LOAN AGREEMENT

 

                                                                   EXHBIBIT 10.1

                                                                   -------------

 

                         LOAN AGREEMENT (LINE OF CREDIT)

 

             THIS LOAN AGREEMENT ("Agreement"), dated as of July 29, 2005, is

made between GMX RESOURCES INC., an Oklahoma corporation ("Borrower"), and

HIBERNIA NATIONAL BANK, a national banking association ("Lender"), who agree as

follows:

 

                                    ARTICLE 1

 

                                  GENERAL TERMS

 

     Section 1.1    Terms Defined Above. As used in this Agreement, the terms

"Agreement", "Borrower", and "Lender", shall have the meanings indicated above.

 

     Section 1.2    Certain Definitions. As used in this Agreement, the following

terms shall have the meanings indicated (and as provided in Section 9.14),

unless the context otherwise requires:

 

             "Advances" shall mean the borrowings on the Closing Date under the

             Loan and all or any portion of such borrowings and other or

             subsequent reborrowings under the Loan so long as same remain

             outstanding and unpaid.

 

             "Affiliate" shall mean, as to any Person, any Person controlling,

             controlled by or under common control with such Person, and

             "control" as used herein means the possession, direct or indirect,

             of the power to direct or cause the direction of the management or

             policies of the controlled Person.

 

             "Amount" shall mean seventeen million ($17,000,000.00) dollars.

             Although the face amount of the initial Note under this Agreement

             is fifty million ($50,000,000.00) dollars, the Amount (and hence

             the Commitment Limit) is acknowledged by Borrower to be a lesser

             number, subject to one or more future increases by the Lender in

             its sole discretion and the Borrower's request in conjunction with

             any future increases in the Borrowing Base and further bank

             management approvals. Such periodic increases in the Amount may be

             made without need of formal amendment to this Agreement (up to the

             notational amount of fifty million dollars), but nonetheless

             evidenced in writing, and subject to any fees payable on the

             incremental increased portion under Section 2.6.

 

             "Applicable LIBO Rate Margin" shall have the meaning set forth in

             the definition of "LIBO Rate".

<PAGE>

             "Base Rate" shall mean, for any day, an interest rate per annum

             equal to the Prime Rate in effect on such day. Without notice to

             the Borrower, the Base Rate shall change automatically from time to

             time as and in the amount by which the Prime Rate shall fluctuate,

             with each such change in the Base Rate to be effective as of the

             date of each change in the Prime Rate, adjusted daily.

 

             "Borrowing Base" shall mean, at any time, the dollar amount

             calculated as the maximum loan value of the Collateral as

             determined by the Lender in its sole discretion, but based upon the

             Lender's customary standards and practices from time to time in

             effect with respect to secured oil and gas property lines of credit

             in determining the discounted present value of the Collateral's

             production and the Borrower's cash flows. Any good faith

              determination by the Lender of the Borrowing Base shall be final

             and conclusive. The Borrowing Base may be revised by Lender at any

             time to reflect changes in the Collateral or the occurrence of

             events or economic conditions or otherwise pursuant to Lender's

             customary standards and practices as such exist at that particular

             time, and further will be subject to scheduled semi-annual

             redeterminations (approximately April 1 and October 1, starting

             October 1, 2005) during the term of this Loan. Additionally, the

             Borrower may request once per any six month period (commencing 90

             days after the Closing Date) between scheduled redeterminations

             that an unscheduled redetermination be done by Lender, subject to

             Borrower's payment to Lender of a fee in accordance with Section

             2.5. The Lender shall notify the Borrower of the result of each

             Borrowing Base redetermination by the Lender at least fifteen (15)

             days before its effective date. Each determination of the Borrowing

             Base shall be effective until redetermined by the Lender in

             accordance with this Agreement. Such redetermination by the Lender

             may lead to increased or decreased credit availability to the

             Borrower under the revised Borrowing Base schedule, and any

             increase shall be subject to Lender's credit approval process. The

             Borrowing Base after any redetermination may be subject to

             automatic Periodic Reductions (with notice to Borrower) as provided

             and defined in Subsection 2.4 (c). Without limiting the foregoing,

              the Lender may exclude, in its sole and absolute discretion, any

             property or portion of production therefrom from the Borrowing

             Base, at any time, because title information on, or the status of

             title to, such property is not reasonably satisfactory to Lender,

             such property is not Collateral, the Lender's Lien therein is not

             first and prior to all

 

                                       -2-

<PAGE>

             others, such property is subject to contractual agreements or

             commitments not reasonably satisfactory to Lender, or such property

             is not assignable. The Borrower acknowledges that the Lender's

             determination of the Borrowing Base contains an equity cushion

             (market value in excess of loan value), which is acknowledged by

             the Borrower to be essential for the adequate protection of the

             Lender. On the Closing Date, the Borrowing Base is $17,000,000.00.

 

              "Business Day" shall mean (a) for all purposes other than as

             covered by clause (b) of this definition, a day other than a

             Saturday, Sunday or legal holiday for commercial banks in either

             New Orleans, Louisiana, or New York, New York, and (b) with respect

             to all requests, notices and determinations in connection with LIBO

             Rate Loans, a day which is a Business Day described in clause (a)

             of this definition and which is a day for trading by and between

             banks for dollar deposits in the London interbank market.

 

             "Closing Date" shall mean the date on which the Note is executed

             and delivered by the Borrower to the Lender.

 

             "Code" shall mean the Internal Revenue Code of 1986, as amended.

 

             "Collateral" shall mean the properties and property rights

             described in the Collateral Documents described in Section 3.1 as

             primary security for the Indebtedness.

 

             "Collateral Documents" shall mean collectively the documents from

             time to time required by the Lender to obtain the security interest

             in the Collateral, or otherwise guarantee or secure the

             Indebtedness, or otherwise pertaining to this Agreement (including

             without limitation the letter of credit applications described in

             Subsection 2.1(f) below), such documents which exist on the Closing

             Date being described in Article 3 hereof, as all such documents are

             amended, restated or renewed from time to time.

 

             "Commitment Letter" shall mean the Lender's commitment letter to

             the Borrower dated April 18, 2005 in connection with this Loan.

 

             "Commitment Limit" shall mean, at any particular date, the lesser

             of (x) the Amount (as it may be increased by Lender from time to

             time) or (b) the Borrowing Base as most recently determined and in

             effect (including the effect of any Periodic Reductions).

 

                                       -3-

<PAGE>

             "Companies" shall mean collectively, on the Closing Date, the

             Borrower and Endeavor (and until the merger's effectiveness,

              Expedition), and thereafter all such Persons plus any Subsidiary

             formed or acquired after the Closing Date, and "Company" shall mean

             any one of the Companies.

 

             "Contracts" shall mean those agreements, contracts and other

             instruments to which the Borrower's interest in the oil, gas and

             mineral leases comprising the Collateral are subject.

 

             "Debt" shall mean any and all amounts and/or liabilities owing from

             time to time by a Company to any Person, including the Lender,

             direct or indirect, liquidated or contingent, now existing or

             hereafter arising, including without limitation (i) indebtedness

             for borrowed money or the deferred purchase price of property; (ii)

             unfunded portions of commitments for money to be borrowed; (iii)

             the amounts of all standby and commercial letters of credit and

             bankers acceptances, matured or unmatured, issued on behalf of such

             Company, and (without duplication) all drafts drawn thereon; (iv)

             guaranties of the obligations of any other Person, whether direct

             or indirect, whether by agreement to purchase the indebtedness of

             any other Person or by agreement for the furnishing of funds to any

             other Person through the purchase or lease of goods, supplies or

             services (or by way of stock purchase, capital contribution,

             advance or loan) for the purpose of paying or discharging the

             indebtedness of any other Person, or otherwise; (v) indebtedness of

             the types described above secured by any Lien on any property owned

             by such Company, to the extent attributable to such Company's

             interest in such property, even though such Company has not assumed

             or become liable for the payment thereof personally; (vi) the

             present value of all obligations for the payment of rent or hire of

             property of any kind (real or personal) under leases or lease

             agreements required to be capitalized under generally accepted

             accounting principles, (vii) trade payables and operating leases

             incurred in the ordinary course of business or otherwise; (viii)

             Hedging Obligations; (ix) obligations of such Company owing in

             respect of redeemable preferred stock; and (x) obligations of such

             Company owing in connection with production payments.

 

             "Deed of Trust" shall mean the Texas Deed of Trust described in

             Section 3.1(i), as amended, supplemented or restated from time to

             time.

                                       -4-

<PAGE>

             "Default" shall mean the occurrence of any of the events specified

             in Article 8 hereof, whether or not any requirement for notice or

             lapse of time or other condition precedent has been satisfied.

 

             "Default Rate" shall mean, on any particular date, the Prime Rate

             plus five (5%) percent per annum, but in no event to exceed the

             Maximum Rate.

 

             "EBITDA" shall mean, for each period of four preceding fiscal

             quarters, the sum of the Borrower's (i) net income for that period,

             plus (ii) any extraordinary loss and other expenses not considered

             to be operating in nature reflected in such net income, minus (iii)

             any extraordinary gain, interest income and other income not

             considered operating in nature reflected in such net income, plus

             (iv) depreciation, depletion, amortization and all other non-cash

             expenses for that period, plus (v) all interest, fees, charges and

             related expenses paid or payable (without duplication) for that

             period to a lender in connection with borrowed money or the

             deferred purchase price of assets that are considered "interest

              expense" under generally accepted accounting principles, together

             with the portion of rent paid or payable (without duplication) for

             that period under capital lease obligations that should be treated

             as interest in accordance with Financial Accounting Standards Board

             Statement No. 13, plus (vi) the aggregate amount of federal and

             state taxes on or measured by income for that period (whether or

             not payable during that period).

 

             "Endeavor" shall mean Endeavor Pipeline Inc., an Oklahoma

             corporation, and a wholly owned Subsidiary of the Borrower.

 

             "ERISA" shall mean the Employee Retirement Income Security Act of

             1974, as amended.

 

             "Event of Default" shall mean the occurrence of any of the events

             specified in Article 8 hereof, provided that any requirement for

             notice or lapse of time or any other condition precedent has been

              satisfied.

 

             "Expedition" shall mean Expedition Natural Resources Inc., an

             Oklahoma corporation, formerly a wholly owned Subsidiary of the

             Borrower, merged or to be merged into the Borrower on or about the

              Closing Date.

 

                                       -5-

<PAGE>

             "Hedge Agreement" shall mean any agreement or arrangement providing

             for payments which are related to, or the value of which is

             dependent upon, fluctuations of interest rates, currency exchange

             rates or forward rates, or fluctuations of commodity prices,

             including without limitation any swap agreement, cap, collar,

             floor, exchange transaction, forward agreement or exchange or

             protection agreement or similar futures contract or swap or other

             derivative agreement related to interest rates, currency exchange

             rates or hydrocarbons or other commodities, or any option with

              respect to such transaction.

 

             "Hedging Obligations" of a Person shall mean any and all

             obligations of such Person, whether absolute or contingent and

             howsoever and whensoever created, arising or evidenced (including

             all renewals, extensions and modifications thereof and

             substitutions therefor), under any and all Hedge Agreements and any

             and all cancellations, buybacks, reversals, terminations or

             assignments of any Hedge Agreement.

 

             "Indebtedness" shall mean any and all amounts, liabilities or

             obligations owing from time to time by the Borrower to the Lender

             (or any transferee of the Loan), including without limitation any

              such amounts, liabilities or obligations pursuant to this

             Agreement, the Note and the Collateral Documents (including

             attorneys' fees incurred in connection with the execution,

             enforcement or collection of the Borrower's obligations hereunder

             or thereunder or any part thereof) or any Hedging Obligations, and

             whether such amounts, liabilities or obligations be liquidated or

             unliquidated, now existing or hereafter arising.

 

             "Interest expense" shall mean, for each period, the sum of all

             interest, fees, charges and related expenses payable (without

             duplication) for that period to a lender in connection with

             borrowed money or the deferred purchase price of assets that are

             considered "interest expense" under generally accepted accounting

             principles, plus the portion of rent paid or payable (without

             duplication) for that period under capital lease obligations that

             should be treated as interest in accordance with Financial

             Accounting Standards Board Statement No. 13.

 

             "LIBO Rate" shall mean, during any Interest Period (as defined

             below) for any Advance, an interest rate per annum equal to the

             Reserve Adjusted LIBO Rate (as defined below) plus the Applicable

             LIBO Rate Margin (as defined below). "Reserve

 

                                       -6-

<PAGE>

             Adjusted LIBO Rate" shall mean with respect to each Interest Period

             for a LIBO Rate Advance, an interest rate per annum equal to the

             quotient (converted to a percentage, rounded upward to the nearest

             whole multiple of 1/100 of 1% per annum) of (i) the rate per annum

             as determined by the Lender at or about 10:00 a.m. Central Time (or

             as soon thereafter as practicable) on the second Business Day prior

             to the first day of each Interest Period, to be the annual rate of

             interest for deposits in United States dollars for the selected

             Interest Period as shown on the Dow Jones Telerate Matrix page for

             British Bankers Association Interest Settlement Rates as of two

             Business Days prior to the first day of such Interest Period,

             divided by (ii) the remainder of 1.00 minus the LIBOR Reserve

             Requirement (as defined below), expressed as a decimal, for such

             Interest Period. "LIBOR Reserve Requirement" shall mean for any day

             during an Interest Period for any LIBO Rate Advance, that

             percentage which is specified by the Board of Governors of the

             Federal Reserve System (or any successor) for determining the

             maximum reserve requirement (including, but not limited to, any

             marginal reserve requirement) for the Lender with respect to

             liabilities consisting of or including "Eurocurrency liabilities"

             (as defined in Regulation D of the Board of Governors of the

             Federal Reserve System) with a maturity equal to such Interest

             Period. In determining this percentage, the Lender may use any

             reasonable averaging and attribution method. "Interest Period"

             shall mean the period between the Business Day on which the LIBO

             Rate shall begin and the day on which the LIBO Rate shall end. The

             duration of each Interest Period for a LIBO Rate Advance shall be

             one (1) month, two (2) months, or three (3) months, at the

             Borrower's election, subject to the following: (i) no Interest

             Period shall extend past the Maturity Date; (ii) whenever the last

             day of any Interest Period would otherwise occur on a day other

             than a Business Day, the last day of such Interest Period shall be

             extended to occur on the next succeeding Business Day, except that

             if the next succeeding Business Day would occur in the next

             following calendar month, the last day of such Interest Period

             shall be shortened to occur on the next preceding Business Day;

             (iii) whenever the first day of any Interest Period occurs on a day

             of an initial calendar month for which there is no numerically

             corresponding day in the calendar month that succeeds such initial

             calendar month by the number of months in such Interest Period,

             such Interest Period shall end on the last Business Day of such

             succeeding calendar month; and (iv) if the Borrower fails to

             designate an Interest Period, the Interest Period for a LIBO Rate

 

                                        -7-

<PAGE>

             Advance (recognizing that under Subsection 2.1(b) below the Lender

             is not obligated to make such a LIBO Rate Advance in the absence of

             such designation by the Borrower) shall be deemed to be one month

             until a different designation is made for a subsequent Interest

             Period. No Interest Period for a LIBO Rate Advance shall have a

             duration of less than one month, and if any such Interest Period

              would otherwise be a shorter period, the relevant Advance shall be

             a Base Rate Advance during such period. The "Applicable LIBO Rate

             Margin" shall mean the following per annum interest rate from time

             to time, determined for each fiscal quarter by reference to the

             Percentage Outstanding for the immediately prior fiscal quarter, in

             accordance with the following schedule:

 

                                                Applicable LIBO

             Percentage Outstanding                Rate Margin

             ----------------------              ---------------

             0 to 50%                                 1.50%

             above 50% to 90%                         1.75%

              above 90%                                2.25%

 

             The Applicable LIBO Rate Margin shall remain fixed during each

             fiscal quarter of the Borrower's fiscal year, determined on the

             first day of each fiscal quarter depending upon the Percentage

             Outstanding for the immediately prior quarter. (During the first

             partial quarter of this Agreement, commencing on the Closing Date,

             the Applicable LIBO Rate Margin shall be 1.50% percent.) No more

             than four (4) LIBO Rate tranches at any one time are permitted for

             the Note. The Borrower will comply with the provisions of Addendum

             I hereto, relating to the LIBO Rate, which is an integral part of

             this Agreement. The LIBO Rate shall remain fixed for the duration

             of the LIBO Rate Interest Period selected. The Borrower shall not

             have the right to voluntarily prepay Advances outstanding at the

             LIBO Rate prior to the end of the applicable LIBO Rate Interest

             Period unless the Borrower includes payment of amounts, if any,

             required to be paid pursuant to paragraph 6 of Addendum I.

 

             "Lien" shall mean any interest in property securing an obligation

             owed to, or a claim by, a Person other than the owner of the

             property, whether such interest is based on jurisprudence, statute

             or contract, and including but not limited to the lien or security

              interest arising from a mortgage, encumbrance, pledge, security

 

                                       -8-

<PAGE>

             agreement, production payment, conditional sale, bond for deed or

             trust receipt or a lease, consignment or bailment for security

             purposes. The term "Lien" shall include reservations, exceptions,

             encroachments, easements, servitudes, usufructs, rights-of-way,

             covenants, conditions, restrictions, leases, and other title

              exceptions and encumbrances affecting property. For the purposes of

             this Agreement, the Borrower shall be deemed to be the owner of any

             property which it has accrued or holds subject to a conditional

             sale agreement, financing lease or other arrangement pursuant to

             which title to the property has been retained by or vested in some

             other Person for security purposes.

 

             "Loan" shall mean the line of credit and standby letters of credit

             as described in Article 2 hereof.

 

             "Loan Excess" shall mean, at any point in time, the amount, if any,

             by which the outstanding principal balance of the Advances plus the

             undisbursed amount of all outstanding standby letters of credit

             issued pursuant to this Agreement exceeds the Commitment Limit then

             in effect.

 

             "Maturity Date" shall mean the third anniversary of the Closing

             Date, or such earlier date on which the Loan is accelerated

             pursuant to Section 8.2 hereof.

 

             "Maximum Rate" shall mean the maximum nonusurious interest rate

             under applicable law (determined under such laws after giving

             effect to any items which are required by such laws to be construed

             as interest in making such determination, including without

             limitation if required by such laws, certain fees and other costs),

             as such laws are presently in effect, or, to the extent allowed by

             applicable law, as such laws may hereafter be in effect and which

             allow a higher maximum non-usurious interest rate than such laws

             now allow.

 

             "McLachlan Drilling Contract" shall mean the daywork drilling

             contract dated April 21, 2005, between the Borrower and McLachlan

             Drilling Company.

 

             "McLachlan Lease" shall mean the financing lease by the Borrower as

             lessor to McLachlan Drilling Company to finance the purchase of

             pumps for approximately $600,000.00 in connection with the

             McLachlan Drilling Contract.

 

                                       -9-

<PAGE>

             "Note" shall mean the note described in Section 2.1(a) hereof.

 

             "Operator" shall mean each Person which is an operator of any of

             the Borrower's properties.

 

             "Patriot Act" shall have the meaning set forth in Section 4.22.

 

             "Participation Agreement" shall mean the Participation Agreement

             dated December 29, 2003, by and among Penn Virginia Oil & Gas

             Corporation, the Borrower, and Expedition and Endeavor, as amended

             by the First Amendment dated February 27, 2004, the Second

             Amendment dated March 9, 2004, the Third Amendment dated April 6,

             2004, the Fourth Amendment dated August 11, 2004, the Fifth

             Amendment dated March 2, 2005, and as further amended after the

             Closing Date in accordance with this Agreement. PVOG is the

             successor to Penn Virginia Oil and Gas Corporation under the

             Participation Agreement.

 

             "Percentage Outstanding" shall mean, for any fiscal quarter (or

             lesser time period as applicable), the fraction (expressed as a

             percentage) obtained by dividing (x) the average unpaid and

             outstanding principal balance of the Advances under the Note plus

             the undisbursed amount of all standby letters of credit during such

             quarter, by (y) the average of the Commitment Limit for such

             quarter.

 

             "Periodic Reduction" shall have the meaning provided in Subsection

             2.4(c).

 

             "Permitted Hedge Agreement" shall mean any Hedge Agreement related

             to either (i) Borrower's production and sale of its hydrocarbons or

             (ii) interest rates pertaining to the Loan, in each case which the

              Borrower enters into (x) as part of its normal business operations

             (recognizing that Borrower has not done so in the past) with the

             purpose and effect of fixing prices or hedging variable interest

             rates as a risk-management strategy, and not for purposes of

             speculation and not intended primarily as a borrowing of funds, and

             (y) with any Person as counterparty reasonably acceptable to the

             Lender.

 

             "Person" shall mean any individual, corporation, limited liability

             company, partnership, joint venture, association, joint stock

             company, trust, unincorporated organization, government or any

             agency or political subdivision thereof, or any other form of

             entity.

                                      -10-

<PAGE>

             "Plan" shall mean any plan subject to Title IV of ERISA and

             maintained by the Borrower, or any such plan to which the Borrower

              is required to contribute on behalf of its employees.

 

             "Prime Rate" shall mean, at any particular date, the prime or base

             rate as reflected in The Wall Street Journal (or if such rate is

             not published or is no longer available, such other index

             satisfactory to Lender). Without notice to the Borrower, the Prime

             Rate shall change automatically from time to time as and in the

             amount by which said index rate shall fluctuate, with each such

             change in the Prime Rate to be effective as of the date of each

             change in such index rate. The Wall Street Journal index rate is a

             reference rate and does not necessarily represent the lowest or

              best rate actually charged to any customer by Lender (or by such

             institutions comprising said index).

 

             "PVOG" shall mean Penn Virginia Oil & Gas, L.P., a wholly owned

             subsidiary of Penn Virginia Corporation.

 

              "PVOG Production Payment" shall mean the dollar denominated

             production payment purchased by PVOG from the Borrower in the

             original amount of $2,233,435.76, repayable solely from 75% of the

             Borrower's share of production revenues from four certain wells,

             without interest. On the Closing Date the balance owed is

             $1,835,847.39.

 

             "Subsidiary" shall mean each corporation of which the Borrower

             owns, directly or indirectly, fifty percent or more of the

             outstanding capital stock, and each partnership, limited liability

             company or other Person of which the Borrower owns, directly or

             indirectly, fifty percent (50%) or more of the outstanding

             partnership, membership or other ownership or voting interest.

 

     Section 1.3    Accounting Terms. Unless otherwise specified herein, all

accounting terms used herein shall be interpreted, all accounting determinations

hereunder shall be made, and all financial statements required to be delivered

hereunder shall be prepared in accordance with generally accepted accounting

principles as in effect from time to time (except for changes in accounting

principles or practice approved by independent certified public accountants for

the Borrower) on a basis consistent with the most recent financial statements of

the Borrower.

 

                                      -11-

<PAGE>

                                    ARTICLE 2

 

                                    THE CREDIT

 

     Section 2.1    Line of Credit and Letters of Credit. (a) Line of Credit.

Subject to and upon the terms and conditions contained in this Agreement, and

relying on the representations and warranties contained in this Agreement, on

the Closing Date the Lender agrees to make a revolving line of credit available

to the Borrower, including the face amount of all standby letters of credit

permitted to be issued under this Agreement, in the maximum aggregate principal

amount equal to the Commitment Limit. The line of credit is represented by a

promissory note in the principal amount of fifty million ($50,000,000.00)

dollars, payable to the order of the Lender. Principal and all accrued and

unpaid interest on the line of credit shall be payable in full on the Maturity

Date, after which no further Advances will be made. Payments may be debited from

the Borrower's accounts with the Lender as provided in this Agreement or other

written agreements between Borrower and Lender.

 

     (b)    Interest. The interest rate applicable to each Loan Advance beginning

on the date such Advance is made shall be either (i) the Base Rate, adjusted

daily, or (ii) the LIBO Rate, adjusted on the first day of each LIBO Rate

Interest Period and remaining fixed for the duration of the LIBO Rate Interest

Period, selected at the Borrower's option by written notice to Lender in

accordance with the terms hereof. Effective on the first day following the end

of any LIBO Rate Interest Period, the Borrower may from time to time change the

interest rate which is to apply to the Advances or a portion thereof (including

any yet to be made Advance which is made on the effective date of the interest

rate change) by notifying the Lender of the Borrower's desire to change the

interest rate not less than three (3) Business Days prior to the date on which

such change shall be effective. No more than four (4) LIBO Rate tranches and one

Base Rate tranche (all Base Rate Advances constituting one tranche) shall be

permitted for the Note at any one time. In the absence of any timely specific

interest rate election by the Borrower (as provided above in this Subsection

2.1(b) and in the definition of LIBO Rate), unless otherwise agreed by the

Lender, an Advance (if outstanding as a LIBO Rate Advance) will be automatically

converted into a Base Rate Advance on the last day of the then current LIBO Rate

Interest Period for such Advance or (if not then outstanding) an Advance shall

bear interest at the Base Rate. The Borrower further will comply with the

provisions of Addendum I hereto, relating to the LIBO Rate, which is an integral

part of this Agreement. Interest on the Note shall be payable (x) on Advances

bearing interest at the Base Rate monthly in arrears on the last day of each

month, and (y) on LIBO Rate Advances on the last day of each applicable LIBO

Rate Interest Period for each LIBO Rate Advance. Interest on (i) Base Rate

Advances and all other Indebtedness except for LIBO Rate Advances shall be

calculated on the basis of a 365 (or in a leap year 366) day year and the actual

number of days elapsed, and (ii) on LIBO Rate Advances shall be calculated on

the basis of a 360-day year by applying the ratio of the annual interest rate

over a year of 360 days, times the applicable principal balance, times the

actual number of days such applicable principal balance is outstanding. Payments

may be debited from the Borrower's

 

                                      -12-

<PAGE>

accounts with the Lender as provided in this Agreement or other written

agreements between Borrower and Lender.

 

     (c)    Draw Requests. In accordance with the provisions in this Section, the

Lender will make Advances to the Borrower from time to time on any Business Day

on and after the Closing Date until and including the last Business Day before

the Maturity Date in such amounts as the Borrower may request, up to the

Commitment Limit, and the Borrower may make borrowings, repayments and

reborrowings in respect thereof. Requests for Advances must be made by written

notice from the Borrower sent to the Lender by mail, courier or facsimile in

accordance with Section 9.1, specifying the amount of the Advance, subject to

Section 2.10. A request shall be fully authorized by the Borrower if made by any

one of the Persons named in the Note or otherwise designated by the Borrower as

an authorized person in accordance with resolutions of the Board of Directors of

the Borrower certified to the Lender. The Lender may rely fully and completely

upon the authority of the signatory of such request or confirmation unless such

authority is terminated by written notice to the Lender, and any such

termination shall be effective only prospectively. The request for any Advance

by the Borrower shall constitute a certification by the Borrower that all of the

representations and warranties contained in Article 4 (other than those

representations and warranties, if any, that are by their specific terms limited

in application to a specific date) are true and correct as of the date of such

request and also as of the date of the Advance.

 

     (d) Timing After the Lender's receipt of an authorized request for Advance,

the Lender will make such Advance for the benefit of the Borrower in same day

funds as provided below upon fulfillment of the applicable conditions set forth

in this Agreement. Requests for Advances at the Base Rate shall be made on

written notice from the Borrower to the Lender, received by the Lender no later

than 11:00 a.m. (Central Time) on the first Business Day before such Base Rate

Advance specifying the amount thereof. Request for Advances at the LIBO Rate

shall be made on written notice from the Borrower to the Lender received by the

Lender no later than 11:00 a.m. (Central Time) on the third (3rd) Business Day

before such LIBO Rate Advance, specifying the amount thereof (including the

amount of each tranche, if more than one) and the LIBO Rate Interest Period (or

Interest Periods, if more than one tranche). Each such written notice by the

Borrower shall be irrevocable by the Borrower. Not later than 3:00 p.m. (Central

Time) on the date properly and timely requested for the Advance and upon

fulfillment of the applicable conditions set forth in Article 7 of this

Agreement, the Lender will make such Advance available to the Borrower in same

day funds in the disbursement deposit account maintained by the Borrower with

the Lender. The Borrower irrevocably agrees in favor of the Lender that the

deposit of the proceeds of any Advance in any account of Borrower with the

Lender shall be deemed prima facie evidence of the Borrower's Indebtedness to

the Lender under the Loan.

 

     (e)    Minimum. Notwithstanding anything in this Agreement to the contrary,

the aggregate principal amount of all LIBO Rate Advances having the same LIBO

Rate Interest Period shall be at least equal to $100,000.00; and if any LIBO

Rate tranche would otherwise be

 

                                      -13-

<PAGE>

in a lesser principal amount for any period, such tranche shall bear interest at

the Base Rate during such period.

 

     (f)    Letters of Credit. As a portion of the line of credit availability

(and subject to the Commitment Limit and the other terms and conditions of this

Agreement), the Lender will issue standby letters of credit for the account of

the Borrower. The expiration of such letters of credit shall not extend beyond

the Maturity Date of the line of credit. The fee for a standby letter of credit

shall be at the per annum rate equal to the Applicable LIBO Rate Margin then in

effect on the face amount of the letter of credit for the period from the letter

of credit's issuance to the expiration date, paid quarterly in arrears on each

June 30, September 30, December 31 and March 31 (and on the Maturity Date), plus

additional amounts customarily charged by the Lender for the issuance and

processing of letters of credit. The Borrower shall submit an application for

each letter of credit on the Lender's then standard form. Such application shall

be a Collateral Document under this Agreement, supplemental to and not in

replacement of this Agreement and the other Collateral Documents. Such letters

of credit will be documented on the Lender's standard form. No letter of credit

will be issued if the face amount thereof plus the aggregate of all Advances

then outstanding plus the undisbursed amount of all standby letters of credit

then outstanding would exceed the Commitment Amount. Payment by the Lender of a

draw on a standby letter of credit issued for the account of Borrower shall be

an Advance as part of the Loan bearing interest from the date of such draw,

notwithstanding the Commitment Limit.

 

     Section 2.2    Business Days. If the date for any payment, prepayment,

Periodic Reduction, or fee payment hereunder falls on a day which is not a

Business Day, then for all purposes of this Agreement (unless otherwise provided

herein) the same shall be deemed to have fallen on the next following Business

Day, and such extension of time shall in such case be included in the

computation of payments of interest.

 

     Section 2.3    Payments. The Borrower shall make each payment hereunder and

under the Note and any Collateral Documents in lawful money of the United States

of America in same day funds to the Lender at its main office in New Orleans,

Louisiana, not later than 11:00 a.m. (Central Time) on the day when due, or such

other place in the United States as designated in writing by the Lender. The

Borrower hereby authorizes the Lender to charge from time to time against the

Borrower's accounts with the Lender any amount which is then so due, and

acknowledges that such accounts will be established for that purpose (among

other purposes) under Section 5.16 and Section 5.17 and may be so used even in

the absence of an Event of Default.

 

     Section 2.4    Prepayment. (a) Voluntary. The Borrower may prepay the Loan

in full or in part at any time without payment of premium or penalty; provided,

however, that (i) the Borrower shall give the Lender notice of each such

prepayment of all or any portion of a LIBO Rate Advance no less than three (3)

Business Days prior to prepayment, (ii) any LIBO Rate Advance may be prepaid

only on the last day of the Interest Period for such LIBO Rate Advance, unless

the Borrower includes payment of amounts, if any, required to be paid pursuant

to paragraph 6 of Addendum I, (iii) the Borrower shall give the Lender notice of

each such

                                      -14-

<PAGE>

prepayment of all or any portion of a Base Rate Advance no less than one (1)

Business Day prior to prepayment, (iv) the Borrower shall pay all accrued and

unpaid interest on the amounts prepaid, and (v) no such prepayment shall serve

to postpone the repayment when due of any other Indebtedness.

 

     (b)    Mandatory. The Lender shall notify the Borrower of the result of each

Borrowing Base redetermination in accordance herewith by the Lender. If at any

time the Lender determines that a Loan Excess exists, then within ninety (90)

days of receipt by the Borrower of notice of such Loan Excess the Borrower shall

(x) prepay the Advances (together with accrued interest on the amount to be

prepaid to the date of payment) in an amount sufficient to reduce the Advances

plus the face amount of all standby letters of credit then outstanding to the

then Commitment Limit, and/or (y) execute, deliver and record or cause to be

executed and delivered such additional Collateral Documents pursuant to Section

3.1, sufficient to induce the Lender to make an increased redetermination of the

Borrowing Base to an amount not less than the outstanding principal balance of

the Advances plus the face amount of all standby letters of credit then

outstanding. The Borrower specifically acknowledges that no additional grace

period (beyond the period stated in the preceding sentence) is applicable under

this Agreement to any failure to make such mandatory prepayment before such

failure is an Event of Default hereunder.

 

     (c)    Periodic Reductions in Borrowing Base. As part of a Borrowing Base

redetermination, the Lender may include as part of the Borrowing Base an

automatic reduction schedule, monthly or quarterly, in an amount determined by

the Lender in its sole discretion, but based upon the Lender's customary

standards and practices from time to time in effect with respect to secured oil

and gas property lines of credit. Such automatic reductions, each in the amounts

so determined and so scheduled (each a "Periodic Reduction"), shall cause an

automatic reduction to the Borrowing Base on the dates set in the schedule so

determined by the Lender, which shall be the last day of a month or quarter.

Each reduction to the Borrowing Base by a Periodic Reduction shall be permanent,

subject to any increase agreed to as part of a subsequent Borrowing Base

redetermination. As part of the notification by the Lender to the Borrower of

the result of a Borrowing Base redetermination, the Lender shall notify the

Borrower of the terms and schedule of any Periodic Reductions included therein.

Notwithstanding the foregoing provisions of Subsection 2.4(b), the Borrower

shall pay the amount of any Loan Excess that results from the application of

each Periodic Reduction to the Borrowing Base on the day that such Periodic

Reduction takes effect. The Borrowers specifically acknowledges that the ninety

(90) day grace period set forth in Subsection 2.4(b) pertaining to a Loan Excess

resulting from a Borrowing Base redetermination is not applicable to any failure

to make such mandatory prepayment triggered by a Loan Excess due to a Periodic

Reduction as provided in this Subsection 2.4(c). However, any changes in the

Periodic Reduction schedule by the Lender shall not increase the amount of a

Periodic Reduction which is to take effect sooner than ninety (90) days after

the effective date of that Borrowing Base redetermination which includes such

change in the Periodic Reduction schedule as a part thereof. On the Closing Date

there is no Periodic Reduction in effect.

 

                                      -15-

<PAGE>

     Section 2.5    Fees. (a) The Borrower shall pay the Lender on the Closing

Date an upfront commitment fee in the amount specified in the Commitment Letter.

 

     (b)    The Borrower shall pay the Lender an unused facility fee quarterly in

arrears beginning June 30, 2005 (for the period from the Closing Date through

such date) and on the last day of each succeeding September, December, March and

June and on the Maturity Date of the Loan, in an amount equal to one-quarter of

one percent (0.25%) per annum on (x) the Commitment Limit less (y) the average

outstanding principal balance of the Advances under the Note plus the

undisbursed amount of all standby letters of credit then outstanding during such

quarter (or lesser time period, as applicable.)

 

     (c)    Letter of Credit fees are owed and paid as provided in Subsection

2.1(f).

 

     (d)    The Borrower shall pay the Lender a Borrowing Base redetermination

fee in the amount specified in the Commitment Letter for each unscheduled

redetermination requested by the Borrower at the time of such request.

 

     (e)    The Borrower acknowledges that any subsequent increases in the Amount

after the Closing Date (which will require the Borrower's and the Lender's

mutual agreement) shall be subject to the payment of an appropriate upfront

commitment fee, not to exceed one-quarter of one percent (0.25%), determined by

the Lender on the incremental increased portion of the new Amount.

 

     Section 2.6    Use of Proceeds. The Borrower shall use the proceeds of the

Loan in connection with the acquisition and development of oil and gas

properties as well as general corporate and working capital purposes (including

letters of credit hereunder).

 

     Section 2.7    Default Rate. Anything in the Note or in any other agreement,

document or instrument to the contrary notwithstanding, effective upon an Event

of Default or upon the Maturity Date, the Lender shall have the right to

prospectively increase the interest rate under the Note to the Default Rate

until the Note is paid in full. Upon the acceleration of the principal amount of

the Indebtedness represented by the Note, the accelerated principal balance of

the Loan shall bear interest from the date of acceleration up to the actual

payment (as well after as before judgment) at the Default Rate. All such

interest at the Default Rate shall be payable upon demand.

 

     Section 2.8    Additional Regulatory Costs. If any governmental authority,

central bank, or other comparable authority shall at any time impose, modify or

deem applicable any reserve (including without limitation any imposed by the

Board of Governors of the Federal Reserve System), special deposit or similar

requirement against assets of, deposits with or for the account of, or credit

extended by, the Lender, or shall impose on the Lender any other condition

affecting an Advance or the obligation of the Lender to make an Advance; and the

result of any of the foregoing is to increase the cost to the Lender of making

or maintaining the Advances to the Borrower, or to reduce the amount of any sum

received or receivable by the Lender under

 

                                      -16-

<PAGE>

this Agreement or under the Note by an amount deemed by the Lender to be

material, then, within sixty (60) days after demand by the Lender, the Borrower

shall pay to the Lender such additional amount or amounts as will compensate the

Lender for such increased cost or reduction. The Lender will promptly notify the

Borrower of any event of which it has knowledge, occurring after the date

hereof, which will entitle the Lender to compensation pursuant to this Section.

A certificate of the Lender claiming compensation under this Section and setting

forth the additional amount or amounts to be paid to it hereunder shall be

conclusive in the absence of manifest error.

 

     Section 2.9    Hedge Agreement Quotes. Upon the Borrower's request from time

to time, the Lender will provide to Borrower interest rate swap quotes for

interest rate Hedge Agreements pertaining to the Loan, not to exceed the Amount

or the Maturity Date.

 

     Section 2.10   Telephonic or Electronic Notice to Lender. Without in any way

limiting the obligation of the Borrower to confirm in writing any telephonic

notice of borrowing or the like given to the Lender, the Lender may act without

liability upon the basis of telephonic notice of such request believed by the

Lender in good faith to be from an authorized officer of the Borrower prior to

receipt of written confirmation. In each such case, the Lender's records with

regard to any such telephone notice shall be presumptive correct, absent

manifest error. Additionally, the Borrower may transmit notices of borrowing or

letter of credit requests or the like by electronic communication, if

arrangements for doing so have been approved by the Lender.

 

     Section 2.11   Usury Recapture.

 

     (i)    If, with respect to the Lender, the effective rate of interest

contracted for under this Agreement, the Note and the Collateral Documents (the

"Loan Documents"), including the stated rates of interest and fees contracted

for hereunder and any other amounts contracted for under the Loan Documents

which are deemed to be interest, at any time exceeds the Maximum Rate, then the

outstanding principal amount of the loans made by the Lender hereunder shall

bear interest at a rate which would make the effective rate of interest for the

Lender under the Loan Documents equal the Maximum Rate until the difference

between the amounts which would have been due at the stated rates and the

amounts which were due at the Maximum Rate (the "Lost Interest") has been

recaptured by the Lender.

 

     (ii)   If, when the loans made hereunder are repaid in full, the Lost

Interest has not been fully recaptured by the Lender pursuant to the preceding

paragraph, then, to the extent permitted by law, for the loans made hereunder by

the Lender the interest rates charged under Section 2.1 hereunder shall be

retroactively increased such that the effective rate of interest under the Loan

Documents was at the Maximum Rate since the effectiveness of this Agreement to

the extent necessary to recapture the Lost Interest not recaptured pursuant to

the preceding sentence and, to the extent allowed by law, the Borrower shall pay

to the Lender the amount of the Lost Interest remaining to be recaptured by the

Lender.

                                      -17-

<PAGE>

     (iii) NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND

THE LOAN DOCUMENTS TO THE CONTRARY, IT IS THE INTENTION OF THE LENDER AND THE

BORROWER TO CONFORM STRICTLY TO ANY APPLICABLE USURY LAWS. ACCORDINGLY, IF

LENDER CONTRACTS FOR, CHARGES, OR RECEIVES (INCLUDING WITHOUT LIMITATION

FOLLOWING ACCELERATION OR PREPAYMENT) ANY CONSIDERATION WHICH CONSTITUTES

INTEREST IN EXCESS OF THE MAXIMUM RATE, THEN ANY SUCH EXCESS SHALL BE CANCELED

AUTOMATICALLY WITHOUT THE NECESSITY OF THE EXECUTION OF ANY NEW DOCUMENTAND, IF

PREVIOUSLY PAID, SHALL AT LENDER'S OPTION BE APPLIED TO THE OUTSTANDING AMOUNT

OF THE LOAN MADE HEREUNDER BY LENDER OR BE REFUNDED TO THE BORROWER.

 

     (iv)   All sums paid or agreed to be paid to Lender for the use, forbearance

or detention of the Indebtedness shall, to the extent permitted by applicable

law, be amortized, prorated, allocated and spread throughout the full term of

the Indebtedness until payment in full so that the rate or amount of interest on

account of the Indebtedness does not exceed the applicable usury limit allowed

by applicable law through the full term hereof.

 

     Section 2.12   Business Loans. The Borrower warrants and represents that the

Loan and Advances evidenced by the Note are and shall be for business,

commercial, investment, or other similar purposes and not primarily for

personal, family, household, or agricultural use, as such terms are used in

Chapter One ("Chapter One") of the Texas Credit Code. At all such times, if any,

as Chapter One shall establish a Maximum Rate, the Maximum Rate shall be the

"indicated rate ceiling" (as such term is defined in Chapter One) from time to

time in effect.

 

                                    ARTICLE 3

 

                          SECURITY FOR THE OBLIGATIONS

 

     Section 3.1    Security. The Loan shall be primarily secured by the

following:

 

     (i)    Texas Deed of Trust, Mortgage, Assignment, Security Agreement and

Financing Statement, executed by the Borrower, granting a first priority

mortgage, security interest and assignment of production in the Borrower's

interests in various oil and gas properties in North Carthage Field in Harrison

and Panola Counties, State of Texas (and after the Closing Date in future

locations as Borrower and Lender may agree from time to time) and collateral

relating thereto, together with UCC Financing Statements pertaining thereto.

 

     (ii)   Certain deposit accounts (and funds therein) maintained with the

Lender.

 

     (iii) Guaranty Agreement executed by Endeavor.

 

                                       -18-

<PAGE>

     (iv)   Security Agreement executed by the Borrower, granting a first

priority security interest in 100% of the outstanding shares of Endeavor,

together with a UCC Financing Statement pertaining thereto.

 

     (v)    Collateral documents executed by Endeavor, granting a first priority

lien and security interest in its gas gathering system, together with a UCC

Financing Statement pertaining thereto.

 

     (vi)   Liens assigned by IBC Bank to the Lender.

 

      (vii) Such additional deeds of trust, mortgage and other collateral

documents executed after the Closing Date encumbering such properties as the

Borrower and the Lender may agree from time to time.

 

                                    ARTICLE 4

 

                          REPRESENTATIONS AND WARRANTIES

 

     In order to induce the Lender to enter into this Agreement, the Borrower

represents and warrants to the Lender (which representations and warranties will

survive the extensions of credit under this Agreement) that:

 

     Section 4.1    Existence. (a) The Borrower is a corporation duly organized,

legally existing, duly registered and in good standing under the laws of its

state of formation (Oklahoma) and is duly qualified in all other jurisdictions

wherein the property it owns or the business it transacts make such

qualification necessary and the failure to so qualify would have a material

adverse effect on its financial condition, business or operations.

 

     (b)    Each of Endeavor and, until the merger into Borrower, Expedition is a

corporation duly organized, legally existing and in good standing under the laws

of the state of incorporation (Oklahoma) and is duly qualified as a foreign

corporation in all other jurisdictions wherein the property it owns or the

business it transacts makes such qualification necessary and the failure to so

qualify would have a material adverse effect on its financial condition,

business or operations.

 

     Section 4.2    Names, Numbers and Offices of Borrower. (a) The Borrower is

not doing business under any name (including trade names) other than the exact

name of the Borrower set forth above, and has never done business previously

under any other name. The Borrower's Subsidiaries do business only under their

exact names as provided in this Agreement.

 

     (b)    Each Company's location of its state of organization are accurately

set forth in the Collateral Documents. Each Company's chief executive office has

been continuously located in the State of Oklahoma on and after its respective

formation.

                                      -19-

<PAGE>

     Section 4.3    Power and Authorization. Each Company is duly authorized and

empowered to execute, deliver and perform this Agreement, the Note and the

Collateral Documents executed by it. All corporate action on the part of each

Company (including all shareholder action) requisite for the due creation and

execution of the Loan and this Agreement, the Note and Collateral Documents have

been duly and effectively taken.

 

     Section 4.4    Review of Documents; Binding Obligations. Each Company has

reviewed this Agreement, the Note and the Collateral Documents with counsel for

the Companies and has had the opportunity to discuss the provisions thereof with

the Lender prior to execution. This Agreement, the Note and the Collateral

Documents constitute valid and binding obligations of the Companies which are

party thereto, enforceable in accordance with their terms (except that

enforcement may be subject to any applicable bankruptcy, insolvency or similar

laws generally affecting the enforcement of creditors' rights). Each Company

further represents and warrants that it is in compliance with all of the

affirmative and negative covenants contained in this Agreement and the

Collateral Documents.

 

     Section 4.5    No Legal Bar or Resultant Lien. This Agreement, the Note and

the Collateral Documents do not and will not violate any provisions of any

Company's articles of incorporation or bylaws, will not violate any contract,

agreement, law, regulation, order, injunction, judgment, decree or writ to which

any Company is subject, and will not result in the creation or imposition of any

Lien upon any property of any Company other than as contemplated by this

Agreement.

 

     Section 4.6    No Consent. The Companies' execution, delivery and

performance of this Agreement, the Note and the Collateral Documents do not

require the consent or approval of any other Person, including without

limitation any regulatory authority or governmental body of the United States or

any state thereof or any political subdivision of the United States or any state

thereof.

 

     Section 4.7    Financial Condition. All financial statements of the Borrower

and any affiliates delivered to Lender fairly and accurately present the

financial condition of the parties for whom such statements are submitted and

the financial statements of the Borrower and any affiliates have been prepared

in accordance with generally accepted accounting principles consistently applied

throughout the periods involved, and there are no contingent liabilities not

disclosed thereby which would adversely affect the financial condition of

Borrower or any affiliates. Since the close of the period covered by the latest

financial statement delivered to Lender with respect to Borrower and any

affiliates, there has been no material adverse change in the assets,

liabilities, or financial condition of Borrower or any affiliates. No event has

occurred (including, without limitation, any litigation or administrative

proceedings) and no condition exists or, to the knowledge of Borrower, is

threatened, which (i) might render Borrower unable to perform its obligations

under this Agreement, the Note or the Collateral Documents, or (ii) would

constitute a Default hereunder, or (iii) might adversely affect the financial

condition of the Borrower or any affiliates or the validity or priority of the

Lien of the Collateral Documents. Each Company is solvent and has the ability to

pay its Debts when and as due.

 

                                       -20-

<PAGE>

     Section 4.8    Taxes and Governmental Charges. Each Company has filed all

tax returns and reports required to be filed and have paid all taxes,

assessments, fees and other governmental charges levied upon it or upon its

property or income which are due and payable, including interest and penalties,

or is contesting the same in good faith by appropriate proceedings and has

provided adequate reserves for the payment thereof.

 

     Section 4.9    Defaults. The Companies are not in default under any

indenture, mortgage, deed of trust, agreement or other instrument to which such

Company is a party or by which it or any of its property is bound.

 

     Section 4.10   Liabilities and Litigation. (a) Except for liabilities

incurred in the normal course of business, the Borrower and its Subsidiaries

have no material (individually or in the aggregate) liabilities, direct or

contingent, except as disclosed in the most recent financial statements

furnished to the Lender. Except as disclosed in the most recent financial

statements furnished to the Lender, there is no litigation, legal or

administrative proceeding, investigation or other action of any nature pending

or, to the knowledge of Borrower, threatened against or affecting any Company

which involves the possibility of any judgment or liability not fully covered by

insurance which may materially and adversely affect the business or the property

of the Borrower or such Subsidiary or its ability to carry on business as now

conducted.

 

     (b)    Without limiting the foregoing, on the Closing Date there is no

litigation, legal or administrative proceeding, investigation or other action

pending or, to the knowledge of Borrower, threatened against or affecting the

Borrower involving non-compliance by the Borrower or its properties with any

Applicable Environmental Laws (as defined in Section 4.17).

 

     (c)    Without limiting the foregoing, there is no litigation, legal or

administrative proceeding, investigation or other action pending, or to the

knowledge of Borrower, threatened against or affecting the Borrower involving

allegations that Borrower has failed to adequately develop its properties.

 

     Section 4.11   Federal Regulations. None of the Loan proceeds will be used

for the purpose of, and the Borrower is not engaged in the business of extending

credit for the purpose of, purchasing or carrying any "margin stock" as defined

in Regulation U of the Board of Governors of the Federal Reserve System (12

C.F.R. Part 221), or for the purpose of reducing or retiring any indebtedness

which was originally incurred to purchase or carry a margin stock or for any

other purpose which might constitute this transaction a "purpose credit" within

the meaning of said Regulation U. The Borrower is not engaged principally, or as

one of the Borrower's important activities, in the business of extending credit

for the purpose of purchasing or carrying margin stocks. Neither the Borrower

nor any Person acting on behalf of the Borrower has taken or will take any

action which might cause this Agreement to violate Regulation U or any other

regulation of the Board of Governors of the Federal Reserve System or to violate

the Securities Exchange Act of 1934 or any rule or regulation thereunder, in

each case as now in effect or as the same may hereinafter be in effect. No part

of the proceeds of the

                                      -21-

<PAGE>

Loan will be used, directly or indirectly, to fund a personal loan to or for the

benefit of a director or executive officer of the Borrower or any Subsidiary.

 

     Section 4.12   Utility or Investment Company. No Company is engaged in the

generation, transmission, or distribution and sale of electric power; operation

of a local distribution system for the sale of natural or other gas for

domestic, commercial, industrial, or other use; ownership or operation of a

pipeline for the transmission or sale of natural or other gas, crude oil or

petroleum products (except for ownership of interests in gathering line

systems); provision of telephone or telegraph service to others; production,

transmission, or distribution and sale of steam or water; operation of a

railroad; or provision of sewer service to others; or any other activity which

cause such Company to be subject to regulation as a utility. The Borrower is not

an "investment company" within the meaning of the Investment Company Act of

l940, as amended.

 

     Section 4.13   Compliance with the Law. Each Company (i) is not in violation

of any law, judgment, decree, order, ordinance, or governmental rule or

regulation to which such Company or any of its property is subject; and (ii) has

not failed to obtain any license, permit, franchise or other governmental

authorization necessary to the ownership of any of its property or the conduct

of its business; in each case, which violation or failure could reasonably be

anticipated to materially and adversely affect the business, prospects, profits,

property or condition (financial or otherwise) of such Company.

 

     Section 4.14   ERISA. The Borrower is in compliance in all material respects

with the applicable provisions of ERISA, and no "reportable event", as such term

is defined in Section 4043 of ERISA, has occurred with respect to any Plan of

the Borrower.

 

     Section 4.15   Other Information. All information, reports, papers and data

given to the Lender by the Borrower pursuant to this Agreement and in connection

with the Borrower's application for the Loan and the Lender's commitment letter

are accurate and correct in all material respects, and together constitute a

complete and accurate presentation of all facts material thereto. All financial

projections given to the Lender were prepared in good faith based on facts and

circumstances existing at the time of preparation and were believed by the

Borrower to be accurate in all material respects. No information, exhibit or

report furnished by the Borrower to the Lender in connection with the

negotiation of this Agreement contains any material misstatement of fact or

fails to state a material fact or any fact necessary to make the statement

contained therein not materially misleading.

 

     Section 4.16   Collateral. (a) The Borrower has good and marketable title to

the Collateral, and the Collateral Documents constitute the legal, valid and

perfected Liens on the Collateral, free of all Liens except those permitted by

this Agreement in Section 6.2.

 

     (b)    The Borrower has, with respect to the Collateral, the working

interests and net revenue interests therein as reported to the Lender in

connection with the negotiation of this Agreement. Without limiting the

preceding sentence, all of the proved reserves (whether

 

                                      -22-

<PAGE>

producing or not, and whether proved developed or proved undeveloped) included

in the reserve report covering the Borrower's (and before the Closing Date,

Expedition's) properties in Harrison and Panola Counties, Texas most recently

delivered to the Lender (on the Closing Date, the inhouse update of the January

1, 2005, third party engineering report prepared by Cawley Gillespie &

Associates dated March 2, 2005, effective as of March 1, 2005) are owned as so

reported, are encumbered Collateral in favor of the Lender, and are properly

described in the Collateral Documents. Except as otherwise specifically

disclosed to the Lender in writing with respect to any particular part of the

Borrower's properties, (i) the Borrower is not obligated, whether by virtue of

any payment under any contract providing for the sale by the Borrower of

hydrocarbons which contains a "take or pay" clause or under any similar

arrangement or by virtue of any production payment or otherwise, to deliver

hydrocarbons produced or to be produced from the Borrower's properties at any

time after the Closing Date without then or thereafter receiving full payment

therefor, except for Permitted Hedge Agreements; (ii) none of the Borrower's

properties is subject to any contractual or other arrangement whereby payment

for production is to be deferred for a substantial period after the month in

which such production is delivered; (iii) none of the Borrower's properties is

subject to an arrangement or agreement under which any purchaser or other Person

is currently entitled to "make-up" or otherwise receive material deliveries of

hydrocarbons at any time after the Closing Date without paying at such time the

full contract price therefor; and (iv) no Person is currently entitled to

receive any material portion of the interest of the Borrower in any hydrocarbons

or to receive cash or other payments from the Borrower to "balance" any

disproportionate allocation of hydrocarbons under any operating agreement, cash

balancing and storage agreement, gas processing or dehydration agreement, or

other similar agreements. For purposes of this paragraph, "material" shall mean

two hundred ($200,000.00) dollars (or more) or an amount of property with an

equivalent value.

 

     (c)    None of the Collateral is subject to any calls on production of

hydrocarbons or any gathering or transportation dedications or commitments of

any kind.

 

     (d)    Endeavor has good and marketable title to the gas gathering system

servicing the Collateral in East Texas.

 

     (e)    On the Closing Date all of the natural gas produced by the Borrower

from (and as) Collateral in East Texas for which the Borrower is the operator is

sold by the Borrower to Endeavor at the wellhead.

 

     Section 4.17   Environmental Matters. No friable asbestos, or any substance

containing asbestos deemed hazardous by federal or state regulations on the date

of this Agreement, has been installed in any Collateral constituting real

property. Such real property and the Companies are not in violation of or

subject to any existing, pending, or threatened investigation or inquiry by any

governmental authority or to any remedial obligations under any applicable laws

pertaining to health or the environment (hereinafter sometimes collectively

called "Applicable Environmental Laws"), including without limitation the

Comprehensive Environmental Response, Compensation, and Liability Act of 1980,

as amended by the Superfund Amendments and Reauthorization Act of 1986 (as

amended, hereinafter called

 

                                      -23-

<PAGE>

"CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the

Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980,

and the Hazardous and Solid Waste Amendments of 1984 (as amended, hereinafter

called "RCRA"), and this representation and warranty would continue to be true

and correct following disclosure to the applicable governmental authorities of

all relevant facts, conditions and circumstances, if any, pertaining to such

property and known to the Borrower. No hazardous substances or solid wastes have

been disposed of or otherwise released on or to such property. The terms

"hazardous substance" and "release" as used in this Agreement shall have the

meanings specified in CERCLA, and the terms "solid waste" and "disposa