Document:

exv10w1

 

Exhibit 10.1

Amegy Bank N.A.

1807 Ross Avenue, Suite 400

Dallas, Texas 75201

January 9, 2007

Infinity Energy Resources, Inc.

633 Seventeenth Street, Suite 1800

Denver, Colorado 80202

     Re: Loan Agreement

Ladies and Gentlemen:

     This letter sets forth the Loan Agreement (this “Loan Agreement”) among Infinity
Energy Resources, Inc. (“Borrower”), a Delaware corporation; Infinity Oil and Gas
of Texas, Inc., a Delaware corporation, and Infinity Oil & Gas of Wyoming, Inc., a
Wyoming corporation (collectively “Guarantors”); and Amegy Bank N.A.
(“Lender”), with respect to loans from Lender to Borrower and obligations of Borrower and
Guarantors to Lender.

     Loan. (a) Subject to the terms and conditions set forth in this Loan Agreement and the
other agreements, instruments, and documents executed and delivered in connection herewith
(collectively the “Loan Documents”), Lender agrees to make a revolving loan in the maximum
amount of $50,000,000.00 to Borrower (the “Revolving Loan”) on the terms set forth in the
Revolving Promissory Note attached as Exhibit A (the “Revolving Note”), for the
purposes set forth below. Subject to the terms and conditions hereof, Borrower may borrow, repay,
and reborrow on a revolving basis from time to time during the period commencing on the date hereof
and continuing through 11:00 a.m. (Dallas, Texas time) on January 9, 2009 (the “Termination
Date”), such amounts as Borrower may request under the Revolving Loan; provided, however, the
total principal amount outstanding at any time shall not exceed the lesser of (i) the aggregate
sums permitted under the Borrowing Base (as defined below), which is initially set at
$27,000,000.00, or (ii) $50,000,000.00. All sums advanced under the Revolving Loan, together with
all accrued but unpaid interest thereon, shall be due and payable in full on the Termination Date.
Borrower has the right to request a one year extension of the Termination Date in connection with
the October 1 Borrowing Base redetermination each year. Any extension is subject to appropriate
credit approval of Lender and may be subject to additional conditions. Lender has not yet
committed to any extension of the Termination Date.

          (b) The unpaid principal balance of the Revolving Note shall bear interest from the date advanced until paid or until default or maturity at the rates per
annum elected by Borrower from the following options under the terms of the Revolving Note: (i) the sum of the

 

 

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Stated Rate plus the Applicable Margin, or (ii) the sum of the LIBOR Rate plus the LIBOR
Spread; provided that in no event shall such rate exceed the Maximum Rate (as defined below). The
Applicable Margin and the LIBOR Spread will vary based on the Borrowing Base Utilization (as
defined below) as in effect from time to time, with each change in the applicable rate resulting
from a change in the Borrowing Base Utilization to take effect on the day such change in the
Borrowing Base Utilization occurs. “Borrowing Base Utilization” is defined as an amount
expressed as a percentage, equal to the quotient of (i) the sum of (A) the aggregate principal
amount of the Revolving Loan outstanding, plus (B) the aggregate undrawn amount of all outstanding
Letters of Credit (as defined below), divided by (ii) the Borrowing Base. Based on the Borrowing
Base Utilization, the Applicable Margin and the LIBOR Spread will vary as set forth below:

	 	 	 	 	 	 	 	 	 
	Borrowing Base Utilization	 	Applicable Margin	 	LIBOR Spread
	Greater than or equal to 85%
	 	 	0.50	%	 	 	3.25	%
	Less than 85%, but
greater than or equal to 66%
	 	 	0.25	%	 	 	3.00	%
	Less than 66%, but
greater than or equal to 33%
	 	 	0.00	%	 	 	2.75	%
	Less than 33%
	 	 	0.00	%	 	 	2.50	%

The “Stated Rate” shall be equal to the greater of (i) the interest rate publicly announced
by Lender from time to time as its general reference rate of interest, which prime rate shall
change upon any change in such announced or published general reference interest rate and which
prime rate may not be the lowest interest rate charged by the Lender, or (ii) the sum of the rate
of interest, then most recently published in the Money Rates section of The Wall Street Journal as
the “federal funds” rate for reserves traded among commercial banks for overnight use, plus
one-half of one percent (0.5 %); and the “LIBOR Rate” means the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the average of the offered
quotations appearing at Page or Ticker US0001M, US0002M, US0003M, or US0006M, as the case may be
for the applicable Interest Period (as defined in the Revolving Note) in Bloomberg Financial
Markets Commodities News as published by Bloomberg L.P. (or such other similar news
reporting service as Lender may subscribe to at the time such LIBOR Rate is determined), at which
deposits in U.S. dollars are offered by the major London clearing banks in the London interbank
offered market for a period of time equal or comparable to one, two, three, or six months and in an
amount equal to or comparable to the principal amount of the LIBOR Balance (as defined in the Revolving Note) to which such interest period relates.

          (c) Advances on the Revolving Loan may be used only for the following purposes: (i) for the
Closing Date Advances (as defined below), (ii) for the Approved Plan of Development (as defined
below), (iii) the issuance of Letters of Credit (as defined below), (iv) auction letters and
letters of guarantee; and (v) for other business purposes approved by Lender in advance. On or
after the date of the closing of this Loan Agreement, Borrower may request advances on the
Revolving Loan for the following purposes only (the “Closing Date 

 

 

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Advances”):

               (i) Borrower may advance up to $8,000,000.00 for the purpose of paying Borrower’s and
Guarantors’ past-due accounts payable (the “Accounts Payable”);

               (ii) Borrower may advance on the Revolving Loan to pay closing costs, expenses, and fees
incurred in connection with this Loan Agreement; and

               (iii) Borrower may advance up to $500,000.00 for
working capital.

          (d) Except for the Closing Date Advances, all subsequent advances on the Revolving Loan shall
be used only to fund the budgeted capital expenditures under the Approved Plan of Development. As
used in this Loan Agreement, “Approved Plan of Development” means the written and scheduled
plan of development approved by Lender, with respect to budgeted capital expenditures and expected
schedule for Guarantors’ development activities with respect to those proved oil and gas properties
and undeveloped oil and gas properties in Comanche and Erath Counties, Texas, Routt County,
Colorado, and Sweetwater County, Wyoming (the “Project Areas”). The initial Approved Plan
of Development approved by Lender is attached as Schedule 1(d) to this Loan Agreement. The
Approved Plan of Development may not be materially modified without Lender’s prior written consent.
If Borrower wishes to so modify the Approved Plan of Development, Borrower shall provide an
amended Plan of Development for Lender’s approval at least ten (10) days before it is proposed to
be effective; and Lender must respond to such request for written consent within such ten-day
period. Borrower and Guarantors shall use all “Free Operating Cash Flow” (as defined below) for
the purpose of funding the capital expenditures under the Approved Plan of Development.

          (e) At the request of Borrower, Lender may from time to time issue one or more letters of
credit for the account of Borrower, Guarantors, or any affiliates (the “Letters of
Credit”). Borrower’s availability on the Revolving Loan will be reduced by the aggregate
undrawn amount of all unexpired Letters of Credit. Any fundings under any Letters of Credit
will be treated as an advance on the Revolving Loan and will be secured by the Security Documents
(as defined below). At no time may the aggregate undrawn amount of all outstanding Letters of
Credit exceed twenty percent (20%) of the Borrowing Base. All Letters of Credit shall be for a
term of up to one year (or longer if necessary for regulatory requirements) but shall expire not
later than five days prior to the Termination Date, unless adequately secured by cash collateral
held by Lender. Borrower will sign and deliver Lender’s customary forms for the issuance of
Letters of Credit. Borrower agrees to pay to Lender a Letter of Credit Fee equal to the Letter of
Credit Fee Rate per annum set forth below, calculated on the aggregated stated amount of each
Letter of Credit for the stated duration thereof (computed on the basis of actual days elapsed as
if each year consisted of 360 days). The Letter of Credit Fee Rate will vary as set forth below
based on the Borrowing Base Utilization:

 

 

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	Borrowing Base Utilization	 	Letter of Credit Fee Rate
	Greater than or equal to 85%
	 	 	3.25	%
	Less than 85%, but
greater than or equal to 66%
	 	 	3.00	%
	Less than 66%, but
greater than or equal to 33%
	 	 	2.75	%
	Less than 33%
	 	 	2.50	%

Any renewal or extension of a Letter of Credit will be treated as a new issuance for the purpose of
the Letter of Credit Fee. These Letter of Credit Fees are payable quarterly in arrears within
fifteen (15) days of the end of each calendar quarter.

          (f) At the request of Borrower and in the sole discretion of Lender, Lender may from time to
time issue one or more auction letters or letters of guarantee in connection with auctions or other
purchases of oil and gas properties by Borrower. Each auction letter and letter of guarantee will
have an expiration date not longer than five (5) days from the date of the letter. Notwithstanding
any provision to the contrary, Borrower’s availability on the Revolving Loan will be reduced by the
aggregate maximum amount stated in all unexpired auction letters and letters of guarantee until
Lender is satisfied that (i) Borrower was unsuccessful in the auction or purchase, or (ii) Borrower
consummates the purchase of the oil and gas properties. Any fundings pursuant to an auction letter
or letter of guarantee will be treated as an advance on the Revolving Loan and will be secured by
the Security Documents.

          (g) Borrower agrees to pay to Lender the following fees that are non-refundable and earned by
Lender upon execution of this Loan Agreement unless otherwise stated:

               (i) Upon execution of the term sheet, Borrower previously paid Lender a Due Diligence Fee in the amount of $50,000.00.

               (ii) Upon execution of this Loan Agreement, Borrower agrees to pay Lender an Arrangement Fee in the amount of $270,000.00; provided, however, that the Due Diligence
Fee shall be credited to this Arrangement Fee at closing.

               (iii) Borrower agrees to pay to Lender a Non-Use Fee equal to the applicable Non-Use Fee Rate
set forth below per annum (computed on the basis of actual days elapsed and as if each calendar
year consisted of 360 days), payable quarterly in arrears, multiplied by an amount determined daily
equal to the difference between the Borrowing Base and the sum of (i) the aggregate outstanding
principal balance of the Revolving Loan at such time, plus (ii) the aggregate undrawn amount on all
outstanding Letters of Credit. The Non-Use Fee Rate will vary as set forth below based on the
Borrowing Base Utilization:

 

 

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	Borrowing Base Utilization	 	Non-Use Fee Rate
	Greater than or equal to 85%
	 	 	0.750	%
	Less than 85%, but
greater than or equal to 66%
	 	 	0.625	%
	Less than 66%, but
greater than or equal to 33%
	 	 	0.500	%
	Less than 33%
	 	 	0.375	%

This Non-Use Fee is payable quarterly within fifteen (15) days of the end of each calendar quarter.

          (h) The Revolving Loan, all other loans now or hereafter made by Lender to Borrower, and any
renewals or extensions of or substitutions for those loans, will be referred to collectively as the
“Loans.” The Revolving Note, all other promissory notes now or hereafter payable by
Borrower to Lender, and any renewals or extensions of or substitutions for those notes, will be
referred to collectively as the “Notes.”

     2. Collateral. (a) Payment of the Notes and the Hedge Liabilities (as defined below)
will be secured by the first liens and first security interests, subject to Permitted Encumbrances
(as defined below) created or described in the following (collectively the “Security
Documents”): (i) a Deed of Trust and Security Agreement of even date, executed by Infinity Oil
and Gas of Texas, Inc., in favor of Lender, and covering oil and gas properties located in Erath and Comanche
Counties, Texas; (ii) a Deed of Trust and Security Agreement of even date, executed by Infinity Oil
& Gas of Wyoming, Inc. in favor of Lender, and covering oil and gas properties located in Routt
County, Colorado; (iii) a Deed of Trust and Security Agreement of even date, executed by Infinity
Oil & Gas of Wyoming, Inc. in favor of Lender, and covering oil and gas properties located in
Sweetwater County, Wyoming; and (iv) any other security documents now or hereafter executed in
connection with the Loans. The three deeds of trust described above shall collectively be
referred to as the “Deeds of Trust”; and all oil and gas properties now or hereafter
mortgaged to Lender by Borrower or Guarantors, including the oil and gas properties covered by the
Deeds of Trust, will be referred to as the “Properties.” If requested by Lender, Borrower
and Guarantors will execute in favor of Lender mortgages, deeds of trust, security agreements, or
amendments, in Proper Form (as defined below), mortgaging any additional oil and gas properties and
all additional interests in the Properties acquired by Borrower or Guarantors so that Lender will
continuously maintain under mortgage not less than ninety percent (90%) of the aggregate present
value (as calculated by Lender in its sole discretion in accordance with the methods set forth
below for the Borrowing Base) assigned to Borrower’s and Guarantors’ oil and gas properties based
upon Lender’s in-house evaluation.

 

 

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          (b) Payment of the Notes and the Hedge Liabilities will also be guaranteed by each of the
Guarantors pursuant to Commercial Guaranties in Proper Form (collectively the
“Guaranties”).

          (c) In connection with the Deeds of Trust and at such time as Lender requires Borrower to
mortgage additional oil and gas properties, Borrower and Guarantors shall, upon request of Lender,
deliver to Lender title opinions and/or other title information acceptable to Lender covering at
least eighty-one percent (81%) of the present value (as determined by Lender in the manner set
forth for Borrowing Base determinations below) of the Properties and the oil and gas properties
which are to become Properties, along with such other information regarding title as Lender shall
reasonably request, all in Proper Form and from attorneys or landmen acceptable to Lender. Lender
reserves the right to immediately exclude any oil and gas property from the Borrowing Base if
Lender learns of any material title issue with respect to the oil and gas property or if Lender’s
review of Borrower’s and Guarantors’ title to the oil and gas property indicates that Borrower’s
title is unacceptable to Lender, in its sole discretion.

          (d) During the continuance of an Event of Default (as defined below), Lender reserves the
right to require Borrower and Guarantors to set up a lockbox account to be managed by Lender for
the purpose of collection of production proceeds attributable to Borrower’s and Guarantors’
interest in the Properties. Borrower and Guarantors agree that upon Lender’s election to require
the lockbox after an Event of Default, Lender will receive the proceeds of oil and gas produced
from or attributable to Borrower’s and Guarantors’ interest in the Properties for application as
set forth in Section 3.2 of the Deed of Trust; and Borrower and Guarantors hereby direct all
production purchasers or operators distributing proceeds to pay Borrower’s and Guarantors’
distributions attributable to Borrower’s and Guarantors’ interest in the Properties directly to
Lender, if Lender so elects. All production proceeds attributable to the Properties received in
the lockbox account by Lender with respect to production, severance, ad valorem, or other taxes on
production proceeds (excluding income taxes) or that are attributable to another person’s or
entities’ interest in the Properties shall be released immediately to Borrower upon Borrower’s
request. All production proceeds attributable to Borrower’s and Guarantors’ interest in the
Properties received in the lockbox account by Lender in excess of the current scheduled monthly
payment and any other fees or expenses owed to Lender will be transferred to Borrower at the end of
each month for its use consistent with the provisions of this Loan Agreement, so long as there is
no existing Event of Default. If the production proceeds attributable to Borrower’s and
Guarantors’ interest in the Properties received by Lender during any month are not sufficient to
make the scheduled monthly payment, Borrower will pay Lender the deficiency within ten (10) days of
notice from Lender of such shortfall. Contemporaneously with the execution of this Loan Agreement,
Guarantors will sign and deliver to Lender letters in lieu of transfer orders to all purchasers of
production directing those parties to pay all proceeds attributable to Guarantors’ interest in the
Properties to the lockbox account, and these letters, signed in blank, will be held by Lender until
such time as Lender elects to require the lockbox after an Event of Default.

 

 

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          (e) Unless a security interest would be prohibited by law or would render a
nontaxable account taxable, Borrower and Guarantors grant to Lender a contractual possessory
security interest in, and hereby assigns, pledges, and transfers to Lender all of Borrower’s and
Guarantors’ rights in any deposits or accounts now or hereafter maintained with Lender (whether
checking, savings, or any other account), excluding, however, accounts maintained by Borrower and
Guarantors at Lender for the purpose of revenue distribution to third parties entitled to those
revenues, including payroll accounts and any other accounts held by Borrower or Guarantors for the
benefit of a third party. While an Event of Default is outstanding, Borrower and Guarantors
authorize Lender, to the extent permitted by applicable law, to charge or setoff any sums owing on
the Loans or the Hedge Liabilities against any and all such deposits and accounts; and Lender shall
be entitled to exercise the rights of offset and banker’s lien against all such accounts and other
property or assets of Borrower and Guarantors with or in the possession of Lender to the extent of
the full amount of the Loans and the Hedge Liabilities.

     3. Borrowing Base. (a) On or about April 1 and October 1 of each year, commencing April
1, 2007, Lender may determine or redetermine, in its sole discretion, a Borrowing Base. In
addition, Lender may require an unscheduled redetermination once during each six month period, and
Borrower shall have the right to request an unscheduled redetermination of the Borrowing Base by
Lender once per six-month period between scheduled redeterminations, and Lender shall conduct such
redetermination using the methods described in this section. The term “Borrowing Base”
refers to the designated loan value (as calculated by Lender in its sole discretion) assigned to
the discounted present value of future net income accruing to Borrower’s and Guarantors’ oil and
gas properties (and related gathering systems and processing and plant operations) based upon
Lender’s in-house evaluation. Lender’s determination of the Borrowing Base will use such
methodology, assumptions, and discount rates customarily used by Lender with respect to credits of
a similar size and nature in assigning collateral value to oil and gas properties and will be based
upon such other credit factors or financial information available to Lender at the time of each
determination, including, without limitation, current market conditions and Borrower’s and
Guarantors’ assets, liabilities, cash flow, liquidity, business, properties, prospects, management,
and ownership. Borrower and Guarantors acknowledge that increases in the Borrowing Base are
subject to appropriate credit approval by Lender.

          (b) The outstanding principal balance owing on the Revolving Note,
plus the aggregate undrawn amount of all Letters of Credit, may not exceed the
Borrowing Base at any time, subject to the payout provisions below in the event
of a Borrowing Base decrease. A decrease in the Borrowing Base will result in
an immediate decrease in Lender’s commitment under the Revolving Loan. If the
redetermined Borrowing Base is less than the sum of the outstanding principal
then owing on the Revolving Note, plus the aggregate undrawn amount of all
Letters of Credit, Lender will notify Borrower of the amount of the Borrowing
Base and the amount of the deficiency. Within
thirty (30) days after notice is sent by Lender, Borrower shall remedy the
deficiency by either: (i) making a lump sum payment on the Revolving Note

 

 

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to reduce the principal outstanding plus Letters of Credit to an amount equal to or
less than the new Borrowing Base; (ii) committing to make six equal monthly
installment payments to reduce the principal plus Letters of Credit to an amount
equal to or less than the new Borrowing Base; or (iii) mortgaging additional
collateral, which must be acceptable to Lender as to type, value, and title.

          (c) At the time of any redetermination, Lender reserves the right to establish an equal
Monthly Commitment Reduction (“MCR”) amount by which the Borrowing Base shall be
automatically reduced effective as of the fifth (5th) day of each successive calendar
month until the next Borrowing Base redetermination. Lender’s determination of the MCR will use
such methodology, assumptions, and discount rates customarily used by Lender with respect to
credits of a similar size and nature in determining commitment reductions and will be based upon
such other credit factors or financial information available to Lender at the time of each
determination, including, without limitation, the economic half-life of the Properties, and
Borrower’s and Guarantors’ assets, liabilities, cash flow, liquidity, business, properties,
prospects, management, and ownership. The MCR will initially be set at zero dollars ($0). If the
outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all
unexpired and outstanding Letters of Credit, shall exceed the Borrowing Base solely because of an
MCR reduction, Borrower shall within ten (10) days of such event make a single lump sum payment in
an amount not to exceed the MCR to reduce the sum of the outstanding principal balance owing on the
Revolving Note, plus the aggregate undrawn amount of all unexpired and outstanding Letters of
Credit, to an amount below the Borrowing Base. If the outstanding principal balance owing on the
Revolving Note, plus the aggregate undrawn amount of all unexpired and outstanding Letters of
Credit, shall exceed the Borrowing Base because of a Borrowing Base redetermination (or a Borrowing
Base redetermination combined with a required MCR), Borrower shall have the right to cure set forth
in subsection (b) above; provided, however, that if the MCR was applicable before the Borrowing
Base redetermination, then the MCR amount will be due in a lump sum within ten (10) days of notice
from Lender and Lender may continue the MCR at the same amount or change the MCR effective on the
redetermination date.

          (d) If Borrower or Guarantors sell, transfer, or otherwise dispose of any oil and gas
properties included in the Borrowing Base that have an aggregate sales price in excess of five
percent (5%) of the most recent Borrowing Base in any fiscal year, Lender reserves the right to
redetermine the Borrowing Base in accordance with this Section 3, which redetermination will be in
addition to any special redeterminations permitted to Lender under subsection (a) above. Any
Borrowing Base deficiency resulting from the sale of any oil and gas properties shall be
immediately reduced by a single lump sum payment in an amount not to exceed the net proceeds from
the sale of the oil and gas properties, and any remaining deficiency after the Borrowing Base
redetermination shall be cured by Borrower pursuant to subsection (b) above.

     4. Hedges and Swaps. (a) Definitions. As used in this Loan Agreement and the Loan

 

 

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Documents, the following terms have the meanings assigned below:

               (i) “ISDA Agreement” means any International Swaps and Derivatives Association, Inc.
master agreement or any similar agreement (with all related schedules, annexes, exhibits,
amendments, and confirmations), now existing or hereafter entered into by Borrower or Guarantors,
as amended, modified, replaced, consolidated, extended, renewed, or supplemented from time to time.

               (ii) “Hedge Transaction” means all Transactions (as defined in the ISDA Agreement) and
any other derivative transaction, including, without limitation, any commodity swap (including
price protection for future production of oil, gas, or other hydrocarbons or mineral or mining
interests and rights therein), commodity option, interest rate swap (including rate hedge
products), basis or currency or cross-currency rate swap, forward rate, cap, call, floor, put,
collar, future rate, forward agreement, spot contract, or other credit, price, foreign exchange,
rate, equity, equity index option, bond option, interest rate option, rate protection agreement,
currency option, or other option, or commodities derivative, exchange, risk management, or
protection agreement, or commodity, securities, index, market, or price-linked transaction or
agreement, or any option with respect to any such transaction or similar transaction or combination
of any of the foregoing, now existing or hereafter entered into by Borrower, Guarantors, or any of
them, whether linked to one or more interest rates, foreign currencies, commodity prices, equity
prices, indexes, or other financial measures and whether such transactions or combinations thereof
are governed by or subject to any ISDA Agreement or other similar agreement or arrangement,
including all obligations and liabilities thereunder, and including all renewals, extensions,
amendments, and other modifications or substitutions.

               (iii) “Hedge Liabilities” means any and all liabilities and obligations of every
nature and howsoever created, direct, indirect, absolute, contingent, or otherwise, whether now
existing or hereafter arising, created, or accrued, of Borrower, Guarantors, or any of them, from
time to time owed or owing to Lender or Hedge Provider in connection with any ISDA Agreement and
each Transaction (as defined in the ISDA Agreement) and each Confirmation (as defined in the ISDA
Agreement) or any Hedge Transaction, including, but not limited to, obligations and liabilities
arising in connection with or as a result of early or premature termination, cancellation,
rescission, buy back, reversal, or assignment or other transfer of a Hedge Transaction, and
including any obligations or liabilities under any Letters of Credit issued in connection with
Hedge Transactions to which another entity is a counter-party, whether for principal, interest
(including interest which, but for the filing of a petition in bankruptcy with respect to such
obligor, would have accrued on such obligation, whether or not a claim is allowed for such interest
in the related bankruptcy proceedings), reimbursement obligations, fees, expenses, indemnification,
or otherwise.

               (iv) “Hedge Provider” means any affiliate of Lender or any other party now or
hereafter contracting with Lender with respect to Hedge Transactions for Borrower.

 

 

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          (b) ISDA Agreement. Borrower, Guarantors, and Lender or Hedge Provider may enter into an ISDA
Agreement, governing certain Hedge Transactions available to Borrower or Guarantors from Lender or
Hedge Provider. Borrower and Guarantors may enter into Transactions (as defined in the ISDA
Agreement) subject to the provisions of Confirmations (as defined in the ISDA Agreement). Upon
payment in full of the Notes and termination of any obligation of Lender to make further advances
on the Revolving Loan, and upon either termination of all Hedge Transactions with Lender or Hedge
Provider or Borrower and Guarantors providing appropriate support and security for then-outstanding
Hedge Liabilities on terms satisfactory to Lender in its sole discretion, including substitution on
the outstanding Hedge Transactions on terms acceptable to Lender of a counterparty meeting the
requirements of Section 4(e)(iv) below and that is otherwise acceptable to Lender (such liabilities
to thereafter be deemed “Supported Hedge Liabilities”), this Loan Agreement may be
terminated and the Security Documents released.

          (c) Security. Borrower and Guarantors agree that the Security Documents shall secure payment
of all Hedge Liabilities. Borrower, Guarantors, and Lender hereby agree that the Loans and the
Hedge Liabilities shall rank pari passu and shall collectively be secured by the Security Documents
on a pro rata basis. Lender shall hold the Properties and all related collateral under the
Security Documents, along with all payments and proceeds arising therefrom, for the benefit of
Lender, as security for the payment of all Loans and as security for all Hedge Liabilities on a
ratable basis. The benefit of the Security Documents and of the provisions of this Loan Agreement
relating to the collateral shall also extend to and be available to Lender and Hedge Provider to
the extent either is a counter-party to any Hedge Transactions on a pro rata basis with respect to
any obligations, liabilities, or indebtedness of Borrower or Guarantors.

          (d) Termination. If and to the extent any Hedge Transaction is used in calculation of the
Borrowing Base, such Hedge Transaction cannot be cancelled, liquidated, or “unwound” without the
prior written consent of Lender.

          (e) Hedging Limitations. Borrower and Guarantors shall not enter into any Hedge Transaction
related to crude oil, natural gas, or other commodities, except hedging required by Lender and
except for Hedge Transactions which meet the following requirements:

               (i) Hedge Transactions resulting in a cap on the price to be received by Borrower and
Guarantors, involving in the aggregate at any time not more than eighty percent (80%) of
Guarantors’ anticipated production from their proved developed producing oil and gas properties (as
forecast in Lender’s most recent engineering valuation of the Properties); provided, however, that
(1) Hedge Transactions relating to oil volumes from the Wolf Mountain 15-2-7-87 well in Routt
County, Colorado, shall be limited to not more than forty percent (40%) of Guarantors’ anticipated
production from that well until such time as the well constitutes twenty percent (20%) or less of
the total present value of Guarantors’ proved developed producing oil and gas properties
(as forecast in Lender’s most recent engineering valuation of

 

 

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the Properties), and (2) there shall be no limitation on the volume of Hedge Transactions
resulting only in a floor price per barrel or mcf; and

               (ii) Hedge Transactions that would not result in a fixed price per barrel or mcf lower than
the base case price used by Lender in the most-recent engineering evaluation of Guarantors’ oil and
gas properties, adjusted for variances between the hedging price and Guarantors’ actual product
price as determined by Lender, in each case as disclosed by Lender to Borrower, or otherwise at
hedging prices acceptable to Lender as disclosed to Borrower; and

               (iii) Hedge Transactions that are each for a period not to exceed forty-eight (48) months; and

               (iv) To the extent that Lender requires Hedge Transactions in connection with a Borrowing
Base, Hedge Transactions where, in each case, the underlying contracts are with Lender or Hedge
Provider, as counterparty, with a counter-party (or the parent entity thereof) who at the time the
contract is made has long-term obligations rated BBB or better by Standard & Poor’s Ratings Group
or Baa or better by Moody’s Investors Services, Inc., or with a counter-party that is otherwise
approved by Lender in writing; and

               (v) Hedge Transactions that are not effective at concurrent or overlapping periods of time on
the same volumes of production on both a physical and financial basis, unless the combined volumes
are in compliance with the volume limitations set forth above.

Borrower may enter into swaps, collars, floors, caps, options, corridors, or other contracts, as
such terms are commonly known within the capital markets, which are intended to reduce or eliminate
the risk of fluctuation in interest rates for the purpose and effect of fixing and capping interest
rates on a principal amount of indebtedness of Borrower; provided that (A) the floating
rate index of each such contract generally matches the index used to determine the floating rates
of interest on the corresponding indebtedness of Borrower to be hedged by such contract and the
interest rate exposure would not cause the notional amount of all such Hedge Transactions then in
effect for the purpose of hedging interest rate exposure to exceed one hundred percent (100%) of
the total consolidated indebtedness of Borrower projected to be outstanding for any period covered
by such Hedge Transaction, and (B) Borrower shall not establish or maintain any margin accounts
with respect to such contracts.

          (f) Required Hedges. On or before three (3) business days after the date of this Loan
Agreement, Guarantors will enter into Hedge Transactions covering crude oil and natural gas meeting
the following requirements: (i) Hedge Transactions resulting in at least seventy percent (70%) of
Guarantors’ anticipated production from their proved developed producing oil and gas properties (as
forecast in Lender’s most recent engineering valuation of the Properties) in the aggregate; (ii)
Hedge Transactions for a period of not less than forty-eight
(48) months; (iii) Hedge Transactions resulting in a fixed price or floor price per barrel
or mcf

 

 

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equal to the prevailing NYMEX swap price or, if approved by Lender, a regional basis swap
price, or otherwise at hedging prices acceptable to Lender; and (iv) Hedge Transactions that are
assignable to Lender as additional security for the Loans.

          (g) Speculation. Borrower and Guarantors shall not invest for speculative purposes in any
Hedge Transactions or in any other options, futures, or derivatives.

          (h) Additional Collateral. If a Hedge Transaction is entered into with an outside
counter-party, Borrower and Guarantors shall, if requested by Lender, collaterally assign and
pledge in favor of Lender a first-priority continuing security interest in the applicable trading
account and the hedging contract as additional security for the Loans. In connection therewith,
Borrower and Guarantors shall execute and deliver to Lender such security agreements, control
agreements, and financing statements as deemed appropriate by Lender to create and perfect the
continuing security interest therein.

     5. Conditions Precedent. (a) The obligation of Lender to make the initial advance on
the Revolving Loan is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the
following conditions precedent:

               (1) Lender’s receipt and satisfactory review by Lender of the September 30,
2006 financial statements of Borrower and Guarantors, on a consolidated and
consolidating (except for the cash flow statement) basis, including a balance
sheet, a statement of operations, and a cash flow statement, prepared in conformity
with generally accepted accounting principles in effect on the date such statement
was prepared, consistently applied (“GAAP”).

               (2) Lender’s receipt and satisfactory review by Lender of the Approved Plan of Development.

               (3) Lender’s receipt and satisfactory review of evidence from Borrower that the aggregate
Accounts Payable that are more than thirty (30) days outstanding are less than or equal to
$8,000,000.00.

               (4) Borrower and Guarantors shall have performed and be in compliance in all material
respects, with all covenants and agreements required by this Loan Agreement or the other Loan
Documents to be performed prior to closing, and all representations and warranties contained in
this Loan Agreement or the other Loan Documents must be true in all material respects.

               (5) the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but
not limited to, the following:

	 	(i)	 	this Loan Agreement;

 

 

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	 	(ii)	 	the Revolving Note;
	 
	 	(iii)	 	the Deeds of Trust;
	 
	 	(iv)	 	the Guaranties;
	 
	 	(v)	 	Borrowing Resolution;
	 
	 	(vi)	 	Guarantor Resolutions; and
	 
	 	(vii)	 	Letters in Lieu.

               (6) satisfactory evidence that Lender holds perfected liens and security interests in all
collateral for the Loans, subject to no other liens or security interests except Permitted
Encumbrances. “Permitted Encumbrances” shall mean the following (i) those liens and
security interests existing and disclosed to Lender in Schedule 5(a)(6) attached, (ii)
liens for taxes not delinquent or being contested in good faith, (iii) mechanic’s and materialman’s
liens with respect to obligations not overdue or being contested in good faith, (iv) liens
resulting from deposits to secure the payments of workers’ compensation or social security, (v)
purchase money security interests or construction liens and that are in an aggregate amount not to
exceed $500,000.00, (vi) capital leases entered into in the ordinary course of business, and (vii)
liens that arise in the ordinary course of business under or in connection with operating
agreements, oil and gas leases, farm-out agreements, contracts for the sale, transportation, or
exchange of oil and natural gas, unitization and pooling declarations and agreements, area of
mutual interest agreements, marketing agreements, processing agreements, development agreements,
gas balancing or deferred production agreements, injection, repressuring, and recycling agreements,
salt water or other disposal agreements, seismic or other geophysical permits or agreements, and
other agreements which are usual and customary in the oil and gas business and are for claims which
are not delinquent or which are being contested in good faith.

               (7) receipt and satisfactory review by Lender of Reserve Reports for the Borrowing Base
properties.

               (8) except as disclosed in Schedule 5(a)(8) attached, there shall not have occurred a
material adverse change in the business, assets, liabilities (actual and contingent), operations,
or condition (financial or otherwise) of Borrower or Guarantors, from that reflected in Borrower’s
financial statements for the quarter ended September 30, 2006, or in the SEC Reports. “SEC
Reports” means those filing made by the Borrower with the Securities and Exchange Commission
including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form
8-K.

               (9) except as disclosed in Schedule 5(a)(9) attached, there being no order or
injunction or other pending or threatened litigation which would reasonably be expected to
materially adversely affect the ability of Borrower or Guarantors to perform under the Loan
Documents.

 

 

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               (10) Lender shall have completed and approved a review of title to, and the status of the
environmental condition of, Borrower’s and Guarantors’ oil and gas properties, including the
Borrowing Base properties, and the results of such review shall be acceptable to Lender in its sole
discretion.

               (11) Lender’s receipt and review, with results satisfactory to Lender and its counsel, of
information regarding litigation, tax, accounting, insurance, pension liabilities (actual or
contingent), real estate leases, material contracts, debt agreements, property ownership, and
contingent liabilities of Borrower, Guarantors, and any subsidiaries.

               (12) Lender’s receipt of satisfactory evidence that Borrower and Guarantors have no
outstanding indebtedness required by GAAP to be disclosed in their financial statements for the
quarter ended September 30, 2006, which has not been so disclosed, and all outstanding obligations
and liabilities incurred since September 30, 2006 have been incurred in the ordinary course of
business.

               (13) Lender’s receipt and review, with results satisfactory to Lender and its counsel, of a
schedule showing information regarding any existing litigation affecting Borrower or the
Properties.

               (14) Lender’s receipt of releases of the mortgages and UCC financing statements in connection
with Borrower’s Senior Secured Notes Facility. “Senior Secured Notes Facility” means
certain senior secured notes and warrants to purchase shares of Borrower’s common stock pursuant to
that certain Securities Purchase Agreement, dated as of January 13, 2005, by and among the Borrower
and HFTP Investment, L.L.C., AG Domestic Convertibles, L.P., and AG Offshore Convertibles, Ltd., as
amended, restated, supplemented or otherwise modified and in effect as of the date of this Loan
Agreement.

               (15) Borrower’s establishment of an operating account with Lender for advances on the
Revolving Loan.

               (16) Borrower shall deliver legal opinions in Proper Form, from Borrower’s and Guarantors’
counsel, regarding Borrower’s and Guarantors’ authority, the enforceability of the Loan Documents,
and other matters reasonably required by Lender.

          (b) Lender will not be obligated to make the Loans or any subsequent advance on the Loans, if,
prior to the time that a loan or advance is made, (i) there has been any material adverse change in
Borrower’s or any Guarantors’ financial condition since the most-recent financial statements
furnished to Lender, (ii) any representation or warranty made by Borrower or Guarantors in this
Loan Agreement or the other Loan Documents is untrue or incorrect in any material respect as of the
date of the advance or loan, (iii) Lender has not received all Loan Documents appropriately
executed by Borrower, Guarantors, and all other proper parties, (iv)
Lender has requested that Borrower or Guarantors execute additional loan or security documents

 

 

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and those documents have not yet been properly executed, delivered, and recorded, (v) Borrower is
not in compliance with the Borrowing Base and all reporting requirements, or (vi) an Event of
Default (as defined below) has occurred and is continuing.

     6. Representations and Warranties. Each of Borrower and Guarantors hereby represent
and warrant to Lender as follows:

          (a) The execution, delivery, and performance of this Loan Agreement, the Notes, the Security
Documents, and all of the other Loan Documents by Borrower and by Guarantors, to the extent they
are party thereto, have been duly authorized by their respective boards of directors, and this Loan
Agreement, the Notes, the Security Documents, and all of the other Loan Documents constitute legal,
valid, and binding obligations of Borrower and Guarantors, to the extent they are party thereto,
enforceable in accordance with their respective terms;

          (b) The execution, delivery, and performance of this Loan Agreement, the Notes, the Security
Documents, and the other Loan Documents, and the consummation of the transaction contemplated, do
not require the consent, approval, or authorization of any third party and do not and will not
conflict with, result in a violation of, or constitute a default under (i) any provision of
Borrower’s or Guarantors’ respective articles of incorporation or bylaws, or (ii) any other
agreement or instrument binding upon Borrower or any Guarantors, or (iii) any law, governmental
regulation, court decree, or order applicable to Borrower or any Guarantors, except with respect to
(ii) and (iii) for matters that would not reasonably be expected to have a material adverse effect
on Borrower, any Guarantors, or the Properties;

          (c) Each financial statement of Borrower and Guarantors, now or hereafter supplied to Lender,
was (or will be) prepared in accordance with GAAP, and discloses and fairly presents (or will
disclose and fairly present) in all material respects Borrower’s and Guarantors’ financial
condition, on a consolidated and consolidating (except for cash flow statements) basis, as of the
date of each such statement, and except as disclosed in the SEC Reports, there has been (or will
have been) no material adverse change in such financial condition subsequent to the date of the
most recent financial statement supplied to Lender;

          (d) Except as disclosed in Schedule 5(a)(9) attached, there are no actions, suits, or
proceedings pending or, to Borrower’s or Guarantors’ knowledge, threatened against or affecting
Borrower, any Guarantors, or the Properties, before any court or governmental department,
commission, or board, which would reasonably be expected to have a material adverse effect on the
Properties or the operations or financial condition of Borrower or any Guarantors;

          (e) Borrower and Guarantors have filed all material federal, state, and local tax reports and
returns required by any law or regulation to be filed and have either duly paid all taxes, duties,
and charges indicated due on the basis of such returns and reports, or made

 

 

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adequate provision for the payment thereof, and the assessment of any material amount of
additional taxes in excess of those paid and reported is not reasonably expected, except as
disclosed in Schedule 6(e) attached;

          (f) Borrower is in compliance in all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended or recodified from time to time
(“ERISA”); Borrower has not violated any provision of any “defined benefit plan” (as
defined in ERISA) maintained or contributed to by Borrower (each a “Plan”); no “Reportable
Event” as defined in ERISA has occurred and is continuing with respect to any Plan initiated by
Borrower, unless the reporting requirements have been waived by the Pension Benefit Guaranty
Corporation; and Borrower has met its minimum funding requirements under ERISA with respect to each
Plan;

          (g) Borrower and Guarantors have provided to Lender copies of all material agreements
affecting Borrower’s and Guarantors’ oil and gas properties or their operations, including all gas
balancing agreements and advance payment contracts;

          (h) Borrower certifies that Schedule 6(h) sets forth a true and correct organizational
chart showing all subsidiaries or other entities owned by Borrower and the ownership in each; and

          (i) Schedule 6(i) sets forth, as of the date of this Loan Agreement, a true and
complete list of all existing ISDA Agreements and Hedge Transactions of Borrower and Guarantors,
the material terms thereof (including the type, term, effective date, termination date, and
notional volumes and prices), the net mark-to-market value thereof as reflected in the most-recent
SEC Reports, all credit support agreements relating thereto (including any margin required or
supplied), and the counter-party to each such Hedge Transactions.

     7. Covenants. Until the Loans and the Hedge Liabilities and all other obligations and
liabilities of Borrower under this Loan Agreement, the Notes, the Security Documents, and the other
Loan Documents are fully paid and satisfied (except for unasserted indemnification obligations
thereunder and except for Hedge Liabilities that are Supported Hedge Liabilities under Section 4
(b) above), Borrower and Guarantors shall, unless Lender otherwise consents in writing:

          (a) (i) Except as contemplated in subclause (vi) below, maintain their existence in good
standing in their respective states of incorporation, maintain their authority to
do business in all states in which any is required to qualify, except where such failure to
qualify would not reasonably be expected to have a material adverse effect on Borrower or any
Guarantors, and maintain full legal capacity to perform all their respective obligations under this
Loan Agreement and the Loan Documents, () continue to operate their business as presently
conducted, () not permit any changes in Borrower’s directors that alter a majority of the current
directors, () except as contemplated in subclause (vi) below, not permit their dissolution,

 

 

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liquidation, or other termination of existence or forfeiture of right to do business, () not form
any subsidiary without notifying Lender in writing at least thirty (30) days in advance, () not
permit a merger or consolidation (unless Borrower or Guarantor, as the case may be, is the
surviving entity), and () not acquire all or substantially all of the assets of any other entity
without first notifying Lender in writing at least thirty (30) days in advance.

          (b) Manage the Properties in an orderly and efficient manner consistent with good business
practices, and perform and comply in all material respects with all statutes, rules, regulations,
and ordinances imposed by any governmental unit upon the Properties or Borrower, Guarantors, and
their operations including, without limitation, compliance with all applicable laws relating to the
environment.

          (c) Maintain insurance as customary in the industry or as reasonably required by Lender,
including but not limited to, casualty, comprehensive property damage, and commercial general
liability, and other insurance, including worker’s compensation (if necessary to comply with law),
naming Lender as an additional insured or a loss payee, and containing provisions prohibiting their
cancellation without prior written notice to Lender, and provide Lender with evidence of the
continual coverage of those policies prior to the lapse of any policy.

          (d) Not sell, assign, transfer, or otherwise dispose of all or any interest in the Properties
or any other collateral, except for (i) the sale of hydrocarbons in the ordinary course of
business, (ii) the sale or transfer of equipment or inventory in the ordinary course of business or
that is no longer necessary for the business of Borrower or that is obsolete or replaced by
equipment of at least comparable value and use, and (iii) the sale of oil and gas properties having
an aggregate sales price not in excess of five percent (5%) of the then-applicable Borrowing Base
per fiscal year, without the prior written consent of Lender, provided that Lender shall not
unreasonably withhold its consent for any sale, farmout, farmin, or other disposition of any oil
and gas properties or any interest therein, so long as: (x) the net sales proceeds received by
Borrower are equal to or greater than the Borrowing Base value attributable to the sold properties
according to the most-recent Borrowing Base review by Lender; (y) any resulting Borrowing Base
deficiency after exclusion of the sale properties from the Borrowing Base is immediately eliminated
by a single lump sum payment; and (z) there is no existing Event of Default.

          (e) Promptly inform Lender of (i) any and all material adverse changes in Borrower’s or any
Guarantors’ financial condition, (ii) all litigation and claims which could reasonably be expected
to materially and adversely affect the financial condition of Borrower, any Guarantor, or the
Properties, (iii) all actual or contingent material liabilities of Borrower or
any Guarantors, (iv) any change in name, identity, or structure of Borrower or any Guarantors,
and (v) any uninsured or partially insured loss reasonably estimated in excess of $500,000.00 of
any collateral through fire, theft, liability, or property damage.

          (f) Maintain full and accurate books and records and a standard system of accounting in
accordance with GAAP, and permit Lender to examine, audit, and make and take

 

 

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away copies or
reproductions of Borrower’s and Guarantors’ books and records, reasonably required by Lender, at
all reasonable times; and permit such persons as Lender may designate at reasonable times to visit
and inspect the Properties and examine all records with respect to the Properties, and pay for the
reasonable cost of such inspections required by Lender.

          (g) Pay and discharge when due all indebtedness and obligations, including without
limitation, all assessments, taxes, governmental charges, levies, and liens, of every kind and
nature, imposed upon Borrower, Guarantors, or the Properties, prior to the date on which penalties
would attach, and all lawful claims that, if unpaid, might become a material lien or charge upon
the Properties, income, or profits, and pay all trade payables and other current liabilities
incurred in the ordinary course of business within ninety (90) days of their due date; provided,
however, Borrower and Guarantors will not be required to pay and discharge any such assessment,
tax, charge, levy, lien, or claim so long as (i) the legality of the same shall be contested in
good faith by appropriate judicial, administrative, or other legal proceedings, and (ii) Borrower
or Guarantors have established adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with GAAP.

          (h) Not directly or indirectly create, incur, assume, or permit to exist any indebtedness
(including guaranties), secured or unsecured, absolute or contingent, except for (i) the
indebtedness to Lender, (ii) any trade payables, taxes, and liabilities incurred in the ordinary
course of business, (iii) any indebtedness already incurred and disclosed in Borrower’s financial
statements for the quarter ended September 30, 2006, (iv) Borrower’s obligations with respect to
the potential payment of a purchase price adjustment and its indemnification obligations under the
Purchase Agreement dated December 1, 2006 between Borrower and Q Consolidated Oil Well Services,
LLC, (v) obligations under capital leases, transportation deficiencies, or gas imbalances,(vi)
indebtedness of up to $500,000.00 for the financing of insurance premiums, (vii) intercompany
indebtedness among the Borrower and Guarantors, (viii) the obligations related to Borrower’s
Nicaraguan concessions disclosed in Schedule 7(h) attached, (ix) obligations related to
Hedge Transactions permitted by this Loan Agreement, and (x) additional indebtedness not to exceed
$500,000.00 in the aggregate.

          (i) Not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any
lien or security interest on or in, the Properties (or any interest in the Properties), any oil and
gas properties included in the calculation of the Borrowing Base, or any of Borrower’s or
Guarantors’ property or assets, except (i) those in favor of Lender, and (ii) Permitted
Encumbrances.

          (j) Except for transactions among Borrower and Guarantors, not make
any loans, advances, dividends, or other distributions, other than in the
ordinary course of business, to any party, including without limitation,
shareholders, officers, directors, partners, joint venturers, members,
managers, relatives, and affiliates, or any profit sharing or retirement plan.

 

 

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          (k) Not purchase, acquire, redeem, or retire any stock or other ownership interest in
Borrower; and not permit any transaction or contract with any affiliates or related parties, except
in the ordinary course of business and except at arms length and on market terms.

          (l) Promptly open and maintain at least three depository accounts with Lender, and discuss
with Lender moving their primary depository accounts and principal banking relationship to Lender.

          (m) Timely develop the proved oil and gas properties and undeveloped oil and gas properties in
the Project Areas in accordance with the Approved Plan of Development and make capital expenditures
on such oil and gas properties in accordance with the Approved Plan of Development. Except to the
extent of delays beyond the reasonable control of Borrower, such as acts of god, governmental
inaction, restraint, or delay, unavailability of equipment, inability to obtain permits or other
regulatory approvals, and the unavailability of rigs, for which Borrower provides evidence of such
delays to Lender, Borrower and Guarantors shall diligently proceed to drill and complete each
producing and injection well under the Approved Plan of Development and use reasonable diligence to
connect each gas well to gathering systems and pipelines to permit the sale and marketing of
natural gas in the ordinary course of business.

          (n) Meet with the Lender from time to time as reasonably requested by Lender to review all
operational activities of Borrower and Guarantors with respect to the Properties, the Approved Plan
of Development, the Project Areas, and all financial reports. Each review shall be in scope
reasonably satisfactory to Lender, but will include at a minimum, an update by Borrower on the
development activities made pursuant to the Approved Plan of Development, any requests by Borrower
that changes be made to the Approved Plan of Development, any cost or expense overruns or savings,
any mechanical problems incurred, and any differences in reserves or production estimates.

          (o) Indemnify Lender against all losses, liabilities, withholding and other taxes, claims,
damages, or expenses (other than income taxes) relating to the Loans, the Loan Documents, or
Borrower’s use of the Loan proceeds, including but not limited to reasonable attorneys and other
professional fees and settlement costs, but excluding, however, those caused solely by or resulting
solely from any gross negligence or willful misconduct by Lender; and this indemnity shall survive
the termination of this Loan Agreement.

          (p) Comply in all material respects with all applicable provisions of ERISA, except as set
forth in Schedule 7(p) attached, not violate in any material respect any provision of
any Plan, meet their minimum funding requirements under ERISA with respect to each Plan, and
notify Lender in writing of the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan.

          (q) If Borrower acquires any wholly-owned subsidiary or owns any issued and outstanding
capital stock or partnership interests of any companies or partnerships, Borrower

 

 

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shall sign and
deliver to Lender within fifteen (15) days after such acquisition a pledge agreement in Proper
Form, creating a first-priority security interest covering the issued and outstanding capital stock
or partnership interests of all existing and hereafter acquired companies, subsidiaries, or
partnerships of Borrower, and Borrower shall cause each wholly-owned subsidiary to sign and deliver
to Lender within fifteen (15) days after such acquisition a guaranty in substantially the same form
as signed by Guarantors in connection with this Loan Agreement, guaranteeing payment of the Loans.

          (r) Execute and deliver, or cause to be executed and delivered, any and all other agreements,
instruments, or documents which Lender may reasonably request in order to give effect to the
transactions contemplated under this Loan Agreement and the Loan Documents, and to grant, perfect,
and maintain liens and security interests on or in the Properties and related collateral, and
promptly upon Lender’s request cure any defects in the execution and delivery of any Loan
Documents.

     8. Financial Covenants. Until the Loans and the Hedge Liabilities and all other
obligations and liabilities of Borrower under this Loan Agreement, the Notes, the Security
Documents, and the other Loan Documents are fully paid and satisfied (other than unasserted
indemnification obligations thereunder and except for Hedge Liabilities that are Supported Hedge
Liabilities under Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise
consents in writing, maintain the following financial covenants to be calculated on a consolidated
basis commencing with the fiscal quarter ending March 31, 2007:

          (a) Maintain at the end of each fiscal quarter an Interest Coverage Ratio greater than or
equal to 3.0 to 1.0. “Interest Coverage Ratio” is defined as the ratio of (i) the sum of
Borrower’s and Guarantors’ most recent quarter’s net income, plus interest expense for the
same period, plus income taxes for the same period, plus depreciation, depletion,
amortization, and other non-cash charges for the same period, divided by (ii) interest
expense for the same period.

          (b) Maintain at the end of each fiscal quarter a Current Ratio greater than or equal to 1.0 to
1.0. “Current Ratio” is defined as the ratio of (i) Borrower’s and Guarantors’ current
assets, plus availability on the Revolving Loan, divided by (ii) current
liabilities (excluding current maturities of long-term debt); provided, however, that the marked to
market values for hedging positions in accordance with FASB 133 shall be excluded from this
calculation until such time as the gains or losses from the hedges are actually realized and the
hedges expire.

          (c) Maintain at the end of each fiscal quarter a Debt Service Coverage Ratio greater than or
equal to 1.25 to 1.0. “Debt Service Coverage Ratio” is defined as the ratio of (i) the sum
of Borrower’s and Guarantors’ most recent quarter’s net income, plus depletion,
depreciation, amortization, and other non-cash charges for the same period, plus income
taxes for the same period, minus gains from the sale of assets (or plus losses from
the sale of assets),

 

 

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divided by (ii) the sum of the current maturities of long term debt
(excluding the Revolving Loan) for the same period, plus the monthly commitment reductions
for the same period as required by Lender.

          (d) Maintain at the end of each fiscal quarter a Funded Debt to EBITDA Ratio less than or
equal to (i) 4.25 to 1.0 for the fiscal quarter ending March 31, 2007, (ii) 4.0 to 1.0 for the
fiscal quarter ending June 30, 2007, and (iii) 3.5 to 1.0 for each fiscal quarter thereafter.
“Funded Debt to EBITDA Ratio” is defined as the ratio of (i) the total amount outstanding
on the Loans, divided by (ii) the sum of Borrower’s and Guarantors’ most recent quarter’s
net income annualized, plus income taxes for the same period annualized, plus
interest expense on the Loans for the same period annualized, plus depletion, depreciation,
and amortization for the same period annualized, plus other non-cash charges for the same
period annualized, minus gains from the sale of assets (or plus losses from the
sale of assets) for the same period annualized; provided, however, that EBITDA from acquisitions
may only be included in this covenant after Lender has reviewed and approved pro-forma financial
statements demonstrating the effect of the acquisition.

          (e) Maintain at the end of each fiscal quarter a Collateral Coverage Ratio greater than or
equal to 1.33 to 1.0. “Collateral Coverage Ratio” is defined as the ratio of (i) the
aggregate present value of Guarantors’ proved developed producing oil and gas properties (as
determined by Lender assuming NYMEX prices minus the differentials), divided by (ii) the
total amount outstanding on the Loans.

          (f) Not permit quarterly general and administrative expenses on a consolidated basis to exceed
$700,000.00 (excluding non-cash items) per fiscal quarter during 2007.

          (g) Shall use all “Free Operating Cash Flow” to the extent thereof, for the purpose of
funding the capital expenditures under the Approved Plan of Development. “Free Operating Cash
Flow” is defined as net cash flow from operating activities, minus payments for
general and administrative expenditures permitted under the Loan Agreement, minus
interest expense, fees, expenses, and principal, if any, paid during such period in respect of
Revolving Loan, and minus the Permitted Nicaraguan Contributions (as defined below), if
any.

          (h) Shall not use any Free Operating Cash Flow or other cash, or make any loans, advances,
capital contributions, or other distributions, for or with respect to Borrower’s Nicaraguan
concessions; provided, however, that (1) this provision shall not limit or prevent draws under two
letters of credit dated May 19, 2006, in the amounts of $408,450.00 and $443,100.00, respectively,
issued by Cornerstone Bank, in favor of Direccion General de Hidrocarburos, Insituto Nicaraguense
de Energia, for the account of Borrower, and (2) so long as there is no existing Event of Default
or Borrowing Base deficiency, Borrower may use Free Operating Cash Flow or other cash, or make
loans, advances, capital contributions, or other distributions, for or with respect to Borrower’s
Nicaraguan concessions, in an aggregate amount

 

 

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not to exceed $200,000.00 per fiscal year
(collectively the “Permitted Nicaraguan Contributions”). Borrower shall notify Lender in
writing when Permitted Nicaraguan Contributions are made, including the source for those
contributions.

Unless otherwise specified, all accounting and financial terms and covenants set forth above are to
be determined according to GAAP, consistently applied.

     9. Reporting Requirements. Until the Loans and the Hedge Liabilities and all other
obligations and liabilities of Borrower under this Loan Agreement, the Notes, the Security
Documents, and the other Loan Documents are fully paid and satisfied (other than unasserted
indemnification obligations thereunder or with respect to the Hedge Liabilities, all such
outstanding Hedge Liabilities are Supported Hedge Liabilities under Section 4 (b) above), Borrower
and Guarantors shall, unless Lender otherwise consents in writing, furnish to Lender:

          (a) As soon as available, and in any event within one hundred twenty (120) days of the end of
each fiscal year, audited annual financial statements for Borrower and Guarantors on a consolidated
basis, consisting of at least a balance sheet, an income statement or statement of operations, a
cash flow statement, and a statement of changes in owners’ equity, along with an auditor’s opinion
from EKS&H or another independent certified public accountant acceptable to Lender and certified by
an authorized officer of Borrower (i) as being true and correct in all material aspects to his
knowledge, (ii) as fairly reporting the financial condition of Borrower and Guarantors as of the
close of the fiscal year and the results of their operations for the year, and (iii) as having been
prepared in accordance with GAAP; and unaudited annual financial statements for Borrower and
Guarantors on a consolidating basis, consisting of at least a balance sheet, an income statement or
statement of operations, and a statement of changes in owners’ equity, certified by an authorized
officer of Borrower (i) as being true and correct in all material aspects to his knowledge, (ii) as
fairly reporting the financial condition of Borrower and Guarantors as of the close of the fiscal
year and the results of their operations for the year, and (iii) as having been prepared in
accordance with GAAP;

          (b) As soon as available, and in any event within sixty (60) days of the end of each fiscal
quarter, quarterly financial statements for Borrower and Guarantors on a consolidated and
consolidating (except for the cash flow statement) basis, consisting of at least a balance sheet,
an income statement or statement of operations, a cash flow statement, and a statement of changes
in owners’ equity, for the quarter and for the period from the beginning of the fiscal year to the
close of the quarter, certified by an authorized officer of Borrower (i) as being true and correct
in all material aspects to his knowledge, (ii) as fairly reporting the financial condition of
Borrower and Guarantors as of the close of the fiscal quarter and the results of their operations
for the quarter, and (iii) as having been prepared in accordance with GAAP, subject to normal
year-end adjustments and the absence of footnotes;

          (c) With the quarterly and annual financial statements required above, a quarterly compliance
certificate in the form of Exhibit B attached, signed by an authorized

 

 

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officer of Borrower
and certifying compliance with the financial covenants and other matters in this Loan Agreement;

          (d) On or before March 1 of each year, a report dated as of January 1, prepared by an
independent petroleum engineer or engineering firm or other designee acceptable to Lender, and on
or before August 15 of each year, a report dated as of July 1, prepared by or on behalf of
Borrower, both reports to be prepared on a consistent basis in accordance with the customary
standards and procedures of the petroleum industry, estimating the quantity of oil, gas, and
associated hydrocarbons recoverable from the Properties and all of Borrower’s and Guarantors’ oil
and gas properties, and the projected income and expense attributable to the Properties and all of
Borrower’s and Guarantors’ oil and gas properties, including, without limitation, a description of
reserves, net revenue interests and working interests attributable to the reserves, rates of
production, gross revenues, operating expenses, ad valorem taxes, capital expenditures necessary to
cause the Properties and all of Borrower’s and Guarantors’ oil and gas properties to achieve the
rate of production set forth in the report, net revenues and present value of future net revenues
attributable to the reserves and production therefrom, a statement of the assumptions upon which
the determinations were made and any other matters related to the operations of the Properties and
all of Borrower’s and Guarantors’ oil and gas properties and the estimated income therefrom;

          (e) Within fifteen (15) days of Lender’s request, copies of Borrower’s federal, state, and
local income tax filings or returns, with all schedules, attachments, forms, and exhibits;

          (f) As soon as available, and in any event within thirty (30) days after the end of each
calendar quarter, a hedging report setting forth as of the last business day of such prior fiscal
quarter end, a summary of Borrower’s and Guarantors’ existing hedging positions under all Hedge
Transactions (including forward agreements or contracts of sale which provide for prepayment for
deferred shipment or delivery of oil, gas, and other commodities), including the type, term,
effective date, termination date, and notional volumes and prices for such volumes, the hedged
prices, interest rates, or exchange rates, as applicable, and any new credit support
agreements relating thereto not previously disclosed to Lender;

          (g) Within five (5) days of Lender’s request, Borrower shall provide to Lender full and
complete copies of all agreements, documents, and instruments evidencing all existing Hedge
Transactions and such other information regarding Hedge Transactions as Lender may reasonably
request;

          (h) Within sixty (60) days of the end of each month, a production report, on a lease-by-lease
or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons
produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the
severance, gross production, occupation, or gathering taxes deducted from or paid out of the
proceeds, the lease operating expenses, intangible drilling costs, and capital expenditures, the
number of wells operated, drilled, or abandoned, the name, address, telephone number, and

 

 

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contact
of the first purchaser of production for all of the Properties, and such other information as
Lender may reasonably request;

          (i) As soon as available, and in any event within thirty (30) days after the end of each
calendar quarter, a gas balancing report, in Proper Form and duly certified by an authorized
representative of Borrower as being true and correct in all material aspects to his or her
knowledge;

          (j) At any time upon request by Lender, a list showing the name and address of each purchaser
of oil, gas, and associated hydrocarbons produced from or attributable to the Properties;

          (k) Within thirty (30) days of the date of this Loan Agreement, evidence of the payment in
full of the Accounts Payable, including lien releases to the extent necessary.

          (l) If requested by Lender, Borrower shall provide evidence that the budgeted capital
expenditures for oil and gas properties have been completed as scheduled in accordance with the
Approved Plan of Development, along with the associated paid vendor invoices.

          (m) If requested by Lender, Borrower shall provide evidence that it reasonably expects to have
the funds available to fund the budgeted capital expenditures under the Approved Plan of
Development.

          (n) Within five (5) days after Borrower learns of any such occurrence, a written report of any
pending or threatened litigation which would reasonably be expected to have a material adverse
effect upon Borrower, Guarantors, the Properties, or Borrower’s or any Guarantors’ financial
condition or which asserts damages or claims in an amount in excess of $100,000;

          (o) Within five (5) days after Borrower learns of any default under one or
more Hedge Transactions that results in an obligation of Borrower or any Guarantors to make
one or more material payments, written notice of the default and copies of all documentation
relating to the default;

          (p) As soon as possible and in any event within five (5) days after the occurrence of any
Event of Default, or any event which, with the giving of notice or lapse of time or both, would
constitute an Event of Default, the written statement of the President or the Chief Financial
Officer of Borrower setting forth the details of such Event of Default and the action which
Borrower proposes to take with respect thereto; and

 

 

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          (q) Such other information respecting the condition and the operations, financial or
otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably
request.

     10. Events
of Default. (a) The occurrence at any time of any of the following events or
the existence of any of the following conditions, and the expiration of any notice, cure, or grace
period provided in Section 10(b) below, shall be called an “Event of Default”:

               (1) Failure to make punctual payment when due of any sums owing on any of the Notes or any of
the other secured indebtedness (as described in the Deeds of Trust) or any other amounts owed by
Borrower to Lender; or

               (2) Failure of any of the Obligated Parties (as defined below) to perform in any material
respect any of the obligations, covenants, or agreements, contained in this Loan Agreement or any
of the other Loan Documents; or any representation or warranty made by Borrower or Guarantors
proves to have been false, misleading, or erroneous when made in any material respect; or

               (3) A material default by Borrower or Guarantors under any ISDA Agreement or with respect to
any Hedge Liabilities; or non-payment when due or the material breach by Borrower or Guarantors or
any Obligated Parties of any term, provision, or condition contained in any Hedge Transaction or
any confirmation or other transaction consummated thereunder, whether or not Lender is a party
thereto; or

               (4) If Borrower or any Guarantor causes production payments for oil and gas produced from or
attributable to Borrower’s oil and gas properties to be directed to any party other than the
lockbox maintained by Lender following the establishment of the lockbox under Section 2(d) of this
Loan Agreement; or

               (5) A failure by Borrower to resolve a Borrowing Base deficiency in accordance with Section
3(b) of this Loan Agreement; or

               (6) Levy, execution, attachment, sequestration, or other writ against any material portion of
the real or personal property representing the security for the Loans; or

               (7) Any “Event of Default” under the Notes or any of the other Loan Documents, the Events of
Default defined in the Notes and Loan Documents being cumulative to those contained in this Loan
Agreement; or

               (8) Except as expressly permitted by this Loan Agreement, the transfer, whether voluntarily or
by operation of law, of all or any portion of the Properties without obtaining Lender’s consent; or

 

 

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               (9) The failure of any of the Obligated Parties to pay any money judgment in excess of
$500,000.00, against that party before the expiration of thirty (30) days after the judgment
becomes final, unless such judgment has been stayed, or the failure of any of the Obligated Parties
to obtain dismissal within ninety (90) days of any involuntary proceeding filed against that party
under any Debtor Relief Laws (as defined below); or

               (10) Borrower’s liquidation, termination of existence, merger or consolidation with another
(unless Borrower is the surviving entity), forfeiture of right to do business, except where such
forfeiture would not reasonably be expected to have a material adverse effect on Borrower or any
Guarantors, or appointment of a trustee or receiver for any substantial part of its property or the
filing of an action seeking to appoint a trustee or receiver for same; or

               (11) A filing by any of the Obligated Parties of a voluntary petition in bankruptcy, or taking
advantage of any Debtor Relief Laws; or an answer admitting the material allegations of a petition
filed against any of the Obligated Parties, under any Debtor Relief Laws; or an admission by any of
the Obligated Parties in writing of an inability to pay its or their debts as they become due; or
the calling of any meeting of creditors of any of the Obligated Parties for the purpose of
considering an arrangement or composition; or

               (12) Any of the Obligated Parties revokes or disputes the validity of or liability under any
of the Loan Documents, including any guaranty or security document.

          (b) The term “Obligated Parties” means Borrower, Guarantors, any other party liable,
in whole or in part, for the payment of any of the Notes, whether as maker, endorser, guarantor,
surety, or otherwise, and any party executing any deed of trust, mortgage, security agreement,
pledge agreement, assignment, or other contract of any kind executed as security in connection with
or pertaining to the Notes or the Loans. The term “Debtor Relief Laws” means any
applicable liquidation, conservatorship, receivership, bankruptcy, moratorium, rearrangement,
insolvency, reorganization, or similar laws affecting the rights or remedies of creditors
generally, as in effect from time to time.

     11. Remedies. (a) Upon the occurrence and during the continuance of any one or more of
the foregoing Events of Default, the entire unpaid principal balances of the Notes, together with
all accrued but unpaid interest thereon, and all other indebtedness then owing by Borrower to
Lender, shall, at the option of Lender, upon written notice to Borrower, become immediately due and
payable without further presentation, demand for payment, notice of intent to accelerate, notice of
acceleration or dishonor, protest or notice of protest of any kind, all of which are
expressly waived by Borrower. Any and all rights and remedies of Lender pursuant to this Loan
Agreement or any of the other Loan Documents may be exercised by Lender, at its option, upon the
occurrence and during the continuance of an Event of Default. All remedies of Lender may be
exercised singularly, concurrently, or consecutively, without waiver or election.

 

 

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     (b) Upon any event described in Subsection 10 (a)(1) above
regarding payment of sums owing to Lender, Lender shall provide Borrower with
an invoice for the payment due and Borrower shall have five (5) days grace
after the due date in order to cure the default prior to acceleration of the
Notes and exercise of any remedies. Upon any other event described in
Subsection 10 (a) above, Lender shall provide Borrower with written notice of
the default and Borrower shall have twenty (20) days after notice in order to
cure the default prior to acceleration of the Notes and exercise of any
remedies; except Borrower shall have no cure period for any voluntary filing by
Borrower under any Debtor Relief Laws, for any voluntary transfer of any
portion of the Properties, without obtaining Lender’s partial release, for any
liquidation or termination of existence of Borrower, or for any Event of
Default that is not capable of cure during that period, and provided that
Lender is not obligated to provide written notice of any default which Borrower
reports to Lender, but Borrower shall have the benefit of any applicable grace
or cure period required herein.

     (c) All rights of Lender under the terms of this Loan Agreement shall be cumulative of, and in
addition to, the rights of Lender under any and all other agreements between Borrower and Lender
(including, but not limited to, the other Loan Documents), and not in substitution or diminution of
any rights now or hereafter held by Lender under the terms of any other agreement.

     12. Waiver and Amendment. Neither the failure nor any delay on the part of Lender to
exercise any right, power, or privilege herein or under any of the other Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of such right, power, or
privilege preclude any other or further exercise thereof or the exercise of any other right, power,
or privilege. No waiver of any provision in this Loan Agreement or in any of the other Loan
Documents and no departure by Borrower therefrom shall be effective unless the same shall be in
writing and signed by Lender, and then shall be effective only in the specific instance and for the
purpose for which given and to the extent specified in such writing. No modification or amendment
to this Loan Agreement or to any of the other Loan Documents shall be valid or effective unless the
same is signed by the party against whom it is sought to be enforced.

     13. Savings Clause. Regardless of any provision contained in this Loan Agreement,
the Notes, or any of the Loan Documents, it is the express intent of the parties that at no
time shall Borrower or any of the Obligated Parties pay interest in excess of the Maximum Rate (or
any other interest amount which might in any way be deemed usurious), and Lender will never be
considered to have contracted for or to be entitled to charge, receive, collect, or apply as
interest on any of the Notes, any amount in excess of the Maximum Rate (or any other interest
amount which might in any way be deemed usurious). In the event that Lender ever receives,
collects, or applies as interest any such excess, the amount which would be excessive interest will
be applied to the reduction of the principal balances of the Notes, and, if the principal balances
of the Notes are paid in full, any remaining excess shall forthwith be paid to Borrower.

 

 

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In determining whether the interest paid or payable exceeds the Maximum Rate (or any other interest
amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent
permitted under applicable law: (i) characterize any non-principal payment (other than payments
which are expressly designated as interest payments hereunder) as an expense or fee rather than as
interest; (ii) exclude voluntary prepayments and the effect thereof; and (iii) amortize, pro rate,
or spread the total amount of interest throughout the entire contemplated term of the Notes so that
the interest rate is uniform throughout the term. The term “Maximum Rate” means the
maximum interest rate which may be lawfully charged under applicable law.

     14. Notices. Any notice or other communications provided for in this Loan Agreement
shall be in writing and shall be given to the party at the address shown below:

	 	 	 
	Lender:

	 	Amegy Bank N.A.
	 

	 	Attention: Tim E. Merrell, Senior Vice President
	 

	 	1807 Ross Avenue, Suite 400
	 

	 	Dallas, Texas 75201
	 

	 	Fax Number (214) 754-9687
	 
	 	 
	With a copy to counsel for Lender:

	 	Paul D. Bradford
	 

	 	Harris, Finley & Bogle, P.C.
	 

	 	777 Main Street, Suite 3600
	 

	 	Fort Worth, Texas 76102-5341
	 

	 	Fax Number (817) 332-6121
	 
	 	 
	Borrower and Guarantors:

	 	Infinity Energy Resources, Inc.
	 

	 	Infinity Oil and Gas of Texas, Inc.
	 

	 	Infinity Oil & Gas of Wyoming, Inc.
	 

	 	Attention: James A. Tuell, President
	 

	 	633 Seventeenth Street, Suite 1800
	 

	 	Denver, Colorado 80202
	 

	 	Fax Number (720) 932-5409
	 
	 	 
	With a copy to counsel for
Borrower and Guarantors:

	 	Deborah J. Friedman
Davis Graham & Stubbs LLP
	 

	 	1550 Seventeenth Street, Suite 500
	 

	 	Denver, Colorado 80202
	 

	 	Fax Number (303) 893-1379

 

 

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Any such notice or other communication shall be deemed to have been given on the day it is
personally delivered or, if mailed, on the third day after it is deposited in an official
receptacle for the United States mail, or, if faxed, on the date it is received by the party. Any
party may change its address for the purposes of this Loan Agreement by giving notice of such
change in accordance with this paragraph.

     15. Miscellaneous.
(a) This Loan Agreement shall be binding upon and inure to the
benefit of Lender, Borrower, and Guarantors, and their respective heirs, personal representatives,
successors, and assigns; provided, however, that Borrower and Guarantors may not, without the prior
written consent of Lender, assign any rights, powers, duties, or obligations under this Loan
Agreement or any of the other Loan Documents.

          (b) THIS LOAN AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA AND SHALL BE PERFORMED IN
DALLAS COUNTY, TEXAS. BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION
OR CLAIM RELATED TO THIS LOAN AGREEMENT, THE NOTES, THE LOANS, THE GUARANTIES, OR THE PROPERTIES
SHALL BE IN COURT IN DALLAS COUNTY, TEXAS.

          (c) If any provision of this Loan Agreement or any other Loan Documents is held to be illegal,
invalid, or unenforceable under present or future laws, such provision shall be fully severable and
the remaining provisions of this Loan Agreement or any of the other Loan Documents shall remain in
full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision
or by its severance.

          (d) All covenants, agreements, undertakings, representations, and warranties made in this Loan
Agreement and the other Loan Documents shall survive any closing hereunder.

          (e) All documents delivered by Borrower or Guarantors to Lender must be in Proper Form. The
term “Proper Form” means in form, substance, and detail satisfactory to Lender in its sole
discretion.

          (f) Without limiting the effect of any provision of any Loan Document which provides for the
payment of expenses and attorneys fees upon the occurrence of certain events, Borrower shall pay
all costs and expenses (including, without limitation, the reasonable attorneys fees of Lender’s
legal counsel) in connection with (i) the preparation of this Loan Agreement and the other Loan
Documents, and any and all extensions, renewals, amendments, supplements, extensions, or
modifications thereof, (ii) any action reasonably required in the course of

 

 

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administration of the Loans, (iii) resolution of any disputes with Borrower or Guarantors related
to the Loans or this Loan Agreement, and (iv) any action in the enforcement of Lender’s rights upon
the occurrence of an Event of Default.

          (g) If there is a conflict between the terms of this Loan Agreement and the terms of any of
the other Loan Documents, the terms of this Loan Agreement will control.

          (h) Lender shall have the right, with the consent of Borrower (unless an Event of Default has
occurred and is continuing, in which case no consent is needed), which will not be unreasonably
withheld, (i) to assign the Loans or commitment and be released from liability thereunder, and (ii)
to transfer or sell participations in the Loans or commitment with the transferability of voting
rights limited to principal, rate, fees, and term.

          (i) This Loan Agreement may be separately executed in any number of counterparts, each of
which will be an original, but all of which, taken together, shall be deemed to constitute one
agreement, and Lender is authorized to attach the signature pages from the counterparts to copies
for Lender and Borrower. At Lender’s option, this Loan Agreement and the Loan Documents may also
be executed by Lender, Borrower, and Guarantors in remote
locations with signature pages faxed to Lender and Borrower. Lender, Borrower, and Guarantors
agree that the faxed signatures are binding upon the parties thereto, and the parties further agree
to promptly deliver the original signatures for this Loan Agreement and all Loan Documents by
overnight mail or expedited delivery. It will be an Event of Default if they fail to promptly
deliver all required original signatures.

     16. Notice
of Final Agreement. (a) In connection with the Loans, Borrower, Guarantors,
and Lender have executed and delivered this Loan Agreement and the Loan Documents (collectively the
“Written Loan Agreement”).

          (b) It is the intention of Borrower, Guarantors, and Lender that this paragraph be
incorporated by reference into each of the Loan Documents. Borrower, Guarantors, and Lender each
warrant and represent that their entire agreement with respect to the Loans is contained within the
Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among,
Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.

          (c) THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

 

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     If the foregoing correctly sets forth our agreement, please so acknowledge by signing and
returning the additional copy of this Loan Agreement enclosed to me.

	 	 	 	 	 
	 	Yours very truly,

Amegy Bank N.A.

 	 
	 	By:  	/s/ Tim E. Merrell	 
	 	 	Tim E. Merrell, 	 
	 	 	Senior Vice President 	 

 

 

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Accepted and agreed to
this 9th day of January, 2007:

	 	 	 	 	 
	BORROWER:
	 
	 	 	 	 
	Infinity Energy Resources, Inc.  
	 
	 	 	 	 
	By:
	 	/s/ James A. Tuell	 	 
	 

	 	 	 	 
	 

	 	James A. Tuell, President	 	 
	 
	 	 	 	 
	GUARANTORS:
	 
	 	 	 	 
	Infinity Oil and Gas of Texas, Inc.
	 
	 	 	 	 
	By:
	 	/s/ James A. Tuell	 	 
	 

	 	 	 	 
	 

	 	James A. Tuell, President	 	 
	 
	 	 	 	 
	Infinity Oil & Gas of Wyoming, Inc.
	 
	 	 	 	 
	By:
	 	/s/ James A. Tuell	 	 
	 

	 	 	 	 
	 

	 	James A. Tuell, President	 	 

Exhibits and Schedules

Exhibit A — Revolving Note

Exhibit B — Compliance Certificate

Schedule 1(d) — Approved Plan of Development

Schedule 5(a)(6) — Liens and security interests

Schedule 5(a)(8) — Material adverse change

Schedule 5(a)(9) — Order, injunction, or other pending or threatened actions, suits, or proceedings

Schedule 6(e) — Additional taxes

Schedule 6(h) — Organizational Chart

Schedule 6(i) — Hedge Transactions

Schedule 7(h) — Obligations on Nicaraguan concessions

Schedule 7(p) — ERISA issuesexv10w2

 

Exhibit 10.2

REVOLVING PROMISSORY NOTE

	 	 	 	 	 
	$50,000,000.00

	 	Dallas, Texas
	 	January 9, 2007

     Promise to Pay. For value received, on or before January 9, 2009 (“Maturity Date”),
Infinity Energy Resources, Inc. (“Borrower”), a Delaware corporation, promises to
pay to the order of Amegy Bank, N.A.(“Lender”), at its offices in Dallas County,
Texas, at 1807 Ross Avenue, Suite 400, Dallas, Dallas County, Texas 75201, the principal
amount of Fifty Million Dollars ($50,000,000.00) (“Total Principal Amount”), or such amount
less than the Total Principal Amount which has been advanced to Borrower and remains unpaid under
this Revolving Promissory Note (“Note”), together with interest on the portion of the Total
Principal Amount advanced to Borrower from the date advanced until paid at the rates per annum
provided below.

     Definitions. For purposes of this Note, unless the context otherwise requires, certain terms
used herein shall be defined as follows:

     “Adjusted LIBOR Rate” means with respect to each Interest Period, a rate per annum
equal to the sum of (i) the LIBOR Spread, plus (ii) the LIBOR Rate with respect to such
Interest Period. Each determination by Lender of the Adjusted LIBOR Rate shall, in the absence of
manifest error, be conclusive and binding.

     “Adjusted Stated Rate” means a rate per annum equal to the sum of (i) the Stated Rate,
plus  (ii) the Applicable Margin. Each determination by Lender of the Adjusted Stated
Rate shall, in the absence of manifest error, be conclusive and binding.

     “Applicable Margin” means the “Applicable Margin” as defined in the Loan Agreement;
and the Applicable Margin will vary as set forth in the Loan Agreement, based on the Borrowing Base
Utilization (as defined in the Loan Agreement) as in effect from time to time, with each change in
the applicable percentage resulting from a change in the Borrowing Base Utilization to take effect
on the day such change in the Borrowing Base Utilization occurs.

     “Business Day” means any day other than a Saturday, Sunday or any other day on which
national banking associations are authorized to be closed.

     “Consequential Loss” means, with respect to Borrower’s payment of all or any portion
of the then-outstanding principal amount of any LIBOR Balance on a day other than the last day of
the Interest Period related thereto, any loss, cost, or expense incurred by Lender in redepositing
such principal amount, including the sum of (i) the interest which, but for such payment, Lender
would have earned in respect of such principal amount so paid, for the remainder of the Interest
Period applicable to such sum, reduced, if Lender is able to redeposit such principal amount so
paid for the balance of such Interest Period, by the interest earned by Lender as a result of so
redepositing such principal amount plus (ii) any expense or penalty incurred by Lender on
redepositing such principal amount, but excluding taxes on the income of Lender imposed by any
governmental authority.

     “Contract Rate” means the Adjusted LIBOR Rate or the Adjusted Stated Rate, as
in effect from time to time under this Note.

     “Dollars” means lawful currency of the United States of America.

 

 

     “Excess Interest Amount” means, on any date, the amount by which (i) the amount of all
interest which would have accrued prior to such date on the principal of this Note, had the
applicable Contract Rate at all times been in effect without limitation by the Maximum Rate,
exceeds (ii) the aggregate amount of interest accrued on this Note on or prior to such date
as limited by the Maximum Rate.

     “Interest Notice” means the notice given by Borrower to Lender of an Interest Option
selected hereunder. Each Interest Notice given by Borrower under this Note shall be irrevocable
and must be given not later than 11:00 a.m. (Dallas, Texas time) on a day which is not less than
the number of Business Days or LIBOR Business Days required below for an Interest Option.

     “Interest Option” means Borrower’s option to select an Adjusted LIBOR Rate or the
Adjusted Stated Rate, as described more fully below.

     “Interest Payment Date” means the first day of each month hereafter for interest on
the Stated Rate Balance, the last day of the applicable Interest Period for interest on the LIBOR
Balance, and the Maturity Date.

     “Interest Period” means, with respect to any LIBOR Balance, a period commencing: (i)
on any date which, pursuant to an Interest Notice, the principal amount of such LIBOR Balance
begins to accrue interest at the Adjusted LIBOR Rate, or (ii) the Business Day following the last
day of the immediately preceding Interest Period in the case of a rollover to a successive Interest
Period, and ending one, two, three, or six months thereafter as Borrower shall elect in accordance
with the provisions hereof; provided that: (A) any Interest Period which would otherwise end on a
day which is not a LIBOR Business Day shall be extended to the succeeding LIBOR Business Day and
(B) any Interest Period which would otherwise end after the Maturity Date shall end on the Maturity
Date.

     “LIBOR Balance” means the principal balance of this Note, which, pursuant to an
Interest Notice, bears interest at an Adjusted LIBOR Rate.

     “LIBOR Business Day” means a day on which dealings in Dollars are carried out in the
London interbank offered rate market.

     “LIBOR Rate” means the rate of interest per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) equal to the average of the offered quotations appearing at Page or Ticker
US0001M, US0002M, US0003M, or US0006M, as the case may be for applicable Interest Period in
Bloomberg Financial Markets Commodities News as published by Bloomberg L.P. (or such other
similar news reporting service as Lender may subscribe to at the time such LIBOR Rate is
determined), at which deposits in U.S. dollars are offered by the major London clearing banks in
the London interbank offered market for a period of time equal or comparable to one, two, three, or
six months and in an amount equal to or comparable to the principal amount of the LIBOR Balance to
which such interest period relates. The LIBOR Rate for the Interest Period to which it relates
shall be determined as of 11:00 a.m. (London, England time) two (2) LIBOR Business Days prior to
the first day of such Interest Period.

Revolving
Promissory Note — Page 2 of 10

 

 

     “LIBOR Spread” means the “LIBOR Spread” as defined in the Loan Agreement; and the
LIBOR Spread will vary as set forth in the Loan Agreement, based on the Borrowing Base Utilization
(as defined in the Loan Agreement) as in effect from time to time, with each change in the
applicable percentage resulting from a change in the Borrowing Base Utilization to take effect on
the day such change in the Borrowing Base Utilization occurs.

     “Loan Agreement” means the Loan Agreement of even date, by and among Borrower, Lender,
and others, as amended.

     “Maximum Rate” means at the particular time in question the maximum rate of interest
which, under applicable law, may then be charged on this Note. If the maximum rate of interest
changes after the date hereof, the Maximum Rate shall be automatically increased or decreased, as
the case may be, without notice to Borrower from time to time as of the effective date of each
change in the maximum rate. If applicable law ceases to provide for a maximum rate of interest,
the Maximum Rate shall be equal to eighteen percent (18%) per annum.

     “Stated Rate” means the greater of (i) the interest rate publicly announced by Lender
from time to time as its general reference rate of interest, which prime rate shall change upon any
change in such announced or published general reference interest rate and which prime rate may not
be the lowest interest rate charged by the Lender, or (ii) the sum of the rate of interest, then
most recently published by The Wall Street Journal as the “federal funds” rate for reserves traded
among commercial banks for overnight use, plus one half of one percent (0.5%).

     “Stated Rate Balance” means the principal balance of this Note bearing interest at a
rate based upon the Adjusted Stated Rate.

     Payments of Interest and Principal. The principal of and all accrued but unpaid interest on
this Note shall be due and payable as follows:

     (a) accrued, unpaid interest on this Note shall be due and payable on each Interest Payment
Date, commencing on the first (1st) day of February, 2007, and continuing until the
Maturity Date;

     (b) the principal of this Note shall be due and payable as required by the Loan Agreement to
meet any Borrowing Base deficiency or Monthly Commitment Reductions (if and when required by Lender
under the Loan Agreement); and

     (c) the outstanding principal balance of this Note, together with all accrued but unpaid
interest, shall be due and payable on the Maturity Date.

     Revolving Credit. Under the Loan Agreement, Borrower may request advances and make payments
hereunder from time to time, provided that it is understood and agreed that the aggregate principal
amount outstanding from time to time hereunder shall not at any time exceed the Total Principal
Amount or the Borrowing Base (as defined in the Loan Agreement), subject to the right to cure
Borrowing Base deficiencies in the Loan Agreement. In addition, Lender may set a monthly
commitment reduction pursuant to the Loan Agreement, and thereafter the Borrowing Base and

Revolving
Promissory Note — Page 3 of 10

 

 

Lender’s commitment under this Note will decline monthly and the amount outstanding under this
Note may not exceed this declining Borrowing Base as and to the extent provided in the Loan
Agreement. The unpaid balance of this Note shall increase and decrease with each new advance or
payment hereunder, as the case may be. This Note shall not be deemed terminated or canceled prior
to the Maturity Date, although the entire principal balance hereof may from time to time be paid in
full. Borrower may borrow, repay and reborrow hereunder. Unless otherwise agreed to in writing or
otherwise required by applicable law, payments will be applied first to unpaid accrued interest,
then to principal, and any remaining amount to any unpaid collection costs, delinquency charges,
and other charges; provided, however, while an Event of Default (as defined below) is outstanding,
Lender reserves the right to apply payments among principal, interest, delinquency charges,
collection costs, and other charges, in such order and manner as the holder of this Note may from
time to time determine in its sole discretion. All payments and prepayments of principal of or
interest on this Note shall be made in Dollars in immediately available funds, at the address of
Lender indicated above, or such other place as the holder of this Note shall designate in writing
to Borrower. If any payment of principal of or interest on this Note shall become due on a day
which is not a Business Day or LIBOR Business Day, as applicable, such payment shall be made on the
next succeeding Business Day or LIBOR Business Day, as applicable, and any such extension of time
shall be included in computing interest in connection with such payment. The books and records of
Lender shall be prima facie evidence of all outstanding principal of and accrued
and unpaid interest on this Note.

     Accrual of Interest. The unpaid principal of the Stated Rate Balance shall bear interest at a
rate per annum which shall from day to day be equal to the lesser of (i) the Adjusted Stated Rate,
or (ii) the Maximum Rate. The unpaid principal of each LIBOR Balance shall bear interest at a rate
per annum which shall be equal to the lesser of (i) the Adjusted LIBOR Rate for the Interest Period
in effect with respect to such LIBOR Balance, or (ii) the Maximum Rate. Each change in the
Adjusted Stated Rate shall become effective without prior notice to Borrower automatically as of
the opening of business on the date of such change in the Adjusted Stated Rate. Interest on this
Note shall be calculated on the basis of the actual days elapsed, but computed as if each year
consisted of 360 days.

     Interest Options. Subject to the provisions hereof, Borrower shall have the option (the
“Interest Option”) of having the unpaid principal balance of this Note bear interest at
the Adjusted LIBOR Rate or the Adjusted Stated Rate; provided, however, that only four (4) Interest
Period options shall be in effect at any one time during the term hereof and the selection of the
Adjusted LIBOR Rate for a particular Interest Period shall be for no less than $1,000,000.00 of
unpaid principal and in even multiples of $100,000.00 in principal. The Interest Option shall be
exercised in the manner provided below:

     (a) Advances. Each advance on the Note will initially be funded as a Stated Rate Balance and
will accrue interest from the date advanced at the Adjusted Stated Rate.

     (b) Conversion From Adjusted Stated Rate. During any period in which the principal hereof
bears interest at the Adjusted Stated Rate, Borrower shall have the right, on any LIBOR Business
Day (the “Conversion Date”), to convert all or part of the principal balance owed on the

Revolving Promissory Note — Page 4 of 10

 

 

Note from the Stated Rate Balance to a LIBOR Balance by giving Lender an Interest Notice of
such selection at least two (2) LIBOR Business Days prior to the Conversion Date.

     (c) At Expiration of Interest Periods. At least two (2) LIBOR Business Days prior to the
termination of each Interest Period, Lender shall receive from Borrower an Interest Notice
indicating the Interest Option to be applicable to the corresponding LIBOR Balance upon the
expiration of such Interest Period. If the required Interest Notice shall not have been timely
received by Lender, Borrower shall be deemed to have selected the Adjusted Stated Rate to be
applicable to the corresponding LIBOR Balance upon the expiration of the Interest Period and to
have given Lender notice of such selection.

     Interest Recapture. If on each Interest Payment Date or any other date on which interest
payments are required hereunder, Lender does not receive interest on this Note computed at the
Adjusted Stated Rate or Adjusted LIBOR Rate because such Contract Rate exceeds or has exceeded the
Maximum Rate, then Borrower shall, upon the written demand of Lender, pay to Lender in addition to
the interest otherwise required to be paid hereunder, on each Interest Payment Date thereafter, the
Excess Interest Amount (calculated as of such later Interest Payment Date); provided that in no
event shall Borrower be required to pay, for any Interest Period, interest at a rate exceeding the
Maximum Rate effective during such period.

     Interest on Past Due Amounts and Default Interest. To the extent any interest is not paid on
or before the date it becomes due and payable, Lender may, at its option, add such accrued but
unpaid interest to the principal of this Note. Notwithstanding anything herein to the contrary,
(i) while any Event of Default (as defined below) is outstanding, (ii) upon acceleration of the
maturity hereof following an uncured Event of Default, or (iii) at the Maturity Date, all principal
of this Note shall, at the option of Lender, bear interest until paid at the lesser of (i) the sum
of the Stated Rate plus six percent (6.0%) per annum, or (ii) the Maximum Rate.

     Loan Agreement/Security. This Note is subject to the terms and provisions of the Loan
Agreement. In the event of any conflict or inconsistency between this Note and the Loan Agreement,
the Loan Agreement shall govern. This Note is secured by all liens and security interests
described in the Loan Agreement. This Note, the Loan Agreement, and all other documents
evidencing, securing, governing, guaranteeing, or pertaining to this Note are hereinafter
collectively referred to as the “Loan Documents.” The holder of this Note is entitled to
the benefits and security provided in the Loan Documents.

     Prepayments; Consequential Loss. Borrower may from time to time prepay all or any portion of
the principal of this Note without premium or penalty, except as set forth herein. Any prepayment
made hereunder shall be made together with all interest accrued but unpaid on this Note through the
date of such prepayment. If Borrower makes any prepayment of principal with respect to any LIBOR
Balance on any day prior to the last day of the Interest Period applicable to such LIBOR Balance,
Borrower shall reimburse the Lender on demand the Consequential Loss incurred by Lender as a result
of the timing of such payment. A certificate of Lender setting forth the basis for the
determination of a Consequential Loss shall be delivered to Borrower and shall, in the absence of
manifest error, be prima facie evidence as to such determination and amount.

Revolving Promissory Note — Page 5 of 10

 

 

     Special Provisions for LIBOR Pricing. Borrower agrees to the following special provisions
regarding LIBOR pricing:

          (a) If Lender determines that, by reason of circumstances affecting the London interbank
offered rate market generally, deposits in Dollars (in the applicable amounts) are not being
offered to United States financial institutions in the London interbank offered rate market for the
applicable Interest Period, or that the rate at which such Dollar deposits are being offered will
not adequately and fairly reflect the cost to Lender of making or maintaining a LIBOR Balance for
the applicable Interest Period, Lender shall forthwith give written notice to Borrower, and
thereafter until Lender notifies Borrower that the circumstances giving rise to such suspension no
longer exist, (i) the right of Borrower to select the Adjusted LIBOR Rate as an Interest Option
under this Note shall be suspended, and (ii) Borrower shall be deemed to have converted each LIBOR
Balance to a Stated Rate Balance under this Note in accordance with the provisions hereof on the
last day of the then-current Interest Period applicable to such LIBOR Balance.

          (b) If the adoption of any applicable law, rule, or regulation, or any change therein, or any
change in the interpretation or administration thereof by any governmental authority, central bank,
or agency charged with the interpretation or administration thereof, or compliance by Lender with
any request or directive (whether or not having the force of law) of any such authority, central
bank, or agency shall make it unlawful or impossible for Lender to make or maintain a LIBOR
Balance, Lender shall so notify Borrower. Upon receipt of such written notice, Borrower shall be
deemed to have converted any LIBOR Balance to a Stated Rate Balance under this Note, on either (i)
the last day of the then-current Interest Period applicable to such LIBOR Balance if Lender may
lawfully continue to maintain and fund such LIBOR Balance to such day, or (ii) immediately if
Lender may not lawfully continue to maintain such LIBOR Balance to such day.

          (c) If any governmental authority, central bank, or other comparable authority, shall at any
time after the date of this Note impose, modify, or deem applicable any reserve (including, without
limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit,
or similar requirement against assets of, deposits with or for the account of, or credit extended
by, Lender, or shall impose on Lender (or its LIBOR lending office) or the London interbank offered
rate market any other condition affecting its LIBOR Balance, this Note, or its obligation to make
LIBOR advances; and the result of any of the foregoing is to increase the cost to Lender of making
or maintaining its LIBOR Balance, or to reduce the amount of any sum received or receivable by
Lender under this Note by an amount reasonably deemed by Lender to be material; then, within five
(5) days after demand by Lender, Borrower shall pay to Lender, such additional amount or amounts as
will compensate Lender for such increased cost or reduction. Lender will promptly notify Borrower
of any event of which it has knowledge, occurring after the date hereof, which will entitle Lender
to compensation pursuant to this Subsection. A certificate of Lender claiming compensation under
this Subsection and setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. If Lender demands compensation under this
Subsection, then Borrower may at any time, upon at least five (5) Business Days prior notice to
Lender, either (i) repay in full the then outstanding LIBOR Balance, together with accrued interest
thereon to the date of prepayment, or (ii) convert such LIBOR Balance to Stated Rate Balance in
accordance with the provisions of this Note; provided, however, that Borrower shall be liable for
any Consequential Loss arising pursuant to such actions.

Revolving Promissory Note — Page 6 of 10

 

 

          (d) If (i) the obligation of Lender to permit LIBOR Balance has been suspended pursuant to
subsections (a) or (b) above or (ii) Lender has demanded compensation under subsection (c) above,
then, unless and until Lender notifies Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer apply, all advances on this Note which would
otherwise be made by Lender as LIBOR Balance shall be made instead as Stated Rate Balance.

     Business Loan. Borrower represents to and covenants with Lender that: (1) all loans
evidenced by this Note are and shall be “business loans” as that term is used in the Depository
Institutions Deregulation and Monetary Control Act of 1980, as amended; and (2) the loans are for
business, commercial, investment, or other similar purposes and not for personal, family,
household, or agricultural use, as those terms are used in the Texas Finance Code.

     Event of Default. Borrower agrees that upon the occurrence of any one or more of the
following events of default and the expiration of any notice, grace, or cure period provided for in
the Loan Agreement (“Event of Default”):

     (a) failure of Borrower to pay any installment of principal of or interest on this Note or on
any other indebtedness of Borrower to Lender when due; or

     (b) the occurrence of any Event of Default specified in the Loan Agreement;

the holder of this Note may, at its option, without further notice or demand, except such notice as
is required by the Loan Agreement, (i) declare the outstanding principal balance of and accrued but
unpaid interest on this Note at once due and payable, without presentment, demand for payment,
notice of intent to accelerate, other notice of acceleration or dishonor, protest, or notice of
protest of any kind, all of which are expressly waived by Borrower (ii) refuse to advance any
additional amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue
any and all other rights, remedies, and recourses available to the holder hereof, including but not
limited to any such rights, remedies, or recourses under the Loan Documents, at law or in equity,
or (v) pursue any combination of the foregoing.

     No Waiver by Lender. The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy, or recourse available to the holder hereof upon the occurrence of
an Event of Default hereunder shall not constitute a waiver of the right of the holder of this Note
to exercise the same at that time or at any subsequent time with respect to such Event of Default
or any other Event of Default while such Event of Default is outstanding. The rights, remedies,
and recourses of the holder hereof, as provided in this Note and in any other Loan Documents, shall
be cumulative and concurrent and may be pursued separately, successively, or together as often as
occasion therefor shall arise, at the sole discretion of the holder hereof. The acceptance by the
holder hereof of any payment under this Note which is less than the payment in full of all amounts
due and payable at the time of such payment shall not (i) constitute a waiver of or impair, reduce,
release, or extinguish any right, remedy, or recourse of the holder hereof, or nullify any prior
exercise of any such right, remedy, or recourse, or (ii) impair, reduce, release, or extinguish the

Revolving Promissory Note — Page 7 of 10

 

 

obligations of any party liable under any of the Loan Documents as originally provided herein
or therein.

     Usury Savings Clause. This Note and all other Loan Documents are intended to be performed in
accordance with, and only to the extent permitted by, all applicable usury laws. If any provision
hereof or of any other Loan Documents or the application thereof to any person or circumstance
shall, for any reason and to any extent, be invalid or unenforceable, neither the application of
such provision to any other person or circumstance nor the remainder of the instrument in which
such provision is contained shall be affected thereby, and all provisions shall be enforced to the
greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of the
holder hereof to at all times comply with the usury and other applicable laws now or hereafter
governing the interest payable on the indebtedness evidenced by this Note. If the applicable law
is ever revised, repealed, or judicially interpreted so as to render usurious any amount called for
under this Note or under any other Loan Documents, or contracted for, charged, taken, reserved, or
received with respect to the indebtedness evidenced by this Note, or if Lender’s exercise of the
option to accelerate the maturity of this Note or if any prepayment by Borrower results in Borrower
having paid any interest in excess of that permitted by law, then it is the express intent of
Borrower and Lender that all excess amounts theretofore collected by Lender be credited on the
principal balance of this Note (or, if this Note and all other indebtedness arising under or
pursuant to the other Loan Documents have been paid in full, refunded to Borrower), and the
provisions of this Note and the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectable hereunder and thereunder reduced, without the necessity of the execution of
any new document, so as to comply with the then-applicable law, but so as to permit the recovery of
the fullest amount otherwise called for hereunder or thereunder. All sums paid, or agreed to be
paid, by Borrower for the use, forbearance, detention, taking, charging, receiving, or reserving
of the indebtedness of Borrower to Lender under this Note or arising under or pursuant to the other
Loan Documents shall, to the maximum extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full term of such indebtedness until payment in full so that
the rate or amount of interest on account of such indebtedness does not exceed the usury ceiling
from time to time in effect and applicable to such indebtedness for so long as such indebtedness is
outstanding. To the extent federal law permits Lender to contract for, charge, or receive a
greater amount of interest, Lender will rely on federal law instead
of Texas Finance
Code, for the purpose of determining the Maximum Rate. Additionally, to the maximum extent
permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to
time, implement any other method of computing the Maximum Rate under the Texas Finance Code, or
under other applicable law by giving notice, if required, to Borrower as provided by applicable law
now or hereafter in effect. Notwithstanding anything to the contrary contained herein or in any
other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest
that has not accrued at the time of such acceleration or to collect unearned interest at the time
of such acceleration.

     Applicability of Laws. In no event shall Chapter 346 of the Texas Finance Code (which
regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Note. To
the extent that Chapter 303 of the Texas Finance Code is applicable to this Note, the “weekly
ceiling” specified in Chapter 303 is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.

Revolving Promissory Note — Page 8 of 10

 

 

     Attorneys Fees. If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through bankruptcy, or other legal proceedings of any
kind, Borrower agrees to pay, in addition to all other sums payable hereunder, all costs and
expenses of collection, including but not limited to reasonable attorneys fees.

     Borrower’s Waiver. Except as expressly provided herein, Borrower and any and all endorsers
and guarantors of this Note severally waive presentment for payment, notice of nonpayment, protest,
demand, notice of protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further notice hereby agree to
renewals, extensions, exchanges or releases of collateral, taking of additional collateral,
indulgences, or partial payments, either before or after maturity.

     Applicable Law. EXCEPT TO THE EXTENT THAT THE LAWS OF THE UNITED STATES MAY APPLY, THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THIS
INSTRUMENT IS MADE AND IS PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS, AND IN THE EVENT OF A
DISPUTE INVOLVING THIS NOTE OR ANY OTHER INSTRUMENT EXECUTED IN CONNECTION HEREWITH, BORROWER
IRREVOCABLY AGREES THAT VENUE FOR SUCH DISPUTES SHALL BE IN ANY COURT OF COMPETENT JURISDICTION IN
DALLAS COUNTY, TEXAS.

     Captions. Captions used herein are for convenience only and should not be used in
interpreting this Note.

Revolving Promissory Note — Page 9 of 10

 

 

     Final Agreement. THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     Executed and delivered to Lender in Dallas, Texas, on the date stated above.

	 	 	 	 	 
	 	BORROWER:

Infinity Energy Resources, Inc.

 	 
	 	By:  	/s/ James A. Tuell	 
	 	 	James A. Tuell, President 	 
	 	 	 	 
	 

This note was prepared by:

Harris, Finley & Bogle, P.C.

777 Main Street, Suite 3600

Fort Worth, Texas 76102

(817) 870-8700

Revolving Promissory Note — Page 10 of 10

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