance</td><td>(445)</td><td>(1,138)</td></tr><tr><td>Net current deferred tax assets</td><td>$ 3,726</td><td>$ 3,763</td></tr><tr><td>Noncurrent:</td><td></td><td></td></tr><tr><td>Depreciable/depletable property, plant and equipment</td><td>$ 13,268</td><td>$ 3,024</td></tr><tr><td>Net operating loss carryforward</td><td>20,254</td><td>36,644</td></tr><tr><td>Accrued liabilities and other</td><td>1,381</td><td>1,688</td></tr><tr><td>Total noncurrent deferred tax assets</td><td>$ 34,903</td><td>$ 41,356</td></tr><tr><td>Valuation allowance</td><td>(3,723)</td><td>(9,603)</td></tr><tr><td>Net noncurrent deferred tax assets</td><td>$ 31,180</td><td>$ 31,753</td></tr><tr><td>Deferred tax liabilities:</td><td></td><td></td></tr><tr><td>Current:</td><td></td><td></td></tr><tr><td>Prepaid expenses and other</td><td>$ (200)</td><td>$ (232)</td></tr><tr><td>Total current deferred tax liability</td><td>(200)</td><td>(232)</td></tr><tr><td>Noncurrent:</td><td></td><td></td></tr><tr><td>Depreciable/depletable property, plant and equipment</td><td>$ —</td><td>$ —</td></tr><tr><td>Other</td><td>(179)</td><td>(180)</td></tr><tr><td>Total noncurrent deferred tax liabilities</td><td>$ (179)</td><td>$ (180)</td></tr><tr><td>Net deferred tax liability</td><td>$ (379)</td><td>$ (412)</td></tr><tr><td>Net deferred tax asset</td><td>$ 34,527</td><td>$ 35,104</td></tr></table>

As of December 31, 2010, the Company has net operating loss carryforwards of approximately $129.1 million for federal income tax reporting purposes, the majority of which were an inherited attribute from the Ascent acquisition during 2007. If not used, the net operating losses will generally expire between 2020 and 2029. The majority of these net operating loss carryforwards are subject to the ownership change limitation provisions of Section 382 of the Internal Revenue Code. Based on the value of Ascent at the time of the acquisition, and the annual limitation on utilization of losses imposed by Section 382, and other increases for anticipated recognized built-in gains, it is estimated that approximately $82.6 million of these net operating losses will expire without being utilized; accordingly, no deferred tax asset has been established for the amount of net operating losses that are not expected to be utilized under the applicable provisions of the tax law prior to their expiration. In addition, the Company has generated net operating loss carryforwards for state income tax purposes, which the Company believes will more likely than not be realized during the relevant carryforward periods; however, such amounts have not been separately disclosed in the financial statements as the Company does not believe that these net operating losses are material to the amounts presented herein.



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

A valuation allowance has been established with respect to the portion of the deferred tax asset associated with its net operating losses for which the Company currently does not reasonably believe under the deferred tax asset realization criteria set forth in Topic 740 that it will more likely than not realize a benefit in future periods. During the year ended December 31, 2010, the Company recorded a decrease in the valuation allowance of $6.6 million.

## H — COMMITMENTS AND CONTINGENCIES

The Company is involved in legal proceedings and litigation in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Company’s financial position or results of operations.

## I — FAIR VALUE MEASUREMENTS

The Company measures the fair value of its derivative instruments according to the fair value hierarchy, as set forth in Topic 820 of the Codification. Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (“Level 1”) and the lowest priority to unobservable inputs (“Level 3”). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The fair value measurement of the Company’s net derivative assets as of December 31, 2010 was $1.1 million and of its net derivative liabilities as of December 31, 2009 was $4.8 million, based on Level 2 criteria. See Note J.

At December 31, 2010, the carrying value of cash, receivables and payables reflected in the Company’s consolidated financial statements approximates fair value due to their short-term nature. Additionally, the carrying value of the Company’s long-term debt under the credit facility approximates fair value because the credit facility carries a variable interest rate based on market interest rates. See Note C for discussion of long-term debt.

## J — DERIVATIVE CONTRACTS

The Company periodically utilizes various hedging strategies to manage the price received for a portion of its future oil and natural gas production to reduce exposure to fluctuations in oil and natural gas prices and to achieve a more predictable cash flow.

During 2010, 2009 and 2008, the Company entered into numerous derivative contracts to manage the impact of oil and natural gas price fluctuations and as required by the terms of its credit facility.

The Company did not designate these transactions as hedges. Accordingly, all gains and losses on the derivative instruments during 2010, 2009 and 2008 have been recorded in the statements of operations.

The Company’s derivative positions at December 31, 2010, consisting of put/call “collars” and put options, also called “bare floors” as they provide a floor price without a corresponding ceiling, are shown in the following table:



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

## CONSOLIDATED STATEMENTS OF OPERATIONS

<table><tr><td rowspan="2">Location</td><td colspan="3">Years Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Revenue — Unrealized gains (losses) on derivatives</td><td>$ 6,386</td><td>($30,561)</td><td>$ 33,257</td></tr><tr><td>Revenue — Realized gains (losses) on derivatives</td><td>($5,193)</td><td>$ 19,255</td><td>($10,472)</td></tr></table>

## K — LIQUIDITY

As of December 31, 2010, the Company had an accumulated deficit of $214.9 million and a working capital deficit of $12.4 million. Management believes that borrowings currently available to the Company under the Company's credit facilities and anticipated cash flows from operations will be sufficient to satisfy its currently expected capital expenditures, working capital, and debt service obligations through 2011. The actual amount and timing of future capital requirements may differ materially from estimates as a result of, among other things, changes in product pricing and regulatory, technological and competitive developments. Sources of additional financing may include commercial bank borrowings, vendor financing and the sale of oil and natural gas properties or equity or debt securities. Management cannot assure that any such financing will be available on acceptable terms or at all.

## L — SHARE-BASED COMPENSATION

The Company accounts for share-based payment accruals under authoritative guidance on stock compensation, as set forth in Topic 718 of the Codification. The guidance requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

On May 8, 2006, the Company’s stockholders approved its 2006 Long-Term Incentive Plan (the “Plan”). The Company reserved a maximum of 2,400,000 shares of its common stock for issuances under the Plan. The Plan includes a provision that, at the request of a grantee, the Company may repurchase shares to satisfy the grantee’s federal and state income tax and other payroll withholding requirements. All repurchased shares will be held by the Company as treasury stock. On May 8, 2008, the Plan was amended to increase the maximum authorized number of shares to be issued under the Plan from 2,400,000 to 6,000,000. On May 3, 2010, the Plan was amended to increase the maximum authorized number of shares to be issued under the Plan from 6,000,000 to 7,400,000. As of December 31, 2010, a maximum of 1,960,271 shares of common stock remained reserved for issuance under the Plan.

The number of shares repurchased and their weighted average prices for the three year period ended December 31, 2010 were as follows:

<table><tr><td rowspan="2">Year Ended</td><td colspan="2">Shares Repurchased</td></tr><tr><td>Number</td><td>Weighted Average Closing Price</td></tr><tr><td>December 31, 2008</td><td>20,549</td><td>$ 3.98</td></tr><tr><td>December 31, 2009</td><td>21,541</td><td>$ 1.33</td></tr><tr><td>December 31, 2010</td><td>414,055</td><td>$ 1.90</td></tr></table>



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

A summary of the status of the non-vested shares as of December 31, 2010, and changes during the three year period ended December 31, 2010, is presented below:

<table><tr><td></td><td>Shares</td><td>Weighted-Average Grant-Date Fair Value</td></tr><tr><td>Nonvested Shares</td><td></td><td></td></tr><tr><td>Nonvested at January 1, 2008</td><td>802,686</td><td>$ 4.28</td></tr><tr><td>Granted</td><td>1,104,800</td><td>$ 4.84</td></tr><tr><td>Vested</td><td>(297,849)</td><td>$ 4.95</td></tr><tr><td>Forfeited</td><td>(141,393)</td><td>$ 5.03</td></tr><tr><td>Nonvested at December 31, 2008</td><td>1,468,244</td><td>$ 4.79</td></tr><tr><td>Granted</td><td>1,343,000</td><td>$ 0.95</td></tr><tr><td>Vested</td><td>(429,351)</td><td>$ 4.81</td></tr><tr><td>Forfeited</td><td>(17,900)</td><td>$ 1.20</td></tr><tr><td>Nonvested at December 31, 2009</td><td>2,363,993</td><td>$ 2.64</td></tr><tr><td>Granted</td><td>1,871,655</td><td>$ 1.99</td></tr><tr><td>Vested</td><td>(1,557,476)</td><td>$ 2.65</td></tr><tr><td>Forfeited</td><td>(22,500)</td><td>$ 2.27</td></tr><tr><td>Nonvested at December 31, 2010</td><td>2,655,672</td><td>$ 2.17</td></tr></table>

Each grant vests in equal increments over periods ranging from eight months to five years from the date of grant. At the request of certain of the grantees, the Company repurchased a portion of the vested shares at the closing market price of the Company's common stock as of the vesting date, to satisfy the requesting grantees' federal and state income tax and other payroll withholding requirements. The repurchased shares were held by the Company as treasury stock at December 31, 2010.

As of December 31, 2010, the Company had $5.1 million of unrecognized share-based compensation related to awards granted under the Plan. That cost is expected to be recognized over a weighted-average period of two years. The related compensation expense recognized during the years ended December 31, 2010, 2009 and 2008 was $3.1 million, $2.2 million and $2.6 million, respectively.

In March 2008, John L. Cox, a senior executive officer of the Company passed away. On April 4, 2008, the Compensation Committee of the Company’s Board of Directors approved the immediate vesting in full of all restricted shares held by Mr. Cox at the time of his death. The number of shares vested totaled 95,336, and the Company recognized $0.4 million of share-based compensation related to the vesting of these shares in April 2008.

## M — SUPPLEMENTARY OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)

The Company has interests in oil and natural gas properties that are principally located in Texas, Louisiana and Oklahoma. The Company does not own or lease any oil and natural gas properties outside the United States of America.

The Company retains independent engineering firms to provide year-end estimates of the Company’s future net recoverable oil, natural gas and natural gas liquids reserves. Estimated proved net recoverable reserves as shown below include only those quantities that can be expected to be commercially recoverable. Estimated reserves for the year ended December 31, 2010 and 2009 were computed using benchmark prices based on the unweighted arithmetic average of the first-day-of-the-month prices for oil and natural gas during each month of 2010 and 2009, as required by SEC Release No. 33-8995 “Modernization of Oil and Gas



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

Reporting," effective December 31, 2009, while estimated reserves for the years ended December 31, 2008 were based on oil and natural gas spot prices as of the end of the period presented. Costs were estimated using costs in effect at the balance sheet dates under existing regulatory practices and with conventional equipment and operating methods.

Proved developed reserves represent only those reserves expected to be recovered through existing wells. Proved undeveloped reserves include those reserves expected to be recovered from new wells on undrilled acreage or from existing wells on which a relatively major expenditure is required for re-completion.

Capitalized costs relating to oil and natural gas producing activities and related accumulated depreciation and amortization at December 31 are summarized as follows (in thousands):

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Proved oil and natural gas properties</td><td>$ 689,472</td><td>$ 702,502</td><td>$ 683,341</td></tr><tr><td>Unevaluated oil and natural gas properties</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Accumulated depreciation, amortization and impairment</td><td>(482,886)</td><td>(456,720)</td><td>(378,445)</td></tr><tr><td></td><td>$ 206,586</td><td>$ 245,782</td><td>$ 304,896</td></tr></table>

Costs incurred in oil and natural gas producing activities for the years ended December 31 are as follows (in thousands, except per equivalent oil barrel):

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Acquisition of proved properties</td><td>$ 1,133</td><td>$ 1,311</td><td>$ 10,091</td></tr><tr><td>Acquisition of unproved properties</td><td>—</td><td>—</td><td>2,691</td></tr><tr><td>Development costs</td><td>27,850</td><td>28,239</td><td>57,084</td></tr><tr><td>Exploration costs</td><td>4,552</td><td>321</td><td>14,857</td></tr><tr><td>Additional asset retirement obligation</td><td>191</td><td>864</td><td>2,051</td></tr><tr><td></td><td>$ 33,726</td><td>$ 30,735</td><td>$ 86,774</td></tr><tr><td>Amortization rate per equivalent oil barrel</td><td>$ 12.11</td><td>$ 12.06</td><td>$ 17.89</td></tr></table>



## RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

Net quantities of proved and proved developed reserves of oil and natural gas, including condensate and natural gas liquids, are summarized as follows:

<table><tr><td></td><td>Crude Oil (Thousand Barrels)</td><td>Natural Gas (Million Cubic Feet)</td><td>Natural Gas Liquids (Thousand Barrels)</td></tr><tr><td>December 31, 2007</td><td>19,544</td><td>93,358</td><td>4,271</td></tr><tr><td>Extensions and discoveries</td><td>631</td><td>18,647</td><td>1,071</td></tr><tr><td>Sales of reserves in place</td><td>(85)</td><td>(701)</td><td>—</td></tr><tr><td>Purchases of reserves in place</td><td>151</td><td>135</td><td>—</td></tr><tr><td>Revisions of previous estimates</td><td>(4,769)</td><td>(8,405)</td><td>(663)</td></tr><tr><td>Production</td><td>(1,187)</td><td>(6,082)</td><td>(354)</td></tr><tr><td>December 31, 2008</td><td>14,285</td><td>96,952</td><td>4,325</td></tr><tr><td>Extensions and discoveries</td><td>1,771</td><td>10,070</td><td>508</td></tr><tr><td>Sales of reserves in place</td><td>(15)</td><td>(3,808)</td><td>—</td></tr><tr><td>Purchases of reserves in place</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Revisions of previous estimates</td><td>(836)</td><td>(7,993)</td><td>556</td></tr><tr><td>Production</td><td>(1,138)</td><td>(5,994)</td><td>(406)</td></tr><tr><td>December 31, 2009</td><td>14,067</td><td>89,227</td><td>4,983</td></tr><tr><td>Extensions and discoveries</td><td>347</td><td>821</td><td>61</td></tr><tr><td>Sales of reserves in place</td><td>(174)</td><td>(14,591)</td><td>(2,004)</td></tr><tr><td>Purchases of reserves in place</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Revisions of previous estimates</td><td>(159)</td><td>(17,033)</td><td>(301)</td></tr><tr><td>Production</td><td>(995)</td><td>(4,816)</td><td>(364)</td></tr><tr><td>December 31, 2010</td><td>13,086</td><td>53,608</td><td>2,375</td></tr><tr><td>Proved developed reserves:</td><td></td><td></td><td></td></tr><tr><td>December 31, 2008</td><td>9,235</td><td>57,635</td><td>2,705</td></tr><tr><td>December 31, 2009</td><td>8,814</td><td>46,159</td><td>2,788</td></tr><tr><td>December 31, 2010</td><td>8,414</td><td>31,776</td><td>1,486</td></tr></table>

The Company added 0.5 million barrels of oil equivalent in proved reserve extensions and discoveries in 2010 as a result of development drilling in its Electra/Burkburnett field in North Texas and in its La Copita field in South Texas. A significant portion of these reserves is a result of drilling locations in its Electra/Burkburnett field that were not booked as proved locations at year-end 2009. The remainder of the extensions and discoveries in 2010 is primarily from wells drilled in South Texas not previously booked as proved and from a discovery well in Osage County, Oklahoma. Sales of reserves in place during 2010 were primarily due to sales of assets during December 2010 of the Company's North Texas Barnett Shale and Boonsville properties and certain non-operated natural gas properties located in eastern Oklahoma. The revisions of previous reserve estimates decreased proved reserves by 3.3 million barrels of oil equivalent or approximately 10% of proved reserves at the beginning of the year. The revisions included a positive increase of 1.8 million barrels of oil equivalent caused by higher oil and gas prices. This positive revision was offset by a downward revision of 1.1 million barrels of oil equivalent caused by the transfer of proved undeveloped to unproved categories as a result of changes to the Company's development plans during 2010, and 4.0 million barrels of oil equivalent of the downward revisions were mostly due to changes in well performance in the Company's gas properties in South Texas. The Company added 3.9 million barrels of oil equivalent in proved



# RAM Energy Resources, Inc.
Notes to consolidated financial statements — (Continued)

reserve extensions and discoveries in 2009, primarily as a result of success in development drilling in the La Copita field of South Texas and the mature oil area of Electra/Burbkurnett in North Texas. Extensions and discoveries in 2008 were due to upgrading probable and possible locations to the proved undeveloped category and from drilling many wells that were not carried as proved prior to being drilled.

## Impact of Implementation of New Oil and Gas Rules Effective December 31, 2009

Implementation of the SEC’s updated rules using first-day-of-the-month average prices for 2009 resulted in the use of lower prices at December 31, 2009 for both oil and gas than would have resulted under the previous rules using year-end 2009 pricing. Use of 12-month average pricing at December 31, 2009 as required by the updated rules resulted in a decrease in proved reserves of approximately 3,692 thousand barrels of oil equivalent, when compared to reserves prepared under the previous rules. In addition, at December 31, 2009, the new proved undeveloped reserves rules resulted in a reduction of proved reserves of approximately 750 barrels of oil due to the SEC’s new five-year scheduling rule. The majority of the reserves reclassified out of proved reserves were associated with smaller secondary reserve waterflood projects.

## Standardized Measure

The following is a summary of a standardized measure of discounted net cash flows related to the Company's proved oil and natural gas reserves. For these calculations, estimated future cash flows from estimated future production of proved reserves for the year ended December 31, 2010 and 2009 were computed using benchmark prices based on the unweighted arithmetic average of the first-day-of-the-month prices for oil and natural gas during each month of 2009, as required by SEC Release No. 33-8995, "Modernization of Oil and Gas Reporting," effective December 31, 2009, while estimated cash flows for the years ended December 31, 2008 were based on oil and natural gas spot prices as of the end of the period presented. Future development and production costs attributable to the proved reserves were estimated assuming that existing conditions would continue over the economic lives of the individual leases and costs were not escalated for the future. Estimated future income tax expenses were calculated by applying future statutory tax rates (based on the current tax law adjusted for permanent differences and tax credits) to the estimated future pretax net cash flows related to proved oil and natural gas reserves, less the tax basis of the properties involved.

The Company cautions against using this data to determine the fair value of its oil and natural gas properties. To obtain the best estimate of fair value of the oil and natural gas properties, forecasts of future economic conditions, varying discount rates, and consideration of other than proved reserves would have to be incorporated into the calculation. In addition, there are significant uncertainties inherent in estimating quantities of proved reserves and in projecting rates of production that impair the usefulness of the data.

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves at December 31 are summarized as follows (in thousands):

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Future cash inflows</td><td>$ 1,355,233</td><td>$ 1,314,714</td><td>$ 1,253,537</td></tr><tr><td>Future production costs</td><td>(548,638)</td><td>(535,784)</td><td>(472,191)</td></tr><tr><td>Future development costs</td><td>(117,860)</td><td>(148,956)</td><td>(145,086)</td></tr><tr><td>Future income tax expenses</td><td>(161,736)</td><td>(123,943)</td><td>(103,434)</td></tr><tr><td>Future net cash flows</td><td>526,999</td><td>506,031</td><td>532,826</td></tr><tr><td>10% annual discount for estimated timing of cash flows</td><td>(248,952)</td><td>(231,797)</td><td>(248,373)</td></tr><tr><td>Standardized measure of discounted future net cash flows</td><td>$ 278,047</td><td>$ 274,234</td><td>$ 284,453</td></tr></table>



## RAM Energy Resources, Inc.

## Notes to consolidated financial statements — (Continued)

The following are the principal sources of change in the standardized measure of discounted future net cash flows of the Company for each of the three years in the period ended December 31 (in thousands):

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Standardized measure of discounted future net cash flows at beginning of year</td><td>$ 274,234</td><td>$ 284,453</td><td>$ 598,395</td></tr><tr><td>Changes during the year:</td><td></td><td></td><td></td></tr><tr><td>Sales and transfers of oil and natural gas produced, net of production costs</td><td>(71,028)</td><td>(55,393)</td><td>(134,180)</td></tr><tr><td>Net changes in prices and production costs</td><td>119,370</td><td>1,272</td><td>(538,042)</td></tr><tr><td>Extensions and discoveries, less related costs</td><td>13,888</td><td>31,264</td><td>77,239</td></tr><tr><td>Development costs incurred and revisions</td><td>15,656</td><td>28,602</td><td>(2,973)</td></tr><tr><td>Sales of reserves in place</td><td>(25,267)</td><td>(5,598)</td><td>(5,143)</td></tr><tr><td>Purchases of reserves in place</td><td>—</td><td>—</td><td>3,494</td></tr><tr><td>Revisions of previous quantity estimates</td><td>(58,029)</td><td>(18,323)</td><td>(81,073)</td></tr><tr><td>Net change in income taxes</td><td>(24,382)</td><td>(24,245)</td><td>275,581</td></tr><tr><td>Accretion of discount</td><td>33,605</td><td>32,202</td><td>91,155</td></tr><tr><td>Net change</td><td>3,813</td><td>(10,219)</td><td>(313,942)</td></tr><tr><td>Standardized measure of discounted future net cash flows at end of year</td><td>$ 278,047</td><td>$ 274,234</td><td>$ 284,453</td></tr></table>

Prices used in computing these calculations of future cash flows from estimated future production of proved reserves were $76.80, $58.63, and $44.15 per barrel of oil at December 31, 2010, 2009, and 2008, respectively, $4.51, $3.76, and $5.33 per thousand cubic feet of natural gas at December 31, 2010, 2009, and 2008, respectively and $45.62, $31.03, and $23.59 per barrel of natural gas liquids at December 31, 2010, 2009, and 2008, respectively.

## N — QUARTERLY DATA (UNAUDITED)

<table><tr><td rowspan="3"></td><td colspan="5">2010 — Quarter Ended</td></tr><tr><td rowspan="2">December 31,</td><td>September 30,</td><td>June 30,</td><td>March 31,</td><td></td></tr><tr><td colspan="3">(In thousands except per share data)</td><td></td></tr><tr><td>Net revenue</td><td>$ 25,262</td><td>$ 27,083</td><td>$ 28,968</td><td>$ 30,921</td><td></td></tr><tr><td>Net operating expenses</td><td>22,244</td><td>21,068</td><td>22,237</td><td>21,066</td><td></td></tr><tr><td>Operating income</td><td>3,118</td><td>6,015</td><td>6,731</td><td>9,855</td><td></td></tr><tr><td>Interest expense</td><td>(5,539)</td><td>(5,767)</td><td>(5,714)</td><td>(5,635)</td><td></td></tr><tr><td>Interest income</td><td>3</td><td>20</td><td>2</td><td>2</td><td></td></tr><tr><td>Other income (expense)</td><td>28</td><td>(268)</td><td>570</td><td>(9)</td><td></td></tr><tr><td>Income (loss) before income taxes</td><td>(2,390)</td><td>—</td><td>1,589</td><td>4,213</td><td></td></tr><tr><td>Income tax provision (benefit)</td><td>1,904</td><td>(1,564)</td><td>(1,140)</td><td>1,795</td><td></td></tr><tr><td>Net income (loss)</td><td>$ (4,294)</td><td>$ 1,564</td><td>$ 2,729</td><td>$ 2,418</td><td></td></tr><tr><td>Basic net income (loss) applicable to common stockholders per common share</td><td>$ (0.05)</td><td>$ 0.02</td><td>$ 0.03</td><td>$ 0.03</td><td></td></tr><tr><td>Diluted net income (loss) applicable to common stockholders per common share</td><td>$ (0.05)</td><td>$ 0.02</td><td>$ 0.03</td><td>$ 0.03</td><td></td></tr></table>



RAM Energy Resources, Inc. 

Notes to consolidated financial statements — (Continued) 

<table><tr><td rowspan="3"></td><td colspan="4">2009 — Quarter Ended</td></tr><tr><td rowspan="2">December 31,</td><td>September 30,</td><td>June 30,</td><td>March 31,</td></tr><tr><td colspan="3">(In thousands except per share data)</td></tr><tr><td>Net revenue</td><td>$ 25,516</td><td>$ 25,131</td><td>$ 10,419</td><td>$ 26,012</td></tr><tr><td>Net operating expenses</td><td>23,357</td><td>24,300</td><td>23,061</td><td>72,142</td></tr><tr><td>Operating income (loss)</td><td>2,159</td><td>831</td><td>(12,642)</td><td>(46,130)</td></tr><tr><td>Interest expense</td><td>(5,820)</td><td>(5,561)</td><td>(3,601)</td><td>(3,608)</td></tr><tr><td>Interest income</td><td>13</td><td>40</td><td>9</td><td>20</td></tr><tr><td>Other expense</td><td>89</td><td>10</td><td>(106)</td><td>(433)</td></tr><tr><td>Loss before income taxes</td><td>(3,559)</td><td>(4,680)</td><td>(16,340)</td><td>(50,151)</td></tr><tr><td>Income tax provision (benefit)</td><td>9,062</td><td>(1,561)</td><td>(3,055)</td><td>(20,793)</td></tr><tr><td>Net loss</td><td>(12,621)</td><td>(3,119)</td><td>(13,285)</td><td>(29,358)</td></tr><tr><td>Basic net loss applicable to common stockholders per common share</td><td>(0.16)</td><td>(0.04)</td><td>(0.18)</td><td>(0.38)</td></tr><tr><td>Diluted net loss applicable to common stockholders per common share</td><td>(0.16)</td><td>(0.04)</td><td>(0.18)</td><td>(0.38)</td></tr></table>



## Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

No items to report.

## Item 9A. Controls and Procedures

## Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Disclosure Controls and Procedures. We maintain controls and procedures designed to ensure that information required to be disclosed in the reports we file with the U.S. Securities and Exchange Commission (“SEC”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that simple errors or mistakes can occur. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our disclosure controls and internal controls and make modifications as necessary; our intent in this regard is that the disclosure controls and the internal controls will be maintained as systems change and conditions warrant.

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act) was performed as of the end of the period covered by this report. This evaluation was performed by our management, with the participation of our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective at December 31, 2010.

Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. Our internal controls are designed to provide reasonable assurance that our assets are protected from unauthorized use and that transactions are executed in accordance with established authorizations and properly recorded. The internal controls are supported by written policies and are complemented by a staff of competent business process owners supported by competent and qualified external resources used to assist in testing the operating effectiveness of our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Our management concluded that the design and operations of our internal control over financial reporting at December 31, 2010, were



## Table of Contents

effective and provide reasonable assurance the books and records accurately reflect the transactions of the Company.

There was no change in our internal control over financial reporting during the year ended December 31, 2010, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The effectiveness of our internal control over financial reporting has been audited by UHY LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/s/ Larry E. Lee

Larry E. Lee

Chairman, President and Chief Executive Officer

March 16, 2011

/s/ G. Les Austin

G. Les Austin

Senior Vice President and Chief Financial Officer

March 16, 2011



# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

RAM Energy Resources, Inc.

We have audited RAM Energy Resources, Inc. (a Delaware corporation) and subsidiaries' internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, RAM Energy Resources, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of RAM Energy Resources, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2010, and our report dated March 16, 2011, expressed an unqualified opinion on those consolidated financial statements.

s/ UHY LLP

Houston, Texas
March 16, 2011



## Item 9B. Other Information

No items to report.

## PART III

## Item 10. Directors, Executive Officers and Corporate Governance

We have adopted a code of ethics that applies to all directors, officers and employees, including our principal executive officer and principal accounting officer. A copy of our code of ethics is available on our website at www.ramenergy.com. We intend to disclose any amendments to or waivers of our code of ethics by posting the required information on our website, www.ramenergy.com, or by filing a Form 8-K within the required time periods.

The information required by this item will be set forth in our Definitive Proxy Statement on Schedule 14A relating to our 2011 Annual Meeting, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, (the "Proxy Statement"). The Proxy Statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-K by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.

## Item 11. Executive Compensation

The information required by this item will be set forth in the Proxy Statement. The Proxy Statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-K by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.

## Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth in the Proxy Statement. The Proxy Statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-K by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.

## Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item will be set forth in the Proxy Statement. The Proxy Statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-K by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.

## Item 14. Principal Accountant Fees and Services

The information required by this item will be set forth in the Proxy Statement. The Proxy Statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-K by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.



## PART IV

## Item 15. Exhibits and Financial Statement Schedules

(a) (1) The following consolidated financial statements of RAM Energy Resources, Inc. are included in Item 8:

## RAM Energy Resources, Inc.

Report of Independent Registered Public Accounting Firm 55
Consolidated Balance Sheets as of December 31, 2010 and 2009 56
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 57
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2010, 2009 and 2008 58
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 (1) 59
Notes to Consolidated Financial Statements 61

All other schedules have been omitted since the required information is not present, or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.

## (a) (3) Exhibits

The following exhibits are filed as a part of this report:

<table><tr><td>Exhibit</td><td>Description</td><td>Method of Filing</td></tr><tr><td>3.1</td><td>Amended and Restated Certificate of Incorporation of the Registrant.</td><td>(1) [3.1]</td></tr><tr><td>3.2</td><td>Amended and Restated Bylaws of the Registrant.</td><td>(8) [3.2]</td></tr><tr><td>10.1</td><td>Form of Registration Rights Agreement among the Registrant and the Initial Stockholders.</td><td>(2) [10.9]</td></tr><tr><td>10.1.1</td><td>Amendment to Registration Rights Agreement among this Registrant and the Founders dated May 8, 2006.</td><td>(1) [10.9.1]</td></tr><tr><td>10.2</td><td>Employment Agreement between Registrant and Larry E. Lee dated May 8, 2006.*</td><td>(1) [10.15]</td></tr><tr><td>10.2.1</td><td>First Amendment to Employment Agreement between Registrant and Larry E. Lee dated October 18, 2006.*</td><td>(5) [10.1]</td></tr><tr><td>10.2.2</td><td>Second Amendment to Employment Agreement of Larry E. Lee dated February 25, 2008.*</td><td>(10) [10.6.2]</td></tr><tr><td>10.6.3</td><td>Third Amendment to Employment Agreement of Larry E. Lee dated December 30, 2008.*</td><td>(13) [10.6.3]</td></tr><tr><td>10.2.4</td><td>Fourth Amendment to Employment Agreement of Larry E. Lee dated March 24, 2009.*</td><td>(14) [10.6.4]</td></tr><tr><td>10.2.5</td><td>Fifth Amendment to Employment Agreement of Larry E. Lee dated March 17, 2010.*</td><td>(17) [10.6.5]</td></tr><tr><td>10.2.6</td><td>Sixth Amendment to Employment Agreement of Larry E. Lee dated March 8, 2011.*</td><td>(21) [10.2.6]</td></tr><tr><td>10.3</td><td>Escrow Agreement by and among the Registrant, Larry E. Lee and Continental Stock Transfer & Trust Company dated May 8, 2006.</td><td>(1) [10.16]</td></tr><tr><td>10.4</td><td>Registration Rights Agreement among Registrant and the investors signatory thereto dated May 8, 2006.*</td><td>(1) [10.7]</td></tr><tr><td>10.5</td><td>Form of Registration Rights Agreement among the Registrant and the Investors party thereto.</td><td>(3) [10.17]</td></tr><tr><td>10.6</td><td>Agreement between RAM and Shell Trading-US dated February 1, 2006.</td><td>(1) [10.22]</td></tr><tr><td>10.7</td><td>Agreement between RAM and Targa dated January 30, 1998.</td><td>(1) [10.23]</td></tr></table>



<table><tr><td>Exhibit</td><td>Description</td><td>Method of Filing</td></tr><tr><td>10.7.1</td><td>Amendment to Agreement between RAM Energy and Targa dated effective as of April 1, 2006, filed as an exhibit to Registrant&#x27;s Form 8-K dated June 5, 2006, and incorporated by reference herein.</td><td>(6) [10.23.1]</td></tr><tr><td>10.8</td><td>Long-Term Incentive Plan of the Registrant. Included as Annex C of the Registrant&#x27;s Definitive Proxy Statement (No. 000-50682), dated April 12, 2006, and incorporated by reference herein.*</td><td>(4) [Annex C]</td></tr><tr><td>10.8.1</td><td>First Amendment to the RAM Energy Resources, Inc. 2006 Long-Term Incentive Plan effective May 8, 2008.*</td><td>(11) [Exhibit A]</td></tr><tr><td>10.8.2</td><td>Second Amendment to the RAM Energy Resources, Inc. 2006 Long-Term Incentive Plan effective May 3, 2010.*</td><td>(18) [10.8.2]</td></tr><tr><td>10.9</td><td>Deferred Bonus Compensation Plan of RAM Energy, Inc. dated as of April 21, 2004.*</td><td>(7) [10.14]</td></tr><tr><td>10.10</td><td>Loan Agreement dated November 29, 2007, by and between RAM Energy Resources, Inc., as Borrower, and Guggenheim Corporate Funding, LLC, as the Arranger and Administrative Agent, Wells Fargo Foothill, Inc., as the Documentation Agent and WestLB AG, New York Branch and CIT Capital USA Inc., as the Co-Syndication Agents, and the financial institutions named therein as the Lenders.</td><td>(9) [10.1]</td></tr><tr><td>10.10.1</td><td>First Amendment to Loan Agreement dated February 6, 2009, by and between RAM Energy Resources, Inc., as Borrower, and Guggenheim Corporate Funding, LLC, as the Arranger and Administrative Agent, Wells Fargo Foothill, Inc., as the Documentation Agent and WestLB AG, New York Branch and CIT Capital USA Inc., as the Co-Syndication Agents, and the financial institutions named therein as the Lenders.</td><td>(15) [10.17.1]</td></tr><tr><td>10.10.2</td><td>Second Amendment to Loan Agreement dated June 26, 2009, by and between RAM Energy Resources, Inc., as Borrower, and Guggenheim Funding, LLC, as the Arranger and Administrative Agent, Wells Fargo Foothill, Inc., as the Documentation Agent and WestLB AG, New York Branch and CIT Capital USA Inc., as the Co-Syndication Agents, and the financial institutions named therein as the Lenders.</td><td>(16) [10.17.2]</td></tr><tr><td>10.10.3</td><td>Third Amendment to Loan Agreement dated November 29, 2010, effective December 3, 2010, by and between RAM Energy Resources, Inc., as Borrower, and Guggenheim Corporate Funding, LLC, as the Arranger and Administrative Agent, Wells Fargo Foothill, Inc., as the Documentation Agent and WestLB AG, New York Branch and CIT Capital USA Inc., as the Co-Syndication Agents, and the financial institutions named therein as the Lenders.</td><td>(20) [10.8.3]</td></tr><tr><td>10.11</td><td>Description of Compensation Arrangement with G. Les Austin.*</td><td>(12) [10.18]</td></tr><tr><td>10.11.1</td><td>First Amendment to Employment Agreement of G. Les Austin dated December 30, 2008.*</td><td>(13) [10.18.1]</td></tr><tr><td>10.12</td><td>Change in Control Separation Benefit Plan of Ram Energy Resources, Inc. and Participating Subsidiaries.</td><td>(15) [10.19]</td></tr><tr><td>10.13</td><td>Purchase and Sale Agreement dated October 29, 2010, by and between RWG Energy, Inc., as Seller, and Miagro Producing, LLC, as Buyer.</td><td>(19) [10.13]</td></tr><tr><td>10.14</td><td>Revolving Credit Agreement dated March 14, 2011 among RAM Energy Resources, Inc., as Borrower, SunTrust Bank, as Administrative Agent, Capital One, N.A., as Syndication Agent, and the financial institutions named therein as the Lenders</td><td>**</td></tr><tr><td>10.15</td><td>Second Lien Term Loan Agreement dated March 14, 2011 among RAM Energy Resources, Inc., as Borrower, Guggenheim Corporate Funding, LLC, as Administrative Agent, and the financial institutions named therein as the Lenders</td><td>**</td></tr><tr><td>21.1</td><td>Subsidiaries of the Registrant.</td><td>**</td></tr><tr><td>23.1</td><td>Consent of UHY LLP.</td><td>**</td></tr></table>



<table><tr><td>Exhibit</td><td>Description</td><td>Method of Filing</td></tr><tr><td>23.2</td><td>Consent of Forrest A. Garb &amp; Associates, Inc.</td><td>**</td></tr><tr><td>31.1</td><td>Rule 13(A) — 14(A) Certification of our Principal Executive Officer.</td><td>**</td></tr><tr><td>31.2</td><td>Rule 13(A) — 14(A) Certification of our Principal Financial Officer.</td><td>**</td></tr><tr><td>32.1</td><td>Section 1350 Certification of our Principal Executive Officer.</td><td>**</td></tr><tr><td>32.2</td><td>Section 1350 Certification of our Principal Financial Officer.</td><td>**</td></tr><tr><td>99.1</td><td>Report of Forrest A. Garb &amp; Associates, Inc.</td><td>**</td></tr></table>

* Management contract or compensatory plan or arrangement.

** Filed herewith.

(1) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on May 12, 2006, as the exhibit number indicated in brackets and incorporated by reference herein.

(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (SEC File No. 333-113583) as the exhibit number indicated in brackets and incorporated by reference herein.

(3) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on October 26, 2005, as the exhibit number indicated in brackets and incorporated by reference herein.

(4) Included as an annex to the Registrant’s Definitive Proxy Statement (No. 000-50682), dated April 12, 2006, as the annex letter indicated in brackets and incorporated by reference herein.

(5) Filed as an exhibit to the Registrant's Current Report on Form 8-K on October 20, 2006, as the exhibit number indicated in brackets and incorporated by reference herein.

(6) Filed as an exhibit to the Registrant's Current Report on Form 8-K on June 5, 2006, as the exhibit number indicated in brackets and incorporated by reference herein.

(7) Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (SEC File No. 333-138922) as the exhibit number indicated in brackets and incorporated by reference herein.

(8) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on February 2, 2007, as the exhibit number indicated in brackets and incorporated by reference herein.

(9) Filed as an exhibit to Registrant's Form 8-K dated November 29, 2007, as the exhibit number indicated in brackets and incorporated by reference herein.

(10) Filed as an exhibit to Registrant's Form 8-K dated February 26, 2008, as the exhibit number indicated in brackets and incorporated by reference herein.

(11) Filed as an exhibit to Registrant's Definitive Proxy Statement (No. 000-50682), dated April 14, 2008, as the exhibit number indicated in brackets and incorporated by reference herein.

(12) Filed as an exhibit to Registrant's Form 10-Q dated May 9, 2008, as the exhibit number indicated in brackets and incorporated by reference herein.

(13) Filed as an exhibit to Registrant's Form 8-K dated January 5, 2009, as the exhibit number indicated in brackets and incorporated by reference herein.

(14) Filed as an exhibit to Registrant's Form 8-K dated March 25, 2009, as the exhibit number indicated in brackets and incorporated by reference herein.

(15) Filed as an exhibit to Registrant's Annual Report on Form 10-K filed on March 12, 2009, as the exhibit number indicated in brackets and incorporated by reference herein.

(16) Filed as an exhibit to Registrant's Form 8-K filed July 2, 2009, as the exhibit number indicated in brackets and incorporated by reference herein.

(17) Filed as an exhibit to Registrant's Form 8-K filed March 18, 2010, as the exhibit number indicated in brackets and incorporated by reference herein.

(18) Filed as an exhibit to Registrant's Form 8-K filed May 7, 2010, as the exhibit number indicated in brackets and incorporated by reference herein.



## Table of Contents

(19) Filed as an exhibit to Registrant’s Form 8-K filed November 2, 2010, as the exhibit number indicated in brackets and incorporated by reference herein.

(20) Filed as an exhibit to Registrant’s Form 8-K filed December 8, 2010, as the exhibit number indicated in brackets and incorporated by reference herein.

(21) Filed as an exhibit to Registrant’s Form 8-K filed March 10, 2011, as the exhibit number indicated in brackets and incorporated by reference herein.



## SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tulsa, State of Oklahoma, on March 16, 2011.

## RAM ENERGY RESOURCES, INC.

/s/ Larry E. Lee
Larry E. Lee,
Chairman of the Board, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated, on March 16, 2011.

<table><tr><td>Signature</td><td>Title</td></tr><tr><td>/s/ Larry E. Lee</td><td>Chairman of the Board, President and Chief Executive Officer and Director (Principal Executive Officer)</td></tr><tr><td>Larry E. Lee</td><td></td></tr><tr><td>/s/ G. Les Austin</td><td>Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)</td></tr><tr><td>G. Les Austin</td><td></td></tr><tr><td>/s/ Sean P. Lane</td><td>Director</td></tr><tr><td>Sean P. Lane</td><td></td></tr><tr><td>/s/ Gerald R. Marshall</td><td>Director</td></tr><tr><td>Gerald R. Marshall</td><td></td></tr><tr><td>/s/ John M. Reardon</td><td>Director</td></tr><tr><td>John M. Reardon</td><td></td></tr></table>



INDEX TO EXHIBITS

<table><tr><td>Exhibit</td><td>Description</td><td>Method of Filing</td></tr><tr><td>3.1</td><td>Amended and Restated Certificate of Incorporation of the Registrant.</td><td>(1) [3.1]</td></tr><tr><td>3.2</td><td>Amended and Restated Bylaws of the Registrant.</td><td>(8) [3.2]</td></tr><tr><td>10.1</td><td>Form of Registration Rights Agreement among the Registrant and the Initial Stockholders.</td><td>(2) [10.9]</td></tr><tr><td>10.1.1</td><td>Amendment to Registration Rights Agreement among this Registrant and the Founders dated May 8, 2006.</td><td>(1) [10.9.1]</td></tr><tr><td>10.2</td><td>Employment Agreement between Registrant and Larry E. Lee dated May 8, 2006.*</td><td>(1) [10.15]</td></tr><tr><td>10.2.1</td><td>First Amendment to Employment Agreement between Registrant and Larry E. Lee dated October 18, 2006.*</td><td>(5) [10.1]</td></tr><tr><td>10.2.2</td><td>Second Amendment to Employment Agreement of Larry E. Lee dated February 25, 2008.*</td><td>(10) [10.6.2]</td></tr><tr><td>10.6.3</td><td>Third Amendment to Employment Agreement of Larry E. Lee dated December 30, 2008.*</td><td>(13) [10.6.3]</td></tr><tr><td>10.2.4</td><td>Fourth Amendment to Employment Agreement of Larry E. Lee dated March 24, 2009.*</td><td>(14) [10.6.4]</td></tr><tr><td>10.2.5</td><td>Fifth Amendment to Employment Agreement of Larry E. Lee dated March 17, 2010.*</td><td>(17) [10.6.5]</td></tr><tr><td>10.2.6</td><td>Sixth Amendment to Employment Agreement of Larry E. Lee dated March 8, 2011.*</td><td>(21) [10.2.6]</td></tr><tr><td>10.3</td><td>Escrow Agreement by and among the Registrant, Larry E. Lee and Continental Stock Transfer &amp; Trust Company dated May 8, 2006.</td><td>(1) [10.16]</td></tr><tr><td>10.4</td><td>Registration Rights Agreement among Registrant and the investors signatory thereto dated May 8, 2006.*</td><td>(1) [10.7]</td></tr><tr><td>10.5</td><td>Form of Registration Rights Agreement among the Registrant and the Investors party thereto.</td><td>(3) [10.17]</td></tr><tr><td>10.6</td><td>Agreement between RAM and Shell Trading-US dated February 1, 2006.</td><td>(1) [10.22]</td></tr><tr><td>10.7</td><td>Agreement between RAM and Targa dated January 30, 1998.</td><td>(1) [10.23]</td></tr><tr><td>10.7.1</td><td>Amendment to Agreement between RAM Energy and Targa dated effective as of April 1, 2006, filed as an exhibit to Registrant&#x27;s Form 8-K dated June 5, 2006, and incorporated by reference herein.</td><td>(6) [10.23.1]</td></tr><tr><td>10.8</td><td>Long-Term Incentive Plan of the Registrant. Included as Annex C of the Registrant&#x27;s Definitive Proxy Statement (No. 000-50682), dated April 12, 2006, and incorporated by reference herein.*</td><td>(4) [Annex C]</td></tr><tr><td>10.8.1</td><td>First Amendment to the RAM Energy Resources, Inc. 2006 Long-Term Incentive Plan effective May 8, 2008.*</td><td>(11) [Exhibit A]</td></tr><tr><td>10.8.2</td><td>Second Amendment to the RAM Energy Resources, Inc. 2006 Long-Term Incentive Plan effective May 3, 2010.*</td><td>(18) [10.8.2]</td></tr><tr><td>10.9</td><td>Deferred Bonus Compensation Plan of RAM Energy, Inc. dated as of April 21, 2004.*</td><td>(7) [10.14]</td></tr><tr><td>10.10</td><td>Loan Agreement dated November 29, 2007, by and between RAM Energy Resources, Inc., as Borrower, and Guggenheim Corporate Funding, LLC, as the Arranger and Administrative Agent, Wells Fargo Foothill, Inc., as the Documentation Agent and WestLB AG, New York Branch and CIT Capital USA Inc., as the Co-Syndication Agents, and the financial institutions named therein as the Lenders.</td><td>(9) [10.1]</td></tr></table>



<table><tr><td>Exhibit</td><td>Description</td><td>Method of Filing</td></tr><tr><td>10.10.1</td><td>First Amendment to Loan Agreement dated February 6, 2009, by and between RAM Energy Resources, Inc., as Borrower, and Guggenheim Corporate Funding, LLC, as the Arranger and Administrative Agent, Wells Fargo Foothill, Inc., as the Documentation Agent and WestLB AG, New York Branch and CIT Capital USA Inc., as the Co-Syndication Agents, and the financial institutions named therein as the Lenders.</td><td>(15) [10.17.1]</td></tr><tr><td>10.10.2</td><td>Second Amendment to Loan Agreement dated June 26, 2009, by and between RAM Energy Resources, Inc., as Borrower, and Guggenheim Corporate Funding, LLC, as the Arranger and Administrative Agent, Wells Fargo Foothill, Inc., as the Documentation Agent and WestLB AG, New York Branch and CIT Capital USA Inc., as the Co-Syndication Agents, and the financial institutions named therein as the Lenders.</td><td>(16) [10.17.2]</td></tr><tr><td>10.10.3</td><td>Third Amendment to Loan Agreement dated November 29, 2010, effective December 3, 2010, by and between RAM Energy Resources, Inc., as Borrower, and Guggenheim Corporate Funding, LLC, as the Arranger and Administrative Agent, Wells Fargo Foothill, Inc., as the Documentation Agent and WestLB AG, New York Branch and CIT Capital USA Inc., as the Co-Syndication Agents, and the financial institutions named therein as the Lenders.</td><td>(20) [10.8.3]</td></tr><tr><td>10.11</td><td>Description of Compensation Arrangement with G. Les Austin.*</td><td>(12) [10.18]</td></tr><tr><td>10.11.1</td><td>First Amendment to Employment Agreement of G. Les Austin dated December 30, 2008.*</td><td>(13) [10.18.1]</td></tr><tr><td>10.12</td><td>Change in Control Separation Benefit Plan of Ram Energy Resources, Inc. and Participating Subsidiaries.</td><td>(15) [10.19]</td></tr><tr><td>10.13</td><td>Purchase and Sale Agreement dated October 29, 2010, by and between RWG Energy, Inc., as Seller, and Milagro Producing, LLC, as Buyer.</td><td>(19) [10.13]</td></tr><tr><td>10.14</td><td>Revolving Credit Agreement dated March 14, 2011 among RAM Energy Resources, Inc., as Borrower, SunTrust Bank, as Administrative Agent, Capital One, N.A., as Syndication Agent, and the financial institutions named therein as the Lenders</td><td>**</td></tr><tr><td>10.15</td><td>Second Lien Term Loan Agreement dated March 14, 2011 among RAM Energy Resources, Inc., as Borrower, Guggenheim Corporate Funding, LLC, as Administrative Agent, and the financial institutions named therein as the Lenders</td><td>**</td></tr><tr><td>21.1</td><td>Subsidiaries of the Registrant.</td><td>**</td></tr><tr><td>23.1</td><td>Consent of UHY LLP.</td><td>**</td></tr><tr><td>23.2</td><td>Consent of Forrest A. Garb &amp; Associates, Inc.</td><td>**</td></tr><tr><td>31.1</td><td>Rule 13(A) — 14(A) Certification of our Principal Executive Officer.</td><td>**</td></tr><tr><td>31.2</td><td>Rule 13(A) — 14(A) Certification of our Principal Financial Officer.</td><td>**</td></tr><tr><td>32.1</td><td>Section 1350 Certification of our Principal Executive Officer.</td><td>**</td></tr><tr><td>32.2</td><td>Section 1350 Certification of our Principal Financial Officer.</td><td>**</td></tr><tr><td>99.1</td><td>Report of Forrest A. Garb &amp; Associates, Inc.</td><td>**</td></tr></table>

* Management contract or compensatory plan or arrangement.

** Filed herewith.

(1) Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on May 12, 2006, as the exhibit number indicated in brackets and incorporated by reference herein.

(2) Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-113583) as the exhibit number indicated in brackets and incorporated by reference herein.

(3) Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on October 26, 2005, as the exhibit number indicated in brackets and incorporated by reference herein.

(4) Included as an annex to the Registrant’s Definitive Proxy Statement (No. 000-50682), dated April 12, 2006, as the annex letter indicated in brackets and incorporated by reference herein.



(5) Filed as an exhibit to the Registrant's Current Report on Form 8-K on October 20, 2006, as the exhibit number indicated in brackets and incorporated by reference herein.

(6) Filed as an exhibit to the Registrant's Current Report on Form 8-K on June 5, 2006, as the exhibit number indicated in brackets and incorporated by reference herein.

(7) Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (SEC File No. 333-138922) as the exhibit number indicated in brackets and incorporated by reference herein.

(8) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on February 2, 2007, as the exhibit number indicated in brackets and incorporated by reference herein.

(9) Filed as an exhibit to Registrant's Form 8-K dated November 29, 2007, as the exhibit number indicated in brackets and incorporated by reference herein.

(10) Filed as an exhibit to Registrant's Form 8-K dated February 26, 2008, as the exhibit number indicated in brackets and incorporated by reference herein.

(11) Filed as an exhibit to Registrant's Definitive Proxy Statement (No. 000-50682), dated April 14, 2008, as the exhibit number indicated in brackets and incorporated by reference herein.

(12) Filed as an exhibit to Registrant's Form 10-Q dated May 9, 2008, as the exhibit number indicated in brackets and incorporated by reference herein.

(13) Filed as an exhibit to Registrant's Form 8-K dated January 5, 2009, as the exhibit number indicated in brackets and incorporated by reference herein.

(14) Filed as an exhibit to Registrant's Form 8-K dated March 25, 2009, as the exhibit number indicated in brackets and incorporated by reference herein.

(15) Filed as an exhibit to Registrant's Annual Report on Form 10-K filed on March 12, 2009, as the exhibit number indicated in brackets and incorporated by reference herein.

(16) Filed as an exhibit to Registrant's Form 8-K filed July 2, 2009, as the exhibit number indicated in brackets and incorporated by reference herein.

(17) Filed as an exhibit to Registrant's Form 8-K filed March 18, 2010, as the exhibit number indicated in brackets and incorporated by reference herein.

(18) Filed as an exhibit to Registrant's Form 8-K filed May 7, 2010, as the exhibit number indicated in brackets and incorporated by reference herein.

(19) Filed as an exhibit to Registrant's Form 8-K filed November 2, 2010, as the exhibit number indicated in brackets and incorporated by reference herein.

(20) Filed as an exhibit to Registrant's Form 8-K filed December 8, 2010, as the exhibit number indicated in brackets and incorporated by reference herein.

(21) Filed as an exhibit to Registrant's Form 8-K filed March 10, 2011, as the exhibit number indicated in brackets and incorporated by reference herein.



REVOLVING CREDIT AGREEMENT

dated as of March 14, 2011

among

RAM ENERGY RESOURCES, INC.

as Borrower

THE LENDERS FROM TIME TO TIME PARTY HERETO,

SUNTRUST BANK,

as Administrative Agent,

and

CAPITAL ONE, N.A.,

as Syndication Agent,

SUNTRUST ROBINSON HUMPHREY, INC.,

as Sole Lead Arranger and Sole Book Runner



## TABLE OF CONTENTS

ARTICLE I
DEFINITIONS; CONSTRUCTION
Section 1.1 Definitions
Section 1.2 Classifications of Loans and Borrowings
Section 1.3 Accounting Terms and Determination
Section 1.4 Terms Generally
ARTICLE II
AMOUNT AND TERMS OF THE COMMITMENTS
Section 2.1 General Description of Facilities
Section 2.2 Loans
Section 2.3 Procedure for Borrowings
Section 2.4 Funding of Borrowings
Section 2.5 Interest Elections
Section 2.6 Optional Reduction and Termination of Commitments
Section 2.7 Borrowing Base
Section 2.8 Repayment of Loans
Section 2.9 Evidence of Indebtedness
Section 2.10 Optional Prepayments
Section 2.11 Mandatory Prepayments
Section 2.12 Interest on Loans
Section 2.13 Fees
Section 2.14 Computation of Interest and Fees
Section 2.15 Inability to Determine Interest Rates
Section 2.16 Illegality
Section 2.17 Increased Costs
Section 2.18 Funding Indemnity
Section 2.19 Taxes
Section 2.20 Payments Generally; Pro Rata Treatment; Sharing of Set-offs
Section 2.21 Letters of Credit
Section 2.22 Increase of Commitments; Additional Lenders
Section 2.23 Mitigation of Obligations
Section 2.24 Replacement of Lenders
Section 2.25 Reallocation and Cash Collateralization of Defaulting Lender or Potential Defaulting Lender Commitment
ARTICLE III
CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT
Section 3.1 Conditions To Effectiveness
Section 3.2 Each Credit Event
Section 3.3 Delivery of Documents
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
1



Section 4.1 Existence; Power 60
Section 4.2 Organizational Power; Authorization 60
Section 4.3 Governmental Approvals; No Conflicts 60
Section 4.4 Financial Statements 60
Section 4.5 Litigation and Environmental Matters 60
Section 4.6 Compliance with Laws and Agreements 61
Section 4.7 Investment Company Act, Etc. 62
Section 4.8 Taxes 62
Section 4.9 Margin Regulations 62
Section 4.10 ERISA 63
Section 4.11 Properties; Titles, Etc. 63
Section 4.12 Maintenance of Properties 63
Section 4.13 Gas Imbalances, Prepayments 64
Section 4.14 Marketing of Production 64
Section 4.15 Hedging Agreements 65
Section 4.16 Disclosure 65
Section 4.17 Labor Relations 65
Section 4.18 Subsidiaries 65
Section 4.19 Solvency 66
Section 4.20 OFAC 66
Section 4.21 Patriot Act 66
Section 4.22 Use of Proceeds 66
Section 4.23 Insurance 66

ARTICLE V
AFFIRMATIVE COVENANTS

Section 5.1 Financial Statements and Other Information 67
Section 5.2 Notices of Material Events 69
Section 5.3 Existence; Conduct of Business 70
Section 5.4 Operation and Maintenance of Properties 70
Section 5.5 Compliance with Laws, Etc. 71
Section 5.6 Environmental Matters 71
Section 5.7 Payment of Obligations 72
Section 5.8 Books and Records 72
Section 5.9 Visitation, Inspection, Etc. 72
Section 5.10 Insurance 72
Section 5.11 Use of Proceeds and Letters of Credit 72
Section 5.12 Reserve Reports 73
Section 5.13 Title Information 74
Section 5.14 Additional Collateral; Additional Guarantors 75
Section 5.15 Hedging Agreements 76
Section 5.16 Marketing Activities 76
Section 5.17 Further Assurances 76
Section 5.18 Concurrent Delivery of Notices 76



## ARTICLE VI
FINANCIAL COVENANTS

Section 6.1 Leverage Ratio 77
Section 6.2 Interest Coverage Ratio 77
Section 6.3 Asset Coverage Ratio 77
Section 6.4 Minimum Current Ratio 77

## ARTICLE VII
NEGATIVE COVENANTS

Section 7.1 Indebtedness and Preferred Equity 78
Section 7.2 Negative Pledge 79
Section 7.3 Fundamental Changes 80
Section 7.4 Investments, Loans, Etc. 80
Section 7.5 Restricted Payments, Etc. 81
Section 7.6 Redemption of Second Lien Notes; Amendment of Second Lien Credit Agreement 82
Section 7.7 Sale of Assets 82
Section 7.8 Environmental Matters 83
Section 7.9 Transactions with Affiliates 83
Section 7.10 Restrictive Agreements 84
Section 7.11 Sale and Leaseback Transactions 84
Section 7.12 Hedging Transactions 84
Section 7.13 Gas Imbalances, Take-or-Pay or other Prepayments 87
Section 7.14 Amendment to Material Documents 87
Section 7.15 Accounting Changes 87
Section 7.16 Lease Obligations 87
Section 7.17 Government Regulation 87
Section 7.18 Liens Securing Second Lien Term Loan Agreement and Second Lien Notes 88

## ARTICLE VIII
EVENTS OF DEFAULT

Section 8.1 Events of Default 88
Section 8.2 Application of Proceeds from Collateral 91

## ARTICLE IX
THE ADMINISTRATIVE AGENT

Section 9.1 Appointment of Administrative Agent 91
Section 9.2 Nature of Duties of Administrative Agent 92
Section 9.3 Lack of Reliance on the Administrative Agent 93
Section 9.4 Certain Rights of the Administrative Agent 93
Section 9.5 Reliance by Administrative Agent 93
Section 9.6 The Administrative Agent in its Individual Capacity 93
Section 9.7 Successor Administrative Agent 94
Section 9.8 Withholding Tax 95
Section 9.9 Administrative Agent May File Proofs of Claim 95
Section 9.10 Authorization to Execute other Loan Documents, Releases, Etc. 96



## ARTICLE X
MISCELLANEOUS

Section 10.1 Notices 96
Section 10.2 Waiver; Amendments 98
Section 10.3 Expenses; Indemnification 99
Section 10.4 Successors and Assigns 101
Section 10.5 Governing Law; Jurisdiction; Consent to Service of Process 104
Section 10.6 WAIVER OF JURY TRIAL 105
Section 10.7 Right of Setoff 106
Section 10.8 Counterparts; Integration 106
Section 10.9 Survival 106
Section 10.10 Severability 107
Section 10.11 Confidentiality 107
Section 10.12 Interest Rate Limitation 107
Section 10.13 Waiver of Effect of Corporate Seal 108
Section 10.14 Patriot Act 108
Section 10.15 No Advisory or Fiduciary Responsibility 108
Section 10.16 Location of Closing 109



## Schedules

Schedule I — Applicable Margin and Applicable Percentage
Schedule II — Commitment Amounts
Schedule 4.5 — Environmental Matters
Schedule 4.13 — Gas Imbalances
Schedule 4.14 — Marketing Contracts
Schedule 4.15 — Hedging Agreements
Schedule 4.18 — Subsidiaries
Schedule 7.1 — Outstanding Indebtedness
Schedule 7.2 — Existing Liens
Schedule 7.4 — Existing Investments

## Exhibits

Exhibit A — Form of Assignment and Acceptance
Exhibit B — Form of Guarantee and Collateral Agreement
Exhibit C — List of Collateral Documents
Exhibit D — Form of Notice of Borrowing
Exhibit E — Form of Notice of Continuation/Conversion
Exhibit F — Form of Secretary's Certificate
Exhibit G — Form of Officer's Certificate
Exhibit H — Form of Compliance Certificate



## REVOLVING CREDIT AGREEMENT

THIS REVOLVING CREDIT AGREEMENT (this "Agreement") is made and entered into as of March 14, 2011, by and among RAM Energy Resources, Inc., a Delaware corporation (the "Borrower"), the several banks and other financial institutions and lenders from time to time party hereto (the "Lenders"), SUNTRUST BANK, in its capacity as administrative agent for the Lenders (the "Administrative Agent") and CAPITAL ONE, N.A. in its capacity as syndication agent for the Lenders (the "Syndication Agent").

## WITNESSETH:

WHEREAS, the Borrower has requested that the Lenders establish a revolving credit facility in favor of the Borrower;

WHEREAS, subject to the terms and conditions of this Agreement, the Lenders, the Issuing Bank to the extent of their respective Commitments, are willing severally to establish the requested revolving credit facility and letter of credit subfacility in favor of and severally to make the loans to the Borrower; and

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower, the Lenders, the Administrative Agent and the Issuing Bank agree as follows:

## ARTICLE I

## DEFINITIONS; CONSTRUCTION

Section 1.1 Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):

“Acquired EBITDA” shall mean, with respect to any Acquired Entity or Business for any period, the amount for such period of Consolidated EBITDA of such Acquired Entity or Business, all as determined on a consolidated basis for such Acquired Entity or Business in a manner not inconsistent with GAAP.

“Acquired Entity or Business” shall have the meaning provided in the definition of the term Consolidated EBITDA.

“Additional Commitment Amount” shall have the meaning given to such term in Section 2.22.

“Additional Lender” shall have the meaning given to such term in Section 2.22.

“Adjusted LIBO Rate” shall mean, with respect to each Interest Period for a Eurodollar Borrowing, the rate per annum obtained by dividing (i) LIBOR for such Interest Period by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage.



“Administrative Agent” shall have the meaning assigned to such term in the opening paragraph hereof.

“Administrative Questionnaire” shall mean, with respect to each Lender, an administrative questionnaire in the form provided by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender.

“Affiliate” shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For the purposes of this definition, “Control” shall mean the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by control or otherwise. The terms “Controlling”, “Controlled by”, and “under common Control with” have the meanings correlative thereto.

“Aggregate Maximum Commitments” shall mean, collectively, the Maximum Commitments of all Lenders at any time outstanding.

“Aggregate Maximum Commitment Amount” shall mean the aggregate principal amount of the Aggregate Maximum Commitments from time to time. On the Closing Date, the Aggregate Maximum Commitment Amount is as set forth on Schedule II.

“Aggregate Commitments” shall mean, collectively, all Commitments of all Lenders at any time outstanding.

“Aggregate Commitment Amount” shall mean the aggregate principal amount of the Aggregate Commitments from time to time.

“Applicable Lending Office” shall mean, for each Lender and for each Type of Loan, the “Lending Office” of such Lender (or an Affiliate of such Lender) designated for such Type of Loan in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained.

“Applicable Margin” shall mean, for any day, with respect to any Base Rate Loan or Eurodollar Loan, as the case may be, the rate per annum set forth in the Borrowing Base Utilization Grid, based upon the Borrowing Base Utilization Percentage then in effect, provided in Schedule I.

Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change; provided that if at any time the Borrower fails to deliver a Reserve Report pursuant to Section 5.12(a), then the “Applicable Margin” means the rate per annum set forth on the grid when the Borrowing Base Utilization Percentage is at its highest level. Notwithstanding the foregoing, from the Closing Date through but excluding the date of delivery to the



Administrative Agent of financial statements required by Section 5.1(a) for the year ending December 31, 2010 and the related Compliance Certificate required by Section 5.1(c), the rates set forth in Level III shall apply for purposes of determining the Applicable Margin.

“Applicable Percentage” shall mean, as of any date, with respect to the commitment fee as of any date, the percentage per annum set forth in the Borrowing Base Utilization Grid, based upon the Borrowing Base Utilization Percentage then in effect, provided in Schedule I.

Each change in the Applicable Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change; provided that if at any time the Borrower fails to deliver a Reserve Report pursuant to Section 5.12(a), then the “Applicable Percentage” means the rate per annum set forth on the grid when the Borrowing Base Utilization Percentage is at its highest level.

“Approved Counterparty” means (i) any Lender or any Affiliate of a Lender, (ii) Shell Energy North America (US), L.P., (iii) any other Person whose long term senior unsecured debt rating is A-/A3 by S&P or Moody’s (or their equivalent) or higher, and (iv) with regard to Master Agreements in respect of commodities, and subject to the conditions set forth therein, any other Person approved by the Administrative Agent.

“Approved Fund” shall mean any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Approved Petroleum Engineers” shall mean (i) Forrest A. Garb & Associates and (ii) any other independent petroleum engineers reasonably acceptable to the Administrative Agent and the Borrower.

“Asset Coverage Ratio” shall mean, as of any date, the ratio of (i) NYMEX Value as of the most recent Redetermination Date, minus the NYMEX Value of any Oil and Gas Properties sold since such Redetermination Date, plus the NYMEX Value of any Oil and Gas Properties acquired since such Redetermination Date to (ii) Consolidated Total Debt as of such date.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.4(b)) and accepted by the Administrative Agent, in the form of Exhibit A attached hereto or any other form approved by the Administrative Agent.

“Availability Period” shall mean the period from the Closing Date to but excluding the Maturity Date.



“Bank Product Amount” shall have the meaning set forth in the definition of “Bank Product Provider”.

“Bank Product Obligations” shall mean, collectively, all obligations and other liabilities owed by any Loan Party to any Bank Product Provider arising with respect to any Bank Products.

“Bank Product Provider” shall mean any Person that, at the time it provides any Bank Products to any Loan Party, (i) is a Lender or an Affiliate of a Lender and (ii) except when the Bank Product Provider is SunTrust Bank and its Affiliates, has provided prior written notice to the Administrative Agent which has been acknowledged by the Borrower of (A) the existence of such Bank Product, (B) the maximum dollar amount of obligations arising thereunder (the "Bank Product Amount") and (C) the methodology to be used by such parties in determining the obligations under such Bank Product from time to time. In no event shall any Bank Product Provider acting in such capacity be deemed a Lender for purposes hereof to the extent of and as to Bank Products except that each reference to the term "Lender" in Article IX and Section 10.4 shall be deemed to include such Bank Product Provider and in no event shall the approval of any such person in its capacity as Bank Product Provider be required in connection with the release or termination of any security interest or Lie of the Administrative Agent. The Bank Product Amount may be changed from time to time upon written notice to the Administrative Agent by the applicable Bank Product Provider. No Bank Product Amount may be established at any time that a Default or Event of Default exists.

“Bank Products” shall mean any of the following services provided to any Loan Party by any Bank Product Provider: (i) any treasury or other cash management services, including deposit accounts, automated clearing house (ACH) origination and other funds transfer, depository (including cash vault and check deposit), zero balance accounts and sweeps, return items processing, controlled disbursement accounts, positive pay, lockboxes and lockbox accounts, account reconciliation and information reporting, payables outsourcing, payroll processing, trade finance services, investment accounts and securities accounts, and (ii) card services, including credit card (including purchasing card and commercial card), prepaid cards, including payroll, stored value and gift cards, merchant services processing, and debit card services.

“Base Rate” shall mean the highest of (i) the rate which the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time, (ii) the Federal Funds rate, as in effect from time to time, plus one-half of one percent (1/2%) per annum and (iii) the Adjusted LIBO Rate determined on a daily basis for an Interest Period of one (1) month, plus one percent (1.00%) per annum (any changes in such rates to be effective as of the date of any change in such rate). The Administrative Agent’s prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Administrative Agent may make commercial loans or other loans at rates of interest at, above, or below the Administrative Agent’s prime lending rate. “Base Rate” when used in reference to any Loan or Borrowing, refers to whether such Loan or Loans comprising such Borrowing, which are bearing interest at a rate determined by reference to the Base Rate.



“Borrower” shall have the meaning in the introductory paragraph hereof.

“Borrower’s LTIP” shall mean the RAM Energy Resources, Inc. 2006 Long-Term Incentive Plan.

“Borrowing” shall mean a borrowing consisting of Loans of the same Type, made, converted or continued on the same date and in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

“Borrowing Base” shall mean at any time an amount equal to the amount determined in accordance with Section 2.7, as the same may be adjusted from time to time pursuant to Section 5.13, or Section 7.7 or Section 7.12.

“Borrowing Base Deficiency” occurs if at any time the total Revolving Credit Exposures exceeds the Borrowing Base then in effect.

“Borrowing Base Utilization Percentage” shall mean, as of any day, the fraction expressed as a percentage, the numerator of which is the sum of the Revolving Credit Exposures of the Lenders on such day, and the denominator of which is the Borrowing Base in effect on such day.

“Business Day” shall mean any day other than (i) a Saturday, Sunday or other day on which commercial banks in either Atlanta, Georgia or New York, New York are authorized or required by law to close and (ii) if such day relates to a Borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice with respect to any of the foregoing, any day on which banks are not open for dealings in dollar deposits are carried on in the London interbank market.

“Capital Lease Obligations” of any Person shall mean all obligations of such Person to pay rent or other amounts under any lease (or other arrangement conveying the right to use) of real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“Capital Stock” shall mean all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934).

“Cash Collateralize” shall mean, in respect of any obligations, to provide and pledge (as a first priority perfected security interest) cash collateral for such obligations in Dollars, with the Administrative Agent pursuant to documentation in form and substance, reasonably satisfactory to the Administrative Agent (and “Cash Collateralization” has a corresponding meaning).



“Change in Control” shall mean the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof), (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of 30% or more of the outstanding shares of the voting stock of the Borrower, or (iii) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals who are Continuing Directors.

“Change in Law” shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by any Lender (or its Applicable Lending Office) or the Issuing Bank (or for purposes of Section 2.20(b), by the Parent Company of such Lender or the Issuing Bank, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. Notwithstanding anything herein to the contrary, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and all requests, rules, guidelines and directives promulgated thereunder, are deemed to have been introduced or adopted after the date hereof, regardless of the date enacted or adopted.

“Closing Date” shall mean the date on which the conditions precedent set forth in Section 3.1 and Section 3.2 have been satisfied or waived in accordance with Section 10.2.

“Code” shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time.

“Collateral” shall mean all real and personal property of any kind or character, granted as security under the Collateral Documents.

“Collateral Documents” shall mean the Guaranty and Collateral Agreement, the Mortgages and any and all other mortgages, deeds of trusts, security agreements, pledge agreements, account control agreements, UCC financing statements, letters-in-levu, instruments, agreements, consents or certificates now or hereafter executed and delivered by the Borrower or any other Person (other than Master Agreements with Secured Hedge Counterparties or participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment or performance of the Indebtedness, the Notes, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented or restated from time to time.

“Commitment” shall mean, with respect to each Lender, the commitment of such Lender to make Loans and to acquire participations in Letters of Credit hereunder, expressed as



an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder. The amount representing each Lender's Commitment shall at any time be the lesser of such Lender's Maximum Commitment and such Lender's Pro Rata Share of the then effective Borrowing Base.

“Compliance Certificate” shall mean a certificate from the principal executive officer or the principal financial officer of the Borrower in the form of, and containing the certifications set forth in, the certificate attached hereto as Exhibit H.

“Consolidated Current Assets” shall mean, for any Person at any time, the sum of the current assets of such Person and its Subsidiaries at such time; provided that, for purposes of determining compliance with Section 6.4, the excess of the Aggregate Commitments less the total Revolving Credit Exposures shall be considered a current asset. For purposes of this definition, any non-cash assets resulting from the requirements of ASC 815 for any period of determination shall be excluded from the determination of current assets of such Person and its Subsidiaries.

“Consolidated Current Liabilities” shall mean, for any Person at any time, the current liabilities of such Person and its Subsidiaries at such time; provided that, for purposes of determining compliance with Section 6.4, the current portion of the principal amount of the Loans and the current portion of the principal amount of any loans outstanding under the Second Lien Term Loan Agreement shall not be considered current liabilities. For purposes of this definition, any non-cash liabilities resulting from the requirements of ASC 815 for any period of determination shall be excluded from the determination of current liabilities of such Person and its Subsidiaries.

“Consolidated EBITDA” shall mean, for any Person and its Subsidiaries for any period, an amount equal to the sum of (i) Consolidated Net Income for such period less (ii) unrealized gains from Hedging Transactions, plus (iii) to the extent deducted in determining Consolidated Net Income for such period, and without duplication, (A) Consolidated Interest Expense, (B) income tax expense determined on a consolidated basis in accordance with GAAP, (C) depreciation and amortization determined on a consolidated basis in accordance with GAAP, (D) non-cash compensation expenses under the Borrower's LTIP as determined in accordance with FAS 123R and (E) all other non-cash charges (including unrealized losses from Hedging Transactions) acceptable to the Administrative Agent, determined on a consolidated basis in accordance with GAAP, in each case for such period; provided, however, that (x) there shall be included in determining Consolidated EBITDA for any period, without duplication, (A) the Acquired EBITDA of any Person or business, or attributable to any property or asset, acquired by any Loan Party during such period to the extent not subsequently sold, transferred, abandoned or otherwise disposed by any Loan Party (each such Person, business, property or asset acquired and not subsequently so disposed of, an "Acquired Entity or Business"), based on the actual Acquired EBITDA of such Acquired Entity or Business for such period (including the portion thereof occurring prior to such acquisition or conversion); provided further, that to the extent included in Consolidated Net Income, there shall be excluded in determining Consolidated EBITDA for any period the Disposed EBITDA of any Person, property, business or asset sold, transferred, abandoned or otherwise disposed of, closed or classified as discontinued operations.



by any Loan Party during such period (each such Person, property, business or asset so sold or disposed of, a "Disposed Entity or Business"), based on the actual Disposed EBITDA of such Disposed Entity or Business for such period (including the portion thereof occurring prior to such sale, transfer or disposition or conversion). Notwithstanding the foregoing, in no event shall the Consolidated EBITDA attributable to the Oil and Gas Properties sold to Milagro Producing, LLC or Southridge Energy, LLC in December, 2010 be treated as Disposed EBITDA hereunder. Unless otherwise specified herein, Consolidated EBITDA shall mean Consolidated EBITDA of the Borrower and its Subsidiaries.

“Consolidated Interest Expense” shall mean, for any Person and its Subsidiaries for any period determined on a consolidated basis in accordance with GAAP, the sum of (i) the total interest expense, including without limitation the interest component of any payments in respect of Capital Lease Obligations, paid during such period plus (ii) the net amount payable (or minus the net amount receivable) with respect to interest rate Hedging Transactions during such period (whether or not actually paid or received during such period). Unless otherwise specified herein, Consolidated Interest Expense shall mean Consolidated Interest Expense of the Borrower and its Subsidiaries.

“Consolidated Net Income” shall mean, for any Person and its Subsidiaries for any period, the net income (or loss) of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but excluding therefrom (to the extent otherwise included therein) (i) any extraordinary gains or losses, (ii) any gains attributable to write-ups of assets, (iii) any Capital Stock of such Person or any Subsidiary of such Person in the unremitted earnings of any Person that is not a Subsidiary and (iv) any income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Person or any Subsidiary on the date that such other Person's assets are acquired by the Person or any Subsidiary. Unless otherwise specified herein, Consolidated Net Income shall mean Consolidated Net Income of the Borrower and its Subsidiaries.

“Consolidated Total Debt” shall mean, as of any date, all Indebtedness of the Borrower and its Subsidiaries measured on a consolidated basis as of such date, but excluding Indebtedness of the type described in subsection (xi) of the definition thereto.

“Continuing Director” shall mean, with respect to any period, any individuals (i) who were members of the board of directors or other equivalent governing body of the Borrower on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body, or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).



“Contractual Obligation” of any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking under which such Person is obligated or by which it or any of the property in which it has an interest is bound.

“Current Ratio” shall mean, as of the last day of any Fiscal Quarter, the ratio of Consolidated Current Assets as of such date to Consolidated Current Liabilities as of such date.

“Default” shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Default Interest” shall have the meaning set forth in Section 2.12(b).

“Defaulting Lender” shall mean, at any time, any Lender as to which the Administrative Agent has notified the Borrower that (i) such Lender has failed for three (3) or more Business Days to comply with its obligations under this Agreement to make a Loan and/or to make a payment to the Issuing Bank in respect of a Letter of Credit, (ii) such Lender has notified the Administrative Agent, or has stated publicly, that it will not comply with any such funding obligation hereunder, or has defaulted on, its obligation to fund generally under any other loan agreement, credit agreement or other financing agreement, (iii) such Lender has, for three (3) or more Business Days, failed to confirm in writing to the Administrative Agent, in response to a written request of the Administrative Agent, that it will comply with its funding obligations hereunder, or (iv) a Lender Insolvency Event has occurred and is continuing with respect to such Lender. The Administrative Agent will promptly send to all parties hereto a copy of any notice to the Borrower provided for in this definition.

“Defensible Title” means as to any Oil and Gas Property, such title held by a Loan Party that (i) is free from reasonable doubt to the end that a prudent purchaser engaged in the business of the ownership, development and operation of producing Oil and Gas Properties, with knowledge of all of the facts and their legal bearing, would be willing to accept and pay full value therefor; (ii) is deducible of record from the records of the applicable parish or county, or, in the case of federal leases, from the records of the applicable office of the Bureau of Lands Management or Minerals Management Service, or, in the case of state leases, from the applicable records of the applicable state land office; (iii) entitle such Loan Party to receive not less than the "Net Revenue Interest" set forth in the Initial Reserve Report with respect to each Oil and Gas Property owned by such Loan Party as of the date of this Agreement, and not less than the "Net Revenue Interest" set forth in the most recent Reserve Report with respect to each Oil and Gas Property acquired by such Loan Party after the date of this Agreement, in each case, without reduction, suspension or termination throughout the productive life of such Oil and Gas Property; (iv) obligates such Loan Party to bear costs and expenses relating to operations on and the maintenance and development of each Oil and Gas Property in an amount not greater than the "Working Interests" set forth in the Initial Reserve Report with respect to each Oil and Gas Property owned by such Loan Party as of the date of this Agreement, and not greater than the "Working Interests" set forth in the most recent Reserve Report with respect to each Oil and Gas Property acquired by such Loan Party after the date of this Agreement (except to the extent that such Loan Party is obligated under an operating agreement to assume a portion of a defaulting or non-consenting party's share of costs), in each case without increase for the respective



productive life of such Oil and Gas Property; and (v) is free and clear of Liens and material encumbrances and defects, except for Permitted Encumbrances.

“Disposed EBITDA” shall mean, with respect to any Disposed Entity or Business for any period, the amount for such period of Consolidated EBITDA of such Disposed Entity or Business, all as determined on a consolidated basis for such Disposed Entity or Business in a manner not inconsistent with GAAP.

“Disposed Entity or Business” shall have the meaning provided in the definition of the term Consolidated EBITDA.

“Dollar(s)” and the sign “$” shall mean lawful money of the United States of America.

“Engagement Letter” shall mean that certain engagement letter dated January 26, 2011 among the Borrower, the Administrative Agent and SunTrust Robinson Humphrey, Inc.

“Engineering Reports” shall have the meaning assigned such term in Section 2.7(c)(i).

“Environmental Laws” shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters, in effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting, or at any time has conducted, business, or where any Property of the Borrower or any Subsidiary is located, including, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Law, as amended, and other environmental conservation or protection Governmental Requirements.

“Environmental Liability” shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (i) any actual or alleged violation of any Environmental Law, (ii) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (iii) any actual or alleged exposure to any Hazardous Materials, (iv) the Release or threatened Release of any Hazardous Materials or (v) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.



“Environmental Permit” shall mean any permit, registration, license, notice, approval, consent, exemption, variance, or other authorization required under or issued pursuant to applicable Environmental Laws.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated), which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for the purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” shall mean (i) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (ii) the failure of any Plan to meet the minimum funding standard applicable to the Plan for a plan year under Section 412 of the Code or Section 302 of ERISA, whether or not waived; (iii) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (iv) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (v) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator appointed by the PBGC of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (vi) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (vii) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Eurodollar” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate.

“Eurodollar Reserve Percentage” shall mean the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal (rounded upwards to the next 1/100th of 1%) in effect on any day to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate pursuant to regulations issued by the Board of Governors of the Federal Reserve System (or any Governmental Authority succeeding to any of its principal functions) with respect to eurocurrency funding (currently referred to as “eurocurrency liabilities” under Regulation D). Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D. The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.



## “Event of Default” shall have the meaning provided in Article VIII.

“Excluded Taxes” shall mean with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (i) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its Applicable Lending Office is located, (ii) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Lender is located, (iii) in the case of a Foreign Lender, any withholding tax that (A) is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement, (B) is imposed on amounts payable to such Foreign Lender at any time that such Foreign Lender designates a new lending office, other than taxes that have accrued prior to the designation of such lending office that are otherwise not Excluded Taxes, and (B) is attributable to such Foreign Lender's failure (other than as a result of a change in law) to comply with Section 2.20(e) and (iv) in the case of a Lender or Issuing Bank, any U.S. withholding Taxes that are attributable to such Lender's or Issuing Bank's failure to comply with FATCA.

“Existing Credit Agreement” shall mean that certain Loan Agreement, dated as of November 29, 2007, by and among RAM Energy Resources, Inc., the lenders from time to time parties thereto and Guggenheim Corporate Funding, LLC, as arranger and administrative agent, as amended or modified from time to time.

“Existing Lenders” shall mean all lenders parties to the Existing Credit Agreement on the Closing Date.

“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement, and any current or future regulations or official interpretations thereof.

“Federal Funds Rate” shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent.

“Fiscal Quarter” shall mean any fiscal quarter of the Borrower.

“Fiscal Year” shall mean any fiscal year of the Borrower.

“Foreign Lender” shall mean any Lender that is not a United States person under Section 7701(a)(30) of the Code.

“Foreign Subsidiary” shall mean any Subsidiary that is organized under the laws of a jurisdiction other than one of the fifty states of the United States or the District of Columbia.



“GAAP” shall mean generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3.

“Governmental Authority” shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Governmental Requirement” shall mean any Requirement of Law imposed by any Government Authority.

“Guarantee” of or by any Person (the “guarantor”) shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (iv) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Indebtedness or obligation; provided, that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which Guarantee is made or, if not so stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term “Guarantee” used as a verb has a corresponding meaning.

“Guarantor” shall mean each of the Subsidiary Loan Parties.

“Guaranty and Collateral Agreement” shall mean the Guarantee and Collateral Agreement, dated as of the date hereof and substantially in the form of Exhibit B hereto, made by the Loan Parties in favor of the Administrative Agent for the benefit of the Lenders, Secured Hedge Counterparties and the other secured parties named therein.

“Hazardous Materials” shall mean all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including: (i) any chemical, compound, material, product, byproduct, substance or waste defined as or included in the definition or meaning of “hazardous substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar meaning or import found in any applicable Environmental Law; (ii) Hydrocarbons, petroleum distillers, petroleum products, petroleum substances, natural gas, oil, oil and gas waste, crude oil, and any components, fractions, or



derivatives thereof; and (ii) radioactive materials, explosives, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Hedging Obligations” of any Person shall mean any and all obligations of such Person, whether absolute or contingent and howsoever and wheresoever created, arising, evidenced or acquired under any and all Hedging Transactions with any Lender-Related Hedge Provider.

“Hedging Transaction” of any Person shall mean (i) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into by such Person that is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, spot transaction, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether or not any such transaction is governed by or subject to any master agreement and (ii) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other similar master agreement (any such master agreement, together with any related schedules, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement and (iii) any and all renewals, extensions and modifications of such Hedging Transactions.

“Hydrocarbon Interests” shall mean all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature.

“Hydrocarbons” shall mean oil, gas, casinhead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom.

“Indebtedness” of any Person shall mean, without duplication (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business; provided, that for purposes of Section 8.1(g), trade payables overdue by more than 60 days shall be included in this definition except to the extent that any of such trade payables are being disputed in good faith and by appropriate measures), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to



property acquired by such Person, (v) all Capital Lease Obligations of such Person, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all Guarantees of such Person of the type of Indebtedness described in clauses (i) through (vi) above, (viii) all Indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person, (x) Off-Balance Sheet Liabilities and (xi) all Hedging Obligations. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor.

“Indemnified Taxes” shall mean Taxes other than Excluded Taxes.

“Information Memorandum” shall mean the Confidential Information Memorandum dated February 2011 relating to the Borrower and the transactions contemplated by this Agreement and the other Loan Documents.

“Initial Reserve Report” shall mean the report of Forrest A. Garb & Associates dated as of December 31, 2010 with respect to certain Oil and Gas Properties of the Borrower and its Subsidiaries.

“Interim Redetermination” shall have the meaning assigned such term in Section 2.7(b).

“Interim Redetermination Date” shall mean the date on which a Borrowing Base that has been redetermined pursuant to an Interim Redetermination becomes effective as provided in Section 2.7(b).

“Interest Coverage Ratio” shall mean, as of the last day of any Fiscal Quarter, the ratio of (i) Consolidated EBITDA for the four consecutive Fiscal Quarters ending on such date to (ii) Consolidated Interest Expense for the four consecutive Fiscal Quarters ending on such date, net of, to the extent the same would otherwise be included in Consolidated Interest Expense, amortization of debt discount, fees and expenses relating to the Existing Credit Agreement, this Agreement and the Second Lien Term Loan Agreement and other non-cash interest.

“Interest Period” shall mean with respect to any Eurodollar Borrowing, a period of one, two, three or six months; provided, that:

(i) the initial Interest Period for such Borrowing shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of another Type), and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;

(ii) if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless



such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day;

(iii) any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and

(iv) no Interest Period may extend beyond the Maturity Date.

“Investments” shall have the meaning assigned to such term in Section 7.4.

“Issuing Bank” shall mean SunTrust Bank in its capacity as the issuer of Letters of Credit pursuant to Section 2.22.

“LC Commitment” shall mean that portion of the Aggregate Commitments that may be used by the Borrower for the issuance of Letters of Credit in an aggregate face amount not to exceed $5,000,000.

“LC Disbursement” shall mean a payment made by the Issuing Bank pursuant to a Letter of Credit.

“LC Documents” shall mean all applications, agreements and instruments relating to the Letters of Credit but excluding the Letters of Credit.

“LC Exposure” shall mean, at any time, the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (ii) the aggregate amount of all LC Disbursements that have not been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender shall be its Pro Rata Share of the total LC Exposure at such time.

“Lender Insolvency Event” shall mean that (i) a Lender or its Parent Company is insolvent, or is generally unable to pay its debts as they become due, or admits in writing its inability to pay its debts as they become due, or makes a general assignment for the benefit of its creditors, or (ii) a Lender or its Parent Company is the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding, or a receiver, trustee, conservator, custodian or the like has been appointed for such Lender or its Parent Company, or such Lender or its Parent Company has taken any action in furtherance of or indicating its consent to or acquiescence in any such proceeding or appointment, or (iii) a Lender or its Parent Company has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent; provided that, for the avoidance of doubt, a Lender Insolvency Event shall not be deemed to have occurred solely by virtue of the ownership or acquisition of any Capital Stock in or control of a Lender or a Parent Company thereof by a Governmental Authority or an instrumentality thereof.

“Lender-Related Hedge Provider” shall mean any Person that, at the time it enters into a Hedging Transaction with any Loan Party, is a Lender or an Affiliate of a Lender. Such Lender-Related Hedge Provider, except when the Lender-Related Hedge Provider is SunTrust



Bank and its Affiliates, shall make good faith efforts to provide written notice to the Administrative Agent which has been acknowledged by the Borrower of (x) the existence of such Hedging Transaction, and (y) the methodology to be used by such parties in determining the obligations under such Hedging Transaction from time to time. In no event shall any Lender-Related Hedge Provider acting in such capacity be deemed a Lender for purposes hereof to the extent of and as to Hedging Obligations except that each reference to the term "Lender" in Article IX and Section 10.4 shall be deemed to include such Lender-Related Hedge Provider. In no event shall the approval of any such Person in its capacity as Lender-Related Hedge Provider be required in connection with the release or termination of any security interest or Lien of the Administrative Agent.

“Lenders” shall have the meaning assigned to such term in the opening paragraph of this Agreement and shall include, where appropriate, each Lender that joins this Agreement pursuant to Section 2.22 or Section 2.24.

“Letter of Credit” shall mean any stand-by letter of credit issued pursuant to Section 2.21 by the Issuing Bank for the account of the Borrower pursuant to the LC Commitment.

“Leverage Ratio” shall mean, as of any date, the ratio of (i) Consolidated Total Debt as of such date to (ii) Consolidated EBITDA for the four consecutive Fiscal Quarters ending on or immediately prior to such date for which financial statements are required to have been delivered under this Agreement.

“LIBOR” shall mean, for any Interest Period with respect to a Eurodollar Loan, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR01 Page (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London, England time), two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, LIBOR shall be, for any Interest Period, the rate per annum reasonably determined by the Administrative Agent as the rate of interest at which Dollar deposits in the approximate amount of the Eurodollar Loan comprising part of such borrowing would be offered by the Administrative Agent to major banks in the London interbank Eurodollar market at their request at or about 10:00 a.m. New York time two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period.

“Lien” shall mean any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of any of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing and production payments and the like payable out of Oil and Gas Properties). The term “Lien” shall include easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations. For the purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or



other arrangement pursuant to which title to the property has been retained by or vested in some other Person in a transaction intended to create a financing.

“Loan” shall mean a loan made by a Lender to the Borrower under its Commitment, which may either be a Base Rate Loan or a Eurodollar Loan.

“Loan Documents” shall mean, collectively, this Agreement, the Second Lien Intercreditor Agreement, the Collateral Documents, the LC Documents, all Notices of Borrowing, all Notices of Conversion/Continuation, all Compliance Certificates, all UCC Financing Statements, all stock powers and similar instruments of transfer, any promissory notes issued hereunder and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing.

“Loan Parties” shall mean the Borrower and the Subsidiary Loan Parties.

“Material Adverse Effect” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singularly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, resulting in a material adverse change in, or a material adverse effect on, (i) the business, results of operations, financial condition, assets, liabilities or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of any Loan Party to perform any of its respective obligations under the Loan Documents, (iii) the rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents.

“Material Contract” means, as to any Person, any supply, purchase, service, employment, tax, indemnity, farm-in agreement, farm-out agreement, gas marketing, gas imbalance, operating, unitization, communication, partnership, joint venture or other agreement of such Person or any of its Subsidiaries or by which such Person or any of its Subsidiaries or any of their respective properties are otherwise bound, if such agreement either (i) requires the expenditure of over $1,000,000 by such Person during any calendar year (other than contracts with respect to the routine acquisition of leasehold, the drilling of wells, the construction and operation of gathering, processing or treating facilities or equipment, or other similar contracts pursuant to which such Person routinely acquires, drills, develops and operates the Oil and Gas Properties), or (ii) involves the sale of more than $2,500,000 in Hydrocarbons by such Person in any calendar year (except to the extent any such contract is cancelable by such Person on 60-days' notice or less), or (iii) involves a liability of such Person in excess of $1,000,000, or (iv) results or could result in the loss of title to, or the transfer or creation of a Lien upon any Mortgaged Property (except to the extent otherwise permitted hereunder), or (v) is otherwise determined by Administrative Agent, in its reasonable judgment, to be material to the business, operations or properties of such Person, as the same shall be amended, modified and supplemented and in effect from time to time.

“Material Indebtedness” shall mean any Indebtedness (other than Loans and Letters of Credit) and Hedging Obligations, of the Borrower or any of its Subsidiaries,



individually or in an aggregate committed or outstanding principal amount exceeding $500,000. For purposes of determining the amount of attributed Indebtedness from Hedging Obligations, the "principal amount" of any Hedging Obligations at any time shall be the Net Mark-to-Market Exposure of such Hedging Obligations.

“Maturity Date” shall mean, the earlier of (i) March 13, 2016 or (ii) the date on which the principal amount of all outstanding Loans have been declared or automatically have become due and payable (whether by acceleration or otherwise).

“Maximum Commitment” shall mean as to each Lender, the amount set forth opposite such Lender’s name on Schedule II under the caption “Maximum Commitment,” as such commitment may be (i) modified from time to time pursuant to Section 2.7 or Section 2.23 and (ii) modified from time to time pursuant to assignments by or to such Lender pursuant to Section 10.4.

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Mortgaged Properties” shall mean any property owned by the Borrower or any Subsidiary which is subject to the Liens existing and to exist under the terms of the Collateral Documents.

“Mortgages” shall mean one or more mortgages or deeds of trust, as the same may be amended or supplemented from time to time, to secure the Obligations, executed by the Borrower and/or one or more of its Subsidiaries in favor of the Administrative Agent for the benefit of the Lenders, Secured Hedge Counterparties and the other secured parties named therein, the form and substance of which shall be satisfactory to the Administrative Agent, that encumber the Oil and Gas Properties, related improvements and other related property.

“Multiemployer Plan” shall have the meaning set forth in Section 4001(a)(3) of ERISA.

“New Borrowing Base Notice” has the meaning assigned such term in Section 2.7(d).

“Net Mark-to-Market Exposure” of any Person shall mean, as of any date of determination with respect to any Hedging Obligation, the excess (if any) of all unrealized losses over all unrealized profits of such Person arising from such Hedging Obligation, as determined in accordance with GAAP. “Unrealized losses” shall mean the fair market value of the cost to such Person of replacing the Hedging Transaction giving rise to such Hedging Obligation as of the date of determination (assuming the Hedging Transaction were to be terminated as of that date), and “unrealized profits” shall mean the fair market value of the gain to such Person of replacing such Hedging Transaction as of the date of determination (assuming such Hedging Transaction were to be terminated as of that date).

“Non-Defaulting Lender” shall mean, at any time, a Lender that is not a Defaulting Lender or a Potential Defaulting Lender.



“Notice of Borrowing” shall have the meaning as set forth in Section 2.3.

“Notice of Conversion/Continuation” shall mean the notice given by the Borrower to the Administrative Agent in respect of the conversion or continuation of an outstanding Borrowing as provided in Section 2.7(b). “NYMEX” shall have the meaning as set forth in the definition of “NYMEX Price”.

“NYMEX Price” means, as of the date of the determination thereof with respect to each of the appropriate crude oil or natural gas categories included in the then most recent Reserve Report provided by the Borrower to the Administrative Agent pursuant to Section 5.12, the prices for the 36 succeeding monthly futures contract prices (the “Three Year Strip”) and held constant thereafter based on the price of the average of the contract prices for the last twelve (12) months of such Three Year Strip period, commencing with the month during which the determination is to be made, as quoted on the New York Mercantile Exchange (the “NYMEX”) and published in a nationally recognized publication for such pricing as selected by Administrative Agent, adjusted to account for the historical basis in a manner acceptable to the Administrative Agent, and held constant thereafter; provided, however, in the event that the NYMEX no longer provides futures contract price quotes for 36 month periods, the longest period of quotes of less than 36 months shall be used and held constant thereafter based on the average of the contract prices for the last twelve (12) months of such period, and, if the NYMEX no longer provides such futures contract quotes or has ceased to operate, the Administrative Agent shall designate another nationally recognized commodities exchange to replace the NYMEX for purposes of the references to the NYMEX herein.

“NYMEX Pricing” shall mean, as of any date of determination with respect to any month (i) for crude oil, the closing settlement price for the Light, Sweet Crude Oil futures contract for each month, and (ii) for natural gas, the closing settlement price for the Henry Hub Natural Gas futures contract for such month, in each case as published by NYMEX on its website currently located at www.nymex.com or any successor thereto (as such pricing may be corrected or revised from time to time by the NYMEX in accordance with its rules and regulations).

“NYMEX Value” means, at any date of determination thereof as to the Proved Reserves of the Loan Parties, the present value, discounted at 10% per annum, of future net revenues (i.e., after deducting production and ad valorem taxes and less future capital costs and operating expenses and plugging and abandonment liabilities) from Proved Reserves of the Loan Parties utilizing the NYMEX Price and assuming that production costs thereafter remain constant on a per barrel of oil equivalent basis; provided, however, that with respect to volumes covered by Hedging Transactions that would effectively result in Borrower receiving greater or less than the NYMEX Price for such volumes as a result of payments made or received pursuant to Hedging Transactions, the contract price for such volumes under such Hedging Transactions shall be utilized in lieu of the NYMEX Price; provided, further, that any Hedging Transaction that the Borrower expects to terminate or unwind in accordance with the requirements of Section 7.12 shall not be utilized in calculating NYMEX Value. Solely for purposes of calculating



NYMEX Value, Proved Developed Producing Reserves shall comprise not less than sixty percent (60%) of the NYMEX Value.

“Obligations” shall mean (i) all amounts owing by the Loan Parties to the Administrative Agent, the Issuing Bank, any Lender or SunTrust Robinson Humprey, Inc. as the Lead Arranger pursuant to or in connection with this Agreement or any other Loan Document or otherwise with respect to any Loan or Letter of Credit including without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), all reimbursement obligations, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Administrative Agent, the Issuing Bank and any Lender incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, (ii) all Hedging Obligations owed by any Loan Party to any Secured Hedge Counterparty, and (iii) all Bank Product Obligations, together with all renewals, extensions, modifications or refinancings of any of the foregoing.

“OFAC” shall mean the U.S. Department of the Treasury’s Office of Foreign Assets Control.

“Off-Balance Sheet Liabilities” of any Person shall mean (i) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (ii) any liability of such Person under any sale and leaseback transactions that do not create a liability on the balance sheet of such Person, (iii) any Synthetic Lease Obligation or (iv) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person.

“Oil and Gas Properties” shall mean (i) Hydrocarbon Interests; (ii) the properties now or hereafter pooled or unitized with Hydrocarbon Interests; (iii) all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (iv) all operating agreements, contracts and other agreements, including production sharing contracts and agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (v) all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; (vi) all tenements, hereditaments, appurtenances and properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and (vii) all properties, rights, titles, interests and estates described or referred to above, including any and all property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or property (excluding drilling rigs, automotive equipment, rental



equipment or other personal property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. Unless otherwise specified herein, Oil and Gas Properties shall mean Oil and Gas Properties of the Borrower and its Subsidiaries.

“OSHA” shall mean the Occupational Safety and Health Act of 1970, as amended from time to time, and any successor statute.

“Other Taxes” shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Parent Company” shall mean, with respect to a Lender, the bank holding company (as defined in Federal Reserve Board Regulation Y), if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.

“Participant” shall have the meaning set forth in Section 10.4(d).

“Patriot Act” shall have the meaning set forth in Section 10.14.

“Payment Office” shall mean the office of the Administrative Agent located at 303 Peachtree Street, N.E., Atlanta, Georgia 30308, or such other location as to which the Administrative Agent shall have given written notice to the Borrower and the other Lenders.

“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions.

“Permitted Encumbrances” shall mean:

(i) Liens imposed by law for taxes not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP;

(ii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen or other Liens imposed by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not delinquent or which are being contested in good faith by appropriate action and with respect to which adequate reserves are being maintained in accordance with GAAP;



(iii) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations;

(iv) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(v) judgment and attachment liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(vi) contractual Liens which arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien referred to in this clause does not materially impair the use of the property covered by such Lien for the purposes for which such property is held by the Borrower or any Subsidiary or materially impair the value of such property subject thereto;

(vii) customary rights of set-off, revocation, refund or chargeback under deposit agreements or under the Uniform Commercial Code or common law of banks or other financial institutions where Borrower or any of its Subsidiaries maintains deposits (other than deposits intended as cash collateral) in the ordinary course of business; and

(viii) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any property of the Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, that do not secure any monetary obligations and which in the aggregate do not materially impair the use of such property for the purposes of which such property is held by the Borrower or any Subsidiary or materially impair the value of such property subject thereto;

provided, that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness; provided, further that Liens described above shall remain “Permitted Encumbrances” only for so long as no action to enforce such Lien has been commenced or if



commenced, the Borrower has commenced and continues to pursue appropriate measures to contest such Lien, and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted existence of such Permitted Encumbrances.

“Permitted Investments” shall mean:

(i) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof;

(ii) commercial paper having the highest rating, at the time of acquisition thereof, of S&P or Moody's and in either case maturing within six months from the date of acquisition thereof;

(iii) certificates of deposit, bankers' acceptances and time deposits maturing within 180 days of the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States or any state thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;

(iv) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (i) above and entered into with a financial institution satisfying the criteria described in clause (ii) above; and

(v) mutual funds investing solely in any one or more of the Permitted Investments described in clauses (i) through (iv) above.

“Person” shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority.

“Plan” shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Potential Defaulting Lender” shall mean, at any time, a Lender (i) as to which the Administrative Agent has notified the Borrower that an event of the kind referred to in the definition of “Lender Insolvency Event” has occurred and is continuing in respect of any financial institution affiliate of such Lender or (ii) that has (or its Parent Company or a financial institution affiliate thereof has) notified the Administrative Agent, or has stated publicly, that it will not comply with its funding obligations under any other loan agreement or credit agreement or other similar/other financing agreement.



“Pro Rata Share” shall mean (i) with respect to any Commitment of any Lender at any time, a percentage, the numerator of which shall be such Lender’s Commitment (or if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, such Lender’s Revolving Credit Exposure, as applicable), and the denominator of which shall be the sum of such Commitments of all Lenders (or if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure, as applicable, of all Lenders) and (ii) with respect to all Commitments of any Lender at any time, the numerator of which shall be the sum of such Lender’s Commitment (or if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, such Lender’s Revolving Credit Exposure) and the denominator of which shall be the sum of all Lenders’ Commitments (or if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure of all Lenders funded under such Commitments).

“Projected Production” shall mean, for any fiscal quarter, the internally forecasted reasonably anticipated projected production of crude oil, natural gas and natural gas liquids from proved, developed, producing Oil and Gas Properties of the Borrower and its Subsidiaries for such quarter.

“Proposed Borrowing Base” has the meaning assigned to such term in Section 2.7(c)(i).

“Proposed Borrowing Base Notice” has the meaning assigned to such term in Section 2.7(c)(ii).

“Proved Reserves” means “Proved Reserves” as defined in the Definitions for Oil and Gas Reserves (in this paragraph, the “Definitions”) promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question. “Proved Developed Producing Reserves” means Proved Reserves which are categorized as both “Developed” and “Producing” in the Definitions. “Proved Developed Non-Producing Reserves” means Proved Reserves which are categorized as both “Developed” and “Non-Producing” in the Definitions. “Proved Developed Reserves” means Proved Reserves which are categorized as either “Proved Developed Producing Reserves” or “Proved Developed Non-Producing Reserves” in the definitions. “Proved Undeveloped Reserves” means Proved Reserves which are categorized as “Undeveloped” in the Definitions.

“Proved Undeveloped Mineral Interests” means all Hydrocarbon Interests which constitute proved undeveloped reserves.

“Redemption” shall mean with respect to any Indebtedness (other than Hedging Obligations), the repurchase, redemption, prepayment, repayment, defeasance or any other acquisition or retirement for value (or the segregation of funds with respect to any of the foregoing) of such Indebtedness. “Redeem” has the correlative meaning thereto.

“Redetermination Date” shall mean, with respect to any Scheduled Redetermination or any Interim Redetermination, the date that the redetermined Borrowing Base related thereto becomes effective pursuant to Section 2.7(d).



“Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Regulation T” shall mean Regulation T of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Regulation U” shall mean Regulation U of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Regulation X” shall mean Regulation X of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective managers, administrators, trustees, partners, directors, officers, employees, agents, advisors or other representatives of such Person and such Person’s Affiliates.

“Release” shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

“Remedial Work” has meaning assigned such term in Section 5.6(a).

“Required Lenders” shall mean, at any time, Lenders holding more than 66 2/3% of the aggregate outstanding Commitments at such time or if the Lenders have no Commitments outstanding, then Lenders holding more than 66 2/3% of the Revolving Credit Exposure of the Lenders; provided, however, that to the extent that any Lender is a Defaulting Lender, such Defaulting Lender and all of its Commitments, Revolving Credit Exposure shall be excluded for purposes of determining Required Lenders.

“Requirement of Law” for any Person shall mean the articles or certificate of incorporation, bylaws, partnership certificate and agreement, or limited liability company certificate of organization and agreement, as the case may be, and other organizational and governing documents of such Person, and any law, treaty, rule or regulation, or determination of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Reserve Report” means a report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each January 1st or July 1st (or such other date in the event of an Interim Redetermination) the oil and gas reserves attributable to the Oil and Gas Properties of the Borrower and its Subsidiaries, together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing and economic assumptions consistent with the term NYMEX Value as used herein.



“Responsible Officer” shall mean any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer or a vice president of the Borrower or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Administrative Agent; and, with respect to the financial covenants only, the chief financial officer or the treasurer of the Borrower.

“Restricted Payment” shall mean, for any Person, any dividend or distribution on any class of its Capital Stock, or any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition of, any shares of its Capital Stock, any Indebtedness subordinated to the Obligations or any Guarantee thereof or any options, warrants, or other rights to purchase such Capital Stock or such Indebtedness, whether now or hereafter outstanding.

“Revolving Credit Exposure” shall mean, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Loans and LC Exposure.

“S&P” shall mean Standard & Poor’s, a Division of the McGraw-Hill Companies.

“Scheduled Redetermination” shall have the meaning set forth in Section 2.7(b).

“Second Lien Intercreditor Agreement” shall mean that certain Intercreditor Agreement, dated as of even date herewith, by and among the Administrative Agent, the administrative agent under the Second Lien Loan Documents, the Borrower and each Guarantor party thereto, as amended, modified or replaced from time to time.

“Second Lien Term Loan Agreement” shall mean that certain Second Lien Term Loan Credit Agreement, dated as of the date hereof, among the Borrower, Guggenheim Corporate Funding, LLC, as the administrative agent, and the lenders from time to time party thereto, together with all amendments, modifications and supplements thereto.

“Second Lien Term Loan Document” shall mean the Second Lien Term Loan Agreement, the Second Lien Notes and any “Loan Documents” (as defined in the Second Lien Term Loan Agreement), in each case, together with all amendments, modifications and supplements thereto.

“Second Lien Notes” shall mean all notes delivered in connection with the Second Lien Term Loan Agreement, together with all amendments, modifications, replacements, extension and rearrangements thereof.
“Secured Hedge Counterparty” shall mean any Lender-Related Hedge Provider.

“Solvent” shall mean, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including subordinated and contingent liabilities, of such Person; (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts and liabilities, including subordinated and contingent liabilities as they become absolute and matured; (iii) such Person does not intend to,



and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (iv) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that would reasonably be expected to become an actual or matured liability.

“Subsidiary” shall mean, with respect to any Person (the “parent”), any corporation, partnerships, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, (i) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power, or in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (ii) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to “Subsidiary” hereunder shall mean a Subsidiary of the Borrower.

“Subsidiary Loan Party” shall mean any Subsidiary that executes or becomes a party to the Guaranty and Collateral Agreement.

“Synthetic Lease” shall mean a lease transaction under which the parties intend that (i) the lease will be treated as an “operating lease” by the lessee pursuant to Accounting Standards Codification Sections 840-10 & 840-20, as amended and (ii) the lessee will be entitled to various tax and other benefits ordinarily available to owners (as opposed to lessees) of like property.

“Synthetic Lease Obligations” shall mean, with respect to any Person, the sum of (i) all remaining rental obligations of such Person as lessee under Synthetic Leases which are attributable to principal and, without duplication, (ii) all rental and purchase price payment obligations of such Person under such Synthetic Leases assuming such Person exercises the option to purchase the lease property at the end of the lease term.

“Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“Three Year Strip” shall have the meaning as set forth in the definition of “NYMEX Price”.

“Transmittal” shall have the meaning set forth in Section 5.12(c).

“Type”, when used in reference to a Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Base Rate.



“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

Section 1.2 Classifications of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g. "Eurodollar Loan" or "Base Rate Loan"). Borrowings also may be classified and referred to by Type (e.g. "Eurodollar Borrowing" or "Revolving Eurodollar Borrowing").

Section 1.3 Accounting Terms and Determination. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent with the most recent audited consolidated financial statement of the Borrower delivered pursuant to Section 5.1(a); provided, that if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Accounting Standards Codification Section 825-10 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Loan Party or any Subsidiary of any Loan Party at "fair value", as defined therein.

Section 1.4 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the word "to" means "to but excluding". Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "hereof", "herein" and "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to



## ARTICLE II
AMOUNT AND TERMS OF THE COMMITMENTS

Section 2.1 General Description of Facilities. Subject to and upon the terms and conditions herein set forth, (i) the Lenders hereby establish in favor of the Borrower a revolving credit facility pursuant to which each Lender severally agrees (to the extent of such Lender's Commitment) to make Loans to the Borrower in accordance with Section 2.2, (ii) the Issuing Bank may issue Letters of Credit in accordance with Section 2.21, and (iii) each Lender agrees to purchase a participation interest in the Letters of Credit pursuant to the terms and conditions hereof, provided, that in no event shall the aggregate principal amount of all outstanding Loans and outstanding LC Exposure exceed the Aggregate Commitment Amount in effect from time to time.

Section 2.2 Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make Loans, ratably in proportion to its Pro Rata Share of the Commitments, to the Borrower, from time to time during the Availability Period, in an aggregate principal amount outstanding at any time that will not result in (a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the aggregate Revolving Credit Exposures of all Lenders exceeding the Aggregate Commitment Amount. During the Availability Period, the Borrower shall be entitled to borrow, prepay and reborrow Loans in accordance with the terms and conditions of this Agreement; provided, that the Borrower may not borrow or reborrow should there exist a Default or Event of Default.

Section 2.3 Procedure for Borrowings. The Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Borrowing substantially in the form of Exhibit D (a "Notice of Borrowing") (x) prior to 11:00 a.m. New York time one (1) Business Day prior to the requested date of each Base Rate Borrowing and (y) prior to 11:00 a.m. New York time three (3) Business Days prior to the requested date of each Eurodollar Borrowing. Each Notice of Borrowing shall be irrevocable and shall specify: (i) the aggregate principal amount of such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day), (iii) the Type of such Loan comprising such Borrowing and (iv) in the case of a Eurodollar Borrowing, the duration of the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). Each Borrowing shall consist entirely of Base Rate Loans or Eurodollar Loans, as the Borrower may request. The aggregate principal amount of each Eurodollar Borrowing shall be not less than $5,000,000 or a larger multiple of $1,000,000, and the aggregate principal amount of each Base Rate Borrowing shall not be less than $1,000,000 or a larger multiple of $100,000; provided, that Base Rate Loans made pursuant to Section 2.4 or Section 2.21(d) may be made in lesser amounts as provided therein. At no time shall the total number of Eurodollar Borrowings outstanding at any time exceed six. Promptly following the receipt of a Notice of Borrowing in accordance herewith, the Administrative Agent shall advise each Lender of the details thereof and the amount of such Lender's Loan to be made as part of the requested Borrowing.



## Section 2.4 Funding of Borrowings.

(a) Each Lender will make available each Loan to be made by it hereunder on the proposed date thereof by wire transfer in immediately available funds by 11:00 a.m. New York time to the Administrative Agent at the Payment Office. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts that it receives, in like funds by the close of business on such proposed date, to an account maintained by the Borrower with the Administrative Agent or at the Borrower's option, by effecting a wire transfer of such amounts to an account designated by the Borrower to the Administrative Agent.

(b) Unless the Administrative Agent shall have been notified by any Lender prior to 5:00 p.m. New York time one (1) Business Day prior to the date of a Borrowing in which such Lender is to participate that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance on such assumption, may make available to the Borrower on such date a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender on the date of such Borrowing, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest at the Federal Funds Rate until the second Business Day after such demand and thereafter at the Base Rate. If such Lenders does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent together with interest at the rate specified for such Borrowing. Nothing in this subsection shall be deemed to relieve any Lender from its obligation to fund its Pro Rata Share of any Borrowing hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder.

(c) All Borrowings shall be made by the Lenders on the basis of their respective Pro Rata Shares. No Lender shall be responsible for any default by any other Lender in its obligations hereunder, and each Lender shall be obligated to make its Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder.

## Section 2.5 Interest Elections.

(a) Each Borrowing initially shall be of the Type specified in the applicable Notice of Borrowing. Thereafter, the Borrower may elect to convert such Borrowing into a different Type or to continue such Borrowing, all as provided in this Section 2.5. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

(b) To make an election pursuant to this Section 2.5, the Borrower shall give the Administrative Agent prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing substantially in the form of Exhibit E attached hereto (a "Notice of



Conversion/Continuation") that is to be converted or continued, as the case may be, (x) prior to 10:00 a.m. New York time one (1) Business Day prior to the requested date of a conversion into a Base Rate Borrowing and (y) prior to 11:00 a.m. New York time three (3) Business Days prior to a continuation of or conversion into a Eurodollar Borrowing. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify (i) the Borrowing to which such Notice of Conversion/Continuation applies and if different options are being elected with respect to different portions thereof, the portions thereof that are to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Notice of Conversion/Continuation, which shall be a Business Day; (iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is to be a Eurodollar Borrowing, the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of "Interest Period". If any such Notice of Conversion/Continuation requests a Eurodollar Borrowing but does not specify an Interest Period, the Borrower shall be deemed to have selected an Interest Period of one month. The principal amount of any resulting Borrowing shall satisfy the minimum borrowing amount for Eurodollar Borrowings and Base Rate Borrowings set forth in Section 2.3.

(c) If, on the expiration of any Interest Period in respect of any Eurodollar Borrowing, the Borrower shall have failed to deliver a Notice of Conversion/Continuation, then, unless such Borrowing is repaid as provided herein, the Borrower shall be deemed to have elected to convert such Borrowing to a Base Rate Borrowing. No Borrowing may be converted into, or continued as, a Eurodollar Borrowing if a Default or an Event of Default exists, unless the Administrative Agent and each of the Lenders shall have otherwise consented in writing. No conversion of any Eurodollar Loans shall be permitted except on the last day of the Interest Period in respect thereof.

(d) Upon receipt of any Notice of Conversion/Continuation, the Administrative Agent shall promptly notify each Lender of the details thereof and of such Lender's portion of each resulting Borrowing.

## Section 2.6 Optional Reduction and Termination of Commitments.

(a) Unless previously terminated, all Commitments and LC Commitments shall terminate on the Maturity Date.

(b) Upon at least three (3) Business Days' prior written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent (which notice shall be irrevocable), the Borrower may reduce the Aggregate Maximum Commitment Amount in part or terminate the Aggregate Maximum Commitments (and by virtue thereof, all Commitments) in whole; provided, that (i) any partial reduction shall apply to reduce proportionately and permanently the Maximum Commitment of each Lender, (ii) any partial reduction pursuant to this Section 2.6 shall be in an amount of at least $5,000,000 and any larger multiple of $1,000,000, and (iii) no such reduction shall be permitted which would reduce the Aggregate Maximum Commitment Amount to an amount less than the aggregate outstanding Revolving



Credit Exposure of all Lenders. Any such reduction in the Aggregate Maximum Commitment Amount below the principal amount of the LC Commitment shall result in a dollar-for-dollar reduction in the LC Commitment.

(c) With the written approval of the Administrative Agent, the Borrower may terminate (on a non-rateable basis) the unused amount of the Maximum Commitment (and by virtue, thereof, all Commitments) of a Defaulting Lender, and in such event the provisions of Section 2.25 will apply to all amounts thereafter paid by the Borrower for the account of any such Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other amounts), provided that such termination will not be deemed to be a waiver or release of any claim the Borrower, the Administrative Agent, the Issuing Bank or any Lender may have against such Defaulting Lender.

## Section 2.7 Borrowing Base.

(a) For the period from and including the Closing Date to but excluding the first Redetermination Date, the amount of the Borrowing Base shall be $150,000,000. Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to Section 5.13, Section 7.7 and Section 7.12.

(b) The Borrowing Base shall be redeemed semi-annually in accordance with this Section 2.7 (a "Scheduled Redetermination"), and, subject to Section 2.7(d), such redeemed Borrowing Base shall become effective and applicable to the Borrower, the Administrative Agent, the Issuing Bank and the Lenders on March 31st and September 30th of each year, commencing September 30, 2011. In addition, the Borrower may, by notifying the Administrative Agent thereof, two times during any calendar year, and the Administrative Agent, at the direction of the Required Lenders, by notifying the Borrower thereof, one time during any calendar year, each elect to cause the Borrowing Base to be redetermined between Scheduled Redeterminations (an "Interim Redetermination") in accordance with this Section 2.7.

## (c) Scheduled and Interim Redetermination Procedure.

(i) Each Scheduled Redetermination and each Interim Redetermination shall be effectuated as follows: Upon receipt by the Administrative Agent of (A) the Reserve Report and the certificate required to be delivered by the Borrower to the Administrative Agent, in the case of a Scheduled Redetermination, pursuant to Section 5.12(a), and, in the case of an Interim Redetermination, pursuant to Section 5.12(b) and (B) such other reports, data and supplemental information, including, without limitation, the Transmittal and other information provided pursuant to Section 5.12(c), as may, from time to time, be reasonably requested by the Administrative Agent (the Reserve Report, such certificate and such other reports, data and supplemental information being the "Engineering Reports"), the Administrative Agent shall evaluate the information contained in the Engineering Reports and shall, in good faith, propose a new Borrowing Base (the "Proposed Borrowing Base") based upon such information and such other information (including, without limitation, the status of title information with respect to the Oil and Gas Properties as described in the Engineering Reports and the existence of any other Indebtedness) as the Administrative Agent deems appropriate in



its sole discretion and consistent with its normal oil and gas lending criteria as it exists at the particular time. In no event shall the Proposed Borrowing Base exceed the Aggregate Maximum Commitment Amount.

(ii) The Administrative Agent shall notify the Borrower and the Lenders of the Proposed Borrowing Base (the "Proposed Borrowing Base Notice"):

(A) in the case of a Scheduled Redetermination (1) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrower pursuant to Section 5.12(a) and (c) in a timely and complete manner, then on or before the March 1st and September 1st of such year following the date of delivery or (2) if the Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrower pursuant to Section 5.12(a) and (c) in a timely and complete manner, then promptly after the Administrative Agent has received complete Engineering Reports from the Borrower and has had a reasonable opportunity to determine the Proposed Borrowing Base in accordance with Section 2.7(c)(i); and

(B) in the case of an Interim Redetermination, promptly, and in any event, within fifteen (15) days after the Administrative Agent has received the required Engineering Reports.

(iii) Any Proposed Borrowing Base that would increase the Borrowing Base then in effect must be approved or deemed to have been approved by all of the Lenders as provided in this Section 2.7(c)(iii); and any Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect must be approved or be deemed to have been approved by Required Lenders. Upon receipt of the Proposed Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with the Proposed Borrowing Base or disagree with the Proposed Borrowing Base by proposing an alternate Borrowing Base. If at the end of such fifteen (15) days, any Lender has not communicated its approval or disapproval in writing to the Administrative Agent, such silence shall be deemed to be an approval of the Proposed Borrowing Base. If, at the end of such 15-day period, all of the Lenders, in the case of a Proposed Borrowing Base that would increase the Borrowing Base then in effect, or the Required Lenders, in the case of a Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect have approved or deemed to have approved, as aforesaid, then the Proposed Borrowing Base shall become the new Borrowing Base, effective on the date specified in Section 2.7(d). If, however, at the end of such 15-day period, the Required Lenders, as applicable, have not approved or deemed to have approved, as aforesaid, then the Administrative Agent shall poll the Lenders to ascertain the highest Borrowing Base then acceptable to the number of Lenders sufficient to constitute the Required Lenders, as applicable, for purposes of this Section 2.7(c)(iii) and, so long as such amount does not increase the Borrowing Base then in effect, such amount shall become the new Borrowing Base, effective on the date specified in Section 2.7(d).

(d) After a redetermined Borrowing Base is approved or is deemed to have been approved by all of the Lenders or the Required Lenders, as applicable, pursuant to Section 2.7(c)(ii) the Administrative Agent shall notify the Borrower and the Lenders of the amount of



the redetermined Borrowing Base (the "New Borrowing Base Notice"), and such amount shall become the new Borrowing Base, effective and applicable to the Borrower, the Administrative Agent, the Issuing Bank and the Lenders:

(i) in the case of a Scheduled Redetermination, (A) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrower pursuant to Section 5.12(a) and (c) in a timely and complete manner, then on March 31st or September 30th, as applicable, following such notice, or (B) if the Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrower pursuant to Section 5.12(a) and (c) in a timely and complete manner, then on the Business Day next succeeding delivery of such notice; and

(ii) in the case of an Interim Redetermination, on the Business Day next succeeding delivery of such notice.

Such amount shall then become the Borrowing Base until the next Scheduled Redetermination Date, the next Interim Redetermination Date or the next adjustment to the Borrowing Base under Section 5.13, Section 7.7 or Section 7.12 whichever occurs first. Notwithstanding the foregoing, no Scheduled Redetermination or Interim Redetermination shall become effective until the New Borrowing Base Notice related thereto is received by the Borrower.

(e) If a Borrowing Base Deficiency exists at any time (other than as a result of any reduction and/or redetermination of the Borrowing Base pursuant to Section 5.13, Section 7.7 or Section 7.12), Borrower shall, within 30 days following notice thereof from Administrative Agent, provide written notice (the "Election Notice") to Administrative Agent stating the action which Borrower proposes to take to remedy such Borrowing Base Deficiency, and Borrower shall thereafter, at its option, do one or a combination of the following: (a) within 30 days following the delivery of such Election Notice, make a prepayment of principal on the Loans in an amount sufficient to eliminate such Borrowing Base Deficiency, and if such Borrowing Base Deficiency cannot be eliminated by prepaying the Loans in full (as a result of outstanding LC Exposure), Borrower shall also at such time or times deposit with Administrative Agent Cash Collateral as necessary to eliminate the requirements of such Borrowing Base Deficiency, (b) within 30 days following the delivery of such Election Notice, submit additional Oil and Gas Properties owned by Borrower and its Subsidiaries for consideration in connection with the determination of the Borrowing Base which Administrative Agent and Required Lenders deem sufficient in their sole discretion to eliminate such Borrowing Base Deficiency, or (c) eliminate such deficiency by making six consecutive mandatory prepayments of principal on the Loans, each of which shall be in the amount of one sixth of the amount of such Borrowing Base Deficiency, commencing on the date that is 30 days after notice of such Borrowing Base Deficiency is delivered to the Borrower and continuing thereafter on each monthly anniversary of such first payment, and in connection therewith, Borrower shall dedicate a sufficient amount (as determined by Administrative Agent) of the monthly cash flow from Borrower's Oil and Gas Properties to satisfy such payments. Notwithstanding the foregoing, upon any adjustment and/or redetermination of the Borrowing Base other than pursuant to this Section 2.7 which results in a Borrowing Base Deficiency (or an increase in any existing Borrowing Base Deficiency), Borrower shall promptly, but in all events no later than a Business Day after such Borrowing



Base Deficiency first occurs (or earlier if required by such sections), make a mandatory prepayment of principal on the Loans in an amount sufficient to eliminate such Borrowing Base Deficiency (or increase in any previously existing Borrowing Base Deficiency).

Section 2.8 Repayment of Loans. The outstanding principal amount of all Loans shall be due and payable (together with accrued and unpaid interest thereon) on the Maturity Date. The Borrower hereby unconditionally promises to repay in full the unpaid principal amount of each Loan upon the Maturity Date.

## Section 2.9 Evidence of Indebtedness.

(a) Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded (i) the Maximum Commitment and Commitment of each Lender, (ii) the amount of each Loan made thereunder by each Lender, the Type thereof and the Interest Period applicable thereto, (iii) the date of each continuation thereof pursuant to Section 2.5, (iv) the date of each conversion of all or a portion thereof to another Type pursuant to Section 2.5, (v) the date and amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder in respect of such Loans and (vi) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of the Loans and each Lender's Pro Rata Share thereof. The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (both principal and unpaid accrued interest) of such Lender in accordance with the terms of this Agreement.

(b) This Agreement evidences the obligation of the Borrower to repay the Loans and is being executed as a "noteless" credit agreement. However, at the request of any Lender at any time, the Borrower agrees that it will prepare, execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment permitted hereunder) be represented by one or more promissory notes in such form payable to the payee named therein (or to such payee and its registered assigns).

Section 2.10 Optional Prepayments. The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, without premium or penalty, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent no later than (i) in the case of prepayment of any Eurodollar Borrowing, 11:00 a.m. New York time not less than three (3) Business Days prior to any such prepayment and (ii) in the case of any prepayment of any Base Rate Borrowing, prior to 11:00 a.m. New York time on the date of such prepayment. Each such notice shall be irrevocable and shall



specify the proposed date of such prepayment and the principal amount of each Borrowing or portion thereof to be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each affected Lender of the contents thereof and of such Lender's Pro Rata Share of any such prepayment. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.12(c); provided, that if a Eurodollar Borrowing is prepaid on a date other than the last day of an Interest Period applicable thereto, the Borrower shall also pay all amounts required pursuant to Section 2.18. Each partial prepayment of any Loan shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type pursuant to Section 2.2. Each prepayment of a Borrowing shall be applied ratably to the Loans comprising such Borrowing.

## Section 2.11 Mandatory Prepayments.

(a) Immediately upon receipt by the Borrower or any of its Subsidiaries of proceeds in excess of $100,000 from any property insurance policies or eminent domain, condemnation or similar proceeds, the Borrower shall prepay the Obligations in an amount equal to all such proceeds, net of commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by such Borrower in connection therewith (in each case, paid to non-Affiliates), except to the extent that such proceeds from property insurance policies, eminent domain, condemnation or similar proceeds are reinvested in the business of the Loan Parties within 180 days following receipt thereof, and until reinvested are held in controlled accounts subject to control account agreements in form and substance reasonably satisfactory to the Administrative Agent.

(b) Upon any redetermination of or adjustment to the amount of the Borrowing Base in accordance with Section 2.7, if any Borrowing Base Deficiency exists, then the Borrower shall prepay the Borrowings and/or Cash Collateralize the LC Exposure in accordance with Section 2.7(e). Any such prepayment shall be applied in accordance with Section 2.11(e).

(c) Upon any adjustments to the Borrowing Base pursuant to Section 5.13, Section 7.7 or Section 7.12, if a Borrowing Base Deficiency exists, then the Borrower shall (a) prepay the Borrowings in an aggregate principal amount equal to such excess, and (b) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, the Borrower shall Cash Collateralize its reimbursement obligations with respect to all Letters of Credit in an amount equal to such excess plus any accrued and unpaid fees thereon. With respect to any adjustment pursuant to Section 5.13, the Borrower shall be obligated to make such prepayment and/or deposit of Cash Collateral no later than 5 Business Days following the effective date of such adjustment of the Borrowing Base. With respect to any adjustment pursuant to Section 7.7, the Borrower shall be obligated to make such prepayment and/or deposit of Cash Collateral on the date it or any Subsidiary receives cash proceeds as a result of such disposition. With respect to any adjustment pursuant to Section 7.12, the Borrower shall be obligated to make such prepayment and/or deposit of Cash Collateral on the Business Day immediately following the date on which the Borrowing Base is adjusted pursuant to Section



7.12(b). Any such prepayment shall be applied in accordance with Section 2.11(e). Any such prepayment shall be applied in accordance with Section 2.11(e).

(d) If the Borrower or any of its Subsidiaries issues any Indebtedness or Capital Stock (other than Indebtedness permitted under Section 7.1 and Capital Stock issued by a Subsidiary of the Borrower to the Borrower or another Subsidiary) then no later than the Business Day following the date of receipt of the proceeds thereof, Borrower shall prepay the Obligations in an amount equal to all such proceeds, net of underwriting discounts and commissions and other reasonable costs paid to non-Affiliates in connection therewith except to the extent proceeds from the issuance of Capital Stock are used to Redeem Indebtedness under the Second Lien Term Loan Agreement in accordance with Section 7.6; provided, however, that for purposes of this Section 2.11(d), Jefferies Group Inc. and its Affiliates shall be considered "non-Affiliates" in respect of any commissions or fees paid thereto in connection with the issuance of Capital Stock by the Borrower. Any such prepayment shall be applied in accordance with Section 2.11(e).

(e) Any prepayments made by the Borrower pursuant to Sections 2.11(a), (b), (c) and (d) above shall be applied as follows: first, to Administrative Agent's fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; second, to all reimbursable expenses of the Lenders and all fees and reimbursable expenses of the Issuing Bank then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders and the Issuing Bank based on their respective pro rata shares of such fees and expenses; third, to interest and fees then due and payable hereunder, pro rata to the Lenders based on their respective pro rata shares of such interest and fees; fourth, to the principal balance of the Loans, until the same shall have been paid in full, pro rata to the Lenders based on their respective Commitments and fifth, after the Loans have been paid in full, to Cash Collateralize the Letters of Credit in an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid fees thereon. The Commitments of the Lenders shall not be permanently reduced by the amount of any prepayments applied in accordance with clauses fourth and fifth above, unless an Event of Default has occurred and is continuing and the Required Lenders so request.

(f) If at any time the Revolving Credit Exposure of all Lenders exceeds the Aggregate Commitment Amount, as reduced pursuant to Section 2.6 or otherwise, the Borrower shall immediately repay the Loans in an amount equal to such excess, together with all accrued and unpaid interest on such excess amount and any amounts due under Section 2.19. Each prepayment shall be applied first to the Base Rate Loans to the full extent thereof, and finally to Eurodollar Loans to the full extent thereof. If after giving effect to prepayment of all Loans, the Revolving Credit Exposure of all Lenders exceeds the Aggregate Commitment Amount, the Borrower shall Cash Collateralize its reimbursement obligations with respect to all Letters of Credit in an amount equal to such excess plus any accrued and unpaid fees thereon.

## Section 2.12 Interest on Loans.

(a) The Borrower shall pay interest on (i) each Base Rate Loan at the Base Rate plus the Applicable Margin in effect from time to time and (ii) each Eurodollar Loan at the



Adjusted LIBO Rate for the applicable Interest Period in effect for such Loan plus the Applicable Margin in effect from time to time.

(b) Notwithstanding clause (a) above, if an Event of Default has occurred and is continuing, at the option of the Required Lenders, and after acceleration, the Borrower shall pay interest ("Default Interest") with respect to all Eurodollar Loans at the rate per annum equal to 200 basis points above the otherwise applicable interest rate for such Eurodollar Loans for the then-current Interest Period until the last day of such Interest Period, and thereafter, and with respect to all Base Rate Loans and all other Obligations hereunder (other than Loans), at the rate per annum equal to 200 basis points above the otherwise applicable interest rate for Base Rate Loans.

(c) Interest on the principal amount of all Loans shall accrue from and including the date such Loans are made to but excluding the date of any repayment thereof. Interest on all outstanding Base Rate Loans shall be payable quarterly in arrears on the last day of each March, June, September and December and on the Maturity Date or the Maturity Date, as the case may be. Interest on all outstanding Eurodollar Loans shall be payable on the last day of each Interest Period applicable thereto, and, in the case of any Eurodollar Loans having an Interest Period in excess of three months, on each day which occurs every three months after the initial date of such Interest Period, and on the Maturity Date or the Maturity Date, as the case may be. Interest on any Loan which is converted into a Loan of another Type or which is repaid or prepaid shall be payable on the date of such conversion or on the date of any such repayment or prepayment (on the amount repaid or prepaid) thereof. All Default Interest shall be payable on demand.

(d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and shall promptly notify the Borrower and the Lenders of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be conclusive and binding for all purposes, absent manifest error.

## Section 2.13 Fees.

(a) The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon in writing by the Borrower and the Administrative Agent including those fees set forth in the Engagement Letter.

(b) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Percentage per annum (as set forth on Schedule I) on the daily amount of the unused Commitment of such Lender during the Availability Period. For purposes of computing commitment fees with respect to the Commitments, the Commitment of each Lender shall be deemed used to the extent of the outstanding Loans and LC Exposure of such Lender.

(c) The Borrower agrees to pay (i) to the Administrative Agent, for the account of each Lender, a letter of credit fee with respect to its participation in each Letter of Credit, which shall accrue at a rate per annum equal to the Applicable Margin for Eurodollar Loans then in effect on the average daily amount of such Lender's LC Exposure attributable to



such Letter of Credit during the period from and including the date of issuance of such Letter of Credit to but excluding the date on which such Letter of Credit expires or is drawn in full (including without limitation any LC Exposure that remains outstanding after the Maturity Date) and (ii) to the Issuing Bank for its own account at a fronting fee, which shall accrue at the rate of 0.25% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the Availability Period (or until the date that such Letter of Credit is irrevocably cancelled, whichever is later), as well as the Issuing Bank's standard fees with respect to issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Notwithstanding the foregoing, if the Required Lenders elect to increase the interest rate on the Loans to the Default Interest pursuant to Section 2.12(b) the rate per annum used to calculate the letter of credit fee pursuant to clause (i) above shall automatically be increased by 200 basis points.

(d) The Borrower shall pay on the Closing Date to the Administrative Agent and its Affiliates all fees in the Engagement Letter that are due and payable on the Closing Date. The Borrower shall pay on the Closing Date to the Administrative Agent for the account of the Lenders all upfront fees previously agreed in writing.

(e) Accrued fees under paragraphs (b) and (c) above shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing on March 31, 2011 and on the Maturity Date (and if later, the date the Loans and LC Exposure shall be repaid in their entirety); provided further, that any such fees accruing after the Maturity Date shall be payable on demand.

(f) Anything herein to the contrary notwithstanding, during such period as a Lender is a Defaulting Lender, such Defaulting Lender will not be entitled to commitment fees accruing with respect to its Commitment during such period pursuant to Section 2.13(b) or letter of credit fees accruing during such period pursuant to Section 2.13(c) (without prejudice to the rights of the Lenders other than Defaulting Lenders in respect of such fees), provided that (i) to the extent that a portion of the LC Exposure of such Defaulting Lender is reallocated to the Non-Defaulting Lenders pursuant to Section 2.25, such fees that would have accrued for the benefit of such Defaulting Lender will instead accrue for the benefit of and be payable to such Non-Defaulting Lenders, pro rata in accordance with their respective Commitments and (ii) to the extent any portion of such LC Exposure cannot be so reallocated, such fees will instead accrue for the benefit of and be payable to the Issuing Bank.

## Section 2.14 Computation of Interest and Fees.

Interest hereunder based on the Administrative Agent's prime lending rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and all fees hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Each determination by the Administrative Agent of an interest rate or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes.



Section 2.15 Inability to Determine Interest Rates. If prior to the commencement of any Interest Period for any Eurodollar Borrowing,

(i) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant interbank market, adequate means do not exist for ascertaining LIBOR for such Interest Period, or

(ii) the Administrative Agent shall have received notice from the Required Lenders that the Adjusted LIBO Rate does not adequately and fairly reflect the cost to such Lenders (or Lender, as the case may be) of making, funding or maintaining their (or its, as the case may be) Eurodollar Loans for such Interest Period,

the Administrative Agent shall give written notice (or technic note, promptly confirmed in writing) to the Borrower and to the Lenders as soon as practicable thereafter. Until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) the obligations of the Lenders to make Eurodollar Loans or to continue or convert outstanding Loans as or into Eurodollar Loans shall be suspended and (ii) all such affected Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto unless the Borrower prepays such Loans in accordance with this Agreement. Unless the Borrower notifies the Administrative Agent at least one Business Day before the date of any Eurodollar Borrowing for which a Notice of Borrowing or Notice of Conversion/Continuation has previously been given that it elects not to borrow on such date, then such Borrowing shall be made as a Base Rate Borrowing.

Section 2.16 Illegality. If any Change in Law shall make it unlawful or impossible for any Lender to make, maintain or fund any Eurodollar Loan and such Lender shall so notify the Administrative Agent, the Administrative Agent shall promptly give notice thereof to the Borrower and the other Lenders, whereupon until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Eurodollar Loans, or to continue or convert outstanding Loans as or into Eurodollar Loans, shall be suspended. In the case of the making of a Eurodollar Borrowing, such Lender's Loan shall be made as a Base Rate Loan as part of the same Borrowing for the same Interest Period and if the affected Eurodollar Loan is then outstanding, such Loan shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Eurodollar Loan if such Lender may lawfully continue to maintain such Loan to such date or (ii) immediately if such Lender shall determine that it may not lawfully continue to maintain such Eurodollar Loan to such date. Notwithstanding the foregoing, the affected Lender shall, prior to giving such notice to the Administrative Agent, designate a different Applicable Lending Office if such designation would avoid the need for giving such notice and if such designation would not otherwise be disadvantageous to such Lender in the good faith exercise of its discretion.

## Section 2.17 Increased Costs.

(a) If any Change in Law shall:



(i) impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the Adjusted LIBO Rate hereunder against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or

(ii) impose on any Lender or on the Issuing Bank or the eurodollar interbank market any other condition affecting this Agreement or any Eurodollar Loans made by such Lender or any Letter of Credit or any participation therein;

and the result of either of the foregoing is to increase the cost to such Lender of making, converting into, continuing or maintaining a Eurodollar Loan or to increase the cost to such Lender or the Issuing Bank of participating in or issuing any Letter of Credit or to reduce the amount received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice from and demand by such Lender on the Borrower (with a copy of such notice and demand to the Administrative Agent), to the Administrative Agent for the account of such Lender, within five (5) Business Days after the date of such notice and demand, additional amount or amounts sufficient to compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.

(b) If any Lender or the Issuing Bank shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital (or on the capital of the Parent Company of such Lender or Issuing Bank) as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender, the Issuing Bank or the Parent Company of such Lender or Issuing Bank could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Bank's policies or the policies of the Parent Company of such Lender or Issuing Bank with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written demand by such Lender (with a copy thereof to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender, the Issuing Bank or the Parent Company of such Lender or the Issuing Bank for any such reduction suffered.

(c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender, the Issuing Bank or the Parent Company of such Lender or the Issuing Bank, as the case may be, specified in paragraph (a) or (b) of this Section 2.17 shall be delivered to the Borrower (with a copy to the Administrative Agent) and shall be conclusive, absent manifest error. The Borrower shall pay any such Lender or the Issuing Bank, as the case may be, such amount or amounts within five (5) Business Days after receipt thereof.

(d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 2.17 shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided, that the Borrower shall not be required to compensate a Lender or the Issuing Bank under this Section 2.17 for any increased



costs or reductions incurred more than six (6) months prior to the date that such Lender or the Issuing Bank notifies the Borrower of such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor; provided further, that if the Change in Law giving rise to such increased costs or reductions is retroactive, then such six-month period shall be extended to include the period of such retroactive effect.

Section 2.18 Funding Indemnity. In the event of (a) the payment of any principal of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion or continuation of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure by the Borrower to borrow, prepay, convert or continue any Eurodollar Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), then, in any such event, the Borrower shall compensate each Lender, within five (5) Business Days after written demand from such Lender, for any loss, cost or expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense shall be deemed to include an amount determined by such Lender to be the excess, if any, of (A) the amount of interest that would have accrued on the principal amount of such Eurodollar Loan if such event had not occurred at the Adjusted LIBO Rate applicable to such Eurodollar Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Eurodollar Loan) over (B) the amount of interest that would accrue on the principal amount of such Eurodollar Loan for the same period if the Adjusted LIBO Rate were set on the date such Eurodollar Loan was prepaid or converted or the date on which the Borrower failed to borrow, convert or continue such Eurodollar Loan. A certificate as to any additional amount payable under this Section 2.18 submitted to the Borrower by any Lender (with a copy to the Administrative Agent) shall be conclusive, absent manifest error.

## Section 2.19 Taxes.

(a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.19) the Administrative Agent, any Lender or the Issuing Bank (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within five (5) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of



any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.19) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the Code or any treaty to which the United States is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. Without limiting the generality of the foregoing, each Foreign Lender agrees that it will deliver to the Administrative Agent and the Borrower (or in the case of a Participant, to the Lender from which the related Participation shall have been purchased), as appropriate, two (2) duly completed copies of (i) Internal Revenue Service Form W-8 ECI, or any successor form thereto, certifying that the payments received from the Borrower hereunder are effectively connected with such Foreign Lender's conduct of a trade or business in the United States; or (ii) Internal Revenue Service Form W-8 BEN, or any successor form thereto, certifying that such Foreign Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest; or (iii) Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, together with a certificate (A) establishing that the payment to the Foreign Lender qualifies as "portfolio interest" exempt from U.S. withholding tax under Code section 871(h) or 881(c), and (B) stating that (1) the Foreign Lender is not a bank for purposes of Code section 881(c)(3)(A), or the obligation of the Borrower hereunder is not, with respect to such Foreign Lender, a loan agreement entered into in the ordinary course of its trade or business, within the meaning of that section; (2) the Foreign Lender is not a 10% shareholder of the Borrower within the meaning of Code section 871(h)(3) or 881(c)(3)(B); and (3) the Foreign Lender is not a controlled foreign corporation that is related to the Borrower within the meaning of Code section 881(c)(3)(C); or (iv) such other Internal Revenue Service forms as may be applicable to the Foreign Lender, including Forms W-8 IMY or W-8 EXP. Each such Foreign Lender shall deliver to the Borrower and the Administrative Agent such forms on or before the date that it becomes a party to this Agreement (or in the case of a Participant, on or before the date such Participant purchases the related participation). In addition, each such Foreign Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender. Each such Foreign Lender shall promptly notify the Borrower and the Administrative Agent at any time that it determines that it is no longer in a position to provide



any previously delivered certificate to the Borrower (or any other form of certification adopted by the Internal Revenue Service for such purpose).

(f) If a payment made to a Lender or Issuing Bank under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such recipient were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender or Issuing Bank, as the case may be, shall deliver to the Borrower and the Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Agent as may be necessary for the Borrower and the Agent to comply with their obligations under FATCA and to determine that such Lender or Issuing Bank has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (f), "FATCA" shall include any amendments made to FATCA after the date of this Agreement.

## Section 2.20 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Sections 2.17, 2.18 or 2.19, or otherwise) prior to 12:00 noon on the date when due, in immediately available funds, free and clear of any defenses, rights of set-off, counterclaim, or withholding or deduction of taxes. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Payment Office, except payments to be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to Sections 2.17, 2.18 or 2.19 and 10.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars.

(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied: first, to Administrative Agent's fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; second, to all reimbursable expenses of the Lenders and all fees and reimbursable expenses of the Issuing Bank then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders and the Issuing Bank based on their respective pro rata shares of such fees and expenses; third, to interest and fees then due and payable hereunder, pro rata to the Lenders based on their respective pro rata shares of such interest and fees; and fourth, to the payment of principal of the Loans and unreimbursed LC Disbursements then due hereunder, ratably among



the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements that would result in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Credit Exposure and accrued interest and fees thereon than the proportion received by any other Lender with respect to its Revolving Credit Exposure, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Credit Exposure of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Credit Exposure; provided, that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Revolving Credit Exposure to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount or amounts due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

(e) Notwithstanding anything herein to the contrary, any amount paid by the Borrower for the account of a Defaulting Lender under this Agreement (whether on account of principal, interest, fees, reimbursement of LC Disbursements, indemnity payments or other amounts) will be retained by the Administrative Agent in a segregated non-interest bearing account until the Maturity Date at which time the funds in such account will be applied by the Administrative Agent, to the fullest extent permitted by law, in the following order of priority: first to the payment of any amounts owing by such Defaulting Lender to the Administrative



Agent under this Agreement, second to the payment of any amounts owing by such Defaulting Lender to the Issuing Bank under this Agreement, third to the payment of interest due and payable to the Lenders hereunder that are not Defaulting Lenders, ratably among them in accordance with the amounts of such interest then due and payable to them, fourth to the payment of fees then due and payable to the Lenders hereunder that are not Defaulting Lenders, ratably among them in accordance with the amounts of such fees then due and payable to them, fifth to pay principal and unreimbursed LC Disbursements then due and payable to the Lenders hereunder that are not Defaulting Lenders, ratably in accordance with the amounts thereof then due and payable to them, sixth to the ratable payment of other amounts then due and payable to the Lenders hereunder that are not Defaulting Lenders, and seventh to pay amounts owing under this Agreement to such Defaulting Lender or as a court of competent jurisdiction may otherwise direct.

## Section 2.21 Letters of Credit.

(a) In addition to letters of credit permitted by Section 7.1(f) issued by financial institutions other than the Issuing Bank, during the Availability Period, the Issuing Bank, in reliance upon the agreements of the other Lenders pursuant to Section 2.22(d), may, in its sole discretion, issue, at the request of the Borrower, Letters of Credit for the account of the Borrower on the terms and conditions hereinafter set forth; provided, that (i) each Letter of Credit shall expire on the earlier of (A) the date one year after the date of issuance of such Letter of Credit (or in the case of any renewal or extension thereof, one year after such renewal or extension) and (B) the date that is five (5) Business Days prior to the Maturity Date; (ii) each Letter of Credit shall be in a stated amount of at least $1,000,000 and (iii) the Borrower may not request any Letter of Credit, if, after giving effect to such issuance (A) the aggregate LC Exposure would exceed the LC Commitment or (B) the aggregate Revolving Credit Exposure of all Lenders would exceed the Aggregate Commitment Amount. Each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank without recourse a participation in each Letter of Credit equal to such Lender's Pro Rata Share of the aggregate amount available to be drawn under such Letter of Credit on the date of issuance with respect to all other Letters of Credit. Each issuance of a Letter of Credit shall be deemed to utilize the Commitment of each Lender by an amount equal to the amount of such participation.

(b) To request the issuance of a Letter of Credit (or any amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall give the Issuing Bank and the Administrative Agent irrevocable written notice at least three (3) Business Days prior to the requested date of such issuance specifying the date (which shall be a Business Day) such Letter of Credit is to be issued (or amended, extended or renewed, as the case may be), the expiration date of such Letter of Credit, the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions in Article III, the issuance of such Letter of Credit (or any amendment which increases the amount of such Letter of Credit) will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as the Issuing Bank shall approve and that the Borrower shall have executed and delivered any additional applications, agreements and instruments relating to such Letter of Credit as the Issuing Bank shall reasonably require; provided, that in the event of any



conflict between such applications, agreements or instruments and this Agreement, the terms of this Agreement shall control.

(c) At least two Business Days prior to the issuance of any Letter of Credit, the Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received such notice and if not, the Issuing Bank will provide the Administrative Agent with a copy thereof. Unless the Issuing Bank has received notice from the Administrative Agent on or before the Business Day immediately preceding the date the Issuing Bank is to issue the requested Letter of Credit (1) directing the Issuing Bank not to issue the Letter of Credit because such issuance is not then permitted hereunder because of the limitations set forth in Section 2.21(a) or that one or more conditions specified in Article III are not then satisfied, then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue such Letter of Credit in accordance with the Issuing Bank's usual and customary business practices.

(d) The Issuing Bank shall examine all documents purporting to represent a demand for payment under a Letter of Credit promptly following its receipt thereof. The Issuing Bank shall notify the Borrower and the Administrative Agent of such demand for payment and whether the Issuing Bank has made or will make a LC Disbursement thereunder; provided, that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to such LC Disbursement. The Borrower shall be irrevocably and unconditionally obligated to reimburse the Issuing Bank for any LC Disbursements paid by the Issuing Bank in respect of such drawing, without presentment, demand or other formalities of any kind. Unless the Borrower shall have notified the Issuing Bank and the Administrative Agent prior to 11:00 a.m. New York time on the Business Day immediately prior to the date on which such drawing is honored that the Borrower intends to reimburse the Issuing Bank for the amount of such drawing in funds other than from the proceeds of Loans, the Borrower shall be deemed to have timely given a Notice of Borrowing to the Administrative Agent requesting the Lenders to make a Base Rate Borrowing on the date on which such drawing is honored in an exact amount due to the Issuing Bank; provided, that for purposes solely of such Borrowing, the conditions precedent set forth in Section 3.2 hereof shall not be applicable. The Administrative Agent shall notify the Lenders of such Borrowing in accordance with Section 2.3, and each Lender shall make the proceeds of its Base Rate Loan included in such Borrowing available to the Administrative Agent for the account of the Issuing Bank in accordance with Section 2.5. The proceeds of such Borrowing shall be applied directly by the Administrative Agent to reimburse the Issuing Bank for such LC Disbursement.

(e) If for any reason a Base Rate Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then each Lender (other than the Issuing Bank) shall be obligated to fund the participation that such Lender purchased pursuant to subsection (a) in an amount equal to its Pro Rata Share of such LC Disbursement on and as of the date which such Base Rate Borrowing should have occurred. Each Lender's obligation to fund its participation shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (i) any setoff, counterclaim, recoupment, defense or other right that such Lender or any other Person



may have against the Issuing Bank or any other Person for any reason whatsoever, (ii) the existence of a Default or an Event of Default or the termination of the Aggregate Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any of its Subsidiaries, (iv) any breach of this Agreement by the Borrower or any other Lender, (v) any amendment, renewal or extension of any Letter of Credit or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. On the date that such participation is required to be funded, each Lender shall promptly transfer, in immediately available funds, the amount of its participation to the Administrative Agent for the account of the Issuing Bank. Whenever, at any time after the Issuing Bank has received from any such Lender the funds for its participation in a LC Disbursement, the Issuing Bank (or the Administrative Agent on its behalf) receives any payment on account thereof, the Administrative Agent or the Issuing Bank, as the case may be, will distribute to such Lender its Pro Rata Share of such payment; provided, that if such payment is required to be returned for any reason to the Borrower or to a trustee, receiver, liquidator, custodian or similar official in any bankruptcy proceeding, such Lender will return to the Administrative Agent or the Issuing Bank any portion thereof previously distributed by the Administrative Agent or the Issuing Bank to it.

(f) To the extent that any Lender shall fail to pay any amount required to be paid pursuant to paragraphs (d) or (e) of this Section on the due date therefor, such Lender shall pay interest to the Issuing Bank (through the Administrative Agent) on such amount from such due date to the date such payment is made at a rate per annum equal to the Federal Funds Rate; provided, that if such Lender shall fail to make such payment to the Issuing Bank within three (3) Business Days of such due date, then, retroactively to the due date, such Lender shall be obligated to pay interest on such amount at the rate set forth in Section 2.12(b).

(g) If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders demanding that its reimbursement obligations with respect to the Letters of Credit be Cash Collateralized pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Issuing Bank and the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid fees thereon; provided, that such obligation to Cash Collateralize the reimbursement obligations of the Borrower with respect to the Letters of Credit shall become effective immediately, and such deposit shall become immediately due and payable, without demand or notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Section 8.1. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement; and the Borrower hereby grants to the Administrative Agent and its bailees for the benefit of the Administrative Agent, the Issuing Bank and the Lenders a security interest in such deposits (including all interest thereon and all proceeds thereof) and any deposit or securities accounts in which such deposits are held to secure the repayment of the Obligations under and in connection with the Letters of Credit and all other Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Borrower agrees to execute any documents and/or certificates to effectuate the intent of this paragraph. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative



Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest and profits, if any, on such investments shall accumulate in such account. Money in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it had not been reimbursed and to the extent so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, with the consent of the Required Lenders, be applied to satisfy other obligations of the Borrower under this Agreement and the other Loan Documents. If the Borrower is required to Cash Collateralize its reimbursement obligations with respect to the Letters of Credit as a result of the occurrence of an Event of Default, such cash collateral so posted (to the extent not so applied as aforesaid) shall be returned to the Borrower within three (3) Business Days after all Events of Default have been cured or waived.

(h) Upon the request of any Lender, but no more frequently than quarterly, the Issuing Bank shall deliver (through the Administrative Agent) to each Lender and the Borrower a report describing the aggregate Letters of Credit then outstanding. Upon the request of any Lender from time to time, the Issuing Bank shall deliver to such Lender any other information reasonably requested by such Lender with respect to each Letter of Credit then outstanding.

(i) The Borrower's obligation to reimburse LC Disbursements hereunder shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever and irrespective of any of the following circumstances:

(i) Any lack of validity or enforceability of any Letter of Credit or this Agreement;

(ii) The existence of any claim, set-off, defense or other right which the Borrower or any Subsidiary or Affiliate of the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary or transferee may be acting), any Lender (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(iii) Any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect;

(iv) Payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document to the Issuing Bank that does not comply with the terms of such Letter of Credit;

(v) Any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.2.1, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder; or



## (vi) The existence of a Default or an Event of Default.

Neither the Administrative Agent, the Issuing Bank, the Lenders nor any Related Party of any of the foregoing shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to above), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided, that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any actual direct damages (as opposed to special, indirect (including claims for lost profits or other consequential damages), or punitive damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's failure to exercise due care when determining whether drafts or other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree, that in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised due care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(j) Unless otherwise expressly agreed by the Issuing Bank and the Borrower when a Letter of Credit is issued and subject to applicable laws, (i) each standby Letter of Credit shall be governed by the "International Standby Practices 1998" (ISP98) (or such later revision as may be published by the Institute of International Banking Law & Practice on any date any Letter of Credit may be issued), (ii) each documentary Letter of Credit shall be governed by the Uniform Customs and Practices for Documentary Credits (2007 Revision), International Chamber of Commerce Publication No. 600 (or such later revision as may be published by the International Chamber of Commerce on any date any Letter of Credit may be issued) and (iii) the Borrower shall specify the foregoing in each letter of credit application submitted for the issuance of a Letter of Credit.

## Section 2.22 Increase of Commitments; Additional Lenders.

(a) So long as no Event of Default has occurred and is continuing, from time to time after the Closing Date, Borrower may, upon at least 30 days' written notice to the Administrative Agent (who shall promptly provide a copy of such notice to each Lender), propose to increase the Aggregate Maximum Commitment Amount by an amount not to exceed $50,000,000 (the amount of any such increase, the "Additional Commitment Amount"). Each Lender shall have the right for a period of 15 days following receipt of such notice, to elect by written notice to the Borrower and the Administrative Agent to increase its Maximum



Commitment by a principal amount equal to its Pro Rata Share of the Additional Commitment Amount. No Lender (or any successor thereto) shall have any obligation to increase its Maximum Commitment or its other obligations under this Agreement and the other Loan Documents, and any decision by a Lender to increase its Maximum Commitment shall be made in its sole discretion independently from any other Lender. If any Lender shall fail to notify the Borrower and the Administrative Agent in writing about whether it will increase its Maximum Commitment within 15 days after receipt of such notice, such Lender shall be deemed to have declined to increase its Maximum Commitment.

(b) If any Lender shall not elect to increase its Maximum Commitment pursuant to subsection (a) of this Section 2.22, the Borrower may designate another bank or other financial institution (which may be, but need not be, one or more of the existing Lenders) which at the time agrees to, in the case of any such Person that is an existing Lender, increase its Maximum Commitment and in the case of any other such Person (an "Additional Lender"), become a party to this Agreement; provided, however, that any new bank or financial institution must be acceptable to the Administrative Agent, which acceptance will not be unreasonably withheld or delayed. The sum of the increases in the Maximum Commitments of the existing Lenders pursuant to this subsection (b) plus the Maximum Commitments of the Additional Lenders shall not in the aggregate exceed the unsubscribed amount of the Additional Commitment Amount.

(c) An increase in the aggregate amount of the Maximum Commitments pursuant to this Section 2.22 shall become effective upon the receipt by the Administrative Agent of a supplement or joinder in form and substance satisfactory to the Administrative Agent executed by the Borrower, by each Additional Lender and by each other Lender whose Maximum Commitment is to be increased, setting forth the new Maximum Commitments of such Lenders and setting forth the agreement of each Additional Lender to become a party to this Agreement and to be bound by all the terms and provisions hereof and such evidence of appropriate corporate authorization on the part of the Borrower with respect to the increase in the Maximum Commitments and such opinions of counsel for the Borrower with respect to the increase in the Maximum Commitments as the Administrative Agent may reasonably request.

(d) Upon the acceptance of any such supplement or joinder by the Administrative Agent, the Aggregate Maximum Commitment Amount shall automatically be increased by the amount of the Maximum Commitments added through such supplement or joinder and Schedule II shall automatically be deemed amended to reflect the Maximum Commitments of all Lenders after giving effect to the addition of such Maximum Commitments.

(e) Upon any increase in the aggregate amount of the Maximum Commitments pursuant to this Section 2.22 that is not pro rata among all Lenders, (x) within five Business Days, in the case of any Base Rate Loans then outstanding, and at the end of the then current Interest Period with respect thereto, in the case of any Eurodollar Loans then outstanding, the Borrower shall prepay such Loans in their entirety and, to the extent the Borrower elects to do so and subject to the conditions specified in Article III, the Borrower shall reborrow Loans from the Lenders in proportion to their respective Maximum Commitments after giving effect to such increase, until such time as all outstanding Loans are held by the Lenders in proportion to



their respective Commitments after giving effect to such increase and (y) effective upon such increase, the amount of the participations held by each Lender in each Letter of Credit then outstanding shall be adjusted automatically such that, after giving effect to such adjustments, the Lenders shall hold participations in each such Letter of Credit in proportion to their respective Maximum Commitments.

Section 2.23 Mitigation of Obligations. If any Lender requests compensation under Section 2.17, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.19, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.17 or Section 2.19, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all costs and expenses incurred by any Lender in connection with such designation or assignment.

Section 2.24 Replacement of Lenders. If any Lender requests compensation under Section 2.17, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority of the account of any Lender pursuant to Section 2.19, or if any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions set forth in Section 10.4(b) all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender); provided, that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal amount of all Loans owed to it, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (in the case of such outstanding principal and accrued interest) and from the Borrower (in the case of all other amounts) and (iii) in the case of a claim for compensation under Section 2.17 or payments required to be made pursuant to Section 2.19, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

Section 2.25 Reallocation and Cash Collateralization of Default Lender or Potential Defaulting Lender Commitment.

(a) If a Lender becomes, and during the period it remains, a Defaulting Lender or Potential Defaulting Lender, the following provisions shall apply, notwithstanding anything to the contrary in this Agreement:

(i) the LC Exposure of such Defaulting Lender will, subject to the limitation in the first proviso below, automatically be reallocated (effective on the day such Lender becomes a Defaulting Lender) among the Non-Defaulting Lenders pro rata in accordance



with their respective Commitments (calculated as if the Defaulting Lender's Maximum Commitment was reduced to zero and each Non-Defaulting Lender's Maximum Commitment had been increased proportionately); provided that (A) the sum of each Non-Defaulting Lender's total Revolving Credit Exposure may not in any event exceed the Commitment of such Non-Defaulting Lender as in effect at the time of such reallocation and (B) neither such reallocation nor any payment by a Non-Defaulting Lender pursuant thereto will constitute a waiver or release of any claim the Borrower, the Administrative Agent, the Issuing Bank or any other Lender may have against such Defaulting Lender or cause such Defaulting Lender to be a Non-Defaulting Lender; and

(i) to the extent that any portion (the “unreallocated portion”) of the LC Exposure of any Defaulting Lender cannot be reallocated pursuant to clause (i) for any reason, or with respect to the LC Exposure of any Potential Defaulting Lender, the Borrower will, not later than two (2) Business Days after demand by the Administrative Agent (at the direction of the Issuing Bank), (a) Cash Collateralize the obligations of the Borrower to the Issuing Bank in respect of such LC Exposure in an amount at least equal to the aggregate amount of the unreallocated portion of the LC Exposure of such Defaulting Lender or the LC Exposure of such Potential Defaulting Lender, or (b) make other arrangements satisfactory to the Administrative Agent and the Issuing Bank in their sole discretion to protect them against the risk of non-payment by such Defaulting Lender or Potential Defaulting Lender.

(b) If the Borrower, the Administrative Agent and the Issuing Bank agree in writing in their discretion that any Defaulting Lender has ceased to be a Defaulting Lender or Potential Defaulting Lender has ceased to be a Potential Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, the LC Exposure of the other Lenders shall be readjusted to reflect the inclusion of such Lender's Commitment, and such Lender will purchase at par such portion of outstanding Loans of the other Lenders and/or make such other adjustments as the Administrative Agent may determine to be necessary to cause the Revolving Credit Exposure of the Lenders to be on a pro rata basis in accordance with their respective Commitments, whereupon such Lender will cease to be a Defaulting Lender or Potential Defaulting Lender, as the case may be, and will be a Non-Defaulting Lender (and such Revolving Credit Exposure of each Lender will automatically be adjusted on a prospective basis to reflect the foregoing). If any cash collateral has been posted with respect to the LC Exposure of such Defaulting Lender or Potential Defaulting Lender, the Administrative Agent will promptly return such cash collateral to the Borrower; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while such Lender was a Defaulting Lender; and provided further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Non-Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender's having been a Defaulting Lender.



## ARTICLE III
CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT

Section 3.1 Conditions To Effectiveness. The obligations of the Lenders to make Loans and the obligation of the Issuing Bank to issue any Letter of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.2).

(a) The Administrative Agent and its Affiliates shall have received payment of all fees, expenses and other amounts due and payable on or prior to the Closing Date, including without limitation reimbursement or payment of all out-of-pocket expenses of the Administrative Agent, the Syndication Agent and their Affiliates (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrower hereunder, under any other Loan Document and under any agreement with the Administrative Agent or SunTrust Robinson Humphrey, Inc., as Lead Arranger.

(b) The Administrative Agent (or its counsel) shall have received the following, each to be in form and substance satisfactory to the Administrative Agent:

(i) a counterpart of this Agreement signed by or on behalf of each party hereto or written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement;

(ii) an executed counterpart of that the Second Lien Term Loan Agreement and each other Second Lien Term Loan Documents which shall be in form and substance reasonably acceptable to the Administrative Agent and the Administrative Agent shall have evidence that funding under the Second Lien Term Loan Agreement has occurred, or is occurring contemporaneously with the initial funding hereunder in an amount of not less than $75,000,000, less original issue discount and fees and expenses associated with such funding;

(iii) an executed counterpart of the Second Lien Intercreditor Agreement;

(iv) executed counterparts of mortgage amendments or other documents in form and substance satisfactory to the Administrative Agent confirming of record that all Liens upon any the real property, improvements, fixtures, as-extracted collateral and other similar property of the Borrower and its Subsidiaries securing the Indebtedness arising pursuant to the Second Lien Term Loan Agreement are subordinated to the Liens created under the Mortgages in accordance with the Second Lien Intercreditor Agreement;

(v) a certificate of the Secretary or Assistant Secretary of each Loan Party in the form of Exhibit E, attaching and certifying copies of its bylaws and of the resolutions of its board of directors, or partnership agreement or limited liability company agreement, or comparable organizational documents and authorizations, authorizing the execution, delivery and performance of the Loan Documents to which it is a party and certifying the name, title and true



signature of each officer of such Loan Party executing the Loan Documents to which it is a party;

(vi) certified copies of the articles or certificate of incorporation, certificate of organization or limited partnership, or other registered organizational documents of each Loan Party, together with certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of organization of such Loan Party and each other jurisdiction where such Loan Party is required to be qualified to do business as a foreign corporation;

(vii) a favorable written opinion of (i) McAfee & Taft, counsel to the Loan Parties, and (ii) local counsel in each of the following States: Texas, Louisiana, Oklahoma and New Mexico and any other jurisdictions requested by the Administrative Agent, addressed to the Administrative Agent, the Issuing Bank and each of the Lenders, and covering such matters relating to the Loan Parties, the Loan Documents and the transactions contemplated therein as the Administrative Agent or the Required Lenders shall reasonably request;

(viii) a certificate in the form of Exhibit G, dated the Closing Date and signed by a Responsible Officer, certifying that after giving effect to the funding of the initial Borrowing, (x) no Default or Event of Default exists, (y) all representations and warranties of each Loan Party set forth in the Loan Documents are true and correct and (z) since the date of the financial statements of the Borrower described in Section 4.4, there shall have been no change which has had or could reasonably be expected to have a Material Adverse Effect;

(ix) a duly executed Notice of Borrowing;

(x) duly executed counterparts from each party (in such number as may be requested by the Administrative Agent) of the Collateral Documents, including the Guaranty and Collateral Agreement and the other documents described on Exhibit C. In connection with the execution and delivery of the Collateral Documents, the Administrative Agent shall be reasonably satisfied that the Collateral Documents create first priority, perfected Liens (subject only to Permitted Encumbrances identified in clauses (i) to (iv) and (vi) of the definition thereof, but subject to the provisions at the end of such definition) on at least 80% of the total value of the Oil and Gas Properties evaluated in the Initial Reserve Report;

(xi) title information as the Administrative Agent may reasonably require setting forth the status of title to at least 80% of the total value of the Oil and Gas Properties evaluated in the Initial Reserve Report;

(xii) copies of environmental reports and studies and such other diligence materials as the Administrative Agent may reasonably request;

(xiii) copies of all consents, approvals, authorizations, registrations and filings and orders required or advisable to be made or obtained under any Requirement of Law, or by any Contractual Obligation of any Loan Party, in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any of the transactions contemplated thereby, and such consents, approvals, authorizations, registrations, filings and



orders shall be in full force and effect and all applicable waiting periods shall have expired, and no investigation or inquiry by any governmental authority regarding the Commitments or any transaction being financed with the proceeds thereof shall be ongoing, certified by a Responsible Officer as of the Closing Date;

(xiv) the Initial Reserve Report accompanied by a Transmittal covering the matters described in Section 5.12;

(xv) appropriate UCC search certificates reflecting no prior Liens encumbering the Properties of the Borrower and its Subsidiaries for each jurisdiction requested by the Administrative Agent; other than those being assigned or released on or prior to the Closing Date or Liens permitted by Section 7.2;

(xvi) evidence that the Borrower has entered into interest rate Hedging Transactions with Approved Counterparties amounting to not less than $50,000,000 of the principal amount of the Indebtedness outstanding under the Second Lien Term Loan Agreement for the first three years of the tenor thereof;

(xvii) evidence that the Borrower has entered into commodity Hedging Transactions with Approved Counterparties the notional volumes for which, as of the Closing Date, equal at least 50% of the reasonably anticipated projected production from proved, developed, producing Oil and Gas Properties for each month during the 30-month period immediately following the Closing Date;

(xviii) copies of (A) the internally prepared quarterly financial statements of the Borrower and its Subsidiaries on a consolidated basis for the Fiscal Quarter ending on December 31, 2009, (B) the audited consolidated financial statements for the Borrower and its subsidiaries for the fiscal years ended 2007, 2008 and 2009, (C) draft consolidated financial statements of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2010 certified by a Responsible Officer as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries, and (D) financial projections on a quarterly basis for fiscal year December 31, 2011 and annually thereafter through 2015, certified by a Responsible Officer as of the Closing Date that such projections were based on assumptions believed by the Borrower in good faith to be reasonable;

(xix) a duly completed and executed certificate of the type described in Section 5.1(c) including calculations of the financial covenants set forth in Article VI hereof as of Closing Date, calculated on a pro forma basis reflecting the transactions on the Closing Date under the First Lien Credit Agreement and hereunder;

(xx) a certificate, dated the Closing Date and signed by the chief financial officer of each Loan Party, confirming that each Loan Party is Solvent before and after giving effect to the funding of the initial Borrower and the consummation of the transactions contemplated to occur on the Closing Date;



(xxi) copies of all agreements, indentures or notes governing the terms of any Material Indebtedness and all other Material Contracts to which any Loan Party or any of its assets are bound, certified by a Responsible Officer as of the Closing Date as true and correct;

(xxii) certificates of insurance issued on behalf of insurers of the Borrower and all Guarantors, describing in reasonable detail the types and amounts of insurance (property and liability) maintained by the Borrower and all Guarantors, naming the Administrative Agent and the Lenders as additional insureds and naming the Administrative Agent as loss payee with respect to property insurance proceeds in excess of $50,000, certified by a Responsible Officer as of the Closing Date that the Loan Parties are in compliance with the insurance requirements set forth in Section 5.10;

(xxiii) a fully executed payoff letter, in form and substance reasonably satisfactory to the Administrative Agent, relating to the Existing Credit Agreement and recordable mortgage and UCC release documentation relating to the Existing Credit Agreement for jurisdictions other than those covered by the Collateral Documents; and

(xxiv) such other documents, certificates, information or legal opinions as the Administrative Agent or the Required Lenders may reasonably request, all in form and substance reasonably satisfactory to the Administrative Agent or Required Lenders.

(c) The Administrative Agent shall be reasonably satisfied with title and environmental condition of the Oil and Gas Properties of the Borrower and its Subsidiaries.

Without limiting the generality of the provisions of Section 3.1, for purposes of determining compliance with the conditions specified in this Section 3.1, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.2) at or prior to 2:00 p.m., New York time, on March 25, 2011 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

Section 3.2 Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit is subject to the satisfaction of the following conditions:

(a) at the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default or Event of Default shall exist;

(b) at the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, all representations and warranties of each Loan Party set forth in the Loan Documents shall be true



and correct in all material respects (other than those representations and warranties that are expressly qualified by an Material Adverse Effect or other materiality, in which case such representations and warranties shall be true and correct in all respects, on and as of the date of such Borrowing or the date of issuance, amendment, extension or renewal of such Letter of Credit, in each case before and after giving effect thereto, except to the extent such representations and warranties expressly relate to an earlier date);

(c) since December 31, 2009, there shall have been no change which has had or could reasonably be expected to have a Material Adverse Effect;

(d) the Borrower shall have delivered the required Notice of Borrowing; and

(e) the Administrative Agent shall have received such other documents, certificates, information or legal opinions as the Administrative Agent or the Required Lenders may reasonably request, all in form and substance reasonably satisfactory to the Administrative Agent or the Required Lenders.

In addition to the other conditions precedent herein set forth, if any Lender is a Defaulting Lender or a Potential Defaulting Lender at the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, set forth in this Section 3.2, the Issuing Bank will not be required to issue, amend or increase any Letter of Credit, unless they are satisfied that 100% of the related LC Exposure is fully covered or eliminated by any combination satisfactory to the Issuing Bank of the following:

(i) in the case of a Defaulting Lender, the LC Exposure of such Defaulting Lender is reallocated, as to outstanding and future Letters of Credit, to the Non-Defaulting Lenders as provided in Section 2.25(a)(i); and

(ii) in the case of a Defaulting Lender or a Potential Defaulting Lender, without limiting the provisions of Section 2.25(a)(ii), the Borrower Cash Collateralizes its reimbursement obligations in respect of such Letter of Credit in an amount at least equal to the aggregate amount of the unrealocated obligations (contingent or otherwise) of such Defaulting Lender or Potential Defaulting Lender in respect of such Letter of Credit, or the Borrower makes other arrangements satisfactory to the Administrative Agent and the Issuing Bank, as the case may be, in their sole discretion to protect them against the risk of non-payment by such Defaulting Lender or Potential Defaulting Lender;

provided, however, that (a) the sum of each Non-Defaulting Lender's total Revolving Credit Exposure may not in any event exceed the Commitment of such Non-Defaulting Lender, and (b) neither any such reallocation nor any payment by a Non-Defaulting Lender pursuant thereto nor any such Cash Collateralization or reduction will constitute a waiver or release of any claim the Borrower, the Administrative Agent, the Issuing Bank or any other Lender may have against such Defaulting Lender, or cause such Defaulting Lender to be a Non-Defaulting Lender.

Each Borrowing and each issuance, amendment, extension or renewal of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section 3.2.



Section 3.3 Delivery of Documents. All of the Loan Documents, certificates, legal opinions and other documents and papers referred to in this Article III, unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Lenders and in sufficient counterparts or copies for each of the Lenders and shall be in form and substance satisfactory in all respects to the Administrative Agent.

## ARTICLE IV
REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and each Lender as follows:

Section 4.1 Existence: Power. The Borrower and each of its Subsidiaries (i) is duly organized, validly existing and in good standing as a corporation, partnership or limited liability company under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect.

Section 4.2 Organizational Power: Authorization. The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party are within such Loan Party's organizational powers and have been duly authorized by all necessary organizational, and if required, shareholder, partner or member, action. This Agreement has been duly executed and delivered by the Borrower, and constitutes, and each other Loan Document to which any Loan Party is a party, when executed and delivered by such Loan Party, will constitute, valid and binding obligations of the Borrower or such Loan Party (as the case may be), enforceable against it in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity.

Section 4.3 Governmental Approvals: No Conflicts. The execution, delivery and performance by the Borrower of this Agreement, and by each Loan Party of the other Loan Documents to which it is a party (a) do not require any consent or approval of, registration or filing with, or any action by, any Governmental Authority, except those as have been obtained or made and are in full force and effect, (b) will not violate any Requirements of Law applicable to the Borrower or any of its Subsidiaries or any judgment, order or ruling of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding on the Borrower or any of its Subsidiaries or any of its assets or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries and (d) will not result in the creation or imposition of any Liens on any asset of the Borrower or any of its Subsidiaries, except Liens (if any) created under the Loan Documents.

Section 4.4 Financial Statement. The Borrower has furnished to each Lender (i) the audited consolidated balance sheet of the Borrower and its Subsidiaries as of December 31, 2009 and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the Fiscal Year then ended prepared by the Borrower and audited by UHY LLP and (ii)



the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of September 30, 2010, and the related unaudited consolidated statements of operations and cash flows for the Fiscal Quarter and year-to-date period then ending, certified by a Responsible Officer. Such financial statements fairly present the consolidated financial condition of the Borrower and its Subsidiaries as of such dates and the consolidated results of operations for such periods in conformity with GAAP consistently applied, subject to year end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii). Since December 31, 2009, there have been no changes with respect to the Borrower and its Subsidiaries which have had or could reasonably be expected to have, singly or in the aggregate, a Material Adverse Effect.

## Section 4.5 Litigation and Environmental Matters.

(a) No litigation, investigation or proceeding of or before any arbitrators or Governmental Authorities is pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination that could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or (ii) which in any manner draws into question the validity or enforceability of this Agreement or any other Loan Document.

(b) Except for the matters set forth on Schedule 4.5, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, which failure is un remedied in whole or in part, (ii) has become subject to any Environmental Liability which remains un remedied in whole or in part, (iii) has received notice of any claim with respect to any Environmental Liability which remains un remedied in whole or in part or (iv) knows of any basis for any Environmental Liability which could reasonably be expected to have a Material Adverse Effect.

(c) None of the properties of the Borrower or any Subsidiary contain or have contained any: (i) underground storage tanks; (ii) asbestos-containing materials; (iii) landfills or dumps; (iv) hazardous waste management units as defined pursuant to RCRA or any comparable state law; or (v) sites on or nominated for the National Priority List promulgated pursuant to CERCLA or any state remedial priority list promulgated or published pursuant to any comparable state law.

(d) There has been no Release or, to the Borrower's Knowledge, threatened Release, of Hazardous Materials at, on, under or from the Borrower's or any Subsidiary's properties which could reasonably be expected to have a Material Adverse Effect, there are no investigations, remediations, abatements, removals, or monitorings of Hazardous Materials required under applicable Environmental Laws at such properties and, to the knowledge of the Borrower, none of such properties are adversely affected by any Release or threatened Release of Hazardous Material originating or emanating from any other real property which could reasonably be expected to have a Material Adverse Effect.



(e) Neither the Borrower nor any Subsidiary has received any written notice asserting an alleged material liability or obligation under any applicable Environmental Laws with respect to the unremedied or unfinished investigation, remediation, abatement, removal, or monitoring of any Hazardous Materials, at, under, or Released or threatened to be Released from any real properties of the Borrower's or any Subsidiary's properties and, to the Borrower's knowledge, there are no conditions or circumstances that could reasonably be expected to result in the receipt of such written notice.

(f) There has been no exposure of any Person or property to any Hazardous Materials as a result of or in connection with the operations and businesses of any of the Borrower's or the Subsidiaries; properties that could reasonably be expected to form the basis for a claim for damages or compensation in excess of $1,000,000.

(g) The Borrower and the Subsidiaries have provided to the Administrative Agent complete and correct copies of all environmental site assessment reports, investigations, studies, analyses, and correspondence on environmental matters (including matters relating to any alleged non-compliance with or liability under Environmental Laws) that are in any of the Borrower's or the Subsidiaries; possession or control and relating to their respective properties or operations thereon for the three-year period commencing January 1, 2008.

Section 4.6 Compliance with Laws and Agreements. The Borrower and each Subsidiary is in compliance with (a) all Requirements of Law and all judgments, decrees and orders of any Governmental Authority and (b) all indentures, agreements or other instruments binding upon it or its properties, except where non-compliance, either singly or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 4.7 Investment Company Act, Ete. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" or is "controlled" by an "investment company", as such terms are defined in, or subject to regulation under, the Investment Company Act of 1940, as amended, or (b) otherwise subject to any other regulatory scheme limiting its ability to incur debt or requiring any approval or consent from or registration or filing with, any Governmental Authority in connection therewith.

Section 4.8 Taxes. The Borrower and its Subsidiaries and each other Person for whose taxes the Borrower or any Subsidiary could become liable have timely filed or caused to be filed all Federal income tax returns and all other material tax returns that are required to be filed by them, and have paid all taxes shown to be due and payable on such returns or on any assessments made against it or its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority, except where the same are currently being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as the case may be, has set aside on its books adequate reserves in accordance with GAAP. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of such taxes are adequate, and no tax liabilities that could be materially in excess of the amount so provided are anticipated.



Section 4.9 Margin Regulations. None of the proceeds of any of the Loans or Letters of Credit will be used, directly or indirectly, for "purchasing" or "carrying" any "margin stock" with the respective meanings of each of such terms under Regulation U or for any purpose that violates the provisions of the Regulation T, U or X. Neither the Borrower nor its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying "margin stock."

Section 4.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of all such underfunded Plans.

## Section 4.11 Properties: Titles, Etc.

(a) Each of the Borrower and the Subsidiaries has good and Defensible Title to the Oil and Gas Properties evaluated in the most recently delivered Reserve Report and good title or valid leasehold interests to all its personal properties, in each case, free and clear of all Liens except Liens permitted under Section 7.2. After giving full effect to the Permitted Encumbrances, the Borrower or the Subsidiary specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and the ownership of such properties shall not in any material respect obligate the Borrower or such Subsidiary to bear the costs and expenses relating to the maintenance, development and operations of each such property in an amount in excess of the working interest of each property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate increase in the Borrower's or such Subsidiary's net revenue interest in such property.

(b) All material leases and agreements necessary for the conduct of the business of the Borrower and the Subsidiaries are valid and subsisting, in full force and effect, and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which could reasonably be expected to have a Material Adverse Effect.

(c) The rights and properties presently owned, leased or licensed by the Borrower and the Subsidiaries including, without limitation, all easements and rights of way, include all rights and properties necessary to permit the Borrower and the Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the date hereof.



(d) All of the properties of the Borrower and the Subsidiaries which are reasonably necessary for the operation of their businesses are in good working condition and are maintained in accordance with prudent business standards.

(e) The Borrower and each Subsidiary owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower and its Subsidiaries either own or have valid licenses or other rights to use all databases, geological data, geophysical data, engineering data, seismic data, maps, interpretations and other technical information used in their businesses as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons, with such exceptions as could not reasonably be expected to have a Material Adverse Effect.

Section 4.12 Maintenance of Properties. Except for such acts or failures to act as could not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties (and properties unitized therewith) of the Borrower and its Subsidiaries have been maintained, operated and developed in a good and workmanlike manner and in conformity with all Governmental Requirements and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties of the Borrower and its Subsidiaries. Specifically in connection with the foregoing, except for those as could not be reasonably expected to have a Material Adverse Effect, (i) no Oil and Gas Property of the Borrower or any Subsidiary is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) and (ii) none of the wells comprising a part of the Oil and Gas Properties (or properties unitized therewith) of the Borrower or any Subsidiary is deviated from the vertical more than the maximum permitted by Governmental Requirements, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on properties unitized therewith, such unitized properties) of the Borrower or such Subsidiary. All pipelines, wells, gas processing plants, platforms and other material improvements, fixtures and equipment owned in whole or in part by the Borrower or any of its Subsidiaries that are necessary to conduct normal operations are being maintained in a state adequate to conduct normal operations, and with respect to such of the foregoing which are operated by the Borrower or any of its Subsidiaries, in a manner consistent with the Borrower's or its Subsidiaries' past practices (other than those the failure of which to maintain in accordance with this Section 4.12 could not reasonably be expected to have a Material Adverse Effect).

Section 4.13 Gas Imbalances, Prepayments. Except as set forth on Schedule 4.13 or on the most recent certificate delivered pursuant to Section 5.14, on a net basis there are no gas imbalances, take or pay or other prepayments which would require the Borrower or any of its Subsidiaries to deliver Hydrocarbons produced from their Oil and Gas Properties at some future



time without then or thereafter receiving full payment therefor exceeding one-half \( ^{\circledR} \)  of gas (on an mcf equivalent basis) in the aggregate.

Section 4.14 Marketing of Production. Except for contracts listed and in effect on the date hereof on Schedule 4.14, and thereafter either disclosed in writing to the Administrative Agent or included in the most recently delivered Reserve Report (with respect to all of which contracts the Borrower represents that it or its Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject property's deliver capacity), no material agreements exist which are not cancelable on 60 days notice or less without penalty or detriment for the sale of the Borrower's or its Subsidiaries' Hydrocarbons (including, without limitation, calls on or other rights to purchase, production, whether or not the same are currently being exercised) that (a) pertain to the sale of production at a fixed price and (b) have a maturity or expiry date of longer than six (6) months from the date hereof.

Section 4.15 Hedging Agreements. Schedule 4.15, as of December 31, 2010, and each report required to be delivered by the Borrower pursuant to Section 4.4, as of the date thereof, sets forth, a true and complete list of all open Hedging Transactions of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the Net Mark-to-Market Exposure of the parties thereto, all credit support agreements relating thereto (including any margin required or supplies) and the counterparty to each such agreement. Upon request, the Borrower shall provide the Administrative Agent the then current position, as determined by the respective counterparties to such Hedging Transactions, of the Borrower and its Subsidiaries with respect to each Hedging Transaction.

Section 4.16 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments, and corporate or other restrictions to which the Borrower or any of its Subsidiaries is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Information Memorandum nor any of the reports (including without limitation all reports that the Borrower is required to file with the Securities and Exchange Commission), financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation or syndication of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading; provided, that with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

Section 4.17 Labor Relations. There are no strikes, lockouts or other material labor disputes or grievances against the Borrower or any of its Subsidiaries, or, to the Borrower's knowledge, threatened against or affecting the Borrower or any of its Subsidiaries, and no significant unfair labor practice, charges or grievances are pending against the Borrower or any



of its Subsidiaries, or to the Borrower's knowledge, threatened against any of them before any Governmental Authority. All payments due from the Borrower or any of its Subsidiaries pursuant to the provisions of any collective bargaining agreement have been paid or accrued as a liability on the books of the Borrower or any such Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

Section 4.18 Subsidiaries. Schedule 4.18 sets forth the name of, the ownership interest of the Borrower, the jurisdiction of incorporation or organization of, and the type of, each Subsidiary and identifies each Subsidiary that is a Subsidiary Loan Party, in each case as of the Closing Date.

Section 4.19 Solvency. After giving effect to the execution and delivery of the Loan Documents, the making of the Loans under this Agreement, each Loan Party is Solvent.

Section 4.20 OFAC. No Loan Party (i) is a person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such person in any manner violative of Section 2, or (iii) is a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other U.S. Department of Treasury's Office of Foreign Assets Control regulation or executive order.

Section 4.21 Patriot Act. Each Loan Party is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) the Uniting And Strengthening America By Providing Appropriate Tools Required To Intercept And Obstruct Terrorism (USA Patriot Act of 2001). No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

Section 4.22 Use of Proceeds. The proceeds of the Loans and the Letters of Credit shall be used to refinance a portion of the Indebtedness under the Borrower's Existing Credit Agreement, fund the acquisition of Oil and Gas Properties and capital expenditures, provide working capital and for other general corporate purposes of the Borrower and its Subsidiaries.

Section 4.23 Insurance. The Borrower has and has caused each Guarantor to have all insurance policies required by Section 5.10 of this Agreement.



# ARTICLE V
AFFIRMATIVE COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or any Obligation remains unpaid or outstanding:

Section 5.1 Financial State ments and Other Information. The Borrower will deliver to the Administrative Agent (for distribution to the Lenders):

(a) as soon as available and in any event within 90 days after the end of each Fiscal Year of Borrower, a copy of the annual audited report for such Fiscal Year for the Borrower and its Subsidiaries, containing a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows (together with all footnotes thereto) of the Borrower and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and reported on by UHY LLP or other independent public accountants of nationally recognized standing (without a "going concern" or like qualification, exception or explanation and without any qualification or exception as to scope of such audit) to the effect that such financial statements present fairly in all material respects the financial condition and the results of operations of the Borrower and its Subsidiaries for such Fiscal Year on a consolidated basis in accordance with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards;

(b) as soon as available and in any event within 45 days after the end of each Fiscal Quarter of the Borrower, an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and the related unaudited consolidated statements of operations and cash flows of the Borrower and its Subsidiaries for such Fiscal Quarter and the then elapsed portion of such Fiscal Year, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous Fiscal Year, in each case certified by a Responsible Officer as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries;

(c) concurrently with the delivery of the financial statements referred to in clauses (a) and (b) above, a Compliance Certificate signed by the principal executive officer or the principal financial officer of the Borrower (i) certifying as to whether there exists a Default or Event of Default on the date of such certificate, and if a Default or an Event of Default then exists, specifying the details thereof and the action which the Borrower has taken or proposes to take with respect thereto, (ii) setting forth in reasonable detail calculations demonstrating compliance with the financial covenants set forth in Article VI, (iii) specifying any change in the identity of the Subsidiaries as of the end of such Fiscal Year or Fiscal Quarter from the Subsidiaries identified to the Lenders on the Closing Date or as of the most recent Fiscal Year or Fiscal Quarter, as the case may be and (iv) stating whether any change in GAAP or the application thereof has occurred since December 31, 2009, and if any change has occurred,



specifying the effect of such change on the financial statements accompanying such Compliance Certificate;

(d) concurrently with the delivery of the financial statements referred to in clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained any knowledge during the course of their examination of such financial statements of any Default or Event of Default (which certificate may be limited to the extent required by accounting rules or guidelines);

(e) as soon as available and in any event within 30 days after the end of the calendar year, a pro forma budget for the succeeding Fiscal Year, together with an income statement, EBITDA projection and analysis of financial covenant compliance, all on a pro forma basis;

(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be;

(g) within 60 days after the end of each fiscal quarter, a report setting forth, for each calendar month during the then current fiscal year to date, the volume of production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such calendar month from the Oil and Gas Properties, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto and incurred for each such calendar month;

(h) concurrently with the delivery of the Financial Statements referred to in clauses (a) and (b) above, a certificate of Financial Officer, in form and substance satisfactory to the Administrative Agent, setting forth as of a recent date, a true and complete list of all open Hedging Transactions of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the Net Mark-to-Market Exposure therefore, any new credit support agreements relating thereto not listed on Schedule 4.15, any margin required or supplied under any credit support document, and the counterparty to each such agreement;

(i) at least 5 days prior written notice of any amendment, waiver or other modification to any Second Lien Term Loan Document and, concurrently with the execution and delivery thereof, a fully executed counterparty of any such document;

(j) promptly following any request therefor, such other information regarding the results of operations, business affairs and financial condition of the Borrower or any Subsidiary as the Administrative Agent or any Lender may reasonably request; and

(k) a copy of any notice of default received under any Second Lien Term Loan Document and a copy of any notice of default received from a Secured Hedge Counterparty or a Bank Product Provider.



So long as the Borrower is required to file periodic reports under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, Borrower may satisfy its obligation to deliver the financial statements referred to in clauses (a) and (b) above, and the information referred to in clause (f) above, by delivering such financial statements and information by electronic mail to such e-mail addresses as the Administrative Agent and Lenders shall have provided to Borrower from time to time.

Section 5.2 Notices of Material Events. The Borrower will furnish to the Administrative Agent (for distribution to the Lenders) prompt written notice of the following:

(a) the occurrence of any Default or Event of Default;

(b) the filing or commencement of, or any material development in, any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of the Borrower, affecting the Borrower or any Subsidiary which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

(c) the occurrence of any event or any other development by which the Borrower or any of its Subsidiaries (i) fails to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) becomes subject to any Environmental Liability, (iii) receives notice of any claim with respect to any Environmental Liability, or (iv) becomes aware of any basis for any Environmental Liability and in each of the preceding clauses, which individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;

(d) the occurrence of any ERISA Event that alone, or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $500,000;

(e) the occurrence of any default or event of default, or the receipt by Borrower or any of its Subsidiaries of any written notice of an alleged default or event of default, with respect to any Material Indebtedness (including Indebtedness under the Second Lien Term Loan Agreement) of the Borrower or any of its Subsidiaries;

(f) in the event the Borrower or any Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil or Gas Properties included in the most recently delivered Reserve Report or any Capital Stock in any Subsidiary in accordance with Section 7.7, prior written notice of such disposition, the price thereof and the anticipated date of closing and any other details thereof requested by the Administrative Agent;

(g) in the event (i) the Borrower or any Subsidiary terminates, amends, unwinds or modifies any Master Agreement (or enters into any off-setting position in respect thereof) in accordance with Section 7.12, prompt (and in no event later than one (1) Business Day after the occurrence thereof) written notice of such transaction, the details of such proposed transaction, the closing date of such transaction and any other details thereof requested by the Administrative Agent, or (ii) the Borrower or any Subsidiary intends to terminate, amend, unwind or modify any Hedging Agreement (or enter into any off-setting position in respect



thereof) in a manner inconsistent with its prior hedging practices, prior written notice of such transaction, the details of such proposed transaction, the anticipated closing date of such transaction and any other details thereof requested by the Administrative Agent; and

(h) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section 5.2 shall be accompanied by a written statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

Section 5.3 Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence and its respective rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business; provided, that nothing in this Section 5.3 shall prohibit any merger, consolidation, liquidation or dissolution permitted under Section 7.3.

Section 5.4 Operation and Maintenance of Properties. The Borrower, at its own expense, will, and will cause each Subsidiary to:

(a) operate its Oil and Gas Properties and other material properties or cause such Oil and Gas Properties and other material Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Governmental Requirements, including, without limitation, applicable pro ration requirements and Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom, except, in each case, where the failure to comply could not reasonably be expected to have a Material Adverse Effect;

(b) keep and maintain all property material to the conduct of its business in good working order and condition (ordinary wear and tear excepted), preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear excepted) of all its material Oil and Gas Properties and other material Properties, including, without limitation, all equipment, machinery and facilities;

(c) promptly pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to its Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder;

(d) promptly perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, subleases, contracts and agreements affecting its interests in its Oil and Gas Properties and other material properties; and



(e) to the extent the Borrower is not the operator of any property, the Borrower shall use reasonable efforts to cause the operator to comply with this Section 5.4.

Section 5.5 Compliance with Laws, Etc. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and requirements of any Governmental Authority applicable to its business and properties, including without limitation, all Environmental Laws, ERISA and OSHA, except where the failure to do so, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

## Section 5.6 Environmental Matters.

(a) The Borrower shall at its sole expense: (i) not Release or threaten to Release, and shall cause each Subsidiary not to Release or threaten to Release, any Hazardous Material on, under, about or from any of the Borrower's or its Subsidiaries' properties or any other property offtise the property to the extent caused by the Borrower's or any of its Subsidiaries' operations except in compliance with applicable Environmental Laws, the Release or threatened Release of which could reasonably be expected to have a Material Adverse Effect; (ii) timely obtain or file, and shall cause each Subsidiary to timely obtain or file, all Environmental Permits, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of the Borrower's or its Subsidiaries' properties, which failure to obtain or file could reasonably be expected to have a Material Adverse Effect; (iii) promptly commence and diligently prosecute to completion, and shall cause each Subsidiary to promptly commence and diligently prosecute to completion, any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other remedial obligations (collectively, the "Remedial Work") in the event any Remedial Work is required or reasonably necessary under applicable Environmental Laws because of or in connection with the actual or suspected past, present or future Release or threatened Release of any Hazardous Material on, under, about or from any of the Borrower's or its Subsidiaries' properties, which failure to commence and diligently prosecute to completion could reasonably be expected to have a Material Adverse Effect; (iv) conduct, and cause its Subsidiaries to conduct, their respective operations and businesses in a manner that will not expose any property or Person to Hazardous Materials that could reasonably be expected to form the basis for a claim for material damages or compensation; and (v) establish and implement, and shall cause each Subsidiary to establish and implement, such procedures as may be necessary to continuously determine and assure that the Borrower's and its Subsidiaries' obligations under this Section 5.6(a) are timely and fully satisfied, which failure to establish and implement could reasonably be expected to have a Material Adverse Effect.

(b) The Borrower will promptly, but in no event later than five days of the occurrence of a triggering event, notify the Administrative Agent in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any Person against the Borrower or its Subsidiaries or their properties of which the Borrower has knowledge in connection with any Environmental Laws if the Borrower could reasonably anticipate that such action will result in liability (whether individually or in the



aggregate) in excess of $1,000,000, not fully covered by insurance, subject to normal deductibles.

(c) The Borrower will, and will cause each Subsidiary to, provide environmental assessments, audits and tests in accordance with the most current version of the American Society of Testing Materials standards upon request by the Administrative Agent and no more than once per year in the absence of any Event of Default (or as otherwise required to be obtained by the Administrative Agent by any Governmental Authority), in connection with any future acquisitions of Oil and Gas Properties or other Properties.

Section 5.7 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge at or before maturity, all of its obligations and liabilities (including without limitation all taxes, assessments and other governmental charges, levies and all other claims that could result in a statutory Lien) before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate measures, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.

Section 5.8 Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities to the extent necessary to prepare the consolidated financial statements of Borrower in conformity with GAAP.

Section 5.9 Visitation, Inspection, Etc. The Borrower will, and will cause each of its Subsidiaries to, permit any representative of the Administrative Agent or any Lender, to visit and inspect its properties, to examine its books and records and to make copies and take extracts therefrom, and to discuss its affairs, finances and accounts with any of its officers and with its independent certified public accountants, all at such reasonable times and as often as the Administrative Agent or any Lender may reasonably request after reasonable prior notice to the Borrower; provided, however, if an Event of Default has occurred and is continuing, no prior notice shall be required.

Section 5.10 Insurance. The Borrower will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance with respect to its properties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by companies in the same or similar businesses operating in the same or similar locations, and at all times shall name Administrative Agent and the Lenders as additional insureds on all liability policies of the Borrower and its Subsidiaries (other than workers compensation policies) and at all times shall name the Administrative Agent as loss payee on all property policies of the Borrower and its Subsidiaries with respect to property insurance proceeds in excess of $50,000.

Section 5.11 Use of Proceeds and Letters of Credit. The Borrower will use the proceeds of all Loans and Letters of Credit to refinance a portion of the Indebtedness under the



Borrower’s Existing Credit Agreement, fund the acquisition of Oil and Gas Properties and capital expenditures, provide working capital and for other general corporate purposes of the Borrower and its Subsidiaries. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulations T, U or X.

## Section 5.12 Reserve Reports.

(a) On or before February 28th and August 31st of each year, commencing August 31, 2011 the Borrower shall furnish to the Administrative Agent a Reserve Report evaluating the Oil and Gas Properties of the Borrower and its Subsidiaries as of the immediately preceding January 1st and July 1st. The Reserve Report as of January 1st of each year shall be prepared by one or more Approved Petroleum Engineers, and the July 1st Reserve Report of each year shall be prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be based on the best information reasonably available to the Borrower and to have been prepared in accordance with the procedures used in the immediately preceding January 1st Reserve Report.

(b) In the event of an Interim Redetermination, the Borrower shall furnish to the Administrative Agent a "roll-forward" Reserve Report prepared by or under the supervision of the chief engineer of the Borrower who shall certify (i) such Reserve Report to have been prepared based on the best information reasonably available to Borrower, (ii) with respect to Oil and Gas Properties included in the immediately preceding January 1st Reserve Report that have not been sold or otherwise disposed of, such Reserve Report "rolls-forward" the projected production from such properties in the manner set out in the immediately preceding January 1st Reserve Report, and (iii) such Reserve Report sets out the NYMEX Value of the Borrower's and its Subsidiaries' Oil and Gas Properties as of the date of such report. For any Interim Redetermination requested by the Administrative Agent or the Borrower pursuant to Section 2.7(b), the Borrower shall provide such Reserve Report with an "as of" date as required by the Administrative Agent as soon as possible, but in any event no later than thirty (30) days following the receipt of such request.

(c) Each delivery of a Reserve Report by the Borrower to the Administrative Agent shall constitute a representation and warranty by the Borrower to the Administrative Agent and each Lender that: (i) the Reserve Report is based on the best information reasonably available to the Borrower and any other information delivered in connection therewith is true and correct, (ii) the Borrower and its Subsidiaries have good and Defensible Title to the Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted under Section 7.2, (iii) except as set forth in the letter transmitting such Reserve Report to the Administrative Agent (the "Transmittal"), on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 4.13 with respect to its Oil and Gas Properties evaluated in such Reserve Report which would require the Borrower or any Subsidiary to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) except as set forth in the Transmittal, none of the Borrower's or any Subsidiaries' Oil and Gas Properties included in the immediately preceding Reserve Report have been sold



since the date of the last Redetermination Date, and that attached to the Transmittal is a list all of such Oil and Gas Properties sold and in such detail as reasonably required by the Administrative Agent, (v) attached to the Transmittal is a list of all marketing agreements entered into subsequent to the later of the date hereof or the date of the most recently delivered Reserve Report which the Borrower could reasonably be expected to have listed on Schedule 4.14 had such agreement been in effect on the date hereof, (vi) except as set forth in the Transmittal, all of the Oil and Gas Properties evaluated by such Reserve Report are Mortgaged Properties, (vii) attached to the Transmittal is a calculation of the percentage of the total NYMEX Value of the Oil and Gas Properties that the value of the Mortgaged Properties represent in compliance with Section 5.14, (viii) attached to the Transmittal is a calculation of the percentage of Projected Production for each subsequent fiscal quarter hedged pursuant to Hedging Transactions and (ix) attached to the Transmittal is a listing of any Hedging Transactions (if any) that the Borrower expects to terminate or unwind in order to comply with the requirements of Section 7.12.

## Section 5.13 Title Information.

(a) On or before the delivery to the Administrative Agent of each Reserve Report required by Section 5.12, the Borrower will deliver title information in form and substance acceptable to the Administrative Agent covering enough of the Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that the Administrative Agent shall have received together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the total value of the Oil and Gas Properties evaluated by such Reserve Report.

(b) If the Borrower has provided title information for additional properties under Section 5.13(a), the Borrower shall, within 60 days of notice from the Administrative Agent that title defects or exceptions exist with respect to such additional properties, either (i) cure any such title defects or exceptions (including defects or exceptions as to priority) which are not permitted by Section 7.2 raised by such information, (ii) substitute acceptable Oil and Gas Properties with no title defects or exceptions except for Permitted Encumbrances (other than Permitted Encumbrances described in clauses (v), (vii) and (viii) of such definition) having an equivalent value or (iii) deliver title information in form and substance acceptable to the Administrative Agent so that the Administrative Agent shall have received, together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the value of the Oil and Gas Properties evaluated by such Reserve Report.

(c) If the Borrower is unable to cure any title defect requested by the Administrative Agent to be cured within the 60-day period or the Borrower does not comply with the requirements to provide acceptable title information covering 80% of the value of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default, but instead the Administrative Agent and/or the Required Lenders shall have the right to exercise the following remedy in their sole discretion from time to time, and any failure to so exercise this remedy at any time shall not be a waiver as to future exercise of the remedy by the Administrative Agent. To the extent that the Administrative Agent or the Required Lenders are not satisfied with title to any Oil and Gas Property after the 60-day period has elapsed, such unacceptable Oil and Gas Property shall not count towards the 80% requirement, and the



Administrative Agent may send a notice to the Borrower and the Lenders that the then outstanding Borrowing Base shall be reduced by an amount as determined by the Required Lenders to cause the Borrower to be in compliance with the requirement to provide acceptable title information on 80% of the value of the Oil and Gas Properties. This new Borrowing Base shall become effective immediately after receipt of such notice.

## Section 5.14 Additional Collateral; Additional Guarantors.

(a) In connection with each redemption of the Borrowing Base, the Borrower shall review the Reserve Report and the list of current Mortgaged Properties (as described in Section 5.12) to ascertain whether the Mortgaged Properties represent at least 80% of the total value of the Oil and Gas Properties evaluated in the most recently completed Reserve Report after giving effect to the acquisition, dispositions and production. In the event that the Mortgaged Properties do not represent at least 80% of such total value, then the Borrower shall, and shall cause its Subsidiaries to, grant, within thirty (30) days of delivery of the Transmittal required under Section 5.12(c), to the Administrative Agent as security for the Indebtedness a first-priority Lien interest (provided that Permitted Encumbrances of the type described in clauses (i) to (iv) and (vi) of the definition thereof may exist, but subject to the provisions at the end of such definition) on additional Oil and Gas Properties not already subject to a Lien of the Collateral Documents such that after giving effect thereto, the Mortgaged Properties will represent at least 80% of such total value. All such Liens will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements or other Collateral Documents, all in form and substance reasonably satisfactory to the Administrative Agent and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. In order to comply with the foregoing, if any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary is not a Guarantor, then it shall become a Guarantor and comply with Section 5.14(b).

(b) If any Subsidiary is acquired or formed after the Closing Date, the Borrower will promptly notify the Administrative Agent thereof and within ten (10) Business Days after any such Subsidiary is acquired or formed, will cause such Subsidiary to become a Subsidiary Loan Party. A Subsidiary shall become an additional Subsidiary Loan Party by executing and delivering to the Administrative Agent a supplement to the Guaranty and Collateral Agreement in form and substance reasonably satisfactory to the Administrative Agent accompanied by (i) all other Loan Documents related thereto, (ii) certified copies of certificates or articles of incorporation or organization, by-laws, membership operating agreements, and other organizational documents, appropriate authorizing resolutions of the board of directors of such Subsidiaries, and opinions of counsel comparable to those delivered pursuant to Section 3.1(b), and (iii) such other documents as the Administrative Agent may reasonably request. No Subsidiary that becomes a Subsidiary Loan Party shall thereafter cease to be a Subsidiary Loan Party or be entitled to be released or discharged from its obligations under the Guaranty and Collateral Agreement.

(c) In the event that the Borrower or any Subsidiary becomes the owner of a Foreign Subsidiary which has total assets in excess of $500,000 then the Borrower shall promptly, or shall cause such Subsidiary to promptly, guarantee the Indebtedness pursuant to the



Guaranty Agreement. In connection with any such guaranty, the Borrower shall, or shall cause such Subsidiary to, (i) execute and deliver a supplement to the Guaranty Agreement, (ii) pledge 65% of all the Capital Stock of such Foreign Subsidiary (including, without limitation, delivery of original stock certificates evidencing such Capital Stock of such Foreign Subsidiary, together with appropriate stock powers for each certificate duly executed in blank by the registered owner thereof) and (iii) execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Administrative Agent.

## Section 5.15 Hedging Agreements.

(a) The Borrower shall maintain the hedge position established by the Hedging Transactions required under Section 3.1(b)(xvi) during the period specified therein.

(b) Within thirty (30) days following the date of any Transmittal or other notice to the Administrative Agent indicating that the volumes of Projected Production for any quarter subject to Hedging Transactions are not in compliance with the thresholds set forth in Section 7.12, the Borrower shall terminate, create off-setting positions, or otherwise unwind existing Hedge Agreements in accordance with Section 7.12 such that the volumes of crude oil or natural gas subject to Hedging Transactions comply with the thresholds set forth in Section 7.12 for each succeeding fiscal quarter.

Section 5.16 Marketing Activities. The Borrower will not, and will not permit any of its Subsidiaries to, engage in marketing activities for any Hydrocarbons or enter into any contracts related thereto other than (i) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be produced from their proved Oil and Gas Properties during the period of such contract, (ii) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be produced from proved Oil and Gas Properties of third parties during the period of such contract associated with the Oil and Gas Properties of the Borrower and its Subsidiaries that the Borrower or one of its Subsidiaries has the right to market pursuant to joint operating agreements, unitization agreements or other similar contracts that are usual and customary in the oil and gas business and (iii) other contracts for the purchase and/or sale of Hydrocarbons of third parties (A) which have generally offsetting provisions (i.e. corresponding pricing mechanics, delivery dates and points and volumes) such that no “position” is taken and (B) for which appropriate credit support has been taken to alleviate the material credit risks of the counterparty thereto.

Section 5.17 Further Assurances. Borrower will, and will cause each other Loan Party to, execute and deliver or cause to be executed and delivered such other and further instruments or documents and take such further action as in the judgment of Administrative Agent may be required to carry out the provisions and purposes of the Loan Documents, including to create, preserve, protect and perfect the Liens of the Administrative Agent for the ratable benefit of the Lenders and other holders of Obligations.

Section 5.18 Concurrent Delivery of Notices. In addition to the foregoing, the Borrower shall deliver to the Administrative Agent all reports when and as delivered all other times under the Second Lien Term Loan Agreement.



## ARTICLE VI
FINANCIAL COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or any Obligation remains unpaid or outstanding:

Section 6.1 Leverage Ratio. The Borrower will maintain at all times a Leverage Ratio of not greater than:

<table><tr><td>Fiscal Quarter</td><td>Leverage Ratio</td></tr><tr><td>On or prior to September 30, 2011</td><td>4.75:1.0</td></tr><tr><td>After September 30, 2011 and on or prior to September 30, 2012</td><td>4.25:1.0</td></tr><tr><td>After September 30, 2012 and on or prior to September 30, 2013</td><td>4.00:1.0</td></tr><tr><td>After September 30, 2013 and on or prior to September 30, 2014</td><td>3.75:1.0</td></tr><tr><td>After September 30, 2014</td><td>3.50:1.0</td></tr></table>

Section 6.2 Interest Coverage Ratio. The Borrower will maintain, as of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending March 31, 2011, an Interest Coverage Ratio of not less than:

<table><tr><td>Fiscal Quarter</td><td>Interest Coverage Ratio</td></tr><tr><td>Each Fiscal Quarter ending on or prior to September 30, 2011</td><td>2.50:1.0</td></tr><tr><td>Each Fiscal Quarter ending after September 30, 2011</td><td>2.75:1.0</td></tr></table>

Section 6.3 Asset Coverage Ratio. The Borrower will maintain at all times an Asset Coverage Ratio of not less than 1.5 to 1.0.

Section 6.4 Minimum Current Ratio. The Borrower will maintain, as of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending March 31, 2011, a Minimum Current Ratio of not less than 1.0 to 1.0.



## ARTICLE VII
NEGATIVE COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or any Obligation remains outstanding:

Section 7.1 Indebtedness and Preferred Equity. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except:

(a) Indebtedness created pursuant to the Loan Documents;

(b) Indebtedness of the Borrower and its Subsidiaries existing on the date hereof and set forth on Schedule 7.1 and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof (immediately prior to giving effect to such extension, renewal or replacement) or shorten the maturity or the weighted average life thereof;

(c) Indebtedness of the Borrower owing to any Subsidiary and of any Subsidiary owing to the Borrower or any other Subsidiary; provided, that any such Indebtedness that is owed by a Subsidiary that is not a Subsidiary Loan Party shall be subject to Section 7.4;

(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary; provided, that Guarantees by any Loan Party of Indebtedness of any Subsidiary that is not a Subsidiary Loan Party shall be subject to Section 7.4;

(e) Indebtedness under the Second Lien Term Loan Agreement and the Second Lien Notes in an aggregate principal amount not to exceed $75,000,000 plus any increases resulting from any payment of interest in kind permitted under the Second Lien Term Loan Agreement, the maturity date for which shall not be earlier than the date that is six months after the Maturity Date;

(f) Letters of credit, each with a stated amount not to exceed $100,000, issued on behalf of the Borrower or a Subsidiary thereof for routine operational purposes, in an aggregate amount not to exceed $500,000;

(g) Indebtedness for payroll withholding obligations associated with vested stock-based compensation awards under the Borrower's LTIP that will be settled in shares of Capital Stock of the Borrower;

(h) Hedging Obligations permitted by Section 7.12; and

(i) (i) other unsecured Indebtedness of the Borrower or its Subsidiaries and (ii) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including purchase money financing



for vehicles and equipment and Capital Lease Obligations, at any time outstanding, in an aggregate principal amount not to exceed $2,000,000 at any time outstanding.

The Borrower will not, and will not permit any Subsidiary to, issue any preferred stock or other preferred equity interests that (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may become redeemable or repurchaseable by Borrower or such Subsidiary at the option of the holder thereof, in whole or in part or (iii) is convertible or exchangeable at the option of the holder thereof for Indebtedness or preferred stock or any other preferred equity interests described in this paragraph, on or prior to, in the case of clause (i), (ii) or (iii), the first anniversary of the Maturity Date.

Section 7.2 Negative Pledge. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien on any of its assets or property now owned or hereafter acquired or, except:

(a) Liens securing the Obligations, provided, however, that no Liens may secure Hedging Obligations without securing all other Obligations on a basis at least pari passu with such Hedging Obligations and subject to the priority of payments set forth in Section 2.20;

(b) Permitted Encumbrances;

(c) Liens on Collateral securing the Second Lien Term Loan Agreement and the Second Lien Notes and any guarantees thereof as permitted by Section 7.1(e); provided that (i) such Liens securing such Indebtedness do create a Lien on any asset or property that is not subject to a Lien under the Collateral Documents and (ii) such Liens securing such Indebtedness shall at all times are subordinate to the Liens securing the Obligations pursuant to the Second Lien Intercreditor Agreement;

(d) any Liens on any property or asset of the Borrower or any Subsidiary existing on the Closing Date set forth on Schedule 7.2; provided, that such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary;

(e) purchase money Liens upon or in any fixed or capital assets (including vehicles and equipment) to secure the purchase price or the cost of construction or improvement of such fixed or capital assets or to secure Indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of such fixed or capital assets (including Liens securing any Capital Lease Obligations); provided, that (i) such Lien secures Indebtedness permitted by Section 7.1((ii), (ii) such Lien attaches to such asset concurrently or within 90 days after the acquisition, improvement or completion of the construction thereof; (ii) such Lien does not extend to any other asset; and (iv) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets;

(f) any Lien (i) existing on any asset of any Person at the time such Person becomes a Subsidiary of the Borrower, (ii) existing on any asset of any Person at the time such Person is merged with or into the Borrower or any Subsidiary of the Borrower or (iii) existing on any asset prior to the acquisition thereof by the Borrower or any Subsidiary of the Borrower; provided, that any such Lien was not created in the contemplation of any of the foregoing and



any such Lien secures only those obligations which it secures on the date that such Person becomes a Subsidiary or the date of such merger or the date of such acquisition;

(g) Liens on cash, in an aggregate amount not to exceed $500,000, posted as collateral to secure letters of credit in accordance with Section 7.1(f);

(h) Contractual rights of set-off allowing Shell Energy North America (US), L.P. or any Affiliate to set off amounts owed to the Borrower and its Subsidiaries for the purchase of Hydrocarbons against amounts owed by the Borrower and its Subsidiaries to Shell Energy North America (US), L.P. or any Affiliate pursuant to any Hedging Transaction in respect of commodities; provided that, such set-off rights shall not extend beyond the date that is ninety (90) days after the Closing Date (or such later date as reasonably acceptable to the Administrative Agent); and

(i) extensions, renewals, or replacements of any Lien referred to in paragraphs (a), (b), (d) or (e) of this Section 7.2; provided, that the principal amount of the Indebtedness secured thereby is not increased and that any such extension, renewal or replacement is limited to the assets originally encumbered thereby.

## Section 7.3 Fundamental Changes.

(a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) all or substantially all of its assets (in each case, whether now owned or hereafter acquired) or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired) or liquidate or dissolve; provided, that if at the time thereof and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing (i) the Borrower or any Subsidiary may merge with a Person if the Borrower (or such Subsidiary if the Borrower is not a party to such merger) is the surviving Person, (ii) any Subsidiary may merge into another Subsidiary; provided, that if any party to such merger is a Subsidiary Loan Party, the Subsidiary Loan Party shall be the surviving Person, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to the Borrower or to a Subsidiary Loan Party and (iv) any Subsidiary (other than a Subsidiary Loan Party) may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided, that any such merger involving a Person that is not a wholly-owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 7.4.

(b) The Borrower will not, and will not permit any of its Subsidiaries to, engage in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date hereof and businesses reasonably related thereto.

Section 7.4 Investments, Loans, Etc. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger), any Capital Stock,



evidence of indebtedness or other securities (including any option, warrant, or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called "Investments"), or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person that constitute a business unit, or create or form any Subsidiary, except:

(a) Investments (other than Permitted Investments) existing on the date hereof and set forth on Schedule 7.4 (including Investments in Subsidiaries);

(b) Permitted Investments;

(c) Guarantees by Borrower and its Subsidiaries constituting Indebtedness permitted by Section 7.1; provided, that the aggregate principal amount of Indebtedness of Subsidiaries that are not Subsidiary Loan Parties that is Guaranteed by any Loan Party shall be subject to the limitation set forth in clause (d) hereof;

(d) Investments made by the Borrower in or to any Subsidiary, Investments by any Subsidiary in or to the Borrower or in or to another Subsidiary and, subject to Section 5.14, Investments constituting the creation or formation and capitalization of a new Subsidiary; provided, that the aggregate amount of Investments by Loan Parties in or to, and Guarantees by Loan Parties of Indebtedness of any Subsidiary that is not a Subsidiary Loan Party (including all such Investments and Guarantees existing on the Closing Date) shall not exceed $1,000,000 at any time outstanding;

(e) loans or advances to employees, officers or directors of the Borrower or any Subsidiary in the ordinary course of business for travel, relocation and related expenses; provided, however, that the aggregate amount of all such loans and advances does not exceed $500,000 at any time;

(f) Investments in direct ownership interests in additional Oil and Gas Properties and other assets and properties directly relating to the ownership and operation of Oil and Gas Properties (including drilling and completion rigs, servicing equipment, gas gathering systems, transportation pipelines and processing plants) which are usual and customary in the oil and gas exploration and production business located within the geographic boundaries of the United States of America;

(g) Hedging Transactions permitted by Section 7.12; and

(h) other Investments which in the aggregate do not exceed $1,000,000 in any Fiscal Year.

Section 7.5 Restricted Payments, etc. The Borrower will not, and will not permit its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except for (a) dividends payable by the Borrower solely in shares of any class of its common stock, (b) Restricted Payments made by any Subsidiary to the Borrower or to another Subsidiary, on at least a pro rata basis with any other shareholders if such Subsidiary is not



wholly owned by the Borrower and other wholly owned Subsidiaries, and (c) the acquisition of shares of the Borrower's Capital Stock in connection with the net settlement in shares for payroll withholding obligations on vested stock-based awards under Borrower's LTIP.

Section 7.6 Redemption of Second Lien Notes; Amendment of Second Lien Credit Agreement. The Borrower will not, and will not permit any Subsidiary to (i) prior to the date that is one-hundred eighty-one (181) days after the Maturity Date call, make or offer to make any option or voluntary Redemption of or otherwise optionally or voluntarily Redeem (whether in whole or in part) Indebtedness under the Second Lien Term Loan Agreement and the Second Lien Notes, provided that, the Borrower may use net cash proceeds from either the sale or other disposition of Oil and Gas Properties (or any Subsidiary owning Oil and Gas Properties) or the issuance of Capital Stock to Redeem up to an aggregate $25,000,000 in principal amount of the Indebtedness under the Second Lien Term Loan Agreement and the Second Lien Notes at par on or before the first anniversary of the Closing Date, if (A) no Default or Event of Default has occurred and is continuing or would exist after giving effect to such prepayment, (B) any prepayment required pursuant to Section 2.11 as a result of a Borrowing Base adjustment pursuant to Section 7.7 has been made, (C) after giving effect to any such prepayment and any adjustment to the Borrowing Base relating to any such Disposition of Oil and Gas Properties, the Borrower would have liquidity (which shall include undrawn availability under the then existing Borrowing Base) of at least $10,000,000 of cash or Investments permitted by Section 7.4 and (D) the Borrower is in compliance with each of the covenants set forth in Article VI immediately prior to, and (on a pro forma basis) after, giving effect to such prepayment or (ii) except as permitted by the Second Lien Intercreditor Agreement, amend, modify, waive or otherwise change, consent or agree to any amendment, modification, waiver or other change to, any of the terms of any Second Lien Term Loan Document if (A) the effect thereof would be to shorten the maturity or of the Second Lien Term Loan Agreement or the Second Lien Notes or shorten the average life or increase the amount of any payment of principal thereof (other than increases resulting from the payment of interest in kind permitted under the Second Lien Term Loan Agreement) or increase the rate add call or prepayment premiums or shorten any period for payment of interest thereon, (B) such action adds additional property as collateral to secure the Indebtedness under the Second Lien Term Loan Agreement and the Second Lien Notes, except in accordance with Section 7.18, (C) such action is not permitted by the Second Lien Intercreditor Agreement or (D) except as permitted pursuant to the Second Lien Intercreditor Agreement, such action adds any covenants or defaults without this Agreement being contemporaneously amended to add substantially similar covenants or defaults, provided that the foregoing shall not prohibit the execution of agreements to add guarantors if required by the terms thereof provided that any such guarantor also guarantees the Indebtedness pursuant to the Guaranty and Collateral Agreement and each of the Borrower and such guarantor otherwise complies with Section 5.15.

Section 7.7 Sale of Assets. The Borrower will not, and will not permit any Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any property except for (a) the sale of Hydrocarbons and inventory in the ordinary course of business; (b) formats of undeveloped acreage and assignments in connection with such formats, provided that for any such acreage that is Mortgaged Property with a fair market value in excess of $10,000,000, such farmout or assignment shall be subject to the prior written approval of the Administrative Agent in its



reasonable discretion; (c) the sale or transfer of equipment that is no longer necessary for the business of the Borrower or such Subsidiary or is replaced by equipment of at least comparable value and use; (d) the sale, transfer or other disposition of Capital Stock in Subsidiaries to the Borrower or another Subsidiary; (e) provided that no Event of Default has occurred and is continuing, the sale or licensing of seismic data; (f) provided that no Event of Default has occurred and is continuing, the disposition of uneconomic wells and leases by auction, for salvage or assumption of plugging liabilities; (g) the release of expired leases and (h) provided that no Event of Default has occurred and is continuing, the sale or other disposition (including casualty events) of any Oil and Gas Property or any interest therein or any Subsidiary owning Oil and Gas Properties; provided that, with respect to the sale or other disposition of Oil and Gas Properties (or interests therein) or any Subsidiary owning Oil and Gas Properties pursuant to this clause (h), (i) 100% of the consideration received in respect of such sale or other disposition shall be cash, (ii) the consideration received in respect of such sale or other disposition shall be equal to or greater than the fair market value of the Oil and Gas Properties, interest therein or Subsidiary subject of such sale or other disposition, taken as a whole on a per transaction basis, as reasonably determined by a Responsible Officer of the Borrower (or, with respect to any such sale or other disposition in excess of $10,000,000, the board of directors of the Borrower) and, if requested by the Administrative Agent, the Borrower shall deliver a certificate of a Responsible Officer of the Borrower certifying to that effect), (iii) if such sale or other disposition of any Oil and Gas Property (including formats under clause (b) above) or Subsidiary owning Oil and Gas Properties between the Closing Date and March 30, 2012 or during any twelve-month period commencing on March 31st of any year thereafter has a NYMEX Value set forth the most recently delivered Reserve Report in excess of $10,000,000, individually or in the aggregate, then written consent of the Administrative Agent shall be required prior to such sale or disposition, (iv) if such sale or other disposition of any Oil and Gas Property (including formats under clause (b) above) or Subsidiary owning Oil and Gas Properties included in the most recently delivered Reserve Report during any period between two successive Scheduled Redetermination Dates has a fair market value in excess of 5% of the Borrowing Base then in effect (as determined by the Administrative Agent), individually or in the aggregate, the Borrowing Base shall be reduced, effective immediately upon such sale or disposition, by an amount equal to the value, if any, assigned such Property in the most recently determined Borrowing Base (as determined by the Administrative Agent) and (v) if any such sale or other disposition is of a Subsidiary owning Oil and Gas Properties, such sale or other disposition shall include all the Capital Stock of such Subsidiary.

Section 7.8 Environmental Matters. The Borrower will not, and will not permit any Subsidiary to, cause or permit any of its property to be in violation of, or do anything or permit anything to be done which will subject any such property to a Release or threatened Release of Hazardous Materials, exposure to any Hazardous Materials, or to any Remedial Work under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any pertaining to such property where such violations, Release or threatened Release, exposure, or Remedial work could reasonably be expected to have a Material Adverse Effect.

Section 7.9 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase,



lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and any Subsidiary Loan Party not involving any other Affiliates and (c) any Restricted Payment permitted by Section 7.5.

Section 7.10 Restrictive Agreements. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit any Lien upon any of its assets or properties, whether now owned or hereafter acquired, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to its Capital Stock, to make or repay loans or advances to the Borrower or any other Subsidiary, to Guarantee Indebtedness of the Borrower or any other Subsidiary or to transfer any of its property or assets to the Borrower or any Subsidiary of the Borrower; provided, that (i) the foregoing shall not apply to restrictions or conditions imposed by law or by this Agreement or any other Loan Document, (ii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is sold and such sale is permitted hereunder, (iii) clause (a) shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions and conditions apply only to the property or assets securing such Indebtedness and (iv) clause (a) shall not apply to customary provisions in leases and other contracts restricting the assignment thereof.

Section 7.11 Sale and Leaseback Transactions. The Borrower will not, and will not permit any of the Subsidiaries to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereinafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred.

## Section 7.12 Hedging Transactions.

(a) The Borrower will not, and will not permit any Subsidiary to, enter into any Hedging Transactions with any Person other than:

(i) Hedging Transactions in respect of commodities (A) with an Approved Counterparty and (B) the notional volumes for which (when aggregated with other commodity Hedging Transactions then in effect other than basis differential swaps on volumes already hedged pursuant to other Hedging Transactions) are, as of any date, but tested in connection with each Redetermination of the Borrowing Base, within the required thresholds of Projected Production set forth below for each fiscal quarter during the relevant measurement period following such date for crude oil, natural gas and natural gas liquids on a barrel of oil equivalent basis, and for each of (1) crude oil and natural gas liquids and (2) natural gas, calculated separately; provided, however, that volumes of crude oil, natural gas and natural gas liquids hedged by means of a put or a price "floor" for which there exists no Net Mark-to-Market



Exposure to the Borrower or any Subsidiary (I) shall be counted in determining compliance with the minimum percentage hedging requirement set forth below, (II) shall not be counted in determining compliance with the maximum percentage hedging requirement set forth below and (III) shall in no event cause the total volumes of crude oil, natural gas and natural gas liquids hedged to exceed 100% of Projected Production for crude oil, natural gas and natural gas liquids on a barrel of oil equivalent basis or either of (x) crude oil and natural gas liquids or (y) natural gas, calculated separately, for any quarter:

<table><tr><td></td><td>Minimum Percentage Hedged (% of Projected Production on a box basis)</td><td>Maximum Percentage Hedged (% of Projected Production on a box basis)</td><td>Maximum Percentage Hedged (of Projected Production for each of (i) crude oil and natural gas liquids and (ii) natural gas, calculated separately)</td></tr><tr><td>Measurement Period (relative to measurement date)</td><td>60%</td><td>85%</td><td>85%</td></tr><tr><td>Quarters 1-4</td><td>50%</td><td>85%</td><td>85%</td></tr><tr><td>Quarters 5-10</td><td>0%</td><td>85%</td><td>85%</td></tr><tr><td>Quarters 11-20</td><td>0%</td><td>0%</td><td>0%</td></tr><tr><td>Thereafter</td><td>0%</td><td>0%</td><td>0%</td></tr></table>

: provided, however, that (1) non-compliance with the thresholds set forth above shall not constitute an Event of Default hereunder so long as such non-compliance is cured in accordance with Sections 5.15(b) and 7.12(b) within thirty (30) days following the date of any Transmittal or other notice to the Administrative Agent indicating that the volumes of Projected Production hedged do not comply with such thresholds and (2) the provisions of this subclause (B) shall not be applicable during any period when Borrower's Leverage Ratio is equal to or less than 1.50:1.0,

: provided, further, however, that, notwithstanding the foregoing percentage limitations (but intended to fit within the maximum percentage limitation), the Borrower shall enter into (and shall thereafter maintain) additional Hedging Transactions covering the following volumes of Projected Production of crude oil and natural gas liquids for each fiscal quarter during the relevant measurement period (to be consistent with the estimates contained in the Initial Reserve Report) with one-half of such additional Hedging Transactions to be entered into within 2 Business Days following the Closing Date and the remaining one-half of such additional Hedging Transactions to be entered into within 5 Business Days following the Closing Date:



<table><tr><td>Measurement Period</td><td>Hedging Requirement</td><td>Minimum Price per Barrel</td></tr><tr><td>July 1, 2012 — December 31, 2012</td><td>145,000 barrels</td><td>$ 95.00</td></tr><tr><td>January 1, 2013 — December 31, 2013</td><td>600,000 barrels</td><td>$ 95.00</td></tr><tr><td>January 1, 2014 — June 30, 2014</td><td>275,000 barrels</td><td>$ 95.00</td></tr></table>

(ii) Hedging Transactions in respect of interest rates with Approved Counterparties: (A) effectively converting interest rates from fixed to floating, the notional amounts of which (when aggregated with all other Hedging Transactions of the Borrower and its Subsidiaries then in effect effectively converting interest rates from fixed to floating) do not exceed the greater of (1) the notional amount of Indebtedness under the Second Lien Term Loan Agreement required to be hedged pursuant to Section 5.15(a) or (2) 50% of the then outstanding principal amount of the Borrower's Indebtedness for borrowed money which bears interest at a fixed rate, and (B) effectively converting interest rates from floating to fixed, the notional amounts of which (when aggregated with all other Hedging Transactions of the Borrower and its Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not exceed 50% of the then outstanding principal amount of the Borrower's Indebtedness for borrowed money which bears interest at a floating rate.

Except with the prior written consent of the Administrative Agent, in no event shall any Hedging Transaction permitted under this Section 7.12(a) contain any requirement, agreement or covenant for the Borrower or any Subsidiary to post collateral or margin to secure their obligations under such Hedging Transaction or to cover market exposures, other than pursuant to the Collateral Documents.

(b) In the event the Borrower or any Subsidiary assigns, terminates, amends, unwinds or modifies any Hedging Transactions in respect of commodities (or enters into any off-setting position in respect thereof), the effect of such action (when taken together with any other Hedging Transactions executed contemporaneously with the taking of such action) would have the effect of canceling its positions under such Hedging Transactions, the Borrower will give to the Administrative Agent prompt (and in no event later than one (1) Business Day after the occurrence thereof) written notice of such transaction, the details of such transaction, the date of such transaction and any other details thereof requested by the Administrative Agent. In the event such Hedging Transaction was evaluated in connection with the most recent Redetermination of the Borrowing Base and the value thereof, when taken together with all other Hedging Transactions, assigned, amended, modified, terminated, unwound or off-set since the



date of such Redetermination, exceeds 5% of the Borrowing Base then in effect (as determined by the Administrative Agent) individually or in the aggregate, (i) the Borrower shall maintain the net proceeds received from such transaction in either an account maintained with the Administrative Agent or a controlled account maintained with another financial institution that is subject to an account control agreement in form and substance reasonably satisfactory to the Administrative Agent until the Borrowing Base has been adjusted pursuant to clause (ii) below and any required prepayment resulting from such adjustment has been made and (ii) the Borrowing Base shall be reduced, effective as of the consummation of such transaction, by an amount equal to the net reduction in Borrowing Base value attributable to such transaction (as determined by the Administrative Agent).

Section 7.13 Gas Imbalances, Take-or-Pay or other Prepayments. The Borrower will not, and will not permit any Subsidiary to, allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any Subsidiary that would require the Borrower or such Subsidiary to deliver Hydrocarbons at some future time without them or thereafter receiving full payments therefor to exceed one half \( ^{b} \)  of gas (on an mcf equivalent basis) in the aggregate.

Section 7.14 Amendment to Material Documents. The Borrower will not, and will not permit any of its Subsidiaries to (a) amend, modify or waive any of its rights in a manner materially adverse to the Lenders or the Borrower under its certificate of incorporation, bylaws or other organizational documents, (b) enter into any Material Contract that is materially disadvantageous or adverse to the rights of the Administrative Agent or any Lender or (c) amend or modify any Material Contract or waive any of its rights thereunder, in each case, in a manner materially disadvantageous to or adverse to the interests of the Administrative Agent or any Lender.

Section 7.15 Accounting Changes. The Borrower will not, and will not permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Borrower or of any of its Subsidiaries, except to change the fiscal year of a Subsidiary to conform its fiscal year to that of the Borrower.

Section 7.16 Lease Obligations. The Borrower will not, and will not permit any Subsidiary to, create or suffer to exist any obligations for the payment under operating leases or agreements to lease (but excluding any obligations under leases required to be classified as capital leases under GAAP having a term of five years or more) which would cause the present value of the direct or contingent liabilities of the Borrower and its Subsidiaries under such leases or agreements to lease, on a consolidated basis, to exceed $2,000,000 in the aggregate in any Fiscal Year.

Section 7.17 Government Regulation. Neither the Borrower nor any of its Subsidiaries shall (a) be or become subject at any time to any law, regulation, or list of any Government Authority of the United States (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Lenders or the Administrative Agent from making any advance or extension of credit to Borrower or from otherwise conducting business



with the Loan Parties, or (b) fail to provide documentary and other evidence of the identity of the Loan Parties as may be requested by Lenders or the Administrative Agent at any time to enable Lenders or the Administrative Agent to verify the identity of the Loan Parties or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 1 U.S.C. Section 5318.

Section 7.18 Liens Securing Second Lien Term Loan Agreement and Second Lien Notes. The Borrower will not, and will not permit any Subsidiary to, grant a Lien on any property or asset to secure the Second Lien Term Loan Agreement, the Second Lien Notes or any other Indebtedness arising under any Second Lien Term Loan Document without (a) giving fifteen (15) days' prior written notice to the Administrative Agent thereof and (b) concurrently granting to the Administrative Agent to secure the Obligations a first-priority, perfected Lien on the same property or asset pursuant to Collateral Documents in form and substance satisfactory to the Administrative Agent. In connection therewith, the Borrower shall, or shall cause each Subsidiary to, execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Administrative Agent.

## ARTICLE VIII

## EVENTS OF DEFAULT

Section 8.1 Events of Default. If any of the following events (each an “Event of Default”) shall occur:

(a) the Borrower shall fail to pay any principal of any Loan or of any reimbursement obligation in respect of any LC Disbursement or any payment under Section 2.21(g) or shall fail to make when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or otherwise; or

(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount payable under clause (a) of this Section 8.1 or an amount related to a Bank Product Obligation) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days; or

(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any other Loan Document (including the Schedules attached thereto) and any amendments or modifications hereof or waivers hereunder, or in any certificate, report, financial statement or other document submitted to the Administrative Agent or the Lenders by any Loan Party or any representative of any Loan Party pursuant to or in connection with this Agreement or any other Loan Document shall prove to be incorrect in any material respects (other than those representations and warranties that are expressly qualified by a Material Adverse Effect or other materiality, in which case such representations and warranties shall be true and correct in all respects) when made or deemed made or submitted; or



(d) the Borrower shall fail to observe or perform any covenant or agreement contained in Sections 5.1, 5.2 or 5.3 (with respect to the Borrower's existence) or Articles VI or VII; or

(e) any Loan Party shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those referred to in clauses (a), (b) and (d) above) or any other Loan Document or related to any Bank Product Obligation, and such failure shall remain unreminded for 30 days after the earlier of (i) any officer of the Borrower becomes aware of such failure, or (ii) notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or

(f) (i) any default or event of default (after giving effect to any grace period) shall have occurred and be continuing under the Second Lien Term Loan Agreement or (ii) the Second Lien Intercreditor Agreement shall cease to be in full force and effect or the validity or enforceability thereof is disaffirmed by or on behalf of any subordinated lender party thereto; or

(g) the Borrower or any Subsidiary (whether as primary obligor or as guarantor or other surety) shall fail to pay any principal of, or premium or interest on, any Material Indebtedness that is outstanding, when and as the same shall become due and payable (whether at scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument evidencing or governing such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or any offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or

(h) the Borrower or any Subsidiary shall (i) commence a voluntary case or other proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a custodian, trustee, receiver, liquidator or other similar official of it or any substantial part of its property, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this Section 8.1, (iii) apply for or consent to the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any such Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing; or

(i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or any substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or (ii) the appointment of a



custodian, trustee, receiver, liquidator or other similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and in any such case, such proceeding or petition shall remain undismissed for a period of 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or

(j) the Borrower or any Subsidiary shall become unable to pay, shall admit in writing its inability to pay, or shall fail to pay, its debts as they become due; or

(k) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with other ERISA Events that have occurred, could reasonably be expected to result in liability to the Borrower and the Subsidiaries in an aggregate amount exceeding $500,000; or

(l) any judgment or order for the payment of money in excess of $1,000,000 in the aggregate (to the extent not covered by either (i) independent third party insurance provided by insurers of the highest claims paying rating or financial strength as to which the insurer does not dispute coverage and is not subject to an insolvency proceeding or (ii) contractual indemnity from a creditworthy third party (as reasonably determined by the Board of Directors of the Borrower) as to which such indemnifying party does not dispute its indemnification obligation and is not subject to an insolvency proceeding) shall be rendered against the Borrower or any Subsidiary, and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed; or

(m) any non-monetary judgment or order shall be rendered against the Borrower or any Subsidiary that could reasonably be expected to have a Material Adverse Effect, and there shall be a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(n) a Change in Control shall occur or exist; or

(o) any provision of any Guaranty and Collateral Agreement or any other Loan Document shall for any reason cease to be valid and binding on, or enforceable against, any Subsidiary Loan Party, or any Subsidiary Loan Party shall so state in writing, or any Subsidiary Loan Party shall seek to terminate the Guaranty and Collateral Agreement or any other Loan Document to which it is a party;

then, and in every such event (other than an event with respect to the Borrower described in clause (g) or (h) of this Section 8.1) and at any time thereafter during the continuance of such event, the Administrative Agent may, and upon the written request of the Required Lenders shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, whereupon the Commitment of each Lender shall terminate immediately, (ii) declare the principal of and any accrued interest on the Loans, and all other Obligations owing hereunder, to be, whereupon the same shall become, due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, (iii) exercise all remedies contained in any other Loan



Document, and (iv) exercise any other remedies available at law or in equity; and that, if an Event of Default specified in either clause (g) or (h) shall occur, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, and all fees, and all other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

Section 8.2 Application of Proceeds from Collateral. All proceeds realized from the liquidation or other disposition of Collateral or otherwise received after the Maturity Date, whether by acceleration or otherwise, shall be applied, subject to the Second Lien Intercreditor Agreement:

(a) first, to payment or reimbursement of that portion of the Indebtedness constituting fees, expenses and indemnities payable to the Administrative Agent in its capacity as such;

(b) second, pro rata to payment or reimbursement of that portion of the Indebtedness constituting fees, expenses and indemnities payable to the Lenders;

(c) third, pro rata to payment of accrued interest on the Loans;

(d) fourth, pro rata to payment of principal outstanding on the Loans and Indebtedness to any Secured Hedge Provider under any Hedging Transaction and to any Bank Product Provider under any Bank Product;

(e) fifth, pro rata to any other Indebtedness;

(f) sixth, to serve as cash collateral to be held by the Administrative Agent to secure the LC Exposure; and

(g) seventh, any excess, after all of the Indebtedness shall have been indefeasibly paid in full in cash, shall be paid to the Borrower or as otherwise required by any Governmental Requirement.

## ARTICLE IX
THE ADMINISTRATIVE AGENT

## Section 9.1 Appointment of Administrative Agent.

(a) Each Lender irrevocably appoints SunTrust Bank as the Administrative Agent and authorizes it to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent under this Agreement and the other Loan Documents, together with all such actions and powers that are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder or under the other Loan Documents by or through any one or more sub-agents or attorneys-in-fact appointed by the Administrative Agent. The Administrative Agent and any such sub-agent or attorney-in-fact may perform any and all of its duties and exercise its rights and powers through their respective



Related Parties. The exculatory provisions set forth in this Article shall apply to any such sub-agent or attorney-in-fact and the Related Parties of the Administrative Agent, any such sub-agent and any such attorney-in-fact and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

(b) The Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Required Lenders to act for the Issuing Bank with respect thereto; provided, that the Issuing Bank shall have all the benefits and immunities (i) provided to the Administrative Agent in this Article with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Administrative Agent" as used in this Article included the Issuing Bank with respect to such acts or omissions and (ii) as additionally provided in this Agreement with respect to the Issuing Bank.

(c) The provisions of this Article are solely for the benefit of the Administrative Agent, the Issuing Bank and the Lenders, and no Loan Party shall have rights as a third party beneficiary of any of the provisions contained herein.

Section 9.2 Nature of Duties of Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except those discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it, its sub-agents or attorneys-in-fact with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall not be required to take any action that, in its reasonable opinion or the reasonable opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof (which notice shall include an express reference to such event being a "Default" or "Event of Default" hereunder) is given to the Administrative Agent by the Borrower or any Lender, and the Administrative Agent shall not



be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements, or other terms and conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the value or sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article III or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent may consult with legal counsel (including counsel for the Borrower) concerning all matters pertaining to such duties. If any Lender obtains actual knowledge of any Default or Event of Default, such Lender promptly shall notify the other Lenders and the Administrative Agent of such Default or Event of Default.

Section 9.3 Lack of Reliance on the Administrative Agent. Each of the Lenders and the Issuing Bank acknowledges that neither the Administrative Agent or any Related Party of the Administrative Agent has made any representation or warranty to it, and that no act by the Administrative Agent or any Related Party of the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by the Administrative Agent or any Related Party of the Administrative Agent to the Issuing Bank or any Lender. Each of the Lenders and the Issuing Bank acknowledges that it has, independently and without reliance upon the Administrative Agent, any Issuing Bank or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders and the Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent, any Issuing Bank or any other Lender and based on such documents and information as it has deemed appropriate, continue to make its own decisions in taking or not taking of any action under or based on this Agreement, any related agreement or any document furnished hereunder or thereunder.

Section 9.4 Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from such act or taking such act, unless and until it shall have received instructions from such Lenders; and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders where required by the terms of this Agreement.

Section 9.5 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, posting or other distribution) believed by it to be genuine and to have been signed, sent or made by the proper Person. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person and shall not



incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or not taken by it in accordance with the advice of such counsel, accountants or experts.

Section 9.6 The Administrative Agent and the Syndication Agent in their Individual Capacity. The bank serving as the Administrative Agent or Syndication Agent shall have the same rights and powers under this Agreement and any other Loan Document in its capacity as a Lender as any other Lender and may exercise or refrain from exercising the same as though it were not the Administrative Agent or Syndication Agent; and the terms "Lenders", "Required Lenders", or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent and the Syndication Agent in their individual capacity. The bank acting as the Administrative Agent or Syndication Agent and each of its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the Administrative Agent or Syndication Agent hereunder and without any duty to account therefore to the Lenders.

## Section 9.7 Successor Administrative Agent.

(a) The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, subject to the approval by the Borrower provided that no Default or Event of Default shall exist at such time. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or any state thereof or a bank which maintains an office in the United States, having a combined capital and surplus of at least $500,000,000.

(b) Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent's resignation under this Section 9.7 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Administrative Agent's resignation shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time as the Required Lenders appoint a successor Administrative Agent as provided above. After any retiring Administrative Agent's resignation hereunder, the provisions of this Article shall continue in effect for the benefit of such retiring Administrative Agent and its representatives and agents in respect of any actions taken or not taken by any of them while it was serving as the Administrative Agent.



(c) In addition to the foregoing, if a Lender becomes, and during the period it remains, a Defaulting Lender, and if any Default has arisen from a failure of the Borrower to comply with Section 2.25(a), then the Issuing Bank may, upon prior written notice to the Borrower and the Administrative Agent, resign as Issuing Bank, effective at the close of business Atlanta, Georgia time on a date specified in such notice (which date may not be less than five (5) Business Days after the date of such notice).

Section 9.8 Withholding Tax. To the extent required by any applicable law, the Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to any applicable withholding tax. If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Borrower and without limiting the obligation of the Borrower to do so) fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.

## Section 9.9 Administrative Agent May File Proofs of Claim.

(a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or any Revolving Credit Exposure shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans or Revolving Credit Exposure and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, Issuing Bank and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, Issuing Bank and the Administrative Agent and its agents and counsel and all other amounts due the Lenders, Issuing Bank and the Administrative Agent under Section 10.3) allowed in such judicial proceeding; and

(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and

(b) Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the Issuing Bank to make such payments to the Administrative Agent and, if the Administrative



Agent shall consent to the making of such payments directly to the Lenders and the Issuing Bank, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 10.3.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

Section 9.10 Authorization to Execute other Loan Documents, Releases, Etc. Each Lender and the Issuing Bank hereby authorizes the Administrative Agent to (a) execute on behalf of all Lenders all Loan Documents other than this Agreement, (b) release any Collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents and (c) execute and deliver to the Borrower, at the Borrower's sole cost and expense, any and all releases of Liens, termination statements, assignments or other documents reasonably requested by the Borrower in connection with any sale or other disposition of property to the extent such sale or other disposition is permitted by the terms of Section 7.7 or is otherwise authorized by the terms of the Loan Documents.

## ARTICLE X
MISCELLANEOUS

## Section 10.1 Notices.

(a) Written Notices.

(i) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

To the Borrower:

RAM Energy Resources, Inc.
5100 E Skelly Drive, Suite 650
Tulsa, OK 74135
Attention: Les Austin, SVP and CFO
Telecopy Number: (918)

To the Administrative Agent:

SunTrust Bank
303 Peachtree Street, N. E.
Atlanta, Georgia 30308
Attention: Mr. Brandon Graffeo
Telecopy Number: (404) 813-5134

With a copy to:

SunTrust Bank
Agency Services



303 Peachtree Street, N. E., 25th Floor
Atlanta, Georgia 30308
Attention: Mr. Doug Welz
Telecopy Number: 404.221.2001

To the Issuing Bank:

SunTrust Bank
25 Park Place, N. E., 16th Floor
Mail Code 3706
Atlanta, Georgia 30303
Attention: Standby Letter of Credit Dept.
Telecopy Number: 404.588.8129

To any other Lender:

the address set forth in the Administrative Questionnaire or the Assignment and Acceptance Agreement executed by such Lender

Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the mail or if delivered, upon delivery; provided, that notices delivered to the Administrative Agent or the Issuing Bank shall not be effective until actually received by such Person at its address specified in this Section 10.1.

(i) Any agreement of the Administrative Agent, the Issuing Bank and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent, the Issuing Bank and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent, the Issuing Bank and the Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Administrative Agent, the Issuing Bank and the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Administrative Agent, the Issuing Bank and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent, the Issuing Bank and the Lenders of a confirmation which is at variance with the terms understood by the Administrative Agent, the Issuing Bank and the Lenders to be contained in any such telephonic or facsimile notice.

## (b) Electronic Communications.

(i) Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by electronic communication (including e mail and Internet or intranet websites) pursuant to procedures approved by Administrative Agent,



provided that the foregoing shall not apply to notices to any Lender or the Issuing Bank pursuant to Article II unless such Lender, the Issuing Bank, as applicable, and Administrative Agent have agreed to receive notices under such Section by electronic communication and have agreed to the procedures governing such communications. Administrative Agent or Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

(ii) Unless Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (i) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

## Section 10.2 Waiver; Amendments.

(a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrower and the Administrative Agent or any Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 10.2), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or the issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default or Event of Default at the time.

(b) No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Required Lenders or the Borrower and the Administrative Agent with the consent of the Required Lenders and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment or waiver shall: (i) increase the Aggregate Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees



payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or interest thereon or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.20(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section 10.2 or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender; (vi) release any guarantor or limit the liability of any such guarantor under any guaranty agreement, without the written consent of each Lender; (vii) release all or substantially all collateral (if any) securing any of the Obligations or agree to subordinate any Lien in such collateral to any other creditor of the Borrower or any Subsidiary (other than in connection with a farm-out of undeveloped acreage permitted by Section 7.7(b) or (vii) increase the Borrowing Base without the written consent of each Lender (other than a Defaulting Lender); provided further, that no such agreement shall amend, modify or otherwise affect the rights, duties or obligations of the Administrative Agent or the Issuing Bank without the prior written consent of such Person. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitments of such Lender may not be increased or extended, and amounts payable to such Lender hereunder may not be permanently reduced without the consent of such Lender (other than reductions in fees and interest in which such reduction does not disproportionately affect such Lender). Notwithstanding anything contained herein to the contrary, this Agreement may be amended and restated without the consent of any Lender (but with the consent of the Borrower and the Administrative Agent) if, upon giving effect to such amendment and restatement, such Lender shall no longer be a party to this Agreement (as so amended and restated), the Commitments of such Lender shall have terminated (but such Lender shall continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.3), such Lender shall have no other commitment or other obligation hereunder and shall have been paid in full all principal, interest and other amounts owing to it or accrued for its account under this Agreement.

## Section 10.3 Expenses; Indemnification.

(a) The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) incurred by the Administrative Agent, the Syndication



Agent, the Issuing Bank or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section 10.3, or in connection with the Loans made or any Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

(b) The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), the Syndication Agent, each Lender, the Issuing Bank, each Secured Hedge Counterparty, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower, any other Loan Party or any of their respective Affiliates arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from (A) the gross negligence or willful misconduct of such Indemnitee or (B) a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any other Loan Document. No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through Syndtrak or any other Internet or intranet website, except as a result of such Indemnitee's gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final and nonappealable judgment.

(c) The Borrower shall pay, and hold the Administrative Agent, the Syndication Agent, the Issuing Bank and each of the Lenders harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save the Administrative Agent, the Issuing Bank and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes.



(d) To the extent that the Borrower fails to pay any amount required to be paid to the Administrative Agent, the Syndication Agent, the Issuing Bank under clauses (a), (b) or (c) hereof, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank, as the case may be, such Lender's Pro Rata Share (determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided, that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent or the Issuing Bank in its capacity as such.

(e) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or any Letter of Credit or the use of proceeds thereof.

(f) All amounts due under this Section 10.3 shall be payable promptly after written demand therefor.

## Section 10.4 Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments, Loans, and other Revolving Credit Exposure at the time owing to it); provided that any such assignment shall be subject to the following conditions:

## (i) Minimum Amounts.

(A) in the case of an assignment of the entire remaining amount of the assigning Lender's Commitments, Loans and other Revolving Credit Exposure at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and



(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans and Revolving Credit Exposure outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans and Revolving Credit Exposure of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent or, if "Trade Date" is specified in the Assignment and Acceptance, as of the Trade Date) shall not be less than $5,000,000 and in minimum increments of $1,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).

(i) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans, other Revolving Credit Exposure or the Commitments assigned.

(ii) Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of this Section and, in addition:

(A) the consent of the Borrower (such consent not to be unreasonably withheld) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided, that, the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof;

(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments to a Person that is not a Lender with a Commitment; and

(C) the consent of the Issuing Bank (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding), (such consent not to be unreasonably withheld or delayed) shall be required for any assignment in respect of the Commitments.

(iv) Assignment and Acceptance. The parties to each assignment shall deliver to the Administrative Agent (A) a duly executed Assignment and Acceptance, (B) a processing and recordation fee of $3,500, (C) an Administrative Questionnaire unless the assignee is already a Lender and (D) the documents required under Section 2.19 if such assignee is a Foreign Lender.

(v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower's Affiliates or Subsidiaries.

(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.



Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section 10.4, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.3 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section 10.4. If the consent of the Borrower to an assignment is required hereunder (including a consent to an assignment which does not meet the minimum assignment thresholds specified above), the Borrower shall be deemed to have given its consent five Business Days after the date notice thereof has actually been delivered by the assigning Lender (through the Administrative Agent) to the Borrower, unless such consent is expressly refused by the Borrower prior to such fifth Business Day.

(c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in Atlanta, Georgia a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and Revolving Credit Exposure owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). Information contained in the Register with respect to any Lender shall be available for inspection by such Lender at any reasonable time and from time to time upon reasonable prior notice; information contained in the Register shall also be available for inspection by the Borrower at any reasonable time and from time to time upon reasonable prior notice. In establishing and maintaining the Register, Administrative Agent shall serve as Borrower's agent solely for tax purposes and solely with respect to the actions described in this Section, and the Borrower hereby agrees that, to the extent SunTrust Bank serves in such capacity, SunTrust Bank and its officers, directors, employees, agents, sub-agents and Affiliates shall constitute "Indemnitees."

(d) Any Lender may at any time, without the consent of, or notice to, the Borrower, the Administrative Agent or the Issuing Bank sell participations to any Person (other than a natural person, the Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a "Participant") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders and the Issuing Bank shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement.



(e) Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver with respect to the following to the extent affecting such Participant: (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or LC Disbursement or interest thereon or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.20(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section 10.4 or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender; (vi) release any guarantor or limit the liability of any such guarantor under any guaranty agreement without the written consent of each Lender except to the extent such release is expressly provided under the terms of such guaranty agreement; or (vii) release all or substantially all collateral (if any) securing any of the Obligations. Subject to paragraph (e) of this Section 10.4, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.17, 2.18 and 2.19 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section 10.4. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.7 as though it were a Lender, provided such Participant agrees to be subject to Section 2.20 as though it were a Lender.

(f) A Participant shall not be entitled to receive any greater payment under Section 2.17 and Section 2.19 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.19 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.19(e) as though it were a Lender.

(g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledge or assignee for such Lender as a party hereto.

Section 10.5 Governing Law: Jurisdiction; Consent to Service of Process.



(a) This Agreement and the other Loan Documents shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof of the State of New York.

(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the United States District Court Southern District of New York and of Supreme Court of the State of New York sitting in New York county and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such District Court or New York state court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction.

(c) The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section 10.5 and brought in any court referred to in paragraph (b) of this Section 10.5. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 10.1. Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law.

Section 10.6 WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERE TO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREIGNER WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.



Section 10.7 Right of Steoff. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender and the Issuing Bank shall have the right, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by such Lender and the Issuing Bank to or for the credit or the account of the Borrower against any and all Obligations held by such Lender or the Issuing Bank, as the case may be, irrespective of whether such Lender or the Issuing Bank shall have made demand hereunder and although such Obligations may be unmatured. Each Lender and the Issuing Bank agree promptly to notify the Administrative Agent and the Borrower after any such set-off and any application made by such Lender and the Issuing Bank, as the case may be; provided, that the failure to give such notice shall not affect the validity of such set-off and application. Each Lender and the Issuing Bank agrees to apply all amounts collected from any such set-off to the Obligations before applying such amounts to any other Indebtedness or other obligations owed by the Borrower and any of its Subsidiaries to such Lender or Issuing Bank.

Section 10.8 Counterparts: Integration. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the Engagement Letter, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Administrative Agent and its Affiliates constitute the entire agreement among the parties hereto and thereto and their affiliates regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. Delivery of an executed counterpart to this Agreement or any other Loan Document by facsimile transmission or by electronic mail in pdf format shall be as effective as delivery of a manually executed counterpart hereof.

Section 10.9 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.18, 2.19, 2.20 and 10.3 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. All representations and warranties made herein, in the certificates, reports, notices, and other documents delivered pursuant to this



Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Loans and the issuance of the Letters of Credit.

Section 10.10 Severability. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 10.11 Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to take normal and reasonable precautions to maintain the confidentiality of any information relating to the Borrower or any of its Subsidiaries or any of their respective businesses, to the extent designated in writing as confidential and provided to it by the Borrower or any Subsidiary, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries, except that such information may be disclosed (a) to any Related Party of the Administrative Agent, the Issuing Bank or any such Lender including without limitation accountants, legal counsel and other advisors, (b) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (c) to the extent requested by any regulatory agency or authority purporting to have jurisdiction over it (including any self-regulatory authority such as the National Association of Insurance Commissioners), (d) to the extent that such information becomes publicly available other than as a result of a breach of this Section 10.11, or which becomes available to the Administrative Agent, the Issuing Bank, any Lender or any Related Party of any of the foregoing on a non-confidential basis from a source other than the Borrower, (e) in connection with the exercise of any remedy hereunder or under any other Loan Documents or any suit, action or proceeding relating to this Agreement or any other Loan Documents or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 10.11, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, or (ii) any actual or prospective party (or its Related Parties) to any swap or derivative or similar transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (g) any rating agency, (h) the CUSIP Service Bureau or any similar organization, or (i) with the consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section 10.11 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information.

Section 10.12 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which may be treated as interest on such Loan under applicable law (collectively, the "Charges"), shall exceed the maximum lawful rate of interest (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by a Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum



Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section 10.12 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment (to the extent permitted by applicable law), shall have been received by such Lender.

Section 10.13 Waiver of Effect of Corporate Seal. The Borrower represents and warrants that neither it nor any other Loan Party is required to affix its corporate seal to this Agreement or any other Loan Document pursuant to any Requirement of Law, agrees that this Agreement is delivered by Borrower under seal and waives any shortening of the statute of limitations that may result from not affixing the corporate seal to this Agreement or such other Loan Documents.

Section 10.14 Patriot Act. The Administrative Agent and each Lender hereby notifies the Loan Parties that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Patriot Act"), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of such Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify such Loan Party in accordance with the Patriot Act.

Section 10.15 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), Borrower and each other Loan Party acknowledges and agrees and acknowledges its Affiliates' understanding that that: (a)(i) the services regarding this Agreement provided by the Administrative Agent and/or Lenders are arm's-length commercial transactions between Borrower, each other Loan Party and their respective Affiliates, on the one hand, and the Administrative Agent and the Lenders, on the other hand, (ii) each of Borrower and the other Loan Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate, and (iii) Borrower and each other Loan Party is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (b)(i) each of the Administrative Agent and Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary, for Borrower, any other Loan Party, or any of their respective Affiliates, or any other Person and (ii) neither the Administrative Agent nor any Lender has any obligation to Borrower, any other Loan Party or any of their Affiliates with respect to the transaction contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (c) the Administrative Agent, the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of Borrower, the other Loan Parties and their respective Affiliates, and each of the Administrative Agent and Lenders has no obligation to disclose any of such interests to Borrower, any other Loan Party of any of their respective Affiliates. To the fullest extent permitted by law, each of Borrower and the other Loan Parties hereby waive and release any claims that it may have against the Administrative



Agent and each Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

Section 10.16 Location of Closing. Each Lender acknowledges and agrees that it has delivered, with the intent to be bound, its executed counterparts of this Agreement to the Administrative Agent, c/o Vinson & Elkins, LLP, 666 Fifth Avenue 26th Floor, New York, NY 10103-0040. Borrower acknowledges and agrees that it has delivered, with the intent to be bound, its executed counterparts of this Agreement and each other Loan Document, together with all other documents, instruments, opinions, certificates and other items required under Section 3.1, to the Administrative Agent, c/o Vinson & Elkins, LLP, 666 Fifth Avenue, 26th Floor New York, NY 10103-0040. All parties agree that closing of the transactions contemplated by this Agreement has occurred in New York.

[Remainder of page left intentionally blank.]



RAM ENERGY RESOURCES, INC.

By: /s/ G. Les Austin

Name: G. Les Austin

Title: Senior Vice President and Chief Financial Officer

Signature Page

Revolving Credit Agreement



SUNTRUST BANK
as Administrative Agent, as Issuing Bank,
and as a Lender

By: /s/ David Yates
Name: David Yates
Title: Managing Director

Signature Page
Revolving Credit Agreement



CAPITAL ONE, N.A.
as Syndication Agent and as a Lender

By: /s/ Matthew L. Molero

Name: Matthew L. Molero

Title: Vice President

Signature Page

Revolving Credit Agreement



SOCIÉTÉ GÉNÉRALE

By: /s/ David M. Bornstein

Name: David M. Bornstein

Title: Director

Signature Page

Revolving Credit Agreement



## REGIONS BANK

By: /s/ Kelly L. Elmore III

Name: Kelly L. Elmore III

Title: Senior Vice President

Signature Page

Revolving Credit Agreement



## CIT BANK

By: /s/ Daniel Burnett

Name: Daniel Burnett

Title: Authorized Signatory

Signature Page

Revolving Credit Agreement



Schedule I
APPLICABLE MARGIN AND APPLICABLE PERCENTAGE
Borrowing Base Utilization Grid

<table><tr><td></td><td>Level I</td><td>Level II</td><td>Level III</td><td>Level IV</td></tr><tr><td>Borrowing Base Utilization Percentage</td><td>≤50%</td><td>&gt;50% ≤75%</td><td>&gt;75% ≤90%</td><td>&gt;90%</td></tr><tr><td>Eurodollar Loans</td><td>2.50%</td><td>2.75%</td><td>3.00%</td><td>3.25%</td></tr><tr><td>Base Rare Loans</td><td>1.50%</td><td>1.75%</td><td>2.00%</td><td>2.25%</td></tr><tr><td>Commitment Fee Rate</td><td>.75%</td><td>.75%</td><td>.75%</td><td>.75%</td></tr></table>

Schedule I-1



Schedule II

COMMITMENT AMOUNTS AND PRO RATA SHARE PERCENTAGE

<table><tr><td>Lender</td><td></td><td>Maximum Commitment</td><td>Pro Rata Share Percentage</td></tr><tr><td>SunTrust Bank</td><td></td><td>$ 83,333,333.34</td><td>33.3333%</td></tr><tr><td>Capital One, N.A.</td><td></td><td>$ 58,333,333.33</td><td>23.3333%</td></tr><tr><td>Societe Generale</td><td></td><td>$ 41,666,666.67</td><td>16.6667%</td></tr><tr><td>Regions Bank</td><td></td><td>$ 33,333,333.33</td><td>13.3333%</td></tr><tr><td>CIT Bank</td><td></td><td>$ 33,333,333.33</td><td>13.3333%</td></tr><tr><td>TOTAL</td><td></td><td>$ 250,000,000.00</td><td>100%</td></tr></table>

Schedule II-1



Schedule 4.5



## Schedule 4.13

## GAS IMBALANCES

There are no net imbalances exceeding one-half bcf of gas (on an mcf equivalent basis) in the aggregate.

Schedule 4.13



None.

Schedule 4.14



Schedule 4.15



Schedule 4.18 

SUBSIDIARIES 

<table><tr><td>Owner</td><td>Issuer</td><td>Class of Stock or other Equity Interest</td><td>No. of Shares</td></tr><tr><td>RAM Energy Resources, Inc.</td><td>RAM Operating Company, Inc., a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RAM Energy Resources, Inc.</td><td>RAM Energy, Inc., a Delaware corporation</td><td>Common</td><td>1</td></tr><tr><td>RAM Operating Company, Inc.</td><td>RAM Energy Resources (WV), Inc., a Delaware corporation</td><td>Common</td><td>1,000.</td></tr><tr><td>RAM Operating Company, Inc.</td><td>RAM Energy Holdings (LA), Inc., a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RAM Operating Company, Inc.</td><td>Pontotoc Production Company, Inc., a Texas corporation</td><td>Common</td><td>100</td></tr><tr><td>RAM Energy Holdings (LA), Inc.</td><td>RAM Energy Resources (Lafourche), Inc., a Louisiana corporation</td><td>Common</td><td>100</td></tr><tr><td>RAM Energy Resources (Lafourche), Inc.</td><td>RAM Energy Louisiana, LLC, a Delaware limited liability company</td><td>Common Membership Interests</td><td>100%</td></tr><tr><td>RAM Energy, Inc.</td><td>RWG Energy, Inc., a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RAM Energy, Inc.</td><td>RLP Gulf States, L.L.C., an Oklahoma limited liability company</td><td>Common Membership Interests</td><td>100%</td></tr><tr><td>RAM Energy, Inc.</td><td>Great Plains PipeLine Company, a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RWG Energy, Inc.</td><td>WG Operating, Inc., a Texas corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RWG Energy, Inc.</td><td>W G PipeLine LLC, a Texas limited liability company</td><td>Common Membership Interests</td><td>100%</td></tr></table>

Schedule 4.18



See attached documents.

Schedule 7.1



See attached documents.

Schedule 7.2



Schedule 7.4



Notwithstanding any other provision contained herein, this Agreement, the liens created in accordance herewith and the rights, remedies, duties and obligations provided for herein and in the other Loan Documents are subject in all respects to the provisions of the First Lien Intercreditor Agreement and, to the extent provided therein, the First Lien Security Documents, as provided in Section 10.17 herein.

SECOND LIEN TERM LOAN AGREEMENT

dated as of March 14, 2011

among

RAM ENERGY RESOURCES, INC.

as Borrower

THE LENDERS FROM TIME TO TIME PARTY HERETO

and

GUGGENHEIM CORPORATE FUNDING, LLC,

as Administrative Agent



## TABLE OF CONTENTS

ARTICLE I DEFINITIONS; CONSTRUCTION
Section 1.1 Definitions
Section 1.2 [Reserved]
Section 1.3 Accounting Terms and Determination
Section 1.4 Terms Generally
ARTICLE II AMOUNT AND TERMS OF THE COMMITMENTS
Section 2.1 General Description of Facilities
Section 2.2 Loans
Section 2.3 Procedure for Borrowings
Section 2.4 Funding of Borrowings
Section 2.5 Interest Elections
Section 2.6 Termination of Commitments
Section 2.7 [Reserved]
Section 2.8 Repayment of Loans
Section 2.9 Evidence of Indebtedness
Section 2.10 Optional Prepayments
Section 2.11 Mandatory Prepayments
Section 2.12 Interest on Loans
Section 2.13 Fees
Section 2.14 Computation of Interest and Fees
Section 2.15 Inability to Determine Interest Rates
Section 2.16 Illegality
Section 2.17 Increased Costs
Section 2.18 Funding Indemnity
Section 2.19 Taxes
Section 2.20 Payments Generally; Pro Rata Treatment; Sharing of Set-offs
Section 2.21 [Reserved]
Section 2.22 [Reserved]
Section 2.23 Mitigation of Obligations
Section 2.24 Replacement of Lenders
ARTICLE III CONDITIONS PRECEDENT TO LOANS
Section 3.1 Conditions To Effectiveness
Section 3.2 Each Credit Event
Section 3.3 Delivery of Documents
ARTICLE IV REPRESENTATIONS AND WARRANTIES
Section 4.1 Existence; Power
Section 4.2 Organizational Power; Authorization
Section 4.3 Governmental Approvals; No Conflicts
Section 4.4 Financial Statements
Section 4.5 Litigation and Environmental Matters
Section 4.6 Compliance with Laws and Agreements
Section 4.7 Investment Company Act, Etc.



Section 4.8 Taxes
Section 4.9 Margin Regulations
Section 4.10 ERISA
Section 4.11 Properties; Titles, Etc.
Section 4.12 Maintenance of Properties
Section 4.13 Gas Imbalances, Prepayments
Section 4.14 Marketing of Production
Section 4.15 Hedging Agreements
Section 4.16 Disclosure
Section 4.17 Labor Relations
Section 4.18 Subsidiaries
Section 4.19 Solvency
Section 4.20 OFAC
Section 4.21 Patriot Act
Section 4.22 Use of Proceeds

ARTICLE V AFFIRMATIVE COVENANTS

Section 5.1 Financial Statements and Other Information
Section 5.2 Notes of Material Events
Section 5.3 Existence; Conduct of Business
Section 5.4 Operation and Maintenance of Properties
Section 5.5 Compliance with Laws, Etc.
Section 5.6 Environmental Matters
Section 5.7 Payment of Obligations
Section 5.8 Books and Records
Section 5.9 Visitation, Inspection, Etc.
Section 5.10 Insurance
Section 5.11 Use of Proceeds
Section 5.12 Reserve Reports
Section 5.13 Title Information
Section 5.14 Additional Collateral; Additional Guarantors
Section 5.15 Hedging Agreements
Section 5.16 Marketing Activities
Section 5.17 Further Assurances
Section 5.18 Concurrent Delivery of Notices

ARTICLE VI FINANCIAL COVENANTS

Section 6.1 Leverage Ratio
Section 6.2 Interest Coverage Ratio
Section 6.3 Asset Coverage Ratio
Section 6.4 Minimum Current Ratio

ARTICLE VII NEGATIVE COVENANTS

Section 7.1 Indebtedness and Preferred Equity
Section 7.2 Negative Pledge
Section 7.3 Fundamental Changes
Section 7.4 Investments, Loans, Etc.
Section 7.5 Restricted Payments, etc.



Section 7.6 Amendment of First Lien Credit Agreement 62
Section 7.7 Sale of Assets 62
Section 7.8 Environmental Matters 63
Section 7.9 Transactions with Affiliates 63
Section 7.10 Restrictive Agreements 63
Section 7.11 Sale and Leaseback Transactions 63
Section 7.12 Hedging Transactions 64
Section 7.13 Gas Imbalances, Take-or-Pay or other Prepayments 66
Section 7.14 Amendment to Material Documents 66
Section 7.15 Accounting Changes 66
Section 7.16 Lease Obligations 66
Section 7.17 Government Regulation 67
Section 7.18 Liens Securing First Lien Notes 67

ARTICLE VIII EVENTS OF DEFAULT 67

Section 8.1 Events of Default 67

ARTICLE IX THE ADMINISTRATIVE AGENT 70

Section 9.1 Appointment of Administrative Agent 70
Section 9.2 Nature of Duties of Administrative Agent 71
Section 9.3 Lack of Reliance on the Administrative Agent 72
Section 9.4 Certain Rights of the Administrative Agent 72
Section 9.5 Reliance by Administrative Agent 72
Section 9.6 The Administrative Agent in its Individual Capacity 73
Section 9.7 Successor Administrative Agent 73
Section 9.8 Withholding Tax 73
Section 9.9 Administrative Agent May File Proofs of Claim 74
Section 9.10 Authorization to Execute other Loan Documents, Releases, Etc. 74

ARTICLE X MISCELLANEOUS 75

Section 10.1 Notices 75
Section 10.2 Waiver; Amendments 77
Section 10.3 Expenses; Indemnification 78
Section 10.4 Successors and Assigns 79
Section 10.5 Governing Law; Jurisdiction; Consent to Service of Process 83
Section 10.6 WAIVER OF JURY TRIAL 83
Section 10.7 Right of Steoff 84
Section 10.8 Counterparts; Integration 84
Section 10.9 Survival 84
Section 10.10 Severability 85
Section 10.11 Confidentiality 85
Section 10.12 Interest Rate Limitation 85
Section 10.13 Waiver of Effect of Corporate Seal 86
Section 10.14 Patriot Act 86
Section 10.15 No Advisory or Fiduciary Responsibility 86
Section 10.16 Location of Closing 87
Section 10.17 First Lien Intercreditor Agreement 87



## Schedules

Schedule I — Commitment Amounts
Schedule 4.5 — Environmental Matters
Schedule 4.13 — Gas Imbalances
Schedule 4.14 — Marketing Contracts
Schedule 4.15 — Hedging Agreements
Schedule 4.18 — Subsidiaries
Schedule 7.1 — Outstanding Indebtedness
Schedule 7.2 — Existing Liens
Schedule 7.4 — Existing Investments

## Exhibits

Exhibit A — Form of Assignment and Acceptance
Exhibit B — Form of Guarantee and Collateral Agreement
Exhibit C — List of Collateral Documents
Exhibit D-1 — Form of Notice of Borrowing
Exhibit D-2 — Form of PIK Election Notice
Exhibit E — Form of Notice of Continuation
Exhibit F — Form of Secretary's Certificate
Exhibit G — Form of Officer's Certificate
Exhibit H — Form of Compliance Certificate



## SECOND LIEN TERM LOAN AGREEMENT

THIS SECOND LIEN TERM LOAN AGREEMENT (this “Agreement”) is made and entered into as of March 11, 2011, by and among RAM Energy Resources, Inc., a Delaware corporation (the “Borrower”), the several banks and other financial institutions and lenders from time to time party hereto (the “Lenders”), and GUGGENHEIM CORPORATE FUNDING, LLC, in its capacity as administrative agent for the Lenders (the “Administrative Agent”).

## WITNESSETH:

WHEREAS, the Borrower has requested that the Lenders provide the Borrower with a term loan;

WHEREAS, subject to the terms and conditions of this Agreement, the Lenders to the extent of their respective Commitments, are willing severally to provide such term loan to the Borrower; and

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower, the Lenders and the Administrative Agent agree as follows:

## ARTICLE I

## DEFINITIONS: CONSTRUCTION

Section 1.1 Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):

“Acquired EBITDA” shall mean, with respect to any Acquired Entity or Business for any period, the amount for such period of Consolidated EBITDA of such Acquired Entity or Business, all as determined on a consolidated basis for such Acquired Entity or Business in a manner not inconsistent with GAAP.

“Acquired Entity or Business” shall have the meaning provided in the definition of the term Consolidated EBITDA.

“Adjusted LIBO Rate” shall mean, with respect to each Interest Period for a Eurodollar Borrowing, the greater of (i) the rate per annum obtained by dividing (A) LIBOR for such Interest Period by (B) a percentage equal to 1.00 \( ^{1} \)  minus the Eurodollar Reserve Percentage, and (ii) 2.00% per annum.

“Administrative Agent” shall have the meaning assigned to such term in the opening paragraph hereof.

“Administrative Questionnaire” shall mean, with respect to each Lender, an administrative questionnaire in the form provided by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender.



“Affiliate” shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For the purposes of this definition, “Control” shall mean the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by control or otherwise. The terms “Controlling”, “Controlled by”, and “under common Control with” have the meanings correlative thereto.

“Aggregate Commitments” shall mean, collectively, all Commitments of all Lenders at any time outstanding.

“Aggregate Maximum Commitment Amount” shall mean the aggregate principal amount of the Maximum Commitments from time to time. On the Closing Date, the Aggregate Maximum Commitment Amount is as set forth on Schedule I.

“Applicable Lending Office” shall mean, for each Lender, the “Lending Office” of such Lender (or an Affiliate of such Lender) designated in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans are to be made and maintained.

“Applicable Margin” shall mean, for any day, with respect to any Eurodollar Loan, the rate per annum equal to 9.00%, provided that if the Borrower makes a PIK Election for an Interest Period, then such rate per annum during such Interest Period shall be equal to 10.00%.

“Appropriate Priority Liens” means Liens that are junior in priority only to senior liens expressly provided for in the First Lien Intercreditor Agreement.

“Approved Counterparty” means (i) any Revolving Lender or any Affiliate of a Revolving Lender, (ii) Shell Energy North America (US), L.P., (iii) any other Person whose long term senior unsecured debt rating is A-/A3 by S&P or Moody's (or their equivalent) or higher, and (iv) with regard to Master Agreements in respect of commodities, and subject to the conditions set forth therein, any other Person approved by the Administrative Agent.

“Approved Fund” shall mean any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Approved Petroleum Engineers” shall mean (i) Forrest A. Garb & Associates and (ii) any other independent petroleum engineers reasonably acceptable to the Administrative Agent and the Borrower.

“Asset Coverage Ratio” shall mean, as of any date, the ratio of (i) NYMEX Value as of the most recent Redetermination Date, minus the NYMEX Value of any Oil and Gas



Properties sold since such Redetermination Date, plus the NYMEX Value of any Oil and Gas Properties acquired since such Redetermination Date to (ii) Consolidated Total Debt as of such date.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.4(b)) and accepted by the Administrative Agent, in the form of Exhibit A attached hereto or any other form approved by the Administrative Agent.

“Borrower” shall have the meaning in the introductory paragraph hereof.

“Borrower’s LTIP” shall mean the RAM Energy Resources, Inc. 2006 Long-Term Incentive Plan.

“Borrowing” shall mean a borrowing consisting of Loans made or continued on the same date and as to which a single Interest Period is in effect.

“Borrowing Base” shall mean at any time an amount equal to the amount determined in accordance with Section 2.7 of the First Lien Credit Agreement as the same may be adjusted from time to time pursuant to the terms of the First Lien Credit Agreement.

“Business Day” shall mean any day other than (i) a Saturday, Sunday or other day on which commercial banks in either Atlanta, Georgia or New York, New York are authorized or required by law to close and (ii) if such day relates to a Borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice with respect to any of the foregoing, any day on which banks are not open for dealings in dollar deposits are carried on in the London interbank market.

“Capital Lease Obligations” of any Person shall mean all obligations of such Person to pay rent or other amounts under any lease (or other arrangement conveying the right to use) of real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“Capital Stock” shall mean all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934).

“Cash Interest” shall have the meaning set forth in Section 2.12(c).

“Change in Control” shall mean the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and



Exchange Commission thereunder in effect on the date hereof), (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of 30% or more of the outstanding shares of the voting stock of the Borrower, or (iii) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals who are Continuing Directors.

“Change in Law” shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by any Lender (or its Applicable Lending Office) (or for purposes of Section 2.20(b), by the Parent Company of such Lender, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. Notwithstanding anything herein to the contrary, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and all requests, rules, guidelines and directives promulgated thereunder, are deemed to have been introduced or adopted after the date hereof, regardless of the date enacted or adopted.

“Closing Date” shall mean the date on which the conditions precedent set forth in Section 3.1 and Section 3.2 have been satisfied or waived in accordance with Section 10.2.

“Code” shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time.

“Collateral” shall mean all real and personal property of any kind or character, granted as security under the Collateral Documents.

“Collateral Documents” shall mean the Guaranty and Collateral Agreement, the Mortgages and any and all other mortgages, deeds of trusts, security agreements, pledge agreements, account control agreements, UCC financing statements, letters-in-lease, instruments, agreements, consents or certificates now or hereafter executed and delivered by the Borrower or any other Person (other than participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment or performance of the Indebtedness, the Second Line Notes, or this Agreement, as such agreements may be amended, modified, supplemented or restated from time to time.

“Commitment” shall mean, with respect to each Lender, the commitment of such Lender to make Loans on the Closing Date. After such Loans are funded, the Commitment terminates.

“Compliance Certificate” shall mean a certificate from the principal executive officer or the principal financial officer of the Borrower in the form of, and containing the certifications set forth in, the certificate attached hereto as Exhibit H.

“Consolidated Current Assets” shall mean, for any Person at any time, the sum of the current assets of such Person and its Subsidiaries at such time; provided that, for purposes of



determining compliance with Section 6.4, the amount of unused availability under the First Lien Credit Agreement shall be considered a current asset. For purposes of this definition, any non-cash assets resulting from the requirements of ASC 815 for any period of determination shall be excluded from the determination of current assets of such Person and its Subsidiaries.

“Consolidated Current Liabilities” shall mean, for any Person at any time, the current liabilities of such Person and its Subsidiaries at such time; provided that, for purposes of determining compliance with Section 6.4, the current portion of the principal amount of the Loans and the current portion of the principal amount of any loans outstanding under the First Lien Credit Agreement shall not be considered current liabilities. For purposes of this definition, any non-cash liabilities resulting from the requirements of ASC 815 for any period of determination shall be excluded from the determination of current liabilities of such Person and its Subsidiaries.

“Consolidated EBITDA” shall mean, for any Person and its Subsidiaries for any period, an amount equal to the sum of (i) Consolidated Net Income for such period less (ii) unrealized gains from Hedging Transactions, plus (iii) to the extent deducted in determining Consolidated Net Income for such period, and without duplication, (A) Consolidated Interest Expense, (B) income tax expense determined on a consolidated basis in accordance with GAAP, (C) depreciation and amortization determined on a consolidated basis in accordance with GAAP, (D) non-cash compensation expenses under the Borrower's LTIP as determined in accordance with FAS 123R and (E) all other non-cash charges (including unrealized losses from Hedging Transactions) acceptable to the Administrative Agent, determined on a consolidated basis in accordance with GAAP, in each case for such period; provided, however, that (x) there shall be included in determining Consolidated EBITDA for any period, without duplication, (A) the Acquired EBITDA of any Person or business, or attributable to any property or asset, acquired by any Loan Party during such period to the extent not subsequently sold, transferred, abandoned or otherwise disposed by any Loan Party (each such Person, business, property or asset acquired and not subsequently so disposed of, an "Acquired Entity or Business"), based on the actual Acquired EBITDA of such Acquired Entity or Business for such period (including the portion thereof occurring prior to such acquisition or conversion); provided further, that to the extent included in Consolidated Net Income, there shall be excluded in determining Consolidated EBITDA for any period the Disposed EBITDA of any Person, property, business or asset sold, transferred, abandoned or otherwise disposed of, closed or classified as discontinued operations by any Loan Party during such period (each such Person, property, business or asset so sold or disposed of, a "Disposed Entity or Business"), based on the actual Disposed EBITDA of such Disposed Entity or Business for such period (including the portion thereof occurring prior to such sale, transfer or disposition or conversion). Notwithstanding the foregoing, in no event shall the Consolidated EBITDA attributable to the Oil and Gas Properties sold to Milagro Producing, LLC or Southridge Energy, LLC in December, 2010 be treated as Disposed EBITDA hereunder. Unless otherwise specified herein, Consolidated EBITDA shall mean Consolidated EBITDA of the Borrower and its Subsidiaries.

“Consolidated Interest Expense” shall mean, for any Person and its Subsidiaries for any period determined on a consolidated basis in accordance with GAAP, the sum of (i) the total interest expense, including without limitation the interest component of any payments in respect of Capital Lease Obligations, paid during such period plus (ii) the net amount payable (or



minutes the net amount receivable) with respect to interest rate Hedging Transactions during such period (whether or not actually paid or received during such period). Unless otherwise specified herein, Consolidated Interest Expense shall mean Consolidated Interest Expense of the Borrower and its Subsidiaries.

“Consolidated Net Income” shall mean, for any Person and its Subsidiaries for any period, the net income (or loss) of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but excluding therefrom (to the extent otherwise included therein) (i) any extraordinary gains or losses, (ii) any gains attributable to write-ups of assets, (iii) any Capital Stock of such Person or any Subsidiary of such Person in the unremitted earnings of any Person that is not a Subsidiary and (iv) any income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Person or any Subsidiary on the date that such other Person's assets are acquired by the Person or any Subsidiary. Unless otherwise specified herein, Consolidated Net Income shall mean Consolidated Net Income of the Borrower and its Subsidiaries.

“Consolidated Total Debt” shall mean, as of any date, all Indebtedness of the Borrower and its Subsidiaries measured on a consolidated basis as of such date, but excluding Indebtedness of the type described in subsection (xi) of the definition thereto.

“Continuing Director” shall mean, with respect to any period, any individuals (i) who were members of the board of directors or other equivalent governing body of the Borrower on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body, or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).

“Contractual Obligation” of any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking under which such Person is obligated or by which it or any of the property in which it has an interest is bound.

“Credit Exposure” shall mean, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Loans.

“Current Ratio” shall mean, as of the last day of any Fiscal Quarter, the ratio of Consolidated Current Assets as of such date to Consolidated Current Liabilities as of such date.

“Default” shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Default Interest” shall have the meaning set forth in Section 2.12(b).



“Defaulting Lender” shall mean, at any time, any Lender that has failed for three (3) or more Business Days to comply with its obligations under this Agreement to make a Loan and/or to make any other payment hereunder.

“Defensible Title” means as to any Oil and Gas Property, such title held by a Loan Party that (i) is free from reasonable doubt to the end that a prudent purchaser engaged in the business of the ownership, development and operation of producing Oil and Gas Properties, with knowledge of all of the facts and their legal bearing, would be willing to accept and pay full value therefor; (ii) is deductible or record from the records of the applicable parish or county, or, in the case of federal leases, from the records of the applicable office of the Bureau of Lands Management or Minerals Management Service, or, in the case of state leases, from the applicable records of the applicable state land office; (iii) entitle such Loan Party to receive not less than the "Net Revenue Interest" set forth in the Initial Reserve Report with respect to each Oil and Gas Property owned by such Loan Party as of the date of this Agreement, and not less than the "Net Revenue Interest" set forth in the most recent Reserve Report with respect to each Oil and Gas Property acquired by such Loan Party after the date of this Agreement, in each case, without reduction, suspension or termination throughout the productive life of such Oil and Gas Property; (iv) obligates such Loan Party to bear costs and expenses relating to operations on and the maintenance and development of each Oil and Gas Property in an amount not greater than the "Working Interest" set forth in the Initial Reserve Report with respect to each Oil and Gas Property owned by such Loan Party as of the date of this Agreement, and not greater than the "Working Interest" set forth in the most recent Reserve Report with respect to each Oil and Gas Property acquired by such Loan Party after the date of this Agreement (except to the extent that such Loan Party is obligated under an operating agreement to assume a portion of a defaulting or non-consenting party's share of costs), in each case without increase for the respective productive life of such Oil and Gas Property; and (v) is free and clear of Liens and material encumbrances and defects, except for Permitted Encumbrances.

“Disposed EBITDA” shall mean, with respect to any Disposed Entity or Business for any period, the amount for such period of Consolidated EBITDA of such Disposed Entity or Business, all as determined on a consolidated basis for such Disposed Entity or Business in a manner not inconsistent with GAAP.

“Disposed Entity or Business” shall have the meaning provided in the definition of the term Consolidated EBITDA.

“Disposition Value” means the sum of (i) 90% of the NYMEX Value of all Proved Developed Producing Reserves (if any), (ii) 70% of the NYMEX Value of all Proved Developed Non-Producing Reserves (if any), and (iii) 35% of the NYMEX Value of all Proved Undeveloped Reserves (if any).

“Dollar(s)” and the sign “$” shall mean lawful money of the United States of America.

“Engagement Letter” shall mean that certain Engagement Letter dated as of January 27, 2011 between the Borrower and the Administrative Agent, as the same may be amended, modified, supplemented or restated from time to time.



“Engineering Reports” shall have the meaning assigned such term in the First Lien Credit Agreement.

“Environmental Laws” shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters, in effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting, or at any time has conducted, business, or where any Property of the Borrower or any Subsidiary is located, including, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Law, as amended, and other environmental conservation or protection Governmental Requirements.

“Environmental Liability” shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (i) any actual or alleged violation of any Environmental Law, (ii) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (iii) any actual or alleged exposure to any Hazardous Materials, (iv) the Release or threatened Release of any Hazardous Materials or (v) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Environmental Permit” shall mean any permit, registration, license, notice, approval, consent, exemption, variance, or other authorization required under or issued pursuant to applicable Environmental Laws.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated), which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for the purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” shall mean (i) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (ii) the failure of any Plan to meet the minimum funding standard applicable to the Plan for a plan year under Section 412 of the Code or Section 302 of ERISA, whether or not waived; (iii) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding.



standard with respect to any Plan; (iv) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (v) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator appointed by the PBGC of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (vi) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (vii) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

"Eurodollar" when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate.

"Eurodollar Reserve Percentage" shall mean the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal (rounded upwards to the next 1/100th of 1%) in effect on any day to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate pursuant to regulations issued by the Board of Governors of the Federal Reserve System (or any Governmental Authority succeeding to any of its principal functions) with respect to ecurrency funding (currently referred to as "eurocurrency liabilities" under Regulation D). Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D. The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

"Event of Default" shall have the meaning provided in Article VIII.

"Excluded Taxes" shall mean with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (i) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its Applicable Lending Office is located, (ii) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Lender is located, (iii) in the case of a Foreign Lender, any withholding tax that (A) is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement, (B) is imposed on amounts payable to such Foreign Lender at any time that such Foreign Lender designates a new lending office, other than taxes that have accrued prior to the designation of such lending office that are otherwise not Excluded Taxes, and (B) is attributable to such Foreign Lender's failure (other than as a result of a change in law) to comply with Section 2.20(e) and (iv) in the case of a Lender, any U.S. withholding Taxes that are attributable to such Lender's failure to comply with FATCA.



“Existing Credit Agreement” shall mean that certain Loan Agreement, dated as of November 29, 2007, by and among RAM Energy Resources, Inc., the lenders from time to time parties thereto and Guggenheim Corporate Funding, LLC, as arranger and administrative agent, as amended.

“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement, and any current or future regulations or official interpretations thereof.

“Federal Funds Rate” shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent.

“First Lien Administrative Agent” shall mean the “Administrative Agent” as defined in the First Lien Credit Agreement.

“First Lien Credit Agreement” shall mean that certain Revolving Credit Agreement, dated as of the date hereof, among the Borrower, SunTrust Bank, as the administrative agent, and the lenders from time to time party thereto.

“First Lien Intercreditor Agreement” shall mean that certain Intercreditor Agreement, dated as of even date herewith, by and among the Administrative Agent, the administrative agent under the First Lien Loan Documents, the Borrower and each Guarantor party thereto.

“First Lien Loan Document” shall mean the First Lien Credit Agreement, the First Lien Notes and any “Loan Documents” (as defined in the First Lien Credit Agreement).

“First Lien Notes” shall mean all notes delivered in connection with the First Lien Credit Agreement.

“Fiscal Quarter” shall mean any fiscal quarter of the Borrower.

“Fiscal Year” shall mean any fiscal year of the Borrower.

“Foreign Lender” shall mean any Lender that is not a United States person under Section 7701(a)(30) of the Code.

“Foreign Subsidiary” shall mean any Subsidiary that is organized under the laws of a jurisdiction other than one of the fifty states of the United States or the District of Columbia.

“GAAP” shall mean generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3.



“Governmental Authority” shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Governmental Requirement” shall mean any Requirement of Law imposed by any Governmental Authority.

“Guarantee” of or by any Person (the “guarantor”) shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (iv) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Indebtedness or obligation; provided, that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which Guarantee is made or, if not so stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term “Guarantee” used as a verb has a corresponding meaning.

“Guaranty and Collateral Agreement” shall mean the Guarantee and Collateral Agreement, dated as of the date hereof and substantially in the form of Exhibit B hereto, made by the Loan Parties in favor of the Administrative Agent for the benefit of the secured parties named therein.

“Guarantor” shall mean each of the Subsidiary Loan Parties.

“Hazardous Materials” shall mean all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including: (i) any chemical, compound, material, product, byproduct, substance or waste defined as or included in the definition or meaning of “hazardous substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar meaning or import found in any applicable Environmental Law; (ii) Hydrocarbons, petroleum distillers, petroleum products, petroleum substances, natural gas, oil, oil and gas waste, crude oil, and any components, fractions, or derivatives thereof; and (iii) radioactive materials, explosives, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.



“Hedging Obligations” of any Person shall mean any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired under any and all Hedging Transactions with any Hedge Provider.

“Hedging Transaction” of any Person shall mean (i) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into by such Person that is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, spot transaction, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether or not any such transaction is governed by or subject to any master agreement, (ii) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other similar master agreement (any such master agreement, together with any related schedules, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement and (iii) any and all renewals, extensions and modifications of such Hedging Transactions.

“Hydrocarbon Interests” shall mean all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature.

“Hydrocarbons” shall mean oil, gas, casingshed gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom.

“Indebtedness” of any Person shall mean, without duplication (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business; provided, that for purposes of Section 8.1(g), trade payables overdue by more than 60 days shall be included in this definition except to the extent that any of such trade payables are being disputed in good faith and by appropriate measures), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all Capital Lease Obligations of such Person, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all Guarantees of such Person of the type of Indebtedness described in clauses (i) through (vi) above, (viii) all Indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem,



retire or otherwise acquire for value any Capital Stock of such Person, (x) Off-Balance Sheet Liabilities and (xi) all Hedging Obligations. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor.

“Indemnified Taxes” shall mean Taxes other than Excluded Taxes.

“Information Memorandum” shall mean the Confidential Information Memorandum dated February 2011 relating to the Borrower and the transactions contemplated by this Agreement and the other Loan Documents.

“Initial Reserve Report” shall mean the report of Forrest A. Garb & Associates dated as of December 31, 2010 with respect to certain Oil and Gas Properties of the Borrower and its Subsidiaries.

“Interest Coverage Ratio” shall mean, as of the last day of any Fiscal Quarter, the ratio of (i) Consolidated EBITDA for the four consecutive Fiscal Quarters ending on such date to (ii) Consolidated Interest Expense for the four consecutive Fiscal Quarters ending on such date, net of, to the extent the same would otherwise be included in Consolidated Interest Expense, amortization of debt discount, fees and expenses relating to the Existing Credit Agreement, this Agreement and the First Lien Credit Agreement and other non-cash interest.

“Interest Payment Date” means, as to any Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates.

“Interest Period” shall mean with respect to any Eurodollar Borrowing, a period of one, two, three, six, or (subject to availability from all Lenders) twelve months; provided, that:

(i) the initial Interest Period for such Borrowing shall commence on the date of such Borrowing, and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;

(ii) if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day;

(iii) any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and

(iv) no Interest Period may extend beyond the Maturity Date.



“Interim Redetermination” shall have the meaning assigned such term in the First Lien Credit Agreement.

“Investments” shall have the meaning assigned to such term in Section 7.4.

“Lender-Related Hedge Provider” shall mean any Person that, at the time it enters into a Hedging Transaction with any Loan Party, is a Revolving Lender or an Affiliate of a Revolving Lender Such Lender-Related Hedge Provider shall make good faith efforts to provided prompt written notice to the Administrative Agent which has been acknowledged by the Borrower of (x) the existence of such Hedging Transaction and (y) the methodology to be used by such parties in determining the obligations under such Hedging Transaction from time to time. In no event shall the approval of any such Person in its capacity as Lender-Related Hedge Provider be required in connection with the release or termination of any security interest or Lien of the Administrative Agent.

“Lenders” shall have the meaning assigned to such term in the opening paragraph of this Agreement.

“Leverage Ratio” shall mean, as of any date, the ratio of (i) Consolidated Total Debt as of such date to (ii) Consolidated EBITDA for the four consecutive Fiscal Quarters ending on or immediately prior to such date for which financial statements are required to have been delivered under this Agreement.

“LIBOR” shall mean, for any Interest Period with respect to a Eurodollar Loan, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR01 Page (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London, England time), two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, LIBOR shall be, for any Interest Period, the rate per annum reasonably determined by the Administrative Agent as the rate of interest at which Dollar deposits in the approximate amount of the Eurodollar Loan comprising part of such borrowing would be offered to major banks in the London interbank Eurodollar market at their request at or about 10:00 a.m. New York time two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period.

“Lien” shall mean any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of any of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing and production payments and the like payable out of Oil and Gas Properties. The term “Lien” shall include easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations. For the purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the property has been retained by or vested in some other Person in a transaction intended to create a financing.



“Loan” shall mean a loan made by a Lender to the Borrower under its Commitment, which shall be a Eurodollar Loan.

“Loan Documents” shall mean, collectively, this Agreement, the First Lien Intercreditor Agreement, the Collateral Documents, the Notice of Borrowing, all Notices of Continuation, all Compliance Certificates, all UCC Financing Statements, all stock powers and similar instruments of transfer, any promissory notes issued hereunder and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing.

“Loan Parties” shall mean the Borrower and the Subsidiary Loan Parties.

“Material Adverse Effect” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singularly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, resulting in a material adverse change in, or a material adverse effect on, (i) the business, results of operations, financial condition, assets, liabilities or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of any Loan Party to perform any of its respective obligations under the Loan Documents, (iii) the rights and remedies of the Administrative Agent or the Lenders under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents.

“Material Contract” means, as to any Person, any supply, purchase, service, employment, tax, indemnity, farm-in agreement, farm-out agreement, gas marketing, gas imbalance, operating, unitization, communication, partnership, joint venture or other agreement of such Person or any of its Subsidiaries or by which such Person or any of its Subsidiaries or any of their respective properties are otherwise bound, if such agreement either (i) requires the expenditure of over $1,000,000 by such Person during any calendar year (other than contracts with respect to the routine acquisition of leasehold, the drilling of wells, the construction and operation of gathering, processing or treating facilities or equipment, or other similar contracts pursuant to which such Person routinely acquires, drills, develops and operates the Oil and Gas Properties), or (ii) involves the sale of more than $2,500,000 in Hydrocarbons by such Person in any calendar year (except to the extent any such contract is cancelable by such Person on 60-days' notice or less), or (iii) involves a liability of such Person in excess of $1,000,000, or (iv) results or could result in the loss of title to, or the transfer or creation of a Lien upon any Mortgaged Property (except to the extent otherwise permitted hereunder), or (v) is otherwise determined by Administrative Agent, in its reasonable judgment, to be material to the business, operations or properties of such Person, as the same shall be amended, modified and supplemented and in effect from time to time.

“Material Indebtedness” shall mean any Indebtedness (other than Loans) and Hedging Obligations, of the Borrower or any of its Subsidiaries, individually or in an aggregate committed or outstanding principal amount exceeding $500,000. For purposes of determining the amount of attributed Indebtedness from Hedging Obligations, the “principal amount” of any Hedging Obligations at any time shall be the Net Mark-to-Market Exposure of such Hedging Obligations.



“Maturity Date” shall mean, the earlier of (i) September 13, 2016 or (ii) the date on which the principal amount of all outstanding Loans have been declared or automatically have become due and payable (whether by acceleration or otherwise).

“Maximum Commitment” shall mean as to each Lender, the amount set forth opposite such Lender’s name on Schedule I under the caption “Maximum Commitment,” as such commitment may be modified from time to time pursuant to assignments by or to such Lender pursuant to Section 10.4.

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Mortgaged Properties” shall mean any property owned by the Borrower or any Subsidiary which is subject to the Liens existing and to exist under the terms of the Collateral Documents.

“Mortgages” shall mean one or more mortgages or deeds of trust, as the same may be amended or supplemented from time to time, to secure the Obligations, executed by the Borrower and/or one or more of its Subsidiaries in favor of the Administrative Agent for the benefit of the Lenders and the other secured parties named therein, the form and substance of which shall be satisfactory to the Administrative Agent, that encumber the Oil and Gas Properties, related improvements and other related property.

“Multiemployer Plan” shall have the meaning set forth in Section 4001(a)(3) of ERISA.

“Net Mark-to-Market Exposure” of any Person shall mean, as of any date of determination with respect to any Hedging Obligation, the excess (if any) of all unrealized losses over all unrealized profits of such Person arising from such Hedging Obligation, as determined in accordance with GAAP. “Unrealized losses” shall mean the fair market value of the cost to such Person of replacing the Hedging Transaction giving rise to such Hedging Obligation as of the date of determination (assuming the Hedging Transaction were to be terminated as of that date), and “unrealized profits” shall mean the fair market value of the gain to such Person of replacing such Hedging Transaction as of the date of determination (assuming such Hedging Transaction were to be terminated as of that date).

“Notice of Borrowing” shall have the meaning as set forth in Section 2.3.

“Notice of Continuation” shall mean the notice given by the Borrower to the Administrative Agent in respect of the continuation of an outstanding Borrowing as provided in Section 2.5(b).

“NYMEX” shall have the meaning as set forth in the definition of “NYMEX Price”.

“NYMEX Price” means, as of the date of the determination thereof with respect to each of the appropriate crude oil or natural gas categories included in the then most recent Reserve Report provided by the Borrower to the Administrative Agent pursuant to Section 5.12, the prices for the 36 succeeding monthly futures contract prices (the “Three Year Strip”) and



held constant thereafter based on the price of the average of the contract prices for the last twelve (12) months of such Three Year Strip period, commencing with the month during which the determination is to be made, as quoted on the New York Mercantile Exchange (the "NYMEX") and published in a nationally recognized publication for such pricing as selected by Administrative Agent, adjusted to account for the historical basis in a manner acceptable to the Administrative Agent, and held constant thereafter; provided, however, in the event that the NYMEX no longer provides futures contract price quotes for 36 month periods, the longest period of quotes of less than 36 months shall be used and held constant thereafter based on the average of the contract prices for the last twelve (12) months of such period, and, if the NYMEX no longer provides such futures contract quotes or has ceased to operate, the Administrative Agent shall designate another nationally recognized commodities exchange to replace the NYMEX for purposes of the references to the NYMEX herein.

“NYMEX Pricing” shall mean, as of any date of determination with respect to any month (i) for crude oil, the closing settlement price for the Light, Sweet Crude Oil futures contract for each month, and (ii) for natural gas, the closing settlement price for the Henry Hub Natural Gas futures contract for such month, in each case as published by NYMEX on its website currently located at www.nymex.com or any successor thereto (as such pricing may be corrected or revised from time to time by the NYMEX in accordance with its rules and regulations).

“NYMEX Value” means, at any date of determination thereof as to the Proved Reserves of the Loan Parties, the present value, discounted at 10% per annum, of future net revenues (i.e., after deducting production and ad valorem taxes and less future capital costs, operating expenses and plugging and abandonment liabilities) from Proved Reserves of the Loan Parties utilizing the NYMEX Price and assuming that production costs thereafter remain constant on a per barrel of oil equivalent basis; provided, however, that with respect to volumes covered by Hedging Transactions that would effectively result in Borrower receiving greater or less than the NYMEX Price for such volumes as a result of payments made or received pursuant to Hedging Transactions, the contract price for such volumes under such Hedging Transactions shall be utilized in lieu of the NYMEX Price; provided, further, that any Hedging Transaction that the Borrower expects to terminate or unwind in accordance with the requirements of Section 7.12 shall not be utilized in calculating NYMEX Value. Solely for purposes of calculating NYMEX Value, Proved Developed Producing Reserves shall comprise not less than sixty percent (60%) of the NYMEX Value.

“Obligations” shall mean all amounts owing by the Loan Parties to the Administrative Agent or any Lender pursuant to or in connection with this Agreement or any other Loan Document or otherwise with respect to any Loan including without limitation, all principal, premium, if any, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), all fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Administrative Agent and any Lender incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or



thereunder, together with all renewals, extensions, modifications or refinancings of any of the foregoing.

"OFAC" shall mean the U.S. Department of the Treasury's Office of Foreign Assets Control.

“Off-Balance Sheet Liabilities” of any Person shall mean (i) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (ii) any liability of such Person under any sale and leaseback transactions that do not create a liability on the balance sheet of such Person, (iii) any Synthetic Lease Obligation or (iv) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person.

Oil and Gas Properties" shall mean (i) Hydrocarbon Interests; (ii) the properties now or hereafter pooled or unitized with Hydrocarbon Interests; (iii) all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (iv) all operating agreements, contracts and other agreements, including production sharing contracts and agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (v) all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; (vi) all tenements, hereditaments, appurtenances and properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and (vii) all properties, rights, titles, interests and estates described or referred to above, including any and all property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or property (excluding drilling rigs, automotive equipment, rental equipment or other personal property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. Unless otherwise specified herein, Oil and Gas Properties shall mean Oil and Gas Properties of the Borrower and its Subsidiaries.

"OSHA" shall mean the Occupational Safety and Health Act of 1970, as amended from time to time, and any successor statute.

"Other Taxes" shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment



made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Parent Company” shall mean, with respect to a Lender, the bank holding company (as defined in Federal Reserve Board Regulation Y), if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.

“Participant” shall have the meaning set forth in Section 10.4(d).

“Patriot Act” shall have the meaning set forth in Section 10.14.

“Payment Office” shall mean the office of the Administrative Agent located at 135 East 57th Street, 6th Floor, New York, New York 10022, or such other location as to which the Administrative Agent shall have given written notice to the Borrower and the other Lenders.

“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions.

“Permitted Encumbrances” shall mean:

(i) Liens imposed by law for taxes not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP;

(ii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen or other Liens imposed by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not delinquent or which are being contested in good faith by appropriate action and with respect to which adequate reserves are being maintained in accordance with GAAP;

(iii) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations;

(iv) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(v) judgment and attachment liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(vi) contractual Liens which arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation



or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien referred to in this clause does not materially impair the use of the property covered by such Lien for the purposes for which such property is held by the Borrower or any Subsidiary or materially impair the value of such property subject thereto;

(vi) customary rights of set-off, revocation, refund or chargeback under deposit agreements or under the Uniform Commercial Code or common law of banks or other financial institutions where Borrower or any of its Subsidiaries maintains deposits (other than deposits intended as cash collateral) in the ordinary course of business; and

(vii) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any property of the Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, that do not secure any monetary obligations and which in the aggregate do not materially impair the use of such property for the purposes of which such property is held by the Borrower or any Subsidiary or materially impair the value of such property subject thereto;

provided, that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness; provided, further that Liens described above shall remain “Permitted Encumbrances” only for so long as no action to enforce such Lien has been commenced or if commenced, the Borrower has commenced and continues to pursue appropriate measures to contest such Lien, and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted existence of such Permitted Encumbrances.

“Permitted Investments” shall mean:

(i) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof;

(ii) commercial paper having the highest rating, at the time of acquisition thereof, of S&P or Moody's and in either case maturing within six months from the date of acquisition thereof;



(iii) certificates of deposit, bankers' acceptances and time deposits maturing within 180 days of the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States or any state thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;

(iv) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (i) above and entered into with a financial institution satisfying the criteria described in clause (iii) above; and

(v) mutual funds investing solely in any one or more of the Permitted Investments described in clauses (i) through (iv) above.

"Person" shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority.

"PIK Election" shall mean the notice given by the Borrower to the Administrative Agent in respect of the payment election of PIK Interest as provided in Section 2.12(c).

"PIK Interest" shall mean, as of any date of determination, the amount of all interest accrued with respect to the Loans, which interest has been paid-in-kind by being added to the outstanding principal amount thereof pursuant to Section 2.12(c).

"Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA) be deemed to be) an "employer" as defined in Section 3(5) of ERISA.

"Pro Rata Share" shall mean with respect to any Commitment of any Lender at any time, a percentage, the numerator of which shall be such Lender's Commitment (or if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, such Lender's Credit Exposure, as applicable), and the denominator of which shall be the sum of such Commitments of all Lenders (or if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Credit Exposure, as applicable, of all Lenders).

"Projected Production" shall mean, for any fiscal quarter, the internally forecasted reasonably anticipated projected production of crude oil, natural gas and natural gas liquids from proved, developed, producing Oil and Gas Properties of the Borrower and its Subsidiaries for such quarter.

"Proved Reserves" means "Proved Reserves" as defined in the Definitions for Oil and Gas Reserves (in this paragraph, the "Definitions") promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question. "Proved Developed Producing Reserves" means Proved Reserves which are categorized as both "Developed" and "Producing" in the Definitions. "Proved Developed Non-Producing Reserves" means Proved Reserves which are categorized as both "Developed" and "Non-Producing" in the



Definitions. “Proved Developed Reserves” means Proved Reserves which are categorized as either “Proved Developed Producing Reserves” or “Proved Developed Non-Producing Reserves” in the definitions. “Proved Undeveloped Reserves” means Proved Reserves which are categorized as “Undeveloped” in the Definitions.

“Proved Undeveloped Mineral Interests” means all Hydrocarbon Interests which constitute proved undeveloped reserves.

“Redemption” shall mean with respect to any Indebtedness (other than Hedging Obligations), the repurchase, redemption, prepayment, repayment, defeasance or any other acquisition or retirement for value (or the segregation of funds with respect to any of the foregoing) of such Indebtedness. “Redeem” has the correlative meaning thereto.

“Redetermination Date” shall mean, with respect to any Scheduled Redetermination or any Interim Redetermination, the date that the redetermined Borrowing Base related thereto becomes effective pursuant to Section 2.7(d) of the First Lien Credit Agreement.

“Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Regulation T” shall mean Regulation T of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Regulation U” shall mean Regulation U of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Regulation X” shall mean Regulation X of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective managers, administrators, trustees, partners, directors, officers, employees, agents, advisors or other representatives of such Person and such Person’s Affiliates.

“Release” shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

“Remedial Work” has meaning assigned such term in Section 5.6(a).

“Required Lenders” shall mean, at any time, Lenders holding more than 50.0% of the Credit Exposure.

“Requirement of Law” for any Person shall mean the articles or certificate of incorporation, bylaws, partnership certificate and agreement, or limited liability company



certificate of organization and agreement, as the case may be, and other organizational and governing documents of such Person, and any law, treaty, rule or regulation, or determination of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Reserve Report” means a report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each January 1st or July 1st (or such other date in the event of an Interim Redetermination) the oil and gas reserves attributable to the Oil and Gas Properties of the Borrower and its Subsidiaries, together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing and economic assumptions consistent with the term NYMEX Value as used herein.

“Responsible Officer” shall mean any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer or a vice president of the Borrower or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Administrative Agent; and, with respect to the financial covenants only, the chief financial officer or the treasurer of the Borrower.

“Restricted Payment” shall mean, for any Person, any dividend or distribution on any class of its Capital Stock, or any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition of, any shares of its Capital Stock, any Indebtedness subordinated to the Obligations or any Guarantee thereof or any options, warrants, or other rights to purchase such Capital Stock or such Indebtedness, whether now or hereafter outstanding.

“Revolving Lender” shall mean, “Lender” as such term is defined in the First Lien Credit Agreement.

“S&P” shall mean Standard & Poor’s, a Division of the McGraw-Hill Companies.

“Scheduled Redetermination” shall have the meaning assigned such term in the First Lien Credit Agreement.

“Scheduled Redetermination Date” shall have the meaning assigned such term in the First Lien Credit Agreement.

“Secured Hedge Counterparty” shall mean any Lender-Related Hedge Provider.

“Sóvén” shall mean, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including subordinated and contingent liabilities, of such Person; (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts and liabilities, including subordinated and contingent liabilities as they become absolute and matured; (iii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (iv) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person’s property would



constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guarantees and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that would reasonably be expected to become an actual or matured liability.

“Subsidiary” shall mean, with respect to any Person (the “parent”), any corporation, partnerships, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, (i) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power, or in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (ii) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to “Subsidiary” hereunder shall mean a Subsidiary of the Borrower.

“Subsidiary Loan Party” shall mean any Subsidiary that executes or becomes a party to the Guaranty and Collateral Agreement.

“Synthetic Lease” shall mean a lease transaction under which the parties intend that (i) the lease will be treated as an “operating lease” by the lessee pursuant to Accounting Standards Codification Sections 840-10 & 840-20, as amended and (ii) the lessee will be entitled to various tax and other benefits ordinarily available to owners (as opposed to lessees) of like property.

“Synthetic Lease Obligations” shall mean, with respect to any Person, the sum of (i) all remaining rental obligations of such Person as lessee under Synthetic Leases which are attributable to principal and, without duplication, (ii) all rental and purchase price payment obligations of such Person under such Synthetic Leases assuming such Person exercises the option to purchase the lease property at the end of the lease term.

“Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“Three Year Strip” shall have the meaning as set forth in the definition of “NYMEX Price”.

“Transmittal” shall have the meaning as set forth in Section 5.12(c).

“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

## Section 1.2 [Reserved].

Section 1.3 Accounting Terms and Determination. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered



hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent with the most recent audited consolidated financial statement of the Borrower delivered pursuant to Section 5.1(a); provided, that if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Accounting Standards Codification Section 825-10 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Loan Party or any Subsidiary of any Loan Party at "fair value", as defined therein.

Section 1.4 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the word "to" means "to but excluding". Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "hereof", "herein" and "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to the time in the city and state of the Administrative Agent's principal office, unless otherwise indicated.

## ARTICLE II

## AMOUNT AND TERMS OF THE COMMITMENTS

Section 2.1 General Description of Facilities. Subject to and upon the terms and conditions herein set forth, each Lender hereby agrees to make a Loan to the Borrower on the Closing Date equal to the amount of such Lender's Commitment in accordance with Section 2.2.

Section 2.2 Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make a Loan on the Closing Date, ratably in proportion to its Pro Rata Share of the Commitments, to the Borrower, in an aggregate principal amount outstanding equal to such Lender's Commitment, provided that each Lender shall only advance 98% of the principal



amount of the Loans made hereunder on the Closing Date, provided further that each Lender shall be deemed to have advanced 100% of the principal amount of the Loans made hereunder on the Closing Date. The Commitments are not revolving and amounts repaid or prepaid may not be re-borrowed under any circumstance.

Section 2.3 Procedure for Borrowings. The Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of the Borrowing substantially in the form of Exhibit D-1 (the "Notice of Borrowing") prior to 11:00 a.m. New York time on the Closing Date. The Notice of Borrowing shall be irrevocable and shall specify: (i) the aggregate principal amount of the Borrowing (which shall be the Aggregate Maximum Commitment Amount), (ii) the date of the Borrowing (which shall be the Closing Date), and (iii) the duration of the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). Promptly following the receipt of a Notice of Borrowing in accordance herewith, the Administrative Agent shall advise each Lender of the details thereof and the amount of such Lender's Loan to be made as part of the requested Borrowing.

## Section 2.4 Funding of Borrowings.

(a) Each Lender will make available the Loan to be made by it hereunder on the Closing Date by wire transfer in immediately available funds by 11:00 a.m. New York time to the Administrative Agent at the Payment Office. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts that it receives, in like funds by the close of business on the Closing Date, to an account maintained by the Borrower with the Administrative Agent or at the Borrower's option, by effecting a wire transfer of such amounts to an account designated by the Borrower to the Administrative Agent.

## (b) [Reserved].

(c) The Borrowing shall be made by the Lenders on the basis of their respective Pro Rata Shares. No Lender shall be responsible for any default by any other Lender in its obligations hereunder, and each Lender shall be obligated to make its Loan provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder.

## Section 2.5 Interest Elections.

(a) The initial Interest Period for the Borrowing shall be specified in the Notice of Borrowing. Thereafter, the Borrower may elect Interest Periods for such Borrowing, all as provided in this Section 2.5.

(b) To make an election pursuant to this Section 2.5, the Borrower shall give the Administrative Agent prior written notice (or telephonic notice promptly confirmed in writing) of the requested Interest Period substantially in the form of Exhibit E attached hereto (a "Notice of Continuation") prior to 11:00 a.m. three (3) Business Days prior to the last day of the Interest Period then in effect. Each such Notice of Continuation shall be irrevocable and shall specify (i) the Borrowing to which such Notice of Continuation applies; (ii) the effective date of the election made pursuant to such Notice of Continuation, which shall be a Business Day; and (iii) the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of "Interest Period". If any such Notice of Continuation



does not specify an Interest Period, the Borrower shall be deemed to have selected an Interest Period of three months.

(c) If, on the expiration of any Interest Period in respect of any Eurodollar Borrowing, the Borrower shall have failed to deliver a Notice of Continuation, then the Borrower shall be deemed to have elected to continue such Borrowing with an Interest Period of three months.

(d) Upon receipt of any Notice of Continuation, the Administrative Agent shall promptly notify each Lender of the details thereof.

Section 2.6 Termination of Commitments. Unless previously terminated, all Commitments shall terminate at 5:00 p.m. on the Closing Date.

## Section 2.7 [Reserved].

Section 2.8 Repayment of Loans. The outstanding principal amount of all Loans shall be due and payable (together with accrued and unpaid interest thereon) on the Maturity Date. The Borrower hereby unconditionally promises to repay in full the unpaid principal amount of each Loan upon the Maturity Date.

## Section 2.9 Evidence of Indebtedness.

(a) Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the Indebtedness of the Borrower to such Lender resulting from the Loan made by such Lender, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded (i) the Maximum Commitment and Commitment of each Lender, (ii) the amount of each Loan made hereunder by each Lender and the Interest Period applicable thereto, (iii) the date of each continuation thereof pursuant to Section 2.5, (iv) the date and amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder in respect of such Loans and (v) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of the Loans and each Lender's Pro Rata Share thereof. The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (both principal and unpaid accrued interest) of such Lender in accordance with the terms of this Agreement.

(b) This Agreement evidences the obligation of the Borrower to repay the Loans and is being executed as a "noteless" credit agreement. However, at the request of any Lender at any time, the Borrower agrees that it will prepare, execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment permitted hereunder) be represented by one or more promissory notes in such form payable to the payee named therein (or to such payee and its registered assigns).



## Section 2.10 Optional Prepayments.

(a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part in a principal amount of $1,000,000 or a whole multiple of $1,000,000 in excess thereof, by giving irrevocable written notice (or telephone notice promptly confirmed in writing) to the Administrative Agent no later than 11:00 a.m. New York time not less than three (3) Business Days prior to any such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of each Borrowing or portion thereof to be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each affected Lender of the contents thereof and of such Lender's Pro Rata Share of any such prepayment. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.12(c); provided, that if a Eurodollar Borrowing is prepaid on a date other than the last day of an Interest Period applicable thereto, the Borrower shall also pay all amounts required pursuant to Section 2.19. Each prepayment of a Borrowing shall be applied ratably to the Loans comprising such Borrowing.

(b) Subject to prior notice in accordance with Section 2.10(a), the Borrower may prepay the Loan at any time as follows:

(i) at any time prior to the first anniversary of the Closing Date, with a premium equal to 3% of the principal amount prepaid;

(ii) at any time from the first anniversary of the Closing Date, but prior to the second anniversary of the Closing Date, with a premium equal to 2% of the principal amount prepaid;

(iii) at any time from the second anniversary of the Closing Date, but prior to the third anniversary of the Closing Date, with a premium equal to 1% of the principal amount prepaid; and

(iv) at any time after the third anniversary of the Closing Date, with no premium;

provided, that at any time and from time to time prior to twelve (12) months following the Closing Date, the Borrower may use proceeds from asset sales or equity issuances to prepay up to $25,000,000 in the aggregate of the principal amount of the Loans, with no premium or penalty.

Section 2.11 Mandatory Prepayments. Immediately upon receipt by the Borrower or any of its Subsidiaries of proceeds in excess of $1,000,000 from any property insurance policies or eminent domain, condemnation or similar proceedings, the Borrower shall prepay the Obligations in an amount equal to all such proceeds, net of commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by such Borrower in connection therewith (in each case, paid to non-Affiliates); provided that such proceeds shall only be required to be applied to the extent (if any) that such proceeds remain after any mandatory prepayments required by the First Lien Credit Agreement



shall have been made in accordance with the terms thereof, except, with the prior written consent of the Administrative Agent, to the extent that such proceeds from property insurance policies, eminent domain, condemnation or similar proceeds are reinvested in the business of the Loan Parties within 180 days following receipt thereof.

## Section 2.12 Interest on Loans.

(a) The Borrower shall pay interest on each Eurodollar Loan at the Adjusted LIBO Rate for the applicable Interest Period in effect for such Loan plus the Applicable Margin.

(b) Notwithstanding clause (a) above, if an Event of Default has occurred and is continuing, at the option of the Required Lenders, and after acceleration, the Borrower shall pay interest (“Default Interest”) with respect to all Eurodollar Loans at the rate per annum equal to 200 basis points above the otherwise applicable interest rate for such Eurodollar Loans for the then-current Interest Period.

(c) The Borrower may, at its option, elect to pay interest on Eurodollar Loans: (i) entirely in cash ("Cash Interest") or (ii) a combination of Cash Interest and PIK Interest, in which case 3% out of the 10% comprising the Applicable Margin shall be paid in the form of PIK Interest with the remaining interest to be paid as Cash Interest. In order to elect to pay PIK Interest for an Interest Period, the Borrower shall provide the Administrative Agent written notice of its election to pay PIK Interest with respect to an Interest Period, at least 15 days prior to the first day of such Interest Period, in substantially in the form of Exhibit D-2 (the "PIK Election"). If a PIK Election is not made by the Borrower within the required time period with respect to an Interest Period, the Borrower shall pay all interest owed for such Interest Period in cash. The Administrative Agent shall provide written notice of any PIK Election to all Lenders promptly upon receipt thereof. Interest shall accrue on the unpaid principal balance of all Loans (inclusive of the PIK Interest applied to the principal of such Loans) from and including the date such Loans are made to but excluding the date of any repayment thereof. Interest on all outstanding Eurodollar Loans shall be payable on the Interest Payment Date. PIK Interest due on each Interest Payment Date, shall accrue and be added to the principal amount of the Loan in arrears on such Interest Payment Date. Interest on any Loan which is prepaid shall be payable on the date of such prepayment (on the amount prepaid) thereof. All Default Interest shall be payable on demand.

(d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and shall promptly notify the Borrower and the Lenders of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be conclusive and binding for all purposes, absent manifest error.

## Section 2.13 Fees.

(a) The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon in writing by the Borrower and the Administrative Agent including those fees set forth in the Engagement Letter.

(b) [Reserved].



(c) [Reserved].

(d) The Borrower shall pay on the Closing Date to the Administrative Agent and its Affiliates all fees in the Engagement Letter that are due and payable on the Closing Date. The Borrower shall pay on the Closing Date to the Administrative Agent for the account of the Lenders all upfront fees previously agreed in writing.

Section 2.14 Computation of Interest and Fees. All interest and all fees hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Each determination by the Administrative Agent of an interest rate or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes.

Section 2.15 Inability to Determine Interest Rates. If prior to the commencement of any Interest Period for any Eurodollar Borrowing,

(i) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant interbank market, adequate means do not exist for ascertaining LIBOR for such Interest Period, or

(ii) the Administrative Agent shall have received notice from the Required Lenders that the Adjusted LIBO Rate does not adequately and fairly reflect the cost to such Lenders (or Lender, as the case may be) of making, funding or maintaining their (or its, as the case may be) Eurodollar Loans for such Interest Period,

the Administrative Agent shall give written notice (or telephonic notice, promptly confirmed in writing) to the Borrower and to the Lenders as soon as practicable thereafter. Until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, the Borrower and the Administrative Agent shall agree in good faith to find a comparable rate for the Loans based upon the most recently available LIBOR. Unless the Borrower notifies the Administrative Agent at least one Business Day before the date of any Eurodollar Borrowing for which a Notice of Borrowing or Notice of Continuation has previously been given that it elects not to borrow on such date, then such Borrowing shall be made as a Eurodollar Borrowing with a one-month Interest Period.

Section 2.16 Illegality. If any Change in Law shall make it unlawful or impossible for any Lender to make, maintain or fund any Eurodollar Loan and such Lender shall so notify the Administrative Agent, the Administrative Agent shall promptly give notice thereof to the Borrower and the other Lenders, whereupon until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Eurodollar Loans, or to continue outstanding Loans, shall be suspended. In the case of the making of a Eurodollar Borrowing, such Lender's Loan shall be made as a loan at comparable rate for the Loans based upon the most recently available LIBOR as part of the same Borrowing for the same Interest Period. Notwithstanding the foregoing, the affected Lender shall, prior to giving such notice to the Administrative Agent, designate a different Applicable Lending Office if such designation would avoid the need for giving such



notice and if such designation would not otherwise be disadvantageous to such Lender in the good faith exercise of its discretion.

## Section 2.17 Increased Costs.

(a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the Adjusted LIBO Rate hereunder against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or

(ii) impose on any Lender or the eurodollar interbank market any other condition affecting this Agreement or any Eurodollar Loans made by such Lender;

and the result of either of the foregoing is to increase the cost to such Lender of making, continuing or maintaining a Eurodollar Loan or to reduce the amount received or receivable by such Lender hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice from and demand by such Lender on the Borrower (with a copy of such notice and demand to the Administrative Agent), to the Administrative Agent for the account of such Lender, within five (5) Business Days after the date of such notice and demand, additional amount or amounts sufficient to compensate such Lender, for such additional costs incurred or reduction suffered.

(b) If any Lender shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital (or on the capital of the Parent Company of such Lender) as a consequence of its obligations hereunder to a level below that which such Lender or the Parent Company of such Lender could have achieved but for such Change in Law (taking into consideration such Lender's policies or the policies of the Parent Company of such Lender with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written demand by such Lender (with a copy thereof to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender or the Parent Company of such Lender for any such reduction suffered.

(c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or the Parent Company of such Lender specified in paragraph (a) or (b) of this Section 2.17 shall be delivered to the Borrower (with a copy to the Administrative Agent) and shall be conclusive, absent manifest error. The Borrower shall pay any such Lender such amount or amounts within five (5) Business Days after receipt thereof.

(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.17 shall not constitute a waiver of such Lender's right to demand such compensation; provided, that the Borrower shall not be required to compensate a Lender under this Section 2.17 for any increased costs or reductions incurred more than six (6) months prior to the date that such Lender notifies the Borrower of such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further, that if the Change in Law



giving rise to such increased costs or reductions is retroactive, then such six-month period shall be extended to include the period of such retroactive effect.

Section 2.18 Funding Indemnity. In the event of (a) the payment of any principal of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the continuation of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure by the Borrower to borrow, prepay, or continue any Eurodollar Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), then, in any such event, the Borrower shall compensate each Lender, within five (5) Business Days after written demand from such Lender, for any loss, cost or expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense shall be deemed to include an amount determined by such Lender to be the excess, if any, of (A) the amount of interest that would have accrued on the principal amount of such Eurodollar Loan if such event had not occurred at the Adjusted LIBO Rate applicable to such Eurodollar Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or in the case of a failure to borrow or continue, for the period that would have been the Interest Period for such Eurodollar Loan) over (B) the amount of interest that would accrue on the principal amount of such Eurodollar Loan for the same period if the Adjusted LIBO Rate were set on the date such Eurodollar Loan was prepaid or the date on which the Borrower failed to borrow or continue such Eurodollar Loan. A certificate as to any additional amount payable under this Section 2.18 submitted to the Borrower by any Lender (with a copy to the Administrative Agent) shall be conclusive, absent manifest error.

## Section 2.19 Taxes.

(a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.19) the Administrative Agent or any Lender (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Borrower shall indemnify the Administrative Agent and each Lender within five (5) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.19) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender,



or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfying the Administrative Agent.

(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the Code or any treaty to which the United States is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. Without limiting the generality of the foregoing, each Foreign Lender agrees that it will deliver to the Administrative Agent and the Borrower (or in the case of a Participant, to the Lender from which the related participation shall have been purchased), as appropriate, two (2) duly completed copies of (i) Internal Revenue Service Form W-8 ECI, or any successor form thereto, certifying that the payments received from the Borrower hereunder are effectively connected with such Foreign Lender's conduct of a trade or business in the United States; or (ii) Internal Revenue Service Form W-8 BEN, or any successor form thereto, certifying that such Foreign Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest; or (iii) Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, together with a certificate (A) establishing that the payment to the Foreign Lender qualifies as "portfolio interest" exempt from U.S. withholding tax under Code section 871(h) or 881(c), and (B) stating that (1) the Foreign Lender is not a bank for purposes of Code section 881(c)(3)(A), or the obligation of the Borrower hereunder is not, with respect to such Foreign Lender, a loan agreement entered into in the ordinary course of its trade or business, within the meaning of that section; (2) the Foreign Lender is not a 10% shareholder of the Borrower within the meaning of Code section 871(h)(3) or 881(c)(3)(B); and (3) the Foreign Lender is not a controlled foreign corporation that is related to the Borrower within the meaning of Code section 881(c)(3)(C); or (iv) such other Internal Revenue Service Forms as may be applicable to the Foreign Lender, including Forms W-8 IMY or W-8 EXP. Each such Foreign Lender shall deliver to the Borrower and the Administrative Agent such forms on or before the date that it becomes a party to this Agreement (or in the case of a Participant, on or before the date such Participant purchases the related participation). In addition, each such Foreign Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender. Each such Foreign Lender shall promptly notify the Borrower and the Administrative Agent at any time that it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the Internal Revenue Service for such purpose).

(f) If a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such recipient were to fail to comply with the applicable reporting requirements of FATCA (including those contained in



Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Agent as may be necessary for the Borrower and the Agent to comply with their obligations under FATCA and to determine that such Lender has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (f), "FATCA" shall include any amendments made to FATCA after the date of this Agreement.

## Section 2.20 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or of amounts payable under Sections 2.17, 2.18 or 2.19, or otherwise) prior to 12:00 noon on the date when due, in immediately available funds, free and clear of any defenses, rights of set-off, counterclaim, or withholding or deduction of taxes. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Payment Office, except that payments pursuant to Sections 2.17, 2.18 or 2.19 and 10.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars.

(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied: first, to Administrative Agent's fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; second, to all reimbursable expenses of the Lenders then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders based on their respective pro rata shares of such expenses; third, to interest and fees then due and payable hereunder, pro rata to the Lenders based on their respective pro rata shares of such interest and fees; and fourth, to the payment of principal of the Loans then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans that would result in such Lender receiving payment of a greater proportion of the aggregate amount of its Credit Exposure and accrued interest and fees thereon than the proportion received by any other Lender with respect to its Credit Exposure, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Credit Exposure of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Credit Exposure; provided, that (i) if any such participations are purchased and



all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Credit Exposure to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount or amounts due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

(e) Notwithstanding anything herein to the contrary, any amount paid by the Borrower for the account of a Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity payments or other amounts) will be retained by the Administrative Agent in a segregated non-interest bearing account until the Maturity Date at which time the funds in such account will be applied by the Administrative Agent, to the fullest extent permitted by law, in the following order of priority: first to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent under this Agreement, second if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of such Defaulting Lender under this Agreement, third to the payment of any amounts then owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against that Defaulting Lender as a result of that Defaulting Lender's breach of its obligations under this Agreement, fourth so long as no Default exists, to the payment of any amounts then owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender's breach of its obligations under this Agreement, and fifth to pay amounts owing under this Agreement to such Defaulting Lender or as a court of competent jurisdiction may otherwise direct.

Section 2.21 [Reserved].

Section 2.22 [Reserved].



Section 2.23 Mitigation of Obligations. If any Lender requests compensation under Section 2.17, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.19, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.17 or Section 2.19, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all costs and expenses incurred by any Lender in connection with such designation or assignment.

Section 2.24 Replacement of Lenders. If any Lender requests compensation under Section 2.17, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority of the account of any Lender pursuant to Section 2.19, or if any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions set forth in Section 10.4(b) all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender); provided, that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal amount of all Loans owed to it, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (in the case of such outstanding principal and accrued interest) and from the Borrower (in the case of all other amounts) and (iii) in the case of a claim for compensation under Section 2.17 or payments required to be made pursuant to Section 2.19, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

## ARTICLE III
CONDITIONS PRECEDENT TO LOANS

Section 3.1 Conditions To Effectiveness. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.2).

(a) The Administrative Agent and its Affiliates shall have received payment of all fees, expenses and other amounts due and payable on or prior to the Closing Date, including without limitation reimbursement or payment of all out-of-pocket expenses of the Administrative Agent and its Affiliates (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrower hereunder, under any other Loan Document and under any agreement with the Administrative Agent.

(b) The Administrative Agent (or its counsel) shall have received the following, each to be in form and substance satisfactory to the Administrative Agent:



(i) a counterpart of this Agreement signed by or on behalf of each party hereto or written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement;

(ii) executed copies of the First Lien Credit Agreement and each other First Lien Loan Documents which shall be in form and substance reasonably acceptable to the Administrative Agent and the Administrative Agent shall have evidence that effectiveness under the First Lien Credit Agreement has occurred, or is occurring contemporaneously with the funding hereunder;

(iii) an executed counterpart of the First Lien Intercreditor Agreement;

(iv) executed counterparts of mortgage amendments or other documents in form and substance satisfactory to the Administrative Agent confirming of record that all Liens upon any the real property, improvements, fixtures, as-extracted collateral and other similar property of the Borrower and its Subsidiaries securing the Indebtedness arising pursuant to this Agreement are subordinated to the Liens created under the Mortgages in connection with the First Lien Credit Agreement in accordance with the First Lien Intercreditor Agreement;

(v) a certificate of the Secretary or Assistant Secretary of each Loan Party in the form of Exhibit E, attaching and certifying copies of its bylaws and of the resolutions of its board of directors, or partnership agreement or limited liability company agreement, or comparable organizational documents and authorizations, authorizing the execution, delivery and performance of the Loan Documents to which it is a party and certifying the name, title and true signature of each officer of such Loan Party executing the Loan Documents to which it is a party;

(vi) certified copies of the articles or certificate of incorporation, certificate of organization or limited partnership, or other registered organizational documents of each Loan Party, together with certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of organization of such Loan Party and each other jurisdiction where such Loan Party is required to be qualified to do business as a foreign corporation;

(vii) a favorable written opinion of (i) McAfee & Taft, counsel to the Loan Parties, and (ii) local counsel in each of the following States: Texas, Louisiana, Oklahoma, and New Mexico and any other jurisdictions requested by the Administrative Agent, addressed to the Administrative Agent and each of the Lenders, and covering such matters relating to the Loan Parties, the Loan Documents and the transactions contemplated therein as the Administrative Agent or the Required Lenders shall reasonably request;

(viii) a certificate in the form of Exhibit G, dated the Closing Date and signed by a Responsible Officer, certifying that after giving effect to the funding of the initial Loan, (x) no Default or Event of Default exists, (y) all representations and warranties of each Loan Party set forth in the Loan Documents are true and correct and (z) since the date of the



financial statements of the Borrower described in Section 4.4, there shall have been no change which has had or could reasonably be expected to have a Material Adverse Effect;

(ix) a duly executed Notice of Borrowing;

(x) duly executed counterparts from each party (in such number as may be requested by the Administrative Agent) of the Collateral Documents, including the Guaranty and Collateral Agreement and the other documents described on Exhibit C. In connection with the execution and delivery of the Collateral Documents, the Administrative Agent shall be reasonably satisfied that the Collateral Documents create Appropriate Priority Liens (subject only to Permitted Encumbrance identified in clauses (i) to (iv) and (vi) of the definition thereof, but subject to the provisions at the end of such definition) on at least 80% of the total value of the Oil and Gas Properties evaluated in the Initial Reserve Report;

(xi) title information as the Administrative Agent may reasonably require setting forth the status of title to at least 80% of the total value of the Oil and Gas Properties evaluated in the Initial Reserve Report;

(xii) copies of environmental reports and studies and such other diligence materials as the Administrative Agent may reasonably request;

(xiii) copies of all consents, approvals, authorizations, registrations and filings and orders required or advisable to be made or obtained under any Requirement of Law, or by any Contractual Obligation of any Loan Party, in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any of the transactions contemplated thereby, and such consents, approvals, authorizations, registrations, filings and orders shall be in full force and effect and all applicable waiting periods shall have expired, and no investigation or inquiry by any governmental authority regarding the Commitments or any transaction being financed with the proceeds thereof shall be ongoing, certified by a Responsible Officer as of the Closing Date;

(xiv) the Initial Reserve Report accompanied by a Transmittal covering the matters described in Section 5.12;

(xv) appropriate UCC search certificates reflecting no prior Liens encumbering the Properties of the Borrower and its Subsidiaries for each jurisdiction requested by the Administrative Agent; other than those being assigned or released on or prior to the Closing Date or Liens permitted by Section 7.2;

(xvi) evidence that the Borrower has entered into interest rate Hedging Transactions with Approved Counterparties amounting to not less than $50,000,000 of the principal amount of the Indebtedness outstanding under this Agreement for the first three years of the tenor hereof;

(xvii) evidence that the Borrower has entered into commodity Hedging Transactions with Approved Counterparties the notional volumes for which, as of the Closing Date, equal at least 50% of the reasonably anticipated projected production from proved,



developed, producing Oil and Gas Properties for each month during the 30-month period immediately following the Closing Date;

(xvii) copies of (A) the internally prepared quarterly financial statements of the Borrower and its Subsidiaries on a consolidated basis for the Fiscal Quarter ending on December 31, 2009, (B) the audited consolidated financial statements for the Borrower and its subsidiaries for the fiscal years ended 2007, 2008 and 2009, (C) draft consolidated financial statements of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2010 certified by a Responsible Officer as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries, and (D) financial projections on a quarterly basis for fiscal year December 31, 2011 and annually thereafter through 2015, certified by a Responsible Officer as of the Closing Date that such projections were based on assumptions believed by the Borrower in good faith to be reasonable;

(xix) a duly completed and executed certificate of the type described in Section 5.1(c) including calculations of the financial covenants set forth in Article VI hereof as of Closing Date, calculated on a pro forma basis reflecting the transactions on the Closing Date under the First Lien Credit Agreement and hereunder;

(xx) a certificate, dated the Closing Date and signed by the chief financial officer of each Loan Party, confirming that each Loan Party is Solvent before and after giving effect to the funding of the initial Borrower and the consummation of the transactions contemplated to occur on the Closing Date;

(xxi) copies of all agreements, indentures or notes governing the terms of any Material Indebtedness and all other Material Contracts to which any Loan Party or any of its assets are bound, certified by a Responsible Officer as of the Closing Date as true and correct;

(xxii) certificates of insurance issued on behalf of insurers of the Borrower and all Guarantors, describing in reasonable detail the types and amounts of insurance (property and liability) maintained by the Borrower and all Guarantors, naming the Administrative Agent and the Lenders as additional insureds and naming the First Lien Administrative Agent as loss payee with respect to property insurance proceeds in excess of $50,000, subject to the rights of the lenders under the First Lien Credit Agreement as set forth in the First Lien Intercreditor Agreement, certified by a Responsible Officer as of the Closing Date that the Loan Parties are in compliance with the insurance requirements set forth in Section 5.10; and

(xxiii) such other documents, certificates, information or legal opinions as the Administrative Agent or the Required Lenders may reasonably request, all in form and substance reasonably satisfactory to the Administrative Agent or Required Lenders.

(c) The Administrative Agent shall be reasonably satisfied with title and environmental condition of the Oil and Gas Properties of the Borrower and its Subsidiaries.

Without limiting the generality of the provisions of Section 3.1, for purposes of determining compliance with the conditions specified in this Section 3.1, each Lender that has



signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.2) at or prior to 2:00 p.m., New York time, on March 25, 2011 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

Section 3.2 Each Credit Event. The obligation of each Lender to make a Loan on the Closing Date is subject to the satisfaction of the following conditions:

(a) at the time of and immediately after giving effect to such Borrowing, no Default or Event of Default shall exist;

(b) at the time of and immediately after giving effect to such Borrowing, all representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects (other than those representations and warranties that are expressly qualified by an Material Adverse Effect or other materiality, in which case such representations and warranties shall be true and correct in all respects, on and as of the date of such Borrowing, before and after giving effect thereto), except to the extent such representations and warranties expressly relate to an earlier date);

(c) since December 31, 2009, there shall have been no change which has had or could reasonably be expected to have a Material Adverse Effect;

(d) the Borrower shall have delivered the required Notice of Borrowing; and

(e) the Administrative Agent shall have received such other documents, certificates, information or legal opinions as the Administrative Agent or the Required Lenders may reasonably request, all in form and substance reasonably satisfactory to the Administrative Agent or the Required Lenders.

Section 3.3 Delivery of Documents. All of the Loan Documents, certificates, legal opinions and other documents and papers referred to in this Article III, unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Lenders and in sufficient counterparts or copies for each of the Lenders and shall be in form and substance satisfactory in all respects to the Administrative Agent.

## ARTICLE IV
REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and each Lender as follows:

Section 4.1 Existence: Power. The Borrower and each of its Subsidiaries (i) is duly organized, validly existing and in good standing as a corporation, partnership or limited liability company under the laws of the jurisdiction of its organization, (ii) has all requisite power and



authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect.

Section 4.2 Organizational Power; Authorization. The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party are within such Loan Party's organizational powers and have been duly authorized by all necessary organizational, and if required, shareholder, partner or member, action. This Agreement has been duly executed and delivered by the Borrower, and constitutes, and each other Loan Document to which any Loan Party is a party, when executed and delivered by such Loan Party, will constitute, valid and binding obligations of the Borrower or such Loan Party (as the case may be), enforceable against it in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity.

Section 4.3 Governmental Approvals; No Conflicts. The execution, delivery and performance by the Borrower of this Agreement, and by each Loan Party of the other Loan Documents to which it is a party (a) do not require any consent or approval of, registration or filing with, or any action by, any Governmental Authority, except those as have been obtained or made and are in full force and effect, (b) will not violate any Requirements of Law applicable to the Borrower or any of its Subsidiaries or any judgment, order or ruling of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding on the Borrower or any of its Subsidiaries or any of its assets or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries, except Liens (if any) created under the Loan Documents.

Section 4.4 Financial Statements. The Borrower has furnished to each Lender (i) the audited consolidated balance sheet of the Borrower and its Subsidiaries as of December 31, 2009 and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the Fiscal Year then ended prepared by the Borrower and audited by UHY LLP and (ii) the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of September 30, 2010, and the related unaudited consolidated statements of operations and cash flows for the Fiscal Quarter and year-to-date period then ending, certified by a Responsible Officer. Such financial statements fairly present the consolidated financial condition of the Borrower and its Subsidiaries as of such dates and the consolidated results of operations for such periods in conformity with GAAP consistently applied, subject to year end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii). Since December 31, 2009, there have been no changes with respect to the Borrower and its Subsidiaries which have had or could reasonably be expected to have, singly or in the aggregate, a Material Adverse Effect.

## Section 4.5 Litigation and Environmental Matters.

(a) No litigation, investigation or proceeding of or before any arbitrators or Governmental Authorities is pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable



possibility of an adverse determination that could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or (ii) which in any manner draws into question the validity or enforceability of this Agreement or any other Loan Document.

(b) Except for the matters set forth on Schedule 4.5, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, which failure is un remedied in whole or in part, (ii) has become subject to any Environmental Liability which remains un remedied in whole or in part, (iii) has received notice of any claim with respect to any Environmental Liability which remains un remedied in whole or in part or (iv) knows of any basis for any Environmental Liability which could reasonably be expected to have a Material Adverse Effect.

(c) None of the properties of the Borrower or any Subsidiary contain or have contained any: (i) underground storage tanks; (ii) asbestos-containing materials; (iii) landfills or dumps; (iv) hazardous waste management units as defined pursuant to RCRA or any comparable state law; or (v) sites on or nominated for the National Priority List promulgated pursuant to CERCLA or any state remedial priority list promulgated or published pursuant to any comparable state law.

(d) There has been no Release or, to the Borrower's Knowledge, threatened Release, of Hazardous Materials at, on, under or from the Borrower's or any Subsidiary's properties which could reasonably be expected to have a Material Adverse Effect, there are no investigations, remediations, abatements, removals, or monitorings of Hazardous Materials required under applicable Environmental Laws at such properties and, to the knowledge of the Borrower, none of such properties are adversely affected by any Release or threatened Release of Hazardous Material originating or emanating from any other real property which could reasonably be expected to have a Material Adverse Effect.

(e) Neither the Borrower nor any Subsidiary has received any written notice asserting an alleged material liability or obligation under any applicable Environmental Laws with respect to the un remedied or unfinished investigation, remediation, abatement, removal, or monitoring of any Hazardous Materials, at, under, or Released or threatened to be Released from any real properties of the Borrower's or any Subsidiary's properties and, to the Borrower's knowledge, there are no conditions or circumstances that could reasonably be expected to result in the receipt of such written notice.

(f) There has been no exposure of any Person or property to any Hazardous Materials as a result of or in connection with the operations and businesses of any of the Borrower's or the Subsidiaries; properties that could reasonably be expected to form the basis for a claim for damages or compensation in excess of $1,000,000.

(g) The Borrower and the Subsidiaries have provided to the Administrative Agent complete and correct copies of all environmental site assessment reports, investigations, studies, analyses, and correspondence on environmental matters (including matters relating to any alleged non-compliance with or liability under Environmental Laws) that are in any of the



Borrower’s or the Subsidiaries; possession or control and relating to their respective properties or operations thereon for the three-year period commencing January 1, 2008.

Section 4.6 Compliance with Laws and Agreements. The Borrower and each Subsidiary is in compliance with (a) all Requirements of Law and all judgments, decrees and orders of any Governmental Authority and (b) all indentures, agreements or other instruments binding upon it or its properties, except where non-compliance, either singly or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 4.7 Investment Company Act, Etc. Neither the Borrower nor any of its Subsidiaries is (a) an “investment company” or is “controlled” by an “investment company”, as such terms are defined in, or subject to regulation under, the Investment Company Act of 1940, as amended, or (b) otherwise subject to any other regulatory scheme limiting its ability to incur debt or requiring any approval or consent from or registration or filing with, any Governmental Authority in connection therewith.

Section 4.8 Taxes. The Borrower and its Subsidiaries and each other Person for whose taxes the Borrower or any Subsidiary could become liable have timely filed or caused to be filed all Federal income tax returns and all other material tax returns that are required to be filed by them, and have paid all taxes shown to be due and payable on such returns or on any assessments made against it or its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority, except where the same are currently being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as the case may be, has set aside on its books adequate reserves in accordance with GAAP. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of such taxes are adequate, and no tax liabilities that could be materially in excess of the amount so provided are anticipated.

Section 4.9 Margin Regulations. None of the proceeds of any of the Loans will be used, directly or indirectly, for “purchasing” or “carrying” any “margin stock” with the respective meanings of each of such terms under Regulation U or for any purpose that violates the provisions of the Regulation T, U or X. Neither the Borrower nor its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying “margin stock.”

Section 4.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of all such underfunded Plans.



## Section 4.11 Properties: Titles, Etc.

(a) Each of the Borrower and the Subsidiaries has good and Defensible Title to the Oil and Gas Properties evaluated in the most recently delivered Reserve Report and good title or valid leasehold interests to all its personal properties, in each case, free and clear of all Liens except Liens permitted under Section 7.2. After giving full effect to the Permitted Encumbrances, the Borrower or the Subsidiary specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and the ownership of such properties shall not in any material respect obligate the Borrower or such Subsidiary to bear the costs and expenses relating to the maintenance, development and operations of each such property in an amount in excess of the working interest of each property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate increase in the Borrower's or such Subsidiary's net revenue interest in such property.

(b) All material leases and agreements necessary for the conduct of the business of the Borrower and the Subsidiaries are valid and subsisting, in full force and effect, and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which could reasonably be expected to have a Material Adverse Effect.

(c) The rights and properties presently owned, leased or licensed by the Borrower and the Subsidiaries including, without limitation, all easements and rights of way, include all rights and properties necessary to permit the Borrower and the Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the date hereof.

(d) All of the properties of the Borrower and the Subsidiaries which are reasonably necessary for the operation of their businesses are in good working condition and are maintained in accordance with prudent business standards.

(e) The Borrower and each Subsidiary owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower and its Subsidiaries either own or have valid licenses or other rights to use all databases, geological data, geophysical data, engineering data, seismic data, maps, interpretations and other technical information used in their businesses as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons, with such exceptions as could not reasonably be expected to have a Material Adverse Effect.

Section 4.12 Maintenance of Properties. Except for such acts or failures to act as could not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties (and properties unitized therewith) of the Borrower and its Subsidiaries have been maintained,



operated and developed in a good and workmanlike manner and in conformity with all Governmental Requirements and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties of the Borrower and its Subsidiaries. Specifically in connection with the foregoing, except for those as could not be reasonably expected to have a Material Adverse Effect, (i) no Oil and Gas Property of the Borrower or any Subsidiary is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) and (ii) none of the wells comprising a part of the Oil and Gas Properties (or properties unitized therewith) of the Borrower or any Subsidiary is deviated from the vertical more than the maximum permitted by Governmental Requirements, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on properties unitized therewith, such unitized properties) of the Borrower or such Subsidiary. All pipelines, wells, gas processing plants, platforms and other material improvements, fixtures and equipment owned in whole or in part by the Borrower or any of its Subsidiaries that are necessary to conduct normal operations are being maintained in a state adequate to conduct normal operations, and with respect to such of the foregoing which are operated by the Borrower or any of its Subsidiaries, in a manner consistent with the Borrower's or its Subsidiaries' past practices (other than those the failure of which to maintain in accordance with this Section 4.12 could not reasonably be expected to have a Material Adverse Effect).

Section 4.13 Gas Imbalances, Prepayments. Except as set forth on Schedule 4.13 or on the most recent certificate delivered pursuant to Section 5.14, on a net basis there are no gas imbalances, take or pay or other prepayments which would require the Borrower or any of its Subsidiaries to deliver Hydrocarbons produced from their Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor exceeding one-half bcf of gas (on an mc£ equivalent basis) in the aggregate.

Section 4.14 Marketing of Production. Except for contracts listed and in effect on the date hereof on Schedule 4.14, and thereafter either disclosed in writing to the Administrative Agent or included in the most recently delivered Reserve Report (with respect to all of which contracts the Borrower represents that it or its Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject property's deliver capacity), no material agreements exist which are not cancelable on 60 days notice or less without penalty or detriment for the sale of the Borrower's or its Subsidiaries' Hydrocarbons (including, without limitation, calls on or other rights to purchase, production, whether or not the same are currently being exercised) that (a) pertain to the sale of production at a fixed price and (b) have a maturity or expiry date of longer than six (6) months from the date hereof.

Section 4.15 Hedging Agreements. Schedule 4.15, as of December 31, 2010, and each report required to be delivered by the Borrower pursuant to Section 4.4, as of the date thereof, sets forth, a true and complete list of all open Hedging Transactions of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the Net Market-to-Market Exposure of the parties thereto, all



credit support agreements relating thereto (including any margin required or supplies) and the counterparty to each such agreement. Upon request, the Borrower shall provide the Administrative Agent the then current position, as determined by the respective counterparties to such Hedging Transactions, of the Borrower and its Subsidiaries with respect to each Hedging Transaction.

Section 4.16 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments, and corporate or other restrictions to which the Borrower or any of its Subsidiaries is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Information Memorandum nor any of the reports (including without limitation all reports that the Borrower is required to file with the Securities and Exchange Commission), financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation or syndication of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading; provided, that with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

Section 4.17 Labor Relations. There are no strikes, lockouts or other material labor disputes or grievances against the Borrower or any of its Subsidiaries, or, to the Borrower's knowledge, threatened against or affecting the Borrower or any of its Subsidiaries, and no significant unfair labor practice, charges or grievances are pending against the Borrower or any of its Subsidiaries, or to the Borrower's knowledge, threatened against any of them before any Governmental Authority. All payments due from the Borrower or any of its Subsidiaries pursuant to the provisions of any collective bargaining agreement have been paid or accrued as a liability on the books of the Borrower or any such Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

Section 4.18 Subsidiaries. Schedule 4.18 sets forth the name of, the ownership interest of the Borrower in, the jurisdiction of incorporation or organization of, and the type of, each Subsidiary and identifies each Subsidiary that is a Subsidiary Loan Party, in each case as of the Closing Date.

Section 4.19 Solvency. After giving effect to the execution and delivery of the Loan Documents, the making of the Loans under this Agreement, each Loan Party is Solvent.

Section 4.20 OFAC. No Loan Party (i) is a person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such person in any manner violative of Section 2, or (iii) is a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or



prohibitions under any other U.S. Department of Treasury’s Office of Foreign Assets Control regulation or executive order.

Section 4.21 Patriot Act. Each Loan Party is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) the Uniting And Strengthening America By Providing Appropriate Tools Required To Intercept And Obstruct Terrorism (USA Patriot Act of 2001). No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

Section 4.22 Use of Proceeds. The proceeds of the Loans shall be used to refinance a portion of the Indebtedness under the Borrower’s Existing Credit Agreement, provide working capital and pay fees and expenses in connection with this Agreement.

Section 4.23 Insurance. The Borrower has and has caused each Guarantor to have all insurance policies required by Section 5.10 of this Agreement.

## ARTICLE V
AFFIRMATIVE COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or any Obligation remains unpaid or outstanding:

Section 5.1 Financial State ments and Other Information. The Borrower will deliver to the Administrative Agent (for distribution to the Lenders):

(a) as soon as available and in any event within 90 days after the end of each Fiscal Year of Borrower, a copy of the annual audited report for such Fiscal Year for the Borrower and its Subsidiaries, containing a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows (together with all footnotes thereto) of the Borrower and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and reported on by UHY LLP or other independent public accountants of nationally recognized standing (without a "going concern" or like qualification, exception or explanation and without any qualification or exception as to scope of such audit) to the effect that such financial statements present fairly in all material respects the financial condition and the results of operations of the Borrower and its Subsidiaries for such Fiscal Year on a consolidated basis in accordance with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards;

(b) as soon as available and in any event within 45 days after the end of each Fiscal Quarter of the Borrower, an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and the related unaudited consolidated



statements of operations and cash flows of the Borrower and its Subsidiaries for such Fiscal Quarter and the then elapsed portion of such Fiscal Year, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous Fiscal Year, in each case certified by a Responsible Officer as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries;

(c) concurrently with the delivery of the financial statements referred to in clauses (a) and (b) above, a Compliance Certificate signed by the principal executive officer or the principal financial officer of the Borrower (i) certifying as to whether there exists a Default or Event of Default on the date of such certificate, and if a Default or an Event of Default then exists, specifying the details thereof and the action which the Borrower has taken or proposes to take with respect thereto, (ii) setting forth in reasonable detail calculations demonstrating compliance with the financial covenants set forth in Article VI, (iii) specifying any change in the identity of the Subsidiaries as of the end of such Fiscal Year or Fiscal Quarter from the Subsidiaries identified to the Lenders on the Closing Date or as of the most recent Fiscal Year or Fiscal Quarter, as the case may be and (iv) stating whether any change in GAAP or the application thereof has occurred since December 31, 2009, and if any change has occurred, specifying the effect of such change on the financial statements accompanying such Compliance Certificate;

(d) concurrently with the delivery of the financial statements referred to in clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained any knowledge during the course of their examination of such financial statements of any Default or Event of Default (which certificate may be limited to the extent required by accounting rules or guidelines);

(e) as soon as available and in any event within 30 days after the end of the calendar year, a pro forma budget for the succeeding Fiscal Year, together with an income statement, EBITDA projection and analysis of financial covenant compliance, all on a pro forma basis;

(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be;

(g) within 60 days after the end of each fiscal quarter, a report setting forth, for each calendar month during the then current fiscal year to date, the volume of production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such calendar month from the Oil and Gas Properties, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto and incurred for each such calendar month;

(h) concurrently with the delivery of the Financial Statements referred to in clauses (a) and (b) above, a certificate of Financial Officer, in form and substance satisfactory to



the Administrative Agent, setting forth as of a recent date, a true and complete list of all open Hedging Transactions of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the Net Mark-to-Market Exposure therefore, any new credit support agreements relating thereto not listed on Schedule 4.15, any margin required or supplied under any credit support document, and the counterparty to each such agreement;

(i) at least 5 days prior written notice (or such shorter time as may be approved by the Administrative Agent) of any amendment, waiver or other modification to any First Lien Loan Document and, concurrently with the execution and delivery thereof, a fully executed counterparty of any such document;

(j) promptly following any request therefor, such other information regarding the results of operations, business affairs and financial condition of the Borrower or any Subsidiary as the Administrative Agent or any Lender may reasonably request; and

(k) a copy of any notice of default received under any First Lien Loan Document and a copy of any notice of default received from a Hedge Provider or a Bank Product Provider (as each is defined in the First Lien Intercreditor Agreement).

So long as the Borrower is required to file periodic reports under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, Borrower may satisfy its obligation to deliver the financial statements referred to in clauses (a) and (b) above, and the information referred to in clause (f) above, by delivering such financial statements and information by electronic mail to such e-mail addresses as the Administrative Agent and Lenders shall have provided to Borrower from time to time.

Section 5.2 Notices of Material Events. The Borrower will furnish to the Administrative Agent prompt written notice of the following:

(a) the occurrence of any Default or Event of Default;

(b) the filing or commencement of, or any material development in, any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of the Borrower, affecting the Borrower or any Subsidiary which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

(c) the occurrence of any event or any other development by which the Borrower or any of its Subsidiaries (i) fails to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) becomes subject to any Environmental Liability, (iii) receives notice of any claim with respect to any Environmental Liability, or (iv) becomes aware of any basis for any Environmental Liability and in each of the preceding clauses, which individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;

(d) the occurrence of any ERISA Event that alone, or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $500,000;



(e) the occurrence of any default or event of default, or the receipt by Borrower or any of its Subsidiaries of any written notice of an alleged default or event of default, with respect to any Material Indebtedness (including Indebtedness under the First Lien Credit Agreement) of the Borrower or any of its Subsidiaries;

(f) in the event the Borrower or any Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil or Gas Properties included in the most recently delivered Reserve Report or any Capital Stock in any Subsidiary in accordance with Section 7.7, prior written notice of such disposition, the price thereof and the anticipated date of closing and any other details thereof requested by the Administrative Agent;

(g) in the event (i) the Borrower or any Subsidiary terminates, amends, unwinds or modifies any Master Agreement (or enters into any off-setting position in respect thereof) in accordance with Section 7.12, prompt (and in no event later than one (1) Business Day after the occurrence thereof) written notice of such transaction, the details of such proposed transaction, the closing date of such transaction and any other details thereof requested by the Administrative Agent, or (ii) the Borrower or any Subsidiary intends to terminate, amend, unwind or modify any Hedging Agreement (or enter into any off-setting position in respect thereof) in a manner inconsistent with its prior hedging practices, prior written notice of such transaction, the details of such proposed transaction, the anticipated closing date of such transaction and any other details thereof requested by the Administrative Agent; and

(h) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section 5.2 shall be accompanied by a written statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

Section 5.3 Existence: Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence and its respective rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business; provided, that nothing in this Section 5.3 shall prohibit any merger, consolidation, liquidation or dissolution permitted under Section 7.3.

Section 5.4 Operation and Maintenance of Properties. The Borrower, at its own expense, will, and will cause each Subsidiary to:

(a) operate its Oil and Gas Properties and other material properties or cause such Oil and Gas Properties and other material Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Governmental Requirements, including, without limitation, applicable pro ration requirements and Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of its Oil and Gas Properties and the



production and sale of Hydrocarbons and other minerals therefrom, except, in each case, where the failure to comply could not reasonably be expected to have a Material Adverse Effect;

(b) keep and maintain all property material to the conduct of its business in good working order and condition (ordinary wear and tear excepted), preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear excepted) all of its material Oil and Gas Properties and other material Properties, including, without limitation, all equipment, machinery and facilities;

(c) promptly pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to its Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder;

(d) promptly perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, subleases, contracts and agreements affecting its interests in its Oil and Gas Properties and other material properties; and

(e) to the extent the Borrower is not the operator of any property, the Borrower shall use reasonable efforts to cause the operator to comply with this Section 5.4.

Section 5.5 Compliance with Laws, Etc. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and requirements of any Governmental Authority applicable to its business and properties, including without limitation, all Environmental Laws, ERISA and OSHA, except where the failure to do so, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

## Section 5.6 Environmental Matters.

(a) The Borrower shall at its sole expense: (i) not Release or threaten to Release, and shall cause each Subsidiary not to Release or threaten to Release, any Hazardous Material on, under, about or from any of the Borrower's or its Subsidiaries' properties or any other property offtake the property to the extent caused by the Borrower's or any of its Subsidiaries' operations except in compliance with applicable Environmental Laws, the Release or threatened Release of which could reasonably be expected to have a Material Adverse Effect; (ii) timely obtain or file, and shall cause each Subsidiary to timely obtain or file, all Environmental Permits, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of the Borrower's or its Subsidiaries' properties, which failure to obtain or file could reasonably be expected to have a Material Adverse Effect; (iii) promptly commence and diligently prosecute to completion, and shall cause each Subsidiary to promptly commence and diligently prosecute to completion, any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other remedial obligations (collectively, the "Remedial Work") in the event any Remedial Work is required or reasonably necessary under applicable Environmental Laws because of or in



connection with the actual or suspected past, present or future Release or threatened Release of any Hazardous Material on, under, about or from any of the Borrower's or its Subsidiaries' properties, which failure to commence and diligently prosecute to completion could reasonably be expected to have a Material Adverse Effect; (iv) conduct, and cause its Subsidiaries to conduct, their respective operations and businesses in a manner that will not expose any property or Person to Hazardous Materials that could reasonably be expected to form the basis for a claim for material damages or compensation; and (v) establish and implement, and shall cause each Subsidiary to establish and implement, such procedures as may be necessary to continuously determine and assure that the Borrower's and its Subsidiaries' obligations under this Section 5.6(a) are timely and fully satisfied, which failure to establish and implement could reasonably be expected to have a Material Adverse Effect.

(b) The Borrower will promptly, but in no event later than five days of the occurrence of a triggering event, notify the Administrative Agent in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any Person against the Borrower or its Subsidiaries or their properties of which the Borrower has knowledge in connection with any Environmental Laws if the Borrower could reasonably anticipate that such action will result in liability (whether individually or in the aggregate) in excess of $1,000,000, not fully covered by insurance, subject to normal deductibles.

(c) The Borrower will, and will cause each Subsidiary to, provide environmental assessments, audits and tests in accordance with the most current version of the American Society of Testing Materials standards upon request by the Administrative Agent and no more than once per year in the absence of any Event of Default (or as otherwise required to be obtained by the Administrative Agent by any Governmental Authority), in connection with any future acquisitions of Oil and Gas Properties or other Properties.

Section 5.7 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge at or before maturity, all of its obligations and liabilities (including without limitation all taxes, assessments and other governmental charges, levies and all other claims that could result in a statutory Lien) before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate measures, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.

Section 5.8 Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities to the extent necessary to prepare the consolidated financial statements of Borrower in conformity with GAAP.

Section 5.9 Visitation, Inspection, Etc. The Borrower will, and will cause each of its Subsidiaries to, permit any representative of the Administrative Agent or any Lender, to visit and inspect its properties, to examine its books and records and to make copies and take extracts therefrom, and to discuss its affairs, finances and accounts with any of its officers and with its



independent certified public accountants, all at such reasonable times and as often as the Administrative Agent or any Lender may reasonably request after reasonable prior notice to the Borrower; provided, however, if an Event of Default has occurred and is continuing, no prior notice shall be required.

Section 5.10 Insurance. The Borrower will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance with respect to its properties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by companies in the same or similar businesses operating in the same or similar locations, and at all times shall name Administrative Agent and the Lenders as additional insureds on all liability policies of the Borrower and its Subsidiaries (other than workers compensation policies) and at all times shall name either the Administrative Agent, or if the First Lien Intercreditor Agreement is effective, the First Lien Administrative Agent as loss payee on all property and liability policies of the Borrower and its Subsidiaries, in each case subject to the rights of the lenders under the First Lien Credit Agreement as set forth in the First Lien Intercreditor Agreement with respect to property insurance proceeds in excess of $50,000.

Section 5.11 Use of Proceeds. The Borrower will use the proceeds of all Loans to refinance a portion of the Indebtedness under the Borrower's Existing Credit Agreement, provide working capital and pay fees and expenses in connection with this Agreement. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulations T, U or X.

## Section 5.12 Reserve Reports.

(a) On or before February 28th and August 31st of each year, commencing August 31, 2011 the Borrower shall furnish to the Administrative Agent a Reserve Report evaluating the Oil and Gas Properties of the Borrower and its Subsidiaries as of the immediately preceding January 1st and July 1st. The Reserve Report as of January 1st of each year shall be prepared by one or more Approved Petroleum Engineers, and the July 1st Reserve Report of each year shall be prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be based on the best information reasonably available to the Borrower and to have been prepared in accordance with the procedures used in the immediately preceding January 1st Reserve Report.

(b) In the event of an Interim Redetermination, the Borrower shall furnish to the Administrative Agent a "roll-forward" Reserve Report prepared by or under the supervision of the chief engineer of the Borrower who shall certify (i) such Reserve Report to have been prepared based on the best information reasonably available to Borrower, (ii) with respect to Oil and Gas Properties included in the immediately preceding January 1st Reserve Report that have not been sold or otherwise disposed of, such Reserve Report "rolls-forward" the projected production from such properties in the manner set out in the immediately preceding January 1st Reserve Report, and (iii) such Reserve Report sets out the NYMEX Value of the Borrower's and its Subsidiaries' Oil and Gas Properties as of the date of such report. For any Interim Redetermination requested by the First Lien Administrative Agent or the Borrower pursuant to



Section 2.7(b) of the First Lien Credit Agreement, the Borrower shall provide to the Administrative Agent a copy of such Reserve Report at the same time that it is provided to the First Lien Administrative Agent.

(c) Each delivery of a Reserve Report by the Borrower to the Administrative Agent shall constitute a representation and warranty by the Borrower to the Administrative Agent and each Lender that: (i) the Reserve Report is based on the best information reasonably available to the Borrower and any other information delivered in connection therewith is true and correct, (ii) the Borrower and its Subsidiaries have good and Defensible Title to the Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted under Section 7.2, (iii) except as set forth in the letter transmitting such Reserve Report to the Administrative Agent the "Transmittal"), on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 4.13 with respect to its Oil and Gas Properties evaluated in such Reserve Report which would require the Borrower or any Subsidiary to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) except as set forth in the Transmittal, none of the Borrower's or any Subsidiaries' Oil and Gas Properties included in the immediately preceding Reserve Report have been sold since the date of the last Redetermination Date, and that attached to the Transmittal is a list all of such Oil and Gas Properties sold and in such detail as reasonably required by the Administrative Agent, (v) attached to the Transmittal is a list of all marketing agreements entered into subsequent to the later of the date hereof or the date of the most recently delivered Reserve Report which the Borrower could reasonably be expected to have listed on Schedule 14.6 had such agreement been in effect on the date hereof, (vi) except as set forth in the Transmittal, all of the Oil and Gas Properties evaluated by such Reserve Report are Mortgaged Properties, (vii) attached to the Transmittal is a calculation of the percentage of the total NYMEX Value of the Oil and Gas Properties that the value of the Mortgaged Properties represent in compliance with Section 5.14, (viii) attached to the Transmittal is a calculation of the percentage of Projected Production for each subsequent fiscal quarter hedged pursuant to Hedging Transactions and (ix) attached to the Transmittal is a listing of any Hedging Transactions (if any) that the Borrower expects to terminate or unwind in order to comply with the requirements of Section 7.12.

(d) In addition to the foregoing, the Borrower shall deliver to the Administrative Agent and each Lender a Reserve Report when and as delivered all other times under the First Lien Credit Agreement.

## Section 5.13 Title Information.

(a) On or before the delivery to the Administrative Agent of each Reserve Report required by Section 5.12, the Borrower will deliver title information in form and substance acceptable to the Administrative Agent covering enough of the Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that the Administrative Agent shall have received together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the total value of the Oil and Gas Properties evaluated by such Reserve Report.



(b) If the Borrower has provided title information for additional properties under Section 5.13(a), the Borrower shall, within 60 days of notice from the Administrative Agent that title defects or exceptions exist with respect to such additional properties, either (i) cure any such title defects or exceptions (including defects or exceptions as to priority) which are not permitted by Section 7.2 raised by such information, (ii) substitute acceptable Oil and Gas Properties with no title defects or exceptions except for Permitted Encumbrances (other than Permitted Encumbrances described in clauses (v), (vii) and (viii) of such definition) having an equivalent value or (iii) deliver title information in form and substance acceptable to the Administrative Agent so that the Administrative Agent shall have received, together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the value of the Oil and Gas Properties evaluated by such Reserve Report.

(c) If the Borrower is unable to cure any title defect requested by the Administrative Agent to be cured within the 60-day period or the Borrower does not comply with the requirements to provide acceptable title information covering 80% of the value of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default, but instead the Administrative Agent and/or the Required Lenders shall have the right to exercise the following remedy in their sole discretion from time to time, and any failure to so exercise this remedy at any time shall not be a waiver as to future exercise of the remedy by the Administrative Agent. To the extent that the Administrative Agent or the Required Lenders are not satisfied with title to any Oil and Gas Property after the 60-day period has elapsed, such unacceptable Oil and Gas Property shall not count towards the 80% requirement.

## Section 5.14 Additional Collateral: Additional Guarantors.

(a) In connection with each redemption of the Borrowing Base, the Borrower shall review the Reserve Report and the list of current Mortgaged Properties (as described in Section 5.12) to ascertain whether the Mortgaged Properties represent at least 80% of the total value of the Oil and Gas Properties evaluated in the most recently completed Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production. In the event that the Mortgaged Properties do not represent at least 80% of such total value, then the Borrower shall, and shall cause its Subsidiaries to, grant, within thirty (30) days of delivery of the Transmittal required under Section 5.12(c), to the Administrative Agent as security for the Indebtedness an Appropriate Priority Lien interest (provided that Permitted Encumbrances of the type described in clauses (i) to (iv) and (vi) of the definition thereof may exist, but subject to the provisions at the end of such definition) on additional Oil and Gas Properties not already subject to a Lien of the Collateral Documents such that after giving effect thereto, the Mortgaged Properties will represent at least 80% of such total value. All such Liens will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements or other Collateral Documents, all in form and substance reasonably satisfactory to the Administrative Agent and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. In order to comply with the foregoing, if any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary is not a Guarantor, then it shall become a Guarantor and comply with Section 5.14(b).



(b) If any Subsidiary is acquired or formed after the Closing Date, the Borrower will promptly notify the Administrative Agent thereof and within ten (10) Business Days after any such Subsidiary is acquired or formed, will cause such Subsidiary to become a Subsidiary Loan Party. A Subsidiary shall become an additional Subsidiary Loan Party by executing and delivering to the Administrative Agent a supplement to the Guaranty and Collateral Agreement in form and substance reasonably satisfactory to the Administrative Agent accompanied by (i) all other Loan Documents related thereto, (ii) certified copies of certificates or articles of incorporation or organization, by-laws, membership operating agreements, and other organizational documents, appropriate authorizing resolutions of the board of directors of such Subsidiaries, and opinions of counsel comparable to those delivered pursuant to Section 3.1(b), and (iii) such other documents as the Administrative Agent may reasonably request. No Subsidiary that becomes a Subsidiary Loan Party shall thereafter cease to be a Subsidiary Loan Party or be entitled to be released or discharged from its obligations under the Guaranty and Collateral Agreement.

(c) In the event that the Borrower or any Subsidiary becomes the owner of a Foreign Subsidiary which has total assets in excess of $500,000 then the Borrower shall promptly, or shall cause such Subsidiary to promptly, guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection with any such guaranty, the Borrower shall, or shall cause such Subsidiary to, (i) execute and deliver a supplement to the Guaranty Agreement, (ii) pledge 65% of all the Capital Stock of such Foreign Subsidiary (including, without limitation, delivery of original stock certificates evidencing such Capital Stock of such Foreign Subsidiary, together with appropriate stock powers for each certificate duly executed in blank by the registered owner thereof) and (iii) execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Administrative Agent.

## Section 5.15 Hedging Agreement.

(a) The Borrower shall maintain the hedge position established by the Hedging Transactions required under Section 3.1(b)(xvi) during the period specified therein.

(b) Within thirty (30) days following the date of any Transmittal or other notice to the Administrative Agent indicating that the volumes of Projected Production for any quarter subject to Hedging Transactions are not in compliance with the thresholds set forth in Section 7.12, the Borrower shall terminate, create off-setting positions, or otherwise unwind existing Hedge Agreements in accordance with Section 7.12 such that the volumes of crude oil or natural gas subject to Hedging Transactions comply with the thresholds set forth in Section 7.12 for each succeeding fiscal quarter.

Section 5.16 Marketing Activities. The Borrower will not, and will not permit any of its Subsidiaries to, engage in marketing activities for any Hydrocarbons or enter into any contracts related thereto other than (i) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be produced from their proved Oil and Gas Properties during the period of such contract, (ii) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be produced from proved Oil and Gas Properties of third parties during the period of such contract associated with the Oil and Gas Properties of the Borrower and its Subsidiaries that the Borrower or one of its Subsidiaries has the right to market pursuant to joint operating



agreements, unitization agreements or other similar contracts that are usual and customary in the oil and gas business and (iii) other contracts for the purchase and/or sale of Hydrocarbons of third parties (A) which have generally offsetting provisions (i.e. corresponding pricing mechanics, delivery dates and points and volumes) such that no “position” is taken and (B) for which appropriate credit support has been taken to alleviate the material credit risks of the counterparty thereto.

Section 5.17 Further Assurances. Borrower will, and will cause each other Loan Party to, execute and deliver or cause to be executed and delivered such other and further instruments or documents and take such further action as in the judgment of Administrative Agent may be required to carry out the provisions and purposes of the Loan Documents, including to create, preserve, protect and perfect the Liens of the Administrative Agent for the ratable benefit of the Lenders and other holders of Obligations.

Section 5.18 Concurrent Delivery of Notices. In addition to the foregoing, the Borrower shall deliver to the Administrative Agent and each Lender a copy of all notices (other than Notices of Borrowing and Notices of Continuation), certificates, reports, financial statements, compliance certificates and acknowledgements of Hedging Transactions when and as delivered under the First Lien Credit Agreement.

## ARTICLE VI
FINANCIAL COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or any Obligation remains unpaid or outstanding:

Section 6.1 Leverage Ratio. The Borrower will maintain at all times a Leverage Ratio of not greater than:

<table><tr><td>Fiscal Quarter</td><td>Leverage Ratio</td></tr><tr><td>On or prior to September 30, 2011</td><td>5.00:1.0</td></tr><tr><td>After September 30, 2011 and on or prior to September 30, 2012</td><td>4.50:1.0</td></tr><tr><td>After September 30, 2012 and on or prior to September 30, 2013</td><td>4.25:1.0</td></tr><tr><td>After September 30, 2013 and on or prior to September 30, 2014</td><td>4.00:1.0</td></tr><tr><td>After September 30, 2014</td><td>3.75:1.0</td></tr></table>

Section 6.2 Interest Coverage Ratio. The Borrower will maintain, as of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending March 31, 2011, an Interest Coverage Ratio of not less than:



Each Fiscal Quarter ending on or prior to September 30, 2011

Each Fiscal Quarter ending after September 30, 2011

Section 6.3 Asset Coverage Ratio. The Borrower will maintain at all times an Asset Coverage Ratio of not less than 1.5 to 1.0.

Section 6.4 Minimum Current Ratio. The Borrower will maintain, as of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending March 31, 2011, a Minimum Current Ratio of not less than 1.0 to 1.0.

## ARTICLE VII

## NEGATIVE COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or any Obligation remains outstanding:

Section 7.1 Indebtedness and Preferred Equity. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except:

(a) Indebtedness created pursuant to the Loan Documents;

(b) Indebtedness of the Borrower and its Subsidiaries existing on the date hereof and set forth on Schedule 7.1 and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof (immediately prior to giving effect to such extension, renewal or replacement) or shorten the maturity or the weighted average life thereof;

(c) Indebtedness of the Borrower owing to any Subsidiary and of any Subsidiary owing to the Borrower or any other Subsidiary; provided, that any such Indebtedness that is owed by a Subsidiary that is not a Subsidiary Loan Party shall be subject to Section 7.4;

(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary; provided, that Guarantees by any Loan Party of Indebtedness of any Subsidiary that is not a Subsidiary Loan Party shall be subject to Section 7.4;

(e) Indebtedness under the First Lien Credit Agreement and First Lien Notes in an aggregate principal amount not to exceed $250,000,000;



(f) Letters of credit, each with a stated amount not to exceed $100,000, issued on behalf of the Borrower or a Subsidiary thereof for routine operational purposes, in an aggregate amount not to exceed $500,000;

(g) Indebtedness for payroll withholding obligations associated with vested stock-based compensation awards under the Borrower's LTIP that will be settled in shares of Capital Stock of the Borrower;

(h) Hedging Obligations permitted by Section 7.12; and

(i) (i) other unsecured Indebtedness of the Borrower or its Subsidiaries and (ii) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including purchase money financing for vehicles and equipment and Capital Lease Obligations, at any time outstanding, in an aggregate principal amount not to exceed $2,000,000 at any time outstanding.

The Borrower will not, and will not permit any Subsidiary to, issue any preferred stock or other preferred equity interests that (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may become redeemable or repurchaseable by Borrower or such Subsidiary at the option of the holder thereof, in whole or in part or (iii) is convertible or exchangeable at the option of the holder thereof for Indebtedness or preferred stock or any other preferred equity interests described in this paragraph, on or prior to, in the case of clause (i), (ii) or (iii), the first anniversary of the Maturity Date.

Section 7.2 Negative Pledge. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien on any of its assets or property now owned or hereafter acquired or, except:

(a) Liens securing the Obligations;

(b) Permitted Encumbrances;

(c) Liens on Collateral securing the First Lien Obligations (as defined in the First Lien Intercreditor Agreement); provided that such Liens shall at all times be subject to the terms of the First Lien Intercreditor Agreement;

(d) any Liens on any property or asset of the Borrower or any Subsidiary existing on the Closing Date set forth on Schedule 7.2; provided, that such Liens shall not apply to any other property or asset of the Borrower or any Subsidiary;

(e) purchase money Liens upon or in any fixed or capital assets (including vehicles and equipment) to secure the purchase price or the cost of construction or improvement of such fixed or capital assets or to secure Indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of such fixed or capital assets (including Liens securing any Capital Lease Obligations); provided, that (i) such Lien secures Indebtedness permitted by Section 7.1(i)(ii), (ii) such Lien attaches to such asset concurrently or within 90 days after the acquisition, improvement or completion of the construction thereof; (iii) such Lien



does not extend to any other asset; and (iv) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets;

(f) any Lien (i) existing on any asset of any Person at the time such Person becomes a Subsidiary of the Borrower, (ii) existing on any asset of any Person at the time such Person is merged with or into the Borrower or any Subsidiary of the Borrower or (iii) existing on any asset prior to the acquisition thereof by the Borrower or any Subsidiary of the Borrower; provided, that any such Lien was not created in the contemplation of any of the foregoing and any such Lien secures only those obligations which it secures on the date that such Person becomes a Subsidiary or the date of such merger or the date of such acquisition;

(g) Liens on cash, in an aggregate amount not to exceed $500,000, posted as collateral to secure letters of credit in accordance with Section 7.1(f);

(h) Contractual rights of set-off allowing Shell Energy North America (US), L.P., or any Affiliate to set off amounts owed to the Borrower and its Subsidiaries for the purchase of Hydrocarbons against amounts owed by the Borrower and its Subsidiaries to Shell Energy North America (US), L.P. or any Affiliate pursuant to any Hedging Transaction in respect of commodities; provided that, such set-off rights shall not extend beyond the date that is ninety (90) days after the Closing Date (or such later date as reasonably acceptable to the First Lien Administrative Agent); and

(i) extensions, renewals, or replacements of any Lien referred to in paragraphs (a), (b), (d) or (e) of this Section 7.2; provided, that the principal amount of the Indebtedness secured thereby is not increased and that any such extension, renewal or replacement is limited to the assets originally encumbered thereby.

## Section 7.3 Fundamental Changes.

(a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) all or substantially all of its assets (in each case, whether now owned or hereafter acquired) or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired) or liquidate or dissolve; provided, that if at the time the record and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing (i) the Borrower or any Subsidiary may merge with a Person if the Borrower (or such Subsidiary if the Borrower is not a party to such merger) is the surviving Person, (ii) any Subsidiary may merge into another Subsidiary; provided, that if any party to such merger is a Subsidiary Loan Party, the Subsidiary Loan Party shall be the surviving Person, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to the Borrower or to a Subsidiary Loan Party and (iv) any Subsidiary (other than a Subsidiary Loan Party) may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided, that any such merger involving a Person that is not a wholly-owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 7.4.



(b) The Borrower will not, and will not permit any of its Subsidiaries to, engage in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date hereof and businesses reasonably related thereto.

Section 7.4 Investments, Loans, Etc. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger), any Capital Stock, evidence of indebtedness or other securities (including any option, warrant, or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called "Investments"), or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person that constitute a business unit, or create or form any Subsidiary, except:

(a) Investments (other than Permitted Investments) existing on the date hereof and set forth on Schedule 7.4 (including Investments in Subsidiaries);

(b) Permitted Investments;

(c) Guarantees by Borrower and its Subsidiaries constituting Indebtedness permitted by Section 7.1; provided, that the aggregate principal amount of Indebtedness of Subsidiaries that are not Subsidiary Loan Parties that is Guaranteed by any Loan Party shall be subject to the limitation set forth in clause (d) hereof;

(d) Investments made by the Borrower in or to any Subsidiary, Investments by any Subsidiary in or to the Borrower or in or to another Subsidiary and, subject to Section 5.14, Investments constituting the creation or formation and capitalization of a new Subsidiary; provided, that the aggregate amount of Investments by Loan Parties in or to, and Guarantees by Loan Parties of Indebtedness of any Subsidiary that is not a Subsidiary Loan Party (including all such Investments and Guarantees existing on the Closing Date) shall not exceed $1,000,000 at any time outstanding;

(e) loans or advances to employees, officers or directors of the Borrower or any Subsidiary in the ordinary course of business for travel, relocation and related expenses; provided, however, that the aggregate amount of all such loans and advances does not exceed $500,000 at any time;

(f) Investments in direct ownership interests in additional Oil and Gas Properties and other assets and properties directly relating to the ownership and operation of Oil and Gas Properties (including drilling and completion rigs, servicing equipment, gas gathering systems, transportation pipelines and processing plants) which are usual and customary in the oil and gas exploration and production business located within the geographic boundaries of the United States of America;

(g) Hedging Transactions permitted by Section 7.12; and

(h) other Investments which in the aggregate do not exceed $1,000,000 in any Fiscal Year.



Section 7.5 Restricted Payments, etc. The Borrower will not, and will not permit its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except for (a) dividends payable by the Borrower solely in shares of any class of its common stock, (b) Restricted Payments made by any Subsidiary to the Borrower or to another Subsidiary, on at least a pro rata basis with any other shareholders if such Subsidiary is not wholly owned by the Borrower and other wholly owned Subsidiaries, and (c) the acquisition of shares of the Borrower's Capital Stock in connection with the net settlement in shares for payroll withholding obligations on vested stock-based awards under Borrower's LTIP.

Section 7.6 Amendment of First Lien Credit Agreement. Without the prior written consent of the Administrative Agent, the Borrower will not, and will not permit any Subsidiary to, except as permitted by the First Lien Intercreditor Agreement, amend, modify, waive or otherwise change, consent or agree to any amendment, modification, waiver or other change to, any of the terms of any First Lien Loan Document.

Section 7.7 Sale of Assets. The Borrower will not, and will not permit any Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any property except for (a) the sale of Hydrocarbons and inventory in the ordinary course of business; (b) farms of undeveloped acreage and assignments in connection with such farms, provided that for any such acreage that is Mortgaged Property with a fair market value in excess of $10,000,000, such farmout or assignment shall subject to the prior written approval of the Administrative Agent in its reasonable discretion; (c) the sale or transfer of equipment that is no longer necessary for the business of the Borrower or such Subsidiary or is replaced by equipment of at least comparable value and use; (d) the sale, transfer or other disposition of Capital Stock in Subsidiaries to the Borrower or another Subsidiary; (e) provided that no Event of Default has occurred and is continuing, the sale or licensing of seismic data; (f) provided that no Event of Default has occurred and is continuing, the disposition of uneconomic wells and leases by auction, for salvage or assumption of plugging liabilities; (g) the release of expired leases and (h) provided that no Event of Default has occurred and is continuing, the sale or other disposition (including casualty events) of any Oil and Gas Property or any interest therein or any Subsidiary owning Oil and Gas Properties; provided that, with respect to the sale or other disposition of Oil and Gas Properties (or interests therein) or any Subsidiary owning Oil and Gas Properties pursuant to this clause (h), (i) 100% of the consideration received in respect of such sale or other disposition shall be cash, (ii) the consideration received in respect of such sale or other disposition shall be equal to or greater than the fair market value of the Oil and Gas Properties, interest therein or Subsidiary subject of such sale or other disposition, taken as a whole on a per transaction basis, as reasonably determined by a Responsible Officer of the Borrower (or, with respect to any Oil and Gas Properties valued in excess of $750,000 of the NYMEX Value set forth the most recently delivered Reserve Report for such sale or other disposition, such consideration shall be equal to or greater than the Disposition Value) and, if requested by the Administrative Agent, the Borrower shall deliver a certificate of a Responsible Officer of the Borrower certifying to that effect, (iii) if such sale or other disposition of any Oil and Gas Property (including farms under clause (b) above) or Subsidiary owning Oil and Gas Properties between the Closing Date and March 30, 2012 or during any twelve-month period commencing on March 31st of any year thereafter has a NYMEX Value set forth the most recently delivered Reserve Report in excess of $10,000,000, individually or in the aggregate, then written consent of the Administrative Agent shall be required prior to such sale or disposition, and (iv) if any such sale or other disposition is



of a Subsidiary owning Oil and Gas Properties, such sale or other disposition shall include all the Capital Stock of such Subsidiary.

Section 7.8 Environmental Matters. The Borrower will not, and will not permit any Subsidiary to, cause or permit any of its property to be in violation of, or do anything or permit anything to be done which will subject any such property to a Release or threatened Release of Hazardous Materials, exposure to any Hazardous Materials, or to any Remedial Work under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any pertaining to such property where such violations, Release or threatened Release, exposure, or Remedial work could reasonably be expected to have a Material Adverse Effect.

Section 7.9 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and any Subsidiary Loan Party not involving any other Affiliates and (c) any Restricted Payment permitted by Section 7.5.

Section 7.10 Restrictive Agreements. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit any Lien upon any of its assets or properties, whether now owned or hereafter acquired, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to its Capital Stock, to make or repay loans or advances to the Borrower or any other Subsidiary, to Guarantee Indebtedness of the Borrower or any other Subsidiary or to transfer any of its property or assets to the Borrower or any Subsidiary of the Borrower; provided, that (i) the foregoing shall not apply to restrictions or conditions imposed by law or by this Agreement or any other Loan Document, (ii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is sold and such sale is permitted hereunder, (iii) clause (a) shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions and conditions apply only to the property or assets securing such Indebtedness and (iv) clause (a) shall not apply to customary provisions in leases and other contracts restricting the assignment thereof.

Section 7.11 Sale and Leaseback Transactions. The Borrower will not, and will not permit any of the Subsidiaries to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereinafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred.



## Section 7.12 Hedging Transactions.

(a) The Borrower will not, and will not permit any Subsidiary to, enter into any Hedging Transactions with any Person other than:

(i) Hedging Transactions in respect of commodities (A) with an Approved Counterparty and (B) the notional volumes for which (when aggregated with other commodity Hedging Transactions then in effect other than basis differential swaps on volumes already hedged pursuant to other Hedging Transactions) are, as of any date, but tested in connection with each Redetermination of the Borrowing Base, within the required thresholds of Projected Production set forth below for each fiscal quarter during the relevant measurement period following such date for crude oil, natural gas and natural gas liquids on a barrel of oil equivalent basis, and for each of (1) crude oil and natural gas liquids and (2) natural gas, calculated separately; provided, however, that volumes of crude oil, natural gas and natural gas liquids hedged by means of a put or a price "floor" for which there exists no Net Mark-to-Market Exposure to the Borrower or any Subsidiary (I) shall be counted in determining compliance with the minimum percentage hedging requirement set forth below, (II) shall not be counted in determining compliance with the maximum percentage hedging requirement set forth below and (III) shall in no event cause the total volumes of crude oil, natural gas and natural gas liquids hedged to exceed 100% of Projected Production for crude oil, natural gas and natural gas liquids on a barrel of oil equivalent basis or either of (x) crude oil and natural gas liquids or (y) natural gas, calculated separately, for any quarter:

<table><tr><td></td><td>Minimum Percentage Hedged (% of Projected Production on a box basis)</td><td>Maximum Percentage Hedged (% of Projected Production on a box basis)</td><td>Maximum Percentage Hedged (of Projected Production on a box basis)</td></tr><tr><td>Measurement Period (relative to measurement date)</td><td>60%</td><td>85%</td><td>85%</td></tr><tr><td>Quarters 1-4</td><td>50%</td><td>85%</td><td>85%</td></tr><tr><td>Quarters 5-10</td><td>0%</td><td>85%</td><td>75%</td></tr><tr><td>Quarters 11-20</td><td>0%</td><td>0%</td><td>0%</td></tr><tr><td>Thereafter</td><td>0%</td><td>0%</td><td>0%</td></tr></table>

: provided, however, that (1) non-compliance with the thresholds set forth above shall not constitute an Event of Default hereunder so long as such non-compliance is cured in accordance with Sections 5.15(b) and 7.12(b) within thirty (30) days following the date of any Transmittal or other notice to the Administrative Agent indicating that the volumes of Projected Production hedged do not comply with such thresholds and (2) the provisions of this subclause (B) shall not be applicable during any period when Borrower's Leverage Ratio is equal to or less than 1.50:1.0,



; provided, further, however, that, notwithstanding the foregoing percentage limitations (but intended to fit within the maximum percentage limitation), the Borrower shall enter into (and shall thereafter maintain) additional Hedging Transactions covering the following volumes of Projected Production of crude oil and natural gas liquids for each fiscal quarter during the relevant measurement period (to be consistent with the estimates contained in the Initial Reserve Report) with one-half of such additional Hedging Transactions to be entered into within 2 Business Days following the Closing Date and the remaining one-half of such additional Hedging Transactions to be entered into within 5 Business Days following the Closing Date:

<table><tr><td>Measurement Period</td><td>Hedging Requirement</td><td>Minimum Price per Barrel</td></tr><tr><td>July 1, 2012 — December 31, 2012</td><td>145,000 barrels</td><td>$ 95.00</td></tr><tr><td>January 1, 2013 — December 31, 2013</td><td>600,000 barrels</td><td>$ 95.00</td></tr><tr><td>January 1, 2014 — June 30, 2014</td><td>275,000 barrels</td><td>$ 95.00</td></tr></table>

and

(ii) Hedging Transactions in respect of interest rates with Approved Counterparties: (A) effectively converting interest rates from fixed to floating, the notional amounts of which (when aggregated with all other Hedging Transactions of the Borrower and its Subsidiaries then in effect effectively converting interest rates from fixed to floating) do not exceed the greater of (1) the notional amount of Indebtedness under this Agreement required to be hedged pursuant to Section 5.15(a) or (2) 50% of the then outstanding principal amount of the Borrower's Indebtedness for borrowed money which bears interest at a fixed rate, and (B) effectively converting interest rates from floating to fixed, the notional amounts of which (when aggregated with all other Hedging Transactions of the Borrower and its Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not exceed 50% of the then outstanding principal amount of the Borrower's Indebtedness for borrowed money which bears interest at a floating rate.

Except with the prior written consent of the Administrative Agent, in no event shall any Hedging Transaction permitted under this Section 7.12(a) contain any requirement, agreement or covenant for the Borrower or any Subsidiary to post collateral or margin to secure their obligations under such Hedging Transaction or to cover market exposures, other than pursuant to the Collateral Documents.

(b) In the event the Borrower or any Subsidiary assigns, terminates, amends, unwinds or modifies any Hedging Transactions in respect of commodities (or enters into any off-



setting position in respect thereof), the effect of such action (when taken together with any other Hedging Transactions executed contemporaneously with the taking of such action) would have the effect of canceling its positions under such Hedging Transactions, the Borrower will give to the Administrative Agent prompt (and in no event later than one (1) Business Day after the occurrence thereof) written notice of such transaction, the details of such transaction, the date of such transaction and any other details thereof requested by the Administrative Agent. In the event such Hedging Transaction was evaluated in connection with the most recent Redetermination of the Borrowing Base and the value thereof, when taken together with all other Hedging Transactions, assigned, amended, modified, terminated, unwound or off-set since the date of such Redetermination, exceeds 5% of the Borrowing Base then in effect (as determined by the Administrative Agent) individually or in the aggregate, (i) the Borrower shall maintain the net proceeds received from such transaction in either an account maintained with the Administrative Agent or a controlled account maintained with another financial institution that is subject to an account control agreement in form and substance reasonably satisfactory to the Administrative Agent until the Borrowing Base has been adjusted pursuant to clause (ii) below and any required prepayment resulting from such adjustment has been made and (ii) the Borrowing Base shall be reduced, effective as of the consummation of such transaction, by an amount equal to the net reduction in Borrowing Base value attributable to such transaction (as determined by the Administrative Agent).

Section 7.13 Gas Imbalances, Take-or-Pay or other Prepayments. The Borrower will not, and will not permit any Subsidiary to, allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any Subsidiary that would require the Borrower or such Subsidiary to deliver Hydrocarbons at some future time without then or thereafter receiving full payments therefor to exceed one half'bf of gas (on an mcf equivalent basis) in the aggregate.

Section 7.14 Amendment to Material Documents. The Borrower will not, and will not permit any of its Subsidiaries to (a) amend, modify or waive any of its rights in a manner materially adverse to the Lenders or the Borrower under its certificate of incorporation, bylaws or other organizational documents, (b) enter into any Material Contract that is materially disadvantageous or adverse to the rights of the Administrative Agent or any Lender or (c) amend or modify any Material Contract or waive any of its rights thereunder, in each case, in a manner materially disadvantageous to or adverse to the interests of the Administrative Agent or any Lender.

Section 7.15 Accounting Changes. The Borrower will not, and will not permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Borrower or of any of its Subsidiaries, except to change the fiscal year of a Subsidiary to conform its fiscal year to that of the Borrower.

Section 7.16 Lease Obligations. The Borrower will not, and will not permit any Subsidiary to, create or suffer to exist any obligations for the payment under operating leases or agreements to lease (but excluding any obligations under leases required to be classified as capital leases under GAAP having a term of five years or more) which would cause the present value of the direct or contingent liabilities of the Borrower and its Subsidiaries under such leases



or agreements to lease, on a consolidated basis, to exceed $2,000,000 in the aggregate in any Fiscal Year.

Section 7.17 Government Regulation. Neither the Borrower nor any of its Subsidiaries shall (a) be or become subject at any time to any law, regulation, or list of any Government Authority of the United States (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Lenders or the Administrative Agent from making any advance or extension of credit to Borrower or from otherwise conducting business with the Loan Parties, or (b) fail to provide documentary and other evidence of the identity of the Loan Parties as may be requested by Lenders or the Administrative Agent at any time to enable Lenders or the Administrative Agent to verify the identity of the Loan Parties or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 1 U.S.C. Section 5318.

Section 7.18 Liens Securing First Lien Credit Agreement and First Lien Notes. The Borrower will not, and will not permit any Subsidiary to, grant a Lien on any property or asset to secure the First Lien Credit Agreement, First Lien Notes or any other Indebtedness arising under any First Lien Loan Document without (a) giving fifteen (15) days' prior written notice to the Administrative Agent thereof and (b) concurrently granting to the Administrative Agent to secure the Obligations an Appropriate Priority Lien or the same property or asset pursuant to Collateral Documents in form and substance satisfactory to the Administrative Agent. In connection therewith, the Borrower shall, or shall cause each Subsidiary to, execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Administrative Agent.

## ARTICLE VIII

## EVENTS OF DEFAULT

Section 8.1 Events of Default. If any of the following events (each an “Event of Default”) shall occur:

(a) the Borrower shall fail to pay any principal of any Loan or shall fail to make when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or otherwise; or

(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount payable under clause (a) of this Section 8.1) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable; or

(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any other Loan Document (including the Schedules attached thereto) and any amendments or modifications hereof or waivers hereunder, or in any certificate, report, financial statement or other document submitted to the Administrative Agent or the Lenders by any Loan Party or any representative of any Loan Party pursuant to or in connection with this Agreement or any other Loan Document shall prove to be incorrect in any material respects (other than those representations and



warranties that are expressly qualified by a Material Adverse Effect or other materiality, in which case such representations and warranties shall be true and correct in all respects) when made or deemed made or submitted; or

(d) the Borrower shall fail to observe or perform any covenant or agreement contained in Sections 5.1, 5.2 or 5.3 (with respect to the Borrower's existence) or Articles VI or VII; or

(e) any Loan Party shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those referred to in clauses (a), (b) and (d) above) or any other Loan Document, and such failure shall remain unreminded for 30 days after the earlier of (i) any officer of the Borrower becomes aware of such failure, or (ii) notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or

(f) (i) the occurrence of an event of default under the First Lien Credit Agreement resulting from the failure to make any payment when due under any First Lien Loan Document, or (ii) the occurrence of any event of default under the First Lien Credit Agreement (other than an event of default of the type described in the foregoing clause (i)) and the Obligations as defined in the First Lien Credit Agreement shall have been accelerated, or (iii) the First Lien Intercreditor Agreement shall cease to be in full force and effect or the validity or enforceability thereof is disaffirmed by or on behalf of any lender (as defined in the First Lien Intercreditor Agreement) party thereto; or

(g) other than as contemplated by clause (f) of this Section 8.1, the Borrower or any Subsidiary (whether as primary obligor or as guarantor or other surety) shall fail to pay any principal of, or premium or interest on, any Material Indebtedness that is outstanding, when and as the same shall become due and payable (whether at scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument evidencing or governing such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or any offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or

(h) the Borrower or any Subsidiary shall (i) commence a voluntary case or other proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a custodian, trustee, receiver, liquidator or other similar official of it or any substantial part of its property, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this Section 8.1, (iii) apply for or consent to the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any such Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any



such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing; or

(i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or any substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or (ii) the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and in any such case, such proceeding or petition shall remain undismissed for a period of 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or

(j) the Borrower or any Subsidiary shall become unable to pay, shall admit in writing its inability to pay, or shall fail to pay, its debts as they become due; or

(k) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with other ERISA Events that have occurred, could reasonably be expected to result in liability to the Borrower and the Subsidiaries in an aggregate amount exceeding $500,000; or

(l) any judgment or order for the payment of money in excess of $1,000,000 in the aggregate (to the extent not covered by either (i) independent third party insurance provided by insurers of the highest claims paying rating or financial strength as to which the insurer does not dispute coverage and is not subject to an insolvency proceeding or (ii) contractual indemnity from a creditworthy third party (as reasonably determined by the Board of Directors of the Borrower) as to which such indemnifying party does not dispute its indemnification obligation and is not subject to an insolvency proceeding) shall be rendered against the Borrower or any Subsidiary, and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed; or

(m) any non-monetary judgment or order shall be rendered against the Borrower or any Subsidiary that could reasonably be expected to have a Material Adverse Effect, and there shall be a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(n) a Change in Control shall occur or exist; or

(o) any provision of any Guaranty and Collateral Agreement or any other Loan Document shall for any reason cease to be valid and binding on, or enforceable against, any Subsidiary Loan Party, or any Subsidiary Loan Party shall so state in writing, or any Subsidiary Loan Party shall seek to terminate the Guaranty and Collateral Agreement or any other Loan Document to which it is a party;

then, and in every such event (other than an event with respect to the Borrower described in clause (g) or (h) of this Section 8.1) and at any time thereafter during the continuance of such event, the Administrative Agent may, and upon the written request of the Required Lenders



shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, whereupon the Commitment of each Lender shall terminate immediately, (ii) declare the principal of and any accrued interest on the Loans, and all other Obligations owing hereunder, to be, whereupon the same shall become, due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, (iii) exercise all remedies contained in any other Loan Document, and (iv) exercise any other remedies available at law or in equity; and that, if an Event of Default specified in either clause (g) or (h) shall occur, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, and all fees, and all other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

Section 8.2 Application of Proceeds from Collateral. All proceeds realized from the liquidation or other disposition of Collateral or otherwise received after the Maturity Date, whether by acceleration or otherwise, shall be applied, subject to the First Lien Intercreditor Agreement:

(a) first, to payment or reimbursement of that portion of the Indebtedness constituting fees, expenses and indemnities payable to the Administrative Agent in its capacity as such;

(b) second, pro rata to payment or reimbursement of that portion of the Indebtedness constituting fees, expenses and indemnities payable to the Lenders;

(c) third, pro rata to payment of accrued interest on the Loans;

(d) fourth, pro rata to payment of principal outstanding on the Loans ;

(e) fifth, pro rata to any other Indebtedness; and

(f) sixth, any excess, after all of the Indebtedness shall have been indefeasibly paid in full in cash, shall be paid to the Borrower or as otherwise required by any Governmental Requirement.

## ARTICLE IX

## THE ADMINISTRATIVE AGENT

Section 9.1 Appointment of Administrative Agent. Each Lender irrevocably appoints Guggenheim Corporate Funding, LLC as the Administrative Agent and authorizes it to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent under this Agreement and the other Loan Documents, together with all such actions and powers that are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder or under the other Loan Documents by or through any one or more sub-agents or attorneys-in-fact appointed by the Administrative Agent. The Administrative Agent and any such sub-agent or attorney-in-fact may perform any and all of its duties and exercise its rights



and powers through their respective Related Parties. The exculatory provisions set forth in this Article shall apply to any such sub-agent or attorney-in-fact and the Related Parties of the Administrative Agent, any such sub-agent and any such attorney-in-fact and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and no Loan Party shall have rights as a third party beneficiary of any of the provisions contained herein.

Section 9.2 Nature of Duties of Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except those discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it, its sub-agents or attorneys-in-fact with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall not be required to take any action that, in its reasonable opinion or the reasonable opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof (which notice shall include an express reference to such event being a "Default" or "Event of Default" hereunder) is given to the Administrative Agent by the Borrower or any Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements, or other terms and conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the value or sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article III or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent may consult with legal counsel (including counsel for the Borrower) concerning all matters pertaining to such duties. If any Lender obtains actual knowledge of any Default or Event of Default, such Lender promptly shall notify the other Lenders and the Administrative Agent of such Default or Event of Default.



Section 9.3 Lack of Reliance on the Administrative Agent. Each of the Lenders acknowledges that neither the Administrative Agent or any Related Party of the Administrative Agent has made any representation or warranty to it, and that no act by the Administrative Agent or any Related Party of the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by the Administrative Agent or any Related Party of the Administrative Agent to any Lender. Each of the Lenders acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, continue to make its own decisions in taking or not taking of any action under or based on this Agreement, any related agreement or any document furnished hereunder or thereunder.

Section 9.4 Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from such act or taking such act, unless and until it shall have received instructions from such Lenders; and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders where required by the terms of this Agreement.

Section 9.5 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, posting or other distribution) believed by it to be genuine and to have been signed, sent or made by the proper Person. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or not taken by it in accordance with the advice of such counsel, accountants or experts.

Section 9.6 The Administrative Agent in its Individual Capacity. The Person serving as the Administrative Agent shall have the same rights and powers under this Agreement and any other Loan Document in its capacity as a Lender as any other Lender and may exercise or refrain from exercising the same as though it were not the Administrative Agent; and the terms "Lenders", "Required Lenders", or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The Person acting as the Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.



## Section 9.7 Successor Administrative Agent.

(a) The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, subject to the approval by the Borrower provided that no Default or Event of Default shall exist at such time. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or any state thereof or a bank which maintains an office in the United States, having a combined capital and surplus of at least $500,000,000.

(b) Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent's resignation under this Section 9.7 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Administrative Agent's resignation shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time as the Required Lenders appoint a successor Administrative Agent as provided above. After any retiring Administrative Agent's resignation hereunder, the provisions of this Article shall continue in effect for the benefit of such retiring Administrative Agent and its representatives and agents in respect of any actions taken or not taken by any of them while it was serving as the Administrative Agent.

Section 9.8 Withholding Tax. To the extent required by any applicable law, the Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to any applicable withholding tax. If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Borrower and without limiting the obligation of the Borrower to do so) fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.



## Section 9.9 Administrative Agent May File Proofs of Claim.

(a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or any Credit Exposure shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans or Credit Exposure and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and its agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 10.3) allowed in such judicial proceeding; and

(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and

(b) Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 10.3.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

Section 9.10 Authorization to Execute other Loan Documents, Releases, Etc. Each Lender hereby authorizes the Administrative Agent to (a) execute on behalf of all Lenders all Loan Documents other than this Agreement, (b) release any Collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents and (c) execute and deliver to the Borrower, at the Borrower's sole cost and expense, any and all releases of Liens, termination statements, assignments or other documents reasonably requested by the Borrower in connection with any sale or other disposition of property to the extent such sale or other disposition is permitted by the terms of Section 7.7 or is otherwise authorized by the terms of the Loan Documents. The Administrative Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by Borrower or any of its Subsidiaries or is cared for, protected, or insured or has been encumbered, or that the Administrative Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under



any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Administrative Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, the Administrative Agent may act in any manner it may deem appropriate, in its sole discretion given the Administrative Agent's own interest in the Collateral in its capacity as one of the Lenders and that the Administrative Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein.

## ARTICLE X
MISCELLANEOUS

## Section 10.1 Notices.

(a) Written Notices.

(i) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

To the Borrower:

To the Administrative Agent:

With copies to:

To any other Lender:

RAM Energy Resources, Inc.
5100 E Skelly Drive, Suite 650
Tulsa, OK 74135
Attention: Les Austin, SVP and CFO
Telecopy Number: (918)

Guggenheim Corporate Funding, LLC
135 East 57th Street, 6th Floor
New York, New York 10022
Attention: Kaitlin Trinh
Telecopy Number: 212 644-8396

Guggenheim Corporate Funding, LLC
1301 McKinney, Suite 3105
Houston, Texas 77010
Attention: Mike Beman
Telecopy Number: 713 300-1333

Guggenheim Corporate Funding, LLC
135 East 57th Street, 6th Floor
New York, New York 10022
Attention: Legal Department

the address set forth in the Administrative Questionnaire or the Assignment and Acceptance Agreement executed by such Lender



Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the mail or if delivered, upon delivery; provided, that notices delivered to the Administrative Agent shall not be effective until actually received by such Person at its address specified in this Section 10.1.

(ii) Any agreement of the Administrative Agent and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent and the Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Administrative Agent and the Lenders in reliance upon such telephone or facsimile notice. The obligation of the Borrower to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Administrative Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by the Administrative Agent and the Lenders to be contained in any such telephonic or facsimile notice.

## (b) Electronic Communications.

(i) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e mail and Internet or intranet websites) pursuant to procedures approved by Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II unless such Lender and Administrative Agent have agreed to receive notices under such Section by electronic communication and have agreed to the procedures governing such communications. Administrative Agent or Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

(ii) Unless Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgment from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.



## Section 10.2 Waiver: Amendments.

(a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrower and the Administrative Agent or any Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 10.2, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default or Event of Default at the time.

(b) No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Required Lenders or the Borrower and the Administrative Agent with the consent of the Required Lenders and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment or waiver shall: (i) increase the Aggregate Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, reduce any fees payable hereunder, without the written consent of each Lender affected thereby, or change Section 2.1(2)(ii), (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or interest thereon or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.20(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section 10.2 or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender; (vi) release any guarantor or limit the liability of any such guarantor under any guaranty agreement, without the written consent of each Lender; or (vii) release all or substantially all collateral (if any) securing any of the Obligations or agree to subordinate any Lien in such collateral to any other creditor of the Borrower or any Subsidiary (other than in connection with a farm-out of undeveloped acreage permitted by Section 7.7(b); provided further, that no such agreement shall amend, modify or otherwise affect the rights, duties or obligations of the Administrative Agent without the prior written consent of such Person. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitments of such Lender may not be increased or extended, and amounts payable to such Lender hereunder may not be permanently reduced without the consent of such Lender (other than reductions in fees and interest in which such



reduction does not disproportionately affect such Lender). Notwithstanding anything contained herein to the contrary, this Agreement may be amended and restated without the consent of any Lender (but with the consent of the Borrower and the Administrative Agent) if, upon giving effect to such amendment and restatement, such Lender shall no longer be a party to this Agreement (as so amended and restated), the Commitments of such Lender shall have terminated (but such Lender shall continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.3), such Lender shall have no other commitment or other obligation hereunder and shall have been paid in full all principal, interest and other amounts owing to it or accrued for its account under this Agreement.

## Section 10.3 Expenses: Indemnification.

(a) The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, and (ii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) incurred by the Administrative Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section 10.3, or in connection with the Loans made, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

(b) The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower, any other Loan Party or any of their respective Affiliates arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are



determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from (A) the gross negligence or willful misconduct of such Indemnitee or (B) a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any other Loan Document. No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through Syndtrak or any other Internet or intranet website, except as a result of such Indemnitee's gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final and nonappealable judgment.

(c) The Borrower shall pay, and hold the Administrative Agent and each of the Lenders harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes.

(d) To the extent that the Borrower fails to pay any amount required to be paid to the Administrative Agent under clauses (a), (b) or (c) hereof, each Lender severally agrees to pay to the Administrative Agent such Lender's Pro Rata Share (determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided, that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such.

(e) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or the use of proceeds thereof.

(f) All amounts due under this Section 10.3 shall be payable promptly after written demand therefor.

## Section 10.4 Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby,



Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments, Loans, and other Credit Exposure at the time owing to it); provided that any such assignment shall be subject to the following conditions:

## (i) Minimum Amounts.

(A) in the case of an assignment of the entire remaining amount of the assigning Lender's Commitments or Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent or, if "Trade Date" is specified in the Assignment and Acceptance, as of the Trade Date) shall not be less than $5,000,000 and in minimum increments of $1,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).

(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans or the Commitments assigned.

(iii) Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of this Section and, in addition:

(A) the consent of the Borrower (such consent not to be unreasonably withheld) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided, that, the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof;

(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments to a Person that is not a Lender with a Commitment; and
(iv) Assignment and Acceptance. The parties to each assignment shall deliver to the Administrative Agent (A) a duly executed Assignment and Acceptance, (B) a processing and recordation fee of $3,500, (C) an Administrative Questionnaire unless the



assignee is already a Lender and (D) the documents required under Section 2.19 if such assignee is a Foreign Lender.

(v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower's Affiliates or Subsidiaries.

(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section 10.4, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.3 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section 10.4. If the consent of the Borrower to an assignment is required hereunder (including a consent to an assignment which does not meet the minimum assignment thresholds specified above), the Borrower shall be deemed to have given its consent five Business Days after the date notice thereof has actually been delivered by the assigning Lender (through the Administrative Agent) to the Borrower, unless such consent is expressly refused by the Borrower prior to such fifth Business Day.

(c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in New York, NY a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and Credit Exposure owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). Information contained in the Register with respect to any Lender shall be available for inspection by such Lender at any reasonable time and from time to time upon reasonable prior notice; information contained in the Register shall also be available for inspection by the Borrower at any reasonable time and from time to time upon reasonable prior notice. In establishing and maintaining the Register, Administrative Agent shall serve as Borrower's agent solely for tax purposes and solely with respect to the actions described in this Section, and the Borrower hereby agrees that, to the extent Guggenheim Corporate Funding, LLC serves in such capacity, Guggenheim Corporate Funding, LLC and its officers, directors, employees, agents, sub-agents and Affiliates shall constitute "Indemnitees."

(d) Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent sell participations to any Person (other than a natural person, the Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a "Participant")



in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement.

(e) Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver with respect to the following to the extent affecting such Participant: (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or interest thereon or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.20(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section 10.4 or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender; (vi) release any guarantor or limit the liability of any such guarantor under any guaranty agreement without the written consent of each Lender except to the extent such release is expressly provided under the terms of such guaranty agreement; or (vii) release all or substantially all collateral (if any) securing any of the Obligations. Subject to paragraph (e) of this Section 10.4, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.17, 2.18 and 2.19 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section 10.4. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.7 as though it were a Lender, provided such Participant agrees to be subject to Section 2.20 as though it were a Lender.

(f) A Participant shall not be entitled to receive any greater payment under Section 2.17 and Section 2.19 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.19 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.19(e) as though it were a Lender.

(g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank;



provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledge or assignee for such Lender as a party hereto.

## Section 10.5 Governing Law: Jurisdiction; Consent to Service of Process.

(a) This Agreement and the other Loan Documents shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of New York.

(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the United States District Court Southern District of New York and of Supreme Court of the State of New York sitting in New York county and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such District Court or New York state court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction.

(c) The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section 10.5 and brought in any court referred to in paragraph (b) of this Section 10.5. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 10.1. Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law.

Section 10.6 WAIVER OF JURY TRIAL, EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN



INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 10.7 Right of Setoff. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender shall have the right, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by such Lender to or for the credit or the account of the Borrower against any and all Obligations held by such Lender, irrespective of whether such Lender shall have made demand hereunder and although such Obligations may be unmatured. Each Lender agrees promptly to notify the Administrative Agent and the Borrower after any such set-off and any application made by such Lender; provided, that the failure to give such notice shall not affect the validity of such set-off and application. Each Lender agrees to apply all amounts collected from any such set-off to the Obligations before applying such amounts to any other Indebtedness or other obligations owed by the Borrower and any of its Subsidiaries to such Lender.

Section 10.8 Counterparts: Integration. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the Engagement Letter, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Administrative Agent and its Affiliates constitute the entire agreement among the parties hereto and thereto and their affiliates regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. Delivery of an executed counterpart to this Agreement or any other Loan Document by facsimile transmission or by electronic mail in pdf format shall be as effective as delivery of a manually executed counterpart hereof.

Section 10.9 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.18, 2.19, 2.20 and 10.3 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. All representations and warranties made herein, in the certificates, reports,



notices, and other documents delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Loans.

Section 10.10 Severability. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 10.11 Confidentiality. Each of the Administrative Agent and the Lenders agrees to take normal and reasonable precautions to maintain the confidentiality of any information relating to the Borrower or any of its Subsidiaries or any of their respective businesses, to the extent designated in writing as confidential and provided to it by the Borrower or any Subsidiary, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries, except that such information may be disclosed (a) to any Related Party of the Administrative Agent or any such Lender including without limitation accountants, legal counsel and other advisors, (b) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (c) to the extent requested by any regulatory agency or authority purporting to have jurisdiction over it (including any self-regulatory authority such as the National Association of Insurance Commissioners), (d) to the extent that such information becomes publicly available other than as a result of a breach of this Section 10.11, or which becomes available to the Administrative Agent, any Lender or any Related Party of any of the foregoing on a nonconfidential basis from a source other than the Borrower, (e) in connection with the exercise of any remedy hereunder or under any other Loan Documents or any suit, action or proceeding relating to this Agreement or any other Loan Documents or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 10.11, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, or (ii) any actual or prospective party (or its Related Parties) to any swap or derivative or similar transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (g) any rating agency, (h) the CUSIP Service Bureau or any similar organization, or (i) with the consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section 10.11 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information.

Section 10.12 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which may be treated as interest on such Loan under applicable law (collectively, the "Charges"), shall exceed the maximum lawful rate of interest (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by a Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect



of such Loan but were not payable as a result of the operation of this Section 10.12 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment (to the extent permitted by applicable law), shall have been received by such Lender.

Section 10.13 Waiver of Effect of Corporate Seal. The Borrower represents and warrants that neither it nor any other Loan Party is required to affix its corporate seal to this Agreement or any other Loan Document pursuant to any Requirement of Law, agrees that this Agreement is delivered by Borrower under seal and waives any shortening of the statute of limitations that may result from not affixing the corporate seal to this Agreement or such other Loan Documents.

Section 10.14 Patriot Act. The Administrative Agent and each Lender hereby notifies the Loan Parties that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Patriot Act"), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of such Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify such Loan Party in accordance with the Patriot Act.

Section 10.15 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), Borrower and each other Loan Party acknowledges and agrees and acknowledges its Affiliates' understanding that that: (a)(i) the services regarding this Agreement provided by the Administrative Agent and/or Lenders are arm's-length commercial transactions between Borrower, each other Loan Party and their respective Affiliates, on the one hand, and the Administrative Agent and the Lenders, on the other hand, (ii) each of Borrower and the other Loan Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate, and (iii) Borrower and each other Loan Party is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (b)(i) each of the Administrative Agent and Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary, for Borrower, any other Loan Party, or any of their respective Affiliates, or any other Person and (ii) neither the Administrative Agent nor any Lender has any obligation to Borrower, any other Loan Party or any of their Affiliates with respect to the transaction contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (c) the Administrative Agent, the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of Borrower, the other Loan Parties and their respective Affiliates, and each of the Administrative Agent and Lenders has no obligation to disclose any of such interests to Borrower, any other Loan Party of any of their respective Affiliates. To the fullest extent permitted by law, each of Borrower and the other Loan Parties hereby waive and release any claims that it may have against the Administrative Agent and each Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.



Section 10.16 Location of Closing. Each Lender acknowledges and agrees that it has delivered, with the intent to be bound, its executed counterparts of this Agreement to the Administrative Agent, c/o Haynes and Boone, LLP, 30 Rockefeller Plaza, 26th Floor, New York, NY 10112. Borrower acknowledges and agrees that it has delivered, with the intent to be bound, its executed counterparts of this Agreement and each other Loan Document, together with all other documents, instruments, opinions, certificates and other items required under Section 3.1, to the Administrative Agent, c/o Haynes and Boone, LLP, 30 Rockefeller Plaza, 26th Floor, New York, NY 10112. All parties agree that closing of the transactions contemplated by this Agreement has occurred in New York.

Section 10.17 First Lien Intercreditor Agreement. Each of the Lenders hereby acknowledges that it has received and reviewed the First Lien Intercreditor Agreement and agrees to be bound by the terms thereof. Each Lender (and each Person that becomes a Lender hereunder pursuant to Section 10.4) hereby authorizes and directs the Administrative Agent to enter into the First Lien Intercreditor Agreement on behalf of such Lender and agrees that the Administrative Agent may take such actions on its behalf as is contemplated by the terms of the First Lien Intercreditor Agreement. Notwithstanding anything in this Agreement or the other Loan Documents (other than the First Lien Intercreditor Agreement) to the contrary, the Liens granted to the Administrative Agent pursuant to the Mortgages and the Guaranty and Collateral Agreement and the exercise of any right or remedy by the Administrative Agent under the Loan Documents (other than the First Lien Intercreditor Agreement), including the Mortgages and the Guaranty and Collateral Agreement, are subject to the provisions of the First Lien Intercreditor Agreement. In the event of any conflict between the terms of the Loan Documents (other than the First Lien Intercreditor Agreement) and the First Lien Intercreditor Agreement, the terms of the First Lien Intercreditor Agreement shall be controlling.

[Remainder of page left intentionally blank.]



IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

## RAM ENERGY RESOURCES, INC.

By: /s/ G. Les Austin
G. Les Austin
Senior Vice President and Chief Financial Officer

GUGGENHEIM CORPORATE FUNDING, LLC,
as Administrative Agent and as a Lender

By: /s/ William Hagner
Name: William Hagner
Title: Senior Managing Director

Signature Page
Second Lien Term Loan Agreement



## GUGGENHEIM SECURITIES, LLC

/s/ Paul Friedman
By: Paul Friedman
Title: Senior Managing Director

## NZG GUGGENHEIM FUND LLC

/s/ Michael Damasco
By: Michael Damasco
Title: Senior Managing Director

## CM-NP LLC

/s/ Ralph Finerman
By: Ralph Finerman
Title: Manager

## BDFF LLC

/s/ Ralph Finerman
By: Ralph Finerman
Title: Manager

## IN-FPI LLC

/s/ Ralph Finerman
By: Ralph Finerman
Title: Manager

## IN-FP2 LLC

/s/ Ralph Finerman
By: Ralph Finerman
Title: Manager

Signature Page
Second Lien Term Loan Agreement



WELLWATER LLC

/s/ Ralph Finerman

By: Ralph Finerman

Title: Manager

Signature Page

Second Lien Term Loan Agreement



## INVESCO FLOATING RATE FUND

By: Invesco Senior Secured Management, Inc., As Investment Manager

By: /s/ Thomas Ewald
Name: Thomas Ewald
Title: Authorized Signatory

## INVESCO VAN KAMPEN SENIOR LOAN FUND

By: Invesco Senior Secured Management, Inc., as Sub-advisor

By: /s/ Thomas Ewald
Name: Thomas Ewald
Title: Authorized Signatory

## INVESCO PRIME INCOME TRUST

By: Invesco Senior Secured Management, Inc., as Sub-advisor

By: /s/ Thomas Ewald
Name: Thomas Ewald
Title: Authorized Signatory

## INVESCO VAN KAMPEN SENIOR INCOME TRUST

By: Invesco Senior Secured Management, Inc., as Sub-advisor

By: /s/ Thomas Ewald
Name: Thomas Ewald
Title: Authorized Signatory

INVESCO VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND (FKA VAN KAMPEN DYNAMIC CREDIT OPPORTUNITIES FUND)

By: Invesco Senior Secured Management, Inc., as Sub-advisor

By: /s/ Thomas Ewald
Name: Thomas Ewald
Title: Authorized Signatory

Signature Page
Second Lien Term Loan Agreement



INVESCO FUNDS III — INVESCO SENIOR LOAN FUND

By: Invesco Senior Secured Management, Inc., as Sub-adviser

By: /s/ Thomas Ewald

Name: Thomas Ewald

Title: Authorized Signatory

Signature Page

Second Lien Term Loan Agreement



## CITIBANK NA

By: /s/ Kane Park

Name: Kane Park

Title: Authorized Signatory

Signature Page

Second Lien Term Loan Agreement



## PENNANT PARK INVESTMENT CORPORATION

By: /s/ Arthur Penn

Name: Arthur Penn

Title: CEO

Signature Page

Second Lien Term Loan Agreement



By: /s/ Ralph Finerman

Name: Ralph Finerman

Title: Manager

Signature Page

Second Lien Term Loan Agreement



Schedule I

COMMITMENT AMOUNTS AND PRO RATA SHARE PERCENTAGE 

<table><tr><td>Lender</td><td>Maximum<br/>Commitment</td><td>Pro Rata Share<br/>Percentage</td></tr><tr><td>[Guggenheim]</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>Silver Rock Financial LLC</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>BDIF LLC</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>Wellwater LLC</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>CM-NP LLC</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>IN-FP1 LLC</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>IN-FP2 LLC</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>Qualcomm Global Trading, Inc.</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>Invesco Van Kampen Senior Loan Fund</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>Invesco Prime Income Trust</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>Invesco Van Kampen Senior Income Trust</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>Invesco Funds III — Invesco Senior Loan Fund</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>CitiBank NA</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>PennantPark Investment Corporation</td><td>$[_____]</td><td>[_____]%</td></tr><tr><td>TOTAL</td><td>$ 75,000,000</td><td>100%</td></tr></table>

Schedule I-1



Schedule 4.5



## Schedule 4.13

## GAS IMBALANCES

There are no net imbalances exceeding one-half bcf of gas (on an mcf equivalent basis) in the aggregate.

Schedule 4.13



None.



See attached documents

Schedule 4.15



Schedule 4.18 

SUBSIDIARIES 

<table><tr><td>Owner</td><td>Issuer</td><td>Class of Stock or other Equity Interest</td><td>No. of Shares</td></tr><tr><td>RAM Energy Resources, Inc.</td><td>RAM Operating Company, Inc., a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RAM Energy Resources, Inc.</td><td>RAM Energy, Inc., a Delaware corporation</td><td>Common</td><td>1</td></tr><tr><td>RAM Operating Company, Inc.</td><td>RAM Energy Resources (WV), Inc., a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RAM Operating Company, Inc.</td><td>RAM Energy Holdings (LA), Inc., a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RAM Energy Operating Company, Inc.</td><td>Pontotoc Production Company, Inc., a Texas corporation</td><td>Common</td><td>100</td></tr><tr><td>RAM Energy Holdings (LA), Inc.</td><td>RAM Energy Resources (Lafourche), Inc., a Louisiana corporation</td><td>Common</td><td>100</td></tr><tr><td>RAM Energy Resources (Lafourche), Inc.</td><td>RAM Energy Louisiana, LLC, a Delaware limited liability company</td><td>Common Membership Interests</td><td>100%</td></tr><tr><td>RAM Energy, Inc.</td><td>RWG Energy, Inc., a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RAM Energy, Inc.</td><td>RLP Gulf States, L.L.C., an Oklahoma limited liability company</td><td>Common Membership Interests</td><td>100%</td></tr><tr><td>RAM Energy, Inc.</td><td>Great Plains Pipeline Company, a Delaware corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RWG Energy, Inc.</td><td>WG Operating, Inc., a Texas corporation</td><td>Common</td><td>1,000</td></tr><tr><td>RWG Energy, Inc.</td><td>WGPipeline LLC, a Texas limited liability company</td><td>Common Membership Interests</td><td>100%</td></tr></table>

Schedule 4.18



See attached documents.

Schedule 7.1



See attached documents.

Schedule 7.2



Schedule 7.4



Name of Subsidiary
RAM Energy, Inc.
RWG Energy, Inc.
RLP Gulf States, L.L.C.
Great Plains Pipeline Company
WG Operating, Inc.
WG Pipeline LLC
RAM Operating Company, Inc.
RAM Energy Resources (WV), Inc.
Pontotoc Production Company, Inc.
RAM Energy Holdings (LA), Inc.
RAM Energy Resources (Lafourche), Inc.
RAM Energy Louisiana, LLC

State of Organization
Delaware
Delaware
Oklahoma
Delaware
Texas
Texas
Delaware
Delaware
Texas
Delaware
Louisiana
Delaware



## CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-137311, 333-151428 and 333-166893) and on Form S-3 (File Nos. 333-149319 and File No. 333-164346), of RAM Energy Resources, Inc. of our report dated March 16, 2011, with respect to the consolidated financial statements of RAM Energy Resources, Inc. as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010 and to our report dated March 16, 2011 on the effectiveness of RAM Energy Resources, Inc.'s internal control over financial reporting as of December 31, 2010, included in this Annual Report on Form 10-K for the year ended December 31, 2010.

/s/ UHY LLP

Houston, Texas

March 16, 2011



# FORREST A. GARB & ASSOCIATES, INC.
INTERNATIONAL PETROLEUM CONSULTANTS
5310 HARVEST HILL ROAD, SUITE 275
DALLAS, TEXAS 75230-5805
(972) 788-1110 Telefax 991-3160
E-Mail: forgarb@forgarb.com

We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-137311, 333-151428 and 333-166893) and on Form S-3 (File Nos. 333-149319 and File No. 333-164346), of RAM Energy Resources, Inc. of the reference to our report dated February 9, 2011, which appears in the Annual Report on Form 10-K of RAM Energy Resources, Inc. for the year ended December 31, 2010.

FORREST A. GARB & ASSOCIATES, INC.

By: ___ /s/ WILLIAM D. HARRIS III

William D. Harris III

CEO

President



## CERTIFICATIONS FOR FORM 10-K

I, Larry E. Lee, Chief Executive Officer, principal executive officer and Director, certify that:

1. I have reviewed this annual report on Form 10-K of RAM Energy Resources, Inc., referred to as the registrant;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 16, 2011

Ram Energy Resources, Inc.

By: ___ /s/ Larry E. Lee
Larry E. Lee
Chairman, President, Chief Executive
Officer and Director
(principal executive officer)



## CERTIFICATIONS FOR FORM 10-K

I, G. Les Austin, Senior Vice President, Chief Financial Officer and principal financial officer, certify that:

1. I have reviewed this annual report on Form 10-K of RAM Energy Resources, Inc., referred to as the registrant;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 16, 2011

Ram Energy Resources, Inc.

By:

/s/ G. Les Austin

Senior Vice President and

Chief Financial Officer

(principal financial officer)



CERTIFICATE OF
PRINCIPAL EXECUTIVE OFFICER

OF
RAM ENERGY RESOURCES, INC.

I, Larry E. Lee, Chief Executive Officer, principal executive officer and Director of RAM Energy Resources, Inc., referred to as the Company, hereby certify that, to the best of my knowledge, the annual report of the Company on Form 10-K for the year ended December 31, 2010, referred to as the report:

a. complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

b. the information contained in the report fairly presents, in all material respects, the financial condition of the Company at December 31, 2010, and the results of the Company’s operations for the year ended December 31, 2010.

March 16, 2011

/s/ Larry E. Lee
Larry E. Lee
Chairman, President, Chief Executive Officer and Director
(principal executive officer)



# CERTIFICATE OF
PRINCIPAL FINANCIAL OFFICER

OF

RAM ENERGY RESOURCES, INC.

I, G. Les Austin, Executive Vice President, Chief Financial Officer and principal financial officer of RAM Energy Resources, Inc., referred to as the Company, hereby certify that, to the best of my knowledge, the annual report of the Company on Form 10-K for the year ended December 31, 2010, referred to as the report:

a. complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

b. the information contained in the report fairly presents, in all material respects, the financial condition of the Company at December 31, 2010, and the results of the Company’s operations for the year ended December 31, 2010.

March 16, 2011

/s/ G. Les Austin

G. Les Austin

Senior Vice President and

Chief Financial Officer

(principal financial officer)



# FORREST A. GARB & ASSOCIATES, INC.
INTERNATIONAL PETROLEUM CONSULTANTS
5310 HARVEST HILL ROAD, SUITE 275, LB 152
DALLAS, TEXAS 75230 — 5805
(972)788-1110 Telefax (972)991-3160 (E MAIL) forgarb@forgarb.com

February 9, 2011

Mr. Larry Lee, President
RAM Energy Resources, Inc.
5100 E. Skelly Drive, Suite 650
Tulsa, Oklahoma 74135

Re: SEC Case Executive Summary

## Dear Mr. Lee:

At your request, Forrest A. Garb & Associates, Inc. (FGA) has estimated the proved reserves and future net revenue, as of January 1, 2011, attributable to interests owned by RAM Energy Resources, Inc. (RAM). The proved reserves tabulated in this report are represented by RAM to constitute 100 percent of all proved reserves owned by RAM. These reserves are associated with certain oil and gas properties located in Arkansas, Louisiana, Mississippi, New Mexico, North Dakota, Oklahoma, Texas, West Virginia, and Wyoming.

This report has been prepared using the definitions and guidelines of the U.S. Securities and Exchange Commission (SEC), and with the exception of the exclusion of future income taxes, conforms to the FASB Accounting Standards Codification Topic 932, Extractive Industries — Oil and Gas. The SEC guidelines specify the use of a 12-month first-of-the-month average benchmark price, a 10 percent discount factor, and constant oil and gas prices and costs.

The following table summarizes the estimated total net reserves and future net revenue as of January 1, 2011:

<table><tr><td rowspan="2"></td><td colspan="3">Estimated Net Reserves \( ^{1} \)</td><td colspan="2">Estimated Future Net Revenue</td></tr><tr><td>Oil and Condensate (MBbl) \( ^{2} \)</td><td>Gas (MMcf) \( ^{2} \)</td><td>NGL (MBbl) \( ^{2} \)</td><td>Undiscounted (M) \( ^{2} \)</td><td>Discounted at 10% Per Year \( ^{3} \)  (M) \( ^{2} \)</td></tr><tr><td>Proved Reserve Category</td><td>8,087.07</td><td>24,134.19</td><td>1,357.53</td><td>393,317.15</td><td>232,448.77</td></tr><tr><td>Developed Producing</td><td>327.12</td><td>7,642.59</td><td>128.46</td><td>42,639.76</td><td>26,902.84</td></tr><tr><td>Non-producing</td><td>4,671.79</td><td>21,832.06</td><td>889.19</td><td>252,757.68</td><td>104,896.25</td></tr><tr><td>Undeveloped</td><td>13,085.98</td><td>53,608.84</td><td>2,375.18</td><td>688,714.59</td><td>364,247.86</td></tr></table>

The definitions for all reserves incorporated in this study have been set forth in this report.

2 MBbl = thousands of barrels, MMcf = millions of cubic feet, MS = thousands of dollars.

3 The discounted future net revenue is not represented to be the fair market value of these reserves.

The reserves and revenues in the summary table were estimated using the PHDW in economics program. Due to the rounding procedures used in this program, there may be slight differences in the calculated and summed values.



## FORREST A. GARB & ASSOCIATES, INC.

## ENGINEERING

Proved oil and gas reserves are those quantities of oil and gas which, by analysis of engineering and geoscience data, can be estimated with reasonable certainty to be economically producible from a given date forward. The basis for estimating the proved producing reserves was the extrapolation of historical production having an established decline trend. Volumetrics and/or analogy were used for forecasting properties where insufficient data were present for production decline extrapolation. Production histories were provided by RAM and checked using published production data and state reporting records. The reserves for other reserve categories were estimated by the volumetric method considering well logs, core analyses, geologic maps, etc., and/or by analogy to adjacent comparable wells. FGA has accepted RAM's intent to recompute the proved developed non-producing properties and to drill the proved undeveloped locations.

The analysis and findings presented in this report, with the exceptions of parameters specified by others, represent FGA's informed judgments based on accepted standards of professional engineering practice, but are subject to the generally recognized and unforeseen risks associated with the interpretation of geological, geophysical, and engineering data. Future changes in federal, state, or local regulations may adversely impact the ability to recover the future oil and gas volumes expected. Changes in economic and market conditions from the assumptions and parameters used in this study may cause the total quantity of future oil or gas recovered, actual production rates, prices received, operating expenses and capital costs to vary from the results presented in this report.

The available geologic and engineering data were furnished by RAM for FGA's review. Gas volumes are expressed in millions of cubic feet (MMcf) at standard temperature and pressure. Gas sales imbalances have not been taken into account in the reserve estimates. The oil reserves shown in this study include crude oil and/or condensate. Oil and natural gas liquids (NGL) volumes are expressed in thousands of barrels (MBbl), with one barrel equivalent to 42 United States gallons.

## ECONOMICS

The benchmark oil and gas prices used in this study are the average of the first trading day of the month spot prices posted for the West Texas Intermediate (WTI) oil and Henry Hub natural gas, per SEC guidelines. Oil and NGL prices are based on a benchmark price of $79.43 per barrel and have been adjusted by lease for gravity, transportation fees, and regional price differentials. Gas prices per thousand cubic feet (MCF) are based on a benchmark price of $4.376 per million British thermal units (MMBtu) and have been adjusted by lease for Btu content, transportation fees, and regional price differentials. The adjustment is based on the differential between historic oil and gas sales and the corresponding benchmark price. The oil, NGL, and gas prices were held constant for the economic life of the properties as specified by the SEC.

Lease operating cost data were provided by RAM for FGA's review. The average lease operating costs and overhead costs for the prior 12 months, or for the months available for each property, were utilized for this study. Capital expenditures are included as required for workovers, the future development of new wells, and for production equipment. All costs have been held constant in this evaluation. Existing or potential liabilities stemming from environmental conditions caused by current or past operating practices have not been considered in this report. No costs are included in the projections of future net revenue or in our economic



## FORREST A. GARB & ASSOCIATES, INC.

analyses to restore, repair, or improve the environmental conditions of the properties studied to meet existing or future local, state, or federal regulations.

Grand total summary economic projections by reserve category and category summaries (including one-line summaries for the individual properties) are presented in Attachment A. The individual properties have been ranked in descending order of discounted future net revenue value. This ranking is presented as Attachment B. FGA's evaluation notes three RAM properties with negative present value discounted at ten percent. These properties are reasonable to include as they represent two facility abandonment costs and the North East Fitts injector. Attachment C is a master list of all properties. Attachment D presents the definitions of proved oil and gas reserves in accordance with the SEC. General comments regarding this report and the estimation of future reserves and revenue are presented in Attachment E. Attachment F contains the consulting firm profile.

The estimated future net revenues shown are those that should be realized from the sale of estimated oil, NGL and gas reserves after deduction of severance taxes, ad valorem taxes, and direct operating costs. No deductions have been made for federal income taxes or other indirect costs, such as interest expense and loan repayments. Surface and well equipment salvage values have not been considered in the revenue projections. The estimated reserves included in the cash flow projections have not been adjusted for risk. The reserves included in this study are estimates only and should not be construed as exact quantities. Future conditions may affect recovery of estimated reserves and revenue, and all categories of reserves may be subject to revision as more performance data become available.

RAM provided ownership interest in the properties, and FGA accepted the extent and character of ownership (working interest and net revenue interest) as represented. Our staff conducted no independent well tests, property inspections, or audits of completion and operating expenses as part of this study.

FGA is an independent firm of geologists and petroleum engineers. Neither the firm nor its employees own any interest in the properties studied, nor have we been employed on a contingency basis. FGA has used all necessary methods and procedures in the preparation of this report for the evaluation of these properties.

This letter was prepared under the supervision of W.D. Harris III, Registered Professional Engineer No. 75222, State of Texas, and is intended to be the same as the original report prepared for RAM.



Yours truly,

/s/ FORREST A. GARB & ASSOCIATES, INC.

Forrest A. Garb & Associates, Inc.
Texas Registered Engineering Firm F-629

/s/ W. D. HARRIS III

W. D. Harris III
Chief Executive Officer
Forrest A. Garb & Associates, Inc.



## DEFINITIONS FOR OIL AND GAS RESERVES \( ^{*} $ 

(1) Acquisition of properties. Costs incurred to purchase, lease or otherwise acquire a property, including costs of lease bonuses and options to purchase or lease properties, the portion of costs applicable to minerals when land including mineral rights is purchased in fee, brokers' fees, recording fees, legal costs, and other costs incurred in acquiring properties.

(2) Analogous reservoir. Analogous reservoirs, as used in resources assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and estimation of recovery. When used to support proved reserves, an “analogous reservoir” refers to a reservoir that shares the following characteristics with the reservoir of interest:

(i) Same geological formation (but not necessarily in pressure communication with the reservoir of interest);

(ii) Same environment of deposition;

(iii) Similar geological structure; and

(iv) Same drive mechanism.

(3) Bitumen. Bitumen, sometimes referred to as natural bitumen, is petroleum in a solid or semisolid state in natural deposits with a viscosity greater than 10,000 centipoise measured at original temperature in the deposit and atmospheric pressure, on a gas free basis. In its natural state it usually contains sulfur, metals, and other non-hydrocarbons.

(4) Condensate. Condensate is a mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.

(5) Deterministic estimate. The method of estimating reserves or resources is called deterministic when a single value for each parameter (from the geoscience, engineering, or economic data) in the reserves calculation is used in the reserves estimation procedure.

(6) Developed oil and gas reserves. Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

* These Reserves Definitions are those included in the Securities and Exchange Commission Regulation S-X as of January 1, 2010.



## FORREST A. GARB & ASSOCIATES, INC.

(7) Development costs. Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas. More specifically, development costs, including depreciation and applicable operating costs of support equipment and facilities and other costs of development activities, are costs incurred to:

(i) Gain access to and prepare well locations for drilling, including surveying well locations for the purpose of determining specific development drilling sites, clearing ground, draining, road building, and relocating public roads, gas lines, and power lines, to the extent necessary in developing the proved reserves.

(ii) Drill and equip development wells, development-type stratigraphic test wells, and service wells, including the costs of platforms and of well equipment such as casing, tubing, pumping equipment, and the wellhead assembly.

(iii) Acquire, construct, and install production facilities such as lease flow lines, separators, treaters, heaters, manifolds, measuring devices, and production storage tanks, natural gas cycling and processing plants, and central utility and waste disposal systems.

(iv) Provide improved recovery systems.

(8) Development project. A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field, or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.

(9) Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.

(10) Economically producible, The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. The value of the products that generate revenue shall be determined at the terminal point of oil and gas producing activities as defined in paragraph (a)(16) of this section.

(11) Estimated ultimate recovery (EUR). Estimated ultimate recovery is the sum of reserves remaining as of a given date and cumulative production as of that date.

(12) Exploration costs. Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and gas reserves, including costs of drilling exploratory wells and exploratory-type stratigraphic test wells. Exploration costs may be incurred both before acquiring the related property (sometimes referred to in part as prospecting costs) and after acquiring the property. Principal types of exploration costs, which include depreciation and applicable operating costs of support equipment and facilities and other costs of exploration activities, are:

(i) Costs of topographical, geographical and geophysical studies, rights of access to properties to conduct those studies, and salaries and other expenses of geologists, geophysical crews, and others conducting those studies. Collectively, these are sometimes referred to as geological and geophysical or G&G costs.



## FORREST A. GARB & ASSOCIATES, INC.

(ii) Costs of carrying and retaining undeveloped properties, such as delay rentals, ad valorem taxes on properties, legal costs for title defense, and the maintenance of land and lease records.

(iii) Dry hole contributions and bottom hole contributions.

(iv) Costs of drilling and equipping exploratory wells.

(v) Costs of drilling exploratory-type stratigraphic test wells.

(13) Exploratory well An exploratory well is a well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an exploratory well is any well that is not a development well, an extension well, a service well, or a stratigraphic test well as those items are defined in this section.

(14) Extension well. An extension well is a well drilled to extend the limits of a known reservoir.

(15) Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically by intervening impervious, strata, or laterally by local geologic barriers, or by both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms structural feature and stratigraphic condition are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas-of- interest, etc.

(16) Oil and gas producing activities, (i) Oil and gas producing activities include:

(A) The search for crude oil, including condensate and natural gas liquids, or natural gas ("oil and gas") in their natural states and original locations;

(B) The acquisition of property rights or properties for the purpose of further exploration or for the purpose of removing the oil or gas from such properties;

(C) The construction, drilling, and production activities necessary to retrieve oil and gas from their natural reservoirs, including the acquisition, construction, installation, and maintenance of field gathering and storage systems, such as:

(1) Lifting the oil and gas to the surface; and

(2) Gathering, treating, and field processing (as in the case of processing gas to extract liquid hydrocarbons); and

(D) Extraction of saleable hydrocarbons, in the solid, liquid, or gaseous state, from oil sands, shale, coaled, or other nonrenewable natural resources which are intended to be upgraded into synthetic oil or gas, and activities undertaken with a view to such extraction.



## FORREST A. GARB & ASSOCIATES, INC.

(17) Possible reserves. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.

(i) When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates.

(ii) Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir by a defined project.

(iii) Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves.

(iv) The proved plus probable and proved plus probable plus possible reserves estimates must be based on reasonable alternative technical and commercial interpretations within the reservoir or subject project that are clearly documented, including comparisons to results in successful similar projects.

(v) Possible reserves may be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the same accumulation that may be separated from proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes that such adjacent portions are in communication with the known (proved) reservoir. Possible reserves may be assigned to areas that are structurally higher or lower than the proved area if these areas are in communication with the proved reservoir.

(vi) Pursuant to paragraph (a)(22)(iii) of this section, where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through reliable technology. Portions of the reservoir that do not meet this reasonable certainty criterion may be assigned as probable and possible oil or gas based on reservoir fluid properties and pressure gradient interpretations.

(18) Probable reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.

(i) When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.



## FORREST A. GARB & ASSOCIATES, INC.

(ii) Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.

(iii) Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

(iv) See also guidelines in paragraphs (a)(17)(iv) and (a)(17)(vi) of this section.

(19) Probabilistic estimate. The method of estimation of reserves or resources is called probabilistic when the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) is used to generate a full range of possible outcomes and their associated probabilities of occurrence.

(20) Production costs. (i) Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities. They become part of the cost of oil and gas produced. Examples of production costs (sometimes called lifting costs) are:

(A) Costs of labor to operate the wells and related equipment and facilities.

(B) Repairs and maintenance.

(C) Materials, supplies, and fuel consumed and supplies utilized in operating the wells and related equipment and facilities.

(D) Property taxes and insurance applicable to proved properties and wells and related equipment and facilities.

(E) Severance taxes.

(ii) Some support equipment or facilities may serve two or more oil and gas producing activities and may also serve transportation, refining, and marketing activities. To the extent that the support equipment and facilities are used in oil and gas producing activities, their depreciation and applicable operating costs become exploration, development or production costs, as appropriate. Depreciation, depletion, and amortization of capitalized acquisition, exploration, and development costs are not production costs but also become part of the cost of oil and gas produced along with production (lifting) costs identified above.

(21) Proved area. The part of a property to which proved reserves have been specifically attributed.



## FORREST A. GARB & ASSOCIATES, INC.

(22) Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes:

(A) The area identified by drilling and limited by fluid contacts, if any, and

(B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:

(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and

(B) The project has been approved for development by all necessary parties and entities, including governmental entities.

(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.



## FORREST A. GARB & ASSOCIATES, INC.

(23) Proved properties. Properties with proved reserves.

(24) Reasonable certainty. If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.

(25) Reliable technology. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

(26) Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Note to paragraph (a) (26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

(27) Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

(28) Resources. Resources are quantities of oil and gas estimated to exist in naturally occurring accumulations. A portion of the resources may be estimated to be recoverable, and another portion may be considered to be unrecoverable. Resources include both discovered and undiscovered accumulations.

(29) Service well. A well drilled or completed for the purpose of supporting production in an existing field. Specific purposes of service wells include gas injection, water injection, steam injection, air injection, salt-water disposal, water supply for injection, observation, or injection for in-situ combustion.

(30) Stratigraphic test well. A stratigraphic test well is a drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Such wells customarily are drilled without the intent of being completed for hydrocarbon production. The classification also includes tests identified as core tests and all types of expendable holes related to hydrocarbon exploration. Stratigraphic tests are classified as “exploratory type” if not drilled in a known area or “development type” if drilled in a known area.



## FORREST A. GARB & ASSOCIATES, INC.

(31) Undeveloped oil and gas reserves. Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time.

(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.

(32) Unproved properties. Properties with no proved reserves.



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