Document:

Exhibit 10.16

 

AMENDMENT
NO. 1 TO THE

HF
FINANCIAL CORP.

2002
STOCK OPTION AND INCENTIVE PLAN

 

Effective July 11, 2006

 

Pursuant
to Section 19 of the HF Financial Corp. 2002 Stock Option and Incentive
Plan (the “Plan”), this Amendment No. 1 (this “Amendment”)
amends the Plan as indicated herein. 
Capitalized terms used but not defined herein shall have the meanings
set forth in the Plan.

 

1.            Section 6 of the Plan is hereby amended by deleting such Section 6
in its entirety and replacing
it with the following:

 

6.             General Terms and
Conditions of Options and Rights. 
The Committee shall have full and complete authority and discretion,
except as expressly limited by the Plan, to grant Options and/or Rights and to
provide the terms and conditions (which need not be identical among
Participants) thereof.  In particular,
the Committee shall prescribe the following terms and conditions: (i) the
Exercise Price of any Option or Right, which shall not be less than the Market
Value per Share at the date of grant of such Option or Right, (ii) the
number of Shares subject to, and the expiration date of, any Option or Right,
which expiration date shall not exceed ten years from the date of grant, (iii) the
manner, time and rate (cumulative or otherwise and including acceleration upon
certain events specified by the Committee) of exercise of such Option or Right,
and (iv) the restrictions, if any, to be placed upon such Option or Right
or upon Shares which may be issued upon exercise of such Option or Right.  The Committee may, as a condition of granting
any Option or Right, require that a Participant agree not to thereafter
exercise one or more Options or Rights previously granted to such
Participant.  No person will be eligible
to receive grants of Options or Rights covering more than Fifty Thousand
(50,000) Shares in any calendar year under this Plan pursuant to the grant of
Options or Rights hereunder.

 

2.            Section 7(d) of the Plan is hereby amended by deleting such Section 7(d) in
its entirety and replacing
it with the following:

 

(d)           In the event of the death of a
Participant while in the Continuous Service of the Corporation or an Affiliate
or within the three month period referred to in paragraph (c) of this Section 7,
the person to whom any Option or Right held by the Participant at the time of
his death is transferred by will or the laws of descent and distribution may,
but only to the extent such Participant was entitled to exercise such Option or
Right immediately prior to his death (unless the Committee otherwise determines
that such Option or Right shall become exercisable in full or in part (as
related to any Option or Right not then otherwise exercisable) at the time of
his death and so provides in the applicable instrument or instruments
evidencing the grant of such Option or Right), exercise such Option or Right at
any time within a period of one year succeeding the date of death of such
Participant, but in no event later than ten years from

 

 

the date of grant of such
Option or Right.  Following the death of
any Participant to whom an Option was granted under the Plan, irrespective of
whether any Related Right shall have theretofore been granted to the
Participant or whether the person entitled to exercise such Related Right
desires to do so, the Committee may, as an alternative means of settlement of
such Option, elect to pay to the person to whom such Option is transferred by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code or Title I of the ERISA or the rules thereunder,
the amount by which the Market Value per Share on the date of exercise of such
Option shall exceed the Exercise Price of such Option, multiplied by the number
of Shares with respect to which such Option is properly exercised.  Any such settlement of an Option shall be
considered an exercise of such Option for all purposes or the Plan.

 

3.            Section 11(b) of the Plan is hereby amended by deleting such Section 11(b) in
its entirety and replacing
it with the following:

 

(b)           Except as provided in Section 14
hereof, if a Participant ceases to maintain Continuous Service for any reason
(other than death, total or partial disability or normal or early retirement)
unless the Committee shall otherwise determine and provide in the agreement
referred to in paragraph (d) of this Section 11, all shares of
Restricted Stock theretofore awarded to such Participant and which at the time
of such termination of Continuous Service are subject to the restrictions
imposed by paragraph (a) of this Section 11 shall upon such
termination of Continuous Service be forfeited and returned to the
Corporation.  Unless the Committee shall have provided in the
agreement referred to in paragraph (d) of this Section 11 for a full
or ratable lapse of restrictions with respect to an award of shares of
Restricted Stock during the Restricted Period, if a Participant ceases to
maintain Continuous Service by reason of death, total or partial disability or
normal or early retirement, such portion of such shares of Restricted Stock
awarded to such Participant which at the time of such termination of Continuous
Service are subject to the restrictions imposed by paragraph (a) of this Section 11,
as shall be equal to the portion of the Restricted Period with respect to such
shares which shall have elapsed at the time of such termination of Continuous
Service shall be free of restrictions and shall not be forfeited.

 

4.            Except as expressly modified hereby, the terms and
conditions set forth in the Plan remain in full force and effect.Exhibit 10.10

                                 LOAN AGREEMENT
                                 --------------

     This Loan Agreement (the "Agreement") is entered into as of September 14,
2009, by and between HAPPY STATE BANK, a state banking association ("Bank"), the
Borrower and Guarantors described below.

     In consideration of the Loan described below and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, Bank,
Borrower and Guarantor agree as follows:

1.   DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined
     herein, the following terms shall have the meaning set forth with respect
     thereto:

     A.   Borrower: EXTERRA ENERGY, INC., a Nevada corporation

     B.   Borrower's Address: 701 S. Taylor, Suite 440, Amarillo, Texas 79101

     C.   Guarantors: TODD ROYAL and ROBERT ROYAL, TRUSTEE OF THE ROYAL TRUST

     D.   Guarantors' Addresses: 701 S. Taylor, Suite 440
                                 Amarillo, Texas 79101

     E.   Hazardous Materials. Hazardous Materials include all materials defined
          as hazardous materials or substances under any local, state or federal
          environmental laws, rules or regulations, and petroleum products, oil
          and asbestos.

     F.   Loan. Any loan described in Section 2 hereof and any subsequent loan
          which states that it is subject to this Loan Agreement.

     G.   Property. The oil and gas properties and lands (and all improvements
          situated thereon) more fully described in the Loan Documents and on
          Exhibit "A" attached hereto and made a part hereof for all purposes.

     H.   Loan Documents. Loan Documents means this Loan Agreement and any and
          all promissory notes executed by Borrower in favor of Bank and all
          other documents, instruments, guarantees, certificates and agreements
          executed and/or delivered by Borrower, any guarantor or third party in
          connection with any Loan, including but not limited to (i) the Note
          (as hereinafter defined), (ii) Commercial Guaranty Agreements of even
          date herewith from Guarantors to Bank and (iii) Deed of Trust,
          Security Agreement, Assignment of Production and Financing Statement
          (the "Deed of Trust") of even date herewith from Borrower to Gary
          Wells, Trustee for the benefit of Bank, securing the Note and covering
          the Property.

     I.   Accounting Terms. All accounting terms not specifically defined or
          specified herein shall have the meanings generally attributed to such
          terms under generally accepted accounting principles ("GAAP"), as in
          effect from time to time, consistently applied, with respect to the
          financial statements referenced in Section 3.H. hereof.

                                  Page 1 of 15
<PAGE>

2.   LOAN.

     A.   Loan. Bank hereby agrees to make (or has made) the following loan to
          Borrower:

          Reducing Revolving Line of Credit Promissory Note dated September 14,
          2009, in the original principal amount of up to $10,000,000.00,
          executed by Borrower, payable to the order of Bank, and having the
          maturity date, repayment terms and interest rate as set forth therein,
          and being secured by the Deed of Trust. This Reducing Revolving Line
          of Credit Promissory Note, together with any and all renewals,
          extensions, rearrangements or other modifications thereof, is
          hereinafter referred to as the "Note."

     B.   Use of Loan Proceeds. Borrower agrees that monies extended or advanced
          under the Loan will be used solely by the Borrower for oil and gas
          investments, development of oil and gas properties and working capital
          associated with operating oil and gas properties.

     C.   Prepayments. Borrower may prepay the Note in any amount at any time
          prior to maturity without premium or penalty. Any payments made on the
          Note while accrued interest is not yet due and payable shall be
          applied first to outstanding principal and then to accrued interest.
          Any payments made on the Note while accrued interest is due and
          payable shall be applied first to accrued interest and then to
          outstanding principal. The records of Bank shall be prima facie
          evidence of all amounts owing on the Note.

     D.   Conditions Precedent to the Loan. The obligation of Bank to make the
          Loan to Borrower is subject to the condition precedent that Bank shall
          have received on or before the date of the Loan, each of the
          following, in form and substance satisfactory to Bank and its counsel:

          i.   The Note duly executed by Borrower;

          ii.  The Deed of Trust, duly executed by Borrower, together with
               copies of financing statements duly filed under the Uniform
               Commercial Code of all jurisdictions necessary, or in the opinion
               of Bank, desirable to perfect the security interests created by
               the Deed of Trust;

          iii. Copies of the Borrower's most recent balance sheet and profit and
               loss statement, all in reasonable detail and certified by each
               entity as correct. Copies of the Guarantors' most recent
               financial statements, all in reasonable detail and certified by
               Guarantor as correct;

          iv.  A Guaranty duly executed by each of the Guarantors;

          v.   Payment to Bank of a loan origination fee equal to $14,750; and

          vi.  Any other documents, instruments and certificates as Bank may
               reasonably require.

                                  Page 2 of 15
<PAGE>

3.   REPRESENTATIONS AND WARRANTIES. Borrower and Guarantors hereby represent
     and warrant to Bank as follows:

     A.   Good Standing. Borrower is a corporation, duly organized, validly
          existing and in good standing under the laws of the State of Nevada
          and has the power and authority to own its property and to carry on
          its business in each jurisdiction in which it does business.

     B.   Authority and Compliance. Borrower has the full power and authority to
          execute and deliver the Loan Documents and to incur and perform the
          obligations provided for therein, all of which have been duly
          authorized by all proper and necessary action of the appropriate
          governing body of Borrower. No consent or approval of any public
          authority or other third party is required as a condition to the
          validity of any Loan Document, and Borrower and Guarantors are in
          compliance with all laws and regulatory requirements to which they are
          subject.

     C.   Binding Agreement. This Agreement and the other Loan Documents
          executed by Borrower and Guarantors constitute valid and legally
          binding obligations of Borrower and Guarantors, enforceable in
          accordance with their terms.

     D.   Litigation. There is no proceeding involving Borrower or Guarantors
          pending or, to the knowledge of Borrower or Guarantors, threatened
          before any court or governmental authority, agency or arbitration
          authority, except as disclosed to Bank in writing and acknowledged by
          Bank prior to the date of this Agreement.

     E.   No Conflicting Agreements. There is no charter, bylaw, stock
          provision, partnership agreement or other document pertaining to the
          organization, power or authority of Borrower or Guarantors and no
          provision of any existing agreement, mortgage, indenture or contract
          binding on Borrower or Guarantors or affecting their property, which
          would conflict with or in any way prevent the execution, delivery or
          carrying out of the terms of this Agreement and the other Loan
          Documents.

     F.   Ownership of Assets. Borrower has good title to the Property and all
          assets owned or used in connection therewith, and the Property and
          such assets are free and clear of liens, except those granted to Bank
          and as disclosed to Bank in writing prior to the date of this
          Agreement.

     G.   Taxes. All taxes and assessments due and payable by Borrower and
          Guarantors have been paid or are being contested in good faith by
          appropriate proceedings and the Borrower and Guarantors have filed all
          tax returns which they are required to file.

     H.   Financial Statements. The financial statements of Borrower and
          Guarantors heretofore delivered to Bank have been prepared in
          accordance with GAAP applied on a consistent basis throughout the
          period involved and fairly present Borrower's and Guarantors'
          financial condition as of the date or dates thereof, and there has
          been no material adverse change in Borrower's or Guarantors' financial
          condition or operations since the date or dates thereof. All factual
          information furnished by Borrower and Guarantors to Bank in connection
          with this Agreement and the other Loan Documents is and will be
          accurate and complete on the date as of which such information is
          delivered to Bank and is not and will not be incomplete by the
          omissions of any material fact necessary to make such information not
          misleading.

                                  Page 3 of 15
<PAGE>

     I.   Place of Business. Borrower's principal office is located at 701 S.
          Taylor, Suite 440, Amarillo, Texas 79101.

     J.   Environmental. The conduct of Borrower's and Guarantors' business
          operations and the condition of Borrower's and Guarantors' property
          does not and will not violate any federal laws, rules or ordinances
          for environmental protection, regulations of the Environmental
          Protection Agency, any applicable local or state law, rule, regulation
          or rule of common law or any judicial interpretation thereof relating
          primarily to the environment or Hazardous Materials.

     K.   Permits and Consents. Each permit, consent, approval, or authorization
          of, or filing, registration, or qualification with, any governmental
          authority required to be obtained or effected by Borrower or any
          Guarantor in connection with the operation of Borrower's business or
          the execution and delivery of this Agreement and the Loan Documents,
          or the undertaking or performance of any obligation hereunder or
          thereunder has been duly obtained or effected.

     L.   Continuation of Representations and Warranties. All representations
          and warranties made under this Agreement shall be deemed to be made at
          and as of the date hereof and at and as of the date of any advance
          under the Loan.

4.   CONDITIONS PRECEDENT TO ADVANCES. The Bank's obligation to make advances to
     Borrower under the Note is expressly conditioned upon and subject to the
     following requirements and limits:

     A.   Borrowing Base Limitation on Advances. This Loan is subject to a
          Borrowing Base limitation equal to the amount of the loan value Bank
          assigns to the collateral pledged by Borrower to Bank under the Deed
          of Trust. The amount of the initial Borrowing Base is $1,475,000.00,
          but the Borrowing Base shall automatically be reduced monthly be a
          principal amount equal to one-thirtieth (1/30) of the then-outstanding
          Borrowing Base beginning April 1, 2010, and continuing on the 1st day
          of each month thereafter until and including August 1, 2012 and shall
          be reduced by the face amount of any letters of credit, if any, issued
          by Lender. The Borrowing Base shall be redetermined by Bank on or
          before March 1, 2010, and semi-annually thereafter on the 1st day of
          March and September of each succeeding year of the loan term and any
          renewals and extensions thereof. Between the dates of the scheduled
          Borrowing Base redeterminations, Bank shall always have the right to
          redetermine the Borrowing Base in the event that it appears to Bank,
          in its sole discretion, that there has been a material change in the
          value of the collateral securing the Loan. In the event that the
          unpaid principal balance of the Note shall, at any time, be in excess
          of the Borrowing Base, Borrower shall in the Bank's sole discretion,
          either (a) within thirty (30) days thereafter, by instruments
          satisfactory in form and substance to Bank, provide Bank with
          additional collateral with value in amounts satisfactory to Bank in
          order to increase the Borrowing Base by an amount at least equal to
          such excess, or (b) within thirty (30) days thereafter, prepay the
          principal of the Note in an amount at last equal to such excess, or
          (c) prepay the Note (together with accrued interest on the principal
          amount so prepaid) in six (6) equal monthly installments (beginning on
          the first business day of the month following Bank's notification to
          Borrower of the redetermined Borrowing Base and continuing on the
          first business day of each month thereafter) in such amounts such that

                                  Page 4 of 15

<PAGE>

          the outstanding principal balance of the Note and the face amount of
          letters of credit do not exceed the Borrowing Base at the end of such
          six (6) month period (which prepayments shall be in addition to the
          scheduled principal and interest payments on the Note). All Borrowing
          Base redeterminations shall be made by Bank in the exercise of its
          sole discretion in accordance with its customary practices and
          standards for loans in similar amounts to borrowers similarly situated
          at the time and under the circumstances then prevailing. If, at any
          time, the Borrowing Base is increased, then Borrower shall pay to Bank
          a "Borrowing Base Increase Fee" in an amount equal to one-quarter
          percent (0.25%) of the amount by which the Borrowing Base is
          increased.

     B.   Loan Document Requirements. Borrower must satisfy all requirements
          pertaining to advances as set forth in this Agreement and the other
          Loan Documents.

     C.   No Defaults. No default under this Agreement or the other Loan
          Documents by Borrower or either Guarantor shall have occurred and be
          continuing.

5.   AFFIRMATIVE COVENANTS. Until full payment and performance of all
     obligations of Borrower and Guarantors under the Loan Documents, Borrower
     and Guarantors will, unless Bank consents otherwise in writing (and without
     limiting any requirement of any other Loan Document):

     A.   Financial Condition. Maintain Borrower's financial condition as
          follows, determined in accordance with GAAP applied on a consistent
          basis throughout the period involved except to the extent modified by
          the following definitions, if any:

          i.   Borrower will maintain a debt service coverage ratio of 1.1 to
               1.0 or better. The debt service coverage ratio shall be
               calculated by dividing (i) the sum of Borrower's net income,
               depreciation and amortization expense, interest expense and
               income taxes, by (ii) Borrower's total debt service for the
               preceding calendar quarter. Within twenty (20) days after each
               calendar quarter during the term of the Note, Borrower shall
               provide to Bank a certificate, certified by the President of
               Borrower in writing, to evidence Borrower's compliance with the
               financial covenants for the preceding calendar quarter.

          ii.  Borrower will maintain a minimum current ratio (current assets
               divided by current liabilities) of 1.1 to 1.0 or better, which
               will be tested quarterly.

     B.   Financial Statements and Other Information. Maintain a system of
          accounting satisfactory to Bank and in accordance with GAAP applied on
          a consistent basis throughout the period involved, permit Bank's
          officers or authorized representatives to visit and inspect Borrower's
          and Guarantors' books of account and other records at such reasonable
          times and as often as Bank may desire, and pay the reasonable fees and
          disbursements of any accountants or other agents of Bank selected by
          Bank for the foregoing purposes. Unless written notice of another
          location is given to Bank, Borrower's and Guarantors' books and
          records will be located at Borrower's and Guarantors' chief executive
          offices set forth above. All financial statements called for below
          shall be prepared in form and content acceptable to Bank.

          In addition, Borrower and Guarantors shall cause to be furnished to
          Bank:

                                  Page 5 of 15
<PAGE>

          i.   Within ninety (90) days following the end of Borrower's fiscal
               year, a copy of all the statements resulting from the closing of
               Borrower's books as of the end of such fiscal year. Such annual
               statements shall be prepared, audited, and certified by a
               certified public accountant and shall include a balance sheet as
               of the last day of the fiscal year, statements of income, and a
               statement of changes in financial position. Such annual
               statements must be in reasonable detail and be prepared in
               accordance with GAAP. In addition, within thirty (30) days after
               the filing of the Borrower's tax return each year, the Borrower
               shall furnish a copy of its tax return to Bank; and

          ii.  Within thirty (30) days following the end of each quarter,
               financial statements of the Borrower. Such quarterly statements
               shall include a balance sheet as of the last day of the preceding
               quarter and statements of income reflecting the most recent
               operating period and year-to-date period for the Borrower. Such
               quarterly statements must be in reasonable detail and be prepared
               in accordance with GAAP; and

          iii. Current financial statements on each Guarantor within ninety (90)
               days following December 31 of each year or at other times
               requested by Bank. In addition, within thirty (30) days after the
               filing of each Guarantor's tax return each year, Borrower shall
               cause to be furnished a copy of each Guarantor's tax return to
               Bank; and

          iv.  Such additional information, reports and statements respecting
               the business operations and financial condition of Borrower and
               Guarantors, respectively, from time to time, as Bank may
               reasonably request.

     C.   Insurance. Borrower shall maintain insurance covering the Property
          with financially sound and reputable insurance companies or
          associations in such amounts and covering the full replacement value
          thereof (as applicable) and such risks as are usually carried by
          companies engaged in the same or similar business and similarly
          situated, including, without limitation, fire and extended coverage
          insurance covering the Property, workers compensation insurance and
          liability insurance. Policies evidencing such insurance (i) shall
          contain a standard mortgagees endorsement; (ii) shall provide for
          payment of any loss to Bank (except for losses that are unrelated to
          the Property); (iii) shall provide that there shall be no recourse
          against Bank for payment of premiums or other amounts with respect
          thereto; and (iv) shall provide for a minimum of ten (10) days prior
          written notice to Bank of any cancellation. Satisfactory evidence of
          such insurance will be supplied to Bank prior to funding under the
          Loan and thirty (30) days prior to each policy renewal.

     D.   Existence and Compliance. Cause Borrower to maintain its existence,
          good standing and qualification to do business, where required and
          comply with all laws, regulations and governmental requirements
          including, without limitation, environmental laws applicable to it or
          to any of its property, business operations and transactions.

     E.   Adverse Conditions or Events. Cause Borrower to promptly advise Bank
          in writing of (i) any condition, event or act which comes to its
          attention that would or might materially adversely affect Borrower's
          financial condition or operations or Bank's rights under the Loan
          Documents, (ii) any litigation filed by or against Borrower greater
          than $50,000, (iii) any event that has occurred that would constitute
          an Event of Default under any of the Loan Documents, and (iv) any
          uninsured or partially uninsured loss through fire, theft, liability
          or property damage in excess of an aggregate of $100,000.

                                  Page 6 of 15
<PAGE>

     F.   Taxes and Other Obligations. Pay all of its taxes, assessments and
          other obligations, including, but not limited to taxes, costs or other
          expenses arising out of this transaction, as the same become due and
          payable, except to the extent the same are being contested in good
          faith by appropriate proceedings in a diligent manner, and provide
          proof of such payment to Bank on an annual basis.

     G.   Subordination of Debt. If Borrower is now or hereafter indebted to any
          joint venturer, partner, officer, or employee of Borrower, any person
          or entity affiliated with Borrower, or any Guarantor (each referred to
          herein as the "Subordinating Party") in any amount, the Borrower shall
          cause written subordination agreements to be furnished to Bank which
          have been duly executed by the Borrower and the Subordinating Party,
          under which the Borrower and the Subordinating Party shall agree (i)
          that all present and future indebtedness and obligations owing by the
          Borrower to the Subordinating Party, and all security interests
          created by the Borrower in favor of the Subordinating Party, are
          subordinate in right of payment, claim, and priority to all present
          and future indebtedness and obligations owing by the Borrower to Bank,
          and to all security interests created by the Borrower in favor of
          Bank, (ii) that no security interest in favor of the Subordinating
          Party shall be foreclosed until the Loan and all such other
          indebtedness and obligations owing by the Borrower to Bank have been
          paid in full, and (iii) that, if an event has occurred that, if not
          timely cured, would be an Event of Default under this Agreement, no
          payments of principal or interest shall be made by the Borrower on the
          subordinated indebtedness to the Subordinating Party until the Event
          of Default is cured. The Borrower shall not prepay the subordinated
          debt, or in any way modify or change the Borrower's repayment
          obligations under the subordinated debt in a manner that would
          adversely affect the Borrower's ability to repay the Loan, without the
          prior written consent of Bank.

     H.   Maintenance. Cause Borrower to maintain all of its tangible property
          in good condition and repair and make all necessary replacements
          thereof, and preserve and maintain all licenses, trademarks,
          privileges, permits, franchises, certificates and the like necessary
          for the operation of its business.

     I.   Environmental. Cause Borrower to immediately advise Bank in writing of
          (i) any and all enforcement, cleanup, remedial, removal, and other
          governmental or regulatory actions instituted, completed or threatened
          pursuant to any applicable federal, state, or local laws, ordinances
          or regulations relating to any Hazardous Materials affecting
          Borrower's business operations; and (ii) all claims made or threatened
          by any third party against Borrower relating to damages, contribution,
          cost recover, compensation, loss or injury resulting from any
          Hazardous Materials. Borrower shall immediately notify Bank of any
          remedial action taken by Borrower with respect to Borrower's business
          operations. Borrower will not use or permit any other party to use any
          Hazardous Materials at any of Borrower's places of business or at any
          other property owned by Borrower except such materials as are
          incidental to Borrower's normal course of business, maintenance and
          repairs and which are handled in compliance with all applicable
          environmental laws. Borrower agrees to permit Bank, its agents,
          contractors and employees to enter and inspect any of Borrower's
          places of business or any other property of Borrower at any reasonable
          times upon three (3) days prior notice for the purposes of conducting
          an environmental investigation and audit (including taking physical
          samples) to insure that Borrower is complying with this covenant and

                                  Page 7 of 15
<PAGE>

          Borrower shall reimburse Bank on demand for the costs of any such
          environmental investigation and audit. Borrower shall provide Bank,
          its agents, contractors, employees and representatives with access to
          and copies of any and all data and documents relating to or dealing
          with any Hazardous Material used, generated, manufactured, stored or
          disposed of by Borrower's business operations within five (5) days of
          the request therefore.

     J.   Leases. Maintain in full force and effect all of the oil and gas
          leases, and any other agreements pertaining thereto, covering the
          properties pledged to Bank as security for the Loan.

     K.   Engineering/Production Reports. Furnish to Bank engineering reports
          and/or production reports covering the property of Borrower as may
          from time to time be requested by Bank in its sole discretion, and
          furnish to Bank such other studies in the possession of Borrower and
          Guarantor (including any such reports obtained by Borrower or
          Guarantors after the date hereof) covering or pertaining to the
          Property.

     L.   Title Opinions. Furnish to Bank all title opinions in the possession
          of Borrower and Guarantors (including any such title opinions obtained
          by Borrower or Guarantors after the date hereof) covering or
          pertaining to the Property. As to any oil and gas properties hereafter
          mortgaged to Lender, Borrower will promptly (but in no event more than
          thirty (30) days following such mortgaging), furnish Lender with title
          opinions or other title information satisfactory to Lender showing
          good and defensible title of the Borrower to such oil and gas
          properties.

     M.   Additional Collateral. Upon request by Lender, the Borrower shall, by
          instruments satisfactory in form and substance to the Lender, furnish
          such other additional collateral and in such amounts as may be
          acceptable to the Lender in its sole discretion. Any such additional
          collateral shall be furnished to the Lender not later than ten (10)
          days after request by the Lender.

     N.   Further Assurances and Documentation. Borrower shall duly execute and
          deliver such instruments, documents, certificates, opinions, and
          assurances, provide such additional information, and do such other
          acts as Bank may, from time to time, deem reasonably necessary or
          desirable in connection with this Agreement or any of the other Loan
          Documents to which Borrower is a party.

6.   NEGATIVE COVENANTS. Until full payment and performance of all obligations
     of Borrower under the Loan Documents, Borrower will not, without the prior
     written consent of Bank (and without limiting any requirement of any other
     Loan Documents):

     A.   Transfer of Assets or Control. Merge or consolidate with, or sell,
          assign, lease, or otherwise dispose of (whether in one transaction or
          in a series of transactions) all or substantially all of its assets
          (whether now owned or hereafter acquired) to, any person or entity, or
          acquire all or substantially all of the assets or the business of any
          person or entity, without the prior consent of Bank.

     B.   Liens. Grant, suffer or permit any contractual or non-contractual lien
          on or security interest in its assets, except in favor of Bank, or
          fail to promptly pay when due all lawful claims, whether for labor,
          materials or otherwise.

                                  Page 8 of 15
<PAGE>

     C.   Borrowings. Create, incur, assume or become liable in any manner for
          any indebtedness (for borrowed money, deferred payment for the
          purchase of assets, lease payments, as surety or guarantor for the
          debt for another, or otherwise) other than to Bank, except for normal
          trade debts incurred in the ordinary course of Borrower's business,
          and except for existing indebtedness disclosed to Bank in writing and
          acknowledge by Bank prior to the date of this Agreement.

     D.   Character of Business. Change the general character of business as
          conducted at the date hereof, or engage in any type of business not
          reasonably related to its business as presently conducted.

     E.   Management Change. Make any substantial change in its present
          executive or management personnel.

7.   EVENTS OF DEFAULT. It shall be an Event of Default under this Agreement if
     any one of the following events shall occur:

     A.   Borrower fail to pay the principal or interest on the Note when due;
          or

     B.   Borrower is out of compliance with the Borrowing Base and fails to
          bring the Borrowing Base into compliance in accordance with Section
          4.A.ii above; or

     C.   Borrower fails to perform or observe any term, covenant, agreement, or
          provision of this Agreement or other Loan Documents (except for
          payment under the Note), unless such failure has been consented to in
          writing by Bank, and such failure to perform continues for thirty (30)
          days after receipt of written notice from Bank; or

     D.   Any representation or warranty made or deemed made by Borrower in this
          Agreement, in any Security Agreement, or in any Deed of Trust or which
          is contained in any certificate, document, or other statement
          furnished at any time under or in connection with any Loan Document
          shall prove to have been false, incomplete or incorrect in any
          material respect on or as of the day when made; provided, however,
          that Bank shall provide Borrower written notice of any such
          misrepresentation or breached warranty and Borrower shall have ten
          (10) days after the notice to convince Bank that the misrepresentation
          or breach of warranty did not occur or was immaterial, which
          determination shall be made by Bank in its sole discretion; or

     E.   Borrower shall generally not pay its debts as such debts become due,
          or shall admit in writing its inability to pay debts generally, or
          shall make a general assignment for the benefit of creditors; or any
          proceeding shall be instituted by or against Borrower seeking to
          adjudicate the Borrower insolvent, or seeking liquidation, winding up,
          reorganization, arrangement, adjustment, protection, relief, or
          composition of its debts under any law relating to bankruptcy,
          insolvency or reorganization or relief of debtors, or seeking the
          entry of an order for relief or the appointment of a receiver, trustee
          or other similar official for it or for any substantial part of its
          property; or

     F.   a Guarantor defaults under any obligation or liability of the
          Guarantor under the Loan Documents, and the default continues for
          thirty (30) days after the Guarantor's receipt of written notice of
          the default; or

                                  Page 9 of 15
<PAGE>

     G.   the outstanding principal on the Note is greater than the Borrowing
          Base for more than ten (10) days; or

     H.   Borrower shall sell, lease, exchange, assign, convey, transfer
          possession of or enter into any other disposition of any portion of
          the Property whether directly, by operation of law, or otherwise,
          without having first been released by Bank; or

     I.   Any Loan Document shall at any time after its execution and delivery
          (i) cease to create the rights purported to be created by the Loan
          Document, or (ii) shall be declared null and void, the validity or
          enforceability of the Loan Document shall be contested by Borrower or
          Guarantors, or Borrower or Guarantors shall fail to perform any of
          their obligations under the Loan Document; or

     J.   Any Guarantor shall die, provided, however, that Borrower shall not be
          in default if Borrower shall within ninety (90) days after the death
          provide Bank with an acceptable plan, as determined by Bank in its
          sole discretion, that (i) outlines the financial and management impact
          of such death on Borrower and how Borrower will handle such management
          and financial changes, and (ii) provides sufficient security to Bank
          to replace the Guaranty of the deceased Guarantor. If Bank finds the
          plan unacceptable, Bank may declare an Event of Default.

8.   REMEDIES UPON DEFAULT. If an Event of Default shall have occurred and be
     continuing, Bank's obligation to make advances under the Note shall be
     suspended or terminated and Bank may exercise any one or more of the
     following remedies and any other remedy provided in any of the Loan
     Documents, at law, or in equity, as Bank, in its sole discretion, may deem
     necessary or appropriate:

     A.   Declare the unpaid interest and principal of the Note, or any renewal
          or extension thereof, immediately due and payable, together with any
          other debt owed by Borrower to Bank, and the same thereupon shall be
          immediately due and payable, without presentment, demand, notice of
          intent to accelerate, notice of acceleration, or any other notice of
          any kind, all of which are expressly waived by Borrower.

     B.   Proceed to protect and enforce its rights by any appropriate
          proceeding, whether for specific performance of any covenant or
          agreement contained in this Agreement or in aid of the exercise of any
          power granted in this Agreement, may proceed to enforce the payment of
          indebtedness due hereunder, or to enforce any other legal or equitable
          right, or may proceed to enforce any covenant, agreement, or remedy
          provided in any of the Loan Documents.

9.   RIGHT OF SET OFF. Borrower gives Bank, or any other holder, a lien and
     option to set off all deposits of Borrower and any other property of
     Borrower in Bank's possession, actual or constructive, against the
     indebtedness of Borrower.

10.  NOTICES. All notices, requests or demands which any party is required or
     may desire to give to any other party under any provision of this Agreement
     must be in writing delivered to the other party at the following address:

     Borrower:           701 S. Taylor, Suite 440, Amarillo, Texas 79101
     --------

     Guarantors:         701 S. Taylor, Suite 440, Amarillo, Texas 79101
     ----------

     Bank:               221 Gray Avenue, Pampa, Texas 79065
     ----

                                  Page 10 of 15
<PAGE>

     or to such other address as any party may designate by written notice to
     the other party. Each such notice, request and demand shall be deemed given
     or made as follows:

     A.   If sent by mail, upon the earlier of the date of receipt or five (5)
          days after deposit in the U.S. Mail, first class postage prepaid;

     B.   If sent by any other means, upon delivery.

11.  COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower and Guarantors shall pay to
     Bank immediately upon demand the full amount of all costs and expenses,
     including reasonable attorneys' fees (to include outside counsel fees and
     all allocated costs of Bank's in-house counsel if permitted by applicable
     law), incurred by Bank in connection with (a) negotiation and preparation
     of this Agreement and each of the Loan Documents, and (b) all other costs
     and attorneys' fees incurred by Bank for which Borrower and Guarantors are
     obligated to reimburse Bank in accordance with the terms of the Loan
     Documents.

12.  MISCELLANEOUS. Borrower, Guarantors and Bank further covenant and agree as
     follows, without limiting any requirement of any other Loan Document:

     A.   Cumulative Rights and No Waiver. Each and every right granted to Bank
          under any Loan Document, or allowed it by law or equity shall be
          cumulative of each other and may be exercised in addition to any and
          all other rights of Bank, and no delay in exercising any right shall
          operate as a waiver thereof, nor shall any single or partial exercise
          by Bank of any right preclude any other or future exercise thereof or
          the exercise of any other right. Borrower and Guarantors expressly
          waive any presentment, demand, protest or other notice of any kind,
          including but not limited to notice of intent to accelerate and notice
          of acceleration. No notice to or demand on Borrower or Guarantors in
          any case shall, of itself, entitle Borrower or Guarantors to any other
          or future notice or demand in similar or other circumstances.

     B.   Applicable Law. This Loan Agreement and the rights and obligations of
          the parties hereunder shall be governed by and interpreted in
          accordance with the laws of the State of Texas and applicable United
          States federal law.

     C.   Amendment. No modification, consent, amendment, or waiver of any
          provision of this Loan Agreement, nor consent to any departure by
          Borrower or Guarantors therefrom, shall be effective unless the same
          shall be in writing and signed by an officer of Bank, and then shall
          be effective only in the specified instance and for the purpose for
          which given. This Loan Agreement is binding upon Borrower and
          Guarantors, their heirs, successors and assigns, and inures to the
          benefit of Bank, its successors and assigns; however, no assignment or
          other transfer of Borrower's or Guarantors' rights or obligations
          hereunder shall be made or be effective without Bank's prior written
          consent, nor shall it relieve Borrower or Guarantors of any
          obligations hereunder. There is no third party beneficiary of this
          Loan Agreement.

     D.   Documents. All documents, certificates and other items required under
          this Loan Agreement to be executed and/or delivered to Bank shall be
          in form and content satisfactory to Bank and its counsel.

                                  Page 11 of 15
<PAGE>

     E.   Partial Invalidity. The unenforceability or invalidity of any
          provision of this Loan Agreement shall not affect the enforceability
          or validity of any other provision herein and the invalidity or
          unenforceability of any provision of any Loan Document to any person
          or circumstance shall not affect the enforceability or validity of
          such provision as it may apply to other persons or circumstances.

     F.   Indemnification. Notwithstanding anything to the contrary contained in
          this Agreement, Borrower and Guarantors shall indemnify, defend and
          hold Bank and its successors and assigns harmless from and against any
          and all claims, demands, suits, losses, damages, assessments, fines,
          penalties, costs or other expenses (including reasonable attorneys'
          fees and court costs) arising from or in any way related to any of the
          transactions contemplated hereby, including but not limited to actual
          or threatened damage to the environment, agency costs of
          investigation, personal injury or death, or property damage, due to a
          release or alleged release of Hazardous Materials, arising from
          Borrower's or Guarantors' business operations, any other property
          owned by Borrower or Guarantors or in the surface or ground water
          arising from Borrower's or Guarantors' business operations, or gaseous
          emissions arising from Borrower's or Guarantors' business operations
          or any other condition existing or arising from Borrower's or
          Guarantors' business operations resulting from the use or existence of
          Hazardous Materials, whether such claim proves to be true or false.
          Borrower and Guarantors further agree that their indemnity obligations
          shall include, but are not limited to, liability for damages resulting
          from the personal injury or death of an employee of the Borrower or
          Guarantors, regardless of whether the Borrower or Guarantors have paid
          the employee under the workmen's compensation laws of any state or
          other similar federal or state legislation for the protection of
          employees. The term "property damage" as used in this paragraph
          includes, but is not limited to, damage to any real or personal
          property of the Borrower or Guarantors, the Bank, and any third
          parties. The Borrower's and Guarantors' obligations under this
          Paragraph shall survive the repayment of the Loan and any deed in lieu
          of foreclosure or foreclosure of any Deed to Secure Debt, Deed of
          Trust, Security Agreement or Mortgage securing the Loan.

     G.   Survivability. All covenants, agreements, representations and
          warranties made herein or in the other Loan Documents shall survive
          the making of the Loan and shall continue in full force and effect so
          long as the Loan is outstanding or the obligation of the Bank to make
          any advances under the Line shall not have expired.

     H.   Updated Appraisals and Maintenance of Collateral Value. Bank, upon a
          default, may at its option obtain at Borrower's and Guarantors'
          expense, an appraisal of any real property securing payment of the
          Loan, prepared in accordance with applicable bank regulatory agency
          regulations and the written instructions from Bank by a third party
          appraiser engaged directly by Bank. The costs of each such appraisal
          shall be payable by Borrower and Guarantors to Bank on demand.

     I.   Participations. Bank shall be entitled to sell one or more
          participations in the indebtedness arising under the Loan from time to
          time and at any time.

     J.   Warranties. Borrower agrees that Bank has made no warranties,
          covenants, or statements, either express or implied, outside this
          Agreement, and in no event has Bank made any representation whatsoever
          regarding the advisability or safety of the investment for which the
          proceeds of this Agreement will be used or the tax effect on Borrower
          of the same. Borrower further agrees that Bank's rights and interests

                                  Page 12 of 15
<PAGE>

          under this Agreement, the Note, and the instruments now or hereafter
          securing the notes, shall not be deemed to indicate that Bank is in
          control of the business, management, or properties of Borrower or has
          power over the daily management functions and operating decisions of
          Borrower. Borrower expressly acknowledges that Bank is not obligated
          or expected to monitor the performance of Borrower's investment or any
          agent of Borrower whom Borrower retains to perform any function.

     K.   Counterparts. This Agreement may be simultaneously executed in
          multiple counterparts, all of which shall constitute one and the same
          instrument, and each of which shall be deemed to be an original.
          Execution and delivery of this Agreement by facsimile or other
          electronic transmission shall be binding on the parties.

13.  NO ORAL AGREEMENTS. THIS LOAN AGREEMENT AND ALL THE OTHER LOAN DOCUMENTS
     REPRESENT THE FINAL AGREEMENT BETWEEN BANK, BORROWER AND THE OTHER PARTIES
     TO THE LOAN DOCUMENTS AND SUPERCEDE ANY AND ALL PRIOR COMMITMENTS,
     AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
     RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF, AND MAY NOT BE
     CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
     ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
     AGREEMENTS BETWEEN THE PARTIES.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.

BORROWER:                                  BANK:

EXTERRA ENERGY, INC.                       HAPPY STATE BANK

By: /s/ Todd Royal                         By: /s/ Ryan Monroe
------------------                         -------------------
    Todd Royal, President                      Ryan Monroe, President - Pampa

GUARANTORS:

/s/ Todd Royal
--------------
TODD ROYAL

/s/ Robert Royal
----------------
ROBERT ROYAL, TRUSTEE OF THE
ROYAL TRUST

                                  Page 13 of 15
<PAGE>

                                   Exhibit "A"
                                   -----------

The following Oil and Gas Leases, the lands covered thereby and the wells
located thereon, to-wit:

Wright Star Unit 1 #2
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-673 as further described in the lease.
Recorded:       Vol. 1878, Page 591, Real Property Records of Wise County, Texas

Aaron Star #1H
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-919 as further described in the lease.
Recorded:       Vol. 1878, Page 587, Real Property Records of Wise County, Texas

Bullard 1 H Well
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-673 as further described in the lease.
Recorded:       Vol. 1878, Page 575, Real Property Records of Wise County, Texas

Garrett Star
Lessor:         Concha Energy
Lessee:         Exterra Energy
Dated:          November 8, 200
Description:    Wise County, A-586 as further described in the lease.
Recorded:       Vol. 2000, Page 834, Real Property Records of Wise County, Texas

Hodges #1H
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-963 as further described in the lease.
Recorded:       Vol. 1878, Page 568, Real Property Records of Wise County, Texas

Lucky Lady
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-673 as further described in the lease.
Recorded:       Vol. 1878, Page 579, Real Property Records of Wise County, Texas

                                  Page 14 of 15
<PAGE>

Oates-Star #3
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-919 as further described in the lease.
Recorded:       Vol. 1959, Page 493, Real Property Records of Wise County, Texas

RSK Star Vaughn Unit #7
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-294 as further described in the lease.
Recorded:       Vol. 1878, Page 587, Real Property Records of Wise County, Texas

RSK Star #5
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-294 as further described in the lease.
Recorded:       Vol. 1878, Page 583, Real Property Records of Wise County, Texas

Shepherd Star #1H
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-455 as further described in the lease.
Recorded:       Vol. 1878, Page 587, Real Property Records of Wise County, Texas

Wright Star Unit 1 #1
Lessor:         Star of Texas Energy Services
Lessee:         Exterra Energy
Dated:          November 8, 2007
Description:    Wise County, A-673 as further described in the lease.
Recorded:       Vol. 1878, Page 595, Real Property Records of Wise County, Texas

University ABCD
Lessor:         Leonard Brothers
Lessee:         Exterra Energy
Dated:          November 12, 2008
Description:    All wells located in Block 17, University Lands, Pecos Country,
                as more fully described in the lease.
Recorded:       Vol. 805, Page 534, Real Property Records of Wise County, Texas

This Loan Agreement covers all of Grantor's interests, of whatsoever kind, in
and to all of the above-described lands, including but not limited to any
lease(s) covering said lands, whether or not described above.

                                  Page 15 of 15

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