Document:

EX-10.1

[COMPANY LETTERHEAD]

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is made as of the 7th day of June, 2010, between
Aastrom Biosciences, Inc., a Michigan corporation (the “Company”), and Scott Durbin (the
“Executive”).

WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed
by the Company beginning on June 7, 2010 (the “Commencement Date”) on the terms contained herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:

1. Position and Duties. The Executive shall serve as the Chief Financial Officer of
the Company, and shall have supervision and control over and responsibility for the day-to-day
business and affairs of the Company and shall have such other powers and duties as may from time to
time be prescribed by the Chief Executive Officer of the Company (the “CEO”) or other authorized
executive, provided that such duties are consistent with the Executive’s position or other
positions that he may hold from time to time. The Executive shall devote his full working time and
efforts to the business and affairs of the Company. Notwithstanding the foregoing, the Executive
may engage in religious, charitable or other community activities as long as such services and
activities are disclosed to the Board and do not materially interfere with the Executive’s
performance of his duties to the Company as provided in this Agreement.

2. Compensation and Related Matters.

(a) Base Salary. The Executive’s initial annual base salary shall be $275,000. The
Executive’s base salary shall be redetermined annually by the CEO in consultation with the
Compensation Committee. The base salary in effect at any given time is referred to herein as “Base
Salary.” The Base Salary shall be payable in a manner that is consistent with the Company’s usual
payroll practices for senior executives.

(b) Incentive Compensation. The Executive shall be eligible to receive cash incentive
compensation as determined by the CEO in consultation with the Compensation Committee from time to
time. The Executive’s target annual incentive compensation shall be thirty-five percent (35%) of
his Base Salary. To earn incentive compensation, the Executive must be employed by the Company on
the day such incentive compensation is paid.

(c) Options. Subject to approval by the Board, the Company will grant to the
Executive an option to purchase 275,000 shares of the Company’s common stock (the “Initial Option)
at an exercise price equal to the fair market value of the Company’s common stock on the effective
date of grant. The Initial Option will be subject to the terms and conditions of the Company’s
2009 Omnibus Incentive Plan and form of stock option agreement and, subject to approval by the
Board, will include, among other things, the following vesting schedule for the shares underlying
the Initial Option: (i) 25% (i.e., 68,750) of the shares shall vest on the first anniversary of the
date hereof and (ii) the remaining shares shall vest monthly in equal tranches over the following
36 months. Subject to approval by the Board, the Executive will be eligible to receive a grant of
an option to purchase 80,000 shares (as adjusted for any subsequent stock dividend, stock split,
reorganization, recapitalization or reclassification) of the Company’s common stock (the
“Subsequent Option”) based on the Executive’s performance during the twelve month period following
the date of this Agreement as determined by the Board in its discretion. The Subsequent Option
will have an exercise price equal to the fair market value of the Company’s common stock on the
effective date of grant and shall be subject to the terms and conditions of the Company’s 2009
Omnibus Incentive Plan and form of stock option agreement. The grant of the Subsequent Option will
be subject to the Executive’s employment during the twelve month period following the date of this
Agreement.

(d) Expenses. The Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him in performing services hereunder, in accordance with the
policies and procedures then in effect and established by the Company for its senior executive
officers.

(e) Other Benefits. The Executive shall be entitled to continue to participate in or
receive benefits under all of the Company’s Employee Benefit Plans in effect on the date hereof, or
under plans or arrangements that provide the Executive with benefits at least substantially
equivalent to those provided under such Employee Benefit Plans. As used herein, the term “Employee
Benefit Plans” includes, without limitation, each pension and retirement plan; supplemental
pension, retirement and deferred compensation plan; savings and profit-sharing plan; stock
ownership plan; stock purchase plan; stock option plan; life insurance plan; medical insurance
plan; disability plan; and health and accident plan or arrangement established and maintained by
the Company on the date hereof for employees of the same status within the hierarchy of the
Company. The Executive shall be entitled to participate in or receive benefits under any employee
benefit plan or arrangement which may, in the future, be made available by the Company to its
executives and key management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plan or arrangement. Any payments or benefits
payable to the Executive under a plan or arrangement referred to in this Section 2(d) in respect of
any calendar year during which the Executive is employed by the Company for less than the whole of
such year shall, unless otherwise provided in the applicable plan or arrangement, be prorated in
accordance with the number of days in such calendar year during which he is so employed. Should
any such payments or benefits accrue on a fiscal (rather than calendar) year, then the proration in
the preceding sentence shall be on the basis of a fiscal year rather than calendar year.

(f) Vacations. The Executive shall be entitled to accrue up to four (4) weeks paid
vacation days in each year, which shall be accrued ratably. The Executive shall also be entitled
to all paid holidays given by the Company to its executives.

3. Termination. The Executive’s employment hereunder may be terminated without any
breach of this Agreement under the following circumstances:

(a) Death. The Executive’s employment hereunder shall terminate upon his death.

(b) Disability. The Company may terminate the Executive’s employment if he is
disabled and unable to perform the essential functions of the Executive’s then existing position or
positions under this Agreement with or without reasonable accommodation for a period of 180 days
(which need not be consecutive) in any 12-month period. If any question shall arise as to whether
during any period the Executive is disabled so as to be unable to perform the essential functions
of the Executive’s then existing position or positions with or without reasonable accommodation,
the Executive may, and at the request of the Company shall, submit to the Company a certification
in reasonable detail by a physician selected by the Company to whom the Executive or the
Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how
long such disability is expected to continue, and such certification shall for the purposes of this
Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of
the physician in connection with such certification. If such question shall arise and the
Executive shall fail to submit such certification, the Company’s determination of such issue shall
be binding on the Executive. Nothing in this Section 3(b) shall be construed to waive the
Executive’s rights, if any, under existing law including, without limitation, the Family and
Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42
U.S.C. §12101 et seq.

(c) Termination by Company for Cause. The Company may terminate the Executive’s
employment hereunder for Cause by a vote of the Board at a meeting of the Board called and held for
such purpose. For purposes of this Agreement, “Cause” shall mean: (i) conduct by the Executive
constituting a material act of misconduct in connection with the performance of his duties,
including, without limitation, misappropriation of funds or property of the Company or any of its
subsidiaries or affiliates other than the occasional, customary and de minimis use of Company
property for personal purposes; (ii) the commission by the Executive of any felony or a misdemeanor
involving moral turpitude, deceit, dishonesty or fraud, or any conduct by the Executive that would
reasonably be expected to result in material injury or reputational harm to the Company or any of
its subsidiaries and affiliates if he were retained in his position; (iii) continued
non-performance by the Executive of his duties hereunder (other than by reason of the Executive’s
physical or mental illness, incapacity or disability) which has continued for more than 15 days
following written notice of such non-performance from the CEO; (iv) a breach by the Executive of
any of the provisions contained in Section 7 of this Agreement; (v) a material violation by the
Executive of the Company’s written employment policies, or (vi) failure to cooperate with a bona
fide internal investigation or an investigation by regulatory or law enforcement authorities, after
being instructed by the Company to cooperate, or the willful destruction or failure to preserve
documents or other materials known to be relevant to such investigation or the inducement of others
to fail to cooperate or to produce documents or other materials in connection with such
investigation.

(d) Termination Without Cause. The Company may terminate the Executive’s employment
hereunder at any time without Cause. Any termination by the Company of the Executive’s employment
under this Agreement which does not constitute a termination for Cause under Section 3(c) and does
not result from the death or disability of the Executive under Section 3(a) or (b) shall be deemed
a termination without Cause.

(e) Termination by the Executive. The Executive may terminate his employment
hereunder at any time for any reason, including but not limited to Good Reason. For purposes of
this Agreement, “Good Reason” shall mean that the Executive has complied with the “Good Reason
Process” (hereinafter defined) following the occurrence of any of the following events: (i) a
material diminution in the Executive’s responsibilities, authority or duties; (ii) a material
diminution in the Executive’s Base Salary except for across-the-board salary reductions based on
the Company’s financial performance similarly affecting all or substantially all senior management
employees of the Company; (iii) a material change in the geographic location of the Company’s
offices from its present location; or (iv) the material breach of this Agreement by the Company.
“Good Reason Process” shall mean that (i) the Executive reasonably determines in good faith that a
“Good Reason” condition has occurred; (ii) the Executive notifies the Company in writing of the
first occurrence of the Good Reason condition within 15 days of the first occurrence of such
condition; (iii) the Executive cooperates in good faith with the Company’s efforts, for a period
not less than 15 days following such notice (the “Cure Period”), to remedy the condition; (iv)
notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive
terminates his employment within 15 days after the end of the Cure Period. If the Company cures
the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

(f) Notice of Termination. Except for termination as specified in Section 3(a), any
termination of the Executive’s employment by the Company or any such termination by the Executive
shall be communicated by written Notice of Termination to the other party hereto. For purposes of
this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.

(g) Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s
employment is terminated by his death, the date of his death; (ii) if the Executive’s employment is
terminated on account of disability under Section 3(b) or by the Company for Cause under Section
3(c), the date on which Notice of Termination is given; (iii) if the Executive’s employment is
terminated by the Company under Section 3(d), 30 days after the date on which a Notice of
Termination is given; (iv) if the Executive’s employment is terminated by the Executive under
Section 3(e) without Good Reason, 30 days after the date on which a Notice of Termination is given,
and (v) if the Executive’s employment is terminated by the Executive under Section 3(e) with Good
Reason, the date on which a Notice of Termination is given after the end of the Cure Period.
Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the
Company, the Company may unilaterally accelerate the Date of Termination and such acceleration
shall not result in a termination by the Company for purposes of this Agreement.

4. Compensation Upon Termination.

(a) Termination Generally. If the Executive’s employment with the Company is
terminated for any reason, the Company shall pay or provide to the Executive (or to his authorized
representative or estate) any earned but unpaid base salary, incentive compensation earned but not
yet paid, unpaid expense reimbursements, accrued but unused vacation and any vested benefits the
Executive may have under any employee benefit plan of the Company (the “Accrued Benefit”) on or
before the time required by law but in no event more than 30 days after the Executive’s Date of
Termination.

(b) Termination by the Company Without Cause or by the Executive with Good Reason. If
the Executive’s employment is terminated by the Company without Cause as provided in Section 3(d),
or the Executive terminates his employment for Good Reason as provided in Section 3(e), then the
Company shall, through the Date of Termination, pay the Executive his Accrued Benefit. In
addition:

(i) subject to the Executive signing a general release of claims in favor of the
Company and related persons and entities in a form and manner satisfactory to the Company
(the “Release”) within the 21-day period following the Date of Termination and the
expiration of the seven-day revocation period for the Release, the Company shall pay the
Executive an amount equal to nine (9) months of the Executive’s Base Salary (the “Severance
Amount”). The Severance Amount shall be paid out in substantially equal installments in
accordance with the Company’s payroll practice over nine (9) months, beginning on the first
payroll date that occurs 30 days after the Date of Termination. Solely for purposes of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), each installment
payment is considered a separate payment. Notwithstanding the foregoing, if the Executive
breaches any of the provisions contained in Section 7 of this Agreement, all payments of the
Severance Amount shall immediately cease; and

(ii) upon the Date of Termination, all stock options and other stock-based awards held
by the Executive in which the Executive would have vested if he had remained employed for an
additional nine (9) months following the Date of Termination shall vest and become
exercisable or nonforfeitable as of the Date of Termination; and

(iii) subject to the Executive’s copayment of premium amounts at the active employees’
rate, the Executive may continue to participate in the Company’s group health, dental and
vision program for nine (9) months; provided, however, that the continuation of health
benefits under this Section shall reduce and count against the Executive’s rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).

5. Change in Control Payment. The provisions of this Section 5 set forth certain
terms of an agreement reached between the Executive and the Company regarding the Executive’s
rights and obligations upon the occurrence of a Change in Control of the Company. These provisions
are intended to assure and encourage in advance the Executive’s continued attention and dedication
to his assigned duties and his objectivity during the pendency and after the occurrence of any such
event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Section
4(b) regarding severance pay and benefits upon a termination of employment, if such termination of
employment occurs within twelve (12) months after the occurrence of the first event constituting a
Change in Control. These provisions shall terminate and be of no further force or effect beginning
twelve (12) months after the occurrence of a Change in Control.

(a) Change in Control. If within twelve (12) months after a Change in Control, the
Executive’s employment is terminated by the Company without Cause as provided in Section 3(d) or
the Executive terminates his employment for Good Reason as provided in Section 3(e), then,

(i) subject to the signing of the Release by the Executive within 30 days after the
Date of Termination and the expiration of the seven-day revocation period for the Release,
the Company shall pay the Executive a lump sum in cash in an amount equal to twelve (12)
months of the Executive’s current Base Salary (or the Executive’s Base Salary in effect
immediately prior to the Change in Control, if higher). Such payment shall be paid on the
first payroll date that occurs 30 days after the Date of Termination; and

(ii) notwithstanding anything to the contrary in any applicable option agreement or
stock-based award agreement, all stock options and other stock-based awards held by the
Executive shall immediately accelerate and become fully exercisable or nonforfeitable as of
the Date of Termination; and

(iii) subject to the Executive’s copayment of premium amounts at the active employees’
rate, the Executive may continue to participate in the Company’s group health, dental and
vision program for twelve (12) months; provided, however, that the continuation of health
benefits under this Section shall reduce and count against the Executive’s rights under
COBRA.

(b) Additional Limitation.

(i) Anything in this Agreement to the contrary notwithstanding, in the event that the
amount of any compensation, payment or distribution by the Company to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the
Code and the applicable regulations thereunder (the “Severance Payments”), would be subject
to the excise tax imposed by Section 4999 of the Code, the following provisions shall apply:

(A) If the Severance Payments, reduced by the sum of (1) the Excise Tax and (2)
the total of the Federal, state, and local income and employment taxes payable by
the Executive on the amount of the Severance Payments which are in excess of the
Threshold Amount, are greater than or equal to the Threshold Amount, the Executive
shall be entitled to the full benefits payable under this Agreement.

(B) If the Threshold Amount is less than (x) the Severance Payments, but
greater than (y) the Severance Payments reduced by the sum of (1) the Excise Tax and
(2) the total of the Federal, state, and local income and employment taxes on the
amount of the Severance Payments which are in excess of the Threshold Amount, then
the Severance Payments shall be reduced (but not below zero) to the extent necessary
so that the sum of all Severance Payments shall not exceed the Threshold Amount. In
such event, the Severance Payments shall be reduced in the following order: (1)
cash payments not subject to Section 409A of the Code; (2) cash payments subject to
Section 409A of the Code; (3) equity-based payments and acceleration; and (4)
non-cash forms of benefits. To the extent any payment is to be made over time
(e.g., in installments, etc.), then the payments shall be reduced in reverse
chronological order.

(ii) For the purposes of this Section 5(b), “Threshold Amount” shall mean three times
the Executive’s “base amount” within the meaning of Section 280G(b)(3) of the Code and the
regulations promulgated thereunder less one dollar ($1.00); and “Excise Tax” shall mean the
excise tax imposed by Section 4999 of the Code, and any interest or penalties incurred by
the Executive with respect to such excise tax.

(iii) The determination as to which of the alternative provisions of Section 5(b)(i)
shall apply to the Executive shall be made by a nationally recognized accounting firm
selected by the Company (the “Accounting Firm”), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of the Date of
Termination, if applicable, or at such earlier time as is reasonably requested by the
Company or the Executive. For purposes of determining which of the alternative provisions
of Section 5(b)(i) shall apply, the Executive shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation applicable to individuals for the
calendar year in which the determination is to be made, and state and local income taxes at
the highest marginal rates of individual taxation in the state and locality of the
Executive’s residence on the Date of Termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local taxes. Any
determination by the Accounting Firm shall be binding upon the Company and the Executive.

(b) Definitions. For purposes of this Section 5, the following terms shall have the
following meanings:

“Change in Control” shall mean any of the following:

(i) any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Act”) (other than the Company, any of its
subsidiaries, or any trustee, fiduciary or other person or entity holding securities under
any employee benefit plan or trust of the Company or any of its subsidiaries), together with
all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Act) of
such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company representing 50 percent
or more of the combined voting power of the Company’s then outstanding securities having the
right to vote in an election of the Board (“Voting Securities”) (in such case other than as
a result of an acquisition of securities directly from the Company); or

(ii) the consummation of (A) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more
than 50 percent of the voting shares of the Company issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any), or (B) any sale or
other transfer (in one transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets of the Company.

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for
purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the
Company which, by reducing the number of shares of Voting Securities outstanding, increases the
proportionate number of Voting Securities beneficially owned by any person to 50 percent or more of
the combined voting power of all of the then outstanding Voting Securities; provided, however, that
if any person referred to in this sentence shall thereafter become the beneficial owner of any
additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or
similar transaction or as a result of an acquisition of securities directly from the Company) and
immediately thereafter beneficially owns 50 percent or more of the combined voting power of all of
the then outstanding Voting Securities, then a “Change in Control” shall be deemed to have occurred
for purposes of the foregoing clause (i).

6. Section 409A.

(a) Anything in this Agreement to the contrary notwithstanding, if at the time of the
Executive’s separation from service within the meaning of Section 409A of the Code, the Company
determines that the Executive is a “specified employee” within the meaning of Section
409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes
entitled to under this Agreement on account of the Executive’s separation from service would be
considered deferred compensation subject to the 20 percent additional tax imposed pursuant to
Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code,
such payment shall not be payable and such benefit shall not be provided until the date that is the
earlier of (A) six months and one day after the Executive’s separation from service, or (B) the
Executive’s death. If any such delayed cash payment is otherwise payable on an installment basis,
the first payment shall include a catch-up payment covering amounts that would otherwise have been
paid during the six-month period but for the application of this provision, and the balance of the
installments shall be payable in accordance with their original schedule.

(b) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement
shall be provided by the Company or incurred by the Executive during the time periods set forth in
this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in
no event shall any reimbursement be paid after the last day of the taxable year following the
taxable year in which the expense was incurred. The amount of in-kind benefits provided or
reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be
provided or the expenses eligible for reimbursement in any other taxable year. Such right to
reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

(c) To the extent that any payment or benefit described in this Agreement constitutes
“non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such
payment or benefit is payable upon the Executive’s termination of employment, then such payments or
benefits shall be payable only upon the Executive’s “separation from service.” The determination
of whether and when a separation from service has occurred shall be made in accordance with the
presumptions set forth in Treasury Regulation Section 1.409A-1(h).

(d) The parties intend that this Agreement will be administered in accordance with Section
409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its
compliance with Section 409A of the Code, the provision shall be read in such a manner so that all
payments hereunder comply with Section 409A of the Code. The parties agree that this Agreement may
be amended, as reasonably requested by either party, and as may be necessary to fully comply with
Section 409A of the Code and all related rules and regulations in order to preserve the payments
and benefits provided hereunder without additional cost to either party.

(e) The Company makes no representation or warranty and shall have no liability to the
Executive or any other person if any provisions of this Agreement are determined to constitute
deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or
the conditions of, such Section.

7. Confidential Information, Noncompetition and Cooperation.

(a) Confidential Information. As used in this Agreement, “Confidential Information”
means information belonging to the Company which is of value to the Company in the course of
conducting its business and the disclosure of which could result in a competitive or other
disadvantage to the Company. Confidential Information includes, without limitation, financial
information, reports, and forecasts; inventions, improvements and other intellectual property;
trade secrets; know-how; designs, processes or formulae; software; market or sales information or
plans; customer lists; and business plans, prospects and opportunities (such as possible
acquisitions or dispositions of businesses or facilities) which have been discussed or considered
by the management of the Company. Confidential Information includes information developed by the
Executive in the course of the Executive’s employment by the Company, as well as other information
to which the Executive may have access in connection with the Executive’s employment. Confidential
Information also includes the confidential information of others with which the Company has a
business relationship. Notwithstanding the foregoing, Confidential Information does not include
information in the public domain, unless due to breach of the Executive’s duties under Section
7(b).

(b) Confidentiality. The Executive understands and agrees that the Executive’s
employment creates a relationship of confidence and trust between the Executive and the Company
with respect to all Confidential Information. At all times, both during the Executive’s employment
with the Company and after its termination, the Executive will keep in confidence and trust all
such Confidential Information, and will not use or disclose any such Confidential Information
without the written consent of the Company, except as may be necessary in the ordinary course of
performing the Executive’s duties to the Company.

(c) Documents, Records, etc. All documents, records, data, apparatus, equipment and
other physical property, whether or not pertaining to Confidential Information, which are furnished
to the Executive by the Company or are produced by the Executive in connection with the Executive’s
employment will be and remain the sole property of the Company. The Executive will return to the
Company all such materials and property as and when requested by the Company. In any event, the
Executive will return all such materials and property immediately upon termination of the
Executive’s employment for any reason. The Executive will not retain with the Executive any such
material or property or any copies thereof after such termination.

(d) Noncompetition and Nonsolicitation. During the Executive’s employment with the
Company and for twelve (12) months thereafter, regardless of the reason for the termination, the
Executive (i) will not, directly or indirectly, whether as owner, partner, shareholder, consultant,
agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any Competing
Business (as hereinafter defined); (ii) will refrain from directly or indirectly employing,
attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to
leave employment with the Company (other than terminations of employment of subordinate employees
undertaken in the course of the Executive’s employment with the Company); and (iii) will refrain
from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely
its business relationship with the Company. The Executive understands that the restrictions set
forth in this Section 7(d) are intended to protect the Company’s interest in its Confidential
Information and established employee, customer and supplier relationships and goodwill, and agrees
that such restrictions are reasonable and appropriate for this purpose. For purposes of this
Agreement, the term “Competing Business” shall mean a business conducted anywhere in the world
which is competitive with any business which the Company or any of its affiliates conducts or
proposes to conduct at any time during the employment of the Executive. Notwithstanding the
foregoing, the Executive may own up to one percent (1%) of the outstanding stock of a publicly held
corporation which constitutes or is affiliated with a Competing Business.

(e) Third-Party Agreements and Rights. The Executive hereby confirms that except as
disclosed to the Company the Executive is not bound by the terms of any agreement with any previous
employer or other party which restricts in any way the Executive’s use or disclosure of information
or the Executive’s engagement in any business. The Executive represents to the Company that the
Executive’s execution of this Agreement, the Executive’s employment with the Company and the
performance of the Executive’s proposed duties for the Company will not violate any obligations the
Executive may have to any such previous employer or other party. In the Executive’s work for the
Company, the Executive will not disclose or make use of any information in violation of any
agreements with or rights of any such previous employer or other party, and the Executive will not
bring to the premises of the Company any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment or other party.

(f) Litigation and Regulatory Cooperation. During and after the Executive’s
employment, the Executive shall cooperate fully with the Company in the defense or prosecution of
any claims or actions now in existence or which may be brought in the future against or on behalf
of the Company which relate to events or occurrences that transpired while the Executive was
employed by the Company. The Executive’s full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the Company at mutually convenient times.
During and after the Executive’s employment, the Executive also shall cooperate fully with the
Company in connection with any investigation or review of any federal, state or local regulatory
authority as any such investigation or review relates to events or occurrences that transpired
while the Executive was employed by the Company. The Company shall reimburse the Executive for any
reasonable out-of-pocket expenses incurred in connection with the Executive’s performance of
obligations pursuant to this Section 7(f).

(g) Injunction. The Executive agrees that it would be difficult to measure any
damages caused to the Company which might result from any breach by the Executive of the promises
set forth in this Section 7, and that in any event money damages would be an inadequate remedy for
any such breach. Accordingly, subject to Section 8 of this Agreement, the Executive agrees that if
the Executive breaches, or proposes to breach, any portion of this Agreement, the Company shall be
entitled, in addition to all other remedies that it may have, to an injunction or other appropriate
equitable relief to restrain any such breach without showing or proving any actual damage to the
Company.

8. Arbitration of Disputes. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof or otherwise arising out of the Executive’s employment or the
termination of that employment (including, without limitation, any claims of unlawful employment
discrimination whether based on age or otherwise) shall, to the fullest extent permitted by law, be
settled by arbitration in any forum and form agreed upon by the parties or, in the absence of such
an agreement, under the auspices of the American Arbitration Association (“AAA”) in Detroit,
Michigan in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not
limited to, the rules and procedures applicable to the selection of arbitrators. In the event that
any person or entity other than the Executive or the Company may be a party with regard to any such
controversy or claim, such controversy or claim shall be submitted to arbitration subject to such
other person or entity’s agreement. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. This Section 8 shall be specifically
enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude either party from
pursuing a court action for the sole purpose of obtaining a temporary restraining order or a
preliminary injunction in circumstances in which such relief is appropriate; provided that any
other relief shall be pursued through an arbitration proceeding pursuant to this Section 8.

9. Consent to Jurisdiction. To the extent that any court action is permitted
consistent with or to enforce Section 8 of this Agreement, the parties hereby consent to the
jurisdiction of the Superior Court of the State of Michigan and the United States District Court
for the District of Michigan. Accordingly, with respect to any such court action, the Executive
(a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and
(c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with
respect to personal jurisdiction or service of process.

10. Integration. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements between the parties
concerning such subject matter.

11. Withholding. All payments made by the Company to the Executive under this
Agreement shall be net of any tax or other amounts required to be withheld by the Company under
applicable law.

12. Successor to the Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive’s personal representatives, executors, administrators, heirs,
distributees, devisees and legatees. In the event of the Executive’s death after his termination
of employment but prior to the completion by the Company of all payments due him under this
Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in
writing to the Company prior to his death (or to his estate, if the Executive fails to make such
designation).

13. Enforceability. If any portion or provision of this Agreement (including, without
limitation, any portion or provision of any section of this Agreement) shall to any extent be
declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this
Agreement, or the application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion
and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by
law.

14. Survival. The provisions of this Agreement shall survive the termination of this
Agreement and/or the termination of the Executive’s employment to the extent necessary to
effectuate the terms contained herein.

15. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of any party to require the performance of
any term or obligation of this Agreement, or the waiver by any party of any breach of this
Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.

16. Notices. Any notices, requests, demands and other communications provided for by
this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally
recognized overnight courier service or by registered or certified mail, postage prepaid, return
receipt requested, to the Executive at the last address the Executive has filed in writing with the
Company or, in the case of the Company, at its main offices, attention of the Board.

17. Amendment. This Agreement may be amended or modified only by a written instrument
signed by the Executive and by a duly authorized representative of the Company.

18. Governing Law. This is a Michigan contract and shall be construed under and be
governed in all respects by the laws of the State of Michigan, without giving effect to the
conflict of laws principles of such State. With respect to any disputes concerning federal law,
such disputes shall be determined in accordance with the law as it would be interpreted and applied
by the United States Court of Appeals for the Sixth Circuit.

19. Counterparts. This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be taken to be an original; but such counterparts
shall together constitute one and the same document.

20. Successor to Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company expressly to assume and agree to perform this Agreement to the
same extent that the Company would be required to perform it if no succession had taken place.
Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness
of any succession shall be a material breach of this Agreement.

21. Gender Neutral. Wherever used herein, a pronoun in the masculine gender shall be
considered as including the feminine gender unless the context clearly indicates otherwise.

IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year
first above written.

	 	 	 
	AASTROM BIOSCIENCES, INC.

	/s/ Tim M. Mayleben

	By:

Its:

	 	Tim M. Mayleben

CEO and President

	 	 	EXECUTIVE

/s/ Scott Durbin

	 	 	Scott DurbinEX-10.1

LOAN AGREEMENT

THIS LOAN AGREEMENT (the AAgreement@) is made and entered into as of the
1st day of May 2010, by and among BARON ENERGY, INC., a Nevada corporation, acting as
successor-in-interest, by merger, to Esconde Resources LP and Permian Legend Petroleum LP, whose
address is 3327 W. Wadley, Suite 3-267, Midland, Texas 79707 (alternatively, “Baron” or the
“Borrower”); RONNIE L. STEINOCHER, an individual, whose address is 712 Willow Ridge Drive, San
Marcos, Texas 78666, LISA P. HAMILTON, also an individual, whose address is 712 Willow Ridge
Drive, San Marcos, Texas 78666, and PIERCE-HAMILTON ENERGY PARTNERS LP, a Texas limited
partnership, whose address is also 3327 W. Wadley, Suite 3-267, Midland, Texas 79707
(collectively, the “Guarantors”); and American State Bank, a state banking association organized
under the laws of the State of Texas, whose address is 620 N. Grant, Odessa, Texas 79761-4797
(alternatively, AASB@, the ALender@, or the ABank@).

NOTICE IS TAKEN OF THE FOLLOWING:

	A.	 	Borrower is the successor-in-interest by merger to Esconde Resources LP, a Texas limited
partnership (“Esconde”), and Permian Legend Petroleum LP, also a Texas limited partnership
(“Permian Legend”). Borrower has succeeded to all rights and liabilities of Esconde and
Permian Legend.

	B.	 	Included in the liabilities of Esconde for which Borrower is now liable is a term loan in the
original principal amount of Three Hundred Nine Thousand Six Hundred Eighty-One and
Eighty-Seven/100 Dollars ($309,681.87) (the “Esconde Term Loan”). The Bank advanced the
Esconde Term Loan to Esconde pursuant to the terms of a Loan Agreement, dated as of September
1, 2009 (the “Esconde Loan Agreement”), by and among Esconde, as Borrower; Esconde Energy,
LLC, as Guarantor (“Esconde Energy”); and the Bank, as Lender.

	C.	 	The Esconde Term Loan is evidenced by a Term Note, dated September 1, 2009, in the original
principal amount of Three Hundred Nine Thousand Six Hundred Eighty-One and Eighty-Seven/100
Dollars ($309,681.87), with a current balance of Two Hundred Seventy-One Thousand Two Hundred
Eighty-Two and No/100 Dollars ($271,282.00), which finally matured on March 1, 2010 (the
“Esconde Term Note”).

	D.	 	The Esconde Loan is collateralized by Borrower’s execution of Deeds of Trust, or amendments
thereto, and the filing of financing statements, collectively covering collateral associated
with oil and gas properties owned by Esconde in Borden, Garza, and Scurry Counties, in the
State of Texas (collectively, as so amended, the “Esconde Deeds of Trust”). In addition, the
Esconde Loan is collateralized by that certain unlimited Guaranty Agreement (the “Esconde
Guaranty Agreement”), executed by Esconde Energy. The Esconde Loan Agreement, the Esconde
Term Note, the Esconde Deeds of Trust, and the Esconde Guaranty Agreements are collectively
referred to herein as the “Esconde Loan Documents”.

	E.	 	Included in the liabilities of Permian Legend for which Borrower is now liable is a term loan
in the original principal amount of One Million Six Hundred Seventy-Five Thousand and No/100
Dollars ($1,675,000.00)(the “First Permian Term Loan”); a term loan in the original principal
amount of Fifty Thousand and No/100 Dollars ($50,000.00)(the “Second Permian Term Loan”), and
a letter of credit in the amount of Fifty Thousand and No/100 Dollars ($50,000.00), formerly
issued by the Bank at the request of Permian Legend, LLC (the general partner of Permian
Legend), for the benefit of the Texas Railroad Commission, with the most current iteration of
that letter of credit, to be issued simultaneously with the execution of this Agreement, at
the request of the Borrower, as successor-in-interest to Permian Legend, LLC (the “Permian
Letter of Credit”). The Bank has advanced the First Permian Term Loan and the Second Permian
Term Loan, and issued the Permian Letter of Credit pursuant to the terms of that certain Loan
Agreement, dated as of August 1, 2008; as modified and amended by that certain First Amendment
to Loan Agreement, dated as of October 15, 2008; as further modified and amended by that
certain Second Amendment to Loan Agreement, dated as of January 2, 2009; as further modified
and amended under that certain Third Amendment to Loan Agreement, dated as of March 17, 2009,
to be effective for all purposes as of February 15, 2009; as further modified and amended
under that certain Fourth Amendment to Loan Agreement, dated as of May 15, 2009, to be
effective for all purposes as of May 1, 2009, as further modified and amended by that certain
Fifth Amendment to Loan Agreement dated as of October 15, 2009, to be effective as of July 15,
2009; and as further modified and amended by that certain Sixth Amendment to Loan Agreement
dated as of December 28, 2009, to be effective as of December 15, 2009 (as so amended, the
“Permian Loan Agreement”).

	F.	 	The First Permian Term Loan is evidenced by a Term Note, dated as of August 1, 2008, in the
original principal amount of One Million Six Hundred and Seventy-Five Thousand and No/100
Dollars ($1,675,000.00), executed by Permian Legend in favor of the Lender, as modified and
amended by that certain Modification and Amendment of Term Note, dated as of October 15, 2008;
as further modified and amendment by that certain Second Modification and Amendment of Term
Note, dated as of January 2, 2009; as further modified and amended by that certain Third
Modification and Amendment of Term Note, dated as of March 17, 2009, effective as of February
15, 2009; as further modified and amended by that certain Fourth Modification and Amendment of
Term Note, dated as of May 15, 2009, effective as of May 1, 2009; as further modified and
amended by that certain Fifth Modification and Amendment of Term Note, dated as of October 15,
2009; and as further modified and amended by that certain Sixth Modification and Amendment of
Term Note, dated as of December 28, 2009, effective as of December 15, 2009, with a current
principal balance of Six Hundred Eighty-Eight Thousand Seven Hundred Twenty-Four and No/100
($688,724.00) (as so modified, the “First Permian Term Note”). The Second Permian Loan is
evidenced by a Term Note, dated as of October 15, 2009, as further modified and amended by
that certain First Modification and Amendment of Term Note, dated as of December 28, 2009,
effective as of December 15, 2009, in the original principal amount of Fifty Thousand and
No/100 Dollars ($50,000.00), with a current principal balance of Forty-One Thousand and No/100
Dollars ($41,000.00) (the “Second Permian Term Note”). The Permian Letter of Credit is
evidenced by a letter of credit issued by the Bank simultaneously with the execution of this
Agreement, at the request of the Borrower, in favor of the Texas Railroad Commission.

	G.	 	Permian Legend’s performance under the First Permian Term Note, the Second Permian Term Note,
and the Permian Letter of Credit (collectively, the “Permian Notes”), is collateralized by
Deeds of Trust, and amendments thereto, covering Permian Legend’s oil and gas properties in
Jones, Runnels, and Taylor Counties, in the State of Texas (as modified or amended,
collectively, the “Permian Deeds of Trust”). In addition, Permian Legend’s performance under
the Permian Notes is collateralized by Guaranty Agreements, dated as of August 1, 2008, under
which Permian Legend, LLC (“Permian LLC”), Ronnie L. Steinocher, and Lisa P. Hamilton
(collectively, the “Permian Guarantors”) agree to guaranty the Borrower’s indebtedness
evidenced by the Permian Notes (collectively, the “Permian Guaranty Agreements”). As
additional collateral for the Permian Letter of Credit, Permian granted to the Bank a security
interest in a time deposit account established and maintained by Permian with the Bank, said
security interest being evidenced by a Security Agreement (the “Permian Security Agreement”),
and duly perfected by the Bank. The Permian Loan Agreement, the Permian Notes, the Permian
Deeds of Trust, the Permian Guaranty Agreements, and the Permian Security Agreement are
collectively referred to herein as the “Permian Loan Documents”. The Esconde Loan Documents
and the Permian Loan Documents are collectively referred to as the “Existing Loan Documents”
and the Esconde Loan and the Permian Loans are collectively referred to as the “Existing
Loans”.

	H.	 	Both Esconde and Permian Legend have now merged into the corporate predecessor-in- interest
to Baron, which then merged into Baron. By operation of law and under the terms of the
Existing Loan Documents, Borrower is now responsible for the performance of both Esconde and
Permian Legend with respect to the Existing Loans. The Existing Loans continue to be
evidenced and collateralized by the Existing Loan Documents. As successor in interest by
merger, Baron is now the Borrower under all of the Existing Loans.

	I.	 	With the exception of the Permian Letter of Credit, which presently matures according to its
terms, all of the Loans matured on March 10, 2010. The Borrower, the Esconde Guarantors, and
the Permian Guarantors have asked the Bank to extend the maturity date of the matured Loans to
September 1, 2010. As consideration for the requested extension of the maturity date of the
Loans, the Bank has required that the Esconde Loan be renewed into a new term loan in the
original principal amount of Five Hundred and Fifty Thousand and No/100 Dollars
($550,000.00)(the “First Term Loan”) and that the First Permian Loan and the Second Permian
Loan be consolidated into a new term loan in the original principal amount of Four Hundred and
Fifty Thousand and No/100 Dollars ($450,000.00)(the “Second Term Loan”). The Bank will
continue to maintain the reissued Permian Letter of Credit in place with the Texas Railroad
Commission, but any obligation associated with that letter of credit will be assumed by Baron
simultaneously with the execution of this Agreement (as so assumed, the “Letter of Credit”).
The First Term Loan, the Second Term Loan, and the Letter of Credit are collectively referred
to herein as the “Loans”.

	J.	 	The First Term Loan will be evidenced by a term note, of even date with this Agreement, in
the original principal amount of Five Hundred and Fifty Thousand and No/100 Dollars
($550,000.00) (the “First Term Note”), and the Second Term Loan will be evidenced by a term
note in the original principal amount of Four Hundred and Fifty Thousand and No/100 Dollars
($450,000.00) (the “Second Term Note”). The First Term Note, the Second Term Note, and the
Letter of Credit are collectively referred to herein as the “Notes”.

	K.	 	As collateralization for the Loans, the Borrower agrees to execute in favor of the Bank those
instruments called for under Article IV below.

	L.	 	In further support of the Borrower’s obligations under the Loans, the Guarantors have agreed
to execute Guaranty Agreements, of even date herewith, under which the Guarantors guarantee
the Borrower’s performance under the Loans. In support of the Letter of Credit, the Borrower
has agreed to renew and extend the Permian Security Agreement into a new Security Agreement
covering the same time deposit account (the “Security Agreement”).

	M.	 	In order to document the extension, renewal, and consolidation of the Loans, the Borrower,
the Guarantors, and the Bank have agreed to enter into this Agreement.

NOW, THEREFORE, for and in consideration of the premises and Ten and No/100 Dollars and other
good and valuable consideration granted by the Bank to the Borrower, which is of direct and
material benefit to Guarantors, the receipt and sufficiency of which are specifically acknowledged
by Borrower and Guarantors (collectively, the “Loan Parties”), the parties do hereby agree as
follows:

ARTICLE I

DEFINITION OF TERMS

In addition to those terms defined in the preamble and the recitations found above, the
following terms will have the respective meanings indicated below for purposes of this Agreement:

1.01 ADVANCE: The disbursement of a sum loaned or to be loaned by the Bank to any
of the Borrowers pursuant to this Agreement.

1.02. AMERICAN STATE BANK BASE RATE: The rate announced by Bank as its base lending
rate as of the beginning of each Business Day, as defined below (and for holidays or weekends the
Base Rate shall be the American State Bank Base Rate as of the close of business on the most recent
Business Day immediately preceding such weekend or holiday) before all sums payable hereunder have
been paid in full. Without notice to Borrower or any other person, the Base Rate may change from
time to time pursuant to the preceding sentence. The Base Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer. Bank may make
commercial loans or other loans at rates of interest at, above or below the Base Rate.

1.03. APPLICABLE LAWS: Those laws and regulations described in Section 6.11(a) below.

1.04. BANK LIENS: The Liens in favor of Bank, securing all or any portion of the
Obligation, including, without limitation, rights in any of the Collateral created in favor of
Bank, whether by the Deeds of Trust or a mortgage, pledge, hypothecation, assignment, transfer or
other granting or creation of Liens.

1.05. BASELINE: BaseLine Capital, Inc., a Texas corporation, which has acted as
subordinated lender in connection with certain indebtedness advanced to Permian Legend, but not
Esconde, all of which is junior and subordinate to, the indebtedness owed by the Borrower to the
Bank.

1.06. BORROWING BASE: At any date the amounts determined pursuant to Section 3.03 of
this Agreement.

1.07. BUSINESS DAY: Every day (other than Saturday or Sunday) on which Bank is open
to the public generally for the transaction of banking business.

1.08. COLLATERAL: any and all property, tangible or intangible, now existing or
hereafter acquired, mortgaged, pledged, assigned, or otherwise encumbered by the Borrower or any
other person to or for the benefit of the Lender pursuant to the Deeds of Trust or any other
agreement or instrument now or hereafter executed and delivered by the Borrower or any other person
to secure the payment of the Notes, as any such agreement or instrument may be amended,
supplemented or otherwise modified from time to time.

1.09. COMMITMENT: As defined under Section 3.03 below.

1.10. DEBT: As to any person, at any particular date, and without duplication, the
sum at such date of (a) all indebtedness of such person for borrowed money or for the deferred
purchase price of property or services for which such person is liable, contingently or otherwise,
as obligor, guarantor or otherwise, or in respect of which such person otherwise assures a creditor
against loss; (b) all obligations of such person under leases which shall have been, or should have
been, in accordance with tax basis accounting principles in effect on the date of this Agreement,
recorded as capital leases in respect of which such person is liable, contingently or otherwise, as
obligor, guarantor, or otherwise, or in respect of which obligations such person otherwise assures
a creditor against loss, (c) all indebtedness and other liabilities secured by any Lien on any
property owned by such person even though such person has not assumed or otherwise become liable
for payment thereof; (d) all obligations of such person in respect of letters of credit,
acceptances or similar obligations issued or created for the account of such person; and (e)
indebtedness of such person evidenced by a bond, debenture, note or similar instrument; provided,
however, Debt shall not include accounts payable incurred in the ordinary course of such person’s
business.

1.12. DEEDS OF TRUST: Those Deeds of Trust, Mortgages, Assignments of Production,
Security Agreements, and Financing Statements, to be executed by the Borrower, pursuant to the
terms of Article IV below, as collateralization for its performance under the Loans.

1.13. ENVIRONMENTAL COMPLAINT. Any complaint, order, citation, notice or other
written communication from any person or Governmental Authority with respect to the existence or
alleged existence of a violation of any requirement of law or liability resulting from any air
emission, water discharge, noise emission, asbestos, Hazardous Substance or any other
environmental, health, or safety matter at, upon, under, or within any of the property owned,
operated or used by Borrower.

1.14. EVENT OF DEFAULT: Any one of those events described in Article VIII below
giving rise to a breach by the Borrower of the terms of this Agreement or any of the other Loan
Documents executed simultaneously herewith.

1.15. FINANCING STATEMENT: The financing statement or financing statements (prepared
upon standard Uniform Commercial Code forms) executed and delivered by Borrower in connection with
the Deeds of Trust, the Security Agreement, or any other documentation collateralizing the
Borrower’s performance in connection with the Loans.

1.16. GOVERNMENTAL AUTHORITY: Any nation or government, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

1.17. GUARANTORS: Collectively, Ronnie L. Steinocher, Lisa P. Hamilton, and
Pierce-Hamilton Energy Partners LP.

1.18. GUARANTY AGREEMENTS: Those Guaranty Agreements, to be executed of even date
herewith, by the Guarantors in support of the Borrower’s performance under the Loans.

1.19. HAZARDOUS SUBSTANCE: Any toxic, caustic or otherwise hazardous substance,
including petroleum, its derivatives, by-products and other hydrocarbons, solid waste,
contaminants, polychlorinated biphenyls, paint containing lead, urea, formaldehyde, foam
insulation, and discharge of sewage or effluent, whether or not regulated under federal, state or
local environmental statutes, ordinances, rules, regulations or orders generated by the operations
or business, or located at any property, of Borrower or Guarantors.

1.20. HIGHEST LAWFAUL RATE: The maximum rate of interest (or, if the context so
requires, an amount calculated at such rate) that the Bank is allowed to contract for, charge,
take, reserve or receive under applicable law after taking into account, to the extent required by
applicable law, any and all relevant payments or charges under the Loan Documents.

1.21. LETTERS-IN-LIEU: Those letters-in-lieu of division orders to be executed by the
Borrower simultaneously with the execution of this Agreement, delivered to the Bank, and
transmitted to the purchasers of oil and gas production from Borrower’s properties, under which the
Borrower consents to the continuing distribution of the proceeds of such production to the Bank, to
be applied according to the parties’ existing lock box arrangement.

1.22. LIEN: Any interest in property securing an obligation owed to, or a claim by, a
person other than the owner of the property, whether such interest is based on the common law,
statute or contract, and including but not limited to the lien or security interest arising from
any Deed of Trust, mortgage, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
or preference, priority or other security agreement (including, without limitation, any conditional
sale or other title retention agreement or trust receipt or a lease, consignment or bailment for
security purposes). The term “Lien” shall also include reservations, exceptions, encroachments,
easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting property.

1.23. LOAN DOCUMENTS: Collectively, (a) this Agreement, (b) the Notes, (c) the
Guaranty Agreements, (d) the Security Instruments, (e) the Letters-in-Lieu, and (f) any and all
notes, mortgages, Deeds of Trust, security agreements, financing statements, guaranties, and other
agreements, documents, certificates, letters and instruments ever delivered or executed pursuant
to, or in connection with, this Agreement, whether existing on the date hereof or thereafter
created, as any of the same may hereafter be amended, supplemented, extended or restated.

1.24. MATERIAL ADVERSE EFFECT: Any set of circumstances or events that: (a) has,
will, or could reasonably be expected to have any material adverse effect upon the validity,
performance or enforcement of any Loan Document; (b) is or could reasonably be expected to be
material and adverse to the financial condition or business operations of Borrower, as represented
to the Bank in this Agreement; (c) will or could reasonably be expected to impair the ability of
Borrower to fulfill his obligations under the terms and conditions of the Loan Documents; or (d)
will or could reasonably be expected to cause an Event of Default.

1.25. MATERIAL AGREEMENT: Any material written or oral agreement, contract,
commitment, arrangement or understanding to which such person is a party, by which such person is
directly or, to such person’s knowledge, indirectly bound, or to which any asset of such person may
be subject, which is not subject to cancellation by such person upon thirty (30) days or less
notice without liability for further payment other than nominal penalties, excluding, however, such
agreements, contracts, commitments, arrangements or understandings pursuant to which the subject
matter thereof does not exceed $50,000 in the aggregate.

1.26. MATURITY DATES: With respect to the First Term Loan and the Second Term Loan,
the maturity date is September 1, 2010. With respect to the Letter of Credit, the maturity date is
August 1, 2011.

1.27. NOTES: Collectively, the First Term Note, the Second Term Note, and the Letter
of Credit.

1.28. OBLIGATION: Collectively, the Loans, the indebtedness evidenced by the Notes,
and all other present and future indebtedness, obligations and liabilities, and all renewals,
rearrangements and extensions thereof, or any part thereof, now or hereafter owed to Lender by
Borrower arising from, by virtue of, or pursuant to any Loan Document, or otherwise, together with
all interest accruing thereon and costs, expenses, and attorneys’ fees incurred in the enforcement
or collection thereof, whether such indebtedness, obligations and liabilities are direct, indirect,
fixed, contingent, liquidated, unliquidated, joint, several, or joint and several or were, prior to
acquisition thereof by Lenders, owed to some other person.

1.29. RELEASE: Any generation, treatment, storage, recycling, transportation or
disposal or release, all as defined in 42 USC § 9601(22)(other than Releases in compliance with
Relevant Environmental Laws or permits issued thereunder), of any Hazardous Substance.

1.30. RELEVANT ENVIRONMENTAL LAW: All requirements of law from time to time
applicable to any property owned, operated or used by Borrower or any part thereof with respect to
(a) the installation, existence or removal of asbestos; (b) the existence, discharge or removal of
Hazardous Substances; (c) air emissions, water discharges, noise emissions and any other
environmental, health or safety matters; and (d) effects of the environment of any of such
properties or any part thereof or of any activity theretofore, now or hereafter conducted on any of
such properties.

1.31. SECURITY AGREEMENT: That certain Security Agreement, of even date herewith,
under which the Borrower grants to the Bank a security interest in a time deposit account presently
maintained with the Bank, said security interest to be perfected under a duly filed Financing
Statement.

1.32. STOCK PLEDGE AGREEMENTS. Those certain Stock Pledge Agreements of even date
herewith under which each of the Guarantors pledges to the Bank his, her, or its stock positions in
the Borrower, with such positions to include not only any shares currently vested in the
Guarantors, but also any options, puts, or calls, to which any of the Guarantors is entitled as a
part of his, her, or its compensation package.

1.33. SUBORDINATION AGREEMENTS: Those Subordination Agreements previously executed by
and among Baseline, ASB, and the Borrower, pursuant to the terms of which Baseline agreed to
subordinate any of the indebtedness owed to it by the Borrower to the indebtedness that it owed to
the Bank.

1.34. OTHER DEFINITION PROVISIONS:

	 	a.	 	All terms defined in this Agreement will have the above described meanings when
used in any other Loan Document or in any certificate, report or other document made or
delivered pursuant to this Agreement, unless same will otherwise expressly require.

	 	b.	 	Terms used herein in the singular will import the plural and vice
versa.

	 	c.	 	Terms not specifically defined herein will have the meanings accorded them
under generally accepted accounting principles, or the Texas Uniform Commercial Code,
as appropriate.

	 	d.	 	The words Ahereof,@ Aherein,@ Ahereto,@
Ahereunder@ and similar terms when used in this Agreement will refer to
this Agreement as a whole and not to any particular provisions of this Agreement.

1.35. ACCOUNTING PRINCIPLES. Where the character or amount of any asset or liability
or item of income or expense is required to be determined or any consolidation or other accounting
computation is required to be made for the purposes of this Agreement or any other Loan Paper, such
determination, consolidation, or computation shall be made in accordance with principles of
generally accepted accounting principles, consistently applied (“GAAP”), except when such
principles are inconsistent with the requirements of this Agreement.

ARTICLE II

THE OBLIGATION

2.01. The Loans. Subject to and upon the terms and conditions and relying on the
representations, warranties, commitment to cross-collateralize and cross-default, and releases of
the Borrower contained in this Agreement, Bank agrees to make the following Loans to the Borrower,
as stated below:

	 	a.	 	First Term Loan: Bank hereby confirms that it will renew, extend, and
advance to the Borrower the First Term Loan, in the original amount of Five Hundred and
Fifty Thousand and No/100 Dollars ($550,000.00). The First Term Loan will renew,
extend, and increase the Esconde Term Loan. The Borrower acknowledges and agrees that
the increase in the principal available under the First Term Loan will be applied, in
its entirety, to the outstanding principal balance due under the Permian Loans. The
First Term Note will mature on September 1, 2010, and bears interest on the unpaid
principal amount thereof from time to time outstanding at the applicable interest rate
per annum as provided in the First Term Note. Principal and interest on the First Term
Note shall be payable in the manner and on the dates specified in the First Term Note.

	 	b.	 	Second Term Loan: Bank hereby confirms that it will renew and extend
the First Permian Loan and the Second Permian Loan into the Second Term Loan. The
Second Term Loan will be evidenced by the Second Term Note, in the original amount of
Four Hundred and Fifty Thousand and No/100 Dollars ($450,000.00). The Second Term Note
will also mature on September 1, 2010, and bears interest on the unpaid principal
amount thereof from time to time outstanding at the applicable interest rate per annum
as provided in the Second Term Note. Principal and interest on the Second Term Note
shall be payable in the manner and on the dates specified therein.

	 	c.	 	Letter of Credit: Bank hereby agrees to continue to maintain in place
the Letter of Credit. If the Texas Railroad Commission calls for funding under the
Letter of Credit, the Borrower agrees to make payments of outstanding principal, and
accrued interest, to be calculated at the same rate as that required under the First
Term Note and the Second Term Note, with such payments to be amortized over the time
period that begins with funding under the Letter of Credit and ends on August 1, 2011,
the date of the Letter of Credit’s expiration. Within the time period specified by the
Texas Railroad Commission, the Borrower will provide that agency with advance notice of
its intention to have another financial institution issued any renewal or extension of
the Letter of Credit. The Borrower acknowledges and agrees that the Bank has advised
it that the Letter of Credit will not be renewed beyond its current termination date of
August 1, 2011, and that the Borrower will be required to replace that Letter of Credit
with a bond or a letter of credit issued by another institution as of that date. In
the interim, regardless of whether Borrower has paid off the First Term Loan and the
Second Term Loan, the Bank will require the Borrower to continue to provide cash
collateralization as consideration for the Bank’s willingness to keep the Letter of
Credit in effect.

2.02. Limitations on Advances and Borrowers= Liability. The liability for
repayment of the interest on account of the Loans will be limited to and calculated with respect to
proceeds from the Notes actually advanced to the Borrower pursuant to the terms of this Agreement
and only from the date or dates of such Advances. Loan proceeds advanced by Bank (acting in its
sole discretion upon the occurrence of an Event of Default) by journal entry to pay interest,
financing costs, and any other costs associated with foreclosure, as well as loan proceeds advanced
directly by Bank to pay costs or expenses required to be paid by the Borrower pursuant to this
Agreement, will constitute actual Advances to the Borrower.

2.03. Borrowing Bases. The amounts outstanding under each of the First Term Loan and
the Second Term Loan will be limited to the lesser of the following amounts: (a) the Borrowing
Base in effect for each of those Loans; or (b) the face amount of the Note governing that
particular Loan. Each of such Loans shall have its own, individual Borrowing Base. The initial
Borrowing Base for the First Term Loan is hereby established in the amount of Five Hundred and
Fifty Thousand and No/100 Dollars ($550,000.00), and the Borrowing Base for the Second Term Loan is
hereby established in the amount of Four Hundred and Fifty Thousand and No/100 Dollars
($450,000.00).

The Bank shall redetermine the Borrowing Base for each Loan at such time as the Bank, acting
in its sole discretion, so elects. If any redetermination results in a change in either Borrowing
Base, the Bank shall promptly notify the Borrower of the change. If a redetermination results in
no change in a Borrowing Base, then no notification shall be necessary. Should the Bank determine
that one of the Borrowing Bases is less than the principal amount then outstanding, the Borrower
shall, within thirty (30) days after receipt of written notice from the Bank, take either of the
following steps that may be required by the Bank: (i) by instruments satisfactory in form and
substance to the Bank, provide the Bank with additional collateral with value in amounts
satisfactory to the Bank in order to increase the Borrowing Base by an amount at least equal to
such excess; or (ii) prepay the principal of the applicable Note (together with accrued interest on
the principal amount so prepaid) in an amount at least equal to such excess.

ARTICLE III

COLLATERALIZATION

3.01. Collateral for First Term Loan. The Borrower and the Bank agree that the First
Term Loan shall be secured by the following:

	 	a.	 	Amendments to the Esconde Deeds of Trust, confirming the first lien created
under those instruments in the oil and gas properties and other interests covered by
the Esconde Deeds of Trust, with each of such amendments to be executed simultaneously
with the execution of this Agreement, and recorded in the public records of those
counties in which any of the collateralized oil and gas properties is located;

	 	b.	 	Deeds of Trust creating a third lien against the oil and gas properties and
other interests covered by the Permian Deeds of Trust, with that lien to be
subordinate to the Bank’s first lien against those properties created under the Permian
Deeds of Trust and BaseLine’s second lien against such properties created under Deeds
of Trust executed in favor of BaseLine;

	 	c.	 	The Security Agreement, of even date herewith, to be executed by the Borrower,
under which it grants to the Bank a security interest in the time deposit account that
secures its performance in connection with the Letter of Credit.

As further support for the Bank’s lien positions, the Bank shall be entitled, and the Borrower does
hereby authorize the Bank, to file any such Financing Statements with the Office of the Texas
Secretary of State, in order to perfect any of the security interests granted under the instruments
described above.

3.02. Collateral for Second Term Loan. The Borrower and the Bank agree that the
Second Term Loan shall be secured by the following:

	 	a.	 	Amendments to the Permian Deeds of Trust, confirming the first lien created
under those instruments in the oil and gas properties and other interests covered by
the Permian Deeds of Trust, with each of such amendments to be executed simultaneously
with the execution of this Agreement, and recorded in the public records of those
counties in which any of the collateralized oil and gas properties is located;

	 	b.	 	Deeds of Trust creating a second lien against the oil and gas properties and
other interests covered by the Esconde Deeds of Trust, with that lien to be
subordinate to the Bank’s first lien against those properties created under the Esconde
Deeds of Trust;

	 	c.	 	The Security Agreement, of even date herewith, to be executed by the Borrower,
under which it grants to the Bank a security interest in the time deposit account that
secures its performance in connection with the Letter of Credit.

As further support for the Bank’s lien positions, the Bank shall be entitled, and the Borrower does
hereby authorize the Bank, to file any such Financing Statements with the Office of the Texas
Secretary of State, in order to perfect any of the security interests granted under the instruments
described above.

3.03. Collateral for Letter of Credit. The Borrower and the Bank agree that the
Letter of Credit shall be secured by that certain Security Agreement, of even date herewith, to be
executed by the Borrower, under which it grants to the Bank a security interest in the time deposit
account that has previously secured its performance in connection with the Letter of Credit.
Regardless of whether the Borrower pays off the First Term Loan and the Second Term Loan, the Bank
requires that the Borrower maintain the Security Agreement in full force and effect so long as the
Bank is obligated to the Texas Railroad Commission under the Letter of Credit.

3.04. Collateral for all Loans. As further support for the Borrower’s performance in
connection with all of the Loans, the Guarantors agree to execute the Guaranty Agreements and the
Stock Pledge Agreements.

ARTICLE IV

THE ADVANCES

4.01. Loan Limitations. Notwithstanding anything stated herein to the contrary, in no
event will Bank be obligated to advance to the Borrower hereunder or under the Loan Documents any
amounts in excess of the lesser of (a) the Borrowing Base established for each Loan; (b) the face
amount of each of the Notes; or (c) the highest amount that the Bank is authorized to advance under
applicable legal lending limits.

4.02. Conditions Precedent. The obligation of Bank to make each Advance hereunder,
will be subject to the prior or simultaneous occurrence or satisfaction of each of the following
conditions:

	 	a.	 	Bank has received from Loan Parties all of the Loan Documents duly executed by
Loan Parties, and the Loan Documents are currently outstanding and enforceable in
accordance with their terms, all as required hereunder.

	 	b.	 	The representations and warranties made by Borrower, which are set forth below
in Article VI hereof, shall be true and correct in every material respect as of the
date of each Advance, and if requested by Bank, Borrower will give a certificate to
Bank to that effect.

	 	c.	 	The Borrower shall have fully complied with each of the covenants are set forth
in Article VII below, except as such compliance may be limited by the passage of time.

	 	d.	 	The Borrower shall establish to the Bank’s satisfaction that all applicable
policies of liability and general indemnity insurance, in such amounts as are required
by the Bank, are fully enforce and name the Bank as loss payee.

	 	e.	 	No Event of Default shall have occurred and be subsisting.

	 	f.	 	If required by the Bank, Borrower shall have furnished to Bank certified copies
of resolutions of Loan Parties authorizing execution, delivery, and performance of all
of the Loan Documents and authorizing the borrowing hereunder, along with, regardless
of the nature of the borrowing entity, such certificates of existence, certificates of
good standing, and other certificates or documents a Bank may reasonably require to
evidence Borrower’s authority.

	 	g.	 	Bank has received from Borrower such other instruments, evidence, and
certificates as it may reasonably require.

ARTICLE V

ACKNOWLEDGMENTS,

REPRESENTATIONS, AND WARRANTIES OF BORROWER

Borrower acknowledges, represents, and warrants to the Bank that:

5.01. Previously Existing Events of Default: Pursuant to the terms of the Esconde
Loan Agreement, Esconde has borrowed funds from the Bank, and failed to pay those funds back to the
Bank by the extended maturity date of March 1, 2010. Pursuant to the terms of the Permian Loan
Agreement, Permian Legend also borrowed funds from the Bank, and also failed to pay those funds
back to the Bank by the same extended maturity date of March 1, 2010. As successor in interest by
merger to both Esconde and Permian Legend, the Borrower is subject to those existing Events of
Default. Consequently, the Borrower has heretofore been in default under the Existing Loans, and
only the Bank’s agreement to defer pursuit of its remedies and renew and extend the Existing Loans
into the Loans prevents the Bank from pursuing those remedies as of the date of this Agreement.
Borrower acknowledge that no action on the part of the Bank prevented it from repaying the Existing
Loans when they became due. Moreover, the Borrower specifically acknowledges that the Bank’s
willingness to extend and renew the Existing Loans into the Loans represents the Bank’s
accommodation of its request. The Bank is under no obligation to honor that request.

5.02. Security Interest: Lender has a duly perfected, first priority security interest
in each item of the collateral identified in the Esconde Deeds of Trust, the Permian Deeds of
Trust, and the Existing Security Agreement.

5.03. Good Faith: Each of the parties to this Agreement is proceeding and has
proceeded in good faith with respect to their rights and remedies under the Existing Loan
Agreements and those documents executed in connection therewith.

5.04. Legal Compliance. Borrower has no knowledge of any material violation of any
law, ordinance, order, rule, or regulation of any Governmental Authority that exists with respect
to the Collateral; the use thereof complies with all applicable laws; and all laws, ordinances,
orders, rules and regulations of all Governmental Authorities for such use have been or will be
satisfied.

5.05. Financial Statements. The financial statements and information regarding the
financial condition of the Guarantors heretofore delivered to Bank are true and correct in all
material respects, and fairly and accurately present the financial condition of the Guarantors as
of the date thereof; no Material Adverse Change has occurred in the financial condition of the
Guarantors since the date thereof; and no additional borrowing has been made or committed to by the
Guarantors since the date thereof other than the borrowing contemplated hereby. Since February 26,
2010, the financial statements and information regarding the financial condition of the Borrower
complied in all material respects with the requirements of the securities Exchange Act of 1934, as
amended, and the rules and regulations of the United States Securities and Exchange Commission
promulgated thereunder applicable to such documents.

5.06. Pending Litigation. Other than those lawsuits referred to on Schedule
6.06, no actions, suits or proceedings are pending or, to the knowledge of the Borrower, threatened
against or affecting any of the Borrower or involving the validity or enforceability of any of the
Loan Documents, or the priority of any of the Bank Liens, at law or in equity, or before or by any
Governmental Authority, except actions, suits and proceedings fully covered by insurance, or which,
if adversely determined, would not impair the ability of Borrower to pay when due any amounts
included in the Obligation.

5.07. Organization. Baron is duly organized, validly existing, and in good standing
under the laws of the state or states of its organization and is also in good standing under the
laws of the state in which any portion of the Collateral is located. The Borrower has full power
and authority to own the Collateral, and to enter into and perform Borrower’s obligations under the
Loan Documents, including the borrowing contemplated hereby; and the Loan Documents to which the
Borrower is a party, when executed, will have been, and will continue to be as long as the Loans
are outstanding, duly authorized, executed, and delivered by Borrower and constitute each Loan
Party’ valid and binding obligation, enforceable against each Loan Party in accordance with its
respective terms, not subject to any defense based upon usury, the capacity of any Loan Party, or
otherwise.

5.08. Absence of Default under Other Agreements. The consummation of the transactions
contemplated by, and the performance of, this Agreement and the Loan Documents will not violate or
contravene any provision of any instrument creating or governing the business operations of the
Borrower and will not result in a breach of, or constitute a default under, any mortgage, deed of
trust, lease, bank loan or credit agreement or other instrument to which any Loan Party is a party
or by which any Loan Party or the Collateral may be bound or affected.

5.09. No Consent Necessary. No consent of any other party and no consent, license,
approval, or authorization of, or registration or declaration with, any Governmental Authority is
required in connection with the execution, delivery, performance, validity or enforceability of the
transactions contemplated by this Agreement or the instruments executed in connection herewith
which have not previously been obtained.

5.10. Use of Proceeds. The Borrower has entered into this Agreement consistent
with its duly authorized purposes and will use the proceeds of the Loans made pursuant to this
Agreement as provided herein as principal for its own account and for business and commercial
purposes as such terms are used in the Consumer Credit Protection Act (the Truth in Lending Act
forming a part thereof).

5.11. Environmental Matters.

	 	a.	 	No notice, notification, demand, request for information, citation, summons, or
order has been issued, no complaint has been filed, no penalty has been assessed and,
to the knowledge of the Borrower, no investigation or review is pending or threatened
by any Governmental Authority or other person: (i) with respect to any alleged
violation of any law, ordinance, rule, regulation or order of any Governmental
Authority in connection with the property, operations or conduct of the business of the
Borrower; or (ii) with respect to any alleged failure to have any permit, certificate,
license, approval, requisition, or authorization required in connection with the
property, operations, or conduct of the business of the Borrower; or (iii) with respect
to any Release of any Hazardous Substance.

	 	b.	 	Except in substantial compliance with Relevant Environmental Laws and permits
issued thereunder, (i) the Borrower, nor the businesses conducted by any of them have
placed, held, located, or disposed of any Hazardous Substance on, under, or at any
property now or previously owned or leased by any of them, and none of such properties
has been used as a dump site or storage (whether permanent or temporary) site for any
Hazardous Substance; (ii) no polychlorinated biphenyls, urea, or formaldehyde is or has
been present at any property now or previously owned or leased by the Borrower; (iii)
no asbestos is or has been present at any property now or previously owned or leased by
the Borrower; (iv) there are no underground storage tanks which have been used to store
or have contained any Hazardous Substance, active or abandoned, at any property now or
previously owned or leased by the Borrower; (v) no Hazardous Substance has been
released at, on, or under any property previously owned or leased by the Borrower; and
(vi) no Hazardous Substance has been released or is present, in a reportable or
threshold quantity, where such a quantity has been established by statute, ordinance,
rule, regulation or order, at, on or under any property now or previously owned by the
Borrower.

	 	c.	 	The Borrower has not transported or arranged for the transportation (directly
or indirectly) of any Hazardous Substance to any location which is listed or proposed
for listing under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986
(“CERCLA”), the Comprehensive Environmental Response, Compensation and Liability
Information System (“CERCLIS”), or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations.

	 	d.	 	There are no environmental Liens on any property owned or leased by the
Borrower, and no actions by any Governmental Authority have been taken or are in
process which could subject any of such properties to such Liens.

	 	e.	 	Prior to the date hereof, the Borrower has provided to Lenders all
environmental investigations, studies, audits, tests, reviews or other analyses
conducted by or which are in the possession of the Borrower in relation to any property
or facility now or previously owned or leased by the Borrower.

5.12. Use of Proceeds. Neither the Borrower, nor any entity in which it owns the
controlling interest is an “investment company” or a company “controlled” by an “investment
company,” within the meaning of the Investment Company Act of 1940, as amended.

All of the foregoing representations and warranties made by the Borrower will be continuing and
true and correct for the period from the date hereof through and as of the date of the payment of
all indebtedness and the performance of all obligations secured hereby, with the same force and
effect as if made each day throughout such period, and all of such representations and warranties
will survive such payment, performance and release.

ARTICLE VI

COVENANTS

6.01. AFFIRMATIVE COVENANTS. Until the Notes and other liabilities of the Borrower
hereunder are paid in full and unless the Bank otherwise consents in writing, the Borrower agrees
that it will fulfill the following covenants within the time periods stated below:

	 	a.	 	Borrower shall furnish to Bank, within ninety (90) days after the close of each
fiscal year (with the next fiscal year to be measured being the one ending as of July
31, 2010), copies of financial statements prepared in accordance with reporting
requirements applicable to public companies.

	 	b.	 	Borrower shall furnish to Bank, within sixty (60) days after the end of each
calendar quarter (with the next calendar month to be measured being the one ending as
of April 30, 2010), copies of financial statements prepared in accordance with
reporting requirements applicable to public companies.

	 	c.	 	Borrower shall furnish to Bank, within ten (10) days after the end of each
calendar month (with the next calendar month to be measured being the one ending as of
May 31, 2010), and a statement of production history, using the same form that the
Borrower has previously used for purposes of reporting production;

	 	d.	 	The Borrower shall furnish to Bank, within thirty (30) days of filing a tax
return with the Internal Revenue Service, a copy of such tax return, with the next tax
returns due being those to be filed for 2009.

	 	e.	 	The Borrower shall permit the Bank and its employees and agents access, at
reasonable times, to the books and records of Borrower.

	 	f.	 	The Borrower shall maintain all of its primary deposit accounts with the Bank.

	 	g.	 	If the Borrower has failed to pay all amounts due in connection with the
Obligation on or before August 1, 2010, the Bank shall be entitled to commission an
updated third party engineering evaluation of the Collateral, and the Borrower
covenants and agrees to be responsible for the cost of such an evaluation.

	 	h.	 	Unless the Bank has released a particular property from the lien created under
the Permian Deeds of Trust, Borrower shall maintain all of the properties covered by
those Deeds of Trust by producing hydrocarbons or otherwise fulfilling the terms of
each of the oil and gas leases covering such properties, with no lapses in excess of
those allowed under the terms of each of the oil and gas leases.

	 	i.	 	Simultaneously with the execution of this Agreement, Borrower will execute the
Letters-in-Lieu. Out of any proceeds of production attributable to properties covered
by the Esconde Deeds of Trust, the Borrower agrees that the Bank shall apply all of
such proceeds to the repayment of principal and interest due under the First Term Loan.
In addition, if any additional Events of Default occur following the execution of this
Agreement, the Bank shall be entitled to apply any excess proceeds toward prepayment of
the outstanding principal balance due under the First Term Loan. Out of the proceeds
of production attributable to properties covered by the Permian Deeds of Trust, the
Borrower agrees that the Bank shall apply such proceeds to the payment of interest due
under the Second Term Loan. In addition, if any additional Events of Default occur
following the execution of this Agreement, the Bank shall have the right to apply any
surplus funds to the repayment of principal due under the Second Term Loan. If no
additional Events of Default occur following the execution of this Agreement, the Bank
agrees to use any excess proceeds that it receives from purchasers of production to pay
ad valorem taxes, joint interest billings, and other invoices presented by the Borrower
for payment; provided, however that nothing in this subparagraph (i) shall obligate the
Bank to pay such invoices or other obligations submitted by the Borrower if no proceeds
of production remain after the Bank has deducted its payments for monthly principal and
interest, or previously paid other invoices presented by the Borrower.

	 	j.	 	If proceeds of production are available after the Bank has deducted its monthly
payment of principal and interest, the Borrower agrees to pay when due all taxes,
assessments, and other liabilities, except and so long as contested in good faith.

	 	k.	 	The Borrower agrees to be jointly and severally liable for reasonable legal
fees incurred by the Bank in connection with the preparation of this Agreement, the
Notes, and all other agreements and documents contemplated hereby or thereby, and to
tender full and final payment of all such fees and expenses simultaneously with the
execution of this Agreement. The Borrower will, upon request, promptly reimburse the
Bank for all amounts expended, advanced or incurred by the Bank to satisfy any
obligation of the Borrower under this Agreement or the Notes. The Borrower will pay
all reasonable legal fees and expenses incurred by the Bank to collect the Notes or to
enforce the rights of the Bank under this Agreement or any other instruments referred
to or mentioned herein or therein or executed in connection herewith or therewith,
which amounts will include all court costs, attorneys’ fees, fees of auditors and
accountants, and investigation expenses reasonably incurred by the Bank from third
parties in connection with any such matters, together with interest at the default rate
on each such amount from the date that the same is expended, advanced or incurred by
the Bank until the date it is repaid to the Bank.

	 	l.	 	The Borrower agrees to remain in substantial compliance with all Applicable
Environmental Laws. To that end, the Borrower will not place nor permit to be placed
any Hazardous Substance on any of the Premises in violation of applicable federal,
state, and local environmental laws. In the event the Borrower should discover any
Hazardous Substance, on any of its properties that could result in a breach of the
foregoing covenant, the Borrower will notify Bank with five (5) business days after
such discovery. The Borrower will dispose of all material amounts of Hazardous
Substance generated by the Borrower only at facilities and/or with carriers that
maintain valid governmental permits under the Resource Conservation and Recovery Act,
42 U.S.C. '6901. In the event any of the Borrower receives any notice of the
filing of a complaint or commencement of any administrative or judicial hearing or
procedure (an “Environmental Proceeding”) against that Borrower as to any of the
Premises alleging a violation of an environmental law or regulation which would have a
Material Adverse Effect, the Loan Party receiving such notice will in turn provide
notice to Bank within five (5) business days after the Loan Party has received such
notice or filing.

	 	m.	 	The Borrower shall observe and comply in all material respects with all laws
statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions,
certificates, franchises, permits, licenses, authorizations, rules, regulations,
directions and requirements of all federal, state, county, municipal and other
governments, departments, commissions, boards, courts, authorities, officials and
officers, domestic and foreign; provided, however, that the Borrower reserves the right
to contest in good faith, by appropriate proceedings diligently conducted, any of the
foregoing.

	 	n.	 	The Borrower shall promptly cure any defects in the execution and delivery of
this Agreement, the Notes, or any other instrument or instruments referred to or
mentioned herein or therein. The Borrower will immediately execute and deliver, upon
request of the Bank, all such further documents or agreements or instruments in
compliance with or accomplishment of the covenants and agreements of the Borrower in
this Agreement.

6.02. NEGATIVE COVENANTS. Until the expiration or termination of the credit extended
hereunder, and thereafter until the Notes and other liabilities of the Borrower hereunder are paid
in full, unless the Bank will otherwise consent in writing, the Borrower agrees that:

	 	a.	 	The Borrower shall not assume, guarantee, endorse, or otherwise become liable
upon any material obligations of any other person, by the endorsement of negotiable
instrument for deposit or collection.

	 	b.	 	The Borrower shall not execute a conveyance of any substantial assets without
the prior written consent of the Bank, to any third party, save and except for any
assets of nominal value no longer needed in Borrower= business, and except for
conveyances made for adequate consideration in the normal course of business.

	 	c.	 	The Borrower shall not enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or the rendering of any
service, with any affiliate or related entity unless such transaction is otherwise
permitted under this Agreement or is in the ordinary course of the Borrower=s
business and is upon fair and reasonable terms no less favorable to the Borrower than
it would obtain in a comparable arm’s length transaction with an entity not affiliated
or related.

	 	d.	 	The Borrower shall not repay any portion of Subordinated Debt, without prior
written consent of Bank.

ARTICLE VII

EVENTS OF DEFAULT

7.01. Definition. The following will constitute AEvents of Default@
hereunder:

	 	a.	 	If the Borrower fails to timely pay any installment of principal or interest on
the Notes when due or fails to timely pay any other indebtedness owed by any of the
Borrower to the Bank when due;

	 	b.	 	If the Borrower fails to fulfill any of the terms, provisions, or requirements
of this Agreement or any other Material Agreement;

	 	c.	 	If the Borrower fails to comply with any of the covenants, duties, or
obligations of the Borrower, and such failure continues for thirty (30) days after the
Bank has transmitted written notice of that failure to the Borrower;

	 	d.	 	If a default occurs under any of the Loan Documents;

	 	e.	 	If at any time any representation or warranty made by the Borrower herein is found
to be materially incorrect when made;

f. If any of the parties composing the Borrower:

	 	i.	 	applies for or consents to the appointment of a receiver,
trustee, or liquidator,

ii. is unable or admits in writing its inability to pay its debts as they mature,

iii. makes a general assignment for the benefit of creditors,

iv. is adjudicated bankrupt or insolvent, or

	 	v.	 	files a voluntary petition in bankruptcy or file a petition or
answer seeking reorganization or an arrangement with creditors or take
advantage of any insolvency law or files an answer admitting the material
allegations of a petition filed against it in any bankruptcy or insolvency
proceeding, or any action is taken by the Borrower for the purpose of effecting
any of the foregoing.

	 	g.	 	If an order, judgment or decree is entered by any court of competent
jurisdiction, appointing a receiver, trustee or liquidator of the Borrower or of all or
a substantial part of the assets of the Borrower, and such order, judgment, or decree
continues unstayed and in effect for any period of sixty (60) consecutive days;

	 	h.	 	If the Borrower defaults under any other loan documents representing,
evidencing, or securing any other loan made to the Borrower;

	 	i.	 	If the Borrower fails to comply with any requirement of any Governmental
Authority within thirty (30) days after notice in writing of such requirement has been
given to the Borrower; or

	 	j.	 	If the Lender deems itself insecure for any reason.

7.02. Remedies.

	 	a.	 	Upon the occurrence of any Event of Default described in Section 8.01, the
lending obligations, if any, of Bank hereunder will immediately terminate, and the
entire principal amount of all Obligations then outstanding together with interest then
accrued and unpaid thereon will become immediately due and payable, all without demand
and presentment for payment, notice of nonpayment, protest, notice of protest, notice
of dishonor, notice of intention to accelerate maturity or notice of acceleration of
maturity, or any other notice of default of any kind, all of which are hereby expressly
waived by the Borrower.

	 	b.	 	Bank will have the right, upon the occurrence of any such Event of Default, in
addition to the rights or remedies available to it under the Loan Documents, to:

	 	i.	 	Enter into possession of any of the properties covered by the
Deeds of Trust;

	 	ii.	 	Within fifteen (15) days following its transmittal of written
notice to the Borrower, Guarantors, and any other owners of leasehold interests
in any of the Mortgaged Properties, assume the operations of such Mortgaged
Properties, with such authority to be exercised either by the Bank or a
contract operator engaged by the Bank to assume such operations; and

	 	iii.	 	Employ watchmen and security guards to protect the Mortgaged
Properties.

All sums expended by Bank in pursuit of such remedies will be deemed to have been
advanced to the Borrower and secured by the Collateral.

7.03. Right of Setoff. Upon the occurrence and during the continuance of any
Event of Default, or if the Borrower becomes insolvent, however evidenced, Bank is hereby
authorized at any time and from time to time, without prior notice to Borrower (any such notice
being expressly waived by the Borrower), to setoff and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other indebtedness at any time
owing by Bank to or for the credit or the account of the Borrower against any and all of the
Obligations, irrespective of whether or not Bank will have made any demand under this Agreement or
the Notes and although such Obligations may be unmatured. Bank agrees promptly to notify the
Borrower after any such setoff and application, provided that the failure to give such notice will
not affect the validity of such setoff and application. The rights of Bank under this Section 8.03
are in addition to other rights and remedies (including, without limitation, other rights of
setoff) which Bank may have.

7.04. Delegation of Duties and Rights. Bank may perform any of its duties or exercise
any of its Rights under the Loan Papers by or through its officers, directors, employees,
attorneys, agents or other representatives.

7.05. Bank Not in Control. None of the covenants or other provisions contained in
this Agreement or the other Loan Papers will, or will be deemed to, give Bank the right to exercise
control over the affairs or management of the Borrower.

7.06. Waivers by Bank. The acceptance by Bank at any time and from time to time of
part payment on the Obligation will not be deemed to be a waiver of any Event of Default then
existing. No waiver by Bank of any Event of Default will be deemed to be a waiver of any other
then-existing or subsequent Event of Default. No delay or omission by Bank in exercising any right
under this Agreement or any of the other Loan Documents will impair such Right or be construed as a
waiver thereof or any acquiescence therein.

7.07. Cumulative Rights. All rights available to Bank under this Agreement and the
other Loan Documents are cumulative of, and in addition to, all other rights available to Bank at
law or in equity. The exercise or partial exercise of any such right will not preclude the
exercise of any other right under the Loan Documents or otherwise.

7.08. Expenditures by Bank. All court costs, reasonable attorneys’ fees, other
costs of collection, and other sums spent by Bank pursuant to the exercise of any right provided
herein will be payable to Bank on demand, will become part of the Obligation, and will bear
interest at the Highest Lawful Rate per annum on each such amount commencing on the date notice of
such claims, judgments, costs, charges or attorneys’ fees is given to Borrower by Bank until the
date paid by the Borrower.

7.09. Existing Events of Default and Subsequent Events of Default. The Borrower
specifically acknowledges and agrees that it is subject to existing Events of Default under the
Existing Notes. Although the Bank has previously agreed, and does hereby agree, to renew the
Existing Loans into the Loans and not to pursue its remedies in connection with such existing
Events of Default until September 1, 2010, nothing shall prevent the Bank from pursuing its
remedies in connection with any Events of Default, as defined in Section 8.01 above, following the
execution of this Agreement. Upon the occurrence of such a subsequent Event of Default, the Bank
shall be entitled to pursue its remedies not only with respect to such a subsequently occurring
Event of Default, but also as to those existing Events of Default acknowledged by the Borrower.

7.10. Cross Defaults and Cross Collateralization: As further stated above, all of the
Loans are cross-defaulted and cross-collateralized. If the Borrower fails to fulfill its
obligations in connection with any of the Loans on or before September 1, 2010, or if a subsequent
Event of Default should occur, the Bank shall have the right to pursue its remedies against the
Borrower, based upon the occurrence of only one Event of Default.

ARTICLE VIII

BANK’S DISCLAIMERS — BORROWER=S INDEMNITIES

8.01. Limitation on Interest. All agreements between the Borrower and Bank, whether
now existing or hereby arising and whether written or oral, are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of acceleration of the maturity of the Loans
or otherwise, will the amount paid, or agreed to be paid, to Bank for the use, forbearance or
detention of the money to be loaned hereunder or otherwise, or for the payment or performance of
any covenant or obligation contained herein or in the Notes, Deeds of Trust, Security Agreements,
or in any other Loan Documents, exceed the Highest Lawful Rate. If under any circumstance
whatsoever fulfillment of any provision hereof or of the Notes, Deeds of Trust, Security
Agreements, or other Loan Documents, at the time performance of such provision will be due, will
involve transcending the Highest Lawful Rate, then, ipso facto, the obligation to be fulfilled will
be reduced to the limit of such validity; and if under any circumstance Bank will ever receive as
interest or otherwise an amount which would exceed the Highest Lawful Rate, the amount, if any,
which would exceed the Highest Lawful Rate will be applied to the reduction of the principal amount
owing on account of the Loans or on account of any other principal indebtedness of Borrower to
Bank, and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance
of principal hereof and such other indebtedness, the amount of such excessive interest that exceeds
the unpaid balance of principal hereof and such other indebtedness will be refunded to the
Borrower. All sums paid or agreed to be paid to Bank for the use, forbearance, or detention of the
indebtedness of the Borrower to Bank will be amortized, prorated, allocated, and spread throughout
the full term of such indebtedness until payment in full so that the actual rate of interest on
account of such indebtedness is uniform throughout the term thereof and, in conjunction therewith,
if the Loans should ever be deemed to consist of two or more loans, then any sum paid or agreed to
be paid to Bank for the use, forbearance, or detention of the indebtedness of the Borrower to Bank
which is deemed to be excessive interest with respect to one or more of such loans will be
allocated to the loan or loans for which the Highest Lawful Rate has not been contracted for,
charged, or received or for which no maximum rate of interest exists.

8.02. Management. Any term or condition hereof, or of any of the Loan Documents
to the contrary notwithstanding, Bank will not have, and by its execution and acceptance of this
Agreement hereby expressly disclaims, any obligation or responsibility for the management, conduct
or operation of the business and affairs of Borrower; and any term or condition hereof, or of any
of the Loan Documents, permitting Bank to disburse funds, whether from the proceeds of the Loans or
otherwise, or to take or refrain from taking any action with respect to the Borrower, the
Improvements, or any other collateral for repayment of the Loans, will be deemed to be solely to
permit Bank to audit and review the management, operation, and conduct of the business and affairs
of the Borrower, and to maintain and preserve the security given by the Borrower to Bank for the
Loans, and may not be relied upon by any other person. Further, Bank will not have, has not
assumed, and by its execution and acceptance of this Agreement hereby expressly disclaims any
liability or responsibility for the payment or performance of any indebtedness or obligation of the
Borrower, and no term or condition hereof, or of any of the Loan Documents, will be construed
otherwise. The Borrower hereby expressly acknowledges that no term or condition hereof, or of any
of the Loan Documents, will be construed so as to deem the relationship between the Borrower and
Bank to be other than that of the Borrower and Bank. The Borrower will at all times represent that
the relationship between the Borrower and Bank is solely that of the Borrower and Bank.

8.03. Indemnification of Bank. The Borrower hereby expressly acknowledges and
recognizes the Borrower’s responsibility for and agrees to indemnify and hold Bank and its
successors and assigns absolutely harmless from and against all costs, expenses, liabilities,
losses, damages, or obligations incurred by or imposed upon or alleged to be due from Bank or its
successors and assigns in connection with the assertion of:

	 	a.	 	Any claim for brokerage, agency or finder’s fees or commissions in connection
with the Loans; and

	 	b.	 	Any claim for attorneys’, appraisal, title insurance, inspection, or other
fees, costs, and expenses incurred in connection with the negotiation, closing,
administration, collection or refinancing of the Loans, which arise by, through, or on
behalf of the Borrower or any agent or representative of them.

Without intending to limit the remedies available to Bank with respect to the enforcement of
its indemnification rights as stated herein related to the claims described in 9.03 (a) and (b)
above, in the event any claim or demand is made or any other fact comes to the attention of Bank in
connection with, relating or pertaining to, or arising out of claims described in 9.03 (a) and (b),
which Bank reasonably believes might involve or lead to some liability of Bank, the Borrower will,
immediately upon receipt of written notification of any such claim or demand, assume in full the
personal responsibility for and the defense of any such claim or demand and pay in connection
therewith any loss, damage, deficiency, liability, or obligation, including, without limitation,
legal fees and court costs incurred in connection therewith. In the event of court action in
connection with any such claim or demand, the Borrower will assume in full the responsibility for
the defense of any such action and will immediately satisfy and discharge any final decree or
judgment rendered therein. Bank may, at its sole and uncontrolled discretion, make any payments
sustained or incurred by reason of any of the foregoing; and the Borrower will immediately repay to
Bank in cash the amount of such payment, with interest thereon at the maximum rate of interest
permitted by applicable law from the date of such payment, or in the event no such maximum rate
exists, then at a rate equal to two percent (2%) above the Prime Rate, as defined above. Bank
will have the right to implead the Borrower as a party defendant in any legal action brought
against Bank, and the Borrower hereby consents to the entry of an order making the Borrower a party
defendant to any such action.

8.04. Agency Disclaimer. Nothing herein will be construed as making or constituting
Bank as the agent of the Borrower in making payments pursuant to any construction contracts or
subcontracts entered into by the Borrower or otherwise, the purpose of all requirements of Bank
hereunder being solely to allow Bank to check and require documentation (including, but not limited
to, lien waivers) sufficient to protect Bank and the Loans contemplated hereby.

8.05. Releases: The Borrower assumes full responsibility for the repayment of the
Loans, and expressly holds the Lender harmless from any liability associated with its failure to
repay those Loans. Further, as material consideration to the Bank for agreeing to forbear from
pursuit of its remedies and for entering into this Agreement, the Borrower expressly releases
Lender and each of its agents, employees, attorneys, officers, and directors (the “Lender Parties”)
from any and all claims, liabilities, and causes of action, known or unknown, now or hereafter
existing, based upon any of the Lender’s actions prior to the execution of this Agreement,
including, but not limited to, any and allegations that any of the Lender Parties exercised
excessive control over the affairs of any of the Borrower; that any of the Lender Parties refused
to pay an item executed by any of the Borrower when that item was presented by the payee for
collection; that any of the Lender Parties failed to execute correctly or with sufficient due
diligence any wiring instructions provided by any of the Borrower; that any of the Lender Parties
exceeded customary lending practices; that any of the Lender Parties made commitments to the
Borrower that any of the Lender Parties subsequently refused to fulfill; that any of the Lender
Parties breached standards of professionalism customary in the banking industry; that any of the
Lender Parties breached its fiduciary duty to the Borrower; that any of the Lender Parties engaged
in tortious conduct resulting in damages to the Borrower; that any of the Lender Parties charged
interest that was in excess of interest legally allowed under the usury laws of the State of Texas;
that any of the Lender Parties has engaged in fraud, made misrepresentations, or engaged in other
conduct that led the Borrower to enter into such loan agreements, notes, or other documents
executed simultaneously with the Bank’s agreement to advance the Loans to the Borrower; or that any
of the Lender Parties has defamed the Borrower. In no event will anything in this paragraph be
construed to release the Bank from its obligations under this Agreement.

The Lender hereby releases the Borrower and its agents, employees, and attorneys (collectively,
the “Borrower Parties”) from any and all claims, liabilities, and causes of action, known or
unknown, now or hereafter existing, based upon allegations that any of the Loan Parties
misrepresented any material fact to the Lender; that any of the Loan Parties participated in an act
of fraud in dealing with the Lender; or that any of the Loan Parties engaged in tortious conduct in
its dealings with Lender; provided, however, that the Borrower shall be released from its
obligations under this Agreement.

ARTICLE IX

CORPORATE CHANGES AND DISTRIBUTIONS

Without the consent of the Bank, not to be unreasonably withheld, the Borrower will not make
distributions to the Guarantors or increase the salaries of the Guarantors.

ARTICLE X

SUPERSEDING PROVISION

In the event of a conflict between the terms and conditions of this Agreement and the terms
and conditions of any other Loan Document, the terms and conditions of this Agreement will control.

ARTICLE XI

MISCELLANEOUS

11.01. Inurement. This Agreement will be binding upon, and will inure to the
benefit of the Borrower and Bank, and their respective heirs, legal representatives, successors and
assigns; provided that the Borrower may not assign any rights or obligations under this Agreement
without the prior written consent of Bank; and provided further that Bank specifically, but without
limitation, has the right to transfer or assign all or any part of its rights, duties, and
obligations under and pursuant to the Loan Documents, and commencing at the time of and following
any such transfer or assignment, Bank will have no liability or obligation with respect to such
rights, duties, and obligations so transferred or assigned. The Borrower expressly authorizes the
Bank to engage in negotiations with any third party regarding the assignment of the Notes and the
Bank’s Liens. In connection with such negotiations, the Borrower hereby agrees that the Bank shall
have the right to release to any potential purchaser such information from the Bank’s records as
that purchaser may request in connection with that purchaser’s due diligence.

11.02. Survival. The provisions hereof will survive the execution of all instruments
herein mentioned, will continue in full force and effect until the Loans have been paid in full,
and will not be affected by any investigation made by any party. This instrument may be amended
only by an instrument in writing executed by the parties hereto.

11.03. Notices. Any notice required or permitted to be given hereunder will be in
writing and will be considered properly given if mailed by first class United States mail, postage
prepaid, registered or certified with return receipt requested, or by delivering same in person to
the intended addressee or by prepaid telegram. Notice so mailed will be effective upon its deposit
in a Post Office or other depository under the care or custody of the United States Postal Service.
Notice given in any other manner will be effective only if and when received by the addressee.
For purposes of notice, the addresses of the parties will be as set forth below; provided, however,
that any party will have the right to change such party’s address for notice hereunder to any other
location within the continental United States by the giving of thirty (30) days’ notice to all
other parties in the manner set forth above:

	 	 	 
	If to Borrower:
	 	Baron Energy, Inc.

3327 W. Wadley, Suite 3-267

Midland, Texas 79707

	If to Guarantors:
	 	Ronnie L. Steniocher

712 Willow Ridge Drive

San Marcos, Texas 78666

	 	 	Lisa P. Hamilton

712 Willow Ridge Drive

San Marcos, Texas 78666

	 	 	Pierce- Hamilton Energy Partners, LP

3327 W. Wadley Avenue, Suite 3-267

Midland, Texas 79707

	If to Bank:
	 	American State Bank

620 N. Grant

Odessa, Texas 79761-4797

Attention: Mr. Mike Marshall

11.04. Severance. Bank is relying and is entitled to rely upon each and all of the
provisions of this Agreement; and accordingly, if any provision or provisions of this Agreement
should be held to be invalid or ineffective, then all other provisions hereof will continue in full
force and effect notwithstanding.

11.05. ENTIRETIES. THIS AGREEMENT, THE NOTES, THE LOAN DOCUMENTS, AND ANY CONTRACTS
OR INSTRUMENTS RELATING THERETO, REPRESENT THE ENTIRE AGREEMENT BETWEEN THE PARTIES, AND IT IS
EXPRESSLY UNDERSTOOD THAT ALL PRIOR CONVERSATIONS OR MEMORANDA BETWEEN THE PARTIES REGARDING THE
TERMS OF THIS AGREEMENT WILL BE SUPERSEDED BY THIS AGREEMENT. ANY AMENDMENT, APPROVAL, OR WAIVER
BY BANK OF THE TERMS OF THIS AGREEMENT, THE PROMISSORY NOTES, AND ANY CONTRACTS OR INSTRUMENTS
RELATING THERETO, MUST BE IN WRITING OR CONFIRMED IN WRITING, AND WILL BE EFFECTIVE ONLY TO THE
EXTENT SPECIFICALLY SET FORTH IN SUCH WRITING. THIS AGREEMENT, IN CONJUNCTION WITH THE PROMISSORY
NOTES AND ANY CONTRACTS OR INSTRUMENTS RELATING THERETO WILL SERVE TO EVIDENCE THE TERMS OF THE
ENTIRE AGREEMENT BETWEEN THE PARTIES.

[The remainder of this page is intentionally left blank. Signature page follows.]

1

IN WITNESS HEREOF, the parties hereto have executed this Agreement in one or more
counterparts, each of which will be deemed an original and all of which together will constitute
one and the same instrument, effective as of the day and year first above written.

BORROWERS:

BARON ENERGY, INC.

	 	 	 	By:
/s/ Ronnie L. Steinocher

Ronnie L. Steinocher

President

GUARANTORS:

/s/ Ronnie L. Steinocher

Ronnie L. Steinocher, Individually

/s/ Lisa P. Hamilton

Lisa P. Hamilton, Individually

PIERCE-HAMILTON ENERGY PARTNERS LP

	 	 	 	By:
Muscoda Hill Energy LLC, its general partner

By:/s/ Lisa P. Hamilton

Lisa P. Hamilton, President

BANK:

American State Bank

	 	 	 	By:      /s/ Mike Marshall

Mike Marshall

Executive Vice President

2

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