Document:

REOSTAR ENERGY CORP - Exhibit 10.3

EXHIBIT 10.3

   

PLEDGE AGREEMENT

  

  

   

                 THIS
PLEDGE AGREEMENT dated as of October 30, 2008 (this "Pledge Agreement") is by
and among REOSTAR ENERGY, CORPORATION, a Nevada corporation ("Borrower"), each
subsidiary of the Borrower signatory hereto (together with the Borrower, the "Pledgors"
and individually, each a "Pledgor") and Union Bank of California, N.A. as administrative
agent (in such capacity the "Administrative Agent") under the Credit Agreement
(as hereinafter defined), for its benefit and the benefit of the Secured Parties
(as hereinafter defined). 

RECITALS

                 A.
The Borrower, the lenders party thereto from time to time (the "Lenders"), Union
Bank of California, N.A., as issuing lender (in such capacity, the "Issuing Lender")
and as Administrative Agent for such Lenders, have entered into that certain Credit
Agreement dated of even date herewith (as it may be amended, restated, supplemented
or otherwise modified from time to time, the "Credit Agreement"). 

                 B.
In connection with the Credit Agreement, the Borrower or any of its subsidiaries
may from time to time enter into one or more Hedge Contracts (as defined in the
Credit Agreement) with Swap Counterparties (as defined in the Credit Agreement,
such Swap Counterparties, the Administrative Agent, the Issuing Lender and the
Lenders, being collectively referred to herein as the "Secured Parties"). 

                 C.
It is a condition precedent to the extension of credit to the Borrower under the
Credit Agreement that the Pledgors and the Administrative Agent, on behalf of
the Secured Parties, execute and deliver this Pledge Agreement. 

                 D.
Each Pledgor (other than the Borrower) is a subsidiary of the Borrower, and will
derive direct and indirect benefits from the transactions contemplated by the
Credit Agreement. 

AGREEMENT 

                 NOW,
THEREFORE, in consideration of the foregoing and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged and confessed, each
Pledgor hereby agrees with the Administrative Agent for the benefit of the Secured
Parties as follows: 

                 Section
1. Definitions. All capitalized terms not otherwise defined in this Pledge Agreement
that are defined in the Credit Agreement shall have the meanings assigned to such
terms by the Credit Agreement. Any terms used in this Pledge Agreement that are
defined in the Uniform Commercial Code in effect in the State of Texas from time
to time (the "UCC") and not otherwise defined herein or in the Credit Agreement,
shall have the meanings assigned to those terms by the UCC. All meanings to defined
terms, unless otherwise indicated, are to be equally applicable to both the singular
and plural forms of the terms defined. Article, Section, Schedule, and Exhibit
references are to Articles and Sections of and Schedules and Exhibits to this
Pledge Agreement, unless otherwise specified. All references to instruments, documents,
contracts, and agreements are references to such instruments, documents, contracts,
and agreements as the same may be amended, supplemented, and otherwise modified
from time to time, unless otherwise 

 

1

specified. The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Pledge Agreement shall refer to this Pledge
Agreement as a whole and not to any particular provision of this Pledge Agreement.
As used herein, the term "including" means "including, without limitation,". Paragraph
headings have been inserted in this Pledge Agreement as a matter of convenience
for reference only and it is agreed that such paragraph headings are not a part
of this Pledge Agreement and shall not be used in the interpretation of any provision
of this Pledge Agreement. 

                 Section
2. Pledge. 

                 2.01.
Grant of Pledge. 

                                  (a)
Each Pledgor hereby pledges to the Administrative Agent, and grants to the Administrative
Agent, for the benefit of the Secured Parties, a continuing security interest
in, the Pledged Collateral, as defined in Section 2.02 below. This Pledge Agreement
shall secure (i) all Obligations now or hereafter existing, (ii) all other amounts
now or hereafter owed by the Borrower, any Pledgor, or any of their respective
Subsidiaries under this Pledge Agreement or the other Loan Documents to the Administrative
Agent or any other Secured Party, and (iii) any increases, extensions, modifications,
substitutions, amendments, restatements and renewals of any of the foregoing obligations,
whether for principal, interest, fees, expenses, indemnification or otherwise.
All such obligations shall be referred to in this Pledge Agreement as the "Secured
Obligations". 

                                  (b)
Notwithstanding anything contained herein to the contrary, it is the intention
of each Pledgor, the Administrative Agent and the other Secured Parties that the
amount of the Secured Obligation secured by each Pledgor's interests in any of
its Property (whether real or personal, or mixed, tangible or intangible) shall
be in, but not in excess of, the maximum amount permitted by fraudulent conveyance,
fraudulent transfer and other similar law, rule or regulation of any Governmental
Authority applicable to such Pledgor. Accordingly, notwithstanding anything to
the contrary contained in this Pledge Agreement or in any other agreement or instrument
executed in connection with the payment of any of the Secured Obligations, the
amount of the Secured Obligations secured by each Pledgor's interests in any of
its Property pursuant to this Pledge Agreement shall be limited to an aggregate
amount equal to the largest amount that would not render such Pledgor's obligations
hereunder or the liens and security interest granted to the Administrative Agent
hereunder subject to avoidance under Section 548 of the United States Bankruptcy
Code or any comparable provision of any other applicable law. 

                 2.02.
Pledged Collateral. "Pledged Collateral" shall mean all of each Pledgor's right,
title, and interest in the following, whether now owned or hereafter acquired:

                                  (a)
(i) all of the membership interests listed in the attached Schedule 2.02(a) issued
to such Pledgor and all such additional membership interests of any issuer of
such interests hereafter acquired by such Pledgor (the "Membership Interests"),
(ii) the certificates representing the Membership Interests, if any, and (iii)
all rights to money or 

2

Property which such Pledgor now has or hereafter acquires in respect
of the Membership Interests, including, without limitation, (A) any proceeds from
a sale by or on behalf of such Pledgor of any of the Membership Interests, and
(B) any distributions, dividends, cash, instruments and other property from time-to-time
received or otherwise distributed in respect of the Membership Interests, whether
regular, special or made in connection with the partial or total liquidation of
the issuer and whether attributable to profits, the return of any contribution
or investment or otherwise attributable to the Membership Interests or the ownership
thereof (collectively, the "Membership Interests Distributions"); 

                                  (b)
(i) all of the general and limited partnership interests listed in the attached
Schedule 2.02(b) issued to such Pledgor and all such additional limited or general
partnership interests of any issuer of such interests hereafter acquired by such
Pledgor (the "Partnership Interests"), and (ii) all rights to money or Property
which such Pledgor now has or hereafter acquires in respect of the Partnership
Interests, including, without limitation, (A) any proceeds from a sale by or on
behalf of such Pledgor of any of the Partnership Interests, and (B) any distributions,
dividends, cash, instruments and other property from time-to-time received or
otherwise distributed in respect of the Partnership Interests, whether regular,
special or made in connection with the partial or total liquidation of the issuer
and whether attributable to profits, the return of any contribution or investment
or otherwise attributable to the Partnership Interests or the ownership thereof
(collectively, the "Partnership Interests Distributions"); 

                                  (c)
(i) all of the shares of stock listed in the attached Schedule 2.02(c) issued
to such Pledgor and all such additional shares of stock of any issuer of such
shares of stock hereafter issued to such Pledgor (the "Pledged Shares"), (ii)
the certificates representing the Pledged Shares, and (iii) all rights to money
or Property which such Pledgor now has or hereafter acquires in respect of the
Pledged Shares, including, without limitation, (A) any proceeds from a sale by
or on behalf of such Pledgor of any of the Pledged Shares, and (B) any distributions,
dividends, cash, instruments and other property from time-to-time received or
otherwise distributed in respect of the Pledged Shares, whether regular, special
or made in connection with the partial or total liquidation of the issuer and
whether attributable to profits, the return of any contribution or investment
or otherwise attributable to the Pledged Shares or the ownership thereof (collectively,
the "Pledged Shares Distributions"; together with the Membership Interests Distributions
and the Partnership Interest Distributions, the "Distributions"); and 

                                  (d)
all proceeds from the Pledged Collateral described in paragraphs (a), (b) and
(c) of this Section 2.02. 

                 2.03.
Delivery of Pledged Collateral. All certificates or instruments, if any, representing
the Pledged Collateral shall be delivered to the Administrative Agent and shall
be in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and substance
reasonably satisfactory to the Administrative Agent. After the occurrence and
during the continuance of an Event of Default, the Administrative Agent shall
have the right, upon prior written notice to the applicable Pledgor, to transfer
to or to register in the name of the Administrative Agent or any of its nominees
any of 

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the Pledged Collateral, subject to the rights specified in Section
2.04. In addition, after the occurrence and during the continuance of an Event
of Default, the Administrative Agent shall have the right at any time to exchange
the certificates or instruments representing the Pledged Collateral for certificates
or instruments of smaller or larger denominations. 

                 2.04.
Rights Retained by Pledgor. Notwithstanding the pledge in Section 2.01, 

                                  (a)
so long as no Event of Default shall have occurred and remain uncured or unwaived
and except as otherwise provided in the Credit Agreement, (i) each Pledgor shall
be entitled to receive and retain any dividends and other Distributions paid on
or in respect of the Pledged Collateral and the proceeds of any sale of the Pledged
Collateral; and (ii) each Pledgor shall be entitled to exercise any voting and
other consensual rights pertaining to its Pledged Collateral for any purpose not
inconsistent with the terms of this Pledge Agreement or the Credit Agreement;
provided, however, that no Pledgor shall exercise nor shall it refrain from exercising
any such right if such action or inaction, as applicable, would have a materially
adverse effect on the value of the Pledged Collateral; and 

                                  (b)
if an Event of Default shall have occurred and remain uncured or unwaived, 

                                                   (i)
until such time thereafter as the Administrative Agent gives written notice of
its election to exercise such voting and other consensual rights pursuant to Section
5.02 hereof, each Pledgor shall be entitled to exercise any voting and other consensual
rights pertaining to its Pledged Collateral for any purpose not inconsistent with
the terms of this Pledge Agreement or the Credit Agreement; provided, however,
that no Pledgor shall exercise nor shall it refrain from exercising any such right
if such action or inaction, as applicable, would have a materially adverse effect
on the value of the Pledged Collateral; and 

                                                   (ii)
at and after such time as the Administrative Agent gives written notice of its
election to exercise such voting and other consensual rights pursuant to Section
5.02 hereof, each Pledgor shall execute and deliver (or cause to be executed and
delivered) to the Administrative Agent all proxies and other instruments as the
Administrative Agent may reasonably request to enable the Administrative Agent
to (A) exercise the voting and other rights which such Pledgor is entitled to
exercise pursuant to paragraph (a) or paragraph (b)(i) of this Section 2.04, and
(B) receive any Distributions and proceeds of sale of the Pledged Collateral which
such Pledgor is authorized to receive and retain pursuant to paragraph (a)(i)
of this Section 2.04. 

                 Section
3. Pledgor's Representations and Warranties. Each Pledgor represents and warrants
to the Administrative Agent and the other Secured Parties as follows: 

                                  (a)
The Pledged Collateral applicable to such Pledgor listed on the attached Schedules
2.02(a), 2.02(b) and 2.02(c) have been duly authorized and validly issued to such
Pledgor and are fully paid and nonassessable. 

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                                  (b)
Such Pledgor is the legal and beneficial owner of the Pledged Collateral free
and clear of any Lien or option, except for (i) the security interest created
by this Pledge Agreement and (ii) other Permitted Subject Liens. 

                                  (c)
No authorization, authentication, approval, or other action by, and no notice
to or filing with, any Governmental Authority is required either (a) for the pledge
by such Pledgor of the Pledged Collateral pursuant to this Pledge Agreement or
for the execution, delivery, or performance of this Pledge Agreement by such Pledgor
or (b) for the exercise by the Administrative Agent or any other Secured Party
of the voting or other rights provided for in this Pledge Agreement or the remedies
in respect of the Pledged Collateral pursuant to this Pledge Agreement (except
as may be required in connection with such disposition by laws affecting the offering
and sale of securities generally). 

                                  (d)
Such Pledgor has the full right, power and authority to deliver, pledge, assign
and transfer the Pledged Collateral to the Administrative Agent. 

                                  (e)
The Membership Interests listed on the attached Schedule 2.02(a) constitute the
percentage of the issued and outstanding membership interests of the respective
issuer thereof set forth on Schedule 2.02(a) and all of the Equity Interest in
such issuer in which the Pledgor has any ownership interest. 

                                  (f)
The Partnership Interests listed on the attached Schedule 2.02(b) constitute the
percentage of the issued and outstanding general and limited partnership interests
of the respective issuer thereof set forth on Schedule 2.02(b) and all of the
Equity Interest in such issuer in which the Pledgor has any ownership interest.

                                  (g)
The Pledged Shares listed on the attached Schedule 2.02(c) constitute the percentage
of the issued and outstanding shares of capital stock of the respective issuer
thereof set forth on Schedule 2.02(c) and all of the Equity Interest in such issuer
in which the Pledgor has any ownership interest. 

                                  (h)
Schedule 3 sets forth its sole jurisdiction of formation, type of organization,
federal tax identification number, the organizational number, and all names used
by it during the last five years prior to the date of this Pledge Agreement. 

                 Section
4. Pledgor's Covenants. During the term of this Pledge Agreement and until Pledge
Termination as defined in Section 7 below, each Pledgor covenants and agrees with
the Administrative Agent that: 

                 4.01.
Protect Collateral; Further Assurances. Each Pledgor will warrant and defend the
rights and title herein granted unto the Administrative Agent in and to the Pledged
Collateral (and all right, title, and interest represented by the Pledged Collateral)
against the claims and demands of all Persons whomsoever. Each Pledgor agrees
that, at the expense of such Pledgor, such Pledgor will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
reasonably necessary and that the Administrative Agent or any other Secured Party
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Administrative Agent
or any other 

5

Secured Party to exercise and enforce its rights and remedies hereunder with respect
to any Pledged Collateral. Each Pledgor hereby authorizes the Administrative Agent
to file any financing statements, amendments or continuations without the signature
of such Pledgor to the extent permitted by applicable law in order to perfect
or maintain the perfection of any security interest granted under this Pledge
Agreement. 

                 4.02.
Transfer, Other Liens, and Additional Shares. Each Pledgor agrees that it will
not (a) except as otherwise permitted by the Credit Agreement, sell or otherwise
dispose of, or grant any option with respect to, any of the Pledged Collateral
or (b) create or permit to exist any Lien upon or with respect to any of the Pledged
Collateral, except for Permitted Liens. Each Pledgor agrees that it will (i) cause
each issuer of the Pledged Collateral that is a Subsidiary of such Pledgor not
to issue any other Equity Interests in addition to or in substitution for the
Pledged Collateral issued by such issuer, except to such Pledgor or any other
Pledgor and (ii) pledge hereunder, immediately upon its acquisition (directly
or indirectly) thereof, any additional Equity Interests of an issuer acquired
by such Pledgor. No Pledgor shall approve any amendment or modification of any
of the Pledged Collateral without the Administrative Agent's prior written consent.

                 4.03.
Jurisdiction of Formation; Name Change. Each Pledgor shall give the Administrative
Agent at least 30 days' prior written notice before it (i) in the case of a Pledgor
that is not a "registered organization" (as defined in Section 9-102 of the UCC)
changes the location of its principal place of business and chief executive office,
or (ii) uses a trade name other than its current name used on the date hereof.
Other than as permitted by the Credit Agreement, no Pledgor shall amend, supplement,
modify or restate its articles or certificate of incorporation, bylaws, limited
liability company agreements, or other equivalent organizational documents, nor
amend its name or change its jurisdiction of incorporation, organization or formation.

                 Section
5. Remedies upon Default. If any Event of Default shall have occurred and be continuing:

                 5.01.
UCC Remedies. To the extent permitted by law, the Administrative Agent may exercise
in respect of the Pledged Collateral, in addition to other rights and remedies
provided for in this Pledge Agreement or otherwise available to it, all the rights
and remedies of a secured party under the UCC (whether or not the UCC applies
to the affected Pledged Collateral). 

                 5.02.
Dividends and Other Rights. 

                                  (a)
All rights of the Pledgors to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant to Section 2.04(a) may
be exercised by the Administrative Agent if the Administrative Agent so elects
and gives written notice of such election to the affected Pledgor and all rights
of the Pledgors to receive any Distributions on or in respect of the Pledged Collateral
and the proceeds of sale of the Pledged Collateral which it would otherwise be
authorized to receive and retain pursuant to Section 2.04(b) shall cease. 

6

                                  (b)
All Distributions on or in respect of the Pledged Collateral and the proceeds
of sale of the Pledged Collateral which are received by any Pledgor shall be received
in trust for the benefit of the Administrative Agent, shall be segregated from
other funds of such Pledgor, and shall be promptly paid over to the Administrative
Agent as Pledged Collateral in the same form as so received (with any necessary
indorsement). 

                 5.03.
Sale of Pledged Collateral. The Administrative Agent may sell all or part of the
Pledged Collateral at public or private sale, at any of the Administrative Agent's
offices or elsewhere, for cash, on credit, or for future delivery, and upon such
other terms as the Administrative Agent may deem commercially reasonable in accordance
with applicable laws. Each Pledgor agrees that to the extent permitted by law
such sales may be made without notice. If notice is required by law, each Pledgor
hereby deems 10 days' advance notice of the time and place of any public sale
or the time after which any private sale is to be made reasonable notification,
recognizing that if the Pledged Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market shorter notice may be
reasonable. The Administrative Agent shall not be obligated to make any sale of
the Pledged Collateral regardless of notice of sale having been given. The Administrative
Agent may adjourn any public or private sale from time-to-time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. Each Pledgor shall
fully cooperate with the Administrative Agent in selling or realizing upon all
or any part of the Pledged Collateral. In addition, each Pledgor shall fully comply
with the securities laws of the United States, the State of Texas, and other states
and take such actions as may be necessary to permit Administrative Agent to sell
or otherwise dispose of any securities representing the Pledged Collateral in
compliance with such laws. 

                 5.04.
Exempt Sale. If, in the opinion of the Administrative Agent, there is any question
that a public or semipublic sale or distribution of any Pledged Collateral will
violate any state or federal securities law, the Administrative Agent in its reasonable
discretion (a) may offer and sell securities privately to purchasers who will
agree to take them for investment purposes and not with a view to distribution
and who will agree to imposition of restrictive legends on the certificates representing
the security, or (b) may sell such securities in an intrastate offering under
Section 3(a)(11) of the Securities Act of 1933, as amended, and no sale so made
in good faith by the Administrative Agent shall be deemed to be not "commercially
reasonable" solely because so made. Each Pledgor shall cooperate fully with the
Administrative Agent in selling or realizing upon all or any part of the Pledged
Collateral. 

                 5.05.
Application of Collateral. The proceeds of any sale, or other realization (other
than that received from a sale or other realization permitted by the Credit Agreement)
upon all or any part of the Pledged Collateral pledged by the Pledgors shall be
applied by the Administrative Agent as set forth in Section 7.06 of the Credit
Agreement. 

                 5.06.
Cumulative Remedies. Each right, power and remedy herein specifically granted
to the Administrative Agent or otherwise available to it shall be cumulative,
and shall be in addition to every other right, power and remedy herein specifically
given or now or hereafter existing at law, in equity, or otherwise, and each such
right, power and remedy, whether specifically granted herein or otherwise existing,
may be exercised at any time and from time-to-time as often and in such order
as may be deemed expedient by the Administrative Agent in its 

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sole discretion. No failure on the part of the Administrative Agent
to exercise, and no delay in exercising, and no course of dealing with respect
to, any such right, power or remedy, shall operate as a waiver thereof, nor shall
any single or partial exercise of any such rights, power or remedy preclude any
other or further exercise thereof or the exercise of any other right. 

                 Section
6. Administrative Agent as Attorney-in-Fact for Pledgor. 

                 6.01.
Administrative Agent Appointed Attorney-in-Fact. Each Pledgor hereby irrevocably
appoints the Administrative Agent as such Pledgor's attorney-in-fact, with full
authority after the occurrence and during the continuance of an Event of Default
to act for such Pledgor and in the name of such Pledgor, and, in the Administrative
Agent's discretion, to take any action and to execute any instrument which the
Administrative Agent may deem reasonably necessary or advisable to accomplish
the purposes of this Pledge Agreement, including, without limitation, to receive,
indorse, and collect all instruments made payable to such Pledgor representing
any dividend, or the proceeds of the sale of the Pledged Collateral, or other
distribution in respect of the Pledged Collateral and to give full discharge for
the same. Each Pledgor hereby acknowledges, consents and agrees that the power
of attorney granted pursuant to this Section is irrevocable and coupled with an
interest. 

                 6.02.
Administrative Agent May Perform. The Administrative Agent may from time-to-time,
at its option but at the Pledgors' expense, perform any act which any Pledgor
agrees hereunder to perform and which such Pledgor shall fail to perform after
being requested in writing so to perform (it being understood that no such request
need be given after the occurrence and during the continuance of any Event of
Default and after notice thereof by the Administrative Agent to the affected Pledgor)
and the Administrative Agent may from time-to-time take any other action which
the Administrative Agent reasonably deems necessary for the maintenance, preservation
or protection of any of the Pledged Collateral or of its security interest therein.
The Administrative Agent shall provide notice to the affected Pledgor of any action
taken hereunder; provided however, the failure to provide such notice shall not
be construed as a waiver of any rights of the Administrative Agent provided under
this Pledge Agreement or under applicable law. 

                 6.03.
Administrative Agent Has No Duty. The powers conferred on the Administrative Agent
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty on it to exercise any such powers. Except for reasonable care
of any Pledged Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Administrative Agent shall have no duty as to any
Pledged Collateral or responsibility for taking any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Pledged Collateral.

                 6.04.
Reasonable Care. The Administrative Agent shall be deemed to have exercised reasonable
care in the custody and preservation of the Pledged Collateral in its possession
if the Pledged Collateral is accorded treatment substantially equal to that which
the Administrative Agent accords its own property, it being understood that the
Administrative Agent shall have no responsibility for (a) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders, or
other matters relative to any Pledged Collateral, whether or not the 

8

Administrative Agent has or is deemed to have knowledge of such
matters, or (b) taking any necessary steps to preserve rights against any parties
with respect to any Pledged Collateral. 

                 Section
7. Miscellaneous. 

                 7.01.
Expenses. The Pledgors will upon demand pay to the Administrative Agent for its
benefit and the benefit of the other Secured Parties the amount of any reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of its
counsel and of any experts, which the Administrative Agent and the other Secured
Parties may incur in connection with (a) the custody, preservation, use, or operation
of, or the sale, collection, or other realization of, any of the Pledged Collateral,
(b) the exercise or enforcement of any of the rights of the Administrative Agent
or any Lender or any other Secured Parties hereunder, and (c) the failure by any
Pledgor to perform or observe any of the provisions hereof. 

                 7.02.
Amendments, Etc. No amendment or waiver of any provision of this Pledge Agreement
nor consent to any departure by any Pledgor herefrom shall be effective unless
made in writing and executed by the affected Pledgor and the Administrative Agent
(acting upon the written direction of the Required Lenders and given in accordance
with the Credit Agreement), and such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. 

                 7.03.
Addresses for Notices. All notices and other communications provided for hereunder
shall be in the manner and to the addresses set forth in the Credit Agreement
or on the signature page hereof. 

                 7.04.
Continuing Security Interest; Transfer of Interest. 

                                  (a)
This Pledge Agreement shall create a continuing security interest in the Pledged
Collateral and, unless expressly released by the Administrative Agent, shall (i)
remain in full force and effect until Pledge Termination (as defined below), (ii)
be binding upon each Pledgor and its successors, transferees and assigns, and
(iii) inure, together with the rights and remedies of the Administrative Agent
hereunder, to the benefit of and be binding upon, each Secured Party (other than
the Swap Counterparties) and each of its successors, transferees, and assigns,
and to the benefit of and be binding upon, the Swap Counterparties and each successor,
transferee, and assign of the Swap Counterparties to the extent such successor,
transferee, and assign is a Lender or an Affiliate of a Lender. Without limiting
the generality of the foregoing clause, when any Lender assigns or otherwise transfers
any interest held by it under the Credit Agreement or other Loan Document to any
other Person pursuant to the terms of the Credit Agreement or such other Loan
Document, that other Person shall thereupon become vested with all the benefits
held by such Lender under this Pledge Agreement. Furthermore, when any Swap Counterparty
assigns or otherwise transfers any interest held by it under a Hedge Contract
to any other Person pursuant to the terms of such agreement, that other Person
shall thereupon become vested with all the benefits held by such Secured Party
under this Pledge Agreement only if such Person is also then a Lender or an Affiliate
of a Lender. 

9

                                  (b)
Upon Pledge Termination, the security interest granted hereby shall terminate
and all rights to the Pledged Collateral shall revert to the applicable Pledgor
to the extent such Pledged Collateral shall not have been sold or otherwise applied
pursuant to the terms hereof. Upon any such termination, the Administrative Agent
will, at the Pledgors' expense, deliver all Pledged Collateral to the applicable
Pledgor, execute and deliver to the applicable Pledgor such documents as such
Pledgor shall reasonably request and take any other actions reasonably requested
to evidence or effect such termination. 

                                  (c)
"Pledge Termination" as used herein shall mean the indefeasible payment in full
in cash of the Secured Obligations (including all Letter of Credit Obligations),
the termination or expiration of all Letters of Credit and the termination of
all obligations of the Issuing Lender and the Lenders in respect of Letters of
Credit, the termination of all Hedge Contracts with the Swap Counterparties (other
than Hedge Contracts with any Swap Counterparty with respect to which other arrangements
satisfactory to the Swap Counterparty and the Borrower have been made or have
been deemed to have to been made under Section 8.08(b) of the Credit Agreement)
and the termination of all obligations of the Swap Counterparties in respect of
such Hedge Contracts, and the termination or expiration of the Commitments. 

                 7.05.
Waivers. Each Pledgor hereby waives: 

                                  (a)
promptness, diligence, notice of acceptance, and any other notice with respect
to any of the Secured Obligations and this Pledge Agreement; 

                                  (b)
any requirement that the Administrative Agent or any other Secured Party protect,
secure, perfect, or insure any Lien or any Property subject thereto or exhaust
any right or take any action against any Pledgor, any Guarantor, or any other
Person or any collateral; and 

                                  (c)
any duty on the part of the Administrative Agent to disclose to any Pledgor any
matter, fact, or thing relating to the business, operation, or condition of any
Pledgor, any Guarantor, or any other Person and their respective assets now known
or hereafter known by such Person. 

                 7.06.
Severability. Wherever possible each provision of this Pledge Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Pledge Agreement shall be prohibited by or invalid
under such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the remaining
provisions of this Pledge Agreement. 

                 7.07.
Choice of Law. This Pledge Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, except to the extent that the
validity or perfection of the security interests hereunder, or remedies hereunder,
in respect of any particular Pledged Collateral are governed by the laws of a
jurisdiction other than the State of Texas. 

10

                 7.08.
Counterparts. The parties may execute this Pledge Agreement in counterparts, each
of which constitutes an original, and all of which, collectively, constitute only
one agreement. Delivery of an executed counterpart signature page by facsimile
is as effective as executing and delivering this Pledge Agreement in the presence
of the other parties to this Pledge Agreement. In proving this Pledge Agreement,
a party must produce or account only for the executed counterpart of the party
to be charged. 

                 7.09.
Headings. Paragraph headings have been inserted in this Pledge Agreement as a
matter of convenience for reference only and it is agreed that such paragraph
headings are not a part of this Pledge Agreement and shall not be used in the
interpretation of any provision of this Pledge Agreement. 

                 7.10.
Reinstatement. If, at any time after payment in full of all Secured Obligations
and termination of the Administrative Agent's security interest, any payments
on the Secured Obligations previously made must be disgorged by any Secured Party
for any reason whatsoever, including, without limitation, the insolvency, bankruptcy
or reorganization of any Pledgor or any other Person, this Pledge Agreement and
the Administrative Agent's security interests herein shall be reinstated as to
all disgorged payments as though such payments had not been made, and each Pledgor
shall sign and deliver to the Administrative Agent all documents, and shall do
such other acts and things, as may be necessary to reinstate and perfect the Administrative
Agent's security interest. EACH PLEDGOR SHALL DEFEND AND INDEMNIFY THE ADMINISTRATIVE
AGENT AND EACH OTHER SECURED PARTY FROM AND AGAINST ANY CLAIM, DAMAGE, LOSS, LIABILITY,
COST OR EXPENSE UNDER THIS SECTION 7.10 (INCLUDING REASONABLE ATTORNEYS' FEES
AND EXPENSES) IN THE DEFENSE OF ANY SUCH ACTION OR SUIT INCLUDING SUCH CLAIM,
DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING AS A RESULT OF THE INDEMNIFIED
SECURED PARTY'S OWN NEGLIGENCE BUT EXCLUDING SUCH CLAIM, DAMAGE, LOSS, LIABILITY,
COST, OR EXPENSE THAT IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT
OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED SECURED PARTY'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. 

                 7.11.
Conflicts. In the event of any explicit or implicit conflict between any provisions
of this Pledge Agreement and any provision of the Credit Agreement, the terms
of the Credit Agreement shall be controlling. 

                 7.12.
Additional Pledgors. Pursuant to Section 6.16 of the Credit Agreement, each holder
of an Equity Interest in a Subsidiary of the Borrower that was not in existence
on the date of the Credit Agreement is required to enter into this Pledge Agreement
as a Pledgor upon such Subsidiary becoming a Subsidiary of the Borrower. Upon
execution and delivery after the date hereof by the Secured Party and such equity
holder of an instrument in the form of Annex 1, such equity holder shall become
a Pledgor hereunder with the same force and effect as if originally named as a
Pledgor herein. The execution and delivery of any instrument adding an additional
Pledgor as a party to this Pledge Agreement shall not require the consent of any
other Pledgor hereunder. The rights and obligations of each Pledgor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Pledgor as a party to this Pledge Agreement. 

11

                 7.13.
Entire Agreement. THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. 

                 THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. 

[SIGNATURE PAGES FOLLOW]

12

                 The
parties hereto have caused this Pledge Agreement to be duly executed as of the
date first above written. 

	 	 PLEDGOR: 

      

      REOSTAR ENERGY, CORPORATION, 

      a Nevada corporation 

      

      

      By:     /s/   Mark S. Zouvas                                         

               Mark S. Zouvas 

               Chief Executive Officer
      

      
	 	 
	 	 

Signature Page to Pledge Agreement (Borrower)

	 	  ADMINISTRATIVE AGENT: 

      

      UNION BANK OF CALIFORNIA, N.A., as 

      Administrative Agent

      

      

      By:  /s/ Randall Osterberg                                          

               Randall Osterberg 

               Senior Vice President

      
	 	 
	 	 

Signature Page to Pledge Agreement (Borrower)

SCHEDULE 2.02(a) 

Membership Interests

	
       Pledgor

    	
       Issuer 

    	
      Type of Membership Interest 

    	
      % of Membership Interest Owned
        

    
	
      None 

    	
      

    	
      

    	
      

    

SCHEDULE 2.02(b) 

Partnership Interests 

	
      Pledgor 

    	
      Issuer 

    	
      Type of Partnership Interest
        

    	
       % of Partnership Interest Owned
        

    
	None 	 	 	 

SCHEDULE 2.02(c) 

  Pledged Shares 

  

	
      Pledgor 

    	
      Issuer 

    	
      Type of Shares

    	
       Number of Shares 

    	
      % of Shares Owned 

    	
      Certificate No. 

    
	ReoStar Energy, 

      Corporation 	ReoStar Gathering, Inc. 	
      Common 

    	
      100,000 

    	
      100% 

    	
      1 

    
	ReoStar Energy, 

      Corporation 	ReoStar Leasing, Inc. 	
      Common 

    	
      100,000 

    	
      100% 

    	
      1 

    
	ReoStar Energy, 

      Corporation 	ReoStar Operating 

      Incorporated	
      Common 

    	
      100,000 

    	
      100% 

    	
      1 

    

Schedules 2.02(a), 2.02(b) and 2.02(c) to Pledge
  Agreement

SCHEDULE 3 

PLEDGOR INFORMATION 

	Pledgor: 

      

      Sole Jurisdiction of Formation / Filing: 

      

      Type of Organization: 

      

      Organizational Number: 

      

      Federal Tax Identification Number: 

      

      Prior Names: 

    	ReoStar Energy, Corporation 

      

      Nevada 

      

      Corporation 

      

      C31758-2004 

      

      20-8428738 

      

      Goldrange Resources, Inc.  

 

Schedule 3 to Pledge Agreement

Annex 1 to the 

Pledge Agreement 

                 SUPPLEMENT
NO. [ ] dated as of [ ] (the "Supplement"), to the Pledge Agreement dated as of
_______________, 20__ (as amended, supplemented or otherwise modified from time
to time, the "Pledge Agreement") by and among REOSTAR ENERGY, CORPORATION, a Nevada
corporation ("Borrower"), each other party signatory hereto (together with the
Borrower, the "Pledgors" and individually, each a "Pledgor") and Union Bank of
California, N.A. as administrative agent (in such capacity, the "Administrative
Agent") under the Credit Agreement (as hereinafter defined) for the benefit of
the Secured Parties (as hereinafter defined). 

RECITALS 

                 A.
Reference is made to the following documents related to extension of credit to
the Borrower: 

                 (i)
that certain Credit Agreement dated as of October 30, 2008 (as it may be amended,
restated or otherwise modified from time to time, the "Credit Agreement") by and
among the Borrower, the lenders party thereto from time to time (the "Lenders"),
and Union Bank of California, N.A., as Administrative Agent for such Lenders;
and 

                 (ii)
those Hedge Contracts (as defined in the Credit Agreement) that the Borrower or
any of its Subsidiaries may from time to time enter into Swap Counterparties (as
defined in the Credit Agreement, and such Swap Counterparties, the Administrative
Agent, the Issuing Lender and the Lenders, being collectively referred to herein
as the "Secured Parties"). 

                 B.
The Pledgors entered into the Pledge Agreement in order to induce the Lenders
to make Advances and the Issuing Lender to issue, extend and renew Letters of
Credit under the Credit Agreement. Pursuant to Section 6.16 of the Credit Agreement,
each holder of an Equity Interest in a Subsidiary of the Borrower that was not
in existence on the date of the Credit Agreement is required to enter into the
Pledge Agreement as a Pledgor upon such Subsidiary becoming a Subsidiary of a
Borrower. Section 7.12 of the Pledge Agreement provides that such equity holders
may become Pledgors under the Pledge Agreement by execution and delivery of an
instrument in the form of this Supplement. The undersigned equity holder (the
"New Pledgor") is executing this Supplement in accordance with the requirements
of the Credit Agreement to become a Pledgor under the Pledge Agreement in order
to induce the Administrative Agent, the Issuing Lender, or any of the Lenders
to make additional Advances and for the Issuing Lender to make, extend, and renew
Letters of Credit under the Credit Agreement. 

                 C.
Each New Pledgor is an affiliate of the Borrower and will derive substantial direct
and indirect benefit from (i) the transactions contemplated by the Credit Agreement
and the other Loan Documents (as defined in the Credit Agreement) and (ii) the
Hedge Contracts (as defined in the Credit Agreement) entered into by the Borrower
or any of its other Subsidiaries with a Swap Counterparty (as defined in the Credit
Agreement). 

Annex 1 to Pledge Agreement

                 D.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Pledge Agreement and the Credit Agreement.

                 Accordingly,
the Administrative Agent and the New Pledgor agree as follows: 

                 SECTION
1. In accordance with Section 7.12 of the Pledge Agreement, the New Pledgor by
its signature below becomes a Pledgor under the Pledge Agreement with the same
force and effect as if originally named therein as a Pledgor and the New Pledgor
hereby agrees (a) to all the terms and provisions of the Pledge Agreement applicable
to it as a Pledgor thereunder and (b) represents and warrants that the representations
and warranties made by it as a Pledgor thereunder are true and correct on and
as of the date hereof in all material respects. In furtherance of the foregoing,
the New Pledgor, as security for the payment and performance in full of the Secured
Obligations, does hereby create and grant to the Administrative Agent, its successors
and assigns, for the benefit of the Secured Parties, their successors and assigns,
a continuing security interest in and lien on all of the New Pledgor's right,
title and interest in and to the Pledged Collateral of the New Pledgor. Each reference
to a "Pledgor" in the Pledge Agreement shall be deemed to include the New Pledgor.
The Pledge Agreement is hereby incorporated herein by reference. 

                 SECTION
2. The New Pledgor represents and warrants to the Administrative Agent and the
other Secured Parties that this Supplement has been duly authorized, executed
and delivered by it and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in equity or at law)).

                 SECTION
3. This Supplement may be executed in counterparts, each of which shall constitute
an original, but all of which when taken together shall constitute a single contract.
This Supplement shall become effective when the Administrative Agent shall have
received counterparts of this Supplement that, when taken together, bear the signatures
of the New Pledgor and the Administrative Agent. Delivery of an executed signature
page to this Supplement by facsimile transmission shall be as effective as delivery
of a manually signed counterpart of this Supplement. 

                 SECTION
4. The New Pledgor hereby represents and warrants that (a) set forth on Schedules
2.02(a), 2.02(b), and 2.02(c) attached hereto are true and correct schedules of
all its Membership Interests, Partnership Interests and Pledged Shares, as each
term is defined in the Pledge Agreement, and (b) set forth on Schedule 3 attached
hereto are its sole jurisdiction of formation, type of organization, its federal
tax identification number and the organizational number, and all names used by
it during the last five years prior to the date of this Supplement. 

                 SECTION
5. Except as expressly supplemented hereby, the Pledge Agreement shall remain
in full force and effect. 

                 SECTION
6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, 

Annex 1 to Pledge Agreement

EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTERESTS HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
TEXAS. 

                 SECTION
7. In case any one or more of the provisions contained in this Supplement should
be held invalid, illegal or unenforceable in any respect, neither party hereto
shall be required to comply with such provision for so long as such provision
is held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein and in the Pledge
Agreement shall not in any way be affected or impaired. The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions. 

                 SECTION
8. All communications and notices hereunder shall be in writing and given as provided
in the Pledge Agreement. All communications and notices hereunder to the New Pledgor
shall be given to it at the address set forth under its signature hereto. 

                 SECTION
9. The New Pledgor agrees to reimburse the Administrative Agent for its reasonable
out-of-pocket expenses in connection with this Supplement, including the reasonable
fees, other charges and disbursements of counsel for the Administrative Agent.

                 THIS
SUPPLEMENT, THE PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. 

                 THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. 

[SIGNATURES PAGES FOLLOW]

Annex 1 to Pledge Agreement

                 IN
WITNESS WHEREOF, the New Pledgor and the Administrative Agent have duly executed
this Supplement to the Pledge Agreement as of the day and year first above written.

	 	 NEW PLEDGOR:

      [_____________________________________] 

      

      

      By:                                                                                  

      Name:                                                                             

      Title:                                                                               

      

      

      

      ADMINISTRATIVE AGENT: 

      

      UNION BANK OF CALIFORNIA, N.A. 

      

      

      By:                                                                                  

      Name:                                                                             

      Title:                                                                               

      

      
	 	 
	 	 

 

Annex 1 to Pledge Agreement

Schedules 

Supplement No. ____ 

to the Pledge Agreement 

SCHEDULE 2.02(a) 

  Membership Interests

 

	
       Pledgor

    	
       Issuer 

    	
      Type of Membership Interest 

    	
      % of Membership Interest Owned
        

    
	
      

    	
      

    	
      

    	
      

    

SCHEDULE 2.02(b) 

Partnership Interests 

	
      Pledgor 

    	
      Issuer 

    	
      Type of Partnership Interest
        

    	
       % of Partnership Interest Owned
        

    
		 	 	 

SCHEDULE 2.02(c) 

  Pledged Shares 

  

	
      Pledgor 

    	
      Issuer 

    	
      Type of Shares

    	
       Number of Shares 

    	
      % of Shares Owned 

    	
      Certificate No. 

    
	 	 	 	 	 	
      

    

SCHEDULE 3 

	New Pledgor: 	                                                                              
	 	 
	Sole Jurisdiction of Formation / Filing: 	                                                                              
	 	 
	Type of Organization: 	                                                                              
	 	 
	Organizational Number: 	                                                                              
	 	 
	Federal Tax Identification Number: 	                                                                              
	 	 
	 Prior Names: 	                                                                                 
    

Annex 1 to Pledge Agreementexhibit10_3.htm

    Exhibit 10.3

      

      STOCK
PURCHASE INSTRUCTION

      
 

      THIS STOCK PURCHASE INSTRUCTION dated
September 12,
2008 (this “Instruction”) is between Physicians Formula Holdings,
Inc. (the “Purchaser”), and DEUTSCHE BANK SECURITIES INC.
(“Broker”).

      

      WITNESSETH:

      

      WHEREAS, the Purchaser has authorized
the repurchase of up to 1,500,000 shares of
common stock, par value $.01 per share (the “Stock”) with a maximum aggregate
purchase value of $9,750,000;
and

      

      WHEREAS, the Purchaser desires to
purchase shares of Stock in accordance with a written instruction to Broker that
complies with the requirements of Rule 10b5-1(c)(1) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”); and

      

      WHEREAS, Broker is willing to purchase
Stock for the Purchaser in accordance with this Instruction;

      

      NOW, THEREFORE, the Purchaser and
Broker hereby agree as follows:

      

      Section 1.  Appointment.  The
Purchaser hereby appoints Broker to purchase shares of Stock on the terms and
conditions set forth in this Instruction.  Subject to such terms and
conditions, Broker hereby accepts such appointment.

      

      Section 2.  Stock
Purchases.  Beginning on the Commencement Date (as defined in
Section 3 below), Broker shall purchase shares of Stock for the Purchaser’s
account in accordance with this Instruction on each day on which the Nasdaq
Stock Market (the “Exchange”) is open for trading and the Stock trades regular
way on the Exchange, at the then prevailing market prices; provided, however,
that:

      

      
        	
                (a)  

              	
                the
      total number of shares of Stock to be purchased on any day shall not
      exceed the then applicable volume limitation of Rule 10b-18 under the
      Exchange Act;

              

      

      

      
        	
                (b)  

              	
                the
      parameters and the price at which shares of Stock are to be purchased
      shall be as set forth on Schedule
A;

              

      

      

      
        	
                (c)  

              	
                the
      total number of shares of Stock to be purchased during the term of this
      Instruction shall not exceed the lesser of (i) 1,500,000 or
      (ii) the greatest number of shares, the aggregate purchase price for which
      does not exceed $9,750,000;
      and

              

      

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

      

      The
number of shares referred to in clauses (b) and (c) above shall be adjusted
automatically on a proportionate basis to take into account any stock split,
reverse stock split or stock dividend with respect to the Stock or any change in
capitalization with respect to the Purchaser that occurs during the term of this
Instruction.  Broker agrees to provide the Purchaser with notice of
each purchase made hereunder within one business day thereafter and at such
other times as the Purchaser may reasonably request and such other information
which the Purchaser reasonably requests in order to comply with its disclosure
obligations under Item 703 of Regulation S-K.

      

      Section 3.  Term of
Instruction.  Broker is authorized to begin purchasing Stock in
accordance with this Instruction on September 12, 2008
(the “Commencement Date”). Broker shall cease purchasing Stock and this
Instruction shall terminate on the earliest to occur of:  (a) the
close of trading on November 6, 2008; (b)
the date that the aggregate number of shares of Stock purchased by Broker under
this Instruction reaches 1,500,000 shares; (c)
the date that the aggregate purchase price of all purchases of Stock by Broker
under this Instruction reaches $9,750,000; (d) the
date the Purchaser gives notice of termination of this Instruction to Broker in
accordance with Section 4; or (e) the public announcement of a tender or
exchange offer for the Stock or of a merger, acquisition, recapitalization or
other similar business combination or transaction as a result of which the Stock
would be exchanged for or converted into cash, securities, or other
property.

      

      Section
4.   Termination by the
Purchaser. The Purchaser may, by notice to Broker on any day on which the
Exchange is open for trading, terminate this Instruction; provided that any
such termination shall be in good faith and shall not affect any pre-termination
purchases of Stock by Broker hereunder.

      

      Section 5.  Compliance with Rule 10b-18,
etc.  It is the intent of the parties that this Instruction
comply with the requirements of Rule 10b-18 under the Exchange Act. Broker
agrees to effect all purchases hereunder in compliance with Rule 10b-18 under
the Exchange Act, including without limitation the timing, price and volume
restrictions thereof, and to comply with all other applicable laws, rules and
regulations in effecting any purchase of Stock under this Instruction and
performing its obligations hereunder.  The Purchaser agrees not to
take any action which would cause any such purchase by Broker not to comply with
Rule 10b-18 under the Exchange Act.

      

      Section 6.  Compliance with Rule
10b5-1(c).  It is the intent of the parties that this
Instruction comply with the requirements of Rule 10b5-1(c)(1)(i)(B) under the
Exchange Act, and this Instruction shall be interpreted to comply with the
requirements of Rule 10b5-1(c) under the Exchange Act.  Without
limiting the foregoing, (a) the Purchaser acknowledges and agrees that it may
not attempt to exercise any subsequent influence over how, when or whether to
effect purchases of Stock pursuant to the terms of this Instruction nor may it
enter into or alter any corresponding or hedging transaction or position with
respect to the Stock covered by this Instruction; and (b) Broker agrees that no
person who exercises influence, directly or indirectly, on its behalf in
effecting purchases of Stock pursuant to the terms of this Instruction may do so
while aware of any material non-public information relating to the Stock or the
Purchaser.

      

      
        
          
             

          

          
            -2-

            
              

            

          

          
             

          

        

      

      

      Section 7.  Representations and
Warranties.  The Purchaser represents and warrants
that:

      

      (a) it is not
aware of material, non-public information about the Stock or the Purchaser on
the date hereof;

      

      (b) it is
entering into this Instruction in good faith and not as part of a plan or scheme
to evade the prohibitions of Rule 10b5-1 under the Exchange Act;
and

      

      (c) the
purchase, subject to compliance by Broker with its obligations hereunder, will
not contravene any provision of applicable law or any agreement or other
instrument binding on the Purchaser or any judgment, order or decree of any
governmental authority having jurisdiction over the Purchaser.

      

      Section 8.  Indemnification and
Limitation on Liability.

      

      (a)           The
Purchaser agrees to indemnify and hold harmless Broker (and its directors,
officers, employees and affiliates) from and against all claims, liabilities,
losses, damages and expenses (including reasonable attorneys’ fees and costs)
arising out of or attributable to:  (i) any material breach by the
Purchaser of this Instruction (including the Purchaser representations and
warranties), and (ii) any violation by the Purchaser of applicable laws or
regulations; provided, however, that the Purchaser shall have no indemnification
obligations in the case of bad faith, gross negligence or willful misconduct of
the Broker or any other indemnified person.  This indemnification
shall survive the termination of this Instruction.

      

      (b)           Notwithstanding
any other provision herein, neither party shall be liable to the other
for:  (i) special, indirect, punitive, exemplary, or consequential
damages, or incidental losses or damages or any kind, including but not limited
to lost profits, lost savings, or loss of use of facility or equipment,
regardless of whether arising from breach of contract, warranty, tort, strict
liability or otherwise, and even if advised of the possibility of such losses or
damages or if such losses or damages could have been reasonably foreseen, or
(ii) any failure to perform or for any delay in performance that results from a
cause or circumstance that is beyond its reasonable control, including but not
limited to failure of electronic or mechanical equipment, strikes, failure of
common carrier or utility systems, severe weather, market disruptions or other
causes commonly known as “acts of God”.

      

      (c)           The
Purchaser acknowledges and agrees that Broker has not provided the Purchaser
with any tax, accounting or legal advice with respect to this Instruction,
including whether the Purchaser would be entitled to any of the affirmative
defenses under Rule 10b5-1.

      

      Section 9.  Market Disruptions,
Restrictions, etc.

      

      (a)           The
Purchaser shall notify Broker as soon as reasonably practicable if it becomes
subject to any legal, regulatory or contractual restriction that would prohibit
Broker from making purchases under this Instruction (it being understood the
Purchaser becoming aware of material, non-public information shall not
constitute such a restriction), and, in such a case,

      

      
        
          
             

          

          
            -3-

            
              

            

          

          
             

          

        

      

      

      the
Purchaser and Broker shall cooperate to amend or otherwise revise this
Instruction to take account of such legal, regulatory or contractual restriction
(provided that
neither party shall be required to take any action that would be inconsistent
with the requirements of Rule 10b-5 or Rule 10b5-1(c) under the Exchange
Act).

      

      (b)           The
Purchaser understands that Broker may not be able to effect a purchase due to a
market disruption or a legal, regulatory or contractual restriction applicable
to Broker.  If any purchase cannot be executed as required by Section
2 due to a market disruption or legal, regulatory or contractual restriction
applicable to Broker, Broker agrees, subject to Section 3, to refrain from
making such purchase at such time and to effect such purchase as promptly as
practical after the cessation or termination of such market disruption or
applicable restriction.

      

      (c)           Broker
agrees not to purchase Stock under this Instruction after it has received notice
from the Purchaser to terminate this Instruction under Section 4.

      

      Section 10.  Fees.  The
Purchaser shall pay Broker $0.03 per share of
Stock purchased under this Instruction.

      

      Section 11.  Entire Agreement;
Amendments; Assignment.  This Instruction constitutes the
entire agreement of the parties with respect to the subject matter hereof and
shall not be modified or amended except by a writing signed by each of the
parties (provided that any
such modification or amendment shall not be inconsistent with the requirements
of Rule 10b5-1(c) under the Exchange Act).  In the event of any
inconsistency between this Instruction and the account agreement between the
parties, this Instruction shall govern.  Neither party may assign its
rights or obligations under this Instruction without the prior written consent
of the other party and any such assignment without such consent shall be
void.

      

      Section 12.  Notices.  All
notices hereunder must be in writing and shall be deemed to have been duly given
only if delivered personally or by facsimile transmission or mailed (first class
postage prepaid) to the parties at the following addresses or facsimile
numbers:

      

      If to the
Purchaser, to:

      

      Physicians Formula Holdings,
Inc.

      1055 West 8th
Street

      Azusa, CA 91702

      Attn: Joseph J. Jaeger

       

      
        
          
             

          

          
            -4-

            
              

            

          

          
             

          

        

      

      

      If to
Broker, to:

      

      Deutsche Bank Securities
Inc.

      60 Wall Street, NYC60-0425

      New York,
NY  10005-2858

      

      All such
notices shall (a) if delivered personally to the address as provided in this
Section, be deemed given upon delivery, (b) if delivered by facsimile
transmission to the facsimile number as provided in this Section, be deemed
given upon receipt, and (c) if delivered by mail in the manner described above
to the address as provided in this Section, be deemed given upon
receipt.  Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other party hereto.

      

      Section 13.  Governing
Law.  This Instruction shall be governed by and construed in
accordance with the laws of the State of New York without regard to any
conflicts of laws principles thereof.

      

      Section 14.  Counterparts.  This
Instruction may be executed in several counterparts, each of which shall be
regarded as an original and all of which shall constitute one and the same
document.

      

      IN WITNESS WHEREOF, the parties have
caused this Instruction to be signed by their duly authorized representatives as
of the date first above written.

       

    

    
      
        	 	 	 	 DEUTSCHE
      BANK SECURITIES INC.	 
	 	 	 	 	 	 
	By: 	
                /s/
      Joseph J. Jaeger

              	 	 	By:	
                /s/
      Peter Cahill

              	 
	Name: 	
                Joseph
      J. Jaeger

              	 	 	Name:	
                Peter
      Cahill

              	 
	Title: 	
                Chief
      Financial Officer

              	 	 	Title:	
                Director

              	 
	 	 	 	 	 	 	 
	 	 	 	 	By:	/s/
      John Sullivan	 
	 	 	 	 	Name:	John
      Sullivan	 
	 	 	 	 	Title:	Vice
      President	 

      

    

    
      

      
        
          
             

          

          
            -5-

            
              

            

          

          
             

          

        

      

      

      Schedule
A

       

      
        
          	
                  Share
      Price

                	
                  Repurchase
      shares/day

                
	 
      	 
      
	
                  $6.26
      to $6.50

                	
                  15,000

                
	
                  $6.01
      to $6.25

                	
                  20,000

                
	
                  $5.76
      to $6.00

                	
                  25,000

                
	
                  $5.51
      to $5.75

                	
                  30,000

                
	
                  $5.50
      and below

                	
                  10b-18
      maximum

                

        

      

       

       

      
        	
                n  

              	
                Broker
      may buy higher amount when stock drops into lower price band
      intraday

              

      

       

      
        	
                n  

              	
                Broker
      has discretion to  buy +/- 20% of
  order

              

      

       

      
        	
                n  

              	
                All
      purchases will be made under 10b-18

              

      

       

      
 

       -6-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}]]