Document:

ex10_1.htm

    
      

      

    

    Exhibit
10.1

     

    Execution
Copy

    
      SIXTH
AMENDMENT TO AMENDED AND RESTATED

       

      FIRST
LIEN CREDIT AGREEMENT

       

      This
SIXTH AMENDMENT TO AMENDED AND RESTATED FIRST LIEN CREDIT AGREEMENT (“Amendment”), dated as
of February 5, 2010, is by and among Energy XXI Gulf Coast, Inc., a
Delaware corporation (the “Borrower”), the
lenders party to the First Lien Credit Agreement described below (the “Lenders”), and The
Royal Bank of Scotland plc, as administrative agent for the Lenders (in such
capacity, the “Administrative
Agent”), and the other parties in the capacities herein
identified.

       

      RECITALS

       

      WHEREAS,
the Borrower, the Lenders, the Administrative Agent and certain other Persons
are parties to the Amended and Restated First Lien Credit Agreement, dated as of
June 8, 2007, as modified by the Consent Regarding Amended and Restated
First Lien Credit Agreement dated as of July 27, 2007, as amended by that
certain First Amendment to Amended and Restated First Lien Credit Agreement
dated effective as of November 19, 2007, as amended by that certain Waiver,
Consent and Second Amendment to Amended and Restated First Lien Credit Agreement
dated effective as of December 1, 2008, as amended by the Third Amendment to
Amended and Restated First Lien Credit Agreement dated as of April 6, 2009,
as modified by the Waiver and Consent to Amended and Restated First Lien Credit
Agreement dated as of June 30, 2009, as amended and modified by the Waiver,
Consent and Fourth Amendment to Amended and Restated First Lien Credit Agreement
dated as of September 11, 2009 and as amended and modified by the
Fifth Amendment to Amended and Restated First Lien Credit Agreement dated as of
December 11, 2009 (as so modified, and as amended, supplemented and
amended, herein the “2007 First Lien Credit Agreement”, and the 2007 First Lien
Credit Agreement as amended, supplemented, amended and restated or otherwise
modified from time to time, the “First Lien Credit
Agreement”); and

       

      WHEREAS,
the Borrower has requested that the Administrative Agent, the Issuer, and the
Lenders amend the First Lien Credit Agreement in certain respects as set forth
herein.

       

      NOW
Therefore, in consideration of the premises and the mutual covenants,
representations and warranties contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

       

      AGREEMENT

       

      Section
1. Definitions.  Capitalized
terms used herein but not defined herein shall have the meanings as given them
in the First Lien Credit Agreement, unless the context otherwise
requires.

       

      Section
2. Amendments to First Lien
Credit Agreement.

       

      (a) Amendment to the preamble of
the First Lien Credit Agreement.  The preamble to the First
Lien Credit Agreement is hereby amended by replacing the phrase “CORPORATION
(“RBS
Securities”) and BNP PARIBAS (“BNP Paribas”), as
Joint Lead Arrangers and Joint Bookrunners, BNP PARIBAS, as syndication agent
(in such capacity, the “Syndication Agent”)
for the Lenders, and GUARANTY BANK, FSB and BMO CAPITAL MARKETS FINANCING, INC.
f/k/a HARRIS NESBITT FINANCING, INC., as co-documentation agents (in such
capacity, each a “Co-Documentation
Agent” for the Lenders” with the phrase “INC. (“RBS Securities”) and
BNP PARIBAS SECURITIES CORP. (“BNPPSC”), as Lead
Arrangers (in such capacity the “Lead Arrangers”), and
BNPPSC as Syndication Agent (in such capacity, the “Syndication Agent”)
for the Lenders”.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (b) Amendment to Section 1.1 of
the First Lien Credit Agreement.  Section 1.1 of the First Lien
Credit Agreement is hereby amended by adding the following new defined terms in
alphabetical order:

       

      “BNPPSC” is defined in
the preamble.

       

      “Lead Arrangers”
means, collectively, RBS Securities and BNPPSC.

       

      (c) Amendment to Section 1.1 of
the First Lien Credit Agreement.  Section 1.1 of the First Lien
Credit Agreement is hereby amended by replacing the following defined terms in
their entirety with the following:

       

      “Agents” means each of
the Administrative Agent, the Syndication Agent and the Lead
Arrangers.”

       

      “Applicable Commitment Fee
Margin” means 0.50%.”

       

      “Applicable Margin”
means, for any day and with respect to all Loans maintained as LIBO Rate Loans
or Base Rate Loans, the applicable percentage set forth below corresponding to
the Borrowing Base Utilization Percentage:

       

      
        	
                If
      the Borrowing

                Base
      Utilization

                Percentage is:

              	
                Then
      the Applicable Margin for LIBO Rate Loans
      is:

              	
                Then
      the Applicable Margin for Base Rate Loans
      is:

              
	
                Greater
      than or equal to 90%

              	
                3.50%

              	
                2.50%

              
	
                Greater
      than or equal to 75% but less than 90%

              	
                3.25%

              	
                2.25%

              
	
                Greater
      than or equal to 50% but less than 75%

              	
                3.00%

              	
                2.00%

              
	
                Less
      than 50%

              	
                2.75%

              	
                1.75%

              

      

      

      If at any
time the Borrower fails to deliver a Reserve Report pursuant to Section 2.8.2 or
2.8.3, then the
“Applicable
Margin” means the rate per annum set forth on the grid when the Borrowing
Base Utilization Percentage is at its highest level until such time as such
Reserve Report has been delivered.”

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      “Cash Collateralize”
means, with respect to a Letter of Credit, the deposit of immediately available
funds into a cash collateral account maintained with (or on behalf of) the
Administrative Agent and/or BNP Paribas (as the case may be) on terms
satisfactory to the Administrative Agent in an amount equal to the Stated Amount
of such Letter of Credit (or such lesser amount as the Administrative Agent
and/or BNP Paribas (as the case may be) has approved in its sole
discretion).”

       

      “EBITDA” means, for
any applicable period and with the respect to the Borrower and its consolidated
Subsidiaries, the sum of (a) Net Income, plus (b) to the extent deducted in
determining Net Income, the sum of (i) amounts attributable to
amortization, depletion and depreciation of assets, (ii) income tax
expense, (iii) Interest Expense for such period, and (iv) reasonable
transaction fees and expenses incurred in connection with negotiation, execution
and delivery of this Agreement and the other Loan Documents; provided, however, that (A) for
the Fiscal Quarter ending March 31, 2009, EBITDA for such Fiscal Quarter shall
be deemed to be equal to $153,351,230 (of which $12,809,618 is attributable to
properties acquired from MitEnergy Upstream LLC), (B) for the Fiscal Quarter
ending June 30, 2009, EBITDA for such Fiscal Quarter shall be deemed to be
equal to $87,255,666 (of which $15,862,666 is attributable to properties
acquired from MitEnergy Upstream LLC), (C) for the Fiscal Quarter ending
September 30, 2009, EBITDA for such Fiscal Quarter shall be deemed to be
equal to $75,291,000 (of which $24,397,000 is attributable to properties
acquired from MitEnergy Upstream LLC) and (D) for the Fiscal Quarter ending
December 31, 2009, EBITDA for such Fiscal Quarter shall be deemed to be
equal to $144,883,000 (of which $44,485,000 is attributable to properties
acquired from MitEnergy Upstream LLC) (or if less, the amount certified by the
Borrower in its Compliance Certificate in respect of the Fiscal Quarter ending
December 31, 2009); provided, further, that any
calculation of EBITDA hereunder for any applicable period shall be made using an
EBITDA for such applicable period calculated on a pro forma basis (inclusive of
any acquisitions and/or divestitures, if any, of assets or equity interests made
during such applicable period as if such acquisitions or divestitures had been
made at the beginning of such applicable period).”

       

      “Intercreditor
Agreement” means the Intercreditor Agreement, dated November 12,
2009, executed and delivered by the Administrative Agent, the Second Lien
Agents, the Parent and the Obligors, as amended, supplemented, amended and
restated, replaced or otherwise modified from time to time.”

       

      “Interest Coverage
Ratio” means, as of the last day of any Fiscal Quarter, the ratio
of:

       

      (a)  EBITDA
computed for the period consisting of such Fiscal Quarter and each of the three
immediately preceding Fiscal Quarters

       

      to

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      (b)  Interest
Expense computed for the period consisting of such Fiscal Quarter and each of
the three immediately preceding Fiscal Quarters.”

       

      “Interest Expense”
means, for any applicable period, the aggregate cash interest expense (both
accrued and paid and net of interest income paid during such period to the
Borrower and its Subsidiaries) of the Borrower and its Subsidiaries for such
applicable period, including the portion of any payments made in respect of
Capitalized Lease Liabilities allocable to interest expense, but excluding
one-time write-offs of unamortized upfront fees and other upfront fees and
expenses associated with this Agreement and the other Loan Documents, the
Existing Credit Agreement and the “Loan Documents” thereunder and the PP Debt
Documents and the Second Lien Note Documents; provided, however, (A) for
the Fiscal Quarter ending March 31, 2009, Interest Expense for such Fiscal
Quarter shall be deemed to be equal to $19,543,000, (B) for the Fiscal
Quarter ending June 30, 2009, Interest Expense for such Fiscal Quarter
shall be deemed to be equal to $20,897,000, (C) for the Fiscal Quarter
ending September 30, 2009, Interest Expense shall be deemed to be equal to
$20,813,000, and (D) for the Fiscal Quarter ending December 31, 2009,
Interest Expense shall be deemed to be equal to $24,167,000.”

       

      “Letter of Credit
Outstandings” means, on any date, an amount equal to the sum of
(a) the then aggregate amount that is undrawn and available under all
issued and outstanding Letters of Credit, and (b) the then aggregate amount of
all unpaid and outstanding Reimbursement Obligations.  The Letter of
Credit Outstandings of any Lender (other than an Impacted Lender to the extent
provided in Section 2.1.2) at any time shall be its Percentage of the Letter of
Credit Outstandings at such time.”

       

      “Loan Commitment
Amount” means, on any date, $400,000,000, as such amount may be reduced
from time to time pursuant to Section
2.2.”

       

      “Second Lien
Indenture” means the Indenture, dated November 12, 2009, pursuant to
which the Second Lien Notes are issued, as amended, supplemented, amended and
restated, refinanced or otherwise modified from time to time in accordance with
Section 7.2.11
and the Intercreditor Agreement.”

       

      “Secured Debt” means,
on any date and without duplication, the Indebtedness of the Borrower and its
Subsidiaries that is secured by a Lien on any property and/or assets of the
Borrower and/or its Subsidiaries (including without limitation, second lien
financing, if any).  For the avoidance of doubt, “Secured Debt”
includes, but is not limited to, amounts of Indebtedness outstanding under this
Agreement (including Letter of Credit Outstandings less the amount of any cash
collateral in respect thereof, if any, held in an account maintained with (or on
behalf of) the Administrative Agent and/or BNP Paribas (as the case may be)),
any put premium financing under Hedging Agreements with a counterparty that is a
Secured Party, any secured obligations of the Borrower or its Subsidiaries to
pay any deferred premiums on any Hedge Agreement, and Capital Lease Liabilities
(if any).

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      “Secured Debt Leverage
Ratio” means, as of the last day of any Fiscal Quarter, the ratio
of

       

      (a)  Secured
Debt outstanding on the last day of such Fiscal Quarter

       

      to

       

      (b)  EBITDA
computed for the period consisting of such Fiscal Quarter and each of the three
immediately preceding Fiscal Quarters;

       

      provided, however, that for
purposes of the calculation of Secured Debt for purposes of this definition,
Secured Debt shall not include (i) Letters of Credit that support payment of
performance, surety or appeal bonds (or similar obligation) that are
Indebtedness for purposes of such calculation shall not be included in such
calculation to the extent it would cause a duplication of Indebtedness for such
calculation or (ii) Letters of Credit to the extent such Letters of Credit are
Cash Collateralized.”

       

      “Stated Maturity Date”
means February 28, 2013.”

       

      “Total Debt” means, on
any date and without duplication, the outstanding principal amount of all
Indebtedness of the Borrower and its Subsidiaries of the type referred to in
clause (a)
(which, in the case of the Loans or PP Debt or Second Lien Indebtedness, shall
be deemed to equal the actual daily amount of the Loans or PP Notes or Second
Lien Notes, as the case may be, outstanding for such date), clause (b) (which, in
the case of Letter of Credit Outstandings shall be deemed to equal the actual
daily amount of Letter of Credit Outstandings for such date less the amount of
any cash collateral in respect thereof, if any, held in an account maintained
with (or on behalf of) the Administrative Agent and/or BNP Paribas (as the case
may be)), clause
(c), clause
(f) (but excluding any current non-cash asset or liability (including in
respect of Hedging Agreements) described in or calculated pursuant to the
requirements of Statement of Financial Accounting Standards 133 and 143, in each
case as amended (provided that, for the avoidance of doubt, the calculation of
Total Debt shall include any current assets or liabilities in respect of the
termination of any Hedging Agreement), and clause (g), in each
case of the definition of “Indebtedness” (exclusive of intercompany Indebtedness
between the Borrower and its Subsidiaries but including the Indebtedness in
respect of principal hereunder and under the PP Notes and under the Second Lien
Notes, as the case may be) and any Contingent Liability in respect of any of the
foregoing.

       

      “Total Leverage Ratio”
means, as of the last day of any Fiscal Quarter, the ratio of

       

      (a)  Total
Debt outstanding on the last day of such Fiscal Quarter

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      to

       

      (b)  EBITDA
computed for the period consisting of such Fiscal Quarter and each of the three
immediately preceding Fiscal Quarters;

       

      provided, however, that for
purposes of the calculation of Total Debt for purposes of this definition, Total
Debt shall not include (i) Letters of Credit that support payment of
performance, surety or appeal bonds (or similar obligation) that are
Indebtedness for purposes of such calculation shall not be included in such
calculation to the extent it would cause a duplication of Indebtedness for such
calculation or (ii) Letters of Credit to the extent such Letters of Credit are
Cash Collateralized.”

       

      “Transaction
Documents” means, collectively, the PP Debt Documents and the Second Lien
Note Documents and the documents and agreements executed and delivered in
connection therewith, in each case as amended, supplemented, amended and
restated or otherwise modified from time to time in accordance with Section
7.2.11.

       

      (d) Amendment to Section 1.1 of
the First Lien Credit Agreement.  Section 1.1 of the First Lien
Credit Agreement is hereby amended by deleting the following defined terms: (i)
“Acquisition”;
(ii) “Approved
Southwest Speaks Assets Sale”; (iii) “Arrangers”; (iv)
“Assets”; (v)
“BNP Paribas”;
(vi) “Castex”;
(vii) “Castex
Acquisition”; (viii) “Castex Oil and Gas
Properties”; (ix) “Castex PSA”; (x)
“Co-Documentation
Agent”; (xi) “Existing Lenders”;
(xii) “Existing
Obligations”; (xiii) “EXXI, Inc.”; (xiv)
“EXXI Texas
GP”; (xv) “EXXI
Texas LP”; (xvi) “Marlin Acquisition”;
(xvii) “Marlin
PSA”; (xviii) “90% Hedging
Position”; (xix) “Pledged Notes”; (xx)
“Pogo Oil and Gas
Properties”; (xxi) “Primary Syndication”;
(xxii) “PSA”; (xxiii) “PV9”; (xxiv) “Qualified PP Debt
Interest”; (xxv) “Seller”; (xxvi)
“TEC”; (xxvii)
“Third
Amendment”; (xxviii) “Transaction”; and
(xxix) “Transaction
Costs”.

       

      (e) Amendment to Section 1.5(a)
of the First Lien Credit Agreement.  Section 1.5(a) of the
First Lien Credit Agreement is hereby amended by replacing the phrase “basis
consistent with those used in the preparation of the financial statements
referred to in clause
(a)(i) of Section 5.1.8” with
the phrase “consistent basis”.

       

      (f) Amendment to Section 1.5(b)
of the First Lien Credit Agreement.  Section 1.5(b) of the
First Lien Credit Agreement is hereby amended by adding “, Secured Debt Leverage
Ratio” after the words “Interest Coverage Ratio”.

       

      (g) Amendment to Section 2.1.2
of the First Lien Credit Agreement.  Section 2.1.2 of the First
Lien Credit Agreement is hereby amended by adding the sentence “No Issuer shall
be required to issue any Letter of Credit if, after giving effect thereto, such
Issuer’s Letter of Credit Outstandings would exceed $20,000,000.” immediately
following the first sentence after clause (b) thereof.

       

      (h) Amendment to Section 2.8.2
of the First Lien Credit Agreement.  Section 2.8.2 of the First
Lien Credit Agreement is hereby deleted and replaced in its entirety with the
following:

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      “SECTION
2.8.2.  Annual Scheduled
Determinations of the Borrowing Base.  Promptly after June 30
of each calendar year, commencing June 30, 2010, and in any event prior to
September 30, the Borrower shall furnish to the Administrative Agent and
the Lenders a Reserve Report in form and substance satisfactory to the
Administrative Agent, prepared by an Approved Engineer, which Reserve Report
shall be dated as of June 30 of such calendar year and shall set forth the
proven and producing oil and gas reserves attributable to the Oil and Gas
Properties owned directly by the Borrower and its Subsidiaries that the Borrower
wishes to include in the Borrowing Base and a projection of the rate of
production and future net income, taxes, operating expenses and capital
expenditures with respect thereto as of such date, based on pricing assumptions
consistent with SEC reporting requirements at the time, together with additional
data concerning pricing, hedging, quantities and purchasers of production, and
other information and engineering and geological data as the Administrative
Agent or any Lender may reasonably request.  Within fifteen (15) days
after receipt of all such Reserve Report and information, the Administrative
Agent shall make an initial determination of the new Borrowing Base (the “Proposed Borrowing
Base”), and upon such initial determination shall promptly notify the
Lenders in writing of its initial determination of the Proposed Borrowing
Base.  Such initial determination made by the Administrative Agent
shall be so made by the Administrative Agent in the exercise of its sole
discretion in accordance with the Administrative Agent’s customary practices and
standards for oil and gas lending as they exist at the particular time. In no
event shall the Proposed Borrowing Base exceed the aggregate Loan Commitments of
the Lenders.  The Required Lenders shall approve or reject the
Administrative Agent’s initial determination of the Proposed Borrowing Base by
written notice to the Administrative Agent within fifteen (15) days of the
Administrative Agent’s notification of its initial determination; provided, however that failure
by any Lender to confirm in writing, the Administrative Agent’s determination of
the Proposed Borrowing Base shall be and shall be deemed, an approval of the
Proposed Borrowing Base.  If the Required Lenders fail to approve any
such determination of the Proposed Borrowing Base made by the Administrative
Agent hereunder in such fifteen (15) day period, as the case may be, then the
Administrative Agent shall poll the Lenders to ascertain the highest Proposed
Borrowing Base then acceptable to the Required Lenders for purposes of this
Section 2.8.2
and, subject to the last sentence of this Section 2.8.2, such
amounts shall become the new Borrowing Base effective on the date specified in
this Section
2.8.  Upon agreement by the Administrative Agent and the
Required Lenders of the new Borrowing Base, the Administrative Agent shall, by
written notice to the Borrower and the Lenders, designate the new Borrowing Base
available to the Borrower.  Such designation shall be effective as of
the Business Day specified in such written notice (or, if no effective date is
specified in such written notice, the next Business Day following delivery of
such written notice) and such new Borrowing Base shall remain in effect until
the next determination or redetermination of the Borrowing Base in accordance
with this Agreement.  Anything herein contained to the contrary
notwithstanding, any determination or redetermination of the Borrowing Base
resulting in any increase of the Borrowing Base in effect immediately prior to
such determination or redetermination shall require the approval of all the
Lenders in their sole discretion in accordance with their respective customary
practices and standards for oil and gas lending as they exist at the particular
time.”

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      (i) Amendment to Section 2.8.3
of the First Lien Credit Agreement.  Section 2.8.3 of the First
Lien Credit Agreement is hereby amended by replacing the first two sentences
thereof in their entirety with the following:

       

      “In
addition, promptly after December 31 of each calendar year, commencing December
31, 2010, and in any event prior to March 31 of each calendar year, the
Borrower will make available for review by the Administrative Agent a Reserve
Report in form and substance satisfactory to the Administrative Agent, prepared
by the Borrower’s petroleum engineers, which report shall be dated as of
December 31 of such calendar year and shall set forth the proven and producing
oil and gas reserves attributable to the Oil and Gas Properties owned directly
by the Borrower and its Subsidiaries that the Borrower wishes to include in the
Borrowing Base and a projection of the rate of production and future net income,
taxes, operating expenses and capital expenditures with respect thereto as of
such date, based on pricing assumptions consistent with SEC reporting
requirements at the time, together with additional data concerning pricing,
hedging, quantities and purchasers of production, and other information and
engineering and geological data as the Administrative Agent or any Lender may
reasonably request.  Within fifteen (15) days after receipt of all
such Reserve Reports and information (commencing with receipt of the Reserve
Report dated December 31, 2010), the Administrative Agent shall make an
initial determination of a Proposed Borrowing Base, and upon such initial
determination shall promptly notify the Lenders in writing of initial
determination of the Proposed Borrowing Base.

       

      (j) Amendment to Section 2.8.6
of the First Lien Credit Agreement.  Section 2.8.6 of the First
Lien Credit Agreement is hereby deleted and replaced in its entirety with the
following:

       

      “SECTION
2.8.6.  Other Redeterminations of
Borrowing Base.  Notwithstanding anything to the contrary
contained herein, the Borrowing Base will also be redetermined or adjusted in
accordance with the provisions of Section 7.1.13 and
Section
7.2.10(e).  Anything herein contained to the contrary
notwithstanding, any determination or redetermination of the Borrowing Base
resulting in any increase of the Borrowing Base in effect immediately prior to
such determination or redetermination shall require the approval of all the
Lenders in their sole discretion in accordance with their respective customary
practices and standards for oil and gas lending as they exist at the particular
time.”

       

      (k) Amendment to Section 3.3.2
of the First Lien Credit Agreement.  Section 3.3.2 of the First
Lien Credit Agreement is hereby deleted and replaced in its entirety with the
following:

       

      “SECTION
3.3.2.  Lead
Arrangers’ and Administrative Agent’s Fees.  The Borrower
agrees to pay to the Lead Arrangers and the Administrative Agent, for their
respective accounts, the fees in the amounts and on the dates set forth in the
letter dated January 8, 2010.”

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      (l) Amendment to Section 3.3.3
of the First Lien Credit Agreement.  Section 3.3.3 of the First
Lien Credit Agreement is hereby replacing the phrase “equal to 25 basis points
on” with the phrase “to be agreed upon between the Borrower and the
Administrative Agent, according to”.

       

      (m) Amendment to Section 3.3.5
of the First Lien Credit Agreement.  Section 3.3.5 of the First
Lien Credit Agreement is hereby amended by replacing the phrase “0.125% per
annum” with the phrase “0.25% per annum”.

       

      (n) Amendment to Section
5.2.1(b) of the First Lien Credit Agreement.  Section 5.2.1(b)
of the First Lien Credit Agreement is hereby amended by replacing the phrase
“December 31, 2006” with the phrase “June 30, 2009 (or such more recent date for
which the financial information required under Section 7.1.1(b) shall have been
provided by the Borrower)”.

       

      (o) Amendment to Section 6.2 of
the First Lien Credit Agreement.  Section 6.2 of the First Lien
Credit Agreement is hereby amended by replacing the phrase “, each Obligor’s
participation in the consummation of all aspects of the Transaction, and the
execution, delivery and performance by the Borrower or (if applicable) any
Obligor of the agreements executed and delivered by it in connection with the
Transaction are in each case” with the phrase “are”.

       

      (p) Amendment to Section 6.3 of
the First Lien Credit Agreement.  Section 6.3 of the First Lien
Credit Agreement is hereby deleted and replaced in its entirety with the
following:

       

      “SECTION
6.3.  Government Approval,
Regulation, etc.  No authorization or approval or other action
by, and no notice to or filing with, any Governmental Authority or other Person
(other than those that have been, or on the Effective Date will be, duly
obtained or made and that are, or on the Effective Date will be, in full force
and effect) is required for the due execution, delivery or performance by any
Obligor of any Loan Document to which it is a party.  Neither the
Borrower nor any of its Subsidiaries is an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.”

       

      (q) Amendment to Section 6.4 of
the First Lien Credit Agreement.  Section 6.4 of the First Lien
Credit Agreement is hereby amended by deleting the phrase “and each Transaction
Document”.

       

      (r) Amendment to Section 6.6 of
the First Lien Credit Agreement.  Section 6.6 of the First Lien
Credit Agreement is hereby amended by replacing the phrase “December 31, 2005,
on a combined basis after giving pro forma effect to the
Transaction” with the phrase “June 30, 2009”.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      (s) Amendment to Section 6.7(b)
of the First Lien Credit Agreement.  Section 6.7(b) of the
First Lien Credit Agreement is hereby amended by deleting the phrase “, the
Transaction Documents or the Transaction”.

       

      (t) Amendment to Section 6.13 of
the First Lien Credit Agreement.  Section 6.13 of the First
Lien Credit Agreement is hereby amended by deleting the parenthetical
“(including the Transaction)”.

       

      (u) Amendment to Section 6.16 of
the First Lien Credit Agreement.  Section 6.16 of the First
Lien Credit Agreement is hereby amended by deleting the parenthetical
“(including, without limitation, the operation of the Properties acquired
pursuant to the Acquisition, the Castex Acquisition and the Marlin
Acquisition)”.

       

      (v) Amendment to Section
7.1.1(a) of the First Lien Credit Agreement.  Section 7.1.1(a)
of the First Lien Credit Agreement is hereby amended by deleting the
parenthetical “(provided that such comparative figures will not be required
until the Fiscal Quarter ending on June 30, 2007)”.

       

      (w) Amendment to Section
7.1.1(s) of the First Lien Credit Agreement.  Section 7.1.1(s)
of the First Lien Credit Agreement is hereby amended by deleting clause (iii)
thereof in its entirety, and inserting the word “and” immediately prior to
clause (ii).

       

      (x) Amendment to Section 7.1.4
of the First Lien Credit Agreement.  Section 7.1.4 of the First
Lien Credit Agreement is hereby amended by deleting the following phrases: (i)
“(including with respect to the Pogo Oil and Gas Assets)”; and (ii) “(excluding
the Pogo Oil and Gas Properties for the period described in clause (x) below but
including the Pogo Oil and Gas Properties for the period described in clause (y)
below) (x) from the Closing Date until June 30, 2007, with limits of not less
than $65,000,000 per occurrence and in the annual aggregate and with deductibles
that are reasonably acceptable to the Administrative Agent and (y)
thereafter,”.

       

      (y) Amendment to Section 7.1.5
of the First Lien Credit Agreement.  Section 7.1.5 of the First
Lien Credit Agreement is hereby amended by inserting the phrase “or
alternatively, in accordance with GAAP,” immediately after the word “GAAP” in
the first sentence thereof.

       

      (z) Amendment to Section 7.1.7
of the First Lien Credit Agreement.  Section 7.1.7 of the First
Lien Credit Agreement is hereby deleted and replaced in its entirety with the
following:

       

      “SECTION
7.1.7.  Use
of Proceeds.  The Borrower has and will apply the proceeds of
the Credit Extensions as follows:

       

      (a)           in
the case of Loans, for working capital and general corporate purposes of the
Borrower and the Subsidiary Guarantors, including Permitted Acquisitions by such
Persons;

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      (b)           for
issuing Letters of Credit for the account of the Borrower and its Subsidiaries;
and

       

      (c)           to
pay transaction costs in connection with this Agreement and the other Loan
Documents.”

       

      (aa) Amendment to Section 7.1.9
of the First Lien Credit Agreement.  Section 7.1.9 of the First
Lien Credit Agreement is hereby deleted and replaced in its entirety with the
following:

       

      “SECTION
7.1.9.  Cash
Management.  The Borrower will keep all of its operating
accounts, Deposit Accounts and other bank accounts separate from, and will not
co-mingle any of its cash or money with, those of other Persons (including its
Subsidiaries).  The Borrower will, and will cause each Subsidiary
Guarantor to: (a) ensure that such Person’s Account Debtors forward payment of
all amounts owed by them to such Person to one of the Deposit Accounts of such
Person set forth on Item 6.19(a) of the
Disclosure Schedule, and (b) deposit, or cause to be deposited, promptly, and in
any event no later than the second Business Day after the date of receipt
thereof, all of such Person’s Collections in one of the Deposit Accounts of such
Person set forth on Item 6.19(a) of the
Disclosure Schedule.  The Borrower will use commercially reasonable
efforts to ensure, prior to any termination or expiration of the Control
Agreement relating to the Deposit Accounts initially set forth on Item 6.19(a) of the
Disclosure Schedule, that such Deposit Accounts are replaced with Deposit
Accounts subject to a Control Agreement.  So long as no Default has
occurred and is continuing (except with respect to the Deposit Accounts
initially set forth in Item 6.19(a) of the
Disclosure Schedule, which Deposit Accounts may be replaced at any time, subject
to the proviso to this sentence), the Borrower may amend Item 6.19(a) and
Item 6.19(b) of
the Disclosure Schedule to add or replace one or more of the Deposit Accounts;
provided, however, that (i) the
prospective depository institution at which such Deposit Account will be held
shall be reasonably satisfactory to the Administrative Agent and (ii) in the
event such Deposit Account will replace or be in addition to a Deposit Account
set forth on Item
6.19(a) of the Disclosure Schedule hereto, prior to the time of the
opening of such Deposit Account, the Borrower or relevant Subsidiary and such
prospective depository institution shall use commercially reasonable efforts to
have executed and delivered to the Administrative Agent a Control Agreement in
respect of such Deposit Account.  The Borrower shall close or cause to
be closed any of such Deposit Accounts (and establish replacement Deposit
Accounts in accordance with the foregoing sentence) promptly and in any event
within 30 days of notice from the Administrative Agent that the creditworthiness
of any depository institution holding such Deposit Account is no longer
acceptable in the Administrative Agent’s reasonable judgment, or as promptly as
practicable and in any event within 60 days of notice from the Administrative
Agent that the operating performance, funds transfer, or availability procedures
or performance of the depository institution holding such Deposit Account is no
longer acceptable in the Administrative Agent’s reasonable
judgment.”

       

      
        
           

        

        
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      (bb) Amendment to Section 7.1.12
of the First Lien Credit Agreement.  Section 7.1.12 of the
First Lien Credit Agreement is hereby deleted and replaced in its entirety with
the following:

       

      “SECTION
7.1.12.  Hedging
Agreements.  The Borrower shall not assign, terminate or unwind
any of the Hedging Agreements reflected in the hedging positions set forth on
Item 7.1.12 of
the Disclosure Schedule or sell any of such Hedging Agreements if the effect of
such action (when taken together with any other Hedging Agreements executed
contemporaneously with the taking of such action) would have the effect of
canceling its positions under such Hedging Agreements unless such actions (a)
are undertaken (i) with prior written notice to and approval from (which
approval shall not be unreasonably withheld or delayed) the Administrative Agent
and (ii) for the purpose of repositioning volumes for later or earlier months,
for the purpose of eliminating production obligations in anticipation of
temporary production shutdowns due to storms or other force majeure events, for
the purpose of eliminating production obligations while maintaining hedge
volumes and minimum prices for the Borrower or any of its Subsidiaries or for
the purpose of placing such obligations under other Hedging Agreements that
provide higher minimum prices for the Borrower or any of its Subsidiaries, and
(b) are in compliance with the restrictions set forth in Section
7.2.20.  As of the date of any determination or redetermination
of the Borrowing Base, the Borrower shall maintain hedging positions that are
acceptable to the Administrative Agent, acting reasonably.”

       

      (cc) Amendment to Section 7.1.13
of the First Lien Credit Agreement.  Section 7.1.13 of the
First Lien Credit Agreement is hereby amended by deleting clause (b) thereof in
its entirety and renumbering the section accordingly.

       

      (dd) Amendment to Section 7.1.16
of the First Lien Credit Agreement.  Section 7.1.16 of the
First Lien Credit Agreement is hereby amended by deleting clause (a) thereof in
its entirety and renumbering the section accordingly.

       

      (ee) Amendment to Section
7.2.3(o) of the First Lien Credit Agreement.  Section 7.2.3(o)
of the First Lien Credit Agreement is hereby deleted and replaced in its
entirety with the following:

       

      “(o)  royalties,
overriding royalties, reversionary interests, production payments and similar
burdens granted by the Borrower or any of its Subsidiaries with respect to its
Oil and Gas Properties to the extent such burdens do not reduce the Borrower’s
or such Subsidiary’s net interests in production in its Oil and Gas Properties
below the interests reflected in each Reserve Report or the interests warranted
under this Agreement or the Mortgage and do not operate to deprive the Borrower
or any of its Subsidiaries of any material rights in respect of its assets or
properties (except for rights customarily granted with respect to such
interests);”

       

      
        
           

        

        
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      (ff) Amendment to Section
7.2.4(a) of the First Lien Credit Agreement.  Section 7.2.4(a)
of the First Lien Credit Agreement is hereby deleted and replaced in its
entirety with the following:

       

      “(a)  The
Borrower will not permit the Total Leverage Ratio (i) as of the last day of the
Fiscal Quarter ending December 31, 2009 to be greater than 4.5 to 1.00, (ii) as
of the last day of the Fiscal Quarter ending March 31, 2010 to be greater
than 3.75 to 1.00 and (iii) as of the last day of any Fiscal Quarter ending
thereafter to be greater than 3.5 to 1.00.”

       

      (gg) Amendment to Section
7.2.4(d) of the First Lien Credit Agreement.  Section 7.2.4(d)
of the First Lien Credit Agreement is hereby amended by replacing the date in
the parenthetical “June 30, 2009” with the date “December 31,
2009”.

       

      (hh) Amendment to Section 7.2.7
of the First Lien Credit Agreement.  Section 7.2.7 of the First
Lien Credit Agreement is hereby deleted and replaced in its entirety with the
following:

       

      “SECTION
7.2.7.  [Intentionally
Blank].”

       

      (ii) Amendment to Section
7.2.10(d) of the First Lien Credit Agreement.  Section
7.2.10(d) of the First Lien Credit Agreement is hereby amended by adding the
word “an” immediately prior to the word “Investment”.

       

      (jj) Amendment to Section
7.2.10(e) of the First Lien Credit Agreement.  Section
7.2.10(e) of the First Lien Credit Agreement is hereby amended by deleting the
following phrases: (i) “(including any interest in the Southwest Speaks field in
Lavaca County, Texas)” and (ii) “except in the case of the Approved Southwest
Speaks Sale,”.

       

      (kk) Amendment to Section 7.2.10
of the First Lien Credit Agreement.  Section 7.2.10 of the
First Lien Credit Agreement is hereby amended by adding the sentence “If a
Disposition is a “Collateral Disposition” (as defined in the Second Lien
Indenture) and the proceeds therefrom are not otherwise required to be applied
or paid pursuant to this Agreement, Borrower may fulfill its obligations to hold
such proceeds in a “Collateral Disposition Proceeds Account” (and subject to the
Second Lien Agent’s rights therein) as provided under Section 4.10 of the Second
Lien Indenture.” at the end of such Section 7.2.10.

       

      (ll) Amendment to Section
7.2.11(a) of the First Lien Credit Agreement.  Section
7.2.11(a) of the First Lien Credit Agreement is hereby amended by replacing the
phrase “any of the Transaction Documents (other than the PP Debt Documents and
the Second Lien Note Documents), other than non-material amendments,
supplements, waivers or other modifications that individually or in the
aggregate would not be materially adverse to the Secured Parties” with the
phrase “[Intentionally blank]”.

       

      (mm) Amendment to Section 7.2.12
of the First Lien Credit Agreement.  Section 7.2.12 of the
First Lien Credit Agreement is hereby amended by deleting clause (d) thereof in
its entirety and renumbering the section accordingly.

       

      
        
           

        

        
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      (nn) Amendment to Section
8.1.9(a) of the First Lien Credit Agreement.  Section 8.1.9(a)
of the First Lien Credit Agreement is hereby amended by adding the word “its”
immediately preceding the word “debts”.

       

      (oo) Amendment to Article 8 of
the First Lien Credit Agreement.  Article 8 of the First Lien
Credit Agreement is hereby amended by adding the following new Section 8.1.12
immediately following Section 8.1.11:

       

      “SECTION
8.1.12.  Change in
Management.  John Daniel Schiller, Jr. shall cease to be the
Chief Executive Officer of the Parent (except as a result of his death or
disability) and a successor reasonably acceptable to the Administrative Agent
and the Required Lenders is not appointed within one hundred eighty (180) days
thereafter.”

       

      (pp) Amendment to Section 9.6 of
the First Lien Credit Agreement.  Section 9.6 of the First Lien
Credit Agreement is hereby amended by replacing the phrase “Mayer, Brown, Rowe
& Maw LLP” with the phrase “Mayer Brown LLP”.

       

      (qq) Amendment to Section 9.13 of
the First Lien Credit Agreement.  Section 9.13 of the First
Lien Credit Agreement is hereby amended by deleting the first sentence thereof
in its entirety and replacing it with the following:

       

      “Except
as otherwise set forth herein, neither the Syndication Agent nor either of the
Lead Arrangers shall have any right, power, obligation, liability,
responsibility or duty under this Agreement (or any other Loan Document) other
than those applicable to all Lenders as such.”

       

      (rr) Amendment to Section 10.3 of
the First Lien Credit Agreement.  Section 10.3 of the First
Lien Credit Agreement is hereby amended by (i) adding the term “Lead”
immediately prior to the word “Arrangers” and (ii) replacing the phrase “Mayer,
Brown, Rowe & Maw LLP” with the phrase “Mayer Brown LLP”.

       

      (ss) Amendment to Section 10.4(a)
of the First Lien Credit Agreement.  Section 10.4(a) of the
First Lien Credit Agreement is hereby amended by deleting the phrase “,
including all Indemnified Liabilities arising in connection with the
Transaction”.

       

      (tt) Amendment to Section
10.11(a)(i) of the First Lien Credit Agreement.  Section
10.11(a)(i) of the First Lien Credit Agreement is hereby amended by deleting
clause (D) in its entirety and renumbering such section
accordingly.

       

      (uu) Amendment to Article 10 of
the First Lien Credit Agreement.  Article 10 of the First Lien
Credit Agreement is hereby amended by deleting Section 10.21 in its entirety and
renumbering “Section 10.22” as “Section 10.21”.

       

      (vv) Amendment to Schedule I to
the First Lien Credit Agreement.  Schedule I to the First Lien
Credit Agreement is hereby amended by deleting Schedule I in its entirety and
replacing it with a new Schedule I attached as Exhibit A
hereto.

       

      
        
           

        

        
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      (ww) Amendment to Schedule II to
the First Lien Credit Agreement.  Schedule II to the First Lien
Credit Agreement is hereby amended by deleting Schedule II in its entirety and
replacing it with a new Schedule II attached as Exhibit B
hereto.

       

      Section
3. Conditions to
Effectiveness.  This Amendment shall be deemed effective
(subject to the conditions herein contained) as of the date (the “Effective Date”) upon
the Administrative Agent’s receipt of counterparts hereof duly executed by the
Borrower, the Administrative Agent, the Issuers and all of the Lenders and upon
the prior or concurrent satisfaction of each of the following
conditions:

       

      (a) Secretaries’ Certificates,
etc.  The Administrative Agent shall have received from each
Obligor, as applicable, (a) a copy of a good standing certificate, dated a date
reasonably close to the Effective Date, for such Obligor from the jurisdiction
in which such Obligor is organized and each other jurisdiction in which such
Obligor is qualified to do business and (b) a certificate, dated as of the
Effective Date, duly executed and delivered by such Obligor’s Secretary or
Assistant Secretary, managing member or general partner, as applicable, as
to

       

      (1) resolutions
of such Obligor’s Board of Directors (or other managing body, in the case of an
Obligor that is not a corporation) then in full force and effect authorizing, to
the extent relevant, the execution, delivery and performance of this Amendment
and each other Loan Document to be executed by such Obligor in connection
herewith;

       

      (2) the
incumbency and signatures of those of its officers, managers, managing member or
general partner (or officers or managers of its managing member or general
partner), as applicable, authorized to act with respect to this Amendment and
each Loan Document to be executed by such Obligor; and

       

      (3) the
Organic Documents of such Obligor and the full force and validity
thereof;

       

      upon
which certificates each Secured Party may conclusively rely until it shall have
received a further certificate of the Secretary, Assistant Secretary, managing
member or general partner (or Secretary or Assistant Secretary of the managing
member or general partner), as applicable, of any such Obligor canceling or
amending the prior certificate of such Obligor.

       

      (b) Effective Date
Certificate.  The Administrative Agent shall have received the
Effective Date Certificate, dated as of the Effective Date and duly executed and
delivered by an Authorized Officer of the Borrower, in which certificate such
Obligor shall agree and acknowledge that the statements made herein shall be
deemed to be true and correct representations and warranties of the Borrower as
of such date, and, at the time each such certificate is delivered, such
statements shall in fact be true and correct.

       

      (c) Delivery of
Notes.  The Administrative Agent shall have received, for the
account of each Lender that has requested a Note, a Note payable to the order of
such Lender duly executed and delivered by an Authorized Officer of the
Borrower.

       

      (d) Financial
Information.  The Administrative Agent shall have
received:

       

      
        
           

        

        
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      (1) a pro
forma consolidated balance sheet of the Borrower as of the Effective Date which
balance sheet shall not be materially inconsistent with the information
previously provided to the Administrative Agent and shall be in form and
substance reasonably acceptable to the Administrative Agent; and

       

      (2) the
annual financial and operational projections for the Borrower for the three year
period immediately following the Effective Date prepared in good faith based on
available information and estimates determined to be reasonable at the time such
projections were prepared.

       

      (e) Initial Reserve
Report.  The Lenders shall have received a Reserve Report of
Netherland, Sewell & Associates, Inc., in form and substance satisfactory to
the Administrative Agent and the Required Lenders.

       

      (f) Solvency,
etc.  The Administrative Agent shall have received a solvency
certificate duly executed and delivered by the chief financial or accounting
Authorized Officer of each Obligor, dated as of the Effective Date,
substantially in the form of Exhibit J to the
First Lien Credit Agreement or otherwise in form and substance satisfactory to
the Administrative Agent.

       

      (g) Insurance.  The
Administrative Agent shall have received (a) a certificate, reasonably
satisfactory to the Administrative Agent, from the Borrower’s and its
Subsidiaries’ insurance broker(s), dated as of (or a date reasonably near) the
Effective Date relating to each insurance policy required to be maintained
pursuant to Section 7.1.4 of
the First Lien Credit Agreement as amended hereby, identifying types of
insurance and the insurance limits of each such insurance policy and naming the
Administrative Agent as loss payee, and each of the Secured Parties as an
additional insured, as appropriate, to the extent required under Section 7.1.4 of
the First Lien Credit Agreement as amended hereby and stating that such
insurance is in full force and effect and that all premiums due have been paid,
together with evidence in form and substance satisfactory to the Administrative
Agent that the Assets are covered under the Borrower’s existing insurance
policies (with the same coverages and deductions); and (b) a summary of
casualty, property and other insurance policies currently in effect and
maintained by the Borrower’s Subsidiaries provided by an insurance broker and
stating that such insurance is in full force and effect and that all premiums
due have been paid, in form and substance satisfactory to the Administrative
Agent.

       

      (h) Opinions of
Counsel.  The Administrative Agent shall have received
opinions, dated the Effective Date and addressed to the Administrative Agent and
all Lenders, from Looper, Reed & McGraw, New York and Texas counsel to the
Obligors in form and substance satisfactory to the Administrative
Agent.

       

      (i) Fees, Expenses, Breakage,
etc.  The Administrative Agent shall have received for its own
account, or for the account of each Lender, as the case may be, all fees, costs
(including breakage costs) and expenses due and payable pursuant to Sections 3.3 of
the First Lien Credit Agreement and, if then invoiced, 10.3 of the First
Lien Credit Agreement and any breakage costs in connection with the assignments
in Section 7 of this Amendment.

       

      
        
           

        

        
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      (j) Patriot Act
Disclosures.  The Administrative Agent and each Lender shall
have received all Patriot Act disclosures requested by them, if any, prior to
execution of this Amendment.

       

      (k) The
Administrative Agent shall have been advised by the Borrower in writing that the
commodity hedging agreements the Borrower had in effect on
November 23, 2009 remain in effect or have been replaced with hedging
agreements with equal or superior total hedge value versus crude and natural gas
prices of $50 oil and $4.50 natural gas.

       

      (l) The
Borrower shall have confirmed in writing that this Amendment is permitted by the
Intercreditor Agreement with the Second Lien Lenders.

       

      (m) The
concurrent payment to (i) Lehman (as defined below) of the amount specified in
Section 7(c) of this Amendment and (ii) each Exiting Lender (as defined below)
of the respective amounts specified in Exhibit C to this Amendment shall have
been made.

       

      Section
4. Redetermination of Borrowing
Base.  The Borrower and the Lenders hereby agree that effective
as of the Effective Date, the Borrowing Base shall be equal to $350,000,000
until such time as the Borrowing Base is redetermined or otherwise adjusted
pursuant to the terms of the First Lien Credit Agreement.  The
Borrower and the Lenders hereby agree that this determination of the Borrowing
Base shall be deemed to be the determination as required under Section 2.8.3 of the
First Lien Credit Agreement in regards to the Reserve Report dated
December 31, 2009.

       

      Section
5. Representations and
Warranties.  The Borrower hereby represents and warrants that
after giving effect hereto:

       

      (a) the
representations and warranties of the Obligors contained in the Loan Documents
(other than Section 6.17 of the First Lien Credit Agreement as amended hereby
solely with respect to the Lehman Hedging Agreement (as defined in the Second
Amendment)) are true and correct in all material respects, other than those
representations and warranties that expressly relate solely to a specific
earlier date, which shall remain correct in all material respects as of such
earlier date;

       

      (b) the
execution, delivery and performance by the Borrower and each other Obligor of
this Amendment and the other Loan Documents have been duly authorized by all
necessary corporate or other action required on their part and this Amendment,
along with the First Lien Credit Agreement as amended hereby and other Loan
Documents, constitutes the legal, valid and binding obligation of each Obligor a
party thereto enforceable against them in accordance with its terms, except as
its enforceability may be affected by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights or remedies of creditors
generally;

       

      (c) neither
the execution, delivery and performance of this Amendment by the Borrower and
each other Obligor, the performance by them of the First Lien Credit Agreement
as amended hereby nor the consummation of the transactions contemplated hereby
does or shall contravene, result in a breach of, or violate (i) any provision of
any Obligor’s certificate or articles of incorporation or bylaws or other
similar documents, or agreements, (ii) any law or regulation, or any order or
decree of any court or government instrumentality, or (iii) any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which any
Obligor or any of its Subsidiaries is a party or by which any Obligor or any of
its Subsidiaries or any of their property is bound, except in any such case to
the extent such conflict or breach has been waived by a written waiver document,
a copy of which has been delivered to Administrative Agent on or before the date
hereof;

       

      
        
           

        

        
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      (d) no
Material Adverse Effect has occurred since June 30, 2009; and

       

      (e) no
Default or Event of Default or Borrowing Base Deficiency has occurred and is
continuing.

       

      Section
6. Loan Document;
Ratification.

       

      (a) This
Amendment is a Loan Document.

       

      (b) The
Borrower and each other Obligor hereby ratifies, approves and confirms in every
respect all the terms, provisions, conditions and obligations of the First Lien
Credit Agreement as amended hereby and each of the other Loan Documents (other
than the Lehman Hedging Agreement (as defined in the Second Amendment)),
including without limitation all Mortgages, Security Agreements, Guaranties,
Control Agreements and other Security Documents, to which it is a
party.

       

      Section
7. Assignment and Reallocation
of Loans, Etc.

       

      (a) Effective
as of the Effective Date, each of Bank of Montreal, Compass Bank, as successor
in interest to Guaranty Bank, and Whitney National Bank, as a “Lender” under the
2007 First Lien Credit Agreement (each an “Exiting Lender”), hereby sells,
assigns, transfers and conveys to the Lenders (other than Exiting Lenders and
other than Lehman (as defined below)), ING Capital and Regions Bank
(collectively, the “Purchasing Lenders”) at par and for cash consideration, and
each of the Purchasing Lenders hereby purchases and accepts at par and for cash
consideration, all of the aggregate commitments and outstanding loans of each
Exiting Lender such that, immediately after giving effect to this Amendment
(including any increase of the commitments effectuated hereby) and the payment
to Lehman described in Section 7(c) below, (a) each Exiting Lender shall cease
to be a “Lender” under the First Lien Credit Agreement and the “Loan Documents”
as defined therein and shall relinquish its rights under the Loan Documents
(provided that each Exiting Lender shall retain its rights of indemnification
under the Loan Documents in respect of any circumstance or event or condition
first arising on or prior to the Effective Date) and shall be released from all
of its respective obligations under the 2007 First Lien Credit Agreement and the
other “Loan Documents” as defined therein, and (b) the Percentage of each
Purchasing Lender (including ING Capital and Regions Bank) and the portion of
the Commitment of each such Purchasing Lender (including ING Capital and Regions
Bank), shall be as set forth on Schedule II hereto. The foregoing assignments,
transfers and conveyances are without recourse to any Exiting Lender and without
any warranties whatsoever by the Administrative Agent, any Issuer or any Exiting
Lender or Lehman, in whole or in part, other than that the warranty of any such
Exiting Lender that it has not previously sold, transferred, conveyed or
encumbered the interests being transferred pursuant to this Section 7 (the
"Assigned Shares"). From and after the Effective Date, the Administrative Agent
shall make all payments under the Loan Documents in respect of the Assigned
Shares (including without limitation all payments of accrued but unpaid
interest, commitment fees, unused line fees, letter of credit fees and expense
reimbursements with respect thereto) (x) in the case of any such interest and
fees that shall have accrued prior to the Effective Date, to the respective
Exiting Lenders, and (B) in all other cases, to the respective Purchasing
Lenders; provided that the respective Exiting Lenders, on the one hand, and the
respective Purchasing Lenders, on the other hand, shall make payments directly
among one another in accordance with the payment instructions set forth on the
Schedules hereto to the extent necessary to effect any appropriate adjustments
in any amounts distributed to the respective Exiting Lenders and/or the
respective Purchasing Lenders by the Administrative Agent under the Loan
Documents in respect of the Assigned Shares. Amounts owing to the Exiting
Lenders in respect of the Assigned Shares shall be paid in accordance with the
payment instructions set forth on Exhibit C hereto, and the amounts to be paid
to the Exiting Lenders on the Effective Date in respect of the principal
portions of the Assigned Shares are as set forth on Exhibit C
hereto.

       

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

      (b) Each of
the Administrative Agent and the Borrower hereby agrees that the provisions of
Section 7(a) satisfy the requirements of Section 10.11 of the First Lien Credit
Agreement. The Administrative Agent hereby waives the processing fee otherwise
required pursuant to Section 10.11(a)(iii) in respect of the assignments of the
Assigned Shares. Each Exiting Lender shall return to Borrower any original Notes
in its possession in respect of its Assigned Share.

       

      (c) Notwithstanding
any provision to the contrary set forth in Section 4.8 of the First Lien Credit
Agreement, concurrently with the effectiveness of this Amendment, pursuant to
Section 3.1.1(a) of the First Lien Credit Agreement, the Borrower shall
voluntarily prepay the Loans of Lehman Commercial Paper Inc. and Lehman Brothers
Commodity Services Inc. (“Lehman”) (together with any and all accrued interest
and fees due thereon) in an amount equal to $5,388,085.61 under the First Lien
Credit Agreement, such amount to be paid to Lehman as payment in full of all
Loans currently held by or owing to Lehman (including any and all accrued
interest and fees due thereon), and all Lenders hereby agree that,
notwithstanding Section 4.8 of the First Lien Credit Agreement, Lehman shall
have no obligation to purchase from the other Secured Parties any participations
in Credit Extensions made by them that would otherwise be required under said
Section 4.8 to cause Lehman to share such payment ratably (to the extent such
other Secured Parties were entitled to receive a portion of such payment or
recovery) with each of them, and that upon receipt of such voluntary prepayment
and other amounts, Lehman shall cease to be a Lender and Secured Party under the
First Lien Credit Agreement and its Commitments shall immediately and
irrevocably terminate and be reduced to zero ($0) (provided that Lehman shall
remain entitled to its rights pursuant to indemnification and other provisions
of the Loan Documents which by their terms would survive the repayment of the
Loans and the termination of the First Lien Credit Agreement) and shall cease to
have any participation in any Letter of Credit.  From and after the
Effective Date, Lehman shall have no further obligation to fund any amount or
extend any credit under the Loan Documents.  The Administrative Agent
and the Lenders hereby waive the notice requirement and minimum payment
requirement of Section 3.1(a) of the First Lien Credit Agreement with respect to
the payment under this Section 7(c).

       

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

      (d) The
Borrower on behalf of itself and its successors, assigns, and other legal
representatives (the Borrower and all such other parties collectively, the
“Releasors” and
individually, a “Releasor”), hereby
jointly, severally, and jointly and severally, absolutely, unconditionally and
irrevocably releases, remises and forever discharges each Exiting Lender, their
successors and assigns, and their present and former shareholders, affiliates,
subsidiaries, divisions, predecessors, directors, officers, attorneys,
employees, agents and other representatives (each Exiting Lender and all such
other parties collectively, the “Releasees” and each a
“Releasee”), of
and from all demands, actions, causes of action, suits, covenants, contracts,
controversies, agreements, promises, sums of money, accounts, bills, reckonings,
damages and any and all other claims, counterclaims, defenses, rights of
set-off, demands and liabilities whatsoever (individually, a “Exiting Lender Claim”
and collectively, “Exiting Lender
Claims”) of every name and nature, known or unknown, suspected or
unsuspected, both at law and in equity, which any Releasor may now or hereafter
own, hold, have or claim to have against the Releasees or any of them for, upon,
or by reason of any nature, cause or thing whatsoever which arises at any time
on or prior to the date of this letter, for or on account of, or in relation to,
or in any way in connection with the Loan Documents.

       

      (e) Each of
the Borrower, and each of its Subsidiaries hereby unconditionally and
irrevocably waives all claims, suits, debts, liens, losses, causes of action,
demands, rights, damages or costs, or expenses of any kind, character or nature
whatsoever, known or unknown, fixed or contingent, which any of them may have or
claim to have against Lehman (whether in their capacities as a lender or
otherwise) or its agents, employees, officers, affiliates, directors,
representatives, attorneys, successors and assigns (collectively, the “Lehman Released
Parties”) to the extent arising out of or in connection with the Loan
Documents, including, without limitation, any prior failure by Lehman to fund
any amounts required to be funded by it under the First Lien Credit Agreement
(collectively, the “Lehman Claims”);
provided, however, that the foregoing
waiver, release, acquittal and discharge shall not include any claims, suits,
debts, liens, losses, causes of action, demands, rights, damages or costs, or
expenses of any kind, character or nature whatsoever, known or unknown, fixed or
contingent, based upon, attributable to, resulting from or arising in regards to
that certain Hedging Agreement, dated as of June 7, 2007 (the "Lehman Hedging
Agreement"), between Lehman Brothers Special Financing Inc. and Borrower
(collectively, the “Lehman Excepted
Claims”).  Each of the Borrower and its Subsidiaries further agrees
forever to refrain from commencing, instituting or prosecuting any lawsuit,
action or other proceeding against any Lehman Released Party with respect to any
and all of the foregoing described waived, released, acquitted and discharged
Lehman Claims (but excluding the Lehman Excepted Claims) and from exercising any
right of recoupment or setoff that it may have under a master netting agreement
or otherwise against any Lehman Released Party with respect to Obligations under
the Loan Documents; provided, however, that neither the Borrower nor its
Subsidiaries shall be prevented from exercising any rights of recoupment or
set-off which they would otherwise be permitted to exercise pursuant to the
terms of the Lehman Hedging Agreement solely to the extent such rights are
exerted directly against Lehman Brothers Special Financing Inc. and/or Lehman
Brothers Holdings Inc. with respect to obligations arising under the Lehman
Hedging Agreement or the related guarantee thereof by Lehman Brothers Holdings
Inc.; provided further
that, for the avoidance of doubt, none of the amounts paid pursuant to Section
7(c) of this Amendment shall be deemed to satisfy any obligations owing by the
Borrower or its Subsidiaries under the Lehman Hedging Agreement and neither the
Borrower nor its Subsidiaries shall be entitled to exercise or claim any rights
of recoupment or set-off in respect of any such amounts against the obligations
of the Borrower or its Subsidiaries under the Lehman Hedging
Agreement.

       

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

      (f) Each
party hereto hereby agrees that this Amendment (i) does not impose on Lehman
affirmative obligations or indemnities not already existing as of the date of
its petition commencing its proceeding under chapter 11 of title 11 of the
United States Code, and that could give rise to administrative expense claims,
and (ii) is not inconsistent with the terms of the First Lien Credit
Agreement.

       

      Section
8. Costs And
Expenses.  As provided in Section 10.3 of the First Lien Credit
Agreement, the Borrower agrees to reimburse Administrative Agent for all fees,
costs, and expenses, including the reasonable fees, costs, and expenses of
counsel or other advisors for advice, assistance, or other representation, in
connection with this Amendment and any other agreements, documents, instruments,
releases, terminations or other collateral instruments delivered by the
Administrative Agent in connection with this Amendment.

       

      Section
9. GOVERNING
LAW.  THIS AMENDMENT SHALL BE DEEMED A CONTRACT AND INSTRUMENT
MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE
LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW.

       

      Section
10. Severability.  Any
provision of this Amendment that is prohibited or unenforceable in any
jurisdiction shall, as to such provision and such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Amendment or affecting the validity or
enforceability of such provision in any other jurisdiction.

       

      Section
11. Counterparts.  This
Amendment may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument, and any party hereto may
execute this Amendment by signing one or more counterparts.  Any
signature hereto delivered by a party by facsimile or electronic transmission
shall be deemed to be an original signature hereto.

       

      Section
12. No
Waiver.  The express waivers set forth herein are limited to
the extent expressly provided in this Amendment and, except as expressly set
forth in this Agreement, the execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any default of the Borrower or any
other Obligor or any right, power or remedy of the Administrative Agent or the
other Secured Parties under any of the Loan Documents, nor constitute a waiver
of (or consent to departure from) any terms, provisions, covenants, warranties
or agreements of any of the Loan Documents.  The parties hereto
reserve the right to exercise any rights and remedies available to them in
connection with any present or future defaults with respect to the First Lien
Credit Agreement or any other provision of any Loan Document.

       

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

      Section
13. Successors and
Assigns.  This Amendment shall be binding upon the Borrower and
its successors and permitted assigns and shall inure, together with all rights
and remedies of each Secured Party hereunder, to the benefit of each Secured
Party and the respective successors, transferees and assigns.

       

      Section
14. Entire
Agreement.  THIS AMENDMENT, THE FIRST LIEN CREDIT AGREEMENT AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF 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.

       

      [Signature
Pages Follow]

       

      
        
          
             

          

           

        

        
          22

          
            

          

        

        
           

        

      

      In
Witness Whereof, the parties hereto have caused this Amendment to be duly
executed and delivered by their respective duly authorized officers as of the
date first written above.

       

      BORROWER:

      

      ENERGY
XXI GULF COAST, INC.

      

      

      By: /s/ Rick
Fox                                                                      

      Name:  Rick
Fox

      Title:  Chief
Financial Officer

      
        
          
             

          

           

        

        
          S-1

          
            

          

        

        
           

        

      

      ADMINISTRATIVE AGENT,
ISSUERS AND LENDERS:

      

      THE ROYAL
BANK OF SCOTLAND plc, as Administrative Agent, Issuer and Lender

      

      

      By: /s/ Phillip R.
Ballard 

      Name:
Phillip R. Ballard

      Title:
Managing Director

      

      
        
          
             

             

          

           

        

        
          S-2

          
            

          

        

        
           

        

      

      

      BNP
PARIBAS, as Issuer and Lender

      

      

      By:  /s/ Betsy
Joche                                                                      

      Name:
Betsy Joche

      Title:  Director

      

      

      By: /s/ Greg
Smothers                                                           

      Name:
Greg Smothers

      Title:
Director

      
        
          
             

          

           

        

        
          S-3

          
            

          

        

        
           

        

      

      

      AMEGY
BANK NATIONAL ASSOCIATION, as Lender

      

      

      By: /s/ Reid
Springmeyer                                                                      

      Name:
Reid Springmeyer

      Title:
Assistant Vice President

      
        
          
             

          

           

        

        
          S-4

          
            

          

        

        
           

        

      

      

      THE BANK
OF NOVA SCOTIA, as Lender

      

      

      By: /s/ David G.
Mills                                                           

      Name:
David G. Mills

      Title:
Managing Director

      

      

      
        
          
             

          

           

        

        
          S-5

          
            

          

        

        
           

        

      

      

      TORONTO
DOMINION (TEXAS) LLC, as Lender

      

      

      By: /s/ Ian
Murray                                                                      

      Name: Ian
Murray

      Title:
Authorized Signatory

      
        
          
             

          

           

        

        
          S-6

          
            

          

        

        
           

        

      

      

      CAPITAL
ONE, NATIONAL ASSOCIATION, as Lender

      

      

      By: /s/ Peter
Shen                                                                      

      Name:
Peter
Shen                                      

      Title:
Vice President

      
        
          
             

          

           

        

        
          S-7

          
            

          

        

        
           

        

      

      

      NATIXIS,
as Lender

      

      

      By: /s/ Carlos
Quinteros                                                                      

      Name:
Carlos Quinteros

      Title:
Director

      

      

      By: /s/ Louis P. Laville,
III                                                                      

      Name:
Louis P. Laville, III

      Title:
Managing Director

      

      
        
          
             

          

           

        

        
          S-8

          
            

          

        

        
           

        

      

      

      ALLIED
IRISH BANKS p.l.c., as Lender

      

      

      By: /s/Mark
Connelly                                                           

      Name:
Mark Connelly

      Title:
Senior Vice-President

      

      

      By: /s/ James
Giordano                                                           

      Name:
James Giordano

      Title:
Assistant Vice-President

      

      

      
        
          
             

          

           

        

        
          S-9

          
            

          

        

        
           

        

      

      

      CREDIT
SUISSE AG, CAYMAN ISLANDS BRANCH, as Lender

      

      

      By: /s/ Nupur
Kumar                                                                      

      Name:
Nupur Kumar

      Title:
Vice-President

      

      

      By: /s/ Kevin
Buddhdew                                                                      

      Name:
Kevin Buddhdew

      Title:
Associate

      

      

      
        
          
             

          

           

        

        
          S-10

          
            

          

        

        
           

        

      

      

      UBS LOAN
FINANCE LLC, as Lender

      

      

      By: /s/ Ira R.
Otsa                                                                      

      Name: Ira
R. Otsa

      Title:
Associate Director

               Banking
Products Services, US

      

       
 

      By: /s/ Marie A.
Haddad 

      Name:
Marie A. Haddad

      Title:
Associate Director

               Banking
Products Services, US

      

      
        
          
            S-

            24685236
06020964

          

           

        

        
          S-11

          
            

          

        

        
           

        

      

      

      BMO
CAPITAL MARKETS FINANCING, INC., as Lender but solely for purposes of Section 7
of the Amendment

      

      

      By: /s/ Richard A.
Garcia                                                                      

      Name:
Richard A. Garcia

      Title:
Director

      
        
          
             

          

           

        

        
          S-12

          
            

          

        

        
           

        

      

      

      COMPASS
BANK, as successor in interest to Guaranty Bank, as Lender but solely for
purposes of Section 7 of the Amendment

      

      

      By: /s/ Spencer
Stasney                                                                      

      Name:
Spencer Stasney

      Title:
Vice President

      
        
          
             

          

           

        

        
          S-13

          
            

          

        

        
           

        

      

      LEHMAN
COMMERCIAL PAPER INC., as Lender but solely for purposes of Section 7 of the
Amendment

      

      

      By: /s/ Ashvin
Rao                                                                      

      Name:
Ashvin Rao

      Title:
Managing Director

      
        
          
             

          

           

        

        
          S-14

          
            

          

        

        
           

        

      

      WHITNEY
NATIONAL BANK, as Lender but solely for purposes of Section 7 of the
Amendment

      

      

      By: /s/ William
Jochetz                                                           

      Name:
William Jochetz

      Title:
Lending Officer

      

      
        
          
             

          

           

        

        
          S-15

          
            

          

        

        
           

        

      

      ING
CAPITAL LLC, as Lender, including for

      purposes
of Section 7 of the Amendment

      

      

      By: /s/ Charles E.
Hall                                                           

      Name:
Charles E. Hall

      Title:
Managing Director

      

      
        
          
             

          

           

        

        
          S-16

          
            

          

        

        
           

        

      

      REGIONS
BANK, as a Lender, including for purposes of Section 7 of the
Amendment

      

      

      By: /s/ Kelly L. Elmore
III                                                                      

      Name:
Kelly L. Elmore III

      Title:
Senior Vice President

      
        
          
             

          

           

        

        
          S-17

          
            

          

        

        
           

        

      

      

      ACKNOWLEDGED
AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN:

      

      ENERGY
XXI GOM, LLC

      

      

      By: /s/ Rick
Fox                                                

      Name:  Rick
Fox

      Title:    Chief
Financial Officer

      

      ENERGY
XXI TEXAS ONSHORE, LLC

      

      

      By: /s/ Rick
Fox                                                           

      Name:  Rick
Fox

      Title:    Chief
Financial Officer

      

      ENERGY
XXI ONSHORE, LLC

      

      

      By: /s/ Rick
Fox                                                           

      Name:  Rick
Fox

      Title:    Chief
Financial Officer

      

      
        
          
             

          

           

        

        
          S-18

          
            

          

        

        
           

        

      

      

      ACKNOWLEDGED
AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN IN ITS CAPACITY AS GUARANTOR UNDER
ITS LIMITED RECOURSE GUARANTY AND GRANTOR UNDER ITS PLEDGE AGREEMENT AND
IRREVOCABLE PROXY DELIVERED IN CONNECTION WITH THE FIRST LIEN CREDIT
AGREEMENT:

      

      ENERGY
XXI U.S.A., INC

      

      

      By:  /s/ Rick
Fox                                                                      

      Name:  Rick
Fox

      Title:    Chief
Financial Officer

      

       

      

      
        
          
             

          

           

        

        
          S-19

          
            

          

        

        
           

        

      

      LEHMAN
BROTHERS COMMODITY SERVICES INC., as Lender but solely for purposes of Section 7
of the Amendment

      

      

      By: /s/ Steven
Cohn                                                           

      Name:
Steven Cohn

      Title:
Co-Treasurer

      
        
          
             

          

           

        

        
          S-20ex10-32.htm

    EXHIBIT
10.32

    

    SEPARATION
AGREEMENT AND RELEASE OF CLAIMS

    

    

    This
Separation Agreement and Release of Claims (“Separation Agreement”) is made by
and between NeoMagic Corporation (the “Company”), and Douglas R. Young,
(“Employee”).  The Company and Employee shall collectively be referred
to in this Separation Agreement as the “Parties” and sometimes individually as a
“Party.”

    

    WHEREAS,
Employee was employed by the Company pursuant to an Employment Agreement, dated
May 1, 2006 (the “Employment Agreement”);

    

    WHEREAS,
the Company and Employee have entered into an Employment, Confidential
Information, Invention Assignment and Arbitration Agreement (the
“Confidentiality Agreement”);
 

    WHEREAS,
the Company and Employee have mutual agreed that Employee’s employment with the
Company ceased as of January 19, 2010 (the “Termination Date”) by mutual
agreement of the Company and the Employee and Employee acknowledges that as a
result, he has no rights to any severance benefits under the Employment
Agreement, however, the Company will provide certain benefits to Employee as
described in this Separation Agreement and the Consulting Agreement (as defined
below);

    

    WHEREAS,
concurrently herewith, and as an integral part hereof, the Parties also wish to
enter into the Consulting Agreement in substantially the form attached hereto as
Exhibit A;

    

    WHEREAS,  Employee’s
receipt of certain separation benefits is conditioned upon the execution of this
Separation Agreement;

    

    WHEREAS,
the Parties have negotiated and agreed, for valid and sufficient consideration,
to revise certain terms of this Separation Agreement from those terms contained
in the form of Separation Agreement originally attached as Exhibit B to the
Employment Agreement;

    

    NOW
THEREFORE, in consideration of the mutual promises made herein, the Company and
Employee hereby agree as follows:

    

    1.           
 Consideration.  Provided
that Employee does not revoke this Separation Agreement prior to the Effective
Date (as defined in Section 7(h)(v) below), the Company agrees to pay Employee
as new consideration to which Employee is not otherwise entitled severance pay
and other benefits, including accelerated vesting and an extension of the
exercise period on Employee’s outstanding options (the “Severance
Benefits”).  The Severance Benefits consist of the
following:

    

    (a)           the
gross amount of fifty thousand and no/100 dollars ($50,000.00), subject to
appropriate tax and other applicable withholding, to be paid within ninety (90)
days following the Effective Date of this Separation Agreement by a wire
transfer to an account designated by Employee to the Company in
advance  This amount will be reported to the Internal Revenue Service
(“IRS”) and other appropriate taxing authorities on Form W-2 (or other
appropriate forms);

    

    (b)           the
gross amount of two hundred thirty-five thousand and no/100 dollars
($235,000.00), subject to appropriate tax and other applicable withholding, to
be paid in twenty-six (26) equal amounts of nine thousand thirty-eight and
46/100 dollars ($9,038.46) in accordance with the Company’s normal payroll
procedures, beginning with the first Company payroll period following the
Effective Date of this Separation Agreement.  This amount will be
reported to the IRS and other appropriate taxing authorities on Form W-2 (or
other appropriate forms;

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

    (c)           All
of Employee's options that are unvested as of the Effective Date shall
accelerate and become fully vested as of the Effective Date and the right to
exercise the vested options shall be extended through the date six (6) months
following the Termination Date on all of Employee’s outstanding options that
were granted prior to the Termination Date;

    

    (d)           There
is a good faith dispute between Employee and the Company as to how much, if any,
additional accrued vacation pay remains owed to Employee.  Company
will pay Employee the gross amount of ten thousand and no/100 dollars
($10,00.00), subject to appropriate tax and other applicable withholding, to be
paid within twenty (20) days following the Effective Date of this Separation
Agreement by a wire transfer to an account designated by Employee to the Company
in advance.  This amount will be reported to the IRS and other
appropriate taxing authorities on Form W-2 (or other appropriate
forms);

    

    (e)           It
is the intent of the parties that the benefits provided under this Separation
Agreement and the Consulting Agreement, including all severance payments and all
other cash, equity, and other benefits, shall not be deferred compensation
arrangements under Section 409A of the Internal Revenue Code of 1986, as amended
(“Section 409A”), or comply with the requirements of Sections
409A.  The parties agree to take all reasonably necessary steps to
have such benefits not be deferred compensation arrangements under Section
409A.  .  With respect to the time period within which
Employee may exercise any outstanding stock options to acquire Company common
stock, the parties agree to avoid the imposition of Section 409A as follows: (1)
with respect to options that have been issued to Executive prior to Employees
Termination Date to acquire Company common stock, Employee shall exercise such
options, if at all, by the earlier of (i) the end of its original maximum
contractual term, or (ii) six (6) months from the Termination Date. For purposes
of Section 409A, each payment made under this Separation Agreement shall be
designated as a “separate payment” within the meaning of Section 409A. 
Notwithstanding the provisions of Section 1(d) and the foregoing provisions of
this Section, if Employee is a “specified employee,” within the meaning of
Section 409A, as of the Termination Date, then any benefits payable to Employee
under Section 1 that may be considered deferred compensation under Section 409A
and would otherwise be payable to Employee within six (6) months following
Employee’s Termination Date shall instead be paid to Employee in a single lump
sum on the date that is six (6) months and one (1) day  following
Employee’s Termination Date.  Notwithstanding anything to the contrary
herein, except to the extent any expense, reimbursement or in-kind benefit
provided pursuant to this Agreement does not constitute a “deferral of
compensation” within the meaning of Section 409A of the Code (x) the amount of
expenses eligible for reimbursement or in-kind benefits provided to Executive
during any calendar year will not affect the amount of expenses eligible for
reimbursement or in-kind benefits provided to Executive in any other calendar
year, (y) the reimbursements for expenses for which Executive is entitled to be
reimbursed shall be made on or before the last day of the calendar year
following the calendar year in which the applicable expense is incurred and (z)
the right to payment or reimbursement or in-kind benefits hereunder may not be
liquidated or exchanged for any other benefit.

    

    (f)         
  In reference to all amounts and transactions under this Separation
Agreement, the Company shall issue and/or file documents that are legally
required and/or the Company in good faith believes may be required by the IRS
and other appropriate taxing authorities.  These actions may include,
but are not limited to, issuing Employee appropriate Forms W-2 and/or 1099, or
other documentation required by federal and state law.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    2.           
 Confidential
Information.  Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the Company
and shall continue to comply with the terms and conditions of the
Confidentiality Agreement between Employee and the Company.  Employee
confirms and the Company acknowledges that Employee has returned all Company
property and confidential information that needs to be returned.

    

    3.             Board
Membership.  Effective as of the Effective Date, Employee resigns as
a director of the Company (including from each committee thereof) and as a
director and officer of any Company subsidiaries for which he currently is a
director or officer.

    

    4.          
  Payment of
Salary and COBRA Rights.  Employee acknowledges and represents
that the Company has paid all salary, wages, bonuses, accrued vacation,
commissions and any and all other benefits due to Employee once the above-noted
payments and benefits as described in Section 1 are received and that he will
not seek any further payments of salary, wages, bonuses, accrued vacation, and
commissions, including, but not limited to, any interest and/or penalties that
Employee claims were owed through the Effective Date.  Employee
further acknowledges and represents that he and his dependents have not
participated in the Company’s group health insurance policies, and therefore
neither Employee nor any of his dependents is eligible for any Company-provided
health insurance benefits, including, but not limited to, any Consolidated
Omnibus Budget Reconciliation Act (“COBRA”) continuation of group health
coverage, following the Termination Date.

    

    
      5.         
   Employee Representations and
Warranties Regarding “Cause.”

    

    

    (a)           Employee
represents and warrants that he has not engaged in any acts or omissions that
would constitute “Cause” under Section 10(b)(ii) through 10(b)(v) of the
Employment Agreement, specifically (ii) Employee’s conviction
of or plea of nolo
contendere to the commission of any felony or gross misdemeanor, but only
if such event significantly harms the Company’s reputation or business;
(iii) any fraud,
misrepresentation or gross misconduct by Employee that is materially injurious
to the Company; (iv) a material and willful violation by Employee of a federal
or state law or regulation applicable to the business of the Company which is
materially injurious to
the Company, and (v) Employee’s willful
breach of a material provision of this Agreement;

    

    (b)           Employee
understands that Employee’s representations and warranties contained in this
Section 5 are material to the Company; that the Company is relying upon them in
entering into Section 8 of this Separation Agreement (Company Release of Claims)
and in agreeing to assume its obligations contained in Section 8 of the
Separation Agreement; that the Company’s reliance upon these representations and
warranties by Employee is reasonable, and if these representations and
warranties by Employee were not true, the Company would not agree to assume the
obligations contained in Section 8 herein.

    

    6.         
   Expense
Reimbursement.  Employee will be reimbursed for all outstanding
properly documented business expenses incurred through the Termination Date, if
any, according to the usual Company procedures.  Employee will submit
his final documented expense reimbursement statement within twenty (20) days
following the Termination Date.   All reimbursements will be paid
to Employee no later than twenty (20) days after such properly documented
expenses are submitted by the Employee.

    

    7.        
    Employee Release of
Claims.  Employee agrees that the foregoing Severance Benefits
represents settlement in full of all outstanding obligations owed to Employee by
the Company.  Employee, on his own behalf and on behalf of his
executors, heirs,  and assigns, hereby fully and forever releases the
Company and its officers, directors, employees, investors, shareholders,
administrators, attorneys, insurers, affiliates, divisions, subsidiaries,
predecessor and successor corporations, and assigns, from, and agrees not to sue
concerning, any claim, duty, obligation or cause of action relating to any
matters of any kind, whether presently known or unknown, suspected or
unsuspected, that he may possess arising from any omissions,
acts,  facts, or things that have occurred up until and including the
Effective Date, including, without limitation,

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    (a)           any
and all claims relating to or arising from Employee’s employment relationship
with the Company and the termination of that relationship;

    

    (b)           any
and all claims relating to, or arising from, Employee’s right to purchase, or
actual purchase of shares of stock of the Company, including, without
limitation, any claims for fraud, misrepresentation, breach of fiduciary duty,
breach of duty under applicable state corporate law, and securities fraud under
any state or federal law;

    

    (c)           any
and all claims for wrongful discharge of employment; termination in violation of
public policy; discrimination; breach of contract, both express and implied;
breach of a covenant of good faith and fair dealing, both express and implied;
additional benefits; promissory estoppel; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospec­tive economic advantage;
unfair business practices; defamation; libel; slander; negligence; personal
injury; assault; battery; invasion of privacy; false imprisonment; and
conversion;

    

    (d)           any
and all claims for violation of any federal, state or municipal statute,
including, but not limited to, Title VII of the Civil Rights Act of 1964,
as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment
Act of 1967; the Americans with Disabilities Act of 1990; the Fair Labor
Standards Act; the Employee Retirement Income Security Act of 1974; The Worker
Adjustment and Retraining Notification Act; the Older Workers Benefit Protection
Act of 1990 (“OWBPA”); the Family Medical Leave Act; the Sarbanes-Oxley Act; the
California Fair Employment and Housing Act; the California Family Rights Act;
and the California Labor Code, all as amended;

    

    (e)           any
and all claims for violation of the federal, or any state,
constitution;

    

    (f)           any
and all claims arising out of any other laws and regulations relating to
employment or employment discrimination; and

    

    (g)            any
and all claims for attorneys’ fees and costs.

    

    The
Company and Employee agree that the release set forth in this section shall be
and remain in effect in all respects as a complete general release as to the
matters released.  However, this release is not intended to bar any
claims that, by statute, may not be waived, such as any challenge to the
validity of Employee’s release of claims under the Age Discrimination in
Employment Act of 1967, as amended, as set forth in this Separation Agreement,
claims for workers’ compensation benefits, unemployment insurance benefits, or
any statutory right to be indemnified for necessary expenditures or losses
incurred in the discharge of Employee’s duties under California Labor Code
Section 2802.  This release also does not extend to any obligations
incurred under this Separation Agreement.

    

    (h)           Waiver of Claims Under
ADEA.  This Separation Agreement is intended to satisfy the
requirements of the OWBPA.  Employee hereby acknowledges that he is
waiving and releasing any rights he has or may have under the Age Discrimination
in Employment Act of 1967, as amended (“ADEA”) and that this waiver and
release is knowing and voluntary.  Employee acknowledges that the
Severance Benefits and other consideration are in addition to anything to which
he was already entitled.  He agrees further that he is advised by this
Separation Agreement, as required by the OWBPA, that (i) this waiver and release
does not apply to any rights or claims that may arise after the Effective Date
of this Agreement; (ii) he has the right to consult with an attorney prior to
signing this Separation Agreement, (iii) he may have at least twenty-one (21)
days to consider this Separation Agreement, (iv) he has seven (7) days following
his signing of the Separation Agreement to revoke the Separation Agreement, and
(v) this Separation Agreement shall not be effective until the revocation period
has expired, therefore making the effective date the eighth (8th) day
after this Separation Agreement is signed by him (the “Effective
Date”).   In addition, this Separation Agreement does not
prohibit Employee from challenging the validity of this Separation Agreement’s
waiver and release of claims under the ADEA.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    8.          
  Company
Release of Claims.  The Company, on behalf of itself and its
predecessor, successor  corporations, and assigns hereby fully and
forever releases Employee and his respective heirs,  executors,
agents, and assigns from, and agrees not to sue concerning, any claim, duty,
obligation or cause of action relating to any matters of any kind, whether
presently known or unknown, suspected or unsuspected, that it may possess
arising from any omissions, acts or facts that have occurred up until and
including the Termination Date.  However, this release is not intended
to bar any claims that, by statute, may not be waived.

    

    9.          
  Civil Code
Section 1542.  Employee represents that he is not aware of any
claim by him other than the claims that are released by him in this Separation
Agreement.  Employee acknowledges that he has been advised by legal
counsel and is familiar with the provisions of California Civil Code
Section 1542, which provides as follows:

     

    
      	A GENERAL RELEASE
      DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
      EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
      KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT
      WITH THE DEBTOR.

    

     

    Employee,
being aware of said code section, agrees to expressly waive any rights he may
have thereunder, as well as under any other statute or common law principles of
similar effect, to the fullest extent permitted under applicable
law.

    

    10.           No Pending or Future
Lawsuits.  Employee represents that he has no lawsuits, claims,
or actions pending in his name, or on behalf of any other person or entity,
against the Company or any other person or entity referred to
herein.  Employee also represents that he does not intend to bring any
claims on his own behalf or on behalf of any other person or entity against the
Company or any other person or entity referred to herein.

    

    11.           Confidentiality.  The
Parties agree that this Separation Agreement may be filed as an exhibit to the
Company’s Quarterly Report on Form 10-Q for the period during which this
Separation Agreement becomes effective.

     

    12.           No
Cooperation.  Employee agrees he will not act in any manner
that might damage the business of the Company.  Employee agrees that
he will not counsel or assist any attorneys or their clients in the presentation
or prosecution of any disputes, differences, grievances, claims, charges, or
complaints by any third party against the Company and/or any officer, director,
employee, agent, representative, shareholder or attorney of the Company, unless
under a subpoena or other court order to do so.

    

    13.           Non-Solicitation.
Employee agrees that for a period of twenty-four (24) months immediately
following the Termination Date, Employee will not either directly or indirectly
solicit, induce, recruit or encourage any of the Company’s (or any of its
subsidiary companies no matter where located) employees or consultants to leave
their employment or consulting relationship with the Company, or attempt to
solicit, induce, recruit, or encourage employees or consultants of the Company,
either for himself or any other person or entity.  To the extent this
provision conflicts with any provision in any other agreement between the
parties, including the Confidentiality Agreement, the provision in this
Separation Agreement shall prevail.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    14.           Mutual
Non-Disparagement.  Employee and the Company's officers and
directors agree to refrain from any defamation, libel or slander of the other
Party  and of the Company’s officers, directors and employees,
investors, and shareholders, and the Parties each agree to refrain from tortious
interference with the contracts and relationships of the other.  All
inquiries by potential future employers of Employee will be directed to the
Company’s Director of Finance and Administration.  Upon inquiry, the
Company shall only state the following: his dates of service as President and
Chief Executive Officer and his mutually agreeable separation from the Company
followed by his service as a consultant to the Company.

    

    15.           Tax Liability and
Indemnification.  Employee agrees that he shall bear full
responsibility for any and all tax liabilities owed by Employee that may arise
in relation to this Separation Agreement, and Employee agrees that he shall
fully indemnify and hold the Company harmless from any tax liability owed by
Employee arising from or related to the transactions set forth herein
(including, but not limited to, the Company’s payment of the Severance
Benefits), including, but not limited to, any taxes, penalties, fines, and/or
interest that are assessed by any tax authority against Employee and further
including all attorneys’ fees and costs incurred by the Company in response to
any claims or assessments by any tax authority against Employee.

    

    16.           Costs.  The
Parties shall each bear their own costs, expert fees, attorneys’ fees and other
fees incurred in connection with entering into this Separation
Agreement.

    

    17.           Arbitration.  The
Parties agree that any and all disputes arising out of the terms of this
Separation Agreement, their interpretation, and any of the matters herein
released, shall be subject to binding arbitration in Santa Clara County before
the American Arbitration Association under its California Employment Dispute
Resolution Rules, pursuant to Section 12(c) of the Employment
Agreement.  Section 12(c) of the Employment Agreement is incorporated
into this Separation Agreement in Exhibit 1.

    

    18         
  Authority.  The
Company represents and warrants that the undersigned has the authority to act on
behalf of the Company and to bind the Company and all who may claim through it
to the terms and conditions of this Separation Agreement.  Employee
represents and warrants that he has the capacity to act on his own behalf and on
behalf of all who might claim through him to bind them to the terms and
conditions of this Separation Agreement.  Each Party warrants and
represents that there are no liens or claims of lien or assignments in law or
equity or otherwise of or against any of the claims or causes of action released
herein.

    

    19.           No
Representations.  Each Party represents that it or he has had
the opportunity to consult with an attorney and a tax advisor and has carefully
read and understands the scope and effect of the provisions of this Separation
Agreement, including any tax consequences of payments and transactions made
pursuant to this Separation Agreement.  Neither Party has relied upon
any express or implied representations or statements made by the other Party or
any of their respective lawyers, agents or representatives hereto which are not
specifically set forth in this Separation Agreement.

    

    20.           No Admission of
Liability.  This Separation Agreement and any action taken by
the Company, either previously or in connection with this Separation Agreement,
is not and shall not be construed to be an admission or evidence of any
wrongdoing or liability on the part of the Company.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    21.           Severability.  If
any provision hereof becomes or is declared by a court of competent jurisdiction
to be illegal, unenforceable or void, this Separation Agreement shall continue
in full force and effect without said provision.

    

    22.           Entire
Agreement.  This Separation Agreement (including the Exhibits
hereto), any outstanding equity awards, and the Confidentiality Agreement (to
the extent the Confidentiality Agreement does not conflict with this Separation
Agreement) represents the entire agreement and understanding between the Company
and Employee concerning     Employee ’s separation from
the Company, and supersedes and replaces any and all prior agreements and
understandings, including, but not limited to, the Employment Agreement,
concerning Employee’s relationship with the Company and Employee’s compensation
by the Company.

    

    23.           No Oral
Modification.  This Separation Agreement may only be amended in
writing signed by Employee and either the President or the Chief Executive
Officer of the Company.

    

    24.           Governing
Law.  This Separation Agreement shall be governed by the laws
of the State of California.

    

    25.           Effective
Date.  This Separation Agreement is effective after it has been
signed by both Parties and after seven (7) days have passed since Employee has
signed the Separation Agreement, unless revoked by Employee by giving written
notice to the Company within seven (7) days after the date the Separation
Agreement was signed by Employee.

    

    26.           Counterparts.  This
Separation Agreement may be executed in counterparts, and each counterpart shall
have the same force and effect as an original and shall constitute an effective,
binding agreement on the part of each of the undersigned.  Faxed
signatures shall be deemed to be original signatures and shall be
effective.

    

    27.           Voluntary Execution of
Agreement.  This Separation Agreement is executed voluntarily
and without any duress or undue influence on the part or behalf of the Parties
hereto, with the full intent of releasing all claims.  The Parties
acknowledge that:

    

    (a)           They
have read this Separation Agreement;

    

    (b)           They
have been represented in the preparation, negotiation, and execution of this
Separation Agreement by legal counsel of their own choice or that they have
voluntarily declined to seek such counsel;

    

    (c)           They
understand the terms and consequences of this Separation Agreement and of the
releases it contains;

    

    (d)           They
are fully aware of the legal and binding effect of this Separation
Agreement.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, the Parties have executed this Separation Agreement on the
respective dates set forth below.

     

    NeoMagic
Corporation:

    
      
        	 	 	 	 	 
	
                /s/
      Syed Zaidi  

              	 	 	
                February
      4, 2010 

              	 
	
                
                  Syed
      Zaidi

                  President

                

              	 	 	
                Date

              	 

      

       

      Employee:

    

    
      
        	 	 	 	 	 
	
                /s/
      Douglas R. Young 

              	 	 	
                February
      4, 2010

              	 
	
                Douglas
      R. Young 

              	 	 	
                 

              	 
	
                 

              	 	 	
                
                  Date

                

              	 

      

       

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Exhibit
1

     

     

    Arbitration.

     

    General.  In
consideration of Employee’s service to the Company, its promise to arbitrate all
employment related disputes and Employee’s receipt of the compensation, pay
raises and other benefits paid to Employee by the Company, at present and in the
future, Employee agrees that any and all controversies, claims, or disputes with
anyone (including the Company and any employee, officer, director, shareholder
or benefit plan of the Company in their capacity as such or otherwise) arising
out of, relating to, or resulting from Employee’s service to the Company under
this Agreement or otherwise or the termination of Employee’s service with the
Company, including any breach of this Agreement, will be subject to binding
arbitration under the Arbitration Rules set forth in California Code of Civil
Procedure Section 1280 through 1294.2, including Section 1283.05 (the
“Rules”) and pursuant to California law.  Disputes which Employee
agrees to arbitrate, and thereby agrees to waive any right to a trial by jury,
include any statutory claims under state or federal law, including, but not
limited to, claims under Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act of 1990, the Age Discrimination in Employment
Act of 1967, the Older Workers Benefit Protection Act, the California Fair
Employment and Housing Act, the California Labor Code, claims of harassment,
discrimination or wrongful termination and any statutory
claims.  Employee further understands that this Agreement to arbitrate
also applies to any disputes that the Company may have with
Employee.

     

    Procedure.  Employee
agrees that any arbitration will be administered by the American Arbitration
Association (“AAA”) and that a neutral arbitrator will be selected in a manner
consistent with its National Rules for the Resolution of Employment
Disputes.  All arbitration proceedings shall be held in Santa Clara
County, California.  The arbitration proceedings will allow for
discovery according to the rules set forth in the National Rules for the Resolution of
Employment Disputes or California Code of Civil
Procedure.  Employee agrees that the arbitrator will have the
power to decide any motions brought by any party to the arbitration, including
motions for summary judgment and/or adjudication and motions to dismiss and
demurrers, prior to any arbitration hearing.  Employee agrees that the
arbitrator will issue a written decision on the merits.  Employee also
agrees that the arbitrator will have the power to award any remedies, including
attorneys’ fees and costs, available under applicable law.  Employee
understands the Company will pay for any administrative or hearing fees charged
by the arbitrator or AAA except that Employee will pay the first $125.00 of any
filing fees associated with any arbitration Employee
initiates.  Employee agrees that the arbitrator will administer and
conduct any arbitration in a manner consistent with the Rules and that to the
extent that the AAA’s National Rules for the Resolution of Employment Disputes
conflict with the Rules, the Rules will take precedence.

     

    Remedy.  Except
as provided by the Rules, arbitration will be the sole, exclusive and final
remedy for any dispute between Employee and the Company.  Accordingly,
except as provided for by the Rules, neither Employee nor the Company will be
permitted to pursue court action regarding claims that are subject to
arbitration.  Notwithstanding, the arbitrator will not have the
authority to disregard or refuse to enforce any lawful Company policy, and the
arbitrator will not order or require the Company to adopt a policy not otherwise
required by law which the Company has not adopted.  The prevailing
party in any arbitration proceeding shall be entitled to recover from the losing
party all costs that it has incurred as a result of such proceeding, including
but not limited to, all reasonable travel costs and reasonable attorneys’
fees.

     

    Availability of Injunctive
Relief.  In addition to the right under the Rules to petition
the court for provisional relief, Employee agrees that any party may also
petition the court for injunctive relief where either party alleges or claims a
violation of this Agreement or the Confidentiality Agreement or any other
agreement regarding trade secrets, confidential information, nonsolicitation or
Labor Code §2870.  In the event either party seeks injunctive
relief, the prevailing party will be entitled to recover reasonable costs and
attorneys’ fees.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Administrative
Relief.  Employee understands that this Agreement does not
prohibit Employee from pursuing an administrative claim with a local, state or
federal administrative body such as the Department of Fair Employment and
Housing, the Equal Employment Opportunity Commission or the workers’
compensation board.  This Agreement does, however, preclude Employee
from pursuing court action regarding any such claim.

    

    (vi)     Voluntary Nature of
Agreement.  Employee acknowledges and agrees that Employee is
executing this Agreement voluntarily and without any duress or undue influence
by the Company or anyone else. Employee further acknowledges and agrees that
Employee has carefully read this Agreement and that Employee has asked any
questions needed for Employee to understand the terms, consequences and binding
effect of this Agreement and fully understand it, including that Employee is
waiving Employee’s right to a jury trial.  Finally, Employee agrees
that Employee has been provided an opportunity to seek the advice of an attorney
of Employee’s choice before signing this Agreement.

     

     

    10

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