10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2008

or

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-30234

ENERJEX RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Nevada		88-0422242
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7300 W. 110th, 7th Floor
Overland Park, Kansas	66210
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (913) 693-4600

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes     x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

o Yes     x No

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o    No

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                                                                                                                                                                                               x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $12,458,798.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 22,214,166 shares of common stock, $0.001 par value, outstanding on June 24, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

NONE.

ENERJEX RESOURCES, INC.

FORM 10-K

TABLE OF CONTENTS

		Page
PART I		3
	ITEMS 1 AND 2.BUSINESS AND PROPERTIES	3
	ITEM 1A.RISK FACTORS	27
	ITEM 1B.UNRESOLVED STAFF COMMENTS	45
	ITEM 3.LEGAL PROCEEDINGS	45
	ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	45
PART II		45
	ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF  EQUITY SECURITIES	45
	ITEM 6.SELECTED FINANCIAL DATA	49
	ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	49
	ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	62
	ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	62
	ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	63
	ITEM 9A(T).CONTROLS AND PROCEDURES	63
	ITEM 9B.OTHER INFORMATION	64
Part III		64
	ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	64
	ITEM 11.EXECUTIVE COMPENSATION	69
	ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER        MATTERS	71
	ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	73
	ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES	73
Part IV		76
	ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES	76

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, contained in this report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this report, which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. The factors impacting these risks and uncertainties include, but are not limited to:

• estimated quantities and quality of oil and natural gas reserves;

• fluctuations in the price of oil and natural gas;

• inability to efficiently manage our operations;

• the inability of management to effectively implement our strategies and business plans;

• potential default under our secured obligations or material debt agreements;

• approval of certain parts of our operations by state regulators;

• inability to hire or retain sufficient qualified operating field personnel;

• inability to attract and obtain additional development capital;

• increases in interest rates or our cost of borrowing;

• deterioration in general or regional (especially Eastern Kansas) economic conditions;

• adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

• the occurrence of natural disasters, unforeseen weather conditions, or other events or circumstances that could impact our operations or could impact the operations of companies or contractors we depend upon in our operations;

• inability to acquire mineral leases at a favorable economic value that will allow us to expand our development efforts;

• inability to achieve future sales levels or other operating results;

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• adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; and

• changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate.

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this report to conform our statements to actual results or changed expectations.

All references in this report to “we,” “us,” “our,” “company” and “EnerJex” refer to EnerJex Resources, Inc. and our wholly-owned operating subsidiaries, EnerJex Kansas, Inc. and DD Energy, Inc., unless the context requires otherwise. We report our financial information on the basis of a March 31 fiscal year end. We have provided definitions for the oil and natural gas industry terms used in this report in the “Glossary” beginning on page 22 of this report.

AVAILABLE INFORMATION

We file annual, quarterly and other reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC’s website at www.sec.gov or on our website at www.enerjexresources.com. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to of a written request to us at EnerJex Resources, Inc., 7300 W. 110^th, 7^th Floor, Overland Park, Kansas 66210.

INDUSTRY AND MARKET DATA

The market data and certain other statistical information used throughout this report are based on independent industry publications, government publications, reports by market research firms or other published independent sources. In addition, some data are based on our good faith estimates.

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PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES.

Our Business

EnerJex, formerly known as Millennium Plastics Corporation, is an oil and natural gas acquisition, exploration and development company. Midwest Energy, Inc. was incorporated in the State of Nevada on December 30, 2005. In August of 2006, Millennium Plastics Corporation, following a reverse merger by and among us, Millennium Acquisition Sub (our wholly-owned subsidiary) and Midwest Energy, changed the focus of its business plan from the development of biodegradable plastic materials and entered into the oil and natural gas industry. In conjunction with the change, the company was renamed EnerJex Resources, Inc.

Our principal strategy is to focus on the acquisition of oil and natural gas mineral leases that have existing production and cash flow. Once acquired, we implement an accelerated development program utilizing capital resources, a regional operating focus, an experienced management and technical team, and enhanced recovery technologies to attempt to increase production and increase returns for our stockholders. Our oil and natural gas acquisition and development activities are currently focused in Eastern Kansas.

In fiscal 2008, we deployed approximately $9.5 million in capital resources to acquire and develop five operating projects and drill 100 new wells (69 producing wells and 31 water injection wells). As a result, our estimated total proved oil reserves increased from zero as of March 31, 2007 to 1.4 million barrels of oil equivalent, or BOE, as of March 31, 2008. Of the 1.4 million BOE of total proved reserves, approximately 64% are proved developed and approximately 36% are proved undeveloped. The proved developed reserves consist of 82% proved developed producing reserves and 18% proved developed non-producing reserves.

The total proved PV10 (present value) before tax of our reserves (“PV10”) as of March 31, 2008 was $39.6 million. PV10 means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development and abandonment costs, using prices and costs in effect at the determination date, before income taxes, and without giving effect to non-property related expenses, discounted to a present value using an annual discount rate of 10% in accordance with the guidelines of the SEC. PV10 is a non-GAAP financial measure and generally differs from the standardized measure of discounted future net cash flows, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

The Opportunity in Kansas

According to the Kansas Geological Survey, the State of Kansas has historically been one of the top 10 domestic oil producing regions in the United States. For the year-ended December 31, 2007, 36.6 million barrels of oil were produced in Kansas. Of the total barrels produced in

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Kansas in 2007, 15 companies accounted for approximately 29% of this production, with the remaining 71% produced by over 1,750 active producers.

In addition to significant historical oil and natural gas production levels in the region, we believe that a confluence of the following factors in Eastern Kansas and the surrounding region make it an attractive area for oil and natural gas development activities:

• Traditional Roll-Up Strategy. We are seeking to employ a traditional roll-up strategy utilizing a combination of capital resources, operational and management expertise, technology, and our strategic partnership with Haas Petroleum, which has experience operating in the region for nearly 70 years.

• Numerous Acquisition Opportunities. There are many small producers and owners of mineral rights in the region, which afford us numerous opportunities to pursue negotiated lease transactions instead of having to competitively bid on fundamentally sound assets.

• Fragmented Ownership Structure. There are numerous opportunities to acquire producing properties at attractive prices because of the currently inefficient and fragmented ownership structure.

Our Properties

The table below summarizes our acreage by project name as of March 31, 2008.

Project Name	Developed Acreage		Undeveloped Acreage		Total Acreage
	Gross	Net(1)	Gross	Net(1)	Gross	Net(1)
Black Oaks Project(2)	550	522	1,430	1,359	1,980	1,881
DD Energy Project	390	390	1,330	1,330	1,720	1,720
Tri-County Project	610	606	652	651	1,262	1,257
Thoren Project	110	110	220	220	330	330
Gas City Project	560	560	4,169	4,169	4,729	4,729
Total	2,220	2,188	7,801	7,729	10,021	9,917

⁽¹⁾ Net acreage is based on our net working interest as of March 31, 2008.

⁽²⁾ Following completion of the Black Oaks Project, or upon mutual agreement with MorMeg, we will have the option to develop the approximate 2,100 acre “Nickel Town Project.”

Black Oaks and Nickel Town Projects

In September of 2006, we acquired an option to purchase the Black Oaks Project from MorMeg for $500,000 in a combination of stock and cash. In addition, we established a joint operating account and funded it with $4.0 million in April 2007 for the Phase I development plan of this project. We have a 95% working interest and MorMeg has a 5% carried working interest in the project. The Black Oaks Project encompasses approximately 1,980 acres in Woodson and Greenwood Counties, Kansas, which at the time of acquisition had approximately 35 oil wells producing an average of approximately 32 barrels of oil per day, or BOPD.

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The Black Oaks Project is a primary and enhanced secondary recovery project between us and MorMeg. Phase I of the Black Oaks Project development plan commenced shortly after closing with the drilling of 44 in-fill wells. During fiscal 2008, we began injecting water into the first five water injection wells at an average rate of approximately 50 barrels of water per day per well. This pilot program was expanded so that by March 31, 2008, we were injecting approximately 200 barrels of water per day per well in the initial five injection wells. In addition, adjacent oil wells have increased production from an average of approximately 5 BOPD to 25 BOPD. Project-wide production from the approximate 59 net wells on the Black Oaks Project averaged approximately 112 BOPD as of March 31, 2008. Based upon these results, we plan to commence Phase II of the development plan. Phase II currently contemplates drilling over 25 additional water injection wells and drilling over 20 additional producer wells. As of March 31, 2008, the Black Oaks Project had a projected life of 47 years.

As of March 31, 2008, we had proved oil reserves on Phase I of this project of:

	Gross STB(1)	Net STB(2)	PV10(3) (before tax)
Proved, Developed Producing	564,107	355,869	$	6,761,835
Proved, Developed Non-Producing	-0-	-0-	$	-0-
Proved, Undeveloped	255,000	142,292	$	2,357,266
Total Proved	819,107	498,161	$	9,119,101

¹ STB = one stock-tank barrel.

² Net STB is based upon our net revenue interest.

³ See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

The degree of depletion for the Black Oaks Project as of March 31, 2008 was approximately 78%.

We will maintain our 95% working interest until payout, at which time the MorMeg 5% carried working interest will be converted to a 30% working interest and our working interest becomes 70%. Payout is generally the point in time when the total cumulative revenue from the project equals all of the project’s development expenditures and costs associated with funding.

We have until November 30, 2008 to contribute additional capital toward the Black Oaks Project development. If we elect not to contribute further capital to the Black Oaks Project prior to the project’s full development while it is economically viable to do so, or if there is more than a thirty day delay in project activities due to lack of capital, MorMeg has the option to cease further joint development and we will receive an undivided interest in the Black Oaks Project. The undivided interest will be the proportionate amount equal to the amount that our investment bears to our investment plus $2.0 million, with MorMeg receiving an undivided interest in what remains.

Once the parties agree that the project has been fully developed or it is no longer economically viable to fund further development, we will have earned the right to exercise our option to participate in the Nickel Town Project and will have nine-months from that time to exercise this option. Should we elect to participate in the Nickel Town Project, we will have the

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option of negotiating new operating and other governing agreements with MorMeg. The Nickel Town Project contains approximately 2,100 acres and current production averaged approximately 25 BOPD at March 31, 2008.

DD Energy Project

Effective September 1, 2007, we acquired a 100% working interest in the DD Energy Project for $2.7 million, which consisted of approximately 1,500 acres in Johnson, Anderson and Linn Counties of Kansas. At the time of acquisition, this project was producing an average of approximately 45 BOPD.

In addition, we have acquired additional leases bringing the total acreage for this project to approximately 1,700 acres. As of March 31, 2008, we had 114 oil wells, 29 water injection wells and 2 water supply wells on this project with production averaging approximately 38 BOPD. Through March 31, 2008, we have invested an additional $400,000 in this project and have drilled seven water injection wells and four producing wells which are just now coming on line. As of March 31, 2008, the DD Energy Project had a projected life of 33 years.

As of March 31, 2008, we had proved oil reserves on this project of:

	Gross STB(1)		Net STB(2)	PV10(3) (before tax)
Proved, Developed Producing	231,318	195,209		$	7,391,725
Proved, Developed Non-Producing	82,900	69,058		$	2,744,148
Proved, Undeveloped	202,750	169,521		$	4,752,611
Total Proved	516,968	433,788		$	14,888,484

¹ STB = one stock-tank barrel.

² Net STB is based upon our net revenue interest.

³ See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

The degree of depletion for the DD Energy Project as of March 31, 2008 was approximately 37%.

We have identified an additional 88 drillable producer locations and 86 drillable injector locations on this project.

Tri-County Project

On September 14, 2007, we acquired nearly a 100% working interest in the Tri-County Project for $800,000, which consisted of approximately 1,100 acres in Miami, Johnson and Franklin Counties, Kansas. At the time of acquisition, this project was producing an average of approximately 25 BOPD.

Through March 31, 2008, we have invested approximately $700,000 towards the development of this project. Funds have been used to drill four producer wells, make infrastructure upgrades, and perform work-overs on approximately 20 wells in this project. We

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have also acquired additional leases for approximately $50,000, bringing the total project to approximately 1,300 acres.

As of March 31, 2008, the Tri-County Project consisted of 170 producing wells and 52 water injection wells with production averaging approximately 54 BOPD. Further, as of March 31, 2008, the Tri-County Project had a projected life of 21 years.

As of March 31, 2008, we had proved oil reserves on this project of:

	Gross STB(1)		Net STB(2)	PV10(3) (before tax)
Proved, Developed Producing	126,299	99,959		$	3,225,763
Proved, Developed Non-Producing	59,000	46,013		$	1,627,150
Proved, Undeveloped	210,000	166,950		$	3,705,266
Total Proved	395,299	312,922		$	8,558,179

¹ STB = one stock-tank barrel.

² Net STB is based upon our net revenue interest.

³ See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

The degree of depletion for the Tri-County Project as of March 31, 2008 was approximately 60%.

We have identified an additional 83 drillable producer locations and 90 drillable injector locations on this project.

Thoren Project

On April 27, 2007, we acquired a 100% working interest in the Thoren Project for $400,000 from MorMeg. This project, at the time of acquisition, contained 240 acres in Douglas County, Kansas, with 12 oil wells producing an average of approximately 10 BOPD, 4 water injection wells, and one water supply well. During fiscal 2008, we leased an additional 90 acres increasing the total acreage of this project to 330 acres.

Through March 31, 2008, we have invested approximately $800,000 for the development of this project and as of March 31, 2008, we had 33 oil wells producing an average of approximately 41 BOPD, 15 water injection wells and one water supply well. As of March 31, 2008, the Thoren Project had a projected life of 26 years.

As of March 31, 2008, we had proved oil reserves on this project of:

	Gross STB(1)		Net STB(2)	PV10(3) (before tax)
Proved, Developed Producing	105,939	89,770		$	4,568,767
Proved, Developed Non-Producing	0	0		$	0
Proved, Undeveloped	38,000	32,211		$	598,743
Total Proved	143,939	121,981		$	5,167,510

¹ STB = one stock-tank barrel.

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² Net STB is based upon our net revenue interest.

³ See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

We will maintain our 100% working interest until payout and our working interest will become 75%, at which time the MorMeg working interest will be converted to a 25% working interest. Payout for this project occurs at that point in time when the total cumulative revenue from production equals the total amount of the purchase price, all costs and expenses incurred by us in the development and operation, and loan and interest costs incurred in the finance and funding of the purchase.

The degree of depletion for the Thoren Project as of March 31, 2008 was approximately 26%.

We have identified an additional 7 drillable producer locations and 8 drillable injector locations on this project.

Gas City Project

Effective February 1, 2006, we acquired the Gas City Project for $750,000, which at that time encompassed approximately 8,800 acres in Allen County, Kansas. When we originally acquired this project, we acquired 10 natural gas wells, a natural gas gathering system, an interstate pipeline tap and a salt water disposal system for the project. Production at the time of acquisition was minimal. Subsequent to acquisition, we invested an additional $650,000 in capital improvement and development of this project. Since the time of the acquisition, we have elected to not renew certain leases in an attempt to centralize the acreage.

In August of 2007, we entered into a development agreement with Euramerica to further the development and expansion of the Gas City Project, which included 6,600 acres, whereby Euramerica contributed $524,000 in capital toward the project. Euramerica was granted an option to purchase this project for $1.2 million with a requirement to invest an additional $2.0 million for project development by August 31, 2008. We are the operator of the project at a cost plus 17.5% basis. To date, Euramerica has paid $600,000 of the $1.2 million purchase price and $500,000 of the $2.0 million development funds. Upon payment of the entire purchase price, Euramerica will be assigned a 95% working interest, and we will retain a 5% carried working interest before payout. When the project reaches payout, our 5% carried working interest will increase to a 25% working interest and Euramerica will have a 75% working interest. Payout for this project occurs when proceeds of all revenue received by Euramerica from the production and sale of oil, gas, or other hydrocarbons produced equals the project's total expenses.

As of June 16, 2008, the project contained approximately 6,600 acres, and we had drilled and completed 10 producing wells. Production on this project as of March 31, 2008 was approximately 100,000 cubic feet per day.

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The following table sets forth our working interest and net revenue interest levels in the Gas City Project Euramerica Wells.

	Gas City Project Euramerica Wells
	Company Working Interest	Company Net Revenue Interest(1)
Before Euramerica first Purchase Price Payment on February 29, 2008	100%(2)	10%
After First Purchase Price payment but Before Full Purchase Price Paid	100%(2)	5%
After Full Purchase Price Paid, but Before Payout	5%(2)	5%
After Payout	25%	25%

⁽¹⁾ For purposes of this table, net revenue interest is our revenue interest of the working interest owners’ proceeds from the sale of production.

⁽²⁾ These working interests are carried working interests.

As of March 31, 2008, we had proved oil and natural gas reserves on this project of:

	Gross STB(1)	Net STB(2)	Gross MCF(3)	Net MCF(4)	PV10(5) (before tax)
Proved, Developed Producing	6,500	5,362	141,371	114,610	$	802,357
Proved, Developed Non-Producing	-0-	-0-	350,000	286,587	$	1,075,701
Proved, Undeveloped	-0-	-0-	-0-	-0-	$	-0-
Total Proved	6,500	5,362	491,371	401,197	$	1,878,058

¹ STB = one stock-tank barrel.

² Net STB is based upon our net revenue interest.

³ MCF = thousand cubic feet of natural gas.

⁴ Net MCF is based upon our net revenue interest.

⁵ See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

The degree of depletion for the Gas City Project as of March 31, 2008 was approximately 20% on gas reserves and 0% on oil reserves.

We have drilled 12 new wells since March 31, 2008 on behalf of Euramerica. Beyond June 1, 2008, development of this project will be dependent on additional capital contributed by Euramerica.

Our Business Strategy

Our goal is to increase stockholder value by finding and developing oil and natural gas reserves at costs that provide an attractive rate of return on our investments. The principal elements of our business strategy are:

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• Develop Our Existing Properties. We intend to create near-term reserve and production growth from over 400 additional drilling locations we have identified on our properties. We have identified an additional 193 drillable producer locations and 213 drillable injector locations. The structure and the continuous oil accumulation in Eastern Kansas, and the expected long-life production and reserves of our properties, are anticipated to enhance our opportunities for long-term profitability. As of March 31, 2008, our Black Oaks, DD Energy, Tri-County and Thoren Projects have projected lives of 47 years, 33 years, 21 years and 26 years, respectively.

• Maximize Operational Control. We seek to operate our properties and maintain a substantial working interest. We believe the ability to control our drilling inventory will provide us with the opportunity to more efficiently allocate capital, manage resources, control operating and development costs, and utilize our experience and knowledge of oilfield technologies.

• Pursue Selective Acquisitions and Joint Ventures. Due to our local presence in Eastern Kansas and strategic partnership with Haas Petroleum, we believe we are well-positioned to pursue selected acquisitions from the fragmented and capital-constrained owners of mineral rights throughout Eastern Kansas.

• Reduce Unit Costs Through Economies of Scale and Efficient Operations. As we continue to increase our oil production and develop our existing properties, we expect that our unit cost structure will benefit from economies of scale. In particular, we anticipate reducing unit costs by greater utilization of our existing infrastructure over a larger number of wells.

Our Competitive Strengths

We have a number of strengths that we believe will help us successfully execute our strategy:

• Acquisition and Development Strategy. We have what we believe to be a relatively low-risk acquisition and development strategy compared to some of our competitors. We generally buy properties that have proven current production, with a projected pay-back within a relatively short period of time, and with potential growth and upside in terms of development, enhancement and efficiency. We also plan to minimize the risk of natural gas and oil price volatility by developing a sales portfolio of pricing for our production as we continue to expand and as market conditions permit.

• Significant Production Growth Opportunities. We have acquired an attractive acreage position with favorable lease terms in a region with historical hydrocarbon production. Based on continued drilling success within our acreage position, we expect to increase our reserves, production and cash flow.

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• Experienced Management Team and Strategic Partner with Strong Technical Capability. Our CEO has over 20 years of experience in the energy industry, primarily related to gas/electric utilities, but including experience related to energy trading and production, and members of our board of directors have considerable industry experience and technical expertise in engineering, horizontal drilling, geoscience and field operations. In addition, our strategic partner, Haas Petroleum, has over 70 years of experience in Eastern Kansas, including completion and secondary recovery techniques and technologies. Our board of directors and Mark Haas of Haas Petroleum work closely with management during the initial phases of any major project to ensure its feasibility and to consider the appropriate recovery techniques to be utilized.

• Incentivized Management Ownership. The equity ownership of our directors and executive officers is strongly aligned with that of our stockholders. As of June 24, 2008, our directors and executive officers owned approximately 9.1% of our outstanding common stock, with options that upon exercise would increase their ownership of our outstanding common stock to 16.7%. In addition, the compensation arrangements for our directors and executive officers are weighted toward future performance based equity payments rather than cash.

Company History

Midwest Energy, Inc. was incorporated in the State of Nevada on December 30, 2005. Prior to the reverse merger with Midwest Energy in August of 2006, we operated under the name Millennium Plastics Corporation and focused on the development of biodegradable plastic materials. This business plan was ultimately abandoned following its unsuccessful implementation. Following the merger, we assumed the business plan of Midwest Energy and entered into the oil and natural gas industry. Concurrent with the effectiveness of the merger, we changed our name to “EnerJex Resources, Inc.” The result of the merger was that the former stockholders of Midwest Energy controlled approximately 98% of our outstanding shares of common stock. In addition, Midwest Energy was deemed to be the acquiring company for financial reporting purposes and the merger was accounted for as a reverse merger. In November 2007 Midwest Energy changed its name to EnerJex Kansas. All of our current operations are conducted through EnerJex Kansas and DD Energy, our wholly-owned subsidiaries.

Significant Developments in Fiscal 2008 and Fiscal 2009 to Date

The following is a brief description of our most significant corporate developments that occurred in fiscal 2008 and fiscal 2009 to date:

• In April and June of 2007, we completed a financing in which we issued debentures and 9,000,000 shares of our common stock in return for $6.3 million (before expenses and placement fees) at the first closing and an additional $2.7 million at the second closing.

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• In April of 2007, we acquired the Black Oaks Project for $4.0 million, with the requirement to spend additional funds to fully complete the development of the Black Oaks Project.

• In April of 2007, Phase I of the Black Oaks Project development plan commenced with the drilling of 44 in-fill wells.

• In April of 2007, we acquired the 240 acre Thoren Project in Douglas County, Kansas from MorMeg for $400,000.

• In August of 2007, we entered into the Development Agreement with Euramerica, pursuant to which we granted to Euramerica the right to purchase an interest in the Gas City Project for $1.2 million.

• In September of 2007, we acquired the DD Energy Project, located in Johnson, Anderson and Linn Counties of Kansas, for $2.7 million.

• In September of 2007, we acquired the Tri-County Project, located in Miami, Johnson and Franklin Counties, Kansas, for $800,000.

• Our estimated total proved oil reserves increased from zero as of March 31, 2007 to 1.4 million BOE as of March 31, 2008.

• According to a reserve report prepared by McCune Engineering P.E., our independent reserve engineer, the total proved PV10 (present value) of reserves before tax as of March 31, 2008 was $39.6 million. See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

• In March of 2008, we entered into an agreement with Shell Trading (US) Company, or Shell, whereby we agreed to an 18-month fixed-price swap with Shell for 130 BOPD at a fixed price per barrel of $96.90, before transportation costs. This represents approximately 60% of our total current oil production on a net revenue basis and locks in approximately $6.8 million in gross revenue before transportation costs over the 18 month period. In addition, we agreed to sell all of our remaining oil production at current spot market pricing beginning April 1, 2008 through September 30, 2009 to Shell.

• Our in-fill drilling and waterflood enhanced recovery techniques at the Black Oaks Project have increased oil production to an average of approximately 112 BOPD from a level of 32 BOPD per day when the project was originally acquired. As of March 31, 2008, the Black Oaks Project had 62 active production wells and 13 active water injection wells, an increase of 27 production wells and 13 water injection wells since the project was originally acquired. Based upon these results, we anticipate commencing Phase II of the development plan, which contemplates

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drilling over 25 additional water injection wells and completing over 20 additional producer wells.

• In June of 2008, we received our second payment of $300,000 from Euramerica related to its option exercise for the Gas City Project. To date, Euramerica has paid $600,000 of the $1.2 million purchase price and $500,000 of the $2.0 million development funds. Upon payment of the entire purchase price, Euramerica will be assigned a 95% working interest and we will retain a 5% carried working interest before payout. When the project reaches payout, our 5% carried working interest will increase to a 25% working interest and Euramerica will have a 75% working interest.

• On July 3, 2008, we entered a new three-year $50 million senior secured credit facility with Texas Capital Bank, N. A. with an initial borrowing base of $10.75 million based on our current proved oil and natural gas reserves.  We used our initial borrowing under this facility of $10.75 million to redeem an aggregate principal amount of $6.3 million of our 10% debentures, assign approximately $2.0 million of our existing indebtedness with another bank to this facility, repay $965,000 of seller-financed notes, pay the transaction costs, fees and expenses of this new facility, and expand current development projects, including the completion of 31 new oil wells that have been drilled since May of 2008.

• As of July 3, 2008, we entered into an ISDA master agreement and a costless collar with BP Corporation North America Inc., or BP, on 130 barrels of oil per day with a price floor of $132.50 per barrel and a price ceiling of $155.70 per barrel for NYMEX West Texas Intermediatefor the period of October 1, 2009 until March 31, 2011.

• On July 7, 2008, we amended the $2.7 million of aggregate principal amount of our 10% debentures that remain outstanding to, among other things, permit the indebtedness under our new credit facility, subordinate the security interests of the debentures to the new credit facility, provide for the redemption of the remaining debentures with the net proceeds from our next debt or equity offering and eliminate the covenant to maintain certain production thresholds.

Relationship with Haas Petroleum

In April of 2007, we entered into a consulting agreement with Mark Haas, President of Haas Petroleum and managing member of MorMeg. This agreement provides that Mr. Haas will consult with us at an executive level regarding field development, acquisition evaluation, identification of additional acquisition opportunities and overall business strategy. Haas Petroleum has been in the oil exploration and production business for over 70 years and Mark Haas has been in the business for over 30 years.

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We believe that this relationship provides us with a competitive advantage when evaluating and sourcing acquisition opportunities. As a long-term producer and oil field service provider, Haas Petroleum has existing relationships with numerous oil and natural gas producers in Eastern Kansas and is generally aware of existing opportunities to enhance many of these properties through the deployment of capital, and application of enhanced drilling and production technologies. We believe that we will be able to leverage the experience and relationships of Mr. Haas to compliment our business strategy. To date, Mr. Haas has helped us identify and evaluate all of our property acquisitions, and has been instrumental in the creation and implementation of our development plans of these properties.

One of our fundamental goals with respect to the consulting arrangement is to align the interests of Mr. Haas with those of ours as much as possible. As a result, the consulting agreement provides that we will pay him five thousand dollars per month. In addition, we have granted Mr. Haas options to purchase 300,000 shares of our common stock at an exercise price of $1.25 per share, expiring on May 3, 2011. Finally, we have utilized our common stock, in part, for the purchase of assets owned by MorMeg, which we believe will further align our business interests with those of Mr. Haas.

Drilling Activity

The following table sets forth the results of our drilling activities during the 2006, 2007 and 2008 fiscal years.

Drilling Activity
	Gross Wells			Net Wells(1)
Fiscal Year	Total	Producing	Dry	Total	Producing	Dry
2006 Exploratory	-0-	-0-	-0-	-0-	-0-	-0-
2007 Exploratory	-0-	-0-	-0-	-0-	-0-	-0-
2008 Exploratory(2)	10	10	-0-	10	10	-0-
2006 Development	-0-	-0-	-0-	-0-	-0-	-0-
2007 Development	-0-	-0-	-0-	-0-	-0-	-0-
2008 Development	59	57	2	58	56	2

⁽¹⁾ Net wells are based on our net working interest as of March 31, 2008.

⁽²⁾ We incurred no exploration costs related to exploratory wells in which we held carried working interest.

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Net Production, Average Sales Price and Average Production and Lifting Costs

The table below sets forth our net oil and natural gas production (net of all royalties, overriding royalties and production due to others) for the fiscal years ended March 31, 2008 and 2007 and the period from inception (December 30, 2005) through March 31, 2006, the average sales prices, average production costs and direct lifting costs per unit of production.

		Fiscal Year Ended March 31, 2008		Fiscal Year Ended March 31, 2007		Period From Inception (December 30, 2005) through March 31, 2006
Net Production
	Oil (Bbl)	43,697		-0-		-0-
	Natural gas (Mcf)	17,762		19,254		-0-
Average Sales Prices
	Oil (per Bbl)	$	79.71	$	-0-	$	-0-
	Natural gas (per Mcf)	$	6.20	$	4.72	$	-0-
Average Production Cost (1)
	Per Bbl of oil	$	56.65	$	-0-	$	-0-
	Per Mcf of natural gas	$	13.12	$	9.55	$	-0-
Average Lifting Costs (2)
	Per Bbl of oil	$	37.08	$	-0-	$	-0-
	Per Mcf of natural gas	$	9.86	$	8.95	$	-0-

⁽¹⁾ Production costs include all operating expenses, depreciation, depletion and amortization, lease operating expenses and all associated taxes. Impairment of oil and natural gas properties is not included in production costs.

⁽²⁾ Direct lifting costs do not include impairment expense or depreciation, depletion and amortization.

Results of Oil and Natural Gas Producing Activities

The following table shows the results of operations from our oil and natural gas producing activities from inception (December 30, 2005) through March 31, 2008. Results of operations from these activities have been determined using historical revenues, production costs, depreciation, depletion and amortization of the capitalized costs subject to amortization. General and administrative expenses and interest expense have been excluded from this determination.

	For the Fiscal Year Ended March 31, 2008		For the Fiscal Year Ended March 31, 2007		From inception (December 30, 2005) Through March 31, 2006
Production revenues	$	3,602,798	$	90,800	$	2,142
Production costs	(1,795,188)		(172,417)		(14,599)
Depreciation, depletion and amortization	(913,224)		(11,477)		(385)
Results of operations for producing activities	$	894,386	$	(93,094)	$	(12,842)

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Producing Wells

The following table sets forth the number of productive oil and natural gas wells in which we owned an interest as of March 31, 2008.

		Producing
Project		Gross Oil	Net Oil(1)	Gross Natural Gas	Net Natural Gas(1)
Black Oaks Project(2)		62	59	-0-	-0-
DD Energy Project		114	114	-0-	-0-
Tri-County Project		170	170	-0-	-0-
Thoren Project		33	33	-0-	-0-
Gas City Project		-0-	-0-	15	15
	Total	379	376	15	15

⁽¹⁾ Net wells are based on our net working interest as of March 31, 2008.

⁽²⁾ Following completion of the Black Oaks Project, or upon mutual agreement with MorMeg, we will have the option to develop the approximate 2,100 acre “Nickel Town Project.”

Reserves

Our estimated total proved PV10 (present value) of reserves as of March 31, 2008 increased to $39.6 million from zero as of March 31, 2007. We developed total proved reserves to 1.4 million barrels of oil equivalent (BOE). Of the 1.4 million BOE, approximately 64% are proved developed and approximately 36% are proved undeveloped. The proved developed reserves consist of proved developed producing (82%) and proved developed non-producing (18%). See “Glossary” on page 22 for our definition of PV10.

Based on an assumed oil price of $94.53 per barrel and $7.479 per Mcf for natural gas as of March 31, 2008, and applying an annual discount rate of 10% of the future net cash flow, the estimated PV10 of the 1.4 million BOE, before tax, is calculated as set forth in the following table:

Summary of Oil and Natural Gas Reserves

as of March 31, 2008

Proved Reserves Category	Gross STB(1)	Net STB(2)	Gross MCF(3)	Net MCF(4)	PV10(5) (before tax)
Proved, Developed Producing	1,034,163	746,169	141,371	114,610	$22,750,447
Proved, Developed Non-Producing	141,900	115,071	350,000	286,587	$ 5,446,999
Proved, Undeveloped	705,750	510,974	-0-	-0-	$11,413,886
Total Proved	1,881,813	1,372,214	491,371	401,197	$39,611,332

¹ STB = one stock-tank barrel.

² Net STB is based upon our net revenue interest.

³ MCF = thousand cubic feet of natural gas.

⁴ Net MCF is based upon our net revenue interest.

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⁵ See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

Oil and Natural Gas Reserves Reported to Other Agencies

We did not file any estimates of total proved net oil or natural gas reserves with, or include such information in reports to, any federal authority or agency, other than the SEC, during the fiscal year ended March 31, 2008.

Title to Properties

Our properties are subject to customary royalty interests, liens under indebtedness, liens incident to operating agreements and liens for current taxes and other burdens, including mineral encumbrances and restrictions. Further, our debt is secured by first and second liens on substantially all of our assets. We do not believe that any of these burdens materially interferes with the use of our properties in the operation of our business.

We believe that we have satisfactory title to or rights in all of our producing properties. As is customary in the natural gas and oil industry, minimal investigation of title is made at the time of acquisition of undeveloped properties. In most cases, we investigate title and obtain title opinions from counsel or have title reviewed by professional landmen only when we acquire producing properties or before we begin drilling operations. However, any acquisition of producing properties without obtaining title opinions are subject to a greater risk of title defects.

Sale of Natural Gas and Oil

We do not intend to refine our natural gas or oil production. We expect to sell all or most of our production to a small number of purchasers in a manner consistent with industry practices at prevailing rates by means of long-term and short-term sales contracts, some of which may have fixed price components. We have a long-term purchase contract with Shell to sell all of our current oil production beginning April 1, 2008 through September of 2009. Under current conditions, we should be able to find other purchasers, if needed. All of our produced oil is held in tank batteries and then each respective purchaser transports the oil by truck to the refinery. In addition, our board of directors has implemented a crude oil and natural gas hedging strategy that will allow management to hedge up to 80% of our net production in an effort to mitigate a majority of our exposure to changing oil prices in the intermediate term.

Secondary Recovery and Other Production Enhancement Strategies

When an oil field is first produced, the oil typically is recovered as a result of natural pressure within the producing formation, often assisted by pumps of various types. The only natural force present to move the crude oil to the wellbore is the pressure differential between the higher pressure in the formation and the lower pressure in the wellbore. At the same time, there are many factors that act to impede the flow of crude oil, depending on the nature of the formation and fluid properties, such as pressure, permeability, viscosity and water saturation.

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This stage of production is referred to as “primary production,” which in Eastern Kansas normally only recovers up to 15% of the crude oil originally in place in a producing formation.

Many, but not all, oil fields are amenable to assistance from a waterflood, a form of “secondary recovery,” which is used to maintain reservoir pressure and to help sweep oil to the wellbore. In a waterflood, certain wells are used to inject water into the reservoir while other wells are used to recover the oil in place. We are employing a waterflood for the Black Oaks Project as well as on our remaining shallow oil leases. We anticipate waterflooding to be our secondary recovery technique for the majority of our oil field projects.

As the waterflood matures, the fluid produced contains increasing amounts of water and decreasing amounts of oil. Surface equipment is used to separate the oil from the water, with the oil going to pipelines or holding tanks for sale and the water being recycled to the injection facilities. In the Black Oaks Project, through March 31, 2008 we have realized an increase of approximately 25 barrels per day in oil production on adjacent wells as a result of the waterflood.

In addition, we may utilize 3-D seismic analysis, horizontal drilling, and other technologies and production techniques to improve drilling results and ultimately enhance our production and returns. We also believe use of such technologies and production techniques in exploring for, developing and exploiting oil and natural gas properties will help us reduce drilling risks, lower finding costs and provide for more efficient production of oil and natural gas from our properties.

Markets and Marketing

The natural gas and oil industry has experienced rising and volatile prices in recent years. As a commodity, global natural gas and oil prices respond to macro-economic factors affecting supply and demand. In particular, world oil prices have risen in response to political unrest and supply uncertainty in Iraq, Venezuela, Nigeria and Iran, and increasing demand for energy in rapidly growing economies, notably India and China. Due to rising world prices and the consequential impact on supply, North American prospects have become more attractive. Escalating conflicts in the Middle East and the ability of OPEC to control supply and pricing are some of the factors negatively impacting the availability of global supply. In contrast, increased costs of steel and other products used to construct drilling rigs and pipeline infrastructure, as well as higher drilling and well-servicing rig rates, negatively impact domestic supply.

Our market is affected by many factors beyond our control, such as the availability of other domestic production, commodity prices, the proximity and capacity of natural gas and oil pipelines, and general fluctuations of global and domestic supply and demand. Although we have entered into one sales contract with Shell at this time, we do not anticipate difficulty in finding additional sales opportunities, as and when needed.

Natural gas and oil sales prices are negotiated based on factors such as the spot price for natural gas or posted price for oil, price regulations, regional price variations, hydrocarbon quality, distances from wells to pipelines, well pressure, and estimated reserves. Many of these factors are outside our control. Natural gas and oil prices have historically experienced high

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volatility, related in part to ever-changing perceptions within the industry of future supply and demand.

Competition

The natural gas and oil industry is intensely competitive and, as an early-stage company, we must compete against larger companies that may have greater financial and technical resources than we do and substantially more experience in our industry. These competitive advantages may better enable our competitors to sustain the impact of higher exploration and production costs, natural gas and oil price volatility, productivity variances between properties, overall industry cycles and other factors related to our industry. Their advantage may also negatively impact our ability to acquire prospective properties, develop reserves, attract and retain quality personnel and raise capital.

Research and Development Activities

We have not spent any material amount of time in the last two fiscal years on research and development activities.

Governmental Regulations

Regulation of Oil and Natural Gas Production. Our oil and natural gas exploration, production and related operations, when developed, are subject to extensive rules and regulations promulgated by federal, state, tribal and local authorities and agencies. For example, some states in which we may operate, including Kansas, require permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the exploration and production of oil and natural gas. Such states may also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from wells, and the regulation of spacing, plugging and abandonment of such wells. Failure to comply with any such rules and regulations can result in substantial penalties. Moreover, such states may place burdens from previous operations on current lease owners, and the burdens could be significant. The regulatory burden on the oil and natural gas industry will most likely increase our cost of doing business and may affect our profitability. Although we believe we are currently in substantial compliance with all applicable laws and regulations, because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws. Significant expenditures may be required to comply with governmental laws and regulations and may have a material adverse effect on our financial condition and results of operations.

Federal Regulation of Natural Gas. The Federal Energy Regulatory Commission (“FERC”) regulates interstate natural gas transportation rates and service conditions, which may affect the marketing of natural gas produced by us, as well as the revenues that may be received by us for sales of such production. Since the mid-1980’s, FERC has issued a series of orders, culminating in Order Nos. 636, 636-A and 636-B (“Order 636”), that have significantly altered the marketing and transportation of natural gas. Order 636 mandated a fundamental restructuring of interstate

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pipeline sales and transportation service, including the unbundling by interstate pipelines of the sale, transportation, storage and other components of the city-gate sales services such pipelines previously performed. One of FERC’s purposes in issuing the order was to increase competition within all phases of the natural gas industry. The United States Court of Appeals for the District of Columbia Circuit largely upheld Order 636 and the Supreme Court has declined to hear the appeal from that decision. Generally, Order 636 has eliminated or substantially reduced the interstate pipelines’ traditional role as wholesalers of natural gas in favor of providing only storage and transportation service, and has substantially increased competition and volatility in natural gas markets.

The price we may receive from the sale of oil and natural gas liquids will be affected by the cost of transporting products to markets. Effective January 1, 1995, FERC implemented regulations establishing an indexing system for transportation rates for oil pipelines, which, generally, would index such rates to inflation, subject to certain conditions and limitations. We are not able to predict with certainty the effect, if any, of these regulations on our intended operations. However, the regulations may increase transportation costs or reduce well head prices for oil and natural gas liquids.

Environmental Matters

Our operations and properties are subject to extensive and changing federal, state and local laws and regulations relating to environmental protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue.

These laws and regulations may:

• require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities;

• limit or prohibit construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and

• impose substantial liabilities for pollution resulting from its operations, or due to previous operations conducted on any leased lands.

The permits required for our operations may be subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce their regulations, and violations are subject to fines or injunctions, or both. In the opinion of management, we are in substantial compliance with current applicable environmental laws and regulations, and have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on us, as well as the oil and natural gas industry in general.

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The Comprehensive Environmental, Response, Compensation, and Liability Act, as amended (“CERCLA”), and comparable state statutes impose strict, joint and several liability on owners and operators of sites and on persons who disposed of or arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for the neighboring land owners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act, as amended (“RCRA”), and comparable state statutes govern the disposal of “solid waste” and “hazardous waste” and authorize the imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” state laws affecting our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements.

The Federal Water Pollution Control Act of 1972, as amended (“Clean Water Act”), and analogous state laws impose restrictions and controls on the discharge of pollutants into federal and state waters. These laws also regulate the discharge of storm water in process areas. Pursuant to these laws and regulations, we are required to obtain and maintain approvals or permits for the discharge of wastewater and storm water and develop and implement spill prevention, control and countermeasure plans, also referred to as “SPCC plans,” in connection with on-site storage of greater than threshold quantities of oil. The EPA issued revised SPCC rules in July 2002 whereby SPCC plans are subject to more rigorous review and certification procedures. We believe that our operations are in substantial compliance with applicable Clean Water Act and analogous state requirements, including those relating to wastewater and storm water discharges and SPCC plans.

The Endangered Species Act, as amended (“ESA”), seeks to ensure that activities do not jeopardize endangered or threatened animal, fish and plant species, nor destroy or modify the critical habitat of such species. Under ESA, exploration and production operations, as well as actions by federal agencies, may not significantly impair or jeopardize the species or its habitat. ESA provides for criminal penalties for willful violations of the Act. Other statutes that provide protection to animal and plant species and that may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act. Although we believe that our operations will be in substantial compliance with such statutes, any change in these statutes or any reclassification of a species as endangered could subject us to significant expenses to modify our operations or could force us to discontinue certain operations altogether.

Personnel

As of March 31, 2008, we had nine full-time employees and employ the services of several contract personnel. As drilling production activities increase, we intend to hire additional technical, operational and administrative personnel as appropriate. We are using and will continue to use the services of independent consultants and contractors to perform various

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professional services, particularly in the area of land services, reservoir engineering, geology drilling, water hauling, pipeline construction, well design, well-site monitoring and surveillance, permitting and environmental assessment. We believe that this use of third-party service providers may enhance our ability to contain capital costs, general and administrative expenses.

Facilities

We currently maintain an office at 7300 W. 110^th Street, 7^th floor, Overland Park, Kansas 66210. This space is leased pursuant to a one year agreement, which expires on July 31, 2008. We are currently negotiating a lease for new office space in the Overland Park, Kansas area. However, until we secure a new office lease, our current office space is adequate for our immediate needs.

GLOSSARY

Term	Definition
Barrel (bbl)	The standard unit of measurement of liquids in the petroleum industry, it contains 42 U.S. standard gallons. Abbreviated to “bbl”.
Basin	A depression in the crust of the Earth, caused by plate tectonic activity and subsidence, in which sediments accumulate. Sedimentary basins vary from bowl-shaped to elongated troughs. Basins can be bounded by faults. Rift basins are commonly symmetrical; basins along continental margins tend to be asymmetrical. If rich hydrocarbon source rocks occur in combination with appropriate depth and duration of burial, then a petroleum system can develop within the basin.
BOPD	Abbreviation for barrels of oil per day, a common unit of measurement for volume of crude oil. The volume of a barrel is equivalent to 42 U.S. standard gallons.
Carried Working Interest	The owner of this type of working interest in the drilling of a well incurs no capital contribution requirement for drilling or completion costs associated with a well and, if specified in the particular contract, may not incur capital contribution requirements beyond the completion of the well.
Completion / Completing	A well made ready to produce oil or natural gas.
Costless Collar	When viewed against an appropriate index, the parties agree to a maximum price (call option) and a minimum price (put option), through a financially-settled collar. If the average monthly prices are within the collar range there will be no monthly settlement. However, if average monthly prices fluctuate outside the collar, the parties settle the difference in cash.

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Development	The phase in which a proven oil or natural gas field is brought into production by drilling development wells.
Development Drilling	Wells drilled during the Development phase.
Division order	A directive signed by the royalty owners verifying to the purchaser or operator of a well the decimal interest of production owned by the royalty owner. The Division Order generally includes the decimal interest, a legal description of the property, the operator’s name, and several legal agreements associated with the process. Completion of this step generally precedes placing the royalty owner on pay status to begin receiving revenue payments.
Drilling	Act of boring a hole through which oil and/or natural gas may be produced.
Dry Wells	A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
Exploration	The phase of operations which covers the search for oil or natural gas generally in unproven or semi-proven territory.
Exploratory Drilling	Drilling of a relatively high percentage of properties which are unproven.
Farm out	An arrangement whereby the owner of a lease assigns all or some portion of the lease or licenses to another company for undertaking exploration or development activity.
Field	An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
Fixed price swap	A derivative instrument that exchanges or “swaps” the “floating” or daily price of a specified volume of natural gas, oil or NGL, over a specified period, for a fixed price for the specified volume over the same period (typically three months or longer).
Gathering line / system	Pipelines and other facilities that transport oil or natural gas from wells and bring it by separate and individual lines to a central delivery point for delivery into a transmission line or mainline.
Gross acre	The number of acres in which the Company owns any working interest.

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Gross Producing Well	A well in which a working interest is owned and is producing oil or natural gas or other liquids or hydrocarbons. The number of gross producing wells is the total number of wells producing oil or natural gas or other liquids or hydrocarbons in which a working interest is owned.
Gross well	A well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned.
Held-By-Production (HBP)	Refers to an oil and natural gas property under lease, in which the lease continues to be in force, because of production from the property.
Horizontal drilling	A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then turned and drilled horizontally. Horizontal drilling allows the wellbore to follow the desired formation.
In-fill wells	In-fill wells refers to wells drilled between established producing wells; a drilling program to reduce the spacing between wells in order to increase production and recovery of in-place hydrocarbons.
Oil and Natural Gas Lease	A legal instrument executed by a mineral owner granting the right to another to explore, drill, and produce subsurface oil and natural gas. An oil and natural gas lease embodies the legal rights, privileges and duties pertaining to the lessor and lessee.
Lifting Costs	The expenses of producing oil from a well. Lifting costs are the operating costs of the wells including the gathering and separating equipment. Lifting costs do not include the costs of drilling and completing the wells or transporting the oil.
Mcf	Thousand cubic feet.
Mmcf	Million cubic feet.
Net acres	Determined by multiplying gross acres by the working interest that the Company owns in such acres.
Net Producing Wells	The number of producing wells multiplied by the working interest in such wells.
Net Revenue Interest	A share of production revenues after all royalties, overriding royalties and other nonoperating interests have been taken out of production for a well(s).
Operator	A person, acting for itself, or as an agent for others, designated to conduct the operations on its or the joint interest owners’ behalf.
Overriding Royalty	Ownership in a percentage of production or production revenues, free of the cost of production, created by the lessee, company and/or working interest owner and paid by the lessee, company and/or working interest owner out of revenue from the well.
Pooled Unit	A term frequently used interchangeably with “Unitization” but more properly used to denominate the bringing together of small tracts sufficient for the granting of a well permit under applicable spacing rules.

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Proved Developed Reserves	Proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods. This definition of proved developed reserves has been abbreviated from the applicable definitions contained in Rule 4-10(a)(2-4) of Regulation S-X.
Proved Developed Non-Producing	Proved developed reserves expected to be recovered from zones behind casings in existing wells.
Proved Undeveloped Reserves	Proved undeveloped reserves are the portion of proved reserves which can be expected to be recovered from new wells on undrilled proved acreage, or from existing wells where a relatively major expenditure is required for completion. This definition of proved undeveloped reserves has been abbreviated from the applicable definitions contained in Rule 4-10(a)(2-4) of Regulation S-X.
PV10	PV10 means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development and abandonment costs, using prices and costs in effect at the determination date, before income taxes, and without giving effect to non-property related expenses, discounted to a present value using an annual discount rate of 10% in accordance with the guidelines of the SEC. PV10 is a non-GAAP financial measure. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” on page 54 for a reconciliation to the comparable GAAP financial measure.
Re-completion	Completion of an existing well for production from one formation or reservoir to another formation or reservoir that exists behind casing of the same well.
Reservoir	The underground rock formation where oil and natural gas has accumulated. It consists of a porous rock to hold the oil or natural gas, and a cap rock that prevents its escape.
Reservoir Pressure	The pressure at the face of the producing formation when the well is shut-in. It equals the shut-in pressure at the wellhead plus the weight of the column of oil and natural gas in the well.
Roll-Up Strategy	A “roll-up strategy” is a common business term used to describe a business plan whereby a company accumulates multiple small operators in a particular business sector with a goal to generate synergies, stimulate growth and optimize the value of the individual pieces.

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Secondary Recovery	The stage of hydrocarbon production during which an external fluid such as water or natural gas is injected into the reservoir through injection wells located in rock that has fluid communication with production wells. The purpose of secondary recovery is to maintain reservoir pressure and to displace hydrocarbons toward the wellbore. The most common secondary recovery techniques are natural gas injection and waterflooding. Normally, natural gas is injected into the natural gas cap and water is injected into the production zone to sweep oil from the reservoir. A pressure-maintenance program can begin during the primary recovery stage, but it is a form of enhanced recovery.
Shut-in well	A well which is capable of producing but is not presently producing. Reasons for a well being shut-in may be lack of equipment, market or other.
Stock Tank Barrel or STB	A stock tank barrel of oil is the equivalent of 42 U.S. Gallons at 60 degrees Fahrenheit.
Undeveloped acreage	Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.
Unitize, Unitization	When owners of oil and/or natural gas reservoir pool their individual interests in return for an interest in the overall unit.
Waterflood	The injection of water into an oil reservoir to “push” additional oil out of the reservoir rock and into the wellbores of producing wells. Typically a secondary recovery process.
Water Injection Wells	A well in which fluids are injected rather than produced, the primary objective typically being to maintain or increase reservoir pressure, often pursuant to a waterflood.
Water Supply Wells	A well in which fluids are being produced for use in a Water Injection Well.
Wellbore	A borehole; the hole drilled by the bit. A wellbore may have casing in it or it may be open (uncased); or part of it may be cased, and part of it may be open. Also called a borehole or hole.
Working Interest	An interest in an oil and natural gas lease entitling the owner to receive a specified percentage of the proceeds of the sale of oil and natural gas production or a percentage of the production, but requiring the owner of the working interest to bear the cost to explore for, develop and produce such oil and natural gas.

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ITEM 1A. RISK FACTORS.

Risks Associated with Our Business

We have sustained losses, which raises doubt as to our ability to successfully develop profitable business operations.

Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing and maintaining a business in the oil and natural gas industries. There is nothing conclusive at this time on which to base an assumption that our business operations will prove to be successful or that we will be able to operate profitably. Our future operating results will depend on many factors, including:

• the future prices of natural gas and oil;

• our ability to raise adequate working capital;

• success of our development and exploration efforts;

• demand for natural gas and oil;

• the level of our competition;

• our ability to attract and maintain key management, employees and operators;

• transportation and processing fees on our facilities;

• fuel conservation measures;

• alternate fuel requirements;

• government regulation and taxation;

• technical advances in fuel economy and energy generation devices; and

• our ability to efficiently explore, develop and produce sufficient quantities of marketable natural gas or oil in a highly competitive and speculative environment while maintaining quality and controlling costs.

To achieve profitable operations, we must, alone or with others, successfully execute on the factors stated above, along with continually developing ways to enhance our production efforts. Despite our best efforts, we may not be successful in our development efforts or obtain required regulatory approvals. There is a possibility that some of our wells may never produce natural gas or oil in sustainable or economic quantities.

Natural gas and oil prices are volatile. This volatility may occur in the future, causing negative change in cash flows which may result in our inability to cover our operating or capital expenditures.

Our future revenues, profitability, future growth and the carrying value of our properties is anticipated to depend substantially on the prices we may realize for our natural gas and oil production. Our realized prices may also affect the amount of cash flow available for operating or capital expenditures and our ability to borrow and raise additional capital.

Natural gas and oil prices are subject to wide fluctuations in response to relatively minor changes in or perceptions regarding supply and demand. Historically, the markets for natural gas

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and oil have been volatile, and they are likely to continue to be volatile in the future. Among the factors that can cause this volatility are:

• worldwide or regional demand for energy, which is affected by economic conditions;

• the domestic and foreign supply of natural gas and oil;

• weather conditions;

• natural disasters;

• acts of terrorism;

• domestic and foreign governmental regulations and taxation;

• political and economic conditions in oil and natural gas producing countries, including those in the Middle East and South America;

• impact of the U.S. dollar exchange rates on oil and natural gas prices;

• the availability of refining capacity;

• actions of the Organization of Petroleum Exporting Countries, or OPEC, and other state controlled oil companies relating to oil price and production controls; and

• the price and availability of other fuels.

It is impossible to predict natural gas and oil price movements with certainty. Lower natural gas and oil prices may not only decrease our future revenues on a per unit basis but also may reduce the amount of natural gas and oil that we can produce economically. A substantial or extended decline in natural gas and oil prices may materially and adversely affect our future business enough to force us to cease our business operations. In addition, our reserves, financial condition, results of operations, liquidity and ability to finance and execute planned capital expenditures will also suffer in such a price decline. Further, natural gas and oil prices do not necessarily move together.

Approximately 54% of our total proved reserves as of March 31, 2008 consist of undeveloped and developed non-producing reserves, and those reserves may not ultimately be developed or produced.

As of March 31, 2008, approximately 36% of our total proved reserves were undeveloped and approximately 18% were developed non-producing. We plan to develop and produce all of our proved reserves, but ultimately some of these reserves may not be developed or produced. Furthermore, not all of our undeveloped or developed non-producing reserves may be ultimately produced in the time periods we have planned, at the costs we have budgeted, or at all.

Because we face uncertainties in estimating proven recoverable reserves, you should not place undue reliance on such reserve information.

Our reserve estimates and the future net cash flows attributable to those reserves are prepared by McCune Engineering, our independent petroleum and geological engineer. There are numerous uncertainties inherent in estimating quantities of proved reserves and cash flows from such reserves, including factors beyond our control and the control of McCune Engineering. Reserve engineering is a subjective process of estimating underground accumulations of natural gas and oil that can be economically extracted, which cannot be measured in an exact manner.

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The accuracy of an estimate of quantities of reserves, or of cash flows attributable to these reserves, is a function of the available data, assumptions regarding future natural gas and oil prices, expenditures for future development and exploitation activities, and engineering and geological interpretation and judgment. Reserves and future cash flows may also be subject to material downward or upward revisions based upon production history, development and exploitation activities and natural gas and oil prices. Actual future production, revenue, taxes, development expenditures, operating expenses, quantities of recoverable reserves and value of cash flows from those reserves may vary significantly from the assumptions and estimates in our reserve reports. Any significant variance from these assumptions to actual figures could greatly affect our estimates of reserves, the economically recoverable quantities of natural gas and oil attributable to any particular group of properties, the classification of reserves based on risk of recovery, and estimates of the future net cash flows. In addition, reserve engineers may make different estimates of reserves and cash flows based on the same available data. The estimated quantities of proved reserves and the discounted present value of future net cash flows attributable to those reserves included in this report were prepared by McCune Engineering in accordance with rules of the Securities and Exchange Commission, or SEC, and are not intended to represent the fair market value of such reserves.

The present value of future net cash flows from our proved reserves is not necessarily the same as the current market value of our estimated reserves. We base the estimated discounted future net cash flows from our proved reserves on prices and costs. However, actual future net cash flows from our natural gas and oil properties also will be affected by factors such as:

• Geological conditions;

• Assumptions governing future oil and natural gas prices;

• Amount and timing of actual production;

• Availability of funds;

• Future operating and development costs;

• Actual prices we receive for natural gas and oil;

• Supply and demand for our natural gas and oil;

• Changes in government regulations and taxation; and

• Capital costs of drilling new wells.

The timing of both our production and our incurrence of expenses in connection with the development and production of our properties will affect the timing of actual future net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with our business or the natural gas and oil industry in general.

The SEC permits natural gas and oil companies, in their public filings, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. The SEC’s guidelines strictly prohibit us from including “probable reserves” and “possible reserves” in such filings. We also caution you that the SEC views such “probable” and “possible” reserve estimates as inherently unreliable and these estimates may be seen as

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misleading to investors unless the reader is an expert in the natural gas and oil industry. Unless you have such expertise, you should not place undue reliance on these estimates. Potential investors should also be aware that such “probable” and “possible” reserve estimates will not be contained in any “resale” or other registration statement filed by us that offers or sells shares on behalf of purchasers of our common stock and may have an impact on the valuation of the resale of the shares. Except as required by applicable law, we undertake no duty to update this information and do not intend to update this information.

The differential between the New York Mercantile Exchange, or NYMEX, or other benchmark price of oil and natural gas and the wellhead price we receive could have a material adverse effect on our results of operations, financial condition and cash flows.

The prices that we receive for our oil and natural gas production sometimes trade at a discount to the relevant benchmark prices, such as NYMEX, that are used for calculating hedge positions. The difference between the benchmark price and the price we receive is called a differential. We cannot accurately predict oil and natural gas differentials. In recent years for example, production increases from competing Canadian and Rocky Mountain producers, in conjunction with limited refining and pipeline capacity from the Rocky Mountain area, have gradually widened this differential. Increases in the differential between the benchmark price for oil and natural gas and the wellhead price we receive could have a material adverse effect on our results of operations, financial condition and cash flows by decreasing the proceeds we receive for our oil and natural gas production in comparison to what we would receive if not for the differential.

The natural gas and oil business involves numerous uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.

Our development, exploitation and exploration activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a natural gas and oil well does not ensure a profit on investment. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economical. In addition to their cost, unsuccessful wells can hurt our efforts to replace reserves.

The natural gas and oil business involves a variety of operating risks, including:

• unexpected operational events and/or conditions;

• unusual or unexpected geological formations;

• reductions in natural gas and oil prices;

• limitations in the market for oil and natural gas;

• adverse weather conditions;

• facility or equipment malfunctions;

• title problems;

• natural gas and oil quality issues;

• pipe, casing, cement or pipeline failures;

• natural disasters;

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• fires, explosions, blowouts, surface cratering, pollution and other risks or accidents;

• environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases;

• compliance with environmental and other governmental requirements; and

• uncontrollable flows of oil, natural gas or well fluids.

If we experience any of these problems, it could affect well bores, gathering systems and processing facilities, which could adversely affect our ability to conduct operations. We could also incur substantial losses as a result of:

• injury or loss of life;

• severe damage to and destruction of property, natural resources and equipment;

• pollution and other environmental damage;

• clean-up responsibilities;

• regulatory investigation and penalties;

• suspension of our operations; and

• repairs to resume operations.

Because we use third-party drilling contractors to drill our wells, we may not realize the full benefit of worker compensation laws in dealing with their employees. Our insurance does not protect us against all operational risks. We do not carry business interruption insurance at levels that would provide enough funds for us to continue operating without access to other funds. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could impact our operations enough to force us to cease our operations.

Drilling wells is speculative, often involving significant costs that may be more than our estimates, and may not result in any addition to our production or reserves. Any material inaccuracies in drilling costs, estimates or underlying assumptions will materially affect our business.

Developing and exploring for natural gas and oil involves a high degree of operational and financial risk, which precludes definitive statements as to the time required and costs involved in reaching certain objectives. The budgeted costs of drilling, completing and operating wells are often exceeded and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oilfield equipment and related services. Drilling may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a natural gas or oil well does not ensure a profit on investment. Exploratory wells bear a much greater risk of loss than development wells. However, approximately 90% of our wells drilled through March 31, 2008 have been development wells. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economic. Our initial drilling and development sites, and any potential additional sites that may be developed, require significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development. If our actual drilling and development costs are

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significantly more than our estimated costs, we may not be able to continue our business operations as proposed and would be forced to modify our plan of operation.

Development of our reserves, when established, may not occur as scheduled and the actual results may not be as anticipated. Drilling activity and access to capital may result in downward adjustments in reserves or higher than anticipated costs. Our estimates will be based on various assumptions, including assumptions over which we have control and assumptions required by the SEC relating to natural gas and oil prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. We have control over our operations that affect, among other things, acquisitions and dispositions of properties, availability of funds, use of applicable technologies, hydrocarbon recovery efficiency, drainage volume and production decline rates that are part of these estimates and assumptions and any variance in our operations that affects these items within our control may have a material effect on reserves. The process of estimating our natural gas and oil reserves is anticipated to be extremely complex, and will require significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Our estimates may not be reliable enough to allow us to be successful in our intended business operations. Our actual production, revenues, taxes, development expenditures and operating expenses will likely vary from those anticipated. These variances may be material.

Unless we replace our oil and natural gas reserves, our reserves and production will decline, which would adversely affect our cash flows and income.

Unless we conduct successful development, exploitation and exploration activities or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced. Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Our future oil and natural gas reserves and production, and, therefore our cash flow and income, are highly dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional recoverable reserves. We may be unable to make such acquisitions because we are:

• unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts with them;

• unable to obtain financing for these acquisitions on economically acceptable terms; or

• outbid by competitors.

If we are unable to develop, exploit, find or acquire additional reserves to replace our current and future production, our cash flow and income will decline as production declines, until our existing properties would be incapable of sustaining commercial production.

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A significant portion of our potential future reserves and our business plan depend upon secondary recovery techniques to establish production. There are significant risks associated with such techniques.

We anticipate that a significant portion of our future reserves and our business plan will be associated with secondary recovery projects that are either in the initial stage of implementation or are scheduled for implementation. We anticipate that secondary recovery will affect our reserves and our business plan, and the exact project initiation dates and, by the very nature of waterflood operations, the exact completion dates of such projects are uncertain. In addition, the reserves and our business plan associated with these secondary recovery projects, as with any reserves, are estimates only, as the success of any development project, including these waterflood projects, cannot be ascertained in advance. If we are not successful in developing a significant portion of our reserves associated with secondary recovery methods, then the project may be uneconomic or generate less cash flow and reserves than we had estimated prior to investing the capital. Risks associated with secondary recovery techniques include, but are not limited to, the following:

• higher than projected operating costs;

• lower-than-expected production;

• longer response times;

• higher costs associated with obtaining capital;

• unusual or unexpected geological formations;

• fluctuations in natural gas and oil prices;

• regulatory changes;

• shortages of equipment; and

• lack of technical expertise.

If any of these risks occur, it could adversely affect our financial condition or results of operations.

Any acquisitions we complete are subject to considerable risk.

Even when we make acquisitions that we believe are good for our business, any acquisition involves potential risks, including, among other things:

• the validity of our assumptions about reserves, future production, revenues and costs, including synergies;

• an inability to integrate successfully the businesses we acquire;

• a decrease in our liquidity by using our available cash or borrowing capacity to finance acquisitions;

• a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions;

• the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate;

• the diversion of management’s attention from other business concerns;

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• an inability to hire, train or retain qualified personnel to manage the acquired properties or assets;

• the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges;

• unforeseen difficulties encountered in operating in new geographic or geological areas; and

• customer or key employee losses at the acquired businesses.

Our decision to acquire a property will depend in part on the evaluation of data obtained from production reports and engineering studies, geophysical and geological analyses and seismic and other information, the results of which are often incomplete or inconclusive.

Our reviews of acquired properties can be inherently incomplete because it is not always feasible to perform an in-depth review of the individual properties involved in each acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination, plugging or orphaned well liability are not necessarily observable even when an inspection is undertaken.

We must obtain governmental permits and approvals for drilling operations, which can result in delays in our operations, be a costly and time consuming process, and result in restrictions on our operations.

Regulatory authorities exercise considerable discretion in the timing and scope of permit issuances in the region in which we operate. Compliance with the requirements imposed by these authorities can be costly and time consuming and may result in delays in the commencement or continuation of our exploration or production operations and/or fines. Regulatory or legal actions in the future may materially interfere with our operations or otherwise have a material adverse effect on us. In addition, we are often required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that a proposed project may have on the environment, threatened and endangered species, and cultural and archaeological artifacts. Accordingly, the permits we need may not be issued, or if issued, may not be issued in a timely fashion, or may involve requirements that restrict our ability to conduct our operations or to do so profitably.

Due to our lack of geographic diversification, adverse developments in our operating areas would materially affect our business.

We currently only lease and operate oil and natural gas properties located in Eastern Kansas. As a result of this concentration, we may be disproportionately exposed to the impact of delays or interruptions of production from these properties caused by significant governmental regulation, transportation capacity constraints, curtailment of production, natural disasters, adverse weather conditions or other events which impact this area.

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We depend on a small number of customers for all, or a substantial amount of our sales. If these customers reduce the volumes of oil and natural gas they purchase from us, our revenue and cash available for distribution will decline to the extent we are not able to find new customers for our production.

We have contracted with Shell for the sale of our oil through September 2009 and will likely contract for the sale of our natural gas with one, or a small number, of buyers. It is not likely that there will be a large pool of available purchasers. If a key purchaser were to reduce the volume of oil or natural gas it purchases from us, our revenue and cash available for operations will decline to the extent we are not able to find new customers to purchase our production at equivalent prices.

We are not the operator of some of our properties and we have limited control over the activities on those properties.

We are not the operator on our Black Oaks Project. We have only limited ability to influence or control the operation or future development of the Black Oaks Project or the amount of capital expenditures that we can fund with respect to it. In the case of the Black Oaks Project, our dependence on the operator, Haas Petroleum, limits our ability to influence or control the operation or future development of the project. Such limitations could materially adversely affect the realization of our targeted returns on capital related to exploration, drilling or production activities and lead to unexpected future costs.

We may suffer losses or incur liability for events for which we or the operator of a property have chosen not to obtain insurance.

Our operations are subject to hazards and risks inherent in producing and transporting natural gas and oil, such as fires, natural disasters, explosions, pipeline ruptures, spills, and acts of terrorism, all of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to our and others’ properties. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. In addition, pollution and environmental risks generally are not fully insurable. As a result of market conditions, existing insurance policies may not be renewed and other desirable insurance may not be available on commercially reasonable terms, if at all. The occurrence of an event that is not covered, or not fully covered, by insurance could have a material adverse effect on our business, financial condition and results of operations.

Our hedging activities could result in financial losses or could reduce our available funds or income and therefore adversely affect our financial position.

To achieve more predictable cash flow and to reduce our exposure to adverse fluctuations in the prices of oil and natural gas, we have entered into derivative arrangements from April 1, 2008 until March 31, 2011, for 130 barrels of oil per day that could result in both realized and unrealized hedging losses. As of March 31, 2008 we had not incurred any such losses. The extent of our commodity price exposure is related largely to the effectiveness and scope of our derivative activities. For example, the derivative instruments we may utilize may be based on

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posted market prices, which may differ significantly from the actual crude oil, natural gas and NGL prices we realize in our operations.

Our actual future production may be significantly higher or lower than we estimate at the time we enter into derivative transactions for such period. If the actual amount is higher than we estimate, we will have greater commodity price exposure than we intended. If the actual amount is lower than the nominal amount that is subject to our derivative financial instruments, we might be forced to satisfy all or a portion of our derivative transactions without the benefit of the cash flow from our sale or purchase of the underlying physical commodity, resulting in a substantial diminution of our liquidity. As a result of these factors, our derivative activities may not be as effective as we intend in reducing the volatility of our cash flows, and in certain circumstances may actually increase the volatility of our cash flows. In addition, our derivative activities are subject to the risks that a counterparty, such as Shell or BP, may not perform its obligation under the applicable derivative instrument. Moreover, unless we execute an intercreditor agreement with Shell or BP, there is a risk that we will be required to post collateral to secure our hedging activities and this could limit the funds available to us for our business activities.  If oil exceeds $210 a barrel before the intercreditor agreement is in place, and we are unable to post the collateral, there is a risk that our hedged positions could be liquidated and we could incur significant losses.

Our business depends in part on gathering and transportation facilities owned by others. Any limitation in the availability of those facilities could interfere with our ability to market our oil and natural gas production and could harm our business.

The marketability of our oil and natural gas production will depend in a very large part on the availability, proximity and capacity of pipelines, oil and natural gas gathering systems and processing facilities. The amount of oil and natural gas that can be produced and sold is subject to curtailment in certain circumstances, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on such systems. The curtailments arising from these and similar circumstances may last from a few days to several months. In many cases, we will be provided only with limited, if any, notice as to when these circumstances will arise and their duration. Any significant curtailment in gathering system or pipeline capacity could significantly reduce our ability to market our oil and natural gas production and harm our business.

The high cost of drilling rigs, equipment, supplies, personnel and other services could adversely affect our ability to execute on a timely basis our development, exploitation and exploration plans within our budget.

Shortages or an increase in cost of drilling rigs, equipment, supplies or personnel could delay or interrupt our operations, which could impact our financial condition and results of operations. Drilling activity in the geographic areas in which we conduct drilling activities may increase, which would lead to increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. Increased drilling activity in these areas may also decrease the availability of rigs. Although Haas Petroleum has agreed to provide two drilling rigs to the Black Oaks Project, we

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do not have any contracts for drilling rigs and drilling rigs may not be readily available when we need them. Drilling and other costs may increase further and necessary equipment and services may not be available to us at economical prices.

Our exposure to possible leasehold defects and potential title failure could materially adversely impact our ability to conduct drilling operations.

We obtain the right and access to properties for drilling by obtaining oil and natural gas leases either directly from the hydrocarbon owner, or through a third party that owns the lease. The leases may be taken or assigned to us without title insurance. There is a risk of title failure with respect to such leases, and such title failures could materially adversely impact our business by causing us to be unable to access properties to conduct drilling operations.

Our reserves are subject to the risk of depletion because many of our leases are in mature fields that have produced large quantities of oil and natural gas to date.

Our operations are located in established fields in Eastern Kansas. As a result, many of our leases are in, or directly offset, areas that have produced large quantities of oil and natural gas to date. The degree of depletion for each of our projects, as detailed in Part I by project, ranges from approximately 0% to 78%. As such, our reserves may be partially or completely depleted by offsetting wells or previously drilled wells, which could significantly harm our business.

Our lease ownership may be diluted due to financing strategies we may employ in the future due to our lack of capital.

To accelerate our development efforts we plan to take on working interest partners who will contribute to the costs of drilling and completion and then share in revenues derived from production. In addition, we may in the future, due to a lack of capital or other strategic reasons, establish joint venture partnerships or farm out all or part of our development efforts. These economic strategies may have a dilutive effect on our lease ownership and could significantly reduce our operating revenues.

We are subject to complex laws and regulations, including environmental regulations, which can adversely affect the cost, manner or feasibility of doing business.

Development, production and sale of natural gas and oil in the United States are subject to extensive laws and regulations, including environmental laws and regulations. We may be required to make large expenditures to comply with environmental and other governmental regulations. Matters subject to regulation include, but are not limited to:

• location and density of wells;

• the handling of drilling fluids and obtaining discharge permits for drilling operations;

• accounting for and payment of royalties on production from state, federal and Indian lands;

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• bonds for ownership, development and production of natural gas and oil properties;

• transportation of natural gas and oil by pipelines;

• operation of wells and reports concerning operations; and

• taxation.

Under these laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that substantially increase our costs. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations enough to possibly force us to cease our business operations.

Our operations may expose us to significant costs and liabilities with respect to environmental, operational safety and other matters.

We may incur significant costs and liabilities as a result of environmental and safety requirements applicable to our oil and natural gas exploration and production activities. We may also be exposed to the risk of costs associated with Kansas Corporation Commission requirements to plug orphaned and abandoned wells on our oil and natural gas leases from wells previously drilled by third parties. In addition, we may indemnify sellers or lessors of oil and natural gas properties for environmental liabilities they or their predecessors may have created. These costs and liabilities could arise under a wide range of federal, state and local environmental and safety laws and regulations, including regulations and enforcement policies, which have tended to become increasingly strict over time. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of cleanup and site restoration costs, liens and to a lesser extent, issuance of injunctions to limit or cease operations. In addition, claims for damages to persons or property may result from environmental and other impacts of our operations.

Strict, joint and several liability may be imposed under certain environmental laws, which could cause us to become liable for the conduct of others or for consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken. New laws, regulations or enforcement policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. If we are not able to recover the resulting costs through insurance or increased revenues, our ability to operate effectively could be adversely affected.

Our facilities and activities could be subject to regulation by the Federal Energy Regulatory Commission or the Department of Transportation, which could take actions that could result in a material adverse effect on our financial condition.

Although it is anticipated that our natural gas gathering systems will be exempt from FERC and DOT regulation, any revisions to this understanding may affect our rights, liabilities, and access to midstream or interstate natural gas transportation, which could have a material adverse effect on our operations and financial condition. In addition, the cost of compliance with

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any revisions to FERC or DOT rules, regulations or requirements could be substantial and could adversely affect our ability to operate in an economic manner. Additional FERC and DOT rules and legislation pertaining to matters that could affect our operations are considered and adopted from time to time. We cannot predict what effect, if any, such regulatory changes and legislation might have on our operations, but we could be required to incur additional capital expenditures and increased costs.

Although our natural gas sales activities are not currently projected to be subject to rate regulation by FERC, if FERC finds that in connection with making sales in the future, we (i) failed to comply with any applicable FERC administered statutes, rules, regulations or orders, (ii) engaged in certain fraudulent acts, or (iii) engaged in market manipulation, we could be subject to substantial penalties and fines of up to $1.0 million per day per violation.

We operate in a highly competitive environment and our competitors may have greater resources than us.

The natural gas and oil industry is intensely competitive and we compete with other companies, many of which are larger and have greater financial, technological, human and other resources. Many of these companies not only explore for and produce crude oil and natural gas but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. Such companies may be able to pay more for productive natural gas and oil properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, such companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. If we are unable to compete, our operating results and financial position may be adversely affected.

We may incur substantial write-downs of the carrying value of our natural gas and oil properties, which would adversely impact our earnings.

We review the carrying value of our natural gas and oil properties under the full-cost accounting rules of the SEC on a quarterly basis. This quarterly review is referred to as a ceiling test. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes, may not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for cash flow hedges) less estimated future expenditures to be incurred in developing and producing the proved reserves, less any related income tax effects. In calculating future net revenues, current prices and costs used are those as of the end of the appropriate quarterly period. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts, including the effects of derivatives qualifying as cash flow hedges. Two primary factors impacting this test are reserve levels and current prices, and their associated impact on the present value of estimated future net revenues. Revisions to estimates of natural gas and oil reserves and/or an increase or decrease in prices can have a material impact on the present value of estimated future net revenues. Any excess of the net book value, less deferred income taxes, is generally written off

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as an expense. Under SEC regulations, the excess above the ceiling is not expensed (or is reduced) if, subsequent to the end of the period, but prior to the release of the financial statements, natural gas and oil prices increase sufficiently such that an excess above the ceiling would have been eliminated (or reduced) if the increased prices were used in the calculations.

We have recorded a total of $742,040 in impairments on our oil and natural gas properties based on the ceiling test under the full-cost method in the years ended March 31, 2007 and 2006. There was no impairment in the year ended March 31, 2008.

We will need additional capital in the future to finance our planned growth, which we may not be able to raise or may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results.

We have and expect to continue to have substantial capital expenditure and working capital needs. We will need to rely on cash flow from operations and borrowings under our credit facility or raise additional cash to fund our operations, pay outstanding long-term debt, fund our anticipated reserve replacement needs and implement our growth strategy, or respond to competitive pressures and/or perceived opportunities, such as investment, acquisition, exploration, workover and development activities.

If low natural gas and oil prices, operating difficulties or other factors, many of which are beyond our control, cause our revenues or cash flows from operations to decrease, we may be limited in our ability to spend the capital necessary to complete our development, production exploitation and exploration programs. If our resources or cash flows do not satisfy our operational needs, we will require additional financing, in addition to anticipated cash generated from our operations, to fund our planned growth. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited. In such a capital restricted situation, we may curtail our acquisition, drilling, development, and exploration activities or be forced to sell some of our assets on an untimely or unfavorable basis.

If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders would be reduced, and these newly issued securities might have rights, preferences or privileges senior to those of existing stockholders.

Our success depends on our key management and professional personnel, including C. Stephen Cochennet, the loss of whom would harm our ability to execute our business plan.

Our success depends heavily upon the continued contributions of C. Stephen Cochennet, whose knowledge, leadership and technical expertise would be difficult to replace, and on our ability to retain and attract experienced engineers, geoscientists and other technical and professional staff. We have not entered into an employment agreement with Mr. Cochennet, nor do we maintain key person insurance on Mr. Cochennet. If we were to lose his services, our

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ability to execute our business plan would be harmed and we may be forced to significantly alter our operations until such time as we could hire a suitable replacement for Mr. Cochennet.

Risks Associated with our Debt Financing

Until we repay the full amount of our outstanding debentures and credit facility, we may continue to have substantial indebtedness, which is secured by substantially all of our assets.

On July 7, 2008, $2.7 million in debentures and approximately $12.75 million of bank loans and letters of credit were outstanding. In the event that we default with respect to the debentures or other secured debt, the lenders may enforce their rights as a secured party and we may lose all or a portion of our assets or be forced to materially reduce our business activities.

Our substantial indebtedness could make it more difficult for us to fulfill our obligations under our new credit facility and our debentures and, therefore, adversely affect our business.

        On July 3, 2008, we entered into a three-year, senior secured revolving credit facility providing for aggregate borrowings of up to $50 million.  As of July 7, 2008, we had total indebtedness of $13.6 million, including $10.8 million of initial borrowings under the credit facility and $2.7 million of remaining debentures.  In addition, we have requested letters of credit under the new facility totaling $2.0 million.  Our substantial indebtedness, and the related interest expense, could have important consequences to us, including:

• limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our business strategy, or other general corporate purposes;

• limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service our indebtedness;

• increasing our vulnerability to general adverse economic and industry conditions;

• placing us at a competitive disadvantage as compared to our competitors that have less leverage;

• limiting our ability to capitalize on business opportunities and to react to competitive pressures and changes in government regulation;

• limiting our ability to, or increasing the cost of, refinancing our indebtedness; and

• limiting our ability to enter into marketing, hedging, optimization and trading transactions by reducing the number of counterparties with whom we can enter into such transactions as well as the volume of those transactions.

The covenants in our new credit facility and debentures impose significant operating and financial restrictions on us.

        The new credit facility and our debentures impose significant operating and financial restrictions on us.  These restrictions limit our ability and the ability of our subsidiaries, among other things, to:

• incur additional indebtedness and provide additional guarantees;

• pay dividends and make other restricted payments;

• create or permit certain liens;

• use the proceeds from the sales of our oil and natural gas properties;

• engage in certain transactions with affiliates;

• consolidate, merge, sell or transfer all or substantially all of our assets or the assets of our subsidiaries.

        The new credit facility and our debentures also contain various affirmative covenants with which we are required to comply.  Although we currently expect to comply with these covenants, we may be unable to comply with some or all of them in the future.  If we do not comply with these covenants and are unable to obtain waivers from our lenders, we would be unable to make additional borrowings under these facilities, our indebtedness under these agreements would be in default and could be accelerated by our lenders.  In addition, it could cause a cross-default under our indebtedness, including our debentures.  If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it.  In addition, if we incur additional indebtedness in the future, we may be subject to additional covenants, which may be more restrictive than those to which we are currently subject.

Risks Associated with our Common Stock

Our common stock is traded on an illiquid market, making it difficult for investors to sell their shares.

As of March 23, 2007, our common stock commenced trading on the Over-the-Counter Bulletin Board under the symbol “EJXR,” but trading has been minimal. Therefore, the market for our common stock is limited. The trading price of our common stock could be subject to wide fluctuations. Investors may not be able to purchase additional shares or sell their shares within the time frame or at a price they desire.

The price of our common stock may be volatile and you may not be able to resell your shares at a favorable price.

Regardless of whether an active trading market for our common stock develops, the market price of our common stock may be volatile and you may not be able to resell your shares at or above the price you paid for such shares. The following factors could affect our stock price:

• our operating and financial performance and prospects;

• quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and revenues;

• changes in revenue or earnings estimates or publication of research reports by analysts about us or the exploration and production industry;

• potentially limited liquidity;

• actual or anticipated variations in our reserve estimates and quarterly operating results;

• changes in natural gas and oil prices;

• sales of our common stock by significant stockholders and future issuances of our common stock;

• increases in our cost of capital;

• changes in applicable laws or regulations, court rulings and enforcement and legal actions;

• commencement of or involvement in litigation;

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• changes in market valuations of similar companies;

• additions or departures of key management personnel;

• general market conditions, including fluctuations in and the occurrence of events or trends affecting the price of natural gas and oil; and

• domestic and international economic, legal and regulatory factors unrelated to our performance.

Our articles of incorporation, bylaws and Nevada Law contain provisions that could discourage an acquisition or change of control of us.

Our articles of incorporation authorize our board of directors to issue preferred stock and common stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire control of us. In addition, provisions of the articles of incorporation and bylaws could also make it more difficult for a third party to acquire control of us. In addition, Nevada’s “Combination with Interested Stockholders’ Statute” and its “Control Share Acquisition Statute” may have the effect in the future of delaying or making it more difficult to effect a change in control of us.

These statutory anti-takeover measures may have certain negative consequences, including an effect on the ability of our stockholders or other individuals to (i) change the composition of the incumbent board of directors; (ii) benefit from certain transactions which are opposed by the incumbent board of directors; and (iii) make a tender offer or attempt to gain control of us, even if such attempt were beneficial to us and our stockholders. Since such measures may also discourage the accumulations of large blocks of our common stock by purchasers whose objective is to seek control of us or have such common stock repurchased by us or other persons at a premium, these measures could also depress the market price of our common stock. Accordingly, our stockholders may be deprived of certain opportunities to realize the “control premium” associated with take-over attempts.

We have no plans to pay dividends on our common stock. You may not receive funds without selling your stock.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Our future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements, investment opportunities and restrictions imposed by our debentures and credit facility.

We may issue shares of preferred stock with greater rights than our common stock.

Although we have no current plans, arrangements, understandings or agreements to issue any preferred stock, our articles of incorporation authorizes our board of directors to issue one or more series of preferred stock and set the terms of the preferred stock without seeking any further approval from our stockholders. Any preferred stock that is issued may rank ahead of our

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common stock, with respect to dividends, liquidation rights and voting rights, among other things.

We have derivative securities currently outstanding. Exercise of these derivatives will cause dilution to existing and new stockholders.

As of March 31, 2008, we had options and warrants to purchase approximately 2,667,500 shares of common stock outstanding in addition to 12,500 shares issuable upon conversion of a convertible note. The exercise of our outstanding options and warrants, and the conversion of the note, will cause additional shares of common stock to be issued, resulting in dilution to our existing common stockholders.

Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

• Deliver to the customer, and obtain a written receipt for, a disclosure document;

• Disclose certain price information about the stock;

• Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

• Send monthly statements to customers with market and price information about the penny stock; and

• In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.       

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board.  More specifically, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission.  Pursuant to Rule 6530(e), if we file our reports late with the Commission

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three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period then we will be ineligible for quotation on the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

FINRA sales practice requirements may limit a stockholder's ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 3. LEGAL PROCEEDINGS.

We may become involved in various routine legal proceedings incidental to our business. However, to our knowledge as of the date of this report, there are no material pending legal proceedings to which we are a party or to which any of our property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

We did not submit any matters to a vote of our security holders during the fourth quarter ended March 31, 2008. However, subsequent to the fiscal year ended March 31, 2008, we held a special meeting of our stockholders on May 27, 2008. The sole business conducted at the meeting was to approve a proposal to grant discretionary authority to our board of directors to enact a reverse stock split on a 1-for-5 basis at any time over the twelve months following approval of the proposal.

Each share of our common stock was entitled to one vote. Only stockholders of record at the close of business on April 15, 2008, were entitled to vote. The number of outstanding shares at the time was 22,203,256 held by approximately 1,148 stockholders. The required quorum of stockholders was present at this meeting with 13,150,458 shares (approximately 60%) represented in person or by proxy.

Votes on the approval of granting discretionary authority to our board to enact the reverse stock split were as follows:

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For	Against	Withheld
13,150,431	27	0

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) Market Information

PRICE RANGE OF COMMON STOCK

Prior to completion of the reverse merger with Midwest Energy in August of 2006, our common stock was sporadically traded in the inter-dealer markets of the OTC:BB, “pink sheets” and “gray sheets” under the symbol “MPCO.” As of March 23, 2007, our common stock commenced trading on the OTC:BB under the symbol “EJXR.” Our common stock has traded infrequently on the OTC:BB, which limits our ability to locate accurate high and low bid prices for each quarter within the last two fiscal years. Therefore, the following table lists the quotations for the high and low bid prices as reported by a Quarterly Trade and Quote Summary Report of the OTC Bulletin Board and Yahoo! Finance for fiscal years 2007 and 2008. The quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not represent actual transactions.

		Low	High
Fiscal 2007
	Quarter ended June 30, 2006	$ 0.10	$ 1.25
	Quarter ended September 30, 2006	0.90	1.50
	Quarter ended December 31, 2006	0.75	1.20
	Quarter ended March 31, 2007	0.10	0.12
Fiscal 2008
	Quarter ended June 30, 2007	1.00	1.25
	Quarter ended September 30, 2007	0.75	1.35
	Quarter ended December 31, 2007	0.70	1.20
	Quarter ended March 31, 2008	0.81	1.20

The last reported sale price of our common stock on the OTC:BB was $1.05 per share on June 24, 2008.

(b) Holders of Common Stock

As of June 24, 2008, there were 1,138 holders of record of our common stock.

(c) Dividends

We have never paid or declared any cash dividends on our common stock. We currently intend to retain any future earnings to finance the growth and development of our business and

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we do not expect to pay any cash dividends on our common stock in the foreseeable future. In addition, we are contractually prohibited by the terms of our outstanding debt from paying cash dividends on our common stock. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments, including the consent of debt holders, if applicable at such time, and other factors our board of directors deems relevant.

(d) Securities Authorized for Issuance under Equity Compensation Plans

2000/2001 Stock Option Plan

The Board of Directors approved the 2000/2001 Stock Option Plan and our stockholders ratified the plan on September 25, 2000. The total number of options that can be granted under the plan is 1,000,000 shares. The options are exercisable for a term of four years at a per share price of $1.25.

Stock Option Plan

The Board of Directors approved the EnerJex Resources, Inc. Stock Option Plan on August 1, 2002 (the “2002-2003 Stock Option Plan”). Originally, the total number of options that could be granted under the plan was not to exceed 2,000,000 shares. On May 4, 2007, the governance, compensation, and nominating committee amended and restated the stock option plan to rename the plan and to increase the number of shares issuable to 5,000,000. Our stockholders approved this plan in September of 2007.

In no event may the option price with respect to any stock option granted under the 2002-2003 Stock Option Plan be less than the fair market value of such common stock. However the price of an incentive stock option will not be less than 110% of the fair market value per share on the date of the grant in the case of an individual then owning more than 10% of the total combined voting power of all classes of stock of the corporation.

Each option granted under the 2002-2003 Stock Option Plan will be assigned a time period for exercising not to exceed ten years after the date of the grant. Certain other restrictions will apply in connection with this plan when some awards may be exercised.

In the event of a change of control (as defined in the plan), the date on which all options outstanding under the plan may first be exercised will be accelerated. Generally, all options terminate 90 days after a change of control.

General Terms of Stock Option Plans

Officers (including officers who are members of the board of directors), directors, and other employees and consultants and our subsidiaries (if established) will be eligible to receive options under the stock option plans. A committee of the board of directors will administer the stock option plans and will determine those persons to whom options will be granted, the number

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of options to be granted, the provisions applicable to each grant and the time periods during which the options may be exercised. No options may be granted more than ten years after the date of the adoption of the stock option plans.

Non-qualified stock options will be granted by the committee with an option price equal to the fair market value of the shares of common stock to which the non-qualified stock option relates on the date of grant. The committee may, in its discretion, determine to price the non-qualified option at a different price. In no event may the option price with respect to an incentive stock option granted under the stock option plans be less than the fair market value of such common stock to which the incentive stock option relates on the date the incentive stock option is granted. However the price of an incentive stock option will not be less than 110% of the fair market value per share on the date of the grant in the case of an individual then owning more than 10% of the total combined voting power of all classes of stock of the corporation.

Each option granted under the stock option plans will be exercisable for a term of not more than ten years after the date of grant. Certain other restrictions will apply in connection with the plans when some awards may be exercised. In the event of a change of control (as defined in the stock option plans), the date on which all options outstanding under the stock option plans may first be exercised will be accelerated. Generally, all options terminate 90 days after a change of control.

These plans are intended to encourage directors, officers, employees and consultants to acquire ownership of common stock. The opportunity so provided is intended to foster in participants a strong incentive to put forth maximum effort for our continued success and growth, to aid in retaining individuals who put forth such effort, and to assist in attracting the best available individuals in the future.

Recent Sales of Unregistered Securities

On January 16, 2008, we granted 117,500 options to purchase shares of our common stock to three employees. The options are exercisable until January 15, 2011 at a per share price of $1.25. Each option was fully vested upon grant. We believe that the option grants were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

Subsequent Issuances After Year-End.

On May 15, 2008, we issued 10,910 shares to Daran G. Dammeyer for serving as the chairman of our audit committee. We believe that the issuance of shares of common stock was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the fiscal years ended March 31, 2008 or 2007.

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ITEM 6. SELECTED FINANCIAL DATA.

Not applicable.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to our financial statements included elsewhere in this report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under ITEM 1A. Risk Factors and elsewhere in this report.

Overview

Our principal strategy is to focus on the acquisition of oil and natural gas mineral leases that have existing production and cash flow. Once acquired, we implement an accelerated development program utilizing capital resources, a regional operating focus, an experienced management and technical team, and enhanced recovery technologies to attempt to increase production and increase returns for our stockholders. Our oil and natural gas acquisition and development activities are currently focused in Eastern Kansas.

In fiscal 2008, we deployed approximately $9.5 million in capital resources to acquire and develop five operating projects and drill 100 new wells (69 producing wells and 31 water injection wells). As a result, our estimated total proved oil reserves increased from zero as of March 31, 2007 to a net 1.4 million barrels of oil equivalent, or BOE, as of March 31, 2008. Of the 1.4 million BOE of total proved reserves, approximately 64% are proved developed and approximately 36% are proved undeveloped. The proved developed reserves consist of 82% proved developed producing reserves and 18% proved developed non-producing reserves.

The total proved PV10 (present value) before tax of our reserves as of March 31, 2008 was $39.6 million. PV10 is a non-GAAP financial measure and generally differs from the standardized measure of discounted future net cash flows, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

We have several other projects that are in various stages of discussions, and we are continually evaluating oil and natural gas opportunities in Eastern Kansas. We plan to continue to bring multiple potential acquisitions to various financial partners for evaluation and funding options. It is our vision to grow the business in a disciplined and well-planned manner.

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In addition to raising additional capital, we may take on working interest participants that will contribute to the capital costs of drilling and completion and then share in revenues derived from production. This economic strategy will allow us to utilize our own financial assets toward the growth of our leased acreage holdings, pursue the acquisition of strategic oil and natural gas producing properties or companies and generally expand our existing operations while further diversifying risk.

We began generating revenues from the sale of oil during the fiscal year ended March 31, 2008. We expect our production to continue to increase, both through development of wells and through our acquisition strategy. Our future financial results will continue to depend on: (i) our ability to source and screen potential projects; (ii) our ability to discover commercial quantities of natural gas and oil; (iii) the market price for oil and natural gas; and (iv) our ability to fully implement our exploration, workover and development program, which is in part dependent on the availability of capital resources. There can be no assurance that we will be successful in any of these respects, that the prices of oil and natural gas prevailing at the time of production will be at a level allowing for profitable production, or that we will be able to obtain additional funding at terms favorable to us to increase our currently limited capital resources. The board of directors has implemented a crude oil and natural gas hedging strategy that will allow management to hedge up to 80% of our net production to mitigate a majority of our exposure to changing oil prices in the intermediate term.

Recent Developments

As of March 31, 2008, our production was 248 BOPD, our estimated total proved reserves were 1.4 million BOE and the total proved PV10 (present value) before tax of our reserves was $39.6 million. See “Glossary” on page 22 for our definition of PV10 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Reserves” page 54, for a reconciliation to the comparable GAAP financial measure.

On March 6, 2008, we entered into an agreement with Shell whereby we agreed to an 18-month fixed-price swap with Shell for 130 BOPD at a fixed price per barrel of $96.90, before transportation costs. This represents approximately 60% of our total current oil production on a net revenue basis and locks in approximately $6.8 million in gross revenue before transportation costs over the 18 month period. In addition, we agreed to sell all of our remaining oil production at current spot market pricing beginning April 1, 2008 through September 30, 2009 to Shell.

Our in-fill drilling and waterflood enhanced recovery techniques at the Black Oaks Project has increased oil production to an average of approximately 112 BOPD from a level of an average of approximately 32 BOPD per day when the project was originally acquired. As of March 31, 2008, the Black Oaks Project had 62 active production wells and 13 active water injection wells, an increase of 27 production wells and 5 water injection wells since the project was originally acquired. Subject to availability of capital, we anticipate commencing Phase II of the development plan, which contemplates drilling 28 additional water injection wells and completing 23 additional producer wells.

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In June of 2008, we received our second payment of $300,000 from Euramerica related to its option exercise for the Gas City Project. To date, Euramerica has paid $600,000 of the $1.2 million purchase price and $500,000 of the $2.0 million development funds. Upon payment of the entire purchase price, Euramerica will be assigned a 95% working interest, and we will retain a 5% carried working interest before payout. When the project reaches payout, our 5% carried working interest will increase to a 25% working interest and Euramerica will have a 75% working interest.

On July 3, 2008, we entered into a new three-year $50 million senior secured credit facility with Texas Capital Bank, N. A. with an initial borrowing base of $10.75 million based on our current proved oil and natural gas reserves.  We used our initial borrowing under this facility of $10.75 million to redeem an aggregate principal amount of $6.3 million of our 10% debentures, assign approximately $2.0 million of our existing indebtedness with another bank to this facility, repay $965,000 of seller-financed notes, pay the transaction costs, fees and expenses of this new facility and expand our current development projects, including the completion of 31 new oil wells that have been drilled since May of 2008.

As of July 3, 2008, we entered into an ISDA master agreement and a costless collar with BP Corporation North America Inc., or BP, for 130 barrels of oil per day with a price floor of $132.50 per barrel and a price ceiling of $155.70 per barrel for NYMEX West Texas Intermediate for the period of October 1, 2009 until March 31, 2011.

On July 7, 2008, we amended the $2.7 million of aggregate principal amount of our 10% debentures that remain outstanding to, among other things, permit the indebtedness under our new credit facility, subordinate the security interests of the debentures to the new credit facility, provide for the redemption of the remaining debentures with the net proceeds from our next debt or equity offering and eliminate the covenant to maintain certain production thresholds.

Results of Operations for the Fiscal Years Ended March 31, 2008 and 2007 compared.

During the fiscal year ended March 31, 2007, we were in the early stage of developing properties in Kansas and had minimal production or revenues from those properties. Our operations as of March 31, 2007 were limited to technical evaluation of these properties, the design of development plans to exploit the oil and natural gas resources on those properties, as well as seeking financing opportunities to acquire additional oil and natural gas properties. Therefore comparisons between the fiscal year ended March 31, 2008 to the fiscal year ended March 31, 2007 are not indicative of our future results of operations.

Income:

	Fiscal Year Ended March 31,
	2008		2007		Increase / (Decrease)
	Amount		Amount		$
Oil and natural gas revenues	$	3,602,798	$	90,800	$	3,511,998

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Revenues

Oil and natural gas revenues for the fiscal year ended March 31, 2008 were $3,602,798 compared to revenues of $90,800 in the fiscal year ended March 31, 2007. The increase in revenues is primarily the result of the sale of oil from leases acquired beginning in April of 2007 and developed during the period. The average price per barrel of oil sold during the twelve months ended March 31, 2008 was $79.71. The average price per Mcf for natural gas sales during the fiscal year ended March 31, 2008 was $6.20, compared to $4.72 during the fiscal year ended March 31, 2007.

Expenses:

	Fiscal Year Ended March 31,
	2008		2007		Increase / (Decrease)
	Amount		Amount		$
Expenses:
Direct operating costs	$	1,795,188	$	172,417	$	1,622,771
Repairs on oil & gas equipment	-		165,603		(165,603)
Depreciation, depletion and amortization	913,224		11,477		901,747
Total production expenses	2,708,412		349,497		2,358,915
Professional fees	1,226,998		302,071		924,927
Salaries	1,703,099		288,016		1,415,083
Depreciation on other fixed assets	22,106		12,501		9,605
Administrative expense	887,872		182,773		705,099
Impairment of oil & gas properties	-		273,959		(273,959)
Impairment of goodwill	-		677,000		(677,000)
Total expenses	6,548,487		2,085,817		4,462,670

Direct Operating Costs and Repairs on Oil & Gas Equipment

Direct operating and repair costs for the fiscal year ended March 31, 2008 were $1,795,188 compared to $388,020 for the fiscal year ended March 31, 2007. The increase over the prior period reflects the operating costs on the oil leases acquired during the period beginning in April 2007. Direct costs include pumping, gauging, pulling, certain contract labor costs, and other non-capitalized expenses. Repair costs relate to major repair and maintenance projects.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization for the fiscal year ended March 31, 2008 was $913,224, compared to $11,477 for the fiscal year ended March 31, 2007. The increase was primarily a result of the depletion of oil reserves commensurate with our increase in production.

Professional Fees

Professional fees for the fiscal year ended March 31, 2008 were $1,226,998 compared to $302,071 for the fiscal year ended March 31, 2007. The increase in professional fees was largely

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the result of $773,659 in non-cash equity based payments made by issuing stock options to Directors and an outside consultant. Additionally, payments for services rendered in connection with acquisition and financing activities, our audit, legal and consulting fees increased with the increased operations of the business.

Salaries

Salaries for the fiscal year ended March 31, 2008 were $1,703,099 compared to $288,016 for the fiscal year ended March 31, 2007. Of the increase, $1,204,102 was related to non-cash equity based payments made by issuing stock options to our management. In addition, the number of full-time employees increased from 2 at March 31, 2007 to 9 at March 31, 2008.

Depreciation on Other Fixed Assets

Depreciation on other fixed assets fiscal year ended March 31, 2008 was $22,106 compared to $12,501 for the fiscal year ended March 31, 2007. The increase was primarily due to depreciation on fixed assets acquired during the period.

Administrative Expense

Administrative expense for the fiscal year ended March 31, 2008 was $887,872 compared to $182,773 in the fiscal year ended March 31, 2007. The administrative expense increased in relation to the addition of employees, office space, and corporate activity related to growth in operations.

Impairment of Oil & Gas Properties

The impairment of oil and natural gas properties in the year ended March 31, 2007 of $273,959 represented all of the cost of our oil and natural gas properties accounted for under the full-cost method that was subject to amortization at March 31, 2007. We took this impairment based on the full-cost method ceiling.

Impairment of Goodwill

In the year ended March 31, 2007 we impaired $677,000 of goodwill resulting from an acquisition because of our impairment test. We have no goodwill recorded in our financial statements at March 31, 2008.

Reserves

Our estimated total proved PV10 (present value) of reserves as of March 31, 2008 increased to $39.6 million from zero as of March 31, 2007. We increased total proved reserves to 1.4 million barrels of oil equivalent (BOE). Of the 1.4 million BOE, approximately 64% are proved developed and approximately 36% are proved undeveloped. The proved developed reserves consist of proved developed producing (82%) and proved developed non-producing (18%).

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The following table presents summary information regarding our estimated net proved reserves as of March 31, 2008. All calculations of estimated net proved reserves have been made in accordance with the rules and regulations of the SEC, and, except as otherwise indicated, give no effect to federal or state income taxes. The estimates of net proved reserves are based on the reserve reports prepared by McCune Engineering P.E., our independent petroleum consultants. For additional information regarding our reserves, please see Note 12 to our audited financial statements as of and for the fiscal year ended March 31, 2008.

Summary of Proved Oil and Natural Gas Reserves

as of March 31, 2008

Proved Reserves Category			Gross	Net	PV10 (before tax)(1)
Proved, Developed Producing
	Oil (stock-tank barrels)		1,034,163	746,169
	Natural Gas (mcf)		141,371	114,610
		Total Developed Producing			$22,750,447
Proved, Developed Non-Producing
	Oil (stock-tank barrels)		141,900	115,071
	Natural Gas (mcf)		350,000	286,587
		Total Developed Non-Producing			$5,446,999
Proved, Undeveloped
	Oil (stock-tank barrels)		705,750	510,974
	Natural Gas (mcf)		-0-	-0-
		Total Undeveloped			$11,413,886
Total Proved Reserves
	Oil (stock-tank barrels)		1,881,813	1,372,214
	Natural Gas (mcf)		491,371	401,197
		Total			$39,611,332

⁽¹⁾ The following table shows our reconciliation of our PV10 to our standardized measure of discounted future net cash flows (the most direct comparable measure calculated and presented in accordance with GAAP). PV10 is our estimate of the present value of future net revenues from estimated proved natural gas reserves after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates of future income taxes. The estimated future net revenues are discounted at an annual rate of 10% to determine their “present value.” We believe PV10 to be an important measure for evaluating the relative significance of our oil and natural gas properties and that the presentation of the non-GAAP financial measure of PV10 provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and gas companies. Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure is valuable for evaluating our company. We believe that most other companies in the oil and gas industry calculate PV10 on the same basis. PV10 should not be considered as an alternative to the standardized measure of discounted future net cash flows as computed under GAAP.

	As of March 31, 2008
PV10	$	39,611,332
Future income taxes, net of 10% discount	(11,410,779)
Standardized measure of discounted future net cash flows	$	28,200,553

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Liquidity and Capital Resources

Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through debt financing, revenues from operations and the issuance of equity securities. In the future we anticipate we will be able to provide some of the necessary liquidity we need by the revenues generated from our net interests in our oil and natural gas production, and sales of reserves in our existing properties, however, if we do not generate sufficient sales revenues we will continue to finance our operations through equity and/or debt financings.

We actively manage our exposure to commodity price fluctuations by executing derivative transactions to hedge the change in prices of our production, thereby mitigating our exposure to price declines, but these transactions will also limit our earnings potential in periods of rising commodity prices. There also is a risk that we will be required to post collateral to secure our hedging activities and this could limit our available funds for our business activities.

We have utilized a costless collar with BP beginning October 1, 2009 through March 31, 2011 to set minimum and maximum prices on a financially settled collar on a set number of barrels of oil per day. We have also utilized a price swap contract with Shell for a portion of our production, and agreed to sell Shell to sell the remainder of our current oil production at current spot market pricing, beginning April 1, 2008 through September of 2009. Based on contracts in place as of July 3, 2008, up to 80% of our net oil and gas production could be subject to price collars or swaps. The key risks associated with these contracts are summarized in “Item 1A. Risk Factors”.

The following table summarizes total current assets, total current liabilities and working capital at March 31, 2008 as compared to March 31, 2007.

	March 31, 2008		March 31, 2007		Increase / (Decrease)
					$
Current Assets	$	1,511,595	$	120,604	1,390,991
Current Liabilities	$	2,117,176	$	488,189	1,628,987
Working Capital (deficit)	$	(605,581)	$	(367,585)	237,996

Discussion of Material Balance Sheet Changes from Fiscal 2007 to Fiscal 2008

During the year ended March 31, 2008, we have significantly changed the balance sheet of our company. Our business has expanded due to the issuance of stock and debt. We were able to acquire oil and natural gas leases and begin drilling on those leases. Our total assets have increased from $492,507 at March 31, 2007 to $10,867,829. Approximately 84% of our total assets at March 31, 2008 were our oil and gas properties using the full-cost accounting method. We incurred debt issue costs with the $9.0 million debenture financing completed in April and June of 2007, as well as with issuance of debt with project acquisitions. Our total liabilities increased from $537,097 at March 31, 2007 to $9,433,837 at March 31, 2008 primarily as a result of these debentures.

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New Senior Secured Credit Facility

On July 3, 2008, EnerJex, EnerJex Kansas, and DD Energy entered into a three-year $50 million senior secured revolving credit facility (the “Credit Facility”) with Texas Capital Bank, N.A. Borrowings under the Credit Facility will be subject to a borrowing base limitation based on the Company’s current proved oil and gas reserves. The initial borrowing base is set at $10.75 million and will be subject to semi-annual redeterminations, with the first redetermination to be October 1, 2008. The Credit Facility will be secured by a lien on substantially all assets of the Company and its subsidiaries. The Credit Facility has a term of three years, and all principal amounts, together with all accrued and unpaid interest, will be due and payable in full on July 3, 2011. The Credit Facility also provides for the issuance of letters-of-credit up to a $750,000 sub-limit under the borrowing base and up to an additional $2.25 million limit not subject to the borrowing base to support the Company's hedging program. Borrowings under the Credit Facility of $10.75 million were made on July 7, 2008.

Proceeds from the initial extension of credit under the Credit Facility were used: (1) to redeem our 10% Senior Secured Debentures in an aggregate principal amount of $6.3 million plus accrued interest (the “April Debentures”), (2) for Texas Capital Bank’s acquisition of the Company’s approximately $2.0 million indebtedness to Cornerstone Bank, (3) for complete repayment of promissory notes issued to the sellers in connection with the Company’s purchase of the DD Energy project in an aggregate principal amount of $965,000 plus accrued interest, (4) transaction costs, fees and expenses related to the new facility, and (5) to expand our current development projects, including the completion of 31 new oil wells that have been drilled since May of 2008. Future borrowings may be used for the acquisition, development and exploration of oil and gas properties, capital expenditures and general corporate purposes.

Advances under the Credit Facility will be in the form of either base rate loans or Eurodollar loans. The interest rate on the base rate loans fluctuates based upon the higher of (1) the lender’s “prime rate” and (2) the Federal Funds rate plus a margin of 0.50%, plus a margin of between 0.0% and 0.5% depending on the percent of the borrowing base utilized at the time of the credit extension. The interest rate on the Eurodollar loans fluctuates based upon the British Bankers’ Association Interest Settlement Rate appearing on the display designated as page 3750 on Moneyline Telerate, Inc., plus a margin of 2.25% to 2.75% depending on the percent of the borrowing base utilized at the time of the credit extensionon. Eurodollar loans of one, two, three and six months may be selected by the Company. A commitment fee of 0.375% on the unused portion of the borrowing base will accrue, and be payable quarterly in arrears.

The Credit Facility includes usual and customary affirmative covenants for credit facilities of this type and size, as well as customary negative covenants, including, among others, limitations on liens, mergers, asset sales or dispositions, payments of dividends, incurrence of additional indebtedness, and investments. The Credit Facility also requires the Company, at the end of each fiscal quarter beginning with the quarter ending September 30, 2008, to maintain a minimum current assets to current liabilities ratio and a minimum ratio of EBITDA (earnings before interest, taxes, depreciation and amortization) to interest expense and at the end of each fiscal quarter beginning with the quarter ended June 30, 2008 to maintain a minimum ratio of EBITDA to senior funded debt.

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Additionally, Texas Capital Bank, N.A. and the holders of the Senior Secured Debentures entered into a Subordination Agreement whereby the Senior Secured Debentures issued on June 21, 2007 will be subordinated to the Credit Facility.

Debenture Financing.

On April 11, 2007, we completed a $9.0 million private placement of senior secured debentures. In accordance with the terms of the debentures, we received $6.3 million (before expenses and placement fees) at the first closing and an additional $2.7 million (before closing fees and expenses) at the second closing on June 21, 2007. In connection with the sale of the debentures, we issued the lenders 9,000,000 shares of common stock. On July 7, 2008, we redeemed $6.3 million aggregate principal amount of our debentures.

The debentures mature on March 31, 2010, absent earlier redemption by us, and carry an interest rate of 10%. Interest on the debentures began accruing on April 11, 2007 and is payable quarterly in arrears on the first day of each succeeding quarter during the term of the debentures, beginning on or about May 11, 2007 and ending on the maturity date of March 31, 2010. We may, under certain conditions specified in the debentures, pay interest payments in shares of our registered common stock. Additionally, on the maturity date, we are required to pay the amount equal to the principal, as well as all accrued but unpaid interest.

In connection with the Credit Facility, we entered into an agreement amending the Securities Purchase Agreement, Registration Rights Agreement, the Pledge and Security Agreement and the Senior Secured Debentures issued on June 21, 2007 (the “Debenture Agreements”), with the holders (the “Buyers”) of the Senior Secured Debentures issued on June 21, 2007 (the “June Debentures”). Pursuant to this agreement, we, among other things, (i) redeemed the April Debentures, (ii) agreed to use the net proceeds from the Company’s next debt or equity offering to redeem the June Debentures, (iii) agreed to update the registration statement to sell our common stock owned by one of the Buyers, (iv) amended certain terms of the Debenture Agreements in recognition of the indebtedness under the new Credit Facility and (v) amended the Securities Purchase Agreement and Registration Rights Agreement to remove the covenant to issue and register additional shares of common stock in the event that our oil production does not meet certain thresholds over time among other things.

Satisfaction of our cash obligations for the next 12 months.

A critical component of our operating plan is the ability to obtain additional capital through additional equity and/or debt financing and working interest participants. While our operations are generating sufficient cash revenues to meet our monthly expenses, we still have negative working capital. In the event we cannot obtain additional capital to pursue our strategic plan, however, this would materially impact our ability to continue our aggressive growth. However, there is no assurance we would be able to obtain such financing on commercially reasonable terms, if at all.

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We intend to implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Summary of product research and development that we will perform for the term of our plan.

We do not anticipate performing any significant product research and development under our plan of operation until such time as we can raise adequate working capital to sustain our operations.

Expected purchase or sale of any significant equipment.

We anticipate that we will purchase the necessary production and field service equipment required to produce oil and natural gas during our normal course of operations over the next twelve months. We estimate this amount to be approximately $3.0 million.

Significant changes in the number of employees.

As of March 31, 2008, we had 9 full time employees and employ the services of several independent contractors. As drilling and production activities increase, we intend to hire additional technical, operational and administrative personnel as appropriate. We anticipate offering a number of independent contractors in the field full time employment to help secure a more stable work base. We do not anticipate a material increase in expenses from this initiative, as most of these individuals are already included in our current operating and capital expenses. We are using and will continue to use the services of independent consultants and contractors to perform various professional services, particularly in the area of land services, reservoir engineering, drilling, water hauling, pipeline construction, well design, well-site monitoring and surveillance, permitting and environmental assessment. We believe that this use of third-party service providers may enhance our ability to contain general and administrative expenses.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies and Estimates

Our critical accounting estimates include our oil and gas properties, asset retirement obligations and the value of share-based payments.

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Oil and Gas Properties:

The accounting for our business is subject to special accounting rules that are unique to the gas and oil industry. There are two allowable methods of accounting for oil and gas business activities: the successful efforts method and the full-cost method. We follow the full-cost method of accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We also capitalize internal costs that can be directly identified with our acquisition, exploration and development activities and do not include any costs related to production, general corporate overhead or similar activities.

Under the full-cost method, capitalized costs are amortized on a composite unit-of-production method based on proved gas and oil reserves. Depreciation, depletion and amortization expense is also based on the amount of estimated reserves. If we maintain the same level of production year over year, the depreciation, depletion and amortization expense may be significantly different if our estimate of remaining reserves changes significantly. Proceeds from the sale of properties are accounted for as reductions of capitalized costs unless such sales involve a significant change in the relationship between costs and the value of proved reserves or the underlying value of unproved properties, in which case a gain or loss is recognized. The costs of unproved properties are excluded from amortization until the properties are evaluated. We review all of our unevaluated properties quarterly to determine whether or not and to what extent proved reserves have been assigned to the properties, and otherwise if impairment has occurred. Unevaluated properties are assessed individually when individual costs are significant.

We review the carrying value of our gas and oil properties under the full-cost accounting rules of the SEC on a quarterly basis. This quarterly review is referred to as a ceiling test. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes, may not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for cash flow hedges) less estimated future expenditures to be incurred in developing and producing the proved reserves, less any related income tax effects. In calculating future net revenues, current prices and costs used are those as of the end of the appropriate quarterly period. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts, including the effects of derivatives qualifying as cash flow hedges. Two primary factors impacting this test are reserve levels and current prices, and their associated impact on the present value of estimated future net revenues. Revisions to estimates of gas and oil reserves and/or an increase or decrease in prices can have a material impact on the present value of estimated future net revenues. Any excess of the net book value, less deferred income taxes, is generally written off as an expense. Under SEC regulations, the excess above the ceiling is not expensed (or is reduced) if, subsequent to the end of the period, but prior to the release of the financial statements, gas and oil prices increase sufficiently such that an excess above the ceiling would have been eliminated (or reduced) if the increased prices were used in the calculations.

The process of estimating gas and oil reserves is very complex, requiring significant decisions in the evaluation of available geological, geophysical, engineering and economic data. The data for a given property may also change substantially over time as a result of numerous factors, including additional development activity, evolving production history and a continual

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reassessment of the viability of production under changing economic conditions. As a result, material revisions to existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various properties increase the likelihood of significant changes in these estimates.

As of March 31, 2008, approximately 100% of our proved reserves were evaluated by an independent petroleum engineer. All reserve estimates are prepared based upon a review of production histories and other geologic, economic, ownership and engineering data.

Asset Retirement Obligations:

The asset retirement obligation relates to the plug and abandonment costs when our wells are no longer useful. We determine the value of the liability by obtaining quotes for this service and estimate the increase we will face in the future. We then discount the future value based on an intrinsic interest rate that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future however we monitor the costs of the abandoned wells and we will adjust this liability if necessary.

Share-Based Payments:

The value we assign to the options and warrants that we issue is based on the fair market value as calculated by the Black-Scholes pricing model. To perform a calculation of the value of our options and warrants, we determine an estimate of the volatility of our stock. We need to estimate volatility because there has not been enough trading of our stock to determine an appropriate measure of volatility. We believe our estimate of volatility is reasonable, and we review the assumptions used to determine this whenever we issue a new equity instruments. If we have a material error in our estimate of the volatility of our stock, our expenses could be understated or overstated.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board, or FASB, issued Statements of Financial Accounting Standards, or SFAS, No. 157 (“SFAS No. 157”), “Fair Value Measures”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not require any new fair value measurements, however, the FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently reviewing the effect, if any, SFAS 157 will have on our financial statements.

In February 2007, the FASB issued SFAS No. 159 (“SFAS No. 159”), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” – the fair value option for financial assets and liabilities including in amendment of SFAS 115. This Statement permits

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entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement objectives for accounting for financial instruments. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November15, 2007, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair value measurements. We are currently evaluating the impact of SFAS No. 159 on our financial statements.

In December 2007, the FASB issued SFAS No. 141R (revised 2007) (“SFAS No. 141R”), “Business Combinations.” Although this statement amends and replaces SFAS No. 141, it retains the fundamental requirements in SFAS No. 141 that (i) the purchase method of accounting must be used for all business combinations; and (ii) an acquirer be identified for each business combination. SFAS No. 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. This Statement applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree), including combinations achieved without the transfer of consideration; however, this Statement does not apply to a combination between entities or businesses under common control. Significant provisions of SFAS No. 141R concern principles and requirements for how an acquirer (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 with early adoption not permitted. Management is assessing the impact of the adoption of SFAS No. 141R.

In December 2007, the FASB issued SFAS No. 160 (“SFAS No. 160”), “Non-controlling Interests in Consolidated Financial Statements”. This Statement amends the Accounting Research Bulletin (“ARB”) 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We have not yet determined the impact, if any, that SFAS No. 160 will have on our financial statements.

Effects of Inflation and Pricing

The oil and natural gas industry is very cyclical and the demand for goods and services of oil field companies, suppliers and others associated with the industry puts extreme pressure on the economic stability and pricing structure within the industry. Material changes in prices impact revenue stream, estimates of future reserves, borrowing base calculations of bank loans

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and value of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and natural gas companies and their ability to raise capital, borrow money and retain personnel. We anticipate the increased business costs will continue while the commodity prices for oil and natural gas, and the demand for services related to production and exploration, both remain high (from a historical context) in the near term.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Management Responsibility for Financial Information

We are responsible for the preparation, integrity and fair presentation of our financial statements and the other information that appears in this annual report on Form 10-K. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include estimates based on our best judgment.

We maintain a comprehensive system of internal controls and procedures designed to provide reasonable assurance, at an appropriate cost-benefit relationship, that our financial information is accurate and reliable, our assets are safeguarded and our transactions are executed in accordance with established procedures.

Weaver & Martin, LLC, an independent registered public accounting firm, is retained to audit our consolidated financial statements. Its accompanying report is based on audits conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).

The Audit Committee, which is comprised of two independent directors, meets with our management and the independent registered public accounting firm to ensure that each is properly fulfilling its responsibilities. The Committee oversees our systems of internal control, accounting practices, financial reporting and audits to ensure their quality, integrity and objectivity are sufficient to protect stockholders’ investments.

Our consolidated financial statements and notes thereto, and other information required by this Item 8 are included in this report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

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ITEM 9A(T). CONTROLS AND PROCEDURES.

Our Chief Executive and Principal Accounting Officer, C. Stephen Cochennet, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on the evaluation, Mr. Cochennet concluded that our disclosure controls and procedures are effective in timely alerting him to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings.

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance, with respect to reporting financial information.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of March 31, 2008.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

ITEM 9B. OTHER INFORMATION.

For a description of our new credit facility, the amendment of our outstanding debentures and our new costless collar for 130 barrels of oil between October 1, 2009 and March 31, 2011, See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments; Liquidity and Capital Resources – New Secured Credit Facility and Debenture Financing.”

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following table sets forth certain information regarding our current directors and executive officers. Our executive officers serve one-year terms.

Name	Age	Position	Board Committee(s)(1)
C. Stephen Cochennet	51	President, Chief Executive Officer, Principal Financial and Accounting Officer and Chairman	None
Dierdre P. Jones	43	Director of Finance and Accounting	None
Robert G. Wonish	54	Director	GCNC (Chairman) and Audit
Daran G. Dammeyer	47	Director	Audit (Chairman) and GCNC
Darrel G. Palmer	50	Director	GCNC
Dr. James W. Rector	46	Director	None

¹ “GCNC” means the Governance, Compensation and Nominating Committee of the Board of Directors. “Audit” means the Audit Committee of the Board of Directors.

C. Stephen Cochennet has been our President, Chief Executive Officer and Chairman since August 15, 2006. From July 2002 to present, Mr. Cochennet has been President of CSC Group, LLC. Mr. Cochennet formed the CSC Group, LLC through which he supports a number of clients that include Fortune 500 corporations, international companies, natural gas/electric utilities, outsource service providers, as well as various start up organizations. The services provided include strategic planning, capital formation, corporate development, executive networking and transaction structuring. Mr. Cochennet currently spends less than 10 hours per month on activities associated with CSC Group, LLC. From 1985 to 2002, he held several executive positions with UtiliCorp United Inc. (Aquila) in Kansas City. His responsibilities included finance, administration, operations, human resources, corporate development, natural gas/energy marketing, and managing several new start up operations. Prior to his experience at UtiliCorp United Inc., Mr. Cochennet served 6 years with the Federal Reserve System. Mr. Cochennet graduated from the University of Nebraska with a B.A. in Finance and Economics.

Dierdre P. Jones has been our Director of Finance and Accounting since August 2007. From May 2007 through August 2007, Ms. Jones provided independent consulting services for the company, primarily in the testing and implementation of financial accounting and reporting software. From May 2002 through May 2007, Ms. Jones was sole proprietor of These Faux Walls, a specialty design company. She holds the professional designations of Certified Public Accountant and Certified Internal Auditor. Prior to joining EnerJex, Ms. Jones held management positions with UtiliCorp United Inc. (Aquila), and served three years in public accounting with Arthur Andersen & Co. Ms. Jones graduated with distinction from the University of Kansas with a B.S. in Accounting and Business Administration.

Robert G. Wonish has served as a member of our board of directors since May 2007. Effective April 21, 2008, Mr. Wonish was appointed President and Chief Operating Officer of Striker Oil & Gas, Inc. (OTC:BB SOIS), which is an oil and natural gas exploration and

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production company. Mr. Wonish also serves on the board of directors of Striker Oil & Gas, Inc. From December 2004 to June 30, 2007, Mr. Wonish was Vice President of Petroleum Engineers Inc., a subsidiary of The CYMRI Corporation, now CYMRI, L.L.C., which is a wholly-owned subsidiary of Stratum Holdings, Inc. On July 1, 2007, Mr. Wonish was appointed President and Chief Operating Officer of Petroleum Engineers Inc. Mr. Wonish was also President of CYMRI, L.L.C. After the sale of Petroleum Engineers Inc. in March of 2008, Mr. Wonish resigned all positions in Petroleum Engineers Inc. and CYMRI, L.L.C. as well as resigning as a member of the Stratum Holdings, Inc. board of directors. He previously achieved positions of increasing responsibility with PANACO, Inc., a public oil and natural gas company, ultimately serving as that company’s President and Chief Operating Officer. He began his engineering career at Amoco in 1975 and joined Panaco’s engineering staff in 1992. Mr. Wonish received his Mechanical Engineering degree from the University of Missouri-Rolla.

Daran G. Dammeyer has served as a member of our board of directors since May 2007. Since July 1999, Mr. Dammeyer has served as President of D-Two Solutions through which he supports clients by primarily providing merger and acquisition support, strategic planning, budgeting and forecasting process development and implementation. From March 1999 through July 1999, Mr. Dammeyer was a Director of International Financial Management for UtiliCorp United Inc. (Aquila), a multinational energy solutions provider in Kansas City, Missouri. From November 1995 through March 1999, Mr. Dammeyer served as the Chief Financial Controller of United Energy Limited in Melbourne, Australia. Mr. Dammeyer also served in numerous management positions at Michigan Energy Resources Company, including Director of Internal Audit. Mr. Dammeyer earned his Bachelor of Business Administration degree, with dual majors in Accounting and Corporate Financial Management from The University of Toledo, Ohio.

Darrel G. Palmer has served as a member of our board of directors since May of 2007. Since January 1997, Mr. Palmer has been President of Energy Management Resources, an energy process management firm serving industrial and large commercial companies throughout the U. S. and Canada. Mr. Palmer has 25 years of expertise in the natural gas arena. His experiences encompass a wide area of the natural gas industry and include working for natural gas marketing companies, local distribution companies, and FERC regulated pipelines. Prior to becoming an independent energy consultant in 1997, Mr. Palmer’s last position was Vice President/National Account Sales at UtiliCorp United Inc. (Aquila) of Kansas City, Missouri.  Over the years Mr. Palmer has worked in many civic organizations including United Way and has been a President of the local Kiwanis Club. Junior Achievement of Minnesota awarded him the Bronze Leadership Award for his accomplishments which included being an advisor, program manager, holding various Board positions, and ultimately being Board President.

Dr. James W. Rector has served as a member of our board of directors since March 19, 2008. Dr. Rector is the author of numerous technical papers along with a number of patents on seismic technology. He was a co-founder of two seismic technology startups that were later sold to NYSE-listed companies, and he regularly consults for many of the major oil companies including Chevron and BP. In 1998, he founded Berkeley GeoImaging LLC, which has completed five equity private placements for oil and natural gas exploration and development projects. Dr. Rector is a tenured professor of Geophysics at the University of California at Berkeley and a faculty staff scientist at the Lawrence Berkeley National Laboratory. He has been

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the Editor-in-Chief of the Journal of Applied Geophysics and has also served on the Society of Exploration Geophysicists Executive Committee. He received his Masters and Ph.D. degrees in Geophysics from Stanford University.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that as of the date of this report they were all current in their 16(a) reports.

Board of Directors

Our board of directors currently consists of five members. Our directors serve one-year terms. Our board of directors has affirmatively determined that Messrs. Wonish, Dammeyer, Palmer and Dr. Rector are independent directors, as defined by Section 803 of the American Stock Exchange Company Guide.

Committees of the Board of Directors

Our board of directors has two standing committees: an audit committee and a governance, compensation and nominating committee. Each of those committees has the composition and responsibilities set forth below.

Audit Committee

On May 4, 2007, we established and appointed initial members to the audit committee of our board of directors. Mr. Dammeyer is the chairman and Mr. Wonish serves as the other member of the committee. Currently, none of the members of the audit committee are, or have been, our officers or employees, and each member qualifies as an independent director as defined by Section 803 of the American Stock Exchange Company Guide and Section 10A(m) of the Securities Exchange Act of 1934, and Rule 10A-3 thereunder. The board of directors has determined that Mr. Dammeyer is an “audit committee financial expert” as that term is used in Item 401(h) of Regulation S-K promulgated under the Securities Exchange Act. The audit committee held ten meetings during fiscal 2008.

The audit committee has the sole authority to appoint and, when deemed appropriate, replace our independent registered public accounting firm, and has established a policy of pre-approving all audit and permissible non-audit services provided by our independent registered public accounting firm. The audit committee has, among other things, the responsibility to evaluate the qualifications and independence of our independent registered public accounting firm; to review and approve the scope and results of the annual audit; to review and discuss with

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management and the independent registered public accounting firm the content of our financial statements prior to the filing of our quarterly reports and annual reports; to review the content and clarity of our proposed communications with investors regarding our operating results and other financial matters; to review significant changes in our accounting policies; to establish procedures for receiving, retaining, and investigating reports of illegal acts involving us or complaints or concerns regarding questionable accounting or auditing matters, and supervise the investigation of any such reports, complaints or concerns; to establish procedures for the confidential, anonymous submission by our employees of concerns or complaints regarding questionable accounting or auditing matters; and to provide sufficient opportunity for the independent auditors to meet with the committee without management present.

Governance, Compensation and Nominating Committee

The governance, compensation and nominating committee is comprised of Messrs. Wonish, Dammeyer and Palmer. Mr. Wonish serves as the chairman of the governance, compensation and nominating committee. The governance, compensation and nominating committee is responsible for, among other things; identifying, reviewing, and evaluating individuals qualified to become members of the board, setting the compensation of the Chief Executive Officer and performing other compensation oversight, reviewing and recommending the nomination of board members, and administering our equity compensation plans. The governance, compensation and nominating committee held five meetings during fiscal 2008.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, as well as to directors, officers and employees of each subsidiary of the Company. Our Code of Ethics was filed as Exhibit 99.6 to the Annual Report on Form 10-KSB for the year ended March 31, 2007 which was filed on June 13, 2007. A copy of our Code of Business Conduct and Ethics will be provided to any person, without charge, upon request. Contact C. Stephen Cochennet at 913-693-4600 to request a copy of the Code or send your request to EnerJex Resources, Inc., Attn: C. Stephen Cochennet, 7300 W. 110th, 7th Floor, Overland Park, Kansas 66210. If any substantive amendments are made to the Code of Business Conduct and Ethics or if we grant any waiver, including any implicit waiver, from a provision of the Code to any of our officers and directors, we will disclose the nature of such amendment or waiver in a report on Form 8-K.

Limitation of Liability of Directors

Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in

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connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.

Nevada Anti-Takeover Law and Charter and By-law Provisions

Depending on the number of residents in the state of Nevada who own our shares, we could be subject to the provisions of Sections 78.378 et seq. of the Nevada Revised Statutes which, unless otherwise provided in a company’s articles of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting shares. Our articles of incorporation and by-laws do not contain any provision which would currently keep the change of control restrictions of Section 78.378 from applying to us.

We are subject to the provisions of Sections 78.411 et seq. of the Nevada Revised Statutes. In general, this statute prohibits a publicly held Nevada corporation from engaging in a “combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the combination or the transaction by which the person became an interested stockholder is approved by the corporation’s board of directors before the person becomes an interested stockholder. After the expiration of the three-year period, the corporation may engage in a combination with an interested stockholder under certain circumstances, including if the combination is approved by the board of directors and/or stockholders in a prescribed manner, or if specified requirements are met regarding consideration. The term “combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years did own, 10% or more of the corporation’s voting stock. A Nevada corporation may “opt out” from the application of Section 78.411 et seq. through a provision in its articles of incorporation or by-laws. We have not “opted out” from the application of this section.

Apart from Nevada law, however, our articles of incorporation and by-laws do not contain any provisions which are sometimes associated with inhibiting a change of control from occurring (i.e., we do not provide for a staggered board, or for “super-majority” votes on major corporate issues). However, we do have 10,000,000 shares of authorized “blank check” preferred stock, which could be used to inhibit a change in control.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth summary compensation information for the fiscal years ended March 31, 2008 and 2007 for our Chief Executive Officer. We did not have any other executive officers as of the end of fiscal 2008 whose total compensation exceeded $100,000 and no compensation was paid to Mr. Cochennet in fiscal 2006. We refer to this person as our named executive officer elsewhere in this report.

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Summary Compensation Table

Name and Principal Position	Fiscal Year	Salary ($)	Bonus ($)	Option Awards ($)	All Other Compen-sation ($)	Total ($)
C. Stephen Cochennet	2008	$156,000	-0-	$859,622(2)	$-0-	$1,015,622
President, Chief Executive Officer and Principal Financial and Accounting Officer	2007	$110,500(1)	-0-	-0-	$9,500(3)	$120,000

⁽¹⁾ Mr. Cochennet began receiving compensation as of August 1, 2006; therefore the amounts listed for fiscal 2007 represent compensation for only a portion of the year. We agreed to pay Mr. Cochennet a monthly salary of $13,000. Mr. Cochennet received $26,000 as compensation for August 1, 2006 through October 1, 2006. As of October 15, 2006, Mr. Cochennet agreed to defer his salary until financing was secured. As of March 31, 2007, we accrued $84,500 of Mr. Cochennet’s salary. Subsequent to March 31, 2007, Mr. Cochennet’s accrued salary was paid and Mr. Cochennet is no longer accruing salary.

⁽²⁾ Amount represents the estimated total fair value of stock options granted to Mr. Cochennet under SFAS 123(R).

⁽³⁾ Represents automobile maintenance and related costs.

Outstanding Equity Awards at 2008 Fiscal Year-End

The following table lists the outstanding equity incentive awards held by our named executive officer as of March 31, 2008.

			Option Awards
	Fiscal Year	Number of Securities Underlying Unexercised Options Exercisable (#)		Number of Securities Underlying Unexercised Options Unexercisable (#)	Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date
C. Stephen Cochennet	2008	1,000,000		-0-	-0-	$1.25	05/03/2011

Option Exercises for Fiscal 2008

There were no options exercised by our named executive officer in fiscal 2008. See “Securities Authorized for Issuance under Equity Compensation Plans” on page 47 for a description of our outstanding equity compensation plans.

Potential Payments Upon Termination or Change in Control

We have not entered into any compensatory plans or arrangements with respect to our named executive officer, which would in any way result in payments to such officer because of his resignation, retirement, or other termination of employment with us or our subsidiaries, or any change in control of, or a change in his responsibilities following a change in control.

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Non-Employee Director Compensation

The following table sets forth summary compensation information for the fiscal year ended March 31, 2008 for each of our non-employee directors:

Name			Fees Earned or Paid in Cash $		Stock Awards $		Option Awards $		All Other Compensation $		Total $
Daran G. Dammeyer			$	42,000	$	12,000(1)	$	171,924(2)	$	-0-	$	225,924
Darrel G. Palmer			$	14,500	$	-0-	$	171,924(2)	$	-0-	$	186,424
Robert G. Wonish			$	12,250	$	-0-	$	171,924(2)	$	-0-	$	184,174
Dr. James W. Rector(3)			$	357	$	-0-	$	-0-	$	-0-	$	357
	(1)	Amount represents the estimated total fair market value of 9,600 shares of common stock issued to Mr. Dammeyer for services as audit committee chairman under SFAS 123(R), as discussed in Note 2 to our audited financial statements for the fiscal year ended March 31, 2008 included elsewhere in this report.
	(2)	Amount represents the estimated total fair market value of 200,000 stock options granted to each of Messrs. Dammeyer, Palmer and Wonish under SFAS 123(R), as discussed in Note 2 to our financial statements for the fiscal year ended March 31, 2008 included elsewhere in this report. The 200,000 options granted to Messrs. Dammeyer, Palmer and Wonish were outstanding at fiscal year end.
	(3)	Mr. Rector was appointed to the board of directors on March 19, 2008.

          Board compensation was recently increased for fiscal 2009 upon the recommendation of an independent compensation consultant and the governance, compensation and nominating committee of the board of directors.  The annual retainer for non-employee directors is now $20,000 with a meeting fee of $1,500 for those in attendance and $750 for those who participate by telephone.  The chair of the audit committee will be paid an annual retainer of $42,000, payable with $2,500 per month in cash and $12,000 worth of common stock, at the beginning of this fiscal year based on the fair market value of such stock on or around April 1st of each year.  Members of the audit committee will be paid an annual cash retainer of $15,000 and $375 per meeting attended.  The chair of the governance, compensation and nominating committee will be paid an annual cash retainer of $8,000, payable quarterly, and $375 per meeting attended.  In addition, the directors are reimbursed for expenses incurred in connection with board and committee membership.

          For joining the Board this fiscal year, Dr. Rector was granted options to purchase 50,000 shares of common stock for three years at an exercise price of $1.25 per share.  Each non-employee director was also granted options to purchase 140,000 shares of common stock for three years at an exercise price of $1.25 per share as equity based compensation for fiscal year 2009.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table presents information, to the best of EnerJex’s knowledge, about the ownership of EnerJex’s common stock on June 24, 2008 relating to those persons known to beneficially own more than 5% of EnerJex’s capital stock and by EnerJex’s named executive officer, directors and directors and executive officers as a group. The percentage of beneficial ownership for the following table is based on 22,214,166 shares of common stock outstanding.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days after June 24, 2008 pursuant to options, warrants, conversion privileges or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of EnerJex’s common stock.

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Name and Address of Beneficial Owner, Officer or Director(1)	Number of Shares	Percent of Outstanding Shares of Common Stock(2)
C. Stephen Cochennet, President & Chief Executive Officer(3)	3,000,000(4)	13.5%
Robert (Bob) G. Wonish, Director(3)	200,000(5)	*
Darrel G. Palmer, Director(3)	200,000(5)	*
Daran G. Dammeyer, Director(3)	220,510(5)	*
Dr. James W. Rector, Director(3)	-0-	*
Directors and Officers as a Group	3,720,510	16.7%
West Coast Opportunity Fund LLC(6) West Coast Asset Management, Inc. Paul Orfalea, Lance Helfert & R. Atticus Lowe 2151 Alessandro Drive, #100 Ventura, CA 93001	5,000,000	22.5%
Enable Growth Partners L.P.(7) Enable Capital Management, LLC Mitchell S. Levine One Ferry Building, Suite 225 San Francisco, CA 94111	1,929,900	8.7%
*     Represents beneficial ownership of less than 1%

¹ As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security).

² Figures are rounded to the nearest tenth of a percent.

³ The address of each person is care of EnerJex: 7300 W. 110^th Street, 7^th Floor, Overland Park, Kansas 66210.

⁴ Includes 1,000,000 options, exercisable at $1.25 per share through May 3, 2011.

⁵ Includes 200,000 options, exercisable at $1.25 per share through May 3, 2011.

⁶ Based on a Schedule 13G/A filed with the SEC on February 4, 2008, the investment manager of West Coast Opportunity Fund, LLC (“WCOF”) is West Coast Asset Management (“WCAM”). WCAM has the authority to take any and all actions on behalf of WCOF, including voting any shares held by WCOF. Paul Orfalea, Lance Helfert and R. Atticus Lowe constitute the Investment Committee of WCOF. Messrs. Orfalea, Helfert and Lowe disclaim beneficial ownership of the shares.

⁷ Based on a Schedule 13G/A filed with the SEC on February 20, 2008, Enable Capital Management, LLC, as general and investment manager of Enable Growth Partners L.P. and other clients, may be deemed to have the power to direct the voting or disposition of shares of common stock held by Enable Growth Partners L.P. (1,385,200 shares of common stock) and other clients (544,700 shares of common stock). Therefore, Energy Capital Management, LLC, as Enable Growth Partners L.P.’s and those other accounts’ general partner and investment manager, and Mitchell S. Levine, as managing member and majority owner of Enable Capital Management, LLC, may be deemed to beneficially own the shares of common stock owned by Enable Growth Partners L.P. and such other accounts.

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Equity Compensation Plan Information

The following table sets forth information as of March 31, 2008 regarding outstanding options granted under our stock option plans and options reserved for future grant under the plans.

Plan Category	Number of shares to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) (c)
Equity compensation plans approved by stockholders	2,292,500	$ 1.26	3,707,500
Equity compensation plans not approved by stockholders	-0-	-0-	-0-
Total	2,292,500	$ 1.26	3,707,500

On May 4, 2007, we granted a non-qualified option to C. Stephen Cochennet for all 1,000,000 options available under our 2000 Stock Option and Incentive Plan.

As of March 31, 2008, we have granted 1,292,500 non-qualified options under our 2002-2003 Stock Option Plan at prices ranging from $1.25 to $1.50 per share.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

We were not a party to any transactions or series of similar transactions that have occurred during this fiscal year in which:

• The amounts involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years ($58,300); and

• A director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

Our board of directors has affirmatively determined that Messrs. Wonish, Dammeyer, Palmer and Dr. Rector are independent directors, as defined by Section 803 of the American Stock Exchange Company Guide. Mr. Palmer is not eligible to serve on our audit committee pursuant to Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Weaver & Martin, LLC served as our principal independent public accountants for fiscal 2008 and 2007 years. Aggregate fees billed to us for the fiscal years ended March 31, 2008 and 2007 by Weaver & Martin, LLC were as follows:

	For the Fiscal Years Ended March 31,
	2008		2007
(1) Audit Fees(1)	$	105,000	$	46,079
(2) Audit-Related Fees(2)		-0-		10,340
(3) Tax Fees(3)		13,000		-0-
(4) All Other Fees		-0-		-0-
Total fees paid or accrued to our principal accountant	$	118,000	$	56,419

⁽¹⁾ Audit Fees include fees billed and expected to be billed for services performed to comply with Generally Accepted Auditing Standards (GAAS), including the recurring audit of the Company’s consolidated financial statements for such period included in this Annual Report on Form 10-K and for the reviews of the consolidated quarterly financial statements included in the Quarterly Reports on Form 10-QSB filed with the Securities and Exchange Commission. This category also includes fees for audits provided in connection with statutory filings or procedures related to audit of income tax provisions and related reserves, consents and assistance with and review of documents filed with the SEC.

⁽²⁾ Audit-Related Fees include fees for services associated with assurance and reasonably related to the performance of the audit or review of the Company’s financial statements. This category includes fees related to assistance in financial due diligence related to mergers and acquisitions, consultations regarding Generally Accepted Accounting Principles, reviews and evaluations of the impact of new regulatory pronouncements, general assistance with implementation of Sarbanes-Oxley Act of 2002 requirements and audit services not required by statute or regulation.

⁽³⁾ Tax fees consist of fees related to the preparation and review of the Company’s federal and state income tax returns.

(5) Audit Committee Policies and Procedures

Our Audit Committee pre-approves all services to be provided to us by our independent auditor. This process involves obtaining (i) a written description of the proposed services, (ii) the confirmation of our Principal Accounting Officer that the services are compatible with maintaining specific principles relating to independence, and (iii) confirmation from our securities counsel that the services are not among those that our independent auditors have been prohibited from performing under SEC rules, as outlined in the Audit Committee charter. The members of the Audit Committee then make a determination to approve or disapprove the engagement of Weaver & Martin for the proposed services. In fiscal 2008, all fees paid to Weaver & Martin were unanimously pre-approved in accordance with this policy.

(6) Less than 50 percent of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

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AUDIT COMMITTEE AND INDEPENDENT PUBLIC ACCOUNTANTS

Qualification Of Audit Committee Members

Our Audit Committee consists of two independent directors, each of whom has been selected for membership on the Audit Committee by the Board of Directors based on the Board's determination that he is fully qualified to oversee EnerJex's internal audit function, assess and select independent auditors, and oversee EnerJex's financial reporting processes and overall risk management. The Audit Committee has the authority to seek advice and assistance from outside legal, accounting or other advisors and exercises such authority as it deems necessary. The full text of the charter of the Audit Committee can be found in the investor section of our website at www.enerjexresources.com.

Through a range of education, experiences in business and executive leadership and service on the boards of directors, and through experience on EnerJex's Board of Directors and Audit Committee, each member of the Committee has an understanding of generally accepted accounting principles and has experience in evaluating the financial performance of public companies. Moreover, the Audit Committee members have gained valuable special knowledge of the financial condition and performance of EnerJex. The Board has determined that Daran G. Dammeyer is a "financial expert" as that term is used in Item 401(h) of Regulation S-K promulgated under the Securities Exchange Act.

Report Of The Audit Committee Of The Board

Our Audit Committee submits the following report:

The Audit Committee retains and oversees EnerJex's independent registered public accountants, discusses and reviews with management accounting policies and financial statements, evaluates external and internal audit performance, investigates complaints and other allegations of fraud or misconduct by the Company's management and employees and evaluates policies and procedures. The Audit Committee, which operates under a written charter adopted by the Board, met ten times during fiscal year 2008 to carry out these activities. The remainder of this report relates to certain actions taken by the Audit Committee in fulfilling its roles as they relate to ascertaining the independence of our registered public accountants and recommending the inclusion of EnerJex's financial statements in its annual report.

During fiscal 2008, the Audit Committee discussed with EnerJex's independent registered public accounting firm the overall scope and plans for their audit. The Audit Committee also met periodically with the independent registered public accounting firm to discuss the results of their examinations, the overall quality of EnerJex's financial reporting and their evaluations of its internal controls.

The Audit Committee of the Board has received from Weaver & Martin, LLC our independent registered public accounting firm, written disclosures and the letter required by the Independence Standards Board's Standard No. 1, "Independence Discussions with Audit Committees," that discloses all relationships between EnerJex and Weaver & Martin that may be

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thought to bear on the independence of Weaver & Martin from the Company. The Audit Committee has discussed with Weaver & Martin the contents of the written disclosure and letter as well as the matters required to be discussed by Statement on Auditing Standards No. 114. The Audit Committee has reviewed and discussed the audited financial statements of the Company for the year ended March 31, 2008, with EnerJex’s management, which has primary responsibility for the financial statements.

In addition, the Audit Committee has received the written disclosures and the letter from Weaver & Martin required by relevant professional and regulatory standards and has discussed with Weaver & Martin its independence from the Company and its management. In concluding that Weaver & Martin is independent, the Audit Committee considered, among other factors, whether the non-audit services provided by the firm were compatible with its independence.

Based on the reviews and discussions referred to above, we recommended to the Board of Directors that the Company's audited financial statements be included in its annual report on Form 10-K for the fiscal year ended March 31, 2008.

The foregoing report is furnished by the Audit Committee of the Board.

Daran G. Dammeyer (Chairman)

Robert G. Wonish

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following information required under this item is filed as part of this report:

(a) 1. Financial Statements

	Page
Management Responsibility for Financial Information	62
Management’s Report on Internal Control Over Financial Reporting	63
Index to Financial Statements	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Stockholders Equity	F-5
Consolidated Statements of Cash Flows	F-6

2. Financial Statement Schedules

None.

3. Exhibit Index

Exhibit No.	Description
2.1	Agreement and Plan of Merger between Millennium Plastics Corporation and Midwest Energy, Inc. effective August 15, 2006 (incorporated by reference to Exhibit 2.3 to the Form 8-K filed on August 16, 2006)
3.1	Amended and Restated Articles of Incorporation, as currently in effect (incorporated by reference to Exhibit 3.1 to the Amendment No. 1 to Form S-1 filed on May 27, 2008)
3.2	Amended and Restated Bylaws, as currently in effect (incorporated by reference to Exhibit 3.3 to the Form SB-2 filed on February 23, 2001)
4.1	Article VI of Amended and Restated Articles of Incorporation of Millennium Plastics Corporation (incorporated by reference to Exhibit 1.3 to the Form 8-K filed on December 6, 1999)
4.2	Article II and Article VIII, Sections 3 & 6 of Amended and Restated Bylaws of Millennium Plastics Corporation (incorporated by reference to Exhibit 4.1 to the Form SB-2 filed on February 23, 2001)
4.3	Specimen common stock certificate (incorporated by reference to Exhibit 4.3 to the Form S-1/A filed on May 27, 2008)
10.1	Letter Agreement with MorMeg, LLC dated September 26, 2006 (incorporated by reference to Exhibit 10.9 to the Form 8-K filed on October 13, 2006)
10.2	Amendment No. 1 to Letter Agreement with MorMeg, LLC dated December 12, 2006 (incorporated by reference to Exhibit 10.10 to the Form 8-K filed on January 8, 2007)
10.3	Debenture Securities Purchase Agreement dated April 11, 2007 (incorporated by reference to Exhibit 10.11 to the Form 8-K filed on April 16, 2007)
10.4	Debenture Registration Rights Agreement dated April 11, 2007 (incorporated by reference to Exhibit 10.12 to the Form 8-K filed on April 16, 2007)
10.5	Senior Secured Debenture – ($3,500,000) West Coast Opportunity Fund, LLC dated April 11, 2007 (incorporated by reference to Exhibit 10.13 to the Form 8-K filed on April 16, 2007)
10.6	Senior Secured Debenture – ($700,000) DKR Soundshore Oasis Holding Fund Ltd. dated April 11, 2007 (incorporated by reference to Exhibit 10.14 to the Form 8-K filed on April 16, 2007)

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10.7	Senior Secured Debenture – ($1,050,000) Enable Growth Partners, LP dated April 11, 2007 (incorporated by reference to Exhibit 10.15 to the Form 8-K filed on April 16, 2007)
10.8	Senior Secured Debenture – ($350,000) Enable Opportunity Partners LP dated April 11, 2007 (incorporated by reference to Exhibit 10.16 to the Form 8-K filed on April 16, 2007)
10.9	Senior Secured Debenture – ($350,000) Glacier Partners LP dated April 11, 2007 (incorporated by reference to Exhibit 10.17 to the Form 8-K filed on April 16, 2007)
10.10	Senior Secured Debenture – ($350,000) Frey Living Trust dated April 11, 2007 (incorporated by reference to Exhibit 10.18 to the Form 8-K filed on April 16, 2007)
10.11	Debenture Secured Guaranty dated April 11, 2007 (incorporated by reference to Exhibit 10.19 to the Form 8-K filed on April 16, 2007)
10.12	Debenture Pledge and Security Agreement dated April 11, 2007 (incorporated by reference to Exhibit 10.20 to the Form 8-K filed on April 16, 2007)
10.13	Joint Exploration Agreement with MorMeg, LLC dated March 30, 2007 (incorporated by reference to Exhibit 10.21 to the Form 8-K filed on April 16, 2007)
10.14	Purchase and Sale Agreement with MorMeg, LLC dated April 18, 2007 (incorporated by reference to Exhibit 10.22 to the Form 8-K filed on May 2, 2007)
10.15†	2000-2001 Stock Option Plan (incorporated by reference to Exhibit 99.2 to the Form 10-QSB filed on February 14, 2001)
10.16†	Amended and Restated 2002/2003 Stock Option Plan (incorporated by reference to Exhibit 10.23 to the Form 8-K filed on May 11, 2007)
10.17	Senior Secured Debenture dated June 21, 2007 – ($1,500,000)West Coast Opportunity Fund, LLC (incorporated by reference to Exhibit 10.24 to the Form 8-K filed on June 25, 2007)
10.18	Senior Secured Debenture – ($300,000) DKR Soundshore Oasis Holding Fund Ltd. dated June 21, 2007 (incorporated by reference to Exhibit 10.25 to the Form 8-K filed on June 25, 2007)
10.19	Senior Secured Debenture – ($450,000) Enable Growth Partners LP dated June 21, 2007 (incorporated by reference to Exhibit 10.26 to the Form 8-K filed on June 25, 2007)
10.20	Senior Secured Debenture – ($150,000) Enable Opportunity Partners LP dated June 21, 2007 (incorporated by reference to Exhibit 10.27 to the Form 8-K filed on June 25, 2007)
10.21	Senior Secured Debenture – ($150,000) Glacier Partners LP dated June 21, 2007 (incorporated by reference to Exhibit 10.28 to the Form 8-K filed on June 25, 2007)
10.22	Senior Secured Debenture – ($150,000) Frey Living Trust dated June 21, 2007 (incorporated by reference to Exhibit 10.29 to the Form 8-K filed on June 25, 2007)
10.23	Debenture Mortgage, Security Agreement and Assignment of Production dated June 21, 2007 (incorporated by reference to Exhibit 10.30 to the Form 8-K filed on June 25, 2007)
10.24	Separation Agreement with Todd Bart dated June 14, 2007 (incorporated by reference to Exhibit 10.31 to the Form 8-K filed on June 29, 2007)
10.25	Amended and Restated Well Development Agreement and Option for Gas City Project dated August 10, 2007 (incorporated by reference to Exhibit 10.31 to the Form 10-QSB filed on August 17, 2007)
10.26	Purchase and Sale Contract for Tri-County Project dated September 27, 2007 (incorporated by reference to Exhibit 10.32 to the Form 8-K filed on October 2, 2007)
10.27	Purchase and Sale Contract DD Energy Project dated September 14, 2007 (incorporated by reference to Exhibit 10.35 to the Form 10-QSB filed on November 14, 2007)
10.28	Amendment No. 1 to Well Development Agreement and Option for Gas City Project dated December 10, 2007 (incorporated by reference to Exhibit 10.35 to the Form 8-K filed on December 20, 2007)
10.29	Debenture Holder Amendment Letter dated December 10, 2007 (incorporated by reference to Exhibit 10.36 to the Form 8-K filed on December 20, 2007)
10.30	Amendment No. 2 to Joint Exploration Agreement with MorMeg, LLC dated March 20, 2008 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on March 24, 2008)
10.31	Debenture Holder Consent and Waiver Agreement dated April 9, 2008 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on April 15, 2008)
10.32	Agreement with Shell Trading (US) Company dated March 6, 2008 (incorporated by reference to Exhibit 10.32 to Amendment No. 1 to Form S-1 filed on May 27, 2008)(1)

76

10.33	Credit Agreement with Texas Capital Bank, N.A. dated July 3, 2008.
10.34	Promissory Note to Texas Capital Bank, N.A. dated July 3, 2008.
10.35	Amended and Restated Mortgage, Security Agreement, Financing Statement and Assignment of Production and Revenues with Texas Capital Bank, N.A. dated July 3, 2008.
10.36	Security Agreement with Texas Capital Bank, N.A. dated July 3, 2008.
10.37	Letter Agreement with Debenture Holders dated July 3, 2008.
21.1	List of Subsidiaries (incorporated by reference to Exhibit 21.1 to Amendment No. 1 to Form S-1 filed on May 27, 2008).
31.1	Certification of Chief Executive and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

† Indicates management contract or compensatory plan or arrangement.

⁽¹⁾ Portions of this exhibit are omitted and were filed separately with the Secretary of the SEC pursuant to EnerJex application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

77

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

                                                                                                          ENERJEX RESOURCES, INC.

                                                                                                           By: /s/ C. Stephen Cochennet

C. Stephen Cochennet, Chief Executive Officer

                                                                                                          Date: July 9, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ C. Stephen Cochennet C. Stephen Cochennet	President, Chief Executive Officer, (Principal Executive Officer), Principal Accounting Officer, Secretary, Chairman	July 9, 2008
/s/ Robert G. Wonish	Director	July 9, 2008
Robert G. Wonish
/s/ Daran G. Dammeyer	Director	July 9, 2008
Daran G. Dammeyer
/s/ Darrel G. Palmer	Director	July 9, 2008
Darrel G. Palmer
/s/ Dr. James W. Rector	Director	July 9, 2008
Dr. James W. Rector

78

Index to Financial Statements

	Page
Index to Financial Statements	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at March 31, 2008 and 2007	F-3
Consolidated Statements of Operations for the Fiscal Years Ended March 31, 2008 and 2007	F-4
Consolidated Statement of Stockholders’ Equity(Deficit) for the Fiscal Years Ended March 31, 2008 and 2007	F-5
Consolidated Statement of Cash Flows for the Fiscal Years Ended March 31, 2008 and 2007	F-6
Notes to Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

Stockholders and Directors

EnerJex Resources, Inc

Overland Park, Kansas

We have audited the accompanying consolidated balance sheet of EnerJex Resources, Inc. and its subsidiaries as of March 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended March 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of EnerJex Resources, Inc. and subsidiaries as of March 31, 2008 and 2007 and the consolidated results of its operations, stockholders’ equity and cash flows for each of the years in the two–year period ended March 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

/S/ Weaver & Martin, LLC

Weaver & Martin, LLC

Kansas City, Missouri

June 23, 2008

F-2

EnerJex Resources, Inc. and Subsidiaries

Consolidated Balance Sheets

					March 31,
					2008		2007
Assets
Current assets:
	Cash				$	951,004	$	99,493
	Accounts receivable					227,055		4,138
	Notes and interest receivable					-		10,300
	Prepaid debt issue costs					157,191		-
	Deposits and prepaid expenses					176,345		6,673
		Total current assets				1,511,595		120,604
Fixed assets						185,299		35,500
Less: Accumulated depreciation						30,982		8,875
			Total fixed assets			154,317		26,625
Other assets:
	Notes receivable-officer					-		23,100
	Prepaid debt issue costs					157,191		-
	Oil and gas properties using full-cost accounting:
		Properties not subject to amortization				62,216		322,178
		Properties subject to amortization				8,982,510		-
				Total other assets		9,201,917		345,278
		Total assets			$	10,867,829	$	492,507
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
	Accounts payable				$	416,834	$	42,299
	Accrued liabilities					70,461		95,890
	Notes payable					965,000		350,000
	Deferred payments from Euramerica development					251,951		-
	Long-term debt, current					412,930		-
				Total current liabilities		2,117,176		488,189
Asset retirement obligation						459,689		23,908
Convertible note payable						25,000		25,000
Long-term debt, net of discount of $3,410,202						6,831,972		-
				Total liabilities		9,433,837		537,097
Contingencies and commitments
Stockholders’ Equity (Deficit):
	Preferred stock, $0.001 par value, 10,000,000
		shares authorized, no shares issued and outstanding				-		-
	Common stock, $0.001 par value, 100,000,000 shares authorized;
		shares issued and outstanding – 22,203,256 at March 31, 2008
		and 13,178,656 at March 31, 2007				22,203		13,179
	Common stock owed but not issued-15,000 shares					-		15
	Paid in capital					8,835,695		2,538,187
	Retained (deficit)					(7,423,906)		(2,595,971)
				Total stockholders’ equity (deficit)		1,433,992		(44,590)
				Total liabilities and stockholders’ equity (deficit)	$	10,867,829	$	492,507

See Notes to Consolidated Financial Statements.

F-3

EnerJex Resources, Inc. and Subsidiaries

Consolidated Statements of Operations

			For the Fiscal Years Ended
			March 31,
			2008		2007
Oil and natural gas revenues			$	3,602,798	$	90,800
Expenses:
	Direct operating costs			1,795,188		172,417
	Repairs on oil & gas equipment			-		165,603
	Depreciation, depletion and amortization			935,330		23,978
	Professional fees			1,226,998		302,071
	Salaries			1,703,099		288,016
	Administrative expense			887,872		182,773
	Impairment of oil & gas properties			-		273,959
	Impairment of goodwill			-		677,000
		Total expenses		6,548,487		2,085,817
Loss from operations				(2,945,689)		(1,995,017)
Other income (expense):
	Interest expense			(1,882,246)		(8,434)
	Other			-		348
Total other income (expense)				(1,882,246)		(8,086)
Net (loss)			$	(4,827,935)	$	(2,003,103)
Net (loss) per share of common stock-basic and fully diluted			$	(0.23)	$	(0.16)
Weighted average shares outstanding				21,420,718		12,241,589

See Notes to Consolidated Financial Statements.

F-4

EnerJex Resources, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Deficit)

	Common Stock
	Shares	Par Value	Owed but not issued	Paid in Capital	Retained Deficit	Total Stockholders’ Equity (Deficit)
Balance, April 1, 2006	11,050,000	$ 11,050	$ -	$ 1,432,718	$ (592,868)	$ 850,900
Stock sold	768,000	768	-	414,032	-	414,800
Stock issued for services	740,000	740	15	454,245	-	455,000
Stock issued in reverse merger	300,656	301	-	(301)	-	-
Stock issued for contract extension with joint venture partner	320,000	320	-	199,680	-	200,000
Stock options issued for services	-	-	-	37,813	-	37,813
Net (loss) for the year	-	-	-	-	(2,003,103)	(2,003,103)
Balance, March 31, 2007	13,178,656	13,179	15	2,538,187	(2,595,971)	(44,590)
Stock sold	9,000,000	9,000	-	4,304,756	-	4,313,756
Stock issued for services	9,600	9	-	14,991	-	15,000
Previously authorized but unissued stock	15,000	15	(15)	-	-	-
Options issued for services	-	-	-	1,977,761	-	1,977,761
Net (loss) for the year	-	-	-	-	(4,827,935)	(4,827,935)
Balance, March 31, 2008	22,203,256	$ 22,203	$ -	$ 8,835,695	$ (7,423,906)	$ 1,433,992

See Notes to Consolidated Financial Statements.

F-5

EnerJex Resources, Inc.

Consolidated Statements of Cash Flows

			For the Fiscal Years Ended
			March 31,
			2008		2007
Cash flows from operating activities
Net (loss)			$	(4,827,935)	$	(2,003,103)
Depreciation and depletion				935,330		22,108
Debt issue cost amortization				152,453		-
Stock and options issued for services				1,992,761		186,813
Accretion of interest on long-term debt discount				1,089,798		-
Accretion of asset retirement obligation				30,331		1,870
Impairment of oil & gas properties				-		273,959
Impairment of goodwill						677,000
Loss on sale of vehicle				-		3,854
Adjustments to reconcile net (loss) to cash
	used in operating activities:
		Accounts receivable		(222,917)		(1,589)
		Notes and interest receivable		10,300		(10,300)
		Deposits and prepaid expenses		(169,672)		2,188
		Accounts payable		374,535		(683,746)
		Accrued liabilities		(25,429)		95,387
		Deferred payment from Euramerica for development		251,951		-
Cash used in operating activities				(408,494)		(1,435,559)
Cash flows from investing activities
	Purchase of fixed assets			(149,799)		(35,500)
	Additions to oil & gas properties			(9,530,321)		(104,080)
	Sale of oil & gas properties			300,000		-
	Note and interest receivable from officer			23,100		(23,100)
	Proceeds from sale of vehicle			-		11,500
Cash used in investing activities				(9,357,020)		(151,180)
Cash flows from financing activities
	Proceeds from note payable, net			615,000		350,000
	Proceeds from sales of common stock			4,313,756		414,800
	Debt issue costs			(466,835)		-
	Borrowings on long-term debt			6,344,816		-
	Payments on long-term debt			(189,712)		-
	Stock issued for payables			-		306,000
	Proceeds from convertible note			-		25,000
Cash provided from financing activities				10,617,025		1,095,800
Increase (decrease) in cash and cash equivalents				851,511		(490,939)
Cash and cash equivalents, beginning				99,493		590,432
Cash and cash equivalents, end			$	951,004	$	99,493
Supplemental disclosures:
	Interest paid		$	733,972	$	5,407
	Income taxes paid		$	-	$	-
Non-cash transactions:
	Share-based payments issued for services		$	280,591	$	558,000
	Share-based payments issued for oil & gas properties		$	-	$	200,000

See Notes to Consolidated Financial Statements.

F-6

EnerJex Resources, Inc.

Notes to Consolidated Financial Statements

Note 1 – Summary of Accounting Policies

Nature of Business

We are an independent energy company engaged in the business of producing and selling crude oil and natural gas. This crude oil and natural gas is obtained primarily by the acquisition and subsequent exploration and development of mineral leases. Development and exploration may include drilling new exploratory or development wells on these leases. These operations are conducted primarily in Eastern Kansas.

Principles of Consolidation

Our consolidated financial statements include the accounts of our wholly-owned subsidiaries, EnerJex Kansas, Inc., DD Energy, Inc and EnerJex Development, LLC (currently inactive).

Use of Estimates

The preparation of these financial statements requires the use of estimates by management in determining our assets, liabilities, revenues, expenses and related disclosures. Actual amounts could differ from those estimates.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear any interest. We regularly review receivables to insure that the amounts will be collected and establish or adjust an allowance for uncollectible amounts as necessary using the specific identification method. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. There were no reserves for uncollectible amounts in the periods presented.

Share-Based Payments

Common stock, warrants and options issued for services are accounted for based on the fair market value at the date the services are performed. If the awards are based on a vesting period, the fair market value of the awards is determined as vesting is earned. If the services are to be performed over a period of time, the value is amortized over the life of the period that services are performed.

Income Taxes

We account for income taxes under the Statement of Financial Accounting Standards “SFAS” Statement 109, “Accounting for Income Taxes”. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The provision for income taxes differs from the amount currently payable because of temporary differences in the recognition of certain income and expense items for financial reporting and tax reporting purposes.

F-7

We adopted the Financial Accounting Standards Board “FASB” Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”) as of April 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in companies’ financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. As a result, we apply a more-likely-than-not recognition threshold for all tax uncertainties. FIN 48 only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities. As a result of implementing FIN 48, we have reviewed our tax positions and determined there were no outstanding or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore the implementation of this standard has not had a material effect on the Company.

We classify tax-related penalties and net interest on income taxes as income tax expense. As of March 31, 2008 and 2007, no income tax expense had been incurred.

Fair Value of Financial Instruments

Our financial instruments consist of accounts receivable and notes payable. Interest rates currently available to us for debt with similar terms and remaining maturities are used to estimate fair value of such financial instruments. Accordingly the carrying amounts are a reasonable estimate of fair value.

Earnings Per Share

SFAS No. 128, “Earnings Per Share”, requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the diluted income or loss per share computation.

For the year ended March 31, 2008 and 2007, there were 2,667,500 and 300,000, respectively, of potentially issuable shares of common stock pursuant to outstanding stock options and warrants. These have been excluded from the denominator of the diluted earnings per share computation, as their effect would be anti-dilutive.

Cash and Cash Equivalents

We consider all highly liquid investment instruments purchased with original maturities of three months or less to be cash equivalents for purposes of the consolidated statements of cash flows and other statements. We maintain cash on deposit, which, at times, exceed federally insured limits. We have not experienced any losses on such accounts and believe we are not exposed to any significant credit risk on cash and equivalents.

Revenue Recognition and Imbalances

Oil and gas revenues are recognized net of royalties when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collection of the revenue is probable. Cash received relating to future revenues is deferred and recognized when all revenue recognition criteria are met.

F-8

We use the sales method of accounting for gas production imbalances. The volumes of gas sold may differ from the volumes to which we are entitled based on our interests in the properties. These differences create imbalances that are recognized as a liability only when the properties’ estimated remaining reserves net to us will not be sufficient to enable the under-produced owner to recoup its entitled share through production. No receivables are recorded for those wells where we have taken less than our share of production. Gas imbalances are reflected as adjustments to estimates of proved gas reserves and future cash flows in the supplemental oil and gas disclosures. There was no imbalance at March 31, 2008 and 2007.

Goodwill

Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. We assess the carrying amount of goodwill by testing the goodwill for impairment annually and when impairment indicators arise. The impairment test requires allocating goodwill and all other assets and liabilities to assigned reporting units. The fair value of each unit is determined and compared to the book value of the reporting unit. If the fair value of the reporting unit is less than the book value, including goodwill, then the goodwill is written down to the implied fair value of the goodwill through a charge to expense.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is on a straight-line method using the estimated lives of the assets (3-15 years). Expenditures for maintenance and repairs are charged to expense.

Debt issue costs

Debt issuance costs incurred are capitalized and subsequently amortized over the term of the related debt on the straight-line method of amortization over the estimated life of the debt.

Oil and Gas Properties

We follow the full-cost method of accounting for oil and natural gas properties. Accordingly, all costs associated with acquisition, exploration, and developments are capitalized.

All costs included in properties subject to amortization, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. Abandonment of oil and natural gas properties are charged to the full-cost pool and amortized.

Under the full-cost method, the net book value of oil and natural gas properties are subject to a “ceiling” amount. The ceiling is the estimated after-tax future net cash flows from proved oil and natural gas properties, discounted at 10% per annum plus the lower of cost or fair market value of unevaluated properties. In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant for the lives of the oil and natural gas reserves, except for changes that are fixed and determinable by existing contracts. The excess, if any, of the net book value above this ceiling is charged to expense.

F-9

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized as income or expense.

Long-Lived Assets

Impairment of long-lived assets is recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying value. The carrying value of the assets is then reduced to their estimated fair value that is usually measured based on an estimate of future discounted cash flows.

Asset Retirement Obligations

We accrue for the future plugging and abandonment of oil and natural gas assets in the period in which the obligation is incurred. We accrue costs at estimated fair value. When the related liability is initially recorded, we capitalize the cost by increasing the carrying amount of properties subject to amortization. Over time, the liability is accreted to its settlement value and the capitalized cost is depleted over the life of the related asset. Upon settlement of the liability, we recognize a gain or loss for any difference between the settlement amount and the liability recorded.

Major Purchasers

For the years ended March 31, 2008 and 2007 we sold all of our natural gas production to one purchaser and all of our oil production to one purchaser.

Recent Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not require any new fair value measurements, however the FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently reviewing the effect, if any, SFAS 157 will have on our financial statements.

In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Liabilities including in amendment of SFAS 115”. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement objectives for accounting for financial instruments. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November15, 2007, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, “Fair Value

F-10

Measurements”. We are currently evaluating the impact of SFAS No. 159 on our financial statements.

In December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business Combinations”. Although this statement amends and replaces SFAS No. 141, it retains the fundamental requirements in SFAS No. 141 that (i) the purchase method of accounting must be used for all business combinations; and (ii) an acquirer be identified for each business combination. SFAS No. 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. This Statement applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree), including combinations achieved without the transfer of consideration; however, this Statement does not apply to a combination between entities or businesses under common control. Significant provisions of SFAS No. 141R concern principles and requirements for how an acquirer (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 with early adoption not permitted. Management is assessing the impact of the adoption of SFAS No. 141R.

In December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in Consolidated Financial Statements”. This Statement amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We have not yet determined the impact, if any, that SFAS No. 160 will have on our financial statements.

Reclassifications

Certain reclassifications have been made to prior periods to conform to current presentation.

Note 2 – Stock Transactions

Stock transactions in fiscal 2007:

Pursuant to the merger with Millennium Plastics Corporation the shareholders of Millennium Plastics Corporation retained 300,656 shares of our stock.

We sold 768,000 shares of our common stock at $0.60 per share. We paid a fee of $46,000 to an individual who assisted us in obtaining capital resulting in net proceeds of $414,800. The fee was offset against the paid in capital recorded in this transaction.

We agreed to issue 755,000 shares of our common stock for services provided to us and liabilities assumed in the merger with Millennium. The shares were valued at a price of $0.60

F-11

and $1.00 per share. We used the price per share based on the price of our common stock at the date of the agreement to issue shares. In the year ended March 31, 2007, we expensed $138,000 related to these transactions. At March 31, 2007, there was $4,000 that was not expensed relating to these transactions, and we expensed this in fiscal 2008. At March 31, 2007, 15,000 of these shares were owed but unissued, and we recorded $15 as the par value of the unissued shares. The shares were issued in fiscal 2008.

We amended a joint exploration agreement with an entity that holds leases on properties and issued 320,000 of our shares in lieu of cash. The shares were valued at $200,000. We used the price per share based on recently sold shares. We recorded this as oil and gas properties not subject to amortization.

Stock transactions in fiscal 2008:

We issued 9,600 shares of common stock to a director and chairman of our audit committee for services over the next year. For the year ended March 31, 2008, we recorded $11,000 in expense for this agreement and $4,000 in expense for an agreement entered into in fiscal 2007.

We issued 9,000,000 shares of our common stock pursuant to our “Securities Purchase Agreements.” We allocated $4,500,000 of the $9,000,000 received for the stock and loan to the equity portion of the transaction (See Note 4). The transaction costs of the equity sale were $466,835, however, $280,591 of the cost was the value of warrants issued in connection with the agreement.

Option and Warrant transactions:

Officers (including officers who are members of the board of directors), directors, employees and consultants are eligible to receive options under our stock option plans. We administer the stock option plans and we determine those persons to whom options will be granted, the number of options to be granted, the provisions applicable to each grant and the time periods during which the options may be exercised. No options may be granted more than ten years after the date of the adoption of the stock option plans.

Each option granted under the stock option plans will be exercisable for a term of not more than ten years after the date of grant. Certain other restrictions will apply in connection with the plans when some awards may be exercised. In the event of a change of control (as defined in the stock option plans), the vesting date on which all options outstanding under the stock option plans may first be exercised will be accelerated. Generally, all options terminate 90 days after a change of control.

2000-2001 Stock Option Plan

The Board of Directors approved a stock option plan and our stockholders ratified the plan on September 25, 2000. The total number of options that can be granted under the plan is 1,000,000 shares. At March 31, 2008, we had granted 1,000,000 non-qualified options under this plan.

F-12

Stock Option Plan

On May 4, 2007, we amended and restated the EnerJex Resources, Inc. Stock Option Plan to rename the plan and to increase the number of shares issuable under the plan to 5,000,000. Our stockholders approved this plan in September of 2007. At March 31, 2008 we had granted 1,292,500 non-qualified options under this plan.

Option transactions in fiscal 2007:

We granted 300,000 stock options in the year ended March 31, 2007. These options vested at 100,000 per year. The options had an exercise price of $1.00 per share and were to expire on August 15, 2011. The value of the options was based on the Black-Scholes pricing model and totaled $99,000 based on the following assumptions: stock price-$0.60; exercise price-$1.00; life- 5 years; volatility-76%; yield-4.81%. For the year ended March 31, 2007, we recorded $37,813 as compensation expense and the remaining amount of expense on these options was $61,187.

The weighted average grant date fair value of the options granted in the year ended March 31, 2007 was $0.33.

The 300,000 options were cancelled in the year ended March 31, 2008.

Option transactions in fiscal 2008:

The unvested option issued in the year ended March 31, 2007, was unexercised and cancelled in accordance with a separation agreement. We recognized the remaining expense ($61,187) relating to the options in the year ended March 31, 2008.

We granted 2,292,500 options in the year ended March 31, 2008. 150,000 of the options were for services earned over a one-year period. We measured the compensation cost of the options based on the vesting and the market value as determined by the Black-Scholes pricing model.

For the year ended March 31, 2008, we included as expense $1,977,761 relating to the value of vested options. At March 31, 2008, we have $81,778 in charges to future expense relating to the unamortized cost of options that were issued in accordance with contracts that covered a period of one year, which will be expensed in fiscal 2009.

The fair value of each option award is estimated on the date of grant using the assumptions noted in the following table. Volatility is based on the historical volatility of stock trading, expected term was the estimated exercise period, risk free rate was the rate of a U.S. Treasury instrument of the time period in which the options would be outstanding, and dividend rate was estimated to be zero as we cannot assume that there will be any future dividends.

F-13

Weighted average expected volatility	101%
Weighted average expected term (in years)	3.95
Weighted average expected dividends	0%
Weighted average risk free rate	4.42%

The weighted average grant date fair value of the options granted in the year ended March 31, 2008 was $0.87

In the year ended March 31, 2008, we granted warrants to purchase 375,000 shares of our common stock as partial payment for services rendered in connection with our financing activities. The warrants have an exercise price of $0.60 and expire on April 11, 2010. The fair value of the warrants based on the Black-Scholes pricing model totaled $280,591 (approximately $0.75 per warrant). The following assumptions were used in the valuation: stock price-$1.00; exercise price-$0.60; life- 3 years; volatility- 106%; yield-4.66%. We have included the value of the warrants with the loan and equity transaction costs (See Note 4).

A summary of stock options and warrants is as follows:

	Options	Weighted Ave. Exercise Price	Warrants	Weighted Ave. Exercise Price
Outstanding April 1, 2006	-	-	-	-
Granted	300,000	$1.00	-	-
Cancelled	-	-	-	-
Exercised	-	-	-	-
Outstanding March 31, 2007	300,000	$1.00	-	-
Outstanding April 1, 2007	300,000	$1.00	-	-
Granted	2,292,500	1.26	375,000	$0.60
Cancelled	(300,000)	1.00	-	-
Exercised	-	-	-	-
Outstanding March 31, 2008	2,292,500	$1.26	375,000	$0.60

Note 3 – Asset Retirement Obligation

Our asset retirement obligations relate to the abandonment of oil and natural gas wells. The amounts recognized are based on numerous estimates and assumptions, including future retirement costs, inflation rates and credit adjusted risk-free interest rates. The following shows the changes in asset retirement obligations:

F-14

Asset retirement obligation at April 1, 2006	$ 22,038
Liabilities incurred during the period	-
Liabilities settled during the period	-
Accretion	1,870
Asset retirement obligations, March 31, 2007	23,908
Liabilities incurred during the period	405,450
Liabilities settled during the period	-
Accretion	30,331
Asset retirement obligations, March 31, 2008	$ 459,689

Note 4 – Long-Term Debt and Convertible Debt

On April 11, 2007, we entered into a Securities Purchase Agreement, Registration Rights Agreements, Senior Secured Debentures, a Pledge and Security Agreement, a Secured Guaranty, and other related agreements (the “Financing Agreements”) with the “Buyers”. Pursuant to the Financing Agreements, we authorized a new series of senior secured debentures (the “Debentures”). Under the terms of the Financing Agreements, we agreed to sell Debentures for a total purchase price of $9.0 million. In connection with the purchase, we agreed to issue to each of the Buyers one share of our common stock for each dollar purchased for a total issuance of 9,000,000 shares. The first closing occurred on April 12, 2007 with a total of $6.3 million in Debentures being sold and the remaining $2.7 million closing on June 21, 2007.

The Debentures have a three-year term, maturing on March 31, 2010, and bear interest at a rate equal to 10% per annum. Interest is payable quarterly in arrears on the first day of each succeeding quarter. We may pay interest in either cash or registered shares of our common stock. The Debenture has no prepayment penalty so long as we maintain an effective registration statement with the Securities Exchange Commission and provided we give six (6) business days prior notice of redemption to the Buyers. The Debentures are guaranteed, pursuant to the “Secured Guaranty” and “Pledge and Security Agreement” by us and secured by a security interest in all of our assets and assignments of production, other than our Gas City Project.

Pursuant to the agreements, during the term of the Debentures, we are required to produce a minimum average daily quantity of oil and natural gas. The production thresholds will be measured at six-month intervals beginning December 31, 2007 and ending on September 30, 2009. In the event that for any Measurement Date specified above, we do not meet the production thresholds applicable to such Measurement Date, then we shall issue to the Buyers an aggregate 3,000,000 shares of common stock for each threshold date (up to 12,000,000 shares total). Each Buyer may elect to receive common stock purchase warrants in lieu of its allocation of shares of common stock. Such warrants shall have an exercise price of $0.01 per share and be exercisable for a four-year term. As of March 31, 2008, we have met our initial production threshold and we believe our future production levels will be sufficient to meet the subsequent required threshold levels.

Pursuant to the terms of the Registration Rights Agreement between us and the Buyers, we are obligated to file a minimum of three registration statements registering the 9,000,000 shares of common stock or shares of common stock underlying the common stock purchase warrants,

F-15

3,000,000 interest shares potentially due under the Debentures, and up to 12,000,000 production threshold shares. If we fail to obtain and maintain effectiveness of a registration statement, we will be obligated to pay cash to each Buyer equal to: (i) 0.5% of the aggregate purchase price allocable to such Buyer’s securities included in such registration statement for the first 30 day period following such effectiveness failure or maintenance failure, (ii) 0.75% of the aggregate Purchase price allocable to such Buyer’s securities in such registration statement for the following thirty day period; and (iii) 1% of the aggregate purchase price allocable to such Buyer’s securities included in the registration statement for every thirty day period thereafter. These payments are capped at 10% of the Buyer’s original purchase price under the Debentures. The first registration statement, registering 3,000,000 shares of common stock, became effective on August 14, 2007 and the second became effective January 11, 2008.

The proceeds from the Debentures were allocated to the long-term debt and the stock issued based on the fair market value of each item that we calculated to be $9.0 million for each item. Since each of the instruments had a value equal to 50% of the total, we allocated $4.5 million to stock and $4.5 million to the note. The loan discount costs of $4.5 million will accrete as interest based on the interest method over the period of issue to maturity. The amount of interest accreted for the period ended March 31, 2008 was $1,089,798. The remaining amount of interest to accrete in future periods is $3,410,202 as of March 31, 2008.

We incurred debt issue costs totaling $466,835. The debt issue costs are initially recorded as assets and are amortized to expense on a straight-line basis over the life of the loan. The amount expensed in the year ended March 31, 2008 was $152,453. The remaining debt issue costs will be expensed in the following fiscal years: March 31, 2009 -$157,191 and March 31, 2010 -$157,191.

We obtained a note payable to a bank of $1,735,000 maturing in October 2011 with an interest rate of 8.5% that is collateralized by some of our oil and gas leases and assets.

We financed the purchase of vehicles through a bank. The notes are for seven years and the weighted average interest is 6.99% per annum. Vehicles collateralize these notes.

Long-term debt consists of the following at March 31, 2008:

Long-term debentures	$ 9,000,000
Unaccreted discount	(3,410,202)
Total	5,589,798
Note payable to bank	1,549,029
Vehicle notes payable	106,075
Total long-term debt	7,244,902
Less current portion	412,930
Long-term debt	$ 6,831,972

On August 3, 2006, we sold a $25,000 convertible note that has an interest rate of 6% and matures August 2, 2010. The note is convertible at any time at the option of the note holder into shares of our common stock at a conversion rate of $2.00 per share.

F-16

Principal amounts are due on long-term and convertible debt as follows: Year ended March 31, 2009 -$412,930, March 31, 2010 -$9,475,406, March 31, 2011 -$490,404, March 31, 2012 -$271,232, March 31, 2013 -$11,027 and thereafter-$19,105.

Note 5 – Oil & Gas Properties

On April 9, 2007, we entered into a “Joint Exploration Agreement” with a shareholder, MorMeg, LLC, whereby we agreed to advance $4.0 million to a joint operating account for further development of MorMeg’s Black Oaks leaseholds in exchange for a 95% working interest in the Black Oaks Project. We will maintain our 95% working interest until payout, at which time the MorMeg 5% carried working interest will be converted to a 30% working interest and our working interest becomes 70%. Payout is generally the point in time when the total cumulative revenue from the project equals all of the project’s development expenditures and costs associated with funding. We have until November 30, 2008 to contribute additional capital toward the Black Oaks Project development. If we elect not to contribute further capital to the Black Oaks Project prior to the project’s full development while it is economically viable to do so, or if there is more than a thirty day delay in project activities due to lack of capital, MorMeg has the option to cease further joint development and we will receive an undivided interest in the Black Oaks Project. The undivided interest will be the proportionate amount equal to the amount that our investment bears to our investment plus $2.0 million, with MorMeg receiving an undivided interest in what remains.

On April 18, 2007, we entered into a “Purchase and Sale Agreement” with MorMeg, LLC, a shareholder, to acquire the lease interests of certain producing properties for cash in the amount of $400,000.

In August of 2007, we entered into a development agreement with Euramerica to further the development and expansion of the Gas City Project, which included 6,600 acres, whereby Euramerica contributed $524,000 in capital toward the project. Euramerica was granted an option to purchase this project for $1.2 million with a requirement to invest an additional $2.0 million for project development by August 31, 2008. We are the operator of the project at a cost plus 17.5% basis. We received $300,000 in the year ended March 31, 2008 (and an additional $300,000 subsequent to year end) of the $1.2 million purchase price. We also received $250,000of the $2.0 million development funds in the year ended March 31, 2008 (and an additional $250,000 subsequent to year end). We recorded a reduction of $300,000 to our oil & gas properties using full-cost accounting subject to amortization in the year ended March 31, 2008 and will further reduce this account when we receive the remaining $600,000 in proceeds in fiscal 2009. Upon payment of the entire purchase price, Euramerica will been assigned a 95% working interest, and we will retain a 5% carried working interest before payout. When the project reaches payout, our 5% carried working interest will increase to a 25% working interest, and Euramerica will have a 75% working interest. At March 31, 2008 we have recorded $251,951 in deferred payments from Euramerica development.

On September 14, 2007, we entered into a purchase agreement for the acquisition of nearly a 100% working interest in leaseholds located in three counties in eastern Kansas for a cash purchase price of $800,000.

F-17

On September 27, 2007, we entered into a purchase and sale agreement with shareholders to acquire oil leases in eastern Kansas for a purchase price of $2.7 million.

In the fiscal year ended March 31, 2007, we incurred impairment charges on our oil and natural gas properties of $273,959. The impairment represented all of our oil and gas cost accounted for under the full-cost method that was subject to amortization. We took this impairment based on the full-cost method ceiling test.

Note 6 – Related party transactions

In the year ended March 31, 2007, we entered into an agreement with a shareholder to sell the patent we received in the Millennium merger for $10,000.

In the year ended March 31, 2008, we entered into a “Separation Agreement” with our former chief financial officer. Pursuant to the agreement, we agreed to pay a total of $56,000 as severance subject to payment in full of an outstanding promissory note in the amount of $22,000 and accrued interest.

Note 7 – Commitments and Contingencies

We have a lease agreement that expires in July, 2008. Future minimum payments are $20,500 for the year ending March 31, 2009.

Pursuant to the agreements, during the term of the Debentures, we are required to produce a minimum average daily quantity of oil and natural gas. The production thresholds will be measured at six-month intervals beginning December 31, 2007 and ending on September 30, 2009. In the event that for any Measurement Date specified above, we do not meet the production thresholds applicable to such Measurement Date, then we shall issue to the Buyers an aggregate 3,000,000 shares of common stock for each threshold date (up to 12,000,000 shares total). Each Buyer may elect to receive common stock purchase warrants in lieu of its allocation of shares of common stock. Such warrants shall have an exercise price of $0.01 per share and be exercisable for a four-year term. As of March 31, 2008, we have met our initial production threshold and we believe our future production levels will be sufficient to meet the subsequent required threshold levels.

Note 8 – Income Taxes

Deferred income taxes are determined based on the tax effect of items subject to different treatment between book and tax bases. At March 31, 2008, there is approximately $7,147,000 of net operating loss carry-forwards expiring in 2021-2023. The net deferred tax is as follows:

	March 31, 2008	March 31, 2007
Non-current deferred tax asset:
Impaired oil & gas costs and long-lived assets	$ 312,800	$ -

F-18

Net operating loss carry-forward	2,429,900	908,000
Valuation allowance	(2,742,700)	(908,000)
Total deferred tax net	$ -	$ -

A reconciliation of the provision for income taxes to the statutory federal rate for continuing operations is as follows:

	March 31, 2008	March 31, 2007
Statutory tax rate	34%	34%
Equity based compensation	(15)%	-
Oil & gas costs and long-lived assets	1%	-
Change in valuation allowance	(20)%	(34)%
Effective tax rate	0%	0%

Note 9 – Notes Payable

We have promissory notes payable relating to the acquisition of leases totaling $965,000. Each promissory note bears interest at a rate of 5% per annum and matures September 1, 2008. Collateral for these notes are DD Energy oil and gas leases.

At March 31, 2007 we had a note payable to a bank totaling $350,000. The note had an interest rate of 9% and was secured by substantially all of our assets. The principal and interest was paid on April 18, 2007.

Note 10 – Impairment of Goodwill

In the year ended March 31, 2007 we impaired goodwill and recorded an expense of $677,000. The goodwill resulted from the Millennium merger and we performed a goodwill impairment test. This test required the allocation of goodwill and all other assets and liabilities to an assigned reporting unit. The fair value of the unit was determined in the year ended March 31, 2007 and compared to the book value of the unit. The fair value of the reporting unit was determined to be zero as there were no revenues or assets therefore we were required to impair the goodwill as expense.

Note 11 – Subsequent Events

On March 6, 2008, we entered into an agreement with Shell whereby we agreed to an 18-month fixed-price delivery contract with Shell for 130 BOPD at a fixed price per barrel of $96.90, before transportation costs. This contract is for the physical delivery of oil under our normal sales. This represents approximately 60% of our total current oil production on a net revenue basis and represents approximately $6.8 million in gross revenue before transportation costs over the 18-month period. In addition, we agreed to sell all of our remaining oil production at current spot market pricing beginning April 1, 2008 through September 30, 2009 to Shell.

F-19

On April 9, 2008, we borrowed $500,000 from a bank at 8% interest due August 27, 2009.

On May 15, 2008, we issued 10,910 shares to a Director for serving as the chairman of our audit committee.

We received $300,000 from Euramerica towards the purchase of the properties and $250,000 for development after March 31, 2008.

On July 3, 2008, we entered a new three-year $50 million senior secured credit facility with Texas Capital Bank, N. A. with an initial borrowing base of $10.75 million based on our current proved oil and natural gas reserves.  We used our initial borrowing under this facility of $10.75 million to redeem an aggregate principal amount of $6.3 million of our 10% debentures, assign approximately $2.0 million of our existing indebtedness with another bank to this facility, repay $965,000 of seller-financed notes, pay the transaction costs, fees and expenses of this new facility and expand our current development projects, including the completion of 31 new oil wells that have been drilled since May of 2008.

As of July 3, 2008, we entered into an ISDA master agreement and a costless collar with BP Corporation North America Inc., or BP, for 130 barrels of oil per day with a price floor of $132.50 per barrel and a price ceiling of $155.70 per barrel for NYMEX West Texas Intermediate for the period of October 1, 2009 until March 31, 2011.

On July 7, 2008, we amended the $2.7 million of aggregate principal amount of our 10% debentures that remain outstanding to, among other things, permit the indebtedness under our new credit facility, subordinate the security interests of the debentures to the new credit facility, provide for the redemption of the remaining debentures with the net proceeds from our next debt or equity offering and eliminate the covenant to maintain certain production thresholds.

Note 12 – Supplemental Oil and Natural Gas Reserve Information (Unaudited)

Results of operations from oil and natural gas producing activities

The following table shows the results of operations from the Company’s oil and gas producing activities. Results of operations from these activities are determined using historical revenues, production costs and depreciation, depletion and amortization of the capitalized costs subject to amortization. General and administrative expenses, professional, investor relations and interest expense is excluded from this determination.

	March 31, 2008	March 31, 2007
Production revenues	$3,602,798	$90,800
Production costs	(1,795,188)	(172,417)
Depletion and depreciation	(913,224)	(11,477)
Results of operations for producing activities	$ 894,386	$(93,094)

F-20

Capitalized costs of oil and natural gas producing properties

The Company’s aggregate capitalized costs related to oil and natural gas producing activities are as follows:

	March 31, 2008	March 31, 2007
Proved	$ 10,207,596	$ 11,862
Unevaluated and unproved	62,216	322,178
Accumulated depreciation and depletion	(925,086)	(11,862)
Sale of properties	(300,000)	-
Net capitalized costs	$ 9,044,726	$ -

For the year ended March 31, 2007, we have impaired all of our capitalized costs subject to depletion because of the ceiling test of the full-cost method.

Unproved and unevaluated properties are not included in the full-cost pool and are therefore not subject to depletion or depreciation. These assets consist primarily of leases that have not been evaluated. We will continue to evaluate our unproved and unevaluated properties; however, the timing of such evaluation has not been determined.

Capitalized costs incurred for oil and natural gas producing activities

Costs incurred in oil and natural gas property acquisition, exploration and development activities that have been capitalized are summarized below:

	March 31, 2008	March 31, 2007
Acquisition of proved and unproved properties	$ 4,352,040	$304,080
Development costs	5,178,281	-
Exploration costs	-	-
Total	$ 9,530,321	$304,080

Gas and oil Reserve Quantities

Our ownership interests in estimated quantities of proved oil and gas reserves and changes in net proved reserves all of which are located in the United States are summarized below. Proved reserves are estimated quantities of natural gas and oil that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those that are expected to be recovered through existing wells with existing equipment and operating methods. Reserves are stated in thousand cubic feet (mcf) of natural gas and barrels (stb) of oil. Geological and engineering estimates of proved natural gas and oil reserves at one point in time are highly interpretive, inherently imprecise and subject to ongoing revisions that may be substantial in amount. Although every reasonable effort is made to ensure that the reserve estimates are

F-21

accurate, by their nature reserve estimates are generally less precise than other estimates presented in connection with financial statement disclosures.

	March 31, 2008		March 31, 2007
	Gas-mcf	Oil-stb	Gas-mcf	Oil-stb
Proved reserves:	-	-	229,517	-
Revisions of previous estimates	-	-	(212,077)	-
Purchase of minerals in place	418,959	347,228	-	-
Extensions and discoveries	-	1,068,683	-	-
Production	(17,762)	(43,697)	(17,440)	-
Total	401,197	1,372,214	-	-

Proved developed reserves at the end of the period:

Gas- mcf	Oil - stb
March 31, 2008	March 31, 2008
401,197	861,240

Gas- mcf	Oil stb
March 31, 2007	March 31, 2007
-	-

Standardized measure of discounted future net cash flows

The standardized measure of discounted future net cash flows from our proved reserves for the periods presented in the financial statements is summarized below. There were no proved reserves at March 31, 2007. The standardized measure of future cash flows as of March 31, 2008 is calculated using a price per Mcf of gas of $7.479 and a price for oil of $94.53 each of which was the price received from our production at March 31, 2008. The resulting estimated future cash inflows are reduced by estimated future costs to develop and produce the estimated proved reserves. These costs are based on year-end cost levels. Future income taxes are based on year-end statutory rates. The future net cash flows are reduced to present value by applying a 10% discount rate. The standardized measure of discounted future cash flows is not intended to represent the replacement cost or fair market value of the Company’s oil and gas properties.

	March 31, 2008	March 31, 2007
Future production revenue	$132,457,459	$ 240,000
Future production costs	(39,629,625)	(240,000)
Future development costs	(18,827,013)	-
Future cash flows before income taxes	74,000,821	-
Future income taxes	(19,241,954)	-
Future net cash flows	54,758,867	-

F-22

10% annual discount for estimating of future cash flows	(26,558,364)	-
Standardized measure of discounted net cash flows	$ 28,200,503	$ -

Changes in Standardized Measure of Discounted Future Net Cash Flows

	March 31, 2008	March 31, 2007
Balance beginning of year	$ -	$ 244,000
Sales, net of production costs	(1,777,278)	(18,000)
Net change in pricing and production costs	-	(60,000)
Net change in future estimated development costs	-	(90,000)
Purchase of minerals in place	8,124,394	-
Extensions and discoveries	21,853,387	-
Revisions	-	(77,000)
Accretion of discount	-	1,000
Change in income tax	-	-
Balance end of year	$ 28,200,503	$ -

F-23

EX-10

CREDIT AGREEMENT

Dated effective as of July 3, 2008

among

TEXAS CAPITAL BANK, N.A.,

as Administrative Agent, L/C Issuer and a Bank;

and

OTHER FINANCIAL INSTITUTIONS AND BANKS,

as Banks;

and

ENERJEX RESOURCES, INC.,

ENERJEX KANSAS, INC. (f/k/a MIDWEST ENERGY, INC.)

and

DD ENERGY, INC.,

collectively, as Borrowers

SENIOR SECURED REDUCING REVOLVING LINE OF CREDIT

OF UP TO $50,000,000

1335940v11

TABLE OF CONTENTS

Page

ARTICLE I DEFINITION AND ACCOUNTING TERMS 1

1.01 Defined Terms 1

1.02 Other Interpretive Provisions 18

1.03 Accounting Terms 19

1.04 Rounding 19

1.05 References to Agreements and Laws 19

1.06 Letter of Credit Amounts 19

ARTICLE II THE COMMITMENT AND CREDIT EXTENSIONS 20

2.01 Revolving Loans 20

2.02 Loans and Continuations of Loans 20

2.03 Letters of Credit 22

2.04 Borrowing Base Determination 27

2.05 Prepayments 30

2.06 Repayment of Loans 31

2.07 Interest 31

2.08 Fees 32

2.09 Computation of Interest and Fees 32

2.10 Evidence of Debt 32

2.11 Payments Generally 33

2.12 Pro Rata Treatment and Payments 33

2.13 Sharing of Payments and Setoffs 33

2.14 Adjustment to Aggregate Commitment Amount 34

ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 34

3.01 Taxes 34

3.02 Illegality 35

3.03 Inability to Determine Rates 36

3.04                 Increased Cost and Reduced Return; Capital Adequacy; Reserves on

Euro dollar Loans 36

3.05 Funding Losses 37

3.06 Matters Applicable to all Requests for Compensation 37

3.07 Survival 37

3.08 Replacement of Banks 37

ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS 38

4.01 Conditions of Initial Credit Extension 38

4.02 Conditions to all Credit Extensions and Continuations 40

ARTICLE V REPRESENTATIONS AND WARRANTIES 42

5.01 Existence, Qualification and Power; Compliance with Laws 42

5.02 Authorization; No Contravention 42

5.03 Governmental Authorization 42

i

1335940v11

5.04 Binding Effect 42

5.05 Financial Statements; No Material Adverse Effect 42

5.06 Litigation 43

5.07 No Default 43

5.08 Title; Liens; Priority of Liens 43

5.09 Environmental Compliance 44

5.10 Insurance 44

5.11 Taxes 44

5.12 ERISA Compliance 44

5.13 Subsidiaries 45

5.14 Disclosure 45

5.15 Compliance with Laws 45

5.16 Suspended Revenues 45

5.17 Tax Shelter Regulations 45

5.18 Oil and Gas Leases 45

5.19 Oil and Gas Contracts 46

5.20 Production Wells 46

5.21 Purchasers and Production 46

ARTICLE VI AFFIRMATIVE COVENANTS 46

6.01 Financial Statements 47

6.02 Certificates; Other Information 47

6.03 Notices 47

6.04 Payment of Obligations 48

6.05 Preservation of Existence, Etc. 49

6.06 Maintenance of Properties 49

6.07 Maintenance of Insurance 49

6.08 Compliance with Laws 49

6.09 Books and Records 49

6.10 Inspection Rights 50

6.11 Use of Proceeds 50

6.12 Accounts 50

6.13 Additional Borrowers and New Gurantors 50

6.14 Collateral Records 50

6.15 Security Interests 51

6.16 Title Defects 51

6.17 Maintenance of Tangible Property 51

6.18 Inspection of Tangible Assets/Rights of Audit 51

6.19 Leases 52

6.20 Operation of Borrowing Base Oil and Gas Properties 52

6.21 Change of Purchasers of Production 52

6.22 Hedging 52

6.23 Title and Liens 52

6.24 Subordination Obligations 52

ARTICLE VII NEGATIVE COVENANTS 53

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7.01 Liens 53

7.02 Investments 54

7.03 Indebtedness 54

7.04 Fundamental Changes 55

7.05 Dispositions 55

7.06 Restricted Payments 56

7.07 Change in Nature of Business 56

7.08 Transactions with Affiliates 56

7.09 Margin Regulations 56

7.10 Pooling or Unitization 56

7.11 Hedging 56

7.12 Financial Covenants 56

ARTICLE VIII THE AGENTS 57

8.01 Authorization and Action 57

8.02 Administrative Agent’s Reliance, Etc. 57

8.03 Administrative Agent and its Affiliates 58

8.04 Bank Credit Decision 58

8.05 Administrative Agent Indemnity 58

8.06 Successor Agents 59

8.07 Notice of Default 60

ARTICLE IX EVENTS OF DEFAULT AND REMEDIES 60

9.01 Events of Default 60

9.02 Remedies Upon Event of Default 62

9.03 Application of Funds 63

ARTICLE X MISCELLANEOUS 63

10.01 Amendmetns, Etc. 63

10.02 Notices nad Other Communications; Facsimile Copies 63

10.03 No Waiver; Cumulative Remedies 65

10.04 Attorney Costs and Expenses 65

10.05 Indemnification by Borrowers 65

10.06 Paymenst Set Aside 66

10.07 Successors and Assigns; Participation; Purchasing Banks 66

10.08 Set-off 69

10.09 Interest Rate Limitation 70

10.10 Counterparts 70

10.11 INTEGRATION 70

10.12 Survival of Representations and Warranties 70

10.13 Severability 71

10.14 Governing Law; Submission to Jurisdiction 71

10.15 WAIVER OF JURY TRIAL 71

10.16 USA Patriot Act Notice 72

10.17 Time of the Essence 72

10.18 Amendments or Modifications 72

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10.19 Amendment and Restatement; Waiver of Existing Defaults 73

10.20 Controlling Provision Upon Conflict 73

SCHEDULES

1.01 Commitment Amounts and Aggregate Commitment Amount

5.06 Litigation

5.09 Environmental Matters

5.13 Subsidiaries

5.19 Oil and Gas Contracts

5.21 Purchasers of Production

7.01 Existing Liens

7.03 Existing Indebtedness

7.05(f) Gas City Oil and Gas Properties

10.02 Addresses for Notices

10.07 Commitment Transfer Supplement

EXHIBITS

A Borrowing Base Oil and Gas Properties

B Form of Request for Credit Extension

C Form of Note

D Form of Compliance Certificate

E List of Collateral Documents

F Form of Guaranty

G Form of Joinder Agreement

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CREDIT AGREEMENT

This CREDIT AGREEMENT is entered into effective as of July 3, 2008 among ENERJEX RESOURCES, INC., a Nevada corporation (“Parent”), ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation (“EnerJex Kansas”) and DD ENERGY, INC., a Nevada corporation (“DD Energy”) (together with Subsidiaries of any such party that hereafter execute and deliver a Joinder Agreement, collectively, “Borrowers”) and TEXAS CAPITAL BANK, N.A.,a national banking association, as a Bank, L/C Issuer and Administrative Agent (in such latter capacity and together with its successors and permitted assigns in such capacity the “Administrative Agent”), and the several banks and financial institutions from time to time parties to this Credit Agreement (the “Banks,” such term to include all undersigned Banks and all other financial institutions which subsequently become parties to this Agreement in accordance with Section 10.07 hereof).

WHEREAS, Borrowers have requested that Banks provide a reducing revolving credit facility, and Banks are willing to do so on the terms and conditions set out herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

1.01     Defined Terms. As used in this Agreement, the following terms shall have the meanings set out below:

“Administrative Agent” has the meaning specified in the preamble.

“Affiliate” means, with respect to any Person, another Person that directly or indirectly through one or more intermediaries, Controls, or is Controlled by or is under common Control with, the Person specified. “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote more than 25% of the securities having ordinary voting power for the election of the Governing Body of such Person.

“Aggregate Commitment Amount” means the lesser of: (a) the Borrowing Base in effect from time to time, or (b) the amount stated as the Aggregate Commitment Amount on Schedule1.01 attached hereto, as the same may be amended from time to time as provided in this Agreement.

“Aggregate Outstanding Credit Exposure” means, at any time, the aggregate of the Outstanding Credit Exposure of all the Banks.

“Agreement” means this Credit Agreement, as amended, restated, supplemented or otherwise modified from time to time.

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“Applicable Margin” means the applicable Eurodollar Margin or Base Rate Margin provided for in the Margin/Fee Table.

“Approved Counterparty” means a counterparty under a Permitted Swap Contract.

“Assignment of Note, Liens and Security Instruments” means a form of Assignment of Note, Liens, Security Instruments and Other Rights from Cornerstone Bank, as lender and mortgagee/secured party under the Existing Note, the Existing Loan Agreement and the Existing Collateral Documents, as applicable, to Texas Capital Bank, N.A., as Administrative Agent hereunder and as mortgagee/secured party under the Collateral Documents, for the benefit of the Banks.

“Attorney Costs” means and includes all reasonable fees, expenses and disbursements of any law firm or other external counsel.

“Available Amount” means, when determined, with respect to the Commitments, the difference of (a) the Aggregate Commitment Amount and(b) the Aggregate Outstanding Credit Exposure.

“Availability Period” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, and (b) the date of termination of the Commitments of the Banks to make Loans and the obligation of Banks to make L/C Credit Extensions pursuant to Section 9.02.

“Bank Parties” means the L/C Issuer, the Banks and the Administrative Agent.

“Banks” has the meaning specified in the preamble.

“Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 0.50% and (b) the rate of interest in effect for such day as publicly announced from time to time by Administrative Agent as its “prime rate.” The “prime rate” is a rate set by Administrative Agent based upon various factors including Administrative Agent’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan(s)” means Loans advanced or converted to Loans based on the Base Rate and Base Rate Margin.

“Base Rate Margin” means the incremental rate of interest specified in the Margin/Fee Table.

“Borrowers” has the meaning specified in the preamble.

“Borrowing Base” means the maximum amount of Loans that may be supported by the Borrowing Base Oil and Gas Properties, as determined by Administrative Agent and approved

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by the Banks or the Required Banks, as the case may be, in accordance with Section 2.04 of this Agreement.

“Borrowing Base Oil and Gas Properties” means those Oil and Gas Properties of the Loan Parties that are described in any Reserve Report submitted to the Administrative Agent by Borrowers, together with (a) those Oil and Gas Properties of the Loan Parties that are described in Exhibit A attached hereto and made a part hereof, as such Exhibit A may be amended from time to time, and (b) any other Oil and Gas Properties of the Loan Parties that are described in and covered by (or that the Administrative Agent and Loan Parties have attempted to describe in) any of the Collateral Documents, whether or not such Oil and Gas Properties are described in Exhibit A attached hereto. Any reference to Exhibit A attached hereto shall be deemed to also refer to any ExhibitA attached to any and all mortgages, deeds of trust, and leasehold mortgages included in the Collateral Documents.

“Borrowing Base Utilization Percentage” means the ratio, expressed as a percentage, of the Aggregate Outstanding Credit Exposure to the Borrowing Base.

“Breakage Costs” means all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by any Bank to fund its Eurodollar Loans but excluding loss of anticipated profit with respect to any Eurodollar Loans) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or the Administrative Agent) a borrowing of Eurodollar Loans does not occur on a date specified therefor in a Request for Credit Extension; (ii) if any repayment or conversion of any Eurodollar Loans occurs on a date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any Eurodollar Loans is not made on any date specified in a notice of prepayment given by Borrowers; or (iv) as a consequence of any default by the Borrowers to repay Eurodollar Loans when required by the terms of this Agreement.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state of Texas and, if such day relates to any Loan based on the Eurodollar Rate, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank Eurodollar market.

“Business Entity” means a company, corporation, limited liability company, general partnership, limited partnership, partnership, joint venture, trust, business association, unincorporated organization, or other entity other than a natural Person, that has been formed and exists to conduct any line of business.

“Cash Collateralize” has the meaning specified in Section 2.03(e).

“Certificate of Formation” means any certificates, articles, or other instruments that are required or permitted to be filed with any designated agency of the jurisdiction in which a Business Entity is formed in order to evidence the legal formation of such Business Entity.

“Change of Control” means either of the following: (a) any person or group of persons (within the meaning of the Securities Exchange Act of 1934) shall have acquired beneficial

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ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 50% or more of the issued and outstanding shares of capital stock of any Loan Party having the right to vote for the election of directors of any Loan Party under ordinary circumstances; or (b) Parent ceases to own and control 50% or more of the economic and voting rights associated with all of the outstanding capital stock of any Loan Party.

“Closing Date” means July 3, 2008.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral”shall mean the assets and rights and interests in or to property of Borrowers and each of the other Loan Parties, whether real or personal, tangible or intangible, in which a Lien is granted or purported to be granted pursuant to the Collateral Documents.

“Collateral Documents”means all agreements, instruments and documents now or hereafter executed and delivered in connection with this Agreement pursuant to which Liens are granted or purported to be granted or assigned to Administrative Agent, for the benefit of the Banks, in Collateral securing all or part of the Obligations each in form and substance reasonably satisfactory to Administrative Agent and, including without limitation, those documents described on the attachedExhibit E.

“Commitment” means, as to any Bank, the obligation of such Bank to make Loans and participate in Letters of Credit issued upon the application of the Borrowers pursuant to the terms of this Agreement.

“Commitment Amount” means at any time, for any Bank, the amount set forth opposite such Bank’s name on Schedule 1.01 under the heading “Commitment Amount,” as such amount may be changed as provided in this Agreement.

“Commitment Transfer Supplement” means a Commitment Transfer Supplement executed by Administrative Agent, a Purchasing Bank, the transferring Bank and Borrowers, if required by Section 10.07, substantially in the form of Schedule10.07 and registered with the Administrative Agent pursuant to Section 10.07(d) hereof.

“Compliance Certificate” means the certificate of an authorized officer of the Borrowers submitted to the Administrative Agent from time to time pursuant to this Agreement and attesting to the financial covenants and stating, to such officer’s knowledge, whether or not a Default has occurred and is continuing and, if such an event has occurred, the actions being taken by the Borrowers to remedy such situation and that GAAP has been used in the preparation of the Financial Statements subject to normal year-end audit adjustments and the absence of footnotes, which certificate shall be in the form attached hereto as Exhibit D.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” has the meaning specified in the definition of “Affiliate.”

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“Corporate Action” means action taken by the Governing Body of any Business Entity (not just a corporation) in order to authorize such Business Entity pursuant to its Governing Documentation to enter into and become bound by the terms of any particular transaction.

“Corporate Power” means the power and authority of a Business Entity, under the terms of its Governing Documentation and applicable Law, to enter into, and become bound by, the terms of any particular transaction.

“Credit Extension” means a Loan or an L/C Credit Extension.

“Current Assets” means at any time all assets, that should in accordance with GAAP be classified as current assets on a consolidated balance sheet of Borrowers and their Subsidiaries, but excluding any mark-to-market valuation under Permitted Swap Contracts.

“Current Financial Statements” means the most recent financial statements delivered under Sections 6.01(a) or 6.01(b) or prior to delivery of any financial statements after the Closing Date, the financial statements dated as of and for the period ending December 31, 2007.

“Current Liabilities” means at any time, all liabilities that should in accordance with GAAP, be classified as current liabilities on a consolidated balance sheet of Borrowers and their Subsidiaries, but excluding any mark-to-market valuation under Permitted Swap Contracts.

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means the lesser of (a) an interest rate equal to the Floating Rate for the Loans plus 4.0% per annum and (b) the Maximum Rate.

“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction but excluding involuntary condemnations) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

“Dollar” and “$” mean lawful money of the United States.

“EBITDA” means, for any reporting period, net income on a consolidated basis before deductions for, without duplication, (a) interest expense, taxes, depreciation, depletion and amortization and exploration expenses, including dry-hole costs, (b) any net non-cash gain or loss during such period arising from the sale, exchange, retirement or other disposition of capital assets other than in the ordinary course of business, (c) any write-up or write-down of assets and (d) effects arising from the application of SFAS 133 and 143.

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“Environmental Laws” means (a) the following federal laws as they may be cited, referenced and amended from time to time: the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the Hazardous Materials Transportation Act, the Superfund Amendments and Reauthorization Act, the Toxic Substances Control Act, and the Oil Pollution Act of 1990; (b) any and all environmental statutes of any state in which property of the Borrower is situated, as they may be cited, referenced and amended from time to time; (c) any rules or regulations promulgated under or adopted pursuant to the above federal and state laws; and (d) any other federal, state or local statute or any requirement, rule, regulation, code, ordinance or order adopted pursuant thereto, including, without limitation, those relating to the generation, transportation, treatment, storage, recycling, disposal, handling or release of Hazardous Materials.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with either Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate which liability remains unpaid or undischarged for thirty (30) days.

“Eurodollar Loan(s)” means Loans advanced or converted to Loans based on the Eurodollar Rate and the Eurodollar Margin.

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“Eurodollar Margin” means the incremental rate of interest specified in the Margin/Fee Table.

“Eurodollar Rate” means the British Bankers’ Association Interest Settlement Rate per annum for the applicable Interest Period appearing on the display designated as page 3750 (or such other display page that may replace display page 3750 from time to time) on Moneyline Telerate, Inc., formerly known as Telerate (or appropriate successor), on the first day of each Interest Period (or in the event no such quotation is available on such date, as quoted on the day most immediately preceding the date of determination of which such quotation was available).

“Existing Collateral Documents” means, collectively, all collateral and instruments as referenced in, executed pursuant to, and/or carried forward under, the Existing Loan Agreement and assigned to Administrative Agent pursuant to the Assignment of Note, Liens and Security Instruments.

“Event of Default” has the meaning specified in Section 9.01.

“Existing Debenture Liens” means any Liens securing the obligations under the Existing Debentures.

“Existing Debentures” means those certain Senior Secured Debentures of EnerJex Kansas dated April 11, 2007, in the original aggregate principal amount of $6,300,000 and June 21, 2007, in the original aggregate principal amount of $2,700,000.

“ExistingLoan Agreement” means that certain Commercial Loan Agreement dated February 27, 2008, as amended, between EnerJex Kansas and DD Energy, as borrowers, and Cornerstone Bank, as lender.

“ExistingNotes” means, collectively, that certain promissory note dated September 27, 2007 in the original principal amount of $1,735,000 executed by EnerJex Kansas and DD Energy made payable to Cornerstone Bank and that certain promissory note dated February 27, 2007, in the original principal amount of $1,500,000 executed by EnerJex Kansas and DD Energy made payable to Cornerstone Bank, as amended.

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to a Bank on such day on such transactions.

“Financial Statements” means the statements of the financial condition of the indicated Person, on a consolidated basis, as at the point in time and for the period indicated and consisting of at least a balance sheet, income statement and statement of cash flows, and when the foregoing are audited, accompanied by the certification of such Person’s independent certified

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public accountants and footnotes to any of the foregoing, all of which shall be prepared in accordance with GAAP applied on a basis consistent with that of the preceding year, except for any inconsistency that results from changes in GAAP from year to year, and when the foregoing are not audited except for normal year-end audit adjustments and the absence of footnotes.

“Floating Rate” means a per annum interest rate determined by reference to the following schedule:

Eurodollar Rate + Eurodollar Margin at Borrower’s option pursuant to Section 2.02,

or

Base Rate + Base Rate Margin at Borrower’s option or by default pursuant to Section2.02.

“Funded Debt” means, as of any date of determination for Borrowers and their Subsidiaries on a consolidated basis, the sum of all Indebtedness for borrowed money (whether as a direct obligor on a promissory note, a bond, debenture, loan agreement or other similar instruments or a reimbursement obligor on a letter of credit, a guarantor, or otherwise), including under this Agreement and other Permitted Indebtedness described on Schedule 7.03 hereof.

“GAAP” means generally accepted accounting principles in the United States set out in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“Governing Body” means, in the case of a corporation, its board of directors, in the case of a limited liability company, its members or its managers, depending on how the management of such Business Entity is allocated in its Governing Documentation, in the case of a general partnership or joint venture, the partners or the joint venturers thereof, respectively, in the case of a limited partnership, the applicable Governing Body of the general partner thereof, if such general partner is a Business Entity, and in the case of any other Business Entity not specified herein, the designees thereof that, pursuant to the Governing Documentation of such Business Entity, fulfill the responsibilities typically discharged by a board of directors of a corporation.

“Governing Documentation” means, in the case of a corporation, its certification of incorporation, articles of incorporation and bylaws, as amended, in the case of a limited liability company, its Certificate of Formation, its limited liability company agreement, and its operating agreement or regulations (or similar documentation as denominated under the laws of the jurisdiction in which it is formed), in the case of a partnership, joint venture or a limited partnership, the applicable partnership agreement or joint venture agreement, and in the case of any other Business Entity not specifically enumerated herein, the applicable documentation typically utilized in the jurisdiction where such Business Entity has been formed for purposes of initially forming such Business Entity according to the laws of such jurisdiction and thereafter operating and managing such Business Entity.

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“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guarantee” means, as to any Person, any (a) obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

“Guarantor” means each Subsidiary of Borrowers, now or hereafter in existence to the extent Administrative Agent does not require any such Subsidiary to execute the Joinder Agreement to be added as a Borrower hereunder.

“Guaranty” means the Guaranty made by any Guarantor in favor of Administrative Agent and for the benefit of the Banks in the form attached hereto as ExhibitF.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Hydrocarbons” means crude oil, condensate, natural gas (including coal seam gas), natural gas liquids and other hydrocarbons.

“Indebtedness” means, as to any Person at a particular time, all obligations required by GAAP to be classified upon such Person’s balance sheet as liabilities, including all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

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(a)       all indebtedness for borrowed money (whether as a direct obligor on a promissory note, a bond, debenture, loan agreement or other similar instruments or a reimbursement obligor on a letter of credit, a guarantor, or otherwise) of such Person;

(b)       all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(c) net obligations of such Person under any Swap Contract;

(d)       all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

(e)       indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) capital leases obligations; and

(g) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be Swap Termination Value thereof as of such date. The amount of any capital lease as of any date shall be deemed to be the amount of the capitalized amount thereof that would appear on the balance sheet of such Person prepared in accordance with GAAP as of such date.

“Indemnified Liabilities” has the meaning specified in Section 10.05.

“Indemnitees” has the meaning specified in Section 10.05.

“Intercreditor Agreement” means an Intercreditor Agreement executed from time to time among Administrative Agent, a Borrower and an Approved Counterparty executed in connection with Permitted Swap Contracts on terms and conditions satisfactory to Administrative Agent providing for, amongst other things, the sharing of pari passu Liens on the Collateral to secure the Obligations and the obligations under the Permitted Swap Contracts, which form of Intercreditor Agreement shall be in a form mutually agreeable to Administrative Agent, Borrower and an Approved Counterparty.

“Interest Expense” means, for any period, for Borrowers and their Subsidiaries on a consolidated basis, the sum of all cash interest, premium payments, debt discount, fees, charges and related expenses of Borrowers and their Subsidiaries in connection with Funded Debt.

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“Interest Period” means as to each Loan based on the Eurodollar Rate, the period commencing on the date such Loan is disbursed or continued as a Eurodollar Loan based on the Eurodollar Rate and ending on the date one, two, three or six months thereafter (subject to availability), as selected by Borrowers in their Request for Credit Extension; provided that:

(a)       any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(b)       any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(c) no Interest Period shall extend beyond the Maturity Date.

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“IRS” means the United States Internal Revenue Service.

“Joinder Agreement” means the Joinder Agreement in the form attached hereto as ExhibitG executed pursuant to Administrative Agent’s request that a newly-created Subsidiary of any Borrower join this Agreement as a Borrower.

“Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“L/C Advance” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made; provided that, if a Base Rate Loan is available and is made to reimburse such draw on any Letter of Credit, then such drawing shall not constitute a L/C Advance from and after the making of the Base Rate Loan.

“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the renewal or increase of the amount thereof.

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“L/C Issuer” means Texas Capital Bank, NA as the issuer of the Letters of Credit under this Agreement.

“L/C Obligations” means, as at any date of determination, the aggregate undrawn available amount of all outstanding Letters of Credit plus the aggregate of all L/C Advances.

“Leases” means oil and gas leases and all oil, gas and mineral leases constituting any part of the Borrowing Base Oil and Gas Properties.

“Lending Office” means the office or offices of the Administrative Agent and the Banks described as such on Schedule 10.02, or such other office or offices as the Administrative Agent may from time to time notify Borrower and the Banks.

“Letter of Credit” means any Standby Letter of Credit issued under Section2.03 of this Agreement.

“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.

“Letter of Credit Expiration Date” means, except in respect of Tranche B Letters of Credit, the earlier of: (a) the requested date of expiration under a Letter of Credit Application and (b) the later of (ii) the Maturity Date or (ii) to the extent the Letter of Credit is required to be Cash Collateralized under Section 2.03(e) at the Maturity Date, the date that is twelve (12) months after the Maturity Date.

“Letter of Credit Limit” means, except in respect of Tranche B Letters of Credit, with regard to the Standby Letters of Credit issued under Section2.03, an amount equal to $750,000.

“Lien” means any mortgage, pledge, hypothecation, collateral assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement), and any financing lease having substantially the same economic effect as any of the foregoing.

“Loan” means an extension of credit under Section 2.01 in the form of a revolving loan.

“Loan Documents” means this Agreement, each Note, each Collateral Document, and each Guaranty and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith, as any of the foregoing may be amended, restated, modified, renewed, extended or supplemented from time to time.

“Loan Excess” means, at any point in time, the amount, if any, by which (i) the outstanding balance on the Aggregate Outstanding Credit Exposure exceeds the Aggregate Commitment Amount then in effect, (ii) the outstanding balance of L/C Obligations (other than in connection with Tranche B Letters of Credit) exceeds the Letter of Credit Limit or (iii) the outstanding balance of L/C Obligations under Tranche B Letters of Credit exceeds the Tranche B Letter of Credit Limit.

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“Loan Parties” means, collectively, each Borrower each Guarantor and each Subsidiary of a Borrower executing a Loan Document.

“Margin/Fee Table” means the following table:

	Borrowing Base Utilization Percentage	Applicable Margin		Commitment Fee	L/C Fee
		Eurodollar Margin	Base Rate Margin
Level 1	> 75%	2.750%	0.500%	0.375%	2.750%
Level 2	> 50% =‹ 75%	2.500%	0.250%	0.375%	2.750%
Level 3	=‹ 50%	2.250%	0.000%	0.375%	2.750%

“Marketable Title” means good and marketable title, free and clear of all Liens other than Permitted Liens.

“Material Adverse Change” means any change in the business, property, condition (financial or otherwise) or results of operations, or reasonably foreseeable prospects of Borrowers considered as a whole, which has a Material Adverse Effect.

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual and contingent), condition (financial or otherwise) or reasonably foreseeable prospects of Borrowers and their Subsidiaries taken as a whole; (b) a material impairment of the ability of the Loan Parties to perform their obligations under any Loan Document; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party; or (d) a material adverse change in, or a material adverse effect upon, any one or more Borrowing Base Oil and Gas Properties or any portion of other Collateral that in either case materially impairs the ability of the Loan Parties to perform their obligations under any Loan Document.

“Maturity Date” means July 3, 2011; provided that, for purposes of the deadline to issue Tranche B Letters of Credit, the Maturity Date is January 3, 2009.

“Maximum Rate” has the meaning set forth in Section 10.09.

“Monthly Borrowing Base Reduction” means the amount by which the Borrowing Base shall be reduced as of the first day of each calendar month pursuant to Section 2.04.

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Net Income” means, for any period, without duplication, the net income (or loss) of the Loan Parties on a consolidated basis after allowances for taxes for such period, determined in

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accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) the following: (i) the net income of any Person in which the Borrowers have an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Loan Parties in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in such period by such other Person to the Loan Parties; (ii) any extraordinary gains or losses, including gains or losses attributable to property sales not in the ordinary course of business, (iii) the cumulative effect of a change in accounting principles, and (iv) any gains or losses attributable to write-ups or write downs of assets.

“Note” and “Notes” means, individually, a promissory note issued by Borrowers payable to the order of a Bank evidencing the Credit Extensions made by that Bank pursuant to this Agreement and being substantially in the form of the note attached as Exhibit C hereto, together with any and all further renewals, extensions for any period, increases or rearrangements thereof, and means, collectively, all of such Notes.

“Obligations” means all advances to, and Indebtedness, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

“Oil and Gas Properties” means fee, leasehold or other interests in or under mineral estates or oil, gas and other liquid or gaseous hydrocarbon leases with respect to properties situated in the United States, including, overriding royalty and royalty interests, leasehold estate interests, net profits interests, production payment interests and mineral fee interests, together with contracts executed in connection therewith and all tenements, hereditaments, appurtenances and properties, real or personal, appertaining, belonging, affixed or incidental thereto.

“Outstanding Credit Exposure” means, as to any Bank at any time, the sum of (i) the aggregate principal amount of its Loans outstanding at such time, plus (ii) an amount equal to its Percentage Share of the L/C Obligations (other than in connection with the Tranche B Letters of Credit).

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by Borrowers or any ERISA Affiliate or to which Borrowers or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

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“Percentage Share” means, as to any Bank, a fraction (expressed as a percentage), the numerator of which shall be such Bank’s Commitment Amount, and the denominator of which shall be the Aggregate Commitment Amount stated on Schedule 1.01 attached hereto.

“Permitted Indebtedness” means the Indebtedness described in Section 7.03(a) through (e).

“Permitted Liens” means Liens permitted under Section 7.01.

“Permitted Swap Contracts” means any Swap Contract which any Borrower enters into with or through a counterparty that has a credit rating of at least “A-” by Standard and Poors or “A3” by Moody’s Investment Service, together with the confirmations which any Borrower may hereafter enter into with or through such counterparty covering, in the aggregate, among all such Swap Contracts, (i) with regard to oil and gas production, not more than eighty-five percent (85%) of the Proved Developed Producing Reserves that are (y) attributable to Borrowers' interest in the Borrowing Base Oil and Gas Properties, and (z) projected by the Administrative Agent to be produced during the term(s) of such Swap Contract(s); provided, however, that such Swap Contract includes minimum strike prices that are equal to or greater than the price assumptions incorporated by Administrative Agent in the calculation of the current Borrowing Base and no such Permitted Swap Contract shall be for a period exceeding three (3) years or such longer period unless consented to by the Administrative Agent and (ii) with regard to interest rates, not more than eighty percent (80%) of Aggregate Outstanding Credit Exposure may be subject to the notional principal amounts under such Swap Contracts.

“Person” means any individual, trustee, bank, firm, Governmental Authority or Business Entity.

“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by a Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

“Prohibited Transaction” means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended from time to time.

“Proved Developed Producing Reserves” means Proved Reserves which are categorized as both “Developed” and “Producing” in the Definitions for Oil and Gas reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.

“Proved Reserves” means Proved Reserves as defined in the Definitions for Oil and Gas reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.

“Purchasing Bank” shall have the meaning assigned to that term in Section 10.07 hereof.

“PW9” means the present worth of future net income, discounted to present value at the simple interest rate of nine percent (9%) per year.

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“Reportable Event” means any of the events set forth in Section 4043 of ERISA.

“Request for Credit Extension” means the written or verbal (confirmed in writing within one (1) Business Day) request by the Borrowers to the Administrative Agent for an advance by the Banks pursuant to this Agreement, which Request for Credit Extension shall be in substantially the form attached hereto as Exhibit B signed by an authorized officer of the Borrowers and which shall include a statement of the amount requested to be advanced, the date of the requested advance and such other information as the Administrative Agent in its reasonable discretion deems necessary.

“Required Banks” means, at any time, Banks holding at least sixty-six and two-thirds percent (66 2/3%) of the Aggregate Commitment Amount or, if the Aggregate Commitment Amount has been terminated, Banks having at least sixty-six and two-thirds percent (66 2/3%) of the Aggregate Outstanding Credit Exposure; provided, that, in each case, the Commitment of any Bank in default hereunder shall be excluded from the calculation hereof.

“Required Number” means: in the case of notices hereunder (i) relative to borrowings, prepayments, elections of Eurodollar Loans, selections of Interest Periods for, or other transactions in respect of, Eurodollar Loans: by 10:00 a.m., Houston, Texas time on the third Business Day prior to the proposed activity; or (ii) relative to all transactions in respect of Base Rate Loans: the same Business Day by 11:00 a.m., Houston, Texas time; it being understood, however, that in the case of notices involving transactions in respect of more than one type of Loan (such as a change in type of Loan), “Required Number” means that number of days, as indicated above in respect of the Loans involved, which would constitute the longest applicable period of time.

“Reserve Report” means a report prepared by Borrowers’ engineer (which may be an internal engineer or an external engineer or firm of engineers selected by Borrowers), or an independent petroleum engineer or firm of engineers satisfactory to Administrative Agent in its reasonable discretion regarding the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties, using the criteria and parameters required by and acceptable to the Securities and Exchange Commission, and incorporating the present cost of appropriate plugging and abandonment obligations to be incurred in the future, taking into account any plugging and abandonment fund required to be accrued or established by Borrowers out of cash flow from the Borrowing Base Oil and Gas Properties covered by such report with respect to such future obligations.

“Responsible Officer” means the president, vice president, chief executive officer or chief financial officer of a Loan Party. Any document delivered under this Agreement that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary Corporate Action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Restricted Payment” means (i) any dividend or other distribution (whether in cash, securities or other property except for a distribution in the form of capital stock of a Borrower) with respect to any capital stock or other equity interest of Borrowers, or any payment (whether in cash, securities or other property except for a distribution in the form of capital stock of a

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Borrower), including any sinking fund or similar deposit on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other equity interest or of any option, warrant or other right to acquire any such capital stock or other equity interest, (ii) any payment for interest or principal in relation to any intercompany indebtedness owed by any Borrower to any of its Affiliates, including without limitation, to any Guarantor, other than another Borrower and (iii) all payments with respect to Indebtedness described as Subordinated Obligations under the Subordination Agreement.

“Seller Notes” means those certain Promissory Notes and Security Agreements executed by DD Energy, as debtor, in the face amounts of $44,912.88, $254,974.81, $98,022.21, $69,669.36, $249,914.77, $149,483.77 and $98,022.21 and originally payable to the order of Giannino Smania, Mallard Management, Inc., Mormeg, LLC, Allyn and Linda Self, Coal Creek Energy, LLC, Enutroff, Inc. and Jonathan L. Haas, respectively, each as creditor.

“Senior Funded Debt” means Funded Debt less the aggregate amount of the then outstanding Subordinated Obligations, as defined in the Subordination Agreement.

“Standby Letter of Credit” means a Letter of Credit issued under Section 2.03 of this Agreement required for and issued in connection with securing a Borrower’s obligations to a counterparty under a Permitted Swap Contract.

“Subordination Agreement” means a subordination agreement dated of even date herewith among Administrative Agent and the holders of the Existing Debentures with terms and conditions satisfactory to Administrative Agent in its sole discretion.

“Subsidiary” of a Person means a Business Entity of which a majority of the shares of securities or other interests having ordinary voting power for the Governing Body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of each Borrower and each Borrower shall be deemed a Subsidiary of Parent.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules,

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a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts.

“Taxes” has the meaning specified in Section 3.01(a).

“Tranche B Letter of Credit Limit” means $2,250,000.

“Tranche B Letter of Credit Expiration Date” means the earlier of: (a) the requested date of expiration under a Letter of Credit Application and (b) the later of (ii) the January 3, 2009 or (ii) to the extent the Letter of Credit is required to be Cash Collateralized under Section 2.03(e), the date that is twelve (12) months after such date.

“Tranche B Letters of Credit” means any Standby Letter of Credit issued in accordance with Section 2.03(j) of this Agreement.

“Transfer Order Letters” means the letters in lieu of division or transfer orders, in form reasonably acceptable to Administrative Agent.

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“United States” and “U.S.” mean the United States of America.

1.02     Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a)       The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b)       (i) The words “herein”, “hereto”, “hereof” and “hereunder” and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof; (ii) Article, Section, Exhibit and Schedule references are to the Loan Document in which such reference appears; (iii) the term “including” is by way of example and not limitation; and (iv) the term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

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(c)       In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(d)       Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

1.03 Accounting Terms.

(a)       All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Current Financial Statements, except as otherwise specifically prescribed herein. All financial ratios contemplated by this Agreement shall be calculated on a consolidated basis for Borrowers and their Subsidiaries.

(b)       If at any time any change in GAAP would affect the computation of any financial ratio or requirement set out in any Loan Document, and either Borrowers or Administrative Agent shall so request, Administrative Agent and Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) Borrowers shall provide to Administrative Agent financial statements and other documents required under this Agreement or as reasonably requested under this Agreement setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

1.04     Rounding. Any financial ratios required to be maintained by any Loan Party pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05     References to Agreements and Laws. Unless otherwise expressly provided herein, (a) references to Governing Documentation, agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.

1.06     Letter of Credit Amounts. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to mean the amount of such Letter of Credit that

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is available to be drawn at such time after giving effect to all increases thereof contemplated by such Letter of Credit or the Letter of Credit Application therefor.

ARTICLE II

THE COMMITMENT AND CREDIT EXTENSIONS.

2.01     Revolving Loans. Subject to the terms and conditions set out herein and during the Availability Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to (i) make Loans to the Borrowers and (ii) participate in Letters of Credit issued upon the request of the Borrowers, provided that, after giving effect to the making of each Loan and the issuance of each Letter of Credit, such Bank’s Outstanding Credit Exposure shall not exceed its Commitment Amount and such Bank’s exposure under the Tranche B Letters of Credit shall not exceed such Bank’s Percentage Share of the Tranche B Letter of Credit Limit. The Loans advanced by each Bank to the Borrowers shall be evidenced by the Banks’ respective Notes from the Borrowers. Subject to the terms of this Agreement, the Borrowers may borrow, repay and reborrow up to the Aggregate Commitment Amount. The L/C Issuer will issue Letters of Credit hereunder on the terms and conditions set forth in Section 2.03. All Commitments to extend credit hereunder shall expire on the Maturity Date. Borrowers shall repay in full on the Maturity Date any balance of the Loans outstanding on the Maturity Date. Any loans outstanding under the Existing Loan Agreement as of the Closing Date shall be deemed, and shall hereafter be, Loans outstanding under this Agreement.

2.02 Loans and Continuations of Loans.

(a)       Each Loan and each continuation of a Loan shall be made upon Borrowers’ irrevocable notice to Administrative Agent, which may be given by telephone. Each such notice must be received by Administrative Agent not later than 11:00 a.m., Central Time at least the Required Number of days prior to the requested date of any Loan or continuation of a Loan. Each telephonic notice by Borrowers pursuant to this Section2.02(a) must be confirmed promptly by delivery to Administrative Agent of a written Request for Credit Extension, appropriately completed and signed by a Responsible Officer of Borrowers. Each Loan or continuation of Loans shall be in a principal amount of $100,000 or a greater integral multiple of $100,000. Each Request for Credit Extension (whether telephonic or written) shall specify (i) whether Borrowers are requesting a Loan or a continuation of a Loan, (ii) the requested date of the Loan or continuation (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed or continued, and (v) for Eurodollar Loans, the duration of the Interest Period with respect thereto. If Borrowers fail to give a timely notice requesting a continuation of a Eurodollar Loan, then the applicable Loans shall be continued for a one-month Interest Period. If Borrowers request a Loan or continuation of Loans in any such Request for Credit Extension, but fail to specify an Interest Period, they will be deemed to have specified an Interest Period of one month.

(b)       The Administrative Agent shall promptly advise the Banks and, if applicable, the L/C Issuer of any Request for Credit Extension or Letter of Credit Application given pursuant to this Section 2.02 or Section 2.03, as applicable, of each Bank’s Percentage Share of any requested Credit Extension and, if applicable, the amount

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requested for any Letter of Credit by telephone, confirmed promptly in writing, or telecopier. Upon satisfaction of the applicable conditions set forth in Article IV, each Credit Extension shall be made at the office of the Administrative Agent or L/C Issuer, as applicable, and shall be funded prior to 1:00 p.m., Houston, Texas time, on the day so requested in immediately available funds in the amount so requested. Each Bank shall make each Loan on the date of the proposed Credit Extension by wire transfer of immediately available funds to the Administrative Agent in Houston, Texas, not later than 10:00 a.m., Houston, Texas time, and upon fulfillment of the applicable conditions set forth in Article IV, the Administrative Agent will make such funds available to Borrowers as Borrowers shall direct to the Administrative Agent from time to time or, if a Credit Extension shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks as soon as practicable. Unless the Administrative Agent shall have received notice from a Bank prior to the date of any proposed Credit Extension that such Bank will not make available to the Administrative Agent such Bank’s Percentage Share of such Credit Extension, the Administrative Agent may assume that such Bank has made its Percentage Share available to the Administrative Agent on the date of such Credit Extension in accordance with this Section 2.02(b)and the Administrative Agent may, in reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If, and to the extent that, such Bank shall not have made its Percentage Share available to the Administrative Agent, such Bank and Borrowers severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrowers until the date such amount is repaid to the Administrative Agent at (i) in the case of Borrower, the interest rate applicable at the time to the Loans comprising such Credit Extension and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Bank’s Loan as part of such Credit Extension for purposes of this Agreement. If Borrowers shall repay to the Administrative Agent such corresponding amount, such repayment shall not relieve the defaulting Bank from liability to Borrowers for failure to fund such Bank’s Loan as part of such Credit Extension.

(c)       Except as otherwise provided herein, a Eurodollar Loan may be continued only on the last day of an Interest Period for such Loan. During the existence of an Event of Default, no Eurodollar Loans may be requested or continued, and Administrative Agent may demand that any or all of the then outstanding Loans be converted immediately to Base Rate Loans, and Borrowers agree to pay all amounts due under Section 3.05 in accordance with the terms thereof due to any such conversion.

(d)       Administrative Agent shall notify Borrowers of the interest rate applicable to any Interest Period for Eurodollar Loans upon determination of such interest rate. The determination of the Eurodollar Rate by Administrative Agent shall be conclusive in the absence of manifest error.

(e)       After giving effect to all Loans and all continuations of Loans, there shall not be more than six (6) Interest Periods in effect with respect to Eurodollar Loans.

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2.03 Letters of Credit.

(a) The Letter of Credit Commitment.

(i)        Subject to the terms and conditions set out herein, L/C Issuer agrees, from time to time on any Business Day during the period from the Closing Date until the Maturity Date, to issue Standby Letters of Credit, for the account of Borrowers, and to amend or renew such Letters of Credit previously issued by it, in accordance with Section 2.03(b) below; provided that L/C Issuer shall not be obligated to make any L/C Credit Extension with respect to any such Standby Letter of Credit, if as of the date of such L/C Credit Extension, the L/C Obligations for Standby Letters of Credit would exceed, with respect to the Tranche B Letter of Credit, the Tranche B Letter of Credit Limit and with respect to all other Letters of Credit, the Letter of Credit Limit. Within the foregoing limits, and subject to the terms and conditions hereof, Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and, accordingly, Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

(ii)       L/C Issuer shall be under no obligation to issue any Letter of Credit if:

(A)      any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain L/C Issuer from issuing such Letter of Credit, or any Law applicable to L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over L/C Issuer shall prohibit, or request that L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which L/C Issuer is not otherwise compensated under this Agreement) not in effect on the Closing Date, or shall impose upon L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which L/C Issuer in good faith deems material to it;

(B)      the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last renewal, (provided that such Letter of Credit may include provisions for automatic renewal), unless L/C Issuer has approved such expiry date in advance;

(C)      the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date or the Tranche B Letter of Credit Expiration Date, as applicable, unless L/C Issuer has approved such expiry date in advance; or

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(D)      such Letter of Credit is in an initial amount less than $25,000, or is to be denominated in a currency other than Dollars.

(iii)      L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

(b) Procedures for Issuance and Amendment of Letters of Credit.

(i)        Each Letter of Credit shall be issued or amended, as the case may be, upon the request of Borrowers delivered to L/C Issuer in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of Borrowers. Such Letter of Credit Application must be received by L/C Issuer not later than 11:00 a.m., Central Time, at least two Business Days (or such later date and time as L/C Issuer may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as the case may be.

(ii)       Promptly after receipt of any Letter of Credit Application by L/C Issuer at the address set out in Schedule 10.02 for receiving Letter of Credit Applications and related correspondence, if the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of Borrowers or enter into the applicable amendment, as the case may be, in each case in accordance with L/C Issuer’s usual and customary business practices.

(iii)      Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, L/C Issuer will also deliver to Borrowers a true and complete copy of such Letter of Credit or amendment.

(iv)      If Borrowers so request in any applicable Letter of Credit Application, L/C Issuer may, in it sole and absolute discretion, agree to issue a Letter of Credit that has automatic renewal provisions (each, an “Auto-Renewal Letter of Credit”); provided that any such Auto-Renewal Letter of Credit must permit L/C Issuer to prevent any such renewal at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to Borrowers and the beneficiary thereof not later than a day (the “Nonrenewal Notice Date”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued; provided that such Nonrenewal Notice Date shall not be later than the date thirty (30) days prior to the current expiration date of such Auto-Renewal Letter of Credit unless an Event of Default has occurred and is continuing, in which event such notice may be provided at any time. Unless otherwise directed by L/C Issuer, Borrowers shall not be required to

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make a specific request to L/C Issuer for any such renewal. Once an Auto-Renewal Letter of Credit has been issued, L/C Issuer shall be deemed to have authorized (but may not require) the renewal of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date or the Tranche B Letter of Credit Expiration Date, as applicable. Notwithstanding anything to the contrary contained herein, L/C Issuer shall have no obligation to permit the renewal of any Auto-Renewal Letter of Credit at any time.

(c)       Drawings and Reimbursements. Upon receipt from the beneficiary of any Letter of Credit of any notice of drawing under such Letter of Credit, L/C Issuer shall notify Borrowers thereof. On the date of any payment by L/C Issuer under a Letter of Credit (each such date, an “Honor Date”), Borrowers shall be deemed to have requested a Base Rate Loan to be disbursed on the Honor Date in an amount equal to the amount of such drawing (the “Drawing Amount”) without regard to the minimum and multiples specified in Section2.02, but subject to the amount of the unutilized portion of the Aggregate Commitment Amount and the conditions set out in Section4.02 (other than the delivery of a Request for Credit Extension). L/C Issuer shall promptly notify each Bank of the Honor Date, the Drawing Amount, and the amount of such Bank’s Percentage Share thereof. Any notice given by L/C Issuer pursuant to this Section 2.03(c) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. Each Bank shall, upon any notice pursuant to this Section 2.03(c), make funds available to L/C Issuer at L/C Issuer’s office in an amount equal to its Percentage Share of the Drawing Amount not later than 1:00 p.m., Central Time (or 5:00 p.m. if the draw was made after 11:00 a.m.), on the Business Day specified in such notice by L/C Issuer, whereupon each Bank that so makes funds available shall be deemed to have made a Base Rate Loan to Borrowers in such amount. With respect to any Drawing Amount that is not fully reimbursed by a Credit Extension of Base Rate Loans because the conditions set out in Section4.02 cannot be satisfied or for any other reason, Borrowers shall be deemed to have incurred from L/C Issuer an L/C Advance in the amount of the Drawing Amount that is not so reimbursed (the “Unreimbursed Amount”), which L/C Advance shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Bank’s payment to L/C Issuer shall be deemed payment in respect of its participation in such L/C Advance and shall constitute an L/C Advance from such Bank in satisfaction of its participation obligation under this Section 2.03. Each Bank’s obligation to make Loans or L/C Advances to reimburse L/C Issuer for amounts drawn under Letters of Credit, shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against L/C Issuer, Borrowers or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default; or (iii) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such making of an L/C Advance shall relieve or otherwise impair the obligation of Borrowers to reimburse L/C Issuer for the amount of any payment made by L/C Issuer under any Letter of Credit, together with interest as provided herein. If any Bank fails to make available to L/C Issuer any amount required to be paid by such Bank, L/C Issuer shall be entitled to recover from such Bank, on demand, such amount with interest thereon for the period from the date such payment

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is required to the date on which such payment is immediately available to L/C Issuer at a rate per annum equal to the Federal Funds Rate from time to time in effect.

(d)       Obligations Absolute.The obligation of Borrowers to reimburse L/C Issuer for each drawing under each Letter of Credit, and to repay each L/C Advance, shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

(i)        any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other agreement or instrument relating thereto;

(ii)       the existence of any claim, counterclaim, set-off, defense or other right that Borrowers may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

(iii)      any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;

(iv)      any payment by L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or

(v)       any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, Borrowers.

Borrowers shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to them, and in the event of any claim of noncompliance with Borrowers’ instructions or other irregularity, Borrowers will immediately notify L/C Issuer. Borrowers shall be conclusively deemed to have waived any such claim against L/C Issuer and its correspondents unless such notice is given as aforesaid.

(e)       Cash Collateral. Upon the request of L/C Issuer, (i) if L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Advance, or (ii) if, as of the Maturity Date, any Letter of Credit may for any reason remain outstanding and partially or wholly undrawn, Borrowers shall

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immediately Cash Collateralize the then outstanding amount of all L/C Obligations (in an amount equal to such outstanding amount determined as of the date of such L/C Advance or the Maturity Date, as the case may be). For purposes hereof, “Cash Collateralize” means to pledge and deposit with or deliver to L/C Issuer, for the benefit of Banks, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance reasonably satisfactory to L/C Issuer. Derivatives of such term have corresponding meanings. Borrowers hereby grant to L/C Issuer a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash collateral shall be maintained in blocked, non-interest bearing deposit accounts at Texas Capital Bank.

(f)        Applicability of ISP98 and UCP.Unless otherwise expressly agreed by Banks and Borrowers when a Letter of Credit is issued, (i) the rules of the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance) shall apply to each Standby Letter of Credit.

(g)       Letter of Credit Fees. In addition to interest on the Note as provided herein and all other fees payable hereunder, Borrowers agree to pay to L/C Issuer, on the date of issuance of each Letter of Credit, a fee equal to the greater of $750or the per annum L/C Fee set forth in the Margin/Fee Table, calculated on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day), on the amount of such Letter of Credit available to be drawn during the period for which such Letter of Credit is issued. Borrower shall also pay directly to L/C Issuer the individual customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(h)       Conflict with Letter of Credit Application. In the event of any conflict between the terms hereof and the terms of any Letter of Credit Application, the terms hereof shall control.

(i)        Drawing Responsibility. Each Bank and Borrowers agree that, in paying any drawing under a Letter of Credit, L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of L/C Issuer, nor any of the respective correspondents, participants or assignees of L/C Issuer shall be liable to any Bank for (i) any action taken or omitted in connection herewith at the request or with the approval of Banks or the Required Banks, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application. Borrowers hereby assume all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided that, this assumption is not intended to, and shall not, preclude Borrowers’ pursuing such rights

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and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of L/C Issuer, nor any of the respective correspondents, participants or assignees of L/C Issuer, shall be liable or responsible for any of the matters described in Section 2.03(d). In furtherance and not in limitation of the foregoing, L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

(j)        Tranche B Letters of Credit. On the Closing Date the L/C Issuer shall issue Tranche B Letters of Credit in the face amounts of $1,000,000 for the benefit of Shell Trading (USA) Company and up to $1,200,000 for the benefit of BP Corporation North America Inc. and otherwise in form and substance satisfactory to Borrowers and L/C Issuer. The availability under the Tranche B Letters of Credit may be used by Borrowers solely for the purpose of securing Borrowers’ obligations to Approved Counterparties.

2.04 Borrowing Base Determination.

(a)       The Borrowing Base in effect as of the Closing Date is $10,750,000 relative to the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties and the Monthly Borrowing Base Reduction is $0.00. The Borrowing Base shall be automatically reduced on the first day of each month by the Monthly Borrowing Base Reduction beginning July 1, 2008. The Borrowing Base and the Monthly Borrowing Base Reduction shall be re-determined from time to time pursuant to the provisions of this Section.

(b)       On or before each April 1 and October 1, beginning with October 1, 2008, until the Maturity Date, Borrowers shall furnish to Administrative Agent a Reserve Report, which shall set out, as of each preceding January 1 or July 1, as applicable, the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties. Each October Reserve Report may be prepared by Borrowers’ engineer and shall be certified by a Responsible Officer of Borrowers. Each April Reserve Report shall be a complete report prepared by independent petroleum engineers or firm of engineers reasonably acceptable to Administrative Agent relating to the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties. Upon receipt of each such Reserve Report or any Reserve Report delivered pursuant to Borrowers’ election under Section2.04(c) below, Administrative Agent shall make a determination in its sole discretion of the Borrowing Base and the Monthly Borrowing Base Reduction which shall become effective upon approval by the Required Banks (if such determination will decrease the existing Borrowing Base) or all Banks (if such determination will increase or maintain the existing Borrowing Base) and subsequent written notification from Administrative Agent to Borrowers, and which, subject to the other provisions of this Agreement, shall be the Borrowing Base and the Monthly Borrowing Base Reduction until the effective date of the next redetermination of the Borrowing Base and the Monthly Borrowing Base

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Reduction as set out in this Section2.04. A Bank’s failure to disapprove of Administrative Agent’s determination within fifteen (15) days by delivery of an alternative proposed Borrowing Base and Monthly Borrowing Base Reduction shall be deemed such Bank’s approval of Administrative Agent’s determination. For any Oil and Gas Properties which are being acquired by Loan Parties to be included as Borrowing Base Oil and Gas Properties, Administrative Agent shall be satisfied in its reasonable discretion that Borrowers are acquiring Marketable Title in addition to satisfying all other conditions relating to ownership and transfer of Borrowing Base Oil and Gas Properties. Administrative Agent may, subject to approval of the Required Banks, and must, upon the request of the Required Banks, redetermine the Borrowing Base and the Monthly Borrowing Base Reduction at any time, and from time to time, which redetermination shall be at Administrative Agent’s sole discretion and shall become effective upon approval by the Required Bank (if such determination will decrease the existing Borrowing Base) or all Banks (if such determination will increase or maintain the existing Borrowing Base) and subsequent written notification from Administrative Agent to Borrowers and which, subject to the other provisions of this Agreement, shall be the Borrowing Base and the Monthly Borrowing Base Reduction until the effective date of the next redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction, as set out in this Section2.04; provided, that Administrative Agent shall not request more than one (1) unscheduled Borrowing Base and the Monthly Borrowing Base Reduction redetermination between the scheduled redetermination dates and, provided further, that a Bank’s failure to disapprove of Administrative Agent’s determination within fifteen (15) days by delivery of an alternative proposed Borrowing Base and Monthly Borrowing Base Reduction shall be deemed such Bank’s approval of Administrative Agent’s determination. With respect to any unscheduled Borrowing Base and Monthly Borrowing Base Reduction redetermination, Administrative Agent may request in writing that the Borrowers provide a Reserve Report regarding the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties with an effective date not more than ninety (90) days prior to Borrowers’ delivery of such Reserve Report to Administrative Agent, and such Reserve Report shall be delivered to Administrative Agent within ninety (90) days after Borrowers’ receipt of such written request.

(c)       Borrowers shall have the right to request, by written notice to Administrative Agent, one unscheduled redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction between the scheduled redetermination dates described in Section 2.04(b). For unscheduled redeterminations requested by Borrowers of the Borrowing Base and the Monthly Borrowing Base Reduction, Administrative Agent shall request in writing that Borrowers provide an unscheduled Reserve Report regarding the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties with an effective date not more than ninety days prior to Borrowers’ delivery of such Reserve Report to Administrative Agent, and such Reserve Report shall be delivered to Administrative Agent within thirty days after Borrower’s receipt of such written request. Immediately upon redetermination of the Borrowing Base by Administrative Agent under Section2.04, Borrowers shall pay to Administrative Agent an engineering fee as set forth in Section2.08(c).

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(d)       If at any time the Required Banks or all the Banks, as the case may be, cannot otherwise agree on a redetermination of the Borrowing Base, then the Borrowing Base shall be set (i) on the basis of the lowest Borrowing Base approved by a Bank and communicated to Administrative Agent in writing if such lowest approved Borrowing Base increases the Borrowing Base; or (ii) on the basis of the highest approved Borrowing Base acceptable to a sufficient number of Banks to constitute Required Banks without increasing the Borrowing Base, as applicable. If the Borrowing Base is set based on the lowest approved Borrowing Base, such redetermination shall be deemed to be approved by all of the Banks, and if the Borrowing Base is set based on the highest approved Borrowing Base acceptable to a sufficient number of Banks to constitute Required Banks, such redetermination shall be deemed to be approved by the Required Bank. However, the amount of the Borrowing Base shall never be (y) increased or reaffirmed at any time without the unanimous consent or deemed consent of the Banks or (z) increased above the Administrative Agent’s proposed Borrowing Base, notwithstanding anything in this Agreement to the contrary. Determinations of the Borrowing Base shall be conclusive as to the Banks and the Borrowers. There is no duty, implied or explicit, of the Banks ever to increase the Borrowing Base.

(e)       The Borrowing Base shall represent the Required Banks’ approval of the Administrative Agent’s determination, or the determination of the Bank approving the lowest Borrowing Base, if applicable, or the determination of the Required Banks approving the highest Borrowing Base without increasing the Borrowing Base, if applicable, in accordance with their customary lending practices, of the maximum Loan amount that may be supported by the Borrowing Base Oil and Gas Properties, and the Borrowers acknowledge, for purposes of this Agreement, such determination by the Administrative Agent, or the lowest approved Borrowing Base by a Required Bank, as being the maximum Loan amount under this Agreement that can be supported by the Borrowing Base Oil and Gas Properties.  In exercising their discretion in redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction, the Administrative Agent and the other Banks shall consistently apply the parameters and other credit factors then generally being utilized by the Administrative Agent and each such Bank, respectively, for Borrowing Base redeterminations at the time for other similarly situated borrowers based, in part, upon the Reserve Report with respect to the Borrowing Base Oil and Gas Properties. The Borrowers, the Banks and the Administrative Agent acknowledge that (a) due to the uncertainties of the oil and gas extraction process, the Borrowing Base Oil and Gas Properties are not subject to evaluation with a high degree of accuracy and are subject to potential rapid deterioration in value, and (b) for this reason and the difficulties and expenses involved in liquidating and collecting against the Borrowing Base Oil and Gas Properties, the Administrative Agent’s determination of the maximum Loan amount with respect to the Borrowing Base Oil and Gas Properties contains an equity cushion, which equity cushion is acknowledged by the Borrowers as essential for the adequate protection of the Banks.

(f)        Borrowers may, from time to time upon written notice to Administrative Agent, propose to add Oil and Gas Properties of Loan Parties to the Borrowing Base Oil and Gas Properties. Any such proposal to add Oil and Gas Properties of Loan Parties to the Borrowing Base Oil and Gas Properties shall be accompanied by a Reserve Report

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applicable to such properties that conforms to the requirements of this Section 2.04, and evidence sufficient to establish that Loan Parties have, or concurrently with the increase in the Borrowing Base will have Marketable Title to such Oil and Gas Properties, and any such addition shall become effective at such time as: (a) Administrative Agent has made a determination of the amount by which the Borrowing Base would be increased as the result of such addition, (b) the conditions set out in Article IV hereof, to the extent they are applicable to such additional Oil and Gas Properties of Loan Parties, have been satisfied, and (c) unanimous approval of all the Banks. In determining the increase in the Borrowing Base pursuant to this Section, Administrative Agent and the Banks shall apply the parameters and other credit factors set out in this Section 2.04.

2.05 Prepayments.

(a)       Borrowers may, upon notice to Administrative Agent, at any time or from time to time voluntarily prepay Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by Administrative Agent not later than 11:00 a.m., Central Time, two Business Days prior to any date of prepayment of Loans and (ii) any prepayment shall be in a principal amount of $100,000 or a greater integral multiple of $100,000, or, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment. If such notice is given by Borrowers, Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05.

(b)       If for any reason (including a redetermination of the Borrowing Base) a Loan Excess exists, Borrowers shall promptly (and in any event within sixty (60) days) (i) prepay Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess, (ii) add to the Borrowing Base Oil and Gas Properties additional Oil and Gas Properties of Borrowers or another Loan Party sufficient in value, as determined pursuant to Section 2.04, to eliminate such Loan Excess or (iii) elect by written notice delivered to the Administrative Agent to repay the Loan Excess in not more than three installments, each in the amount of at least one third (1/3) of the original amount of the Loan Excess (or the remaining unpaid balance of such Loan Excess, if less than one third thereof remains), pay the first of such three installments on the date that is thirty days after such election is made, and pay each of the next two installments on or before the expiration of thirty days and sixty days, respectively, after the date that the first installment is due.

(c)       On each date on which Loan Parties sell any of the Borrowing Base Oil and Gas Properties, the Borrowing Base shall be automatically reduced to the maximum Loan amount (determined in accordance with the procedures for determining the Borrowing Base) of the remaining Borrowing Base Oil and Gas Properties, and Borrowers shall be required immediately to make the prepayment, if any, required pursuant to Section2.05(b). This Section2.05(c) shall not be deemed a consent of Administrative Agent to any such sale of any Borrowing Base Oil and Gas Properties.

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(d)       Upon the Required Number of days written notice to the Administrative Agent, the Borrowers may voluntarily convert any Base Rate Loan into a Eurodollar Loan or any Eurodollar Loan into a Base Rate Loan, as applicable, prior to the termination of the applicable Interest Period in whole or in part, from time to time. Any conversion of Base Rate Loans shall be made in the sum of not less than $100,000, and any conversion of Eurodollar Loans shall be made in the sum of not less than $100,000 or any $100,000 increment in addition thereto. With respect to any such conversion of any Eurodollar Loan the Borrowers agree to pay to the Banks upon the request of the Administrative Agent such amount or amounts as will compensate the Banks for Breakage Costs. The payment of any such Breakage Costs to the Banks shall be made within thirty (30) days of a request therefor from Administrative Agent; provided that such request is made within ninety (90) days of such conversion. If the Eurodollar Rate cannot be determined on the date of such conversion, the Administrative Agent shall calculate the Eurodollar Rate by interpolating the Eurodollar Rate in effect immediately prior to the conversion and the Eurodollar Rate in effect immediately after the conversion.

2.06     Repayment of Loans. Borrower shall repay to Administrative Agent, for the ratable benefit of the Banks, on the Maturity Date the aggregate principal amount of Loans outstanding on such date, together with all accrued and unpaid interest and fees.

2.07 Interest.

(a)       Subject to the provisions of subsection (b) below, each Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Floating Rate based on the Eurodollar Rate, except to the extent such Loans have converted to Base Rate Loans. To the extent the Loans are converted to Base Rate Loans, each Loan shall bear interest on the outstanding principal thereof at a rate per annum equal to the Floating Rate for Base Rate Loans.

(b)       If any amount payable by Borrowers under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Furthermore, while any Event of Default exists (or after acceleration), Borrowers shall pay interest on the principal amount of all outstanding Obligations at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c)       Interest on each Base Rate Loan shall be due and payable in arrears on the last day of each month and at such other times as may be specified herein. Interest on each Eurodollar Loan shall be due and payable in arrears on last day of each Interest Period applicable thereto, provided that, for any Interest Period that exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. Interest hereunder shall be due and payable in

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accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

2.08     Fees. In addition to certain fees described in Section 2.03(g), Borrowers shall pay the following fees to Administrative Agent, for the account of the Banks:

(a)       A commitment fee equal to the Commitment Fee per annum percent set forth in the Margin/Fee Table timesthe average actual daily amount by which the applicable Borrowing Base exceeds the Aggregate Outstanding Credit Exposure. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more conditions in Article IV is not met, and shall be calculated and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date.

(b)       A facility fee in an amount equal to 0.75% of the amount of the initial Borrowing Base of $10,750,000.00 shall be due on the Closing Date, and an additional facility fee of 0.5% of the incremental amount of any increases in the Borrowing Base subsequent to the Closing Date above the highest preceding Borrowing Base shall be due upon such increased Borrowing Base becoming effective.

(c)       Engineering fees in the amount of $3,500 for the initial Reserve Report review prior to the Closing Date and $2,500 for subsequent Reserve Report reviews following the Closing Date in connection with scheduled Borrowing Base redeterminations and unscheduled Borrowing Base redeterminations.

2.09     Computation of Interest and Fees. All other computations of interest and all fees shall be made on the basis of a year of 360 days and the actual number of days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365 day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.11(a), bear interest for one day.

2.10     Evidence of Debt. The Credit Extensions made by Banks shall be evidenced by one or more accounts or records maintained by Administrative Agent in the ordinary course of business. The accounts or records maintained by Administrative Agent shall be conclusive absent manifest error of the amount of the Credit Extensions made by Banks to Borrowers and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of Borrowers hereunder to pay any amount owing with respect to the Obligations. Upon the request of Administrative Agent, Borrowers shall execute and deliver to each Bank a Note, which shall evidence the Loans, in addition to such accounts or records. Each Bank may attach schedules to the Note and endorse thereon the date, amount and maturity of the applicable Loans and payments with respect thereto.

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2.11 Payments Generally.

(a)       (i)All payments to be made by Borrowers shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by Borrowers hereunder shall be made to Administrative Agent at the Lending Office in Dollars and in immediately available funds not later than 2:00 p.m., Central Time, on the date specified herein. All payments received by Administrative Agent after 2:00 p.m., Central Time, shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.

(ii)       On each date when the payment of any principal, interest or fees are due hereunder or under any Note, Borrowers agree to maintain on deposit in an ordinary checking account maintained by Borrowers with Administrative Agent (as such account shall be designated by Borrowers in a written notice to Administrative Agent from time to time, the “Borrower Account”) an amount sufficient to pay such principal, interest or fees in full on such date. Borrowers hereby authorize Administrative Agent, upon notice to Borrowers (which notice may be by telephone, confirmed in writing) (A) to deduct automatically all principal, interest or fees when due hereunder or under any Note from the Borrower Account, and (B) if and to the extent any payment of principal, interest or fees under this Agreement or any Note is not made when due to automatically deduct any such amount from any or all of the accounts (other than trust accounts and joint operating accounts, to the extent any such funds therein are not owned solely by any Borrower) of Borrowers maintained with Administrative Agent. Administrative Agent agrees to provide written notice to Borrower of any automatic deduction made pursuant to this Section 2.11(a)(ii) showing in reasonable detail the amounts of such deduction.

(b)       If any payment to be made by Borrowers shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

2.12     Pro Rata Treatment and Payments. Each Credit Extension by Banks to the Borrowers hereunder, each payment by Borrowers on account of any fee hereunder (except as expressly provided otherwise hereunder or under any fee letter) and any reduction of the Commitments of the Banks shall be made pro rata according to the respective Percentage Shares of the Banks. Each payment (including each prepayment) by Borrowers on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Banks. The Administrative Agent shall distribute such payments to the Banks promptly upon receipt in like funds as received.

2.13     Sharing of Payments and Setoffs. Each Bank agrees that if it shall, through the exercise of a right of banker’s lien, setoff or counterclaim against any Borrower (pursuant to Section 10.08 or otherwise, including, but not limited to, a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Bank under any applicable bankruptcy, insolvency or other similar law or otherwise, or by similar means, obtain payment (voluntary or involuntary) in respect of any Loan

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or Loans (other than pursuant to Section 3.02) as a result of which the unpaid principal portion of its Loans shall be proportionately less than the unpaid principal portion of the Loans of any other Bank, it shall simultaneously purchase from such other Banks at face value a participation in the Loans of such other Banks, so that the aggregate unpaid principal amount of Loans and participations in Loans held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the principal amount of its Loans prior to such exercise of banker’s lien, setoff, counterclaim or other event was to the principal amount of all Loans outstanding prior to such exercise of banker’s lien, setoff, counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.13 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest.

2.14     Adjustment to Aggregate Commitment Amount. At any time that Borrowers propose to increase the Borrowing Base by adding additional Oil and Gas Properties to the Borrowing Base Oil and Gas Properties pursuant to Section 2.04, Borrowers may also request that Banks increase the amount of the Aggregate Commitment Amount. At any time that Borrowers make such a request it shall promptly provide Administrative Agent with such financial and other information as Administrative Agent may request to assist the Administrative Agent in evaluating such request. Following the receipt of such information from Borrowers, the Administrative Agent shall, with the unanimous approval of the Banks in each Bank’s sole discretion, make a redetermination of the Aggregate Commitment Amount, which shall become effective upon written notification from the Administrative Agent to Borrowers of the new Aggregate Commitment Amount. The Borrowers may upon written notice to Administrative Agent, not sooner than ninety (90) days subsequent to the last such action by Borrowers, amend the definition of the Aggregate Commitment Amount by reducing the amount set forth in such definition. Upon such reduction, the Banks shall not be obligated to make Credit Extensions in excess of such reduced Aggregate Commitment Amount. If and when the Banks change the Aggregate Commitment Amount at Borrowers’ request, the commitment fee, as determined pursuant to Section 2.08 of this Agreement, shall be calculated using such changed amount for all of the calculation period in which such Aggregate Commitment Amount was changed.

ARTICLE III

TAXES, YIELD PROTECTION AND ILLEGALITY

3.01 Taxes.

(a)       Any and all payments by Borrowers to or for the account of the Banks under any Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of the Banks, taxes imposed on or measured by its overall net income, and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which any Bank is organized or maintains a lending office (all such non-excluded taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities being hereinafter referred to as “Taxes”). If Borrowers shall be required by any Laws to deduct any Taxes

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from or in respect of any sum payable under any Loan Document to the Banks, (i) the sum payable shall be increased as necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section), each Bank receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrowers shall make such deductions, (iii) Borrowers shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Laws, and (iv) within thirty days after the date of such payment, Borrowers shall furnish to Administrative Agent the original or a certified copy of a receipt evidencing payment thereof or, if the relevant taxation authority or other authority has not provided Borrowers with such a receipt, other evidence of payment thereof.

(b)       In addition, Borrowers agree to pay any and all present or future stamp, court or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under any Loan Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Loan Document (hereinafter referred to as “Other Taxes”).

(c)       If Borrowers shall be required to deduct or pay any Taxes or Other Taxes from or in respect of any sum payable under any Loan Document to any Bank, Borrowers shall also pay to such Bank, at the time interest is paid, such additional amount that such Bank specifies is necessary to preserve the after-tax yield (after factoring in all taxes, including taxes imposed on or measured by net income) that such Bank would have received if such Taxes or Other Taxes had not been imposed.

(d)       Borrowers agree to indemnify the Banks for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by the Banks, and (ii) amounts payable under Section3.01(c) and (iii) any liability (including additions to tax, penalties, interest and expenses) arising therefrom or with respect thereto, in each case whether or not such Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority and provided that such Bank has made demand therefor within sixty (60) days following the imposition thereof. Payment under this subsection (d) shall be made within thirty days after the date any such Bank makes a demand therefor. To the extent Borrowers pay such Taxes or reimburse any Bank for such Taxes or Other Taxes, and such Bank subsequently receives a refund of such Taxes or Other Taxes, such Bank shall pay to Borrowers the refunded amount of such Taxes or Other Taxes paid or reimbursed by Borrowers.

3.02     Illegality. If any Bank determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for such Bank or its applicable Lending Office to make, maintain or fund Eurodollar Loans, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by any such Bank to Borrowers, any obligation of any such Bank to make or continue Eurodollar Loans shall be suspended and, until such Bank notifies Borrowers that the circumstances giving rise to such determination no longer exist, the Loans outstanding shall be converted to Base Rate Loans, either on the last day of the Interest Period therefor, if such Bank may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if such Bank may not lawfully continue to maintain such Eurodollar Loans.

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Upon any such conversion, Borrowers shall also pay accrued interest on the amount so converted and all amounts due under Section 3.05 in accordance with the terms thereof due to such conversion. During any periods during which it is unlawful for any Bank to make Eurodollar Loans, subject to all other terms and conditions relating to making any Loans, Borrowers may request only Base Rate Loans.

3.03     Inability to Determine Rates. If any Bank determines in connection with any request for a Eurodollar Loan or continuation thereof for any reason that (a) Dollar deposits are not being offered to banks in the London interbank Eurodollar market for the applicable amount and Interest Period of such Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Loan does not adequately and fairly reflect the cost to any Bank of funding such Loan, such Bank will promptly so notify Borrowers. Thereafter, the obligation of such Bank to make or maintain Loans shall be suspended until such Bank revokes such notice. Upon receipt of such notice, Borrowers may revoke any pending request for a Eurodollar Loan of or continuation of Eurodollar Loans or, failing that, will be deemed to have converted such request into a request for a Base Rate Loan in the amount specified therein.

3.04          Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Loans.

(a)       If any Bank determines that as a result of the introduction of or any change in or in the interpretation of any Law, or any Bank’s compliance therewith, there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining Eurodollar Loans or (as the case may be) issuing Letters of Credit, or a reduction in the amount received or receivable by such Bank in connection with any of the foregoing (excluding for purposes of this subsection (a) any such increased costs or reduction in amount resulting from (i) Taxes or Other Taxes as to which Section 3.01 shall govern, (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or any foreign jurisdiction or any political subdivision of either thereof under the Laws of which such Bank is organized or has its Lending Office, and (iii) reserve requirements utilized, as to Eurodollar Loans, in the determination of the Eurodollar Rate), then from time to time upon demand of such Bank, Borrowers shall pay to such Bank such additional amounts as will compensate such Bank for such increased cost or reduction; provided that such Bank has made demand therefor within sixty (60) days following such introduction or change.

(b)       If such Bank determines that the introduction of any Law regarding capital adequacy or any change therein or in the interpretation thereof, or compliance by such Bank (or its Lending Office) therewith, has the effect of reducing the rate of return on the capital of such Bank or any corporation controlling such Bank as a consequence of such Bank’s obligations hereunder (taking into consideration its policies with respect to capital adequacy and such Bank’s desired return on capital), then from time to time upon demand of such Bank, Borrowers shall pay to such Bank such additional amounts as will compensate such Bank for such reduction; provided that such Bank has made demand therefor within sixty (60) days following such introduction or change.

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3.05     Funding Losses. Upon demand of any Bank from time to time, Borrowers shall promptly compensate such Bank for and hold such Bank harmless from any loss, cost or expense incurred by it as a result of:

(a)       any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or

(b)       any failure by Borrowers (for a reason other than the failure of any Bank to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by Borrowers;

including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. Borrowers shall also pay any customary administrative fees charged by such Bank in connection with the foregoing.

For purposes of calculating amounts payable by Borrowers to Banks under this Section 3.05, each Bank shall be deemed to have funded each Eurodollar Loan made by it at the Floating Rate based on the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank Eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan was in fact so funded.

3.06     Matters Applicable to all Requests for Compensation. A certificate of any Bank claiming compensation under this Article III and setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods.

3.07     Survival. All of Borrowers’ obligations under this Article III shall survive termination of the Commitments and repayment of all other Obligations hereunder.

3.08     Replacement of Banks. If any Bank requests compensation under, or if Borrowers are required to pay any additional amount to any Bank or any Governmental Authority for the account of any Bank pursuant to Section 3.01 or 3.04, or if any Bank is unable to fund Eurodollar Loans under Section 3.02, or if any Bank defaults in its obligation to fund Loans hereunder, then upon notice to such Bank and Administrative Agent, Borrowers may require such Bank to sell and assign all of its interests, rights and obligations under this Agreement and the other Loan Documents to one or more Persons reasonably acceptable to Borrowers (after all of the Banks not requesting or entitled to indemnification or reimbursement hereunder or that are defaulting Banks under Sections 2.02 or 2.03 have declined to acquire such additional interests, rights and obligations or portion thereof), with the consent of the Administrative Agent (not to be unreasonably withheld or delayed); provided that such Bank shall have received payment of an amount equal to the outstanding principal amount of its Loans and all accrued interest, fees and other amounts payable with respect thereto through the date of sale. Such sale and assignment

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shall be consummated pursuant to an executed Commitment Transfer Supplement pursuant to and in accordance with Section 10.07(c).

ARTICLE IV

CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

4.01     Conditions of Initial Credit Extension. The obligation of each Bank to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:

(a)       Administrative Agent’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to Administrative Agent and its legal counsel:

(i)        executed counterparts of this Agreement, the Assignment of Note, Liens and Security Instruments and all Collateral Documents, including, without limitation, the Collateral Documents covering the Borrowing Base Oil and Gas Properties and related Collateral, and all other Loan Documents sufficient in number for distribution to the Banks and Borrowers;

(ii) the Notes executed by Borrowers;

(iii)      such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party;

(iv)      such documents and certificates as Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, including Certificates of Formation, and that Borrowers are, validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification;

(v)       a certificate of a Responsible Officer of each Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

(vi)      a certificate signed by a Responsible Officer of Borrowers certifying (A) that the conditions specified in Sections 4.02(a) and (b) have been satisfied,and (B) that there has been no event or circumstance since the date of

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the Current Financial Statements that had or could reasonably be expected to have a Material Adverse Effect;

(vii)     Transfer Order Letters applicable to the production of Hydrocarbons from all Borrowing Base Oil and Gas Properties; and

(viii)    evidence satisfactory to Administrative Agent that Borrowers have a combination of cash on hand and availability after the initial Credit Extension of at least $750,000.

(b) Administrative Agent shall have received:

(i)        evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect;

(ii)       evidence, satisfactory to Administrative Agent in its sole discretion, that as of the execution, delivery, filing and recording of the Collateral Documents, Administrative Agent shall hold a perfected, first priority Lien (subject to Permitted Liens) in all Collateral for the Loan;

(iii)      evidence, satisfactory to Administrative Agent, that Borrowers, each other applicable Loan Party and the Borrowing Base Oil and Gas Properties will comply in all material respects with all Environmental Laws and the applicable laws and, to the extent applicable, regulations of the Department of Interior, Bureau of Land Management, the Bureau of Indian Affairs and the State of Kansas;

(iv)      the results of a Uniform Commercial Code search showing all financing statements and other documents or instruments on file against Borrowers and each other Loan Party in the Offices of the Secretary of State of the state of formation of Borrowers and each other Loan Party and each State in which any of the Borrowing Base Oil and Gas Properties are located or deemed to be located, such search to be as of a date no more than ten days prior to the Closing Date;

(v)       such other assurances, certificates, documents, consents, evidence of perfection of all Liens securing the Obligations or opinions as Administrative Agent reasonably may require;

(vi)      a favorable opinion of counsel (including local counsel with respect to the Collateral Documents) to the Loan Parties acceptable to Administrative Agent, addressed to Administrative Agent, as to such matters concerning the Loan Parties and the Loan Documents in form and substance satisfactory to Administrative Agent;

(vii)     the Assignment of Note, Liens and Security Instruments executed by Cornerstone Bank;

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(viii)    evidence, satisfactory to Administrative Agent, that the Existing Debentures have been paid down to an aggregate principal amount not to exceed $2,700,000 and all the Existing Debenture Liens thereunder have been subordinated to the Liens securing the Obligations and that the Seller Notes have been paid in full; and

(ix)      the Subordination Agreement executed by the holders of the Existing Debentures.

(c)       Any fees required to be paid on or before the Closing Date shall have been paid.

(d)       Borrowers shall have paid all Attorney Costs of Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs of Administrative Agent as shall constitute Administrative Agent’s reasonable estimate of Attorney Costs of Administrative Agent incurred or to be incurred by Administrative Agent through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between Borrowers and Administrative Agent).

(e)       In addition to the criteria of any Permitted Swap Contracts, as defined above and provided in Section 6.22, Borrowers shall have entered into one or more Permitted Swap Contracts covering production of Proved Developed Producing Reserves related to the Borrowing Base Oil and Properties on terms satisfactory to Administrative Agent, including at a minimum one hundred (100) barrels per day of crude oil with an average minimum strike price of not less than $130.00 BOE and with a term continuing at least through March, 2011.

4.02     Conditions to all Credit Extensions and Continuations. The obligation of Banks to honor any Request for Credit Extension is subject to the following conditions precedent:

(a)       The representations and warranties of Borrowers and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith, shall be true and correct in all material respects on and as of the date of such Credit Extension or continuation, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date, and except that for purposes of this Section 4.02, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent Financial Statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01.

(b)       No Default shall have occurred and be continuing, or would result from such proposed Credit Extension or continuation.

(c)       Administrative Agent shall have received a Request for Credit Extension in accordance with the requirements hereof.

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(d)       Administrative Agent shall have been, and shall continue to be, satisfied, in its good faith discretion, that Borrowers hold Marketable Title to the Borrowing Base Oil and Gas Properties, and that such ownership includes record title to an undivided net revenue interest in the production from each such Borrowing Base Oil and Gas Property that is not less than, as well as an undivided working interest in each Borrowing Base Oil and Gas Property that is not greater than (unless there is a corresponding increase in the net revenue interest attributed to such party therein), the net revenue interest therein and the working interest therein, respectively, attributed to Borrower on Exhibit A, subject to the limitations and qualifications on such exhibit (or attributed to Borrowers in any Collateral Document applicable to any Oil and Gas Property that is added to the Borrowing Base Oil and Gas Properties in connection with any subsequent funding after the Closing Date); provided that, for purposes of closing and thereafter, unless an Event of Default has occurred and is continuing, Administrative Agent shall have confirmed, to its satisfaction, the status of Borrowers’ title to Borrowing Base Oil and Gas Properties comprising a minimum of eighty-one percent (81%) of the PW9 (based on the most recent Borrowing Base evaluation by Administrative Agent) of the Proved Reserves that are attributable to those Borrowing Base Oil and Gas Properties that are made subject to Collateral Documents in favor of Administrative Agent. Such determination by Administrative Agent, however, shall not relieve Borrowers from the ongoing obligation to comply with all of its representations, warranties and covenants herein and in the Collateral Documents regarding Borrowers’ title to all Borrowing Base Oil and Gas Properties. The applicable Collateral Documents shall cover at all times a minimum of ninety percent (90%) of the PW9 (based on the most recent Borrowing Base evaluation by Administrative Agent) of the Proved Reserves that are attributable to those Borrowing Base Oil and Gas Properties.

(e)       As of the time of funding any additional advances to Borrowers that are made in conjunction with the addition of Oil and Gas Properties owned by Borrowers or other Loan Parties to the Borrowing Base Oil and Gas Properties in accordance with this Agreement, Borrowers and each other applicable Loan Party shall have duly delivered to Administrative Agent: (i) the Collateral Documents that are necessary or appropriate, in the reasonable opinion of Administrative Agent, relating to such additional Oil and Gas Properties, (ii) Transfer Order Letters applicable to the production of oil and gas from such additional Borrowing Base Oil and Gas Properties, and (iii) evidence, reasonably satisfactory to Administrative Agent in its sole discretion, that Borrowers and the Borrowing Base Oil and Gas Properties will be in material compliance with all Environmental Laws. Furthermore, Administrative Agent shall have completed its title due diligence confirming that Loan Parties have Marketable Title to such Oil and Gas Properties.

(f)        Administrative Agent shall have received, in form and substance satisfactory to it, such other assurances, certificates, documents or consents related to the foregoing as Administrative Agent reasonably may require.

Each Request for Credit Extension submitted by Borrowers shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

Borrowers, jointly and severally, represent and warrant to Administrative Agent, L/C Issuer, and Banks that:

5.01     Existence, Qualification and Power; Compliance with Laws. Each Loan Party (a) is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization and (b) has all Corporate Power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own its assets and carry on its business as presently conducted and (ii) execute, deliver, and perform its obligations under the Loan Documents to which it is a party, except to the extent the failure to have such governmental licenses, authorizations, consents and approvals could not reasonably be expected to have a Material Adverse Effect.

5.02     Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is party, have been duly authorized by all necessary Corporate Action, and do not and will not (a) contravene the terms of any of such Person’s Governing Documentation; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, (i) any Contractual Obligation to which such Person is a party or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject except to the extent such conflict could not reasonably be expected to have a Material Adverse Effect; or (c) violate any Law except to the extent such violation could not reasonably be expected to have a Material Adverse Effect.

5.03     Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document except to the extent that the failure to obtain any such approval, consent, exemption, authorization or other action by, to provide any such notice to, or to make any such filing could not reasonably be expected to have a Material Adverse Effect.

5.04     Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is a party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of each Loan Party that is party hereto or thereto, as applicable, enforceable against each Loan Party that is party thereto in accordance with its terms except as such enforcement may be limited by Debtor Relief Laws.

5.05 Financial Statements; No Material Adverse Effect.

(a)       The Current Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the periods covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of Borrowers and their Subsidiaries, if any, as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the periods

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covered thereby, except as otherwise expressly noted therein, subject in the case of unaudited Financial Statements, to the absence of footnotes and to normal year-end audit adjustments; and (iii) show all material indebtedness and other liabilities, direct or contingent, of Borrowers and their Subsidiaries, if any, as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

(b)       Since the date of the current Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

5.06     Litigation. Except as specifically disclosed in Schedule 5.06 hereto, there are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of Borrowers after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against Borrowers or any of their Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby, or (b) either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect.

5.07     No Default. Neither Borrowers nor any Subsidiary is in default under or with respect to any Contractual Obligation that could either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

5.08     Title; Liens; Priority of Liens. Borrowers (a) have Marketable Title to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (b) own the personal property granted by them as Collateral under the Collateral Documents, free and clear of any and all Liens in favor of third parties other than Permitted Liens, and (c) have Marketable Title to the working and net revenue interests in the Borrowing Base Oil and Gas Properties as set out on Exhibit A. Except as set out in the instruments and agreements, if any, more particularly described in Exhibit A hereto, all such shares of production which Borrowers and each other applicable Loan Party are entitled to receive, and shares of expenses which Borrowers are obligated to bear as set forth on ExhibitA, are not subject to change, except for changes attributable to future elections by Borrowers or such Loan Party not to participate in operations proposed pursuant to customary forms of applicable joint operating agreements, and except for changes attributable to changes in participating areas under any federal units wherein participating areas may be formed, enlarged or contracted in accordance with the rules and regulations of the applicable Governmental Authority. Upon the proper filing of UCC financing statements, the recording of mortgages, and the taking of the other actions required by Administrative Agent, the Liens granted in property pursuant to the Collateral Documents will constitute valid and enforceable first, prior and perfected Liens on the Collateral in favor of Administrative Agent, for the benefit of the Banks, other than Permitted Liens. The property of Borrowers and their Subsidiaries is subject to no Liens, other than Permitted Liens.

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5.09     Environmental Compliance. Borrowers and their Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof Borrowers have reasonably concluded that, except as specifically disclosed in Schedule 5.09 hereto, such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.10     Insurance. The properties of Borrowers and their Subsidiaries are insured with insurance companies, which to Borrowers’ knowledge are financially sound and reputable, not Affiliates of Borrowers, in such amounts, after giving effect to any self-insurance compatible with the following standards, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where Borrowers or the applicable Subsidiaries operate.

5.11     Taxes. Borrowers and their Subsidiaries have filed all federal, state and other material tax returns and reports required to be filed, and have paid all federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against Borrowers that would, if made, have a Material Adverse Effect.

5.12 ERISA Compliance.

(a)       Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of Borrowers, nothing has occurred which would prevent, or cause the loss of, such qualification. Borrowers and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

(b)       There are no pending or, to the best knowledge of Borrowers, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)       (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither Borrowers nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent

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under Section 4007 of ERISA); (iv) neither Borrowers nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrowers nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.

5.13     Subsidiaries. As of the Closing Date, Borrowers have no Subsidiaries other than those specifically disclosed in Schedule 5.13.

5.14     Disclosure. Borrowers have disclosed to Administrative Agent all material agreements, instruments and corporate or other restrictions to which they or any of their Subsidiaries is subject, including, without limitation, the material agreements filed by Parent with the Securities and Exchange Commission and all other matters known to them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party in connection with any Loan Document to Administrative Agent or any Bank in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading.

5.15     Compliance with Laws. Each Borrower and each other Loan Party is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.16     Suspended Revenues. None of the revenues derived from any of the wells identified on Exhibit A attached hereto are being held in suspense by any party except for immaterial amounts of revenues that could not reasonably be expected to have a Material Adverse Effect.

5.17     Tax Shelter Regulations. Borrowers do not intend to treat the Loans and/or Letters of Credit and related transactions as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4). In the event any Borrower determines to take any action inconsistent with such intention, it will promptly notify Administrative Agent thereof. Accordingly, if any Borrower so notifies Administrative Agent, such Borrower acknowledges that the Banks may treat their Loans and/or Letters of Credit as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and each Bank will maintain the lists and other records required by such Treasury Regulation.

5.18     Oil and Gas Leases. The Leases which constitute any part of the Borrowing Base Oil and Gas Properties are in full force and effect as to those portions thereof that comprise the Borrowing Base Oil and Gas Properties except to the extent the failure to be in full force and effect could not reasonably be expected to have a Material Adverse Effect.

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5.19     Oil and Gas Contracts. Except: (a) as set out on Schedule 5.19 attached hereto, and (b) as may subsequently occur and be disclosed by Borrowers in the next Compliance Certificate delivered by Borrowers after such occurrence, Borrowers are not obligated, by virtue of any prepayment under any contract providing for the sale by Borrowers of Hydrocarbons which contains a “take-or-pay” clause or under any similar prepayment agreement or arrangement, including, “gas balancing agreements”, to deliver a material amount of Hydrocarbons produced from the Borrowing Base Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor (i.e., in the case of oil, not in excess of sixty days, and in the case of gas, not in excess of ninety days). Except: (a) as set out on Schedule 5.19 attached hereto, and (b) as may subsequently occur and be disclosed by Borrowers in the next Compliance Certificate delivered by Borrowers after such occurrence, the Borrowing Base Oil and Gas Properties are not subject to any contractual, or other arrangement for the sale of crude oil which cannot be canceled on ninety days’ (or less) notice, unless the price provided for therein is equal to or greater than the prevailing market price in the vicinity. To the best of Borrowers’ knowledge, the Borrowing Base Oil and Gas Properties are not subject to any regulatory refund obligation and no facts exist which might cause the same to be imposed.

5.20     Producing Wells. All producing wells that constitute part of the Borrowing Base Oil and Gas Properties: (a) have been, during all times that any such wells were operated by Borrowers or their Subsidiaries, and (b) to the knowledge of Borrowers, have been at all other times; drilled, operated and produced in conformity with all applicable Laws, rules, regulations and orders of all regulatory authorities having jurisdiction, are subject to no penalties on account of past production, and are bottomed under and are producing from, and the well bores are wholly within, the Borrowing Base Oil and Gas Properties, or on Oil and Gas Properties which have been pooled, unitized or communitized with the Borrowing Base Oil and Gas Properties, except to the extent that any noncompliance with the representations set out in this Section would not have a Material Adverse Effect.

5.21     Purchasers of Production. The names and business addresses of the Persons who: (a) have purchased any of Borrowers’ interests in oil and gas produced from the Borrowing Base Oil and Gas Properties during the six calendar months preceding the Closing Date, or (b) are considered by Borrowers to be potential future purchasers of Borrowers’ interest in oil and gas produced from the Borrowing Base Oil and Gas Properties, are identified on Schedule 5.21 attached hereto.

ARTICLE VI

AFFIRMATIVE COVENANTS

So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, Borrowers, and with respect to Sections 6.01 and 6.02, each Guarantor, shall, and shall (except in the case of the covenants set out in Sections 6.03 and 6.22) cause each Subsidiary to:

6.01     Financial Statements. Deliver to Administrative Agent copies of the following, in form and detail satisfactory to Administrative Agent:

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(a)       as soon as available, but in any event within 120 days after the end of each fiscal year of Borrowers, a consolidated balance sheet of Borrowers and their Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income or operations, stockholders equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of an independent certified public accountant of nationally or regionally recognized standing reasonably acceptable to Administrative Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit; and

(b)       as soon as available, but in any event within 60 days after the end of each fiscal quarter of each fiscal year of Borrowers, a consolidated balance sheet of Borrowers and their Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income or operations, stockholders’ equity and cash flows for such fiscal quarter and for the portion of Borrowers’ fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by a Responsible Officer of Borrowers as fairly presenting the financial condition, results of operations, stockholders’ equity and cash flows of Borrowers and their Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.

6.02     Certificates; Other Information. Deliver to Administrative Agent copies of the following, in form and detail satisfactory to Administrative Agent:

(a)       concurrently with the delivery of the financial statements referred to in Sections6.01(a) and (b), a duly completed Compliance Certificate signed by a Responsible Officer of Borrowers;

(b)       promptly after any request by Administrative Agent, copies of any audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of Borrowers by independent accountants in connection with the accounts or books of Borrowers;

(c)       promptly after Borrowers have notified Administrative Agent of any intention by Borrowers to treat the Loans and/or Letters of Credit and related transactions as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4), a duly completed copy of IRS Form 8886 or any successor form;

(d)       commencing on July 3, 2008 and continuing thereafter on the last day of each June and December, a report of Borrower’s commodity hedge position at the end of each such 6-month period; and

(e)       federal income tax returns for Borrowers and each Guarantor within 30 days after the date such returns are required to be filed with the IRS; provided that, if

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such date is extended in accordance with the Code or IRS rules and regulations, then Borrowers or such Guarantor shall deliver such federal income tax returns within thirty (30) days after the last day of such extension.

6.03 Notices.

Promptly notify Administrative Agent:

(a) of the occurrence of any Default;

(b)       of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of Borrowers or any Subsidiary (ii) any dispute, litigation, investigation, proceeding or suspension between Borrowers or any Subsidiary and any Governmental Authority which could reasonably be expected to result in a judgment (or expressly asserts a claim) against any Borrowers or any Subsidiary in the amount of $100,000 or more; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting Borrowers or any Subsidiary, including pursuant to any applicable Environmental Laws which could reasonably be expected to result in a judgment (or expressly asserts a claim) against any Borrowers or any Subsidiary in the amount of $100,000 or more;

(c) of the occurrence of any ERISA Event; and

(d)       of any material change in accounting policies or financial reporting practices by Borrowers or any Subsidiary.

Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of Borrowers setting forth details of the occurrence referred to therein and stating what action Borrowers have taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe in reasonable detail any and all provisions of this Agreement and any other Loan Document that have been breached.

6.04     Payment of Obligations. Pay and discharge as the same shall become due and payable, all its obligations and liabilities to the extent the failure to pay and discharge such obligations and liabilities could reasonably be expected to have a Material Adverse Effect, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by Borrowers, such Subsidiary or Loan Party; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by Borrowers; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.

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6.05     Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

6.06     Maintenance of Properties. Use commercial reasonable efforts as a non-operator to (a) maintain, preserve and protect all of its properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; (c) use the standard of care typical in the industry in the operation and maintenance of its facilities; and (d) cause its tangible property relating to the Borrowing Base Oil and Gas Properties to be maintained in good repair and condition, cause all necessary replacements thereof to be made, and cause such property to be operated in a good and workmanlike manner in accordance with standard industry practices, unless the failure to do so could not reasonably be expected to have a Material Adverse Effect.

6.07     Maintenance of Insurance. Maintain with financially sound and reputable insurance companies not Affiliates of Borrowers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts (after giving effect to any self-insurance compatible with the following standards) as are customarily carried under similar circumstances by such other Persons and providing for not less than thirty days’ prior notice to Administrative Agent of termination, lapse or cancellation of such insurance.

6.08     Compliance with Laws. Comply in all material respects with the requirements of all Laws, and all orders, writs, injunctions and decrees applicable to it or to its business (including continuing its qualification with the Minerals Management Service, the Bureau of Land Management and the Bureau of Indian Affairs, if applicable) or property (including the Borrowing Base Oil and Gas Properties), except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

6.09     Books and Records. Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of Borrowers or such Subsidiary, as the case may be; and maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over Borrowers or such Subsidiary, as the case may be. Borrowers shall maintain at all times books and records pertaining to the Collateral in such detail, form and scope as Administrative Agent shall reasonably require.

6.10     Inspection Rights. Permit representatives and independent contractors of Administrative Agent to visit and inspect any of its properties, to examine its corporate, financial and operating

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records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, and make all financial records and other records relating to the Borrowing Base Oil & Gas Properties available for inspection, all at the expense of Borrowers and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to Borrowers; provided that,unless an Event of Default exists, no more than one inspection during any calendar year shall be at Borrowers’ expense. When an Event of Default exists Administrative Agent (or any of its respective representatives or independent contractors) may do any of the foregoing at the expense of Borrowers at any time during normal business hours and upon reasonable advance notice.

6.11     Use of Proceeds. Use the proceeds of the Loans for the repayment of the Existing Debentures in an aggregate principal amount of $6,300,000 plus accrued interest, cause the acquisition of the Indebtedness under the Existing Loan Agreement and Existing Note, complete repayment of the Indebtedness under the Seller Notes in an amount not to exceed $1,004,672.15 in the aggregate of principal and accrued and unpaid interest thereon, transaction costs, fees and expenses related to this Agreement and the transactions contemplated hereby, the acquisition, development and exploration of the Borrowing Base Oil and Gas Properties, capital expenditures, general corporate purposes and Letters of Credit and not in contravention of any Law or of any Loan Document.

6.12     Accounts. Maintain with Administrative Agent its primary deposit accounts, cash management and collection and lockbox services.

6.13     Additional Borrowers and New Guarantors. Notify Administrative Agent at the time that any Business Entity becomes a Subsidiary of any Borrower, and promptly thereafter (and in any event within thirty days), cause such Person (a) at Administrative Agent’s option, in its sole discretion, to either become (i) a Borrower hereunder by executing and delivering to Administrative Agent a counterpart of the Joinder Agreement or such other document as Administrative Agent shall deem appropriate; provided that such other document does not alter or affect Borrowers’ right and obligations hereunder or (ii) a Guarantor by executing and delivering to Administrative Agent a counterpart of the Guaranty or such other document as Administrative Agent and Borrowers shall deem appropriate for such purpose, and (b) deliver to Administrative Agent documents of the types and in substantially the same form as the documents referred to in clauses (iii) and (iv) of Section4.01(a) and favorable opinions of counsel to such Business Entity (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in clause (a)), all in form, content and scope reasonably satisfactory to Administrative Agent.

6.14     Collateral Records. Execute and deliver promptly, and to cause each other Loan Party to execute and deliver promptly, to Administrative Agent, from time to time, solely for Administrative Agent’s convenience in maintaining a record of the Collateral, such written statements and schedules as Administrative Agent may reasonably require designating, identifying or describing the Collateral. The failure by Borrowers or any other Loan Party, however, to promptly give Administrative Agent such statements or schedules shall not affect, diminish, modify or otherwise limit the Liens on the Collateral granted pursuant to the Collateral Documents.

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6.15     Security Interests. Defend, and cause each other Loan Party to defend, the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein. Borrowers shall, and shall cause each other Loan Party to, comply with the requirements of all state and federal laws in order to grant to Administrative Agent valid and perfected first priority security interests in the Collateral, with perfection, in the case of any investment property being effected by giving Administrative Agent control of such investment property, rather than by the filing of a UCC financing statement with respect to such investment property. Administrative Agent is hereby authorized by Borrowers to file any UCC financing statements covering the Collateral whether or not Borrowers’ signatures appear thereon. Borrowers shall, and shall cause each other Loan Party, to do whatever Administrative Agent may reasonably request, from time to time, to effect the purposes of this Agreement and the other Loan Documents, including filing notices of liens, UCC financing statements, fixture filings and amendments, renewals and continuations thereof; cooperating with Administrative Agent’s representatives; keeping stock or ownership records; obtaining waivers from landlords and mortgagees and from warehousemen and their landlords and mortgages; and, paying claims which might, if unpaid, become a Lien on the Collateral.

6.16     Title Defects. Cure any title defects to the Borrowing Base Oil and Gas Properties material in value, in the reasonable opinion of Administrative Agent, within ninety days after receipt of written notice thereof from Administrative Agent and, in the event any title defects are not cured in a timely manner, pay all related costs and fees reasonably incurred by Administrative Agent in curing any such title defects. In the event that Borrowers are unable to cure a title defect, Borrowers shall have the ability to substitute additional collateral; provided that Borrowers’ ability to substitute such collateral is subject to the full satisfaction of Administrative Agent, including, without limitation in full compliance with the requirements described in Section 2.04. Furthermore, after identification and prior to the cure of any such title defect, Administrative Agent may redetermine the Borrowing Base to reflect the amount of such title defect.

6.17     Maintenance of Tangible Property. Use commercial reasonable efforts as a non-operator to maintain all of its tangible property relating to the Borrowing Base Oil and Gas Properties in good repair and condition and make all necessary replacements thereof and operate such property in a prudent and workmanlike manner in accordance with standard industry practices, unless the failure to do so would not have a Material Adverse Effect on any Borrower or the value of any Borrowing Base Oil and Gas Property.

6.18     Inspection of Tangible Assets/Right of Audit. Permit any authorized representative of Administrative Agent to visit and inspect (at the risk of Administrative Agent) the Borrowing Base Oil and Gas Properties, and/or to audit the books and records of Borrowers or any other Loan Party related to the Borrowing Base Oil and Gas Properties during normal business hours, at the expense of Administrative Agent and during normal business hours following reasonable advance notice.

6.19     Leases. Keep and continue all Leases comprising the Borrowing Base Oil and Gas Properties and related contracts and agreements relating thereto in full force and effect in accordance with the terms thereof and not permit the same to lapse or otherwise become impaired for failure to comply with the obligations thereof, whether express or implied;

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provided, however, that this provision shall not prevent Borrowers from abandoning and releasing any such Leases upon their termination as the result of cessation of production in paying quantities that did not result from Borrowers’ failure to maintain such production as a reasonably prudent operator. Subject to the approval by Administrative Agent, Borrowers shall have the right to replace Leases that lapse or become impaired.

6.20     Operation of Borrowing Base Oil and Gas Properties. Operate or, to the extent that the right of operation is vested in others, exercise all reasonable efforts to require the operator to operate the Borrowing Base Oil and Gas Properties and all wells drilled thereon and that may hereafter be drilled thereon, continuously and in a prudent and workmanlike manner and in accordance with all Laws of the State in which the Borrowing Base Oil and Gas Properties are situated and the United States of America, as well as all rules, regulations, and Laws of any governmental agency having jurisdiction to regulate the manner in which the operation of the Borrowing Base Oil and Gas Properties shall be carried on, and comply with all terms and conditions of the Leases it now holds, and any assignment or contract obligating Borrowers in any way with respect to the Borrowing Base Oil and Gas Properties, except for any such non-compliance that could not reasonably be expected to have a Material Adverse Effect; but nothing herein shall be construed to empower Borrowers to bind Administrative Agent or any Bank to any contract obligation, or render Administrative Agent or any Bank in any way responsible or liable for bills or obligations incurred by Borrower.

6.21     Change of Purchasers of Production. Concurrently with the delivery of (and as part of) the annual Compliance Certificate, and at any other time that Administrative Agent may reasonably request in writing, Borrowers shall notify Administrative Agent in writing of the identity and address of each Person who: (a) has purchased any of Borrowers’ interests in oil and gas produced from the Borrowing Base Oil and Gas Properties during the six calendar months preceding such anniversary of the Closing, or (b) are considered by Borrowers to be potential future purchasers of Borrowers’ interest in oil and gas produced from the Borrowing Base Oil and Gas Properties and, if requested by Administrative Agent, shall provide Administrative Agent with Transfer Order Letters executed by Borrowers and addressed to such purchasers of production.

6.22     Hedging. Enter into and maintain at all times during the term of this Agreement, Swap Contracts (as Permitted Swap Contracts) that have been entered into by Borrowers prior to or contemporaneously with the Closing Date on terms otherwise acceptable to Administrative Agent in its sole discretion.

6.23     Title and Liens. Satisfy at all times the requirements set forth in Section 4.02(d) with regard to title and the Liens covering the Borrowing Base Oil and Gas Properties.

6.24     Subordinated Obligations. Pay the Subordinated Obligations (as defined in the Subordination Agreement) with the net proceeds from the issuance of any capital stock of any Borrower before using the net proceeds for any other purpose until such Subordinated Obligations are paid in full.

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ARTICLE VII

NEGATIVE COVENANTS

So long as any Bank shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, Borrowers shall not, nor shall they permit any Subsidiary to, directly or indirectly:

7.01     Liens. Create, incur, assume or suffer to exist, any Lien upon any of its Borrowing Base Oil and Gas Properties, or any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following (“Permitted Liens”):

(a)       Liens pursuant to any Loan Document, including Liens in favor of any Approved Counterparty;

(b)       Liens existing on the date hereof and listed on Schedule 7.01 hereto and Liens on the same assets in connection with refinancings permitted by Section 7.03(b);

(c)       Liens for taxes, assessments, or other governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(d)       operators,’ non-operators,’ vendors,’ carriers,’ warehousemen’s, mechanics,’ materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business or which are incident to the exploration, development, operation, and maintenance of the Borrowing Base Oil and Gas Properties, not overdue for a period of more than thirty days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(e)       pledges or deposits in the ordinary course of business or Liens in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;

(f)        deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or litigation), performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(g)       easements, rights-of-way, restrictions, servitudes, permits, conditions, covenants, exceptions, or reservations and other similar encumbrances, defects, irregularities, and deficiencies in title affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;

(h)       Liens securing Indebtedness permitted under Section 7.03(d); provided that, (i) such Liens do not at any time encumber any property other than the property sold

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to the Loan Party by the seller of the property financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition; and

(i) Liens securing Indebtedness permitted under Section 7.03(e).

7.02 Investments. Make any Investments, except:

(a)       Investments held by Borrowers in the form of cash equivalents or short-term marketable debt securities;

(b)       advances to officers, directors and employees of any Borrower in an aggregate amount not to exceed $50,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;

(c)       Investments of any Borrowers in any wholly-owned Subsidiary and Investments of any wholly-owned Subsidiary in any Borrower or in another wholly-owned Subsidiary;

(d)       Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss; and

(e) Investments in Oil and Gas Properties.

7.03 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except:

(a) Indebtedness under the Loan Documents;

(b)       Indebtedness outstanding on the date hereof and listed on Schedule 7.03 hereto and refinancings thereof; provided that the principal amount of such Indebtedness may not be increased at any time except to increase such principal amount by interest paid in kind and transaction expenses in connection with such refinancings;

(c)       Obligations (contingent or otherwise) of Borrowers arising under Permitted Swap Contracts;

(d)       Indebtedness in respect of capital leases and purchase money obligations for fixed assets within the limitations set out in Section 7.01(h); provided that, the aggregate amount of all such Indebtedness at any one time outstanding may not exceed $100,000; and

(e)       Indebtedness associated with bonds, surety obligations or sinking funds required by any Governmental Authority or operators in connection with the operation of the Borrowing Base Oil and Gas Properties; and

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(f)        Indebtedness owed by Loan Parties to other Loan Parties to the extent such Indebtedness is unsecured and no payments of principal or interest thereunder are made without the consent of the Required Banks.

7.04     Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into, another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person or permit a Change of Control to occur with regard to any Loan Party; provided that, with the Administrative Agent’s prior written consent (not to be unreasonably withheld), Loan Parties may merge or consolidate with and into other Loan Parties, so long as a Borrower is the surviving entity resulting from any merger or consolidation involving such Borrower and, provided that Borrowers may dissolve EnerJex Development, LLC.

7.05     Dispositions. Make any Disposition or enter into any agreement to make any Disposition, except for the following:

(a)       Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;

(b)       sales, leases, assignments, transfers or disposals of, in one or any series of related transactions, any portion of the Borrowing Base Oil and Gas Properties, whether now owned or hereafter acquired, including transfers to Affiliates, which, in the aggregate, do not exceed $250,000 during any period beginning on the date of Administrative Agent’s written notice to Borrowers pursuant to Section 2.04of a Borrowing Base redetermination (except that the first such period shall begin on the Closing Date) and ending on the date of the next such written notice from Administrative Agent to Borrowers;

(c) sales of Hydrocarbons in the ordinary course of business;

(d)       Dispositions of equipment or real property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property, or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property;

(e)       Dispositions of property by any Borrower or Subsidiary to any Borrower or to a wholly-owned Subsidiary, provided that,if the transferor of such property is a Borrower or a Guarantor, the transferee thereof must either be a Borrower or a Guarantor and each such party has contemporaneously therewith executed and delivered all Collateral Documents requested by Administrative Agent; and

(f)        Disposition of the Gas City project Oil and Gas Properties identified on Schedule7.05(f) attached hereto.

provided that any Disposition pursuant to clauses (a) through (f) shall be for fair market value.

7.06     Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so except with respect to Indebtedness

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described as Subordinated Obligations under the Subordination Agreement, to the extent permitted by the Subordination Agreement, if at all, and so long as no Event of Default has occurred and is continuing, or would result therefrom, the Payment in Full (as defined in the Subordination Agreement) of the Subordinated Obligations.

7.07     Change in Nature of Business. Engage in any material line of business substantially different from those lines of businesses is conducted by Borrowers and their Subsidiaries on the date hereof or reasonably related lines of businesses.

7.08     Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of any Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to Borrowers or such Subsidiary as would be obtainable by Borrowers or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate, except employment agreements with Borrowers’ officers and directors on terms approved by the applicable Governing Body.

7.09     Margin Regulations. Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

7.10     Pooling or Unitization. Voluntarily pool or unitize all or any part of the Borrowing Base Oil and Gas Properties where the pooling or unitization would result in any diminution of any Borrower’s net revenue interest in production from the pooled or unitized lands, without Administrative Agent’s prior consent. Any unitization, pooling or communitization or other action or instrument in violation of this Section 7.10 shall be of no force or effect against Administrative Agent or any Bank.

7.11     Hedging. Enter into or maintain in effect during the term of this Agreement, Swap Contracts except for Permitted Swap Contracts.

7.12 Financial Covenants

(a)       Current Ratio. Permit as of September 30, 2008, and as of the last day of each fiscal quarter thereafter, its ratio of Borrowers’ and their Subsidiaries’ consolidated Current Assets plus the Available Amount to Borrowers’ and their Subsidiaries’ consolidated Current Liabilities (but excluding any Current Liabilities that constitute Obligations), calculated in accordance with the GAAP, to be less than 1.00 to 1.00.

(b)       Senior Funded Debt to EBITDA Ratio. For the quarterly periods ending June 30, 2008, September 30, 2008, December 31, 2008, and March 31, 2009, permit the ratio of Senior Funded Debt to Borrowers’ and their Subsidiaries’ consolidated EBITDA for that preceding quarter to be greater than 5.00:1.00, or permit, as of the last day of each fiscal quarter after June 30, 2009, the ratio of Senior Funded Debt as of such date to Borrowers’ and their Subsidiaries’ consolidated EBITDA for the 12 month period ending on such date to be greater than 4.00:1.00. For the purpose of calculating the foregoing ratio, EBITDA will be annualized by: (i) multiplying by 4 for the three-month period ending June 30, 2008, (ii) multiplying by 2 for the six-month period ending

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September 30, 2008, and (iii) multiplying by 1.33 for the nine-month period ending December 31, 2008. For the twelve-month period ending March 31, 2009, and for each period thereafter, EBITDA will be calculated based on actual EBITDA for the previous four fiscal quarters.

(c)       Interest Coverage Ratio. Permit the ratio of Borrowers’ and their Subsidiaries’ consolidated EBITDA for each fiscal quarter ending on September 30, 2008 and the last day of each fiscal quarter thereafter to Interest Expense for that quarter to be less than 2.50:1.00.

ARTICLE VIII

THE AGENTS

8.01     Authorization and Action. Each Bank hereby irrevocably appoints and authorizes Administrative Agent to act on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are specifically delegated to or required of Administrative Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or the other Loan Documents (including, without limitation, enforcement or collection of the Notes), Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and, as between such Administrative Agent and the Banks, shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks, and such instructions shall be binding upon all Banks and all holders of Notes; provided, however, that Administrative Agent shall not be required to take any action which exposes Administrative Agent to personal liability or which is contrary to this Agreement, the other Loan Documents or applicable law.

8.02     Administrative Agent’s Reliance, Etc. NEITHER ANY ADMINISTRATIVE AGENT NOR ANY OF ITS DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES SHALL BE LIABLE TO ANY BANK FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS (I) WITH THE CONSENT OR AT THE REQUEST OF THE REQUIRED BANKS OR (II) IN THE ABSENCE OF ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT (IT BEING THE EXPRESS INTENTION OF THE PARTIES THAT NEITHER ADMINISTRATIVE AGENT NOR ITS DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES SHALL HAVE ANY LIABILITY FOR ACTIONS AND OMISSIONS UNDER THIS SECTION 8.02 RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE). Without limitation of the generality of the foregoing, Administrative Agent: (i) may treat the payee of each Note as the holder thereof until Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to such Administrative Agent; (ii) may consult with legal counsel (including counsel for Borrowers or any of their Subsidiaries), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (iv) except as otherwise expressly provided herein, shall not have

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any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents or to inspect the property (including the books and records) of Borrowers and their Subsidiaries; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopier, cable or telex) reasonably believed by it to be genuine and signed or sent by the proper party or parties; and (vii) the provisions of this Section 8.02 shall survive the termination of this Agreement and/or the payment or assignment of any of the Indebtedness under this Agreement.

8.03     Administrative Agent and its Affiliates. With respect to its Commitment, the Credit Extensions made by it and the Note issued to it as a Bank, Administrative Agent shall have the same rights and powers under this Agreement or the other Loan Documents as any other Bank and may exercise the same as though it were not Administrative Agent. The term “Bank” or “Banks” shall, unless otherwise expressly indicated, include each Administrative Agent in its individual capacity. Administrative Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with Borrowers, any of their respective Subsidiaries and any Person who may do business with or own securities of Borrowers, any of its respective Subsidiaries, all as if Administrative Agent were not Administrative Agent and without any duty to account therefor to the Banks.

8.04     Bank Credit Decision. Each Bank acknowledges and agrees that it has, independently and without reliance upon the Administrative Agent and based on the Financial Statements referred to in Section 5.05 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges and agrees that it will, independently and without reliance upon the Administrative Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents.

8.05     Administrative Agent Indemnity. Administrative Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Agreement or the other Loan Documents unless indemnified to Administrative Agent’s satisfaction by the Banks against loss, cost, liability and expense.  If any indemnity furnished to Administrative Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. IN ADDITION, THE BANKS AGREE TO PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED BY BORROWERS), RATABLY ACCORDING TO THE RESPECTIVE PRINCIPAL AMOUNTS OF THE NOTES THEN HELD BY EACH OF THEM (OR IF NO NOTES ARE AT THE TIME OUTSTANDING, RATABLY ACCORDING TO EITHER (I) THE RESPECTIVE AMOUNTS OF THEIR COMMITMENTS, OR (II) IF NO COMMITMENTS ARE OUTSTANDING, THE RESPECTIVE AMOUNTS OF THE COMMITMENTS IMMEDIATELY PRIOR TO THE TIME THE COMMITMENTS CEASED TO BE OUTSTANDING), FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,

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COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY ADMINISTRATIVE AGENT UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS (INCLUDING, WITHOUT LIMITATION, ANY ACTION TAKEN OR OMITTED UNDER ARTICLE II OF THIS AGREEMENT); PROVIDED, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM ADMINISTRATIVE AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Each Bank agrees, however, that it expressly intends, under this Section 8.05, to indemnify Administrative Agent ratably as aforesaid for all such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements arising out of or resulting from Administrative Agent’s ordinary or contributory negligence. Without limitation of the foregoing, each Bank agrees to reimburse Administrative Agent promptly upon demand for its ratable share of any out of pocket expenses (including reasonable counsel fees) incurred by Administrative Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Loan Documents to the extent that Administrative Agent is not reimbursed for such expenses by Borrowers. The provisions of this Section 8.05 shall survive the termination of this Agreement and/or the payment or assignment of any of the Indebtedness under this Agreement.

8.06     Successor Agents. Administrative Agent may resign at any time by giving written notice thereof to the Banks and Borrowers and may be removed as Administrative Agent under this Agreement and the other Loan Documents at any time with or without cause by the Required Banks. Upon any such resignation or removal, the Required Banks with the concurrence of Borrowers shall have the right to appoint a successor Administrative Agent.  If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within thirty (30) calendar days after the retiring Administrative Agent’s giving of notice of resignation or the Required Banks’ removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks and with the concurrence of Borrowers, appoint a successor Administrative Agent. Upon the acceptance of any appointment as Administrative Agent hereunder and under the other Loan Documents by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Administrative Agent’s resignation or removal as Administrative Agent hereunder and under the other Loan Documents, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents.

8.07     Notice of Default. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default hereunder unless Administrative Agent shall have received notice from a Bank or Borrowers referring to this Agreement, describing such Default and stating that such notice is a “notice of default.” If Administrative Agent receives such a notice, Administrative Agent shall give notice thereof to the Banks; provided, however, if such

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notice is received from a Bank, Administrative Agent also shall give notice thereof to Borrowers. The Administrative Agent shall be entitled to take action or refrain from taking action with respect to such Default as provided in Section 8.01 and Section 8.02.

ARTICLE IX

EVENTS OF DEFAULT AND REMEDIES

9.01 Events of Default. Any of the following shall constitute an Event of Default:

(a)       Non-Payment. Borrowers or any other Loan Party fail to pay when and as required to be paid herein, any amount of principal or interest on any Loan, or any L/C Obligation or any fee due hereunder, or within three (3) Business Days after notice from Administrative Agent for any other amount payable hereunder or under any other Loan Document; or

(b)       Specific Covenants. Borrowers fail to perform or observe any term, covenant or agreement contained in any of Section 6.01, 6.02, 6.03, 6.05, 6.10 or ArticleVII; or

(c)       Other Covenants. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty days after Borrowers receive written notice thereof from Administrative Agent or any event of default occurs and is continuing under any other Loan Document for thirty (30) days after Borrowers receive written notice thereof from Administrative Agent; or

(d)       Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of Borrowers or any other Loan Party herein, in any other Loan Document, or in any document delivered by or on behalf of a Loan Party in connection herewith or therewith shall be incorrect or misleading in any material respect when made or deemed; or

(e)       Cross-Default. (i) Borrowers or any other Loan Party (A) fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and after any applicable grace period, in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $100,000 or (B) fail to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, and, as a result thereof, the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or Administrative Agent on behalf of such holder or holders or beneficiary or beneficiaries) cause such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made prior to its stated maturity, or such Guarantee to become

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payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Permitted Swap Contract an Early Termination Date (as defined in such Permitted Swap Contract) resulting from any event of default under such Swap Contract as to which any Borrower or any Subsidiary is the Defaulting Party (as defined in such Permitted Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which any Borrower or any subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by any Borrower or such Subsidiary as a result thereof is greater than $100,000; or

(f)        Insolvency Proceedings, Etc. Any Loan Party institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty calendar days, or an order for relief is entered in any such proceeding; or

(g)       Inability to Pay Debts; Attachment. (i) Any Loan Party becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within thirty days after its issue or levy; or

(h)       Judgments. There is entered against any Loan Party (i) one or more final, non-appealable, judgments or orders for the payment of money in an aggregate amount exceeding $500,000 (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of thirty (30) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

(i)        ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $100,000, or (ii) any Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $100,000; or

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(j)        Invalidity of Loan Documents. Any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or prior to satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party contests in any manner the validity or enforceability of any Loan Document; or any Loan Party denies that it has any further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document, or any Lien with respect to any portion of the Collateral intended to be secured thereby ceases to be, or, subject to Section 7.01, is not, valid, perfected and prior to all other Liens or is terminated other than in accordance with the Loan Documents, revoked or declared void; or

(k)       Change of Control. There occurs any Change of Control with respect to any Loan Party; or

(l)        Material Adverse Effect. There occurs any event or circumstance that has a Material Adverse Effect.

9.02     Remedies Upon Event of Default. If any Event of Default occurs, Administrative Agent may take any or all of the following actions:

(a)       declare the commitment of the Banks to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;

(b)       declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, all L/C Obligations and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Borrowers;

(c)       require that Borrower Cash Collateralize the then outstanding amount of the L/C Obligations; and

(d)       exercise all rights and remedies available to it under the Loan Documents or applicable law;

provided that,upon the occurrence of an actual or deemed entry of an order for relief with respect to any Borrower under the Bankruptcy Code of the United States, the obligation of the Banks to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of Borrowers to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of Administrative Agent.

9.03     Application of Funds. After the exercise of remedies provided for in Section9.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set out in the proviso

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to Section 9.02), any amounts received on account of the Obligations shall be applied by Administrative Agent in the following order:

(a)       First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including Attorney Costs and amounts payable under Article III) payable to Administrative Agent under the Loan Documents;

(b)       Second, to payment of that portion of the Obligations constituting accrued and unpaid interest and fees on the Loans and L/C Advances;

(c)       Third, paripassu to payment of (i) that portion of the Obligations constituting unpaid principal of the Loans and L/C Advances and (ii) the obligations owing an Approved Counterparty in connection with a Permitted Swap Contract;

(d)       Fourth, to the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and

(e)       Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to Borrowers or as otherwise required by Law.

Subject to Section 2.03(e), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause (d) above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set out above.

ARTICLE X

MISCELLANEOUS

10.01   Amendments, Etc. Subject to Section 10.18, no amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by Borrowers or any other Loan Party therefrom, shall be effective unless in writing signed by Administrative Agent, the Required Banks and Borrowers or the applicable Loan Party, as the case may be, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

10.02 Notices and Other Communications; Facsimile Copies.

(a)       General. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission). All such written notices shall be mailed, faxed or delivered, to the applicable address, facsimile number or (subject to subsection (c) below) electronic mail address, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, specified for such Person on Schedule 10.02 or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties. All such notices and other communications shall be deemed to be given or made upon the earlier to occur of (i) actual receipt by the relevant party hereto and (ii) (A) if

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delivered by hand or by courier, upon delivery; (B) if delivered by mail, four Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and the sender has received electronic confirmation of error free receipt; and (D) if delivered by electronic mail (which form of delivery is subject to the provisions of subsection (c) below), when delivered; provided, however, that notices and other communications to Administrative Agent pursuant to Article II shall not be effective until actually received by Administrative Agent. In no event shall a voicemail message be effective as a notice, communication or confirmation hereunder. Notwithstanding anything to the contrary under this Agreement, any provision relating to any notices, requests and other communications to be made by Administrative Agent to any Borrower shall only be required to be made to Parent, and Administrative Agent shall only be required to rely on notices, requests and other communications from Parent on behalf of itself and the other Borrowers and not from any other Borrower.

(b)       Effectiveness of Facsimile Documents and Signatures. Loan Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as manually-signed originals and shall be binding on all Loan Parties, the Banks and Administrative Agent. Administrative Agent may also require that any such documents and signatures be confirmed by a manually-signed original thereof; provided, however, that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature.

(c)       Limited Use of Electronic Mail.Electronic mail and internet and intranet websites may be used only to distribute routine communications, such as financial statements, and to distribute Loan Documents for execution by the parties thereto, and may not be used for any other purpose.

(d)       Reliance by Administrative Agent.Administrative Agent shall be entitled to rely and act upon any notices (including telephonic Request for Credit Extension) purportedly given by or on behalf of Borrowers even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. BORROWERS SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS ADMINISTRATIVE AGENT AND ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL, LENDERS AND ATTORNEYS-IN-FACT FROM ALL LOSSES, COSTS, EXPENSES AND LIABILITIES RESULTING FROM THE RELIANCE BY SUCH PERSON ON EACH SUCH REQUEST PURPORTEDLY GIVEN BY OR ON BEHALF OF BORROWERS. All telephonic notices to and other communications with Administrative Agent may be recorded by Administrative Agent, and each of the parties hereto hereby consents to such recording.

10.03   No Waiver; Cumulative Remedies. No failure by Administrative Agent or any Bank to exercise, and no delay by Administrative Agent or any Bank in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further

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exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

10.04   Attorney Costs and Expenses. Borrowers agree (a) to pay or reimburse Administrative Agent for all reasonable costs and expenses incurred in connection with the development, preparation, negotiation and execution of this Agreement and the other Loan Documents and any amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated hereby or thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all Attorney Costs, and (b) to pay or reimburse Administrative Agent for all reasonable costs and expenses incurred in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or the other Loan Documents (including all such reasonable costs and expenses incurred during any “workout” or restructuring in respect of the Obligations and during any legal proceeding, including any proceeding under any Debtor Relief Law), including all Attorney Costs of Administrative Agent, the L/C Issuer and the Banks. The foregoing costs and expenses shall include all search, filing, recording, and fees and taxes related thereto, and other reasonable out-of-pocket expenses related thereto incurred by Administrative Agent and the reasonable cost of independent public accountants and other outside experts retained by Administrative Agent in connection therewith. The agreements in this Section shall survive the termination of the Commitment and repayment of all other Obligations.

10.05   Indemnification by Borrowers. WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED, BORROWERS SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS ADMINISTRATIVE AGENT AND ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL, LENDERS AND ATTORNEYS-IN-FACT (COLLECTIVELY THE “INDEMNITEES”) FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, DEMANDS, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS (INCLUDING ATTORNEY COSTS OF SUCH INDEMNITEE) OF ANY KIND OR NATURE WHATSOEVER WHICH MAY AT ANY TIME BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY SUCH INDEMNITEE IN ANY WAY RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH (A) THE EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR ADMINISTRATION OF ANY LOAN DOCUMENT OR ANY OTHER AGREEMENT, LETTER OR INSTRUMENT DELIVERED BY OR ON BEHALF OF A LOAN PARTY IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED THEREBY OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, (B) ANY COMMITMENT, LOAN OR LETTER OF CREDIT OR THE USE OR PROPOSED USE OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE L/C ISSUER TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (C) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY CURRENTLY OR FORMERLY OWNED OR OPERATED BY BORROWERS OR ANY OTHER LOAN PARTY, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO BORROWERS OR ANY OTHER LOAN PARTY, OR (D) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION,

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INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY (INCLUDING ANY INVESTIGATION OF, PREPARATION FOR, OR DEFENSE OF ANY PENDING OR THREATENED CLAIM, INVESTIGATION, LITIGATION OR PROCEEDING) AND REGARDLESS OF WHETHER INDEMNITEE IS A PARTY THERETO (ALL THE FOREGOING, COLLECTIVELY, THE “INDEMNIFIED LIABILITIES”); PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, DEMANDS, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE. NO INDEMNITEE SHALL BE LIABLE FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES RELATING, DIRECTLY OR INDIRECTLY, TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ARISING OUT OF ITS ACTIVITIES IN CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR AFTER THE CLOSING DATE). THE AGREEMENTS IN THIS SECTION SHALL SURVIVE THE TERMINATION OF THE COMMITMENT AND THE REPAYMENT, SATISFACTION OR DISCHARGE OF ALL THE OTHER OBLIGATIONS. ALL AMOUNTS DUE UNDER THIS SECTION 10.05 SHALL BE PAYABLE WITHIN TEN BUSINESS DAYS AFTER DEMAND THEREFOR.

10.06   Payments Set Aside. To the extent that any payment by or on behalf of Borrowers is made to a Bank, or a Bank exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by a Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred.

10.07 Successors and Assigns; Participation; Purchasing Banks.

(a)       Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of Borrowers, the Administrative Agent or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective successors and permitted assigns. Borrowers may not assign or transfer any of their rights or obligations hereunder without the written consent of all the Banks.

(b)       Each Bank may, without the consent of, but with notice to, Borrowers, sell participations to one or more banks or other financial institutions in all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitment, the Loans owing to it, and the Notes held by it); provided, however, that (i) the selling Bank’s obligations under this Agreement and the other Loan Documents shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such

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obligations, (iii) Borrowers, the Administrative Agent, and the other Banks shall continue to deal solely and directly with the selling Bank in connection with such Bank’s rights and obligations under this Agreement and the other Loan Documents, (iv) the selling Bank shall remain the holder of its Note(s) for all purposes of this Agreement, and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Note, or any consent to any departure by the Borrowers therefrom, except to the extent that such amendment, waiver or consent would reduce to the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any regularly scheduled payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. Borrowers agree that each participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Bank. A participant shall not be entitled to receive any greater payment under Section3.01 or 3.04 than a Bank would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with Borrower’s prior written consent.

(c)       With the prior written consent of Borrowers and the Administrative Agent, each Bank may assign to one or more banks or other financial institutions (a “Purchasing Bank”), all or a portion of its interests, rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitment and the same portion of the Loans at the time owing to it and the Notes held by it); provided, however, that (i) each such Bank must first offer to Administrative Agent the right to purchase such interests, rights and obligations as a Purchasing Bank before any such Bank offers or agrees to assign such rights to another Bank, or any other bank or entity, (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank’s rights and obligations under this Agreement and the other Loan Documents, (iii) after giving effect to such assignment, the Purchasing Bank’s Commitment must be at least $5,000,000 (either solely as the result of such assignment or as the result of multiple assignments from two or more assigning Banks), (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent a Commitment Transfer Supplement together with any Notes subject to such Commitment Transfer Supplement, (v) the assigning Bank shall pay to Administrative Agent an assignment fee of $3,500, (vi) an assigning Bank shall not assign a portion of such Bank’s Commitment in an amount less than an amount equal to the lesser of such Bank’s Commitment hereunder and $2,500,000 and (vii) if the assigning Bank has retained any Commitment hereunder, such assigning Bank’s Commitment shall be at least $5,000,000 after giving effect to such assignment. Upon such execution and delivery, from and after the effective date specified in each Commitment Transfer Supplement, which effective date shall be at least five Business Days after the execution thereof (x) the Purchasing Bank thereunder shall be a party hereto and, to the extent provided in such assignment, shall have the rights and obligations of a Bank hereunder and (y) the assignor Bank thereunder shall, to the extent provided in such assignment, be released from its obligations under this Agreement and the other Loan Documents (and, in the case of a Commitment Transfer Supplement covering all of the remaining portion of an assigning Bank’s rights and obligations under this Agreement and the other Loan

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Documents, such Bank shall cease to be a party hereto). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of Percentage Shares arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such assigning Bank under this Agreement, the Notes and the other Loan Documents. Notwithstanding the first sentence of this Section 10.07(c) or anything in the form of Commitment Transfer Supplement to the contrary, the Borrowers’ approval of the transfer from any Bank to any Purchasing Bank of all or a portion of the assigning Bank’s interests, rights and obligations under this Agreement and the other Loan Documents shall not be necessary at any time following and during the continuation of an Event of Default.

(d)       The Administrative Agent shall maintain at its office a copy of each Commitment Transfer Supplement delivered to it and a register for the recordation of the names and addresses of the Banks and the Commitment Amount of, and principal amount of the Loans owing to, each Bank from time to time (the “Register”). The entries in the Register shall be conclusive, in the absence of manifest error, and Borrowers, the Administrative Agent, and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrowers or any Bank at any reasonable time and from time to time upon reasonable prior notice.

(e)       Upon its receipt of a Commitment Transfer Supplement executed by an assigning Bank and a Purchasing Bank together with any Notes subject to such Commitment Transfer Supplement and the written consent of Borrowers, if required, and Administrative Agent to such Commitment Transfer Supplement, the Administrative Agent shall (i) accept such Commitment Transfer Supplement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Banks and Borrowers. Within five (5) Business Days after receipt of such notice, Borrowers shall, at their own expense, execute and deliver to the Administrative Agent, in exchange for the surrendered Notes, replacement Notes dated as of the effective date of such surrendered Notes and otherwise substantially in the form of the Notes replaced thereby payable to the order of such Purchasing Bank in an amount equal to the Commitment assumed by it pursuant to such Commitment Transfer Supplement and, if the assigning Bank has retained any Commitment hereunder, replacement Notes dated as of the effective date of the surrendered Notes and otherwise substantially in the form of the Notes replaced thereby payable to the order of the assigning Bank in an amount equal to the Commitment of such assigning Bank retained by it hereunder. Such replacement Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Notes. Contemporaneously with the delivery of the replacement Notes, the canceled Notes shall be returned to Borrowers marked “Replaced.”

(f)        Each Bank, L/C Issuer and Administrative Agent agrees to hold any confidential information which it may receive from the Borrowers pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Banks and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to such Bank, (iii) to regulatory officials, (iv) to any Person as such Bank, L/C

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Issuer or Administrative Agent reasonably believes it is compelled to disclose to pursuant to law, regulation, or legal process, (v) to any Person in connection with any legal proceeding with respect to the Loans, Loan Documents or transaction contemplated thereby to which such Bank is a party, (vi) to such Bank’s direct or indirect contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, and (vii) permitted by this Section; provided, with respect to clauses (i), (ii) and (vi), that such Persons are informed of the confidential nature thereof and instructed to keep such information confidential. Notwithstanding any other provision herein, any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 10.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to Borrowers or any other Subsidiary of Borrowers furnished to such Bank by or on behalf of Borrowers or any other Subsidiary of Borrowers; provided, that prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to Borrowers and any of its Subsidiaries received from such Bank to the same extent as required by this Section.

(g)       Any Bank may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Bank, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Bank from any of its obligations hereunder or substitute any such pledgee or assignee for such Bank as a party hereto.

(h)       Notwithstanding anything to the contrary contained herein, if at any time Administrative Agent assigns all of its Commitment and Loans, Administrative Agent may, upon thirty days’ notice to Borrowers and Banks, resign in its capacity as L/C Issuer, if Administrative Agent is also the L/C Issuer at such time. In the event of any such resignation as L/C Issuer, Borrowers shall be entitled to appoint from among Banks a successor L/C Issuer hereunder; provided that, no failure by Borrowers to appoint any such successor shall affect the resignation of Administrative Agent as L/C Issuer, as the case may be. If Administrative Agent resigns as L/C Issuer, it shall retain all the rights and obligations of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require Banks to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03.

10.08   Set-off. In addition to any rights and remedies of the Banks provided by law, upon the occurrence and during the continuance of any Event of Default, each Bank is authorized at any time and from time to time, without prior notice to Borrowers or any other Loan Party, any such notice being waived by Borrowers (on their own behalf and on behalf of each Loan Party) to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the respective Loan Parties against any and all Obligations owing to such Bank hereunder or under any other Loan Document, now or hereafter existing, irrespective of whether or not any such Bank shall have made demand under this

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Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or Indebtedness. Each such Bank agrees to notify Borrowers after any such set-off and application made by any such Bank; provided that,the failure to give such notice shall not affect the validity of such set-off and application. This Section 10.08 is subject to the provisions of Section 2.13.

10.09   Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If any Bank shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to Borrowers. In determining whether the interest contracted for, charged, or received by any Bank exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

10.10   Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

10.11   INTEGRATION. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, COMPRISES THE COMPLETE AND INTEGRATED AGREEMENT OF THE PARTIES ON THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDES ALL PRIOR AGREEMENTS, WRITTEN OR ORAL, ON SUCH SUBJECT MATTER. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN THE EVENT OF ANY CONFLICT BETWEEN THE PROVISIONS OF THIS AGREEMENT AND THOSE OF ANY OTHER LOAN DOCUMENT, THE PROVISIONS OF THIS AGREEMENT SHALL CONTROL; PROVIDED THAT THE INCLUSION OF SUPPLEMENTAL RIGHTS OR REMEDIES IN FAVOR OF ADMINISTRATIVE AGENT OR ANY BANK IN ANY OTHER LOAN DOCUMENT SHALL NOT BE DEEMED A CONFLICT WITH THIS AGREEMENT. EACH LOAN DOCUMENT WAS DRAFTED WITH THE JOINT PARTICIPATION OF THE RESPECTIVE PARTIES THERETO AND SHALL BE CONSTRUED NEITHER AGAINST NOR IN FAVOR OF ANY PARTY, BUT RATHER IN ACCORDANCE WITH THE FAIR MEANING THEREOF.

10.12   Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Banks, regardless of any investigation made by the Banks or on their behalf and notwithstanding that such Bank may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.

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10.13   Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

10.14 Governing Law; Submission to Jurisdiction.

(a)       THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b)       ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS SITTING IN HOUSTON OR OF THE UNITED STATES FOR THE SOUTHERNDISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, ADMINISTRATIVE AGENT, BORROWERS AND THE BANKS CONSENT, FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. BORROWERS, THE BANKS AND ADMINISTRATIVE AGENT IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. BORROWERS, THE BANKS AND ADMINISTRATIVE AGENT WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.

10.15   WAIVER OF JURY TRIAL. THE PARTIES HERETO IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM OR CONTROVERSY BETWEEN ADMINISTRATIVE AGENT, BORROWER AND THE BANKS AND ANY OTHER OBLIGOR, WHETHER ARISING IN CONTRACT, TORT OR BY STATUTE, INCLUDING CONTROVERSIES OR CLAIMS THAT ARISE OUT OF OR RELATE, DIRECTLY OR INDIRECTLY, TO: (I) THIS AGREEMENT, OR (II) ANY OTHER LOAN DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

10.16   USA Patriot Act Notice. The Banks hereby notify the Borrowers that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56) signed into law October 26,

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2001 (the “USA Patriot Act”), it is required to obtain, verify and record information that identifies the Borrowers, which information includes the name and address of the Borrowers and other information that will allow the Banks to identify the Borrowers in accordance with the USA Patriot Act.

10.17 Time of the Essence. Time is of the essence of the Loan Documents.

10.18   Amendments or Modifications. Subject to the provisions of this Section, the Required Banks (or the Administrative Agent with the consent in writing of the Required Banks) and the Borrowers may enter into agreements supplemental hereto for the purpose of adding, deleting or otherwise modifying any provisions of the Loan Documents or changing in any manner the rights of the Banks or the Borrower hereunder or waiving any Event of Default hereunder or consenting to any departure of a Loan Party therefrom; provided, however, that:

(a)       no such supplemental agreement shall, without the consent of all of the Banks:

(i)        Extend the final maturity of any Loan or extend the expiry date of any Letter of Credit beyond the Letter of Credit Expiration Date or the Tranche B Letter of Credit Expiration Date, as applicable, postpone any regularly scheduled payment of principal of any Loan, forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon or reduce the amount of any L/C Obligation or fees thereon.

(ii)       Reduce the percentage specified in the definition of Required Banks.

(iii)      Extend the Letter of Credit Expiration Date or Tranche B Letter of Credit Expiration Date, or reduce the amount or extend the payment date for, the mandatory payments required under Section2.05, or increase the Aggregate Commitment Amount or the Commitment of any Bank hereunder, or permit the Borrowers to assign their rights under this Agreement.

(iv)      Amend the requirement that the Borrowing Base may be increased or reaffirmed only with the consent of all Banks.

(v)       Release any Guarantor of any Loan or, except as provided in the Collateral Documents, release all or substantially all of the Borrowing Base Oil and Gas Properties.

(vi) Amend this Section 10.18.

(b)       No amendment of any provision of this Agreement relating to the Administrative Agent shall be effective without the written consent of the Administrative Agent.

(c)       If, in connection with any proposed amendment, modification, waiver or consent (a “Proposed Change”) requiring the consent of all Banks but only the consent

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of Required Banks is obtained (any such Bank whose consent is not obtained, a “Non-Consenting Bank”), then, upon notice to such Non-Consenting Banks and Administrative Agent, Borrowers may require such Non-Consenting Banks to sell and assign all of their interests, rights and obligations under this Agreement and the other Loan Documents to one or more Persons reasonably acceptable to Borrowers (after all of the consenting Banks have declined to acquire such additional interests, rights and obligations or portion thereof), with the consent of the Administrative Agent (not to be unreasonably withheld or delayed); provided that such Non-Consenting Banks shall have received payment of an amount equal to the outstanding principal amount of their respective Loans and all accrued interest, fees and other amounts payable with respect thereto through the date of sale. Such sale and assignment shall be consummated pursuant to executed Commitment Transfer Supplements pursuant to and in accordance with Section 10.07(c).

(d)       Banks hereby irrevocably authorize Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by Administrative Agent upon any Collateral (x) on the date that the Commitments hereunder have been terminated and all Obligations have been paid and discharged in full, or (y) constituting property being sold or disposed of by any Loan Party in compliance with the provisions of this Agreement or any other Loan Document.

10.19   Amendment and Restatement; Waiver of Existing Defaults. Administrative Agent, L/C Issuer, and each Bank hereby waive any and all defaults or events of default that have occurred and are continuing under the Existing Loan Agreement, the Existing Note and the Existing Collateral Documents on the date hereof. This Agreement amends, rearranges and restates the Existing Loan Agreement, and the Note amends, rearranges and restates the Existing Notes. All Security Instruments, as defined in the Assignment of Note, Liens and Security Instruments, shall also constitute Collateral Documents, as defined in this Agreement, and they shall continue to secure all Obligations of Borrowers hereunder.

10.20   Controlling Provision Upon Conflict. Except as may be expressly provided otherwise in this Agreement, in the event of a conflict between the provisions of this Agreement and those of any other Loan Document or any other instrument referred to in this Agreement or executed in connection with this Agreement, the provisions of this Agreement shall control.

[Signature page follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed effective as of the date first written above.

ENERJEX RESOURCES, INC.

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

ENERJEX KANSAS, INC.

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

– and –

DD ENERGY, INC.

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

as Borrowers

TEXAS CAPITAL BANK, N.A.,

as Administrative Agent and a Bank

By: /s/ Jonathan Gregory

Jonathan Gregory,

Executive Vice President

Signature Page to Credit Agreement

EXHIBIT A

BORROWING BASE OIL AND GAS PROPERTIES

[See following pages]

A - 1

Borrowing Base Oil and Gas Properties

EXHIBIT B

FORM OF REQUEST FOR CREDIT EXTENSION

Date: ___________, 200__

To: Texas Capital Bank, N.A., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement, dated as of July ___, 2008 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement;” the terms defined therein being used herein as therein defined), between EnerJex Resources, Inc., EnerJex Kansas, Inc. and DD Energy, Inc. (collectively, “Borrowers”), Texas Capital Bank, N.A. (“Administrative Agent”) and the other Banks party thereto.

The undersigned hereby requests (select one):

[ ] A Loan [ ] A continuation of Loans

1. On (a Business Day).

2. In the amount of $ .

3. Unless not permitted under the Credit Agreement, a Eurodollar Loan with an Interest Period of _______ months.

4. The Loan requested herein complies with the proviso to the first sentence of Section 2.01 of the Credit Agreement.

ENERJEX RESOURCES, INC.

By:

Name:

Title:

ENERJEX KANSAS, INC.

By:

Name:

Title:

DD ENERGY, INC.

By:

Name:

Title:

B - 1

Form of Request for Credit Extension

EXHIBIT C

FORM OF NOTE

$______________________ July ___, 2008

FOR VALUE RECEIVED, ENERJEX RESOURCES, INC., ENERJEX KANSAS, INC. and DD ENERGY, INC. (collectively, “Borrowers”), jointly and severally, hereby promise to pay to the order of _________________________, or its registered assigns (“Bank”), in accordance with the provisions of the Agreement (as hereinafter defined) the principal amount of _____ MILLION AND NO/100 DOLLARS ($__________________) or so much thereof as may be outstanding from time to time, pursuant to the terms and conditions of that certain Credit Agreement, dated as of even date herewith (as the same may be amended, restated, extended, or supplemented from time to time, the “Agreement”), among Borrowers, Texas Capital Bank, N.A., as Administrative Agent and the Banks party thereto from time to time. Capitalized terms used but not defined in this Note have the meanings given them in the Agreement.

Borrowers promise to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to Bank in Dollars in immediately available funds at Bank’s Lending Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set out in the Agreement.

This Note is the “Note” referred to in the Agreement and may be prepaid in whole or in part subject to the terms and conditions provided therein. This Note is also entitled to the benefits of and is secured by the Collateral. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Loans made by Bank shall be evidenced by one or more Loan accounts or records maintained by Bank in the ordinary course of business. Bank may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.

Borrowers, for themselves, and their respective successors and assigns, hereby waive diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

C - 1

Form of Note

ENERJEX RESOURCES, INC.

By:

Name:

Title:

ENERJEX KANSAS, INC.

By:

Name:

Title:

DD ENERGY, INC.

By:

Name:

Title:

C - 2

Form of Note

LOANS AND PAYMENTS WITH RESPECT THERETO

Date Type of Loan Made Amount of Loan Made End of Interest Period Amount of Principal or Interest Paid This Date Outstanding Principal Balance This Date Notation Made By

C - 3

Form of Note

EXHIBIT D

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date:_________,

To: Texas Capital Bank, N.A., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement, dated as of July ___, 2008 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), between EnerJex Resources, Inc., EnerJex Kansas, Inc. and DD Energy, Inc. (collectively, “Borrowers”), and Texas Capital Bank, N.A. (“Administrative Agent”) and the other Banks party thereto.

The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the of Borrowers, and that, as such, he/she is authorized to execute and deliver this Compliance Certificate to Administrative Agent on behalf of Borrowers, and that:

[Use following for fiscal year-end financial statements]

1.         Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of Borrowers ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.

[Use following for fiscal quarter-end financial statements]

1.         Attached hereto as Schedule 1 are the unaudited financial statements required by Section6.01(b) of the Agreement for the fiscal quarter of Borrowers ended as of the above date. Such financial statements fairly present the financial condition, results of operations and cash flows of Borrowers and their Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.

2.         The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of Borrowers during the accounting period covered by the attached financial statements.

3.         A review of the activities of Borrowers during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period Borrowers performed and observed all their Obligations under the Loan Documents, and

[select one:]

[to the best knowledge of the undersigned during such fiscal period, Borrowers performed and observed each covenant and condition of the Loan Documents applicable to them.]

D - 1

Form of Compliance Certificate

--or--

[the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]

4.         The representations and warranties of Borrowers contained in Article V of the Agreement, or which are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.

5.         The financial covenant analyses and information set out on Schedule 2 attached hereto are true and accurate on and as of the date of this Compliance Certificate.

6.         Attached hereto as Schedule 3 is a list of purchasers and potential purchasers required by Section 6.21 of the Agreement. [Insert this section if fiscal year-end financial statements only.]

IN WITNESS WHEREOF, the undersigned have executed this Compliance Certificate as of the ____ day of ___________________, 2008.

ENERJEX RESOURCES, INC.

By:

Name:

Title:

ENERJEX KANSAS, INC.

By:

Name:

Title:

DD ENERGY, INC.

By:

Name:

Title:

D - 2

Form of Compliance Certificate

For the Quarter/Year ended__________________(“Statement Date”)

SCHEDULE 2

TO THE COMPLIANCE CERTIFICATE

($ IN 000'S)

D - 3

Form of Compliance Certificate

SCHEDULE 3

TO THE COMPLIANCE CERTIFICATE

D - 4

Form of Compliance Certificate

EXHIBIT E

COLLATERAL DOCUMENTS

The Collateral Documents securing Borrowers’ Obligations and Indebtedness to Administrative Agent for the benefit of the Banks shall include the following, each in form and substance satisfactory to Administrative Agent:

1.         (KANSAS)AMENDED AND RESTATEDMORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION AND REVENUES (or such other similarly entitled documents) granting Administrative Agent a first priority security interest in all of Borrowers’ Borrowing Base Oil and Gas Properties, and all products and proceeds thereof.

2.         SECURITY AGREEMENT granting Administrative Agent a first priority security interest in all of Borrowers’ personal property, and all products and proceeds thereof.

3.         ASSIGNMENT OF NOTE, LIENS AND SECURITY INSTRUMENTS from Cornerstone Bank to Administrative Agent for the benefit of the Banks.

4.         FINANCING STATEMENTS in connection with the Collateral Documents described in the preceding paragraphs, in form and number satisfactory to Administrative Agent as it may specify (including additional or supplemental financing statements, amendments thereto, and continuation statements thereof).

5.         OTHER COLLATERAL DOCUMENTS. Such other instruments or documents as are necessary or appropriate from time to time, in the opinion of Administrative Agent, to perfect to the satisfaction of Administrative Agent, Administrative Agent’s liens, security interests, and other rights in the Borrowing Base Oil and Gas Properties and in any and all other collateral covered by or described in (or, as evidenced by the Credit Agreement, intended to have been covered by) any of the other Collateral Documents described above.

E- 1

Collateral Documents

EXHIBIT F

FORM OF GUARANTY

THIS GUARANTY (as amended, restated, or supplemented, this “Guaranty”) is executed effective as of July ___, 2008, by the undersigned (“Guarantor”) for the benefit of TEXAS CAPITAL BANK, N.A., a national banking association, as a Bank and Administrative Agent (in such latter capacity and together with its successors and permitted assigns in such capacity the “Administrative Agent”).

RECITALS

A.        WHEREAS, ENERJEX RESOURCES, INC., a Nevada corporation, ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation, and DD ENERGY, INC., a Nevada corporation, (collectively, “Borrowers”), Administrative Agent and the Banks have entered into the Credit Agreement dated June __, 2008 (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”), together with certain other Loan Documents as defined in the Credit Agreement.

B.        WHEREAS, Guarantor is a Subsidiary of ____________ and has agreed to enter into this Guaranty so that Borrowers can continue to receive the benefits of the Credit Agreement.

C.        WHEREAS, it is expressly understood among Borrowers, Guarantor, and Administrative Agent that the execution and delivery of this Guaranty is a condition precedent to the Banks’ obligation to extend credit or permit the ongoing extension of credit under the Credit Agreement.

D.        WHEREAS, Guarantor may reasonably be expected to benefit directly or indirectly from Borrowers’ execution of the Credit Agreement.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees as follows:

1.         Definitions. Each capitalized term used but not defined in this guaranty shall have the meaning given that term in the credit agreement. The following terms shall have the following meanings as used in this guaranty:

“Borrowers” has the meaning given in Recital A and includes, without limitation, all of Borrowers’ successors and assigns, any Borrower as a debtor-in-possession, and any receiver, trustee, liquidator, conservator, custodian, or similar party hereafter appointed for any Borrower or for all or any portion of any Borrower’s assets pursuant to any liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, or similar Debtor Relief Law from time to time in effect.

“Company Indebtedness” means all obligations of any Borrower or any of its Subsidiaries to Guarantor, whether direct, indirect, fixed, contingent, liquidated,

1362188v2

unliquidated, joint, several, or joint and several, now existing or arising after the date of this Guaranty, due or to become due to Guarantor, or held or to be held by Guarantor, whether created directly or acquired by assignment or otherwise, and whether or not evidenced by written instrument including the obligation of any Borrower to Guarantor as a subrogee of the Administrative Agent or resulting from Guarantor’s performance under this Guaranty.

“Guaranteed Obligation” means any and all existing and future indebtedness and liabilities of every kind, nature, and character, direct or indirect, absolute or contingent, liquidated or unliquidated, voluntary or involuntary, of any Borrower to the Banks or an Affiliate of any Bank arising under the Credit Agreement and the other Loan Documents, including, the Obligations as defined in the Credit Agreement and any premium and all interest (including, without limitation, interest accruing before and after maturity, before and after an Event of Default, and during the pendency of any bankruptcy, receivership insolvency or other similar proceeding under any applicable Debtor Relief Law (regardless whether such interest is allowed in such proceeding)), and any and all costs, attorney and paralegal fees and expenses reasonably incurred by Administrative Agent (a) in connection with any waiver, amendment, consent or default under the Loan Documents, or (b) to enforce Borrowers’, Guarantor’s, or any other obligor’s payment of any portion of the Guaranteed Obligation.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

“Paid in Full or Payment in Full” means that the Guaranteed Obligation is completely paid (including principal, interest, fees and expenses), and all commitments to lend or issue letters of credit under the Credit Agreement have terminated, and all letters of credit have expired or have been surrendered and canceled.

2. Guaranty.

(a)       Guarantor hereby guarantees to Administrative Agent and the Banks prompt payment of (i) the Guaranteed Obligation, and (ii) any and all reasonable Attorney Costs incurred by Administrative Agent in connection with the Loan Documents, this Guaranty, or collecting any portion of the Guaranteed Obligation.

(b)       Upon Administrative Agent’s written demand after the occurrence and continuation of an Event of Default, Guarantor shall promptly pay to Administrative Agent any amount due under this Guaranty (in no event may such payment be delivered to Administrative Agent later than 3 days after the date of Administrative Agent’s written demand).

(c)       This is an absolute, unconditional, irrevocable and continuing guaranty of payment (and not of collection) of the Guaranteed Obligation and the other amounts due

1362188v2 F-3

under this Guaranty, and this Guaranty will remain in effect until the Guaranteed Obligation is Paid in Full. The circumstance that at any time or from time to time all or any portion of the Guaranteed Obligation may be $0 (or may have been paid in full) shall not affect Guarantor’s obligation under this Guaranty. Guarantor may not rescind or revoke its obligations to Administrative Agent under this Guaranty.

(d)       All amounts in cash received by Administrative Agent under this Guaranty in respect of the Guaranteed Obligation shall be applied to the Obligations under the Credit Agreement.

3.         Default by Borrowers. If an Event of Default exists, Guarantor shall pay to Administrative Agent, any and all amounts then due and payable under this Guaranty on demand and without (a) further notice of dishonor, to Guarantor, (b) any prior notice to Guarantor of the acceptance by Administrative Agent of this Guaranty, (c) any notice having been given to Guarantor prior to such demand of the creating or incurring of such Indebtedness, or (d) notice of intent to accelerate or notice of acceleration to Guarantor or Borrowers. To enforce such payment by Guarantor it shall not be necessary for Administrative Agent to first or contemporaneously institute suit or exhaust remedies against any Borrower or others liable on such Indebtedness, or to enforce rights against any security or collateral ever given to secure such Indebtedness.

4.         Amount of Guaranty and Consideration. The Administrative Agent’s and the Banks’ books and records showing the amount of the Guaranteed Obligation shall be admissible in evidence in any action or proceeding, and shall be binding upon Guarantor and conclusive for the purpose of establishing such amounts, absent manifest error. In consummating the transactions contemplated by this Guaranty, Guarantor does not intend to disturb, delay, hinder, or defraud either its present or future creditors. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of each Borrower and is familiar with the value of the security and support for the payment and performance of the amounts due under this Guaranty. Based upon such examination, and taking into account the fairly discounted value of Guarantor’s contingent obligations under this Guaranty and the value of the subrogation and contribution claims Guarantor could make in connection with this Guaranty, and assuming each of the transactions contemplated by the Credit Agreement is consummated and Borrowers make full use of the credit facilities thereunder, the present realizable fair market value of the assets of Guarantor exceeds the total obligations of Guarantor, and Guarantor is able to realize upon its assets and pay its obligations as such obligations mature in the normal course of business. Guarantor represents and warrants to Administrative Agent that the value of consideration received and to be received by it is reasonably worth at least as much as its liability under this Guaranty, and such liability may reasonably be expected to benefit Guarantor, directly or indirectly.

5.         Liability for Other Indebtedness of Borrowers. If, and only if, Guarantor becomes liable for any Indebtedness owing by Borrowers to Administrative Agent by executing a promissory note or guaranty, by endorsement, or otherwise, other than under this Guaranty, such liability shall not be impaired or affected by this Guaranty and the rights of Administrative Agent under this Guaranty shall be cumulative of any and all other rights that Administrative Agent may ever have against Guarantor.

1362188v2 F-4

6.         Subordination. Guarantor hereby expressly subordinates all Company Indebtedness to the Payment in Full of the Guaranteed Obligation. Guarantor agrees not to receive or accept any payment from any Borrower or any of its Subsidiaries with respect to the Company Indebtedness at any time an Event of Default exists and, in the event Guarantor receives any payment on the Company Indebtedness in violation of the foregoing, Guarantor shall hold any such payment in trust for the benefit of Administrative Agent and promptly turn it over to Administrative Agent, in the form received (with any necessary endorsements), to be applied to the Obligations under the Credit Agreement.

7.         Subrogation. Until the Guaranteed Obligation is Paid In Full, Guarantor agrees that it will not assert, enforce, or otherwise exercise (a) any right of subrogation to any of the rights or liens of Administrative Agent or any other beneficiary against any Borrower, any of its Subsidiaries, or any other obligor on the Guaranteed Obligation or any Collateral or other security, or (b) any right of recourse, reimbursement, subrogation, contribution, indemnification, or similar right against any Borrower, any of its Subsidiaries, or any other obligor or other guarantor on all or any part of the amounts due under this Guaranty (whether such rights in clause(a) or clause (b) arise in equity, under contract, by statute, under common law, or otherwise).

8. Enforceability of Guaranty; No Release.

(a)       This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Guaranteed Obligation or any instrument or agreement evidencing any part of the Guaranteed Obligation, or by the existence, validity, enforceability, perfection, or extent of any collateral securing the Guaranteed Obligation, or by any fact or circumstance relating to the Guaranteed Obligation which might otherwise constitute a defense to the obligations of Guarantor under this Guaranty.

(b)       Guarantor agrees that the Administrative Agent may, at any time and from time to time, and without notice to Guarantor, make any agreement with the Borrowers or with any other Person liable on any of the Obligations or the Guaranteed Obligation or providing collateral as security for the Obligations or the Guaranteed Obligation, for the extension, renewal, payment, compromise, discharge or release of the Obligations or the Guaranteed Obligation or any collateral (in whole or in part), or for any modification or amendment of the terms thereof or of any instrument or agreement evidencing the Obligations or the Guaranteed Obligation or the provision of collateral, all without in any way impairing, releasing, discharging or otherwise affecting the obligations of Guarantor under this Guaranty, except that Guarantor’s obligation hereunder shall not exceed the amount of its obligation contemplated hereunder as a result of such modification or amendment.

(c)       Guarantor hereby agrees its obligations under the terms of this Guaranty shall not be released, discharged, diminished, impaired, reduced or otherwise adversely affected by any of the following: (i) Administrative Agent’s taking or accepting of any other security or guaranty for any or all of the Obligations or Guaranteed Obligation; (ii)

1362188v2 F-5

any release, surrender, exchange, subordination or loss of any security at any time existing in connection with any or all of the Obligations or Guaranteed Obligation; (iii) any full or partial release of the liability of any other obligor on the Obligations or Guaranteed Obligation; (iv) the insolvency, becoming subject to any Debtor Relief Law, or lack of corporate or partnership power of any Borrower, or any party at any time liable for the payment of any or all of the Obligations or Guaranteed Obligation; (v) any renewal, extension or rearrangement of the payment of any or all of the Obligations or Guaranteed Obligation, either with or without notice to or consent of Guarantor, or any adjustment, indulgence, forbearance, or compromise that may be granted or given by Administrative Agent to any Borrower, Guarantor, or any other obligor on the Obligations or Guaranteed Obligation; (vi) any neglect, delay, omission, failure or refusal of Administrative Agent to take or prosecute any action for the collection of all or any part of the Obligations or Guaranteed Obligation or to foreclose or take or prosecute any action in connection with any instrument or agreement evidencing or securing any or all of the Obligations or Guaranteed Obligation; (vii) any failure of Administrative Agent to give Guarantor notice of any of the foregoing it being understood that Administrative Agent shall not be required to give Guarantor any notice of any kind under any circumstances with respect to or in connection with the Obligations or Guaranteed Obligation, other than any notice expressly required to be given to Guarantor under this Guaranty, (viii) the act of creating the Obligations or Guaranteed Obligation, or any part thereof, is ultra vires, or the officers creating same exceeded their authority or violated their fiduciary duties in connection therewith; (ix) any payment of the Obligations or Guaranteed Obligation to Administrative Agent is held to constitute a preference under any Debtor Relief Law or if for any other reason Administrative Agent is required to refund such payment or make payment to someone else (and in each such instance this Guaranty shall be reinstated in an amount equal to such payment); or (x) any discharge, release, or other forgiveness of any Borrower’s personal liability for the payment of the Obligations or Guaranteed Obligation, except any such discharge or release resulting from the Payment in Full of the Obligations.

9. Exercise of Rights and Waiver.

(a)       No failure by Administrative Agent to exercise, and no delay in exercising, any right or remedy under this Guaranty shall operate as a waiver thereof. The exercise by Administrative Agent of any right or remedy under this Guaranty under the Loan Documents, or other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. The remedies provided in this Guaranty are cumulative and not exclusive of any remedies provided by law or in equity. The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision herein.

(b)       The obligations of Guarantor under this Guaranty are those of primary obligor, and not merely as surety, and are independent of the Obligations or Guaranteed Obligation. Guarantor waives diligence by Administrative Agent and action on delinquency in respect of the Obligation or Guaranteed Obligation or any part thereof, including any provisions of laws requiring Administrative Agent to exhaust any right or

1362188v2 F-6

remedy or to take any action against any Borrower, any of its Subsidiaries, any other guarantor or any other Person before enforcing this Guaranty against Guarantor. Guarantor hereby waives all rights by which it might be entitled to require suit on an accrued right of action in respect of any of the Obligations or Guaranteed Obligation or require suit against Borrowers or others, whether arising pursuant to Section 34.02 of the Texas Business and Commerce Code, as amended (regarding a Guarantor’s right to require Administrative Agent to sue a Borrower on accrued right of action following a Guarantor’s written notice to Administrative Agent), Section 17.001 of the Texas Civil Practice and Remedies Code, as amended (allowing suit against a Guarantor without suit against a Borrower, but precluding entry of judgment against a Guarantor prior to entry of judgment against a Borrower), Rule 31 of the Texas Rules of Civil Procedure, as amended (requiring Administrative Agent to join any Borrower in any suit against a Guarantor unless judgment has been previously entered against a Borrower), or otherwise.

(c)       Guarantor waives notice of acceptance of this Guaranty, notice of any loan to which it may apply, and waives presentment, demand for payment, protest, notice of dishonor or nonpayment of any loan, notice of intent to accelerate, notice of acceleration, and notice of any suit or notice of the taking of other action by Administrative Agent against Borrowers, Guarantor or any other Person and any notice to any party liable thereon (including Guarantor).

10.       Stay of Acceleration. In the event that acceleration of the time for payment of the Guaranteed Obligation is stayed, upon the insolvency, bankruptcy or reorganization of any Borrower or any other Person, or otherwise, all such amounts shall nonetheless be payable by such Guarantor immediately upon demand by Administrative Agent.

11.       Expenses. Guarantor shall pay on demand all reasonable out-of-pocket expenses (including reasonable Attorneys Costs of Administrative Agent) in any way relating to the enforcement or protection of the Administrative Agent’s rights under this Guaranty, including any incurred in the preservation, protection or enforcement of any rights of the Administrative Agent in any case commenced by or against Guarantor under Title 11, United States Code or any similar or successor statute. The obligations of Guarantor under the preceding sentence shall survive termination of this Guaranty.

12.       Amendments. No provision of this Guaranty may be waived, amended, supplemented or modified, except by a written instrument executed by Administrative Agent and Guarantor.

13.       Reliance and Duty to Remain Informed. Guarantor confirms that it has executed and delivered this Guaranty after reviewing the terms and conditions of the Credit Agreement and the other Loan Documents and such other information as it has deemed appropriate in order to make its own credit analysis and decision to execute and deliver this Guaranty. Guarantor confirms that it has made its own independent investigation with respect to each Borrower’s creditworthiness and is not executing and delivering this Guaranty in reliance on any representation or warranty by Administrative Agent as to such creditworthiness. Guarantor expressly assumes all responsibilities to remain informed of the financial condition of each

1362188v2 F-7

Borrower and any circumstances affecting (a) Borrowers’ ability to perform under the Loan Documents to which any Borrower is a party or (b) any collateral securing all or any part of the Obligation or the Guaranteed Obligation.

14.       Change in Guarantor’s Status. Should Guarantor become insolvent, or fail to pay its debts generally as they become due, or voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law or become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the rights of Administrative Agent granted under this Guaranty, then, in any such event, the Guaranteed Obligation shall be, as between Guarantor and Administrative Agent, a fully matured, due, and payable obligation of Guarantor to Administrative Agent (without regard to whether a Borrower is then in Default or whether the Guaranteed Obligation, or any part thereof is then due and owing by a Borrower to Administrative Agent), payable in full by such Guarantor to Administrative Agent upon demand, which shall be the estimated amount owing in respect of the contingent claim created under this Guaranty.

15.       Representations and Warranties. Guarantor acknowledges that certain representations and warranties set out in the Credit Agreement are in respect of it, and Guarantor reaffirms that each such representation and warranty is true and correct in all material respects. Guarantor further represents and warrants that (a) it is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its organization, (b) it has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own its assets and carry on its business and (ii) execute, deliver, and perform its obligations under this Guaranty, except to the extent the failure to have such governmental licenses, authorizations, consents and approvals could not reasonably be expected to have a Material Adverse Effect, (c) the execution, delivery and performance of this Guaranty has been duly authorized by all necessary corporate or other organizational action, and do not and will not (i) contravene the terms of any of its Governing Documentation, (ii) conflict with or result in any breach or contravention of, or the creation of any lien on any of its assets, except to the extent such conflict could not reasonably be expected to have a Material Adverse Effect or (iii) violate any Law, except to the extent such violation could not reasonably be expected to have a Material Adverse Effect, (d) no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, Guarantor, except to the extent that the failure to obtain any such approval, consent, exemption, authorization or other action by, to provided any such notice to, or to make any such filing could not reasonably be expected to have a Material Adverse Effect, and (e) this Guaranty has been duly executed and delivered by Guarantor and it creates a legal, valid and binding obligation of Guarantor, enforceable against Guarantor, subject to Debtor Relief Laws and general principles of equity.

16.       Covenants. Guarantor acknowledges that certain covenants set forth in the Credit Agreement are in respect of it or shall be imposed upon it, and Guarantor covenants and agrees to promptly and properly perform, observe, and comply with each such covenant.

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17.       Offset Claims. To the extent permitted by law, the Obligations or the Guaranteed Obligation shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense (except for the defense of Payment in Full of the Guaranteed Obligation) of any Borrower or any other party against Administrative Agent or against payment of the Guaranteed Obligation, whether such offset, claim, or defense arises in connection with the Guaranteed Obligation or otherwise. Such claims and defenses include, without limitation, failure of consideration, breach of warranty, fraud, statute of frauds, bankruptcy, infancy, statute of limitations, lender liability, accord and satisfaction, and usury.

18.       Setoff. If and to the extent any payment is not made when due under this Guaranty, Administrative Agent may setoff and charge from time to time any amounts so due against any or all of Guarantor’s accounts or deposits with Administrative Agent.

19.       Binding Agreement. This Guaranty is for the benefit of Administrative Agent and its successors and assigns. Guarantor acknowledges that in the event of an assignment of the Obligations or the Guaranteed Obligation or any part thereof in accordance with the Credit Agreement, the rights and benefits under this Guaranty, to the extent applicable to the Indebtedness so assigned, may be transferred with such Indebtedness. This Guaranty is binding on Guarantor and its successors and permitted assigns, provided that Guarantor may not assign its rights or obligations under this Guaranty without the prior written consent of Administrative Agent (and any attempted assignment without such consent shall be void).

20.       Notices. All notices required or permitted to be given under this Guaranty, if any, must be in writing and shall or may, as the case may be, be given in the same manner as notice is given under the Credit Agreement as follows:

If to Administrative Agent:

Texas Capital Bank

One Riverway, Suite 2450

Houston, Texas 77056

Attn: Jonathan Gregory

Telephone: (713) 439-5914

Facsimile: (713) 439-5942

Electronic Mail: Jonathan.Gregory@texascapitalbank.com

with a copy to:

Porter & Hedges, L.L.P.

1000 Main, 36th Floor

Houston, Texas 77002

Telephone No.: (713) 226-6660

Facsimile No.: (713) 226-6260

E-mail: edelpozo@porterhedges.com

Attention: Ephraim del Pozo

1362188v2 F-9

If to Guarantor:

Telephone No.:

Facsimile No.:

E-mail:

Attention:

By giving at least 30 days written notice, any party to this Guaranty shall have the right from time to time and at any time while this Guaranty is in effect to change their respective addresses or fax numbers and each shall have the right to specify a different address or fax number within the United States of America. Nothing in this Section shall be construed to require any notice to Guarantor not otherwise expressly required in this Guaranty.

21. Reinstatement and Termination.

(a)       Notwithstanding anything in this Guaranty to the contrary, this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any portion of the Obligations paid by Guarantor or the Guaranteed Obligation is revoked, terminated, rescinded or reduced or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of a Borrower or any other Person or otherwise, as if such payment had not been made and whether or not the Administrative Agent is in possession of or has released this Guaranty and regardless of any prior revocation, rescission, termination or reduction.

(b)       Subject to clause (a) regarding reinstatement, this Guaranty shall terminate and be released on the date the Guaranteed Obligation is Paid In Full, the Obligations under the Credit Agreement has been paid in full, and the Administrative Agent’s obligations to extend credit under the Credit Agreement have terminated.

22.       Governing Law. THIS GUARANTY IS TO BE CONSTRUED — AND ITS PERFORMANCE ENFORCED — UNDER TEXAS LAW.

23.       Waiver of Jury Trial. THE PARTIES HERETO IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM OR CONTROVERSY BETWEENGUARANTOR AND ADMINISTRATIVE AGENT, WHETHER ARISING IN CONTRACT, TORT OR BY STATUTE, INCLUDING CONTROVERSIES OR CLAIMS THAT ARISE OUT OF OR RELATE, DIRECTLY OR INDIRECTLY, TO THISGUARANTY, OR (II) ANY OTHER LOAN DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

1362188v2 F-10

24.       No Oral Agreements. THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS, DOCUMENTS, AND INSTRUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO SUCH WRITINGS. THIS GUARANTY, THE CREDIT AGREEMENT, AND THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED BY ANY BORROWER, ADMINISTRATIVE AGENT OR GUARANTOR (OR BY ANY BORROWER OR GUARANTOR FOR THE BENEFIT OF ADMINISTRATIVE AGENT) REPRESENTS THE FINAL AGREEMENT BETWEEN BORROWERS, GUARANTOR, AND ADMINISTRATIVE AGENT AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. THIS SECTION IS INCLUDED HEREIN PURSUANT TO SECTION26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, AS AMENDED FROM TIME TO TIME.

[Signature and acknowledgment page follows]

1362188v2 F-11

This Guaranty is executed on the date set out in the acknowledgement below but is to be effective for all purposes as of the date set out in the preamble to this Guaranty.

GUARANTOR:

_____________________________

By:

Name:

Title:

STATE OF _________ §

§

COUNTY OF _______ §

This instrument was acknowledged before me on the ____ day of ______, 20__, by ___________________, _______________ of _________________, a _________________, on behalf of such ______________, for the purpose and consideration therein stated.

Notary Public, State of ____________

F- 12

Form of Guaranty

EXHIBIT G

FORM OF JOINDER AGREEMENT

Reference is made to that certain Credit Agreement dated as of July ___, 2008 (as the same may be amended, supplemented, restated or otherwise modified from time-to-time, the “Credit Agreement”; the defined terms of which are used in herein as defined therein unless otherwise defined herein) among ENERJEX RESOURCES, INC., a Nevada corporation, ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation and DD ENERGY, INC., a Nevada corporation, (collectively, “Borrowers”) and TEXAS CAPITAL BANK, N.A.,a national banking association, as a Bank, LC Issuer and Administrative Agent (in such latter capacity and together with its successors and permitted assigns in such capacity the “Administrative Agent”), and the several banks and financial institutions from time to time parties to the Credit Agreement (the “Banks,”). Each of the undersigned (each a “New Borrower” and collectively, the “New Borrowers”) hereby agrees with the Administrative Agent, the Banks and the Borrowers as follows:

1.         In accordance with Section 6.13 of the Credit Agreement, each New Borrower hereby (a) joins the Credit Agreement as a party thereto and shall have all the rights of a Borrower and assumes all the obligations of a Borrower under the Credit Agreement and the other Loan Documents to which the other Borrowers are a party, (b) agrees to be bound by the provisions of the Credit Agreement or such other Loan Documents as if the New Borrower had been an original party to the Credit Agreement or such other Loan Documents, and (c) confirms that, after joining the Credit Agreement and the other Loan Documents as set forth above, the representations and warranties set forth in the Credit Agreement and the other Loan Documents with respect to such New Borrower are true and correct in all material respects as of the date of this Joinder Agreement and that no Default has occurred and is continuing. Each reference to a “Borrower” under the Credit Agreement and all other Loan Documents shall be deemed to include each New Borrower except to the extent the context requires reference only to another particular Borrower.

2.         Each New Borrower represents and warrants to the Administrative Agent and the Banks that this Joinder Agreement has been duly authorized, executed and delivered by it by all requisite corporate, limited liability company or partnership action and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

3.         This Joinder Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Joinder Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Joinder Agreement.

4.         THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS

1347097v2

Exhibit G – Form of Joinder Agreement

Credit Agreement

Page 1 of 4

JOINDER AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS SITTING IN HOUSTON OR OF THE UNITED STATES FOR THE SOUTHERNDISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, ADMINISTRATIVE AGENT, BORROWERS, NEW BORROWERS AND THE BANKS CONSENT, FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. BORROWERS, NEW BORROWERS, THE BANKS AND ADMINISTRATIVE AGENT IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. BORROWERS, THE BANKS AND ADMINISTRATIVE AGENT WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.

5.         In case any one or more of the provisions contained in this Joinder Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Credit Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision hereof in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). Each New Borrower shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

6.         All communications and notices hereunder shall be in writing and given as provided in Section 10.02 of the Credit Agreement. All communications and notices hereunder to a New Borrower shall be given to it at the address set forth under its signature below.

7.         Each New Borrower shall cooperate with the Administrative Agent and the Banks and execute such further instruments and documents as the Administrative Agent and the Banks shall reasonably request to effect, to the reasonable satisfaction of the Administrative Agent and the Banks, the purposes of this Joinder Agreement.

8.         Concurrently with the delivery of this Joinder Agreement, (a) the New Borrowers and the existing Borrowers shall execute and deliver to each Bank a new Note in the principal amount of such Bank’s Commitment and (b) the New Borrowers shall execute, complete and deliver to the Administrative Agent a Security Agreement in the form executed by the Borrowers.

THIS JOINDER AGREEMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

1347097v2

Exhibit F– Form of Joinder Agreement

Credit Agreement

Page 2 of 4

IN WITNESS WHEREOF this Joinder Agreement is made effective as of the ____ day of _________, 20__.

[________________________],

a [________________________]

By: _______________________________

Name: ____________________________

Title: _____________________________

Address: ___________________________

___________________________

___________________________

Attention: __________________________

Telecopy No: (____) _____-_____

1347097v2

Exhibit F– Form of Joinder Agreement

Credit Agreement

Page 3 of 4

Acknowledged and consented effective as of _____________ __, 20__:

ENERJEX RESOURCES, INC.

By:

Name:

Title:

ENERJEX KANSAS, INC.

By:

Name:

Title:

– and –

DD ENERGY, INC.

By:

Name:

Title:

as Borrowers

TEXAS CAPITAL BANK, N.A.,

as Administrative Agent and a Bank

By:

Name:

Title:

G- 4

Form of Joinder Agreement

EX-10

NOTE

$50,000,000 July 3, 2008

FOR VALUE RECEIVED, ENERJEX RESOURCES, INC., ENERJEX KANSAS, INC. and DD ENERGY, INC. (collectively, “Borrowers”), jointly and severally, hereby promise to pay to the order of TEXAS CAPITAL BANK, N.A., or its registered assigns (“Bank”), in accordance with the provisions of the Agreement (as hereinafter defined) the principal amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000) or so much thereof as may be outstanding from time to time, pursuant to the terms and conditions of that certain Credit Agreement, dated as of even date herewith (as the same may be amended, restated, extended, or supplemented from time to time, the “Agreement”), among Borrowers, Texas Capital Bank, N.A., as Administrative Agent and the Banks party thereto from time to time. Capitalized terms used but not defined in this Note have the meanings given them in the Agreement.

Borrowers promise to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to Bank in Dollars in immediately available funds at Bank’s Lending Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set out in the Agreement.

This Note is the “Note” referred to in the Agreement and may be prepaid in whole or in part subject to the terms and conditions provided therein. This Note is also entitled to the benefits of and is secured by the Collateral. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Loans made by Bank shall be evidenced by one or more Loan accounts or records maintained by Bank in the ordinary course of business. Bank may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.

Borrowers, for themselves, and their respective successors and assigns, hereby waive diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

[Signatures follow]

1364932v1

ENERJEX RESOURCES, INC.

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

ENERJEX KANSAS, INC.

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

DD ENERGY, INC.

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

Signature Page to Note

EX-10

AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION AND REVENUES

FROM

ENERJEX KANSAS, INC. AND DD ENERGY, INC.

(individually and collectively, Mortgagor and Debtor)

TO

TEXAS CAPITAL BANK, N.A.

(Mortgagee and Secured Party)

FOR PURPOSES OF FILING THIS INSTRUMENT AS A FINANCING STATEMENT, THE MAILING ADDRESS OF EACH MORTGAGOR/DEBTOR IS 7300 W. 110^TH STREET, 7^TH FLOOR, OVERLAND PARK, KANSAS 66210; THE MAILING ADDRESS OF MORTGAGEE/SECURED PARTY IS ONE RIVERWAY, SUITE 2450, HOUSTON, TEXAS 77056.

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, AND COVERS FUTURE ADVANCES AND PROCEEDS. INTERESTS IN OIL, GAS, MINERALS AND OTHER AS-EXTRACTED COLLATERAL OR IN ACCOUNTS RESULTING FROM THE SALE THEREOF, WHICH ARE INCLUDED IN THE MORTGAGED PROPERTY, WILL BE FINANCED AT WELLHEADS LOCATED ON THE LANDS OR LANDS ASSOCIATED WITH PIPELINE DESCRIBED IN EXHIBIT A-1 AND EXHIBIT A-2 HERETO.

PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY MAY BE OR MAY IN THE FUTURE BE AFFIXED TO THE LANDS OR LANDS ASSOCIATED WITH PIPELINE DESCRIBED IN EXHIBIT A-1 AND EXHIBIT A-2 HERETO.

A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT TO THE EXTENT PERMITTED UNDER KANSAS LAW. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS INSTRUMENT.

THIS FINANCING STATEMENT IS TO BE FILED, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS AND INDEXED AS BOTH A MORTGAGE AND A FINANCING STATEMENT.

*********************************

This instrument was prepared by Ephraim del Pozo, PORTER & HEDGES, L.L.P., 1000 Main Street, 36^th Floor, Houston, Texas 77002.

ATTENTION OF RECORDING OFFICER: This instrument is a mortgage of both real and personal property and is, among other things, a Security Agreement and Financing Statement under the Uniform Commercial Code. This instrument creates a lien on rights in or relating to lands of each Mortgagor which are described in Exhibit A-1 and Exhibit A-2 hereto.

RECORDED DOCUMENT SHOULD BE RETURNED TO:

PORTER & HEDGES, L.L.P.

1000 Main Street, 36^th Floor

Houston, Texas 77002

Attn: Ephraim del Pozo

1346039v5

AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)

ARTICLE I

GRANT OF LIENS AND SECURITY INTERESTS

KNOW ALL MEN BY THESE PRESENTS: That the undersigned ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation, whose mailing address is 7300 W. 110^th St., 7^th Floor, Overland Park, Kansas 66210, and DD ENERGY, INC., a Nevada corporation (individually, “Mortgagor” and collectively, “Mortgagors”), whose mailing address is 7300 W. 110^th St., 7^th Floor, Overland Park, Kansas 66210, for valuable consideration, the receipt of which is hereby acknowledged, and in consideration of the debt, effective as of July ___, 2008, have granted, bargained, sold, conveyed, transferred and assigned, and by these presents do GRANT, BARGAIN, WARRANT, SELL, CONVEY, MORTGAGE, PLEDGE, TRANSFER, ASSIGN AND SET OVER to TEXAS CAPITAL BANK, N.A., a national banking association, whose address is One Riverway, Suite 2450, Houston, Texas 77056, (“Mortgagee”), for itself, the Banks (as defined in the Credit Agreement), and for any Approved Counterparty (as defined in the Credit Agreement) under an Intercreditor Agreement (as defined in the Credit Agreement), all of Mortgagors’ rights, titles, interests and estates in and to the following property, whether real, personal or mixed, whether now owned or hereafter acquired under law or in equity (collectively, the “Mortgaged Property”); the inclusion of certain specific types and items of property and interests in one or more of the following Paragraphs are not intended in any way to limit the effect of the more general descriptions:

OIL AND GAS PROPERTIES

A.        All of Mortgagors’ respective present and future rights, titles, interests and estates, now owned or hereafter acquired by Mortgagors, in and to those certain oil, gas and mineral leases, mineral interests, mineral servitudes, royalty interests, overriding royalty interests, production payments, net profits interests, fee interests, carried interests, reversionary interests and all other rights, titles, interests or estates described on Exhibit A-1 attached hereto and made a part hereof or in, on or under any lands described or referred to on Exhibit A-1 (the “Lands”), whether such rights, titles, interests or estates or such Lands are correctly described therein or not (all of which rights, titles, interests and estates described in this Paragraph A are hereinafter included within the term “Subject Interests”). The term “oil, gas and mineral leases,” as used in this instrument and in Exhibit A-1 includes, in addition to oil, gas and mineral leases, oil and gas leases, oil, gas and sulphur leases, other mineral leases, co-lessor’s agreements and extensions, amendments, ratifications and subleases of all or any of the foregoing, all as may be appropriate.

B.        All of Mortgagors’ respective present and future rights, titles, interests and estates, now owned or hereafter acquired by Mortgagors, in and to present and future drilling, spacing, proration or production units, as created by the terms of any unitization, communitization and pooling agreements and orders, and all properties, property rights and

1346039v5

estates created thereby which include, belong or appertain to the Subject Interests, including, without limitation, all such units formed voluntarily or under or pursuant to any Law relating to any of the Subject Interests. As used herein, the term “Law” means all applicable statutes, laws, ordinances, regulations, orders, writs, injunctions, or decrees of any state, commonwealth, nation, territory, possession, county, township, parish, municipality, or Tribunal, and the term “Tribunal” means any court or governmental department, commission, board, bureau, agency, or instrumentality of the United States or of any state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereafter constituted or existing.

C.        All present and future oil, gas, casinghead gas, drip gasoline, natural gasoline, distillate, all other liquid or gaseous hydrocarbons produced or to be produced in conjunction therewith, all products, by-products and all other substances derived therefrom or the processing thereof, and all other similar minerals, now owned or hereafter acquired by Mortgagors, now or hereafter accruing to, attributable to or produced from the Subject Interests or to which Mortgagors now or hereafter may be entitled as a result or by virtue of Mortgagors’ ownership of the Subject Interests (collectively, “Hydrocarbons”).

D.        All present and future sulphur, lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon dioxide, helium and all other minerals, ores or substances of value (whether similar to the foregoing or not), and the products and proceeds therefrom now owned or hereafter acquired by Mortgagors, including, without limitation, all gas resulting from the in-situ combustion of coal or lignite now or hereafter accruing to, attributable to or produced from the Subject Interests or to which Mortgagors now or hereafter may be entitled as a result of or by virtue of Mortgagors’ ownership of the Subject Interests (collectively, “Other Minerals”).

E.        All present and future oil and gas wells, disposal and injection wells, rigs, improvements, fixtures, machinery and other equipment, inventory and articles of personal property or movables, wherever located, now owned or hereafter acquired by Mortgagors, including, without limitation, connection apparatus and flow lines from wells to tanks, wells, pipelines, gathering lines, trunk lines, lateral lines, flow lines, compressor, dehydration and pumping equipment, pumping plants, gas plants, processing plants, pumps, dehydration units, separators, heater treaters, valves, gauges, meters, derricks, rig substructures, buildings, tanks, reservoirs, tubing, rods, liquid extractors, engines, boilers, tools, appliances, cables, wires, tubular goods, machinery, supplies and any and all other equipment, inventory and articles of personal property of any kind or character whatsoever appurtenant to, or used or held for use in connection with the production of Hydrocarbons or Other Minerals from the Subject Interests, or now or hereafter located on any of the Lands encumbered by or pooled with any of the Subject Interests, or used on or about the Lands in connection with the operations thereon, together with all present and future improvements or products of, accessions, attachments and other additions to, tools, parts and equipment used in connection with, and substitutes and replacements for, all or any part of the foregoing (all of the types or items of property and interests described in this Paragraph E are hereinafter collectively referred to as the “Personal Property”).

F.        All present and future rights, titles, interests and estates now owned or hereafter acquired by Mortgagors (including, without limitation, all rights to receive payments) under or by virtue of all easements, permits, licenses, rights-of-way, surface leases, franchises, servitudes, division orders, transfer orders and other agreements relating or pertaining to purchasing,

1346039v5 3

exchanging, exploring for, developing, operating, treating, processing, storing, marketing or transporting Hydrocarbons now or hereafter found in, on or under, or produced from, any of the Subject Interests, or under or by virtue of any contract relating in any way to all or any part of the Mortgaged Property otherwise described herein, including, without limitation, farmout contracts, farmin contracts, operating or joint operating agreements, trade letter agreements and all agreements creating rights-of-way for ingress and egress to and from the Subject Interests (all of such rights, titles, interests and estates referred to or described in this Paragraph F are hereinafter collectively referred to as the “Subject Contracts”).

G.        All present and future accounts (including, but not limited to, all open accounts receivable and accounts receivable arising under or pursuant to any joint operating agreements, division orders or other agreements, documents or instruments relating to any of the Subject Interests), general intangibles (including right to proceeds under Swap Agreements, as defined in the Credit Agreement), chattel paper, documents, instruments, cash and noncash proceeds and other rights, now owned or hereafter acquired by Mortgagors, arising from or by virtue of, or from the voluntary or involuntary sale or other disposition of, or collections with respect to, or insurance proceeds payable with respect to, or proceeds payable by virtue of warranty or other claims against manufacturers of, or claims against any other person or entity with respect to, all or any part of the Mortgaged Property described in this Paragraph G or otherwise (all of which types and items of property and interests described in this Paragraph G are hereinafter collectively referred to as the “Accounts”).

H.        All present and future tenements, hereditaments, appurtenances, profits and properties in anyway appertaining, belonging, affixed or incidental to, or used or useful in connection with, all or any part of the properties and assets described herein, now owned or hereafter acquired by Mortgagors, including, without limitation, all reversions, remainders, carried interests, tolls, rents, revenues, issues, proceeds, earnings, income, products, profits, deposits, easements, permits, licenses, servitudes, surface leases, rights-of-way and franchises relating to all or any part of the properties and assets described herein.

PIPELINE

I.         All pipelines now owned or hereafter acquired and/or operated by Mortgagors for the gathering, transmission, or distribution of Hydrocarbons from the Subject Interests including, without limitation, those pipelines described on Exhibit A-2 which is attached hereto, and any and all interests in real property relating thereto (collectively called the “Pipelines”).

J.         All of Mortgagors’ respective right, title, interest and estates now owned or hereafter acquired in and to the tracts and parcels of real property described or referred to in Exhibit A-2 attached hereto, or the description of which is incorporated in Exhibit A-2 by reference to any other instrument or document associated with the Pipelines (collectively, the “Lands Associated with Pipelines”).

K.        All leases, leaseholds, easements, rights-of-way, licenses, franchises, privileges, permits, ordinances, grants, rights, consents, servitudes, surface leases or rights, amendatory grants and interests in land for the installation, maintenance and operation of the Pipelines or the assets associated with the Pipelines or any portion thereof, now owned or held by Mortgagors

1346039v5 4

including, without limitation, those leases, leaseholds, easements, rights-of-way, licenses, franchises, privileges, permits, ordinances, grants, rights, consents, servitudes, surface leases or rights, amendatory grants and interests in land applicable to the Pipelines or the Pipeline Assets owned or held by Mortgagors and those leases, leaseholds, easements, rights-of-way, licenses, franchises, privileges, permits, ordinances, grants, rights, consents, servitudes, surface leases or rights, amendatory grants and interests in land owned or held by Mortgagors and described on Exhibit A-2 attached hereto or arising by virtue of the documents described in Exhibit A-2 (collectively, the “Rights-of-Way and Franchises”).

L.        All of Mortgagors’ respective right, title and interest now owned or hereafter acquired in and to other assets of Mortgagors now or hereafter situated on any of the Lands Associated with Pipelines or the Rights-of-Way and all Franchises, fixtures, improvements, equipment, surface or subsurface machinery, facilities, supplies, replacement parts, vehicles of every description, all process control computer systems and equipment or other property of whatsoever kind or nature, including, without limitation, all buildings, structures, machinery, gas processing plants, stations, substations, pumps, pumping stations, meter houses, metering stations, regulator houses, ponds, tanks, scrapers and scraper traps, fittings, valves, connections, cathodic or electrical protection by-passes, regulators, drips, meters, pumps, pumping units, pumping stations, storage or tankage facilities, engines, pipes, gates, telephone and telegraph lines, electric power lines, poles, wires, casings, radio towers, fixtures, mechanical equipment, electrical equipment, machine shops and other equipment, used or useful in connection therewith; together with all of Mortgagors’ liquid hydrocarbons, carbon dioxide, natural gas liquids, refined petroleum products and other inventory fuels, carbon, chemicals, electric energy, and other consumable materials or products manufactured, processed, generated, produced, transmitted, stored (whether above or below ground) or purchased by Mortgagors for sale, exchange, distribution, consumption or transmission by Mortgagors, including, without limitation, off system gas, drip gas and line fill (collectively, the “Pipeline Assets”).

GENERAL

M.       All other interests of every kind and character which Mortgagors now have or at any time hereafter acquires in and to the types and items of property and interests described in Paragraphs A, B, C, D, E, F, G, H, I, J, K and L preceding and all property which is used or useful in connection with the Mortgaged Property and the proceeds and products of all of the foregoing, whether now owned or hereafter acquired.

N.        To further secure the full and complete payment and performance of the Secured Indebtedness (defined below), Mortgagors, as debtors, hereby grant to Mortgagee and Mortgagee’s successors in title and assigns, as secured party, a first and prior security interest in and to all of Mortgagors’ right, title and interest now owned or hereafter acquired in and to the following types and items of property and interests now owned or hereafter acquired by Mortgagors (all of which are included within the term “Mortgaged Property”): (a) all present and future Personal Property, Subject Contracts and Accounts; (b) all present and future Subject Interests, Hydrocarbons and Other Minerals insofar as the same consist of as-extracted collateral (including Accounts), as defined in and subject to the Uniform Commercial Code as enacted, amended and in effect in each jurisdiction in which any of the Mortgaged Property is situated (the “UCC”), and for which the creation and perfection of a security interest or lien therein is

1346039v5 5

governed by the provisions of the UCC; (c) all present and future other Mortgaged Property described in “A” through “L” above consisting of Accounts, contract rights, general intangibles, chattel paper, documents, instruments, inventory, equipment, fixtures and other goods and articles of personal property of any kind or character defined in and subject to the UCC; (d) all present and future increases, profits, combinations, reclassifications, improvements and products of, accessions, attachments and other additions to, tools, parts and equipment used in connection with, and substitutes and replacements for, all or any part of the Mortgaged Property described in this or any other clause of this paragraph; (e) all present and future Accounts, contract rights, general intangibles, chattel paper, documents, instruments, cash and noncash proceeds and other rights arising from or by virtue of, or from the voluntary or involuntary sale or other disposition of, or collections with respect to, or insurance proceeds payable with respect to, or proceeds payable by virtue of warranty or other claims against manufacturers of, or claims against any other person or entity with respect to, all or any part of the Hydrocarbons, the Other Minerals or the Mortgaged Property described in this or any other clause of this paragraph; and (f) all present and future security for the payment to Mortgagors of any of the Mortgaged Property described in this or any other clause of this paragraph and goods which gave or will give rise to any of such Mortgaged Property or are evidenced, identified, or represented therein or thereby; provided that nothing in this paragraph shall be deemed to permit any action prohibited by this instrument or by terms incorporated in this instrument.

In the event that the Mortgagors acquire additional interests in some or all of the Mortgaged Property, this Mortgage shall automatically encumber such additions or increases to the Mortgagors’ interest in the Mortgaged Property without need of further act or document. Further, in the event the Mortgagors becomes the owners of an interest in any part of the lands described either on Exhibit A-1 or Exhibit A-2 or the documents described on Exhibit A-1 or Exhibit A-2 or otherwise subject to or covered by the Mortgaged Properties, this Mortgage shall automatically encumber such ownership interests of the Mortgagors without need of further act or document.

For the same consideration, Mortgagors hereby grant to Mortgagee any and all rights of Mortgagors to liens and security interests in the Mortgaged Property securing payment of proceeds from the sale of production from the Mortgaged Property, including, but not limited to, those liens and security interests provided for under applicable Law, including but not limited to the UCC.

TO HAVE AND TO HOLD all and singular the Mortgaged Property and all other property which, by the terms hereof, has or may hereafter become subject to the lien and/or security interest of this Amended and Restated Mortgage, Security Agreement, Financing Statement and Assignment of Production (the “Mortgage”), together with all rights, hereditaments and appurtenances in anywise belonging to the Mortgagee or assigns forever. Any additional right, title or interest which Mortgagors may hereafter acquire or become entitled to in the interests, properties, lands, and premises aforesaid, or in the oil, gas or other minerals in and under or produced from the land and leases shall inure to the benefit of and be covered by this Mortgage and constitute “Mortgaged Property,” the same as if expressly described and conveyed herein. Mortgagors hereby bind themself, their successors and assigns, to warrant and forever defend all and singular the above described property, rights, and interests constituting the

1346039v5 6

Mortgaged Property to Mortgagee and to its assigns forever, against every person whomsoever lawfully claiming or to claim the same or any part thereof.

ARTICLE II

SECURED INDEBTEDNESS

This conveyance is made, to secure and enforce the payment of the following indebtedness, obligations and liabilities:

(a) That certain promissory note dated as of even date herewith, in the face amount of $50,000,000 executed by Mortgagors and EnerJex Resources, Inc. and made payable to Mortgagee bearing interest and payable as therein provided, with the final payment thereof due on or before the Maturity Date (as defined in the Credit Agreement hereinafter described), and containing the usual provisions in notes of this character, and all renewals, rearrangements, amendments, modifications and extensions thereof (whether one or more, the “Note” which amends and restates the Existing Notes, as defined in the Credit Agreement);

(b) All Obligations of Mortgagors owed Mortgagee and the Banks (as defined in the Credit Agreement) defined in or arising pursuant to the terms of that certain Credit Agreement dated as of even date herewith, and all modifications, amendments, and restatements thereto (the “Credit Agreement”; all capitalized terms used but not defined within Mortgage bear the meanings set forth in the Credit Agreement);

(c) Payment of any sums which may be advanced or paid by Mortgagee under the terms hereof on account of the failure of Mortgagors to comply with the covenants of Mortgagors contained herein; and all other indebtedness of Mortgagors arising pursuant to the provisions of this Mortgage;

(d) All obligations of each Guarantor under its Guaranty (as such terms are defined in the Credit Agreement) owed to Mortgagee;

(e) All obligations of Mortgagors owed to Approved Counterparty, as counterparty under those certain Permitted Swap Agreements defined in or arising pursuant to the terms of the Credit Agreement and referenced as “Swap Documents” in the Intercreditor Agreement, including without limitation, that certain Master Swap Agreement dated as of July ___, 2008 between Mortgagors and Approved Counterparty (together will all schedules and confirmations in respect thereof, as amended, supplemented, restated, extended or replaced from time to time);

(f) All renewals, extensions, replacements and modifications of indebtedness described, referred to or mentioned in paragraphs (a) through (e) above, and all substitutions therefor, in whole or in part;

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(g) The term “Secured Indebtedness” wherever used in this Mortgage shall refer to all present and future debts, obligations and liabilities described or referred to in this ARTICLE II or otherwise in this Mortgage; and

(h) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN ARTICLE II HEREOF OR ANY OTHER PROVISION HEREOF, THE MAXIMUM AMOUNT OF SECURED INDEBTEDNESS SHALL NOT EXCEED AT ANY ONE TIME OUTSTANDING TWENTY MILLION DOLLARS ($20,000,000).

ARTICLE III

REPRESENTATIONS AND WARRANTIES

By execution of this Mortgage, Mortgagors do hereby adopt and ratify all of Mortgagors’ warranties and representations set forth in the Credit Agreement; and all the warranties and representations set forth in the Credit Agreement as they relate to the properties described on Exhibit A-1 and Exhibit A-2 attached thereto are hereby made and adopted with respect to the properties listed on Exhibit A-1 and Exhibit A-2 attached hereto. In addition, Mortgagors hereby represent and warrant as follows:

(a) Revenue and Cost Bearing Interest. That Mortgagors’ ownership of the Subject Interest and the undivided interests therein as specified on attached Exhibit A-1 will, after giving full effect to all Permitted Encumbrances, afford Mortgagors not less than those net interests in the production from or allocated to such Subject Interest as is specified on attached Exhibit A-1 and will cause Mortgagors to bear not more than that portion of the costs of drilling, developing and operating the wells or units identified on Exhibit A-1, unless there is a proportionate increase in Mortgagors’ net revenue interest in such property.

(b) Power to Create Lien. Mortgagors have full power and lawful authority to bargain, grant, sell, mortgage, assign, transfer, convey, pledge and hypothecate and grant a security interest in all of their respective Mortgaged Property all in the manner and form herein provided and without obtaining the waiver, consent or approval of any lessor, sublessor, governmental agency or entity or other party whomsoever or whatsoever, except to the extent the approval or consent of the State of Kansas or the Department of the Interior, United States of America, as the case may be, is required by applicable law or regulation to the transfer, deed or assignment of an interest in any of the Mortgaged Property.

(c) Taxes. All (a) Property Taxes, (b) Severance Taxes, (c) ad valorem taxes, (d) conservation taxes, and (e) any other taxes of any kind, excluding only income taxes and franchise taxes, imposed on Mortgagors or any producer in connection with or as a result of their ownership of interests in the Mortgaged Properties have been paid except to the extent failure to pay such taxes could not be reasonably expected to result in a Material Adverse Effect. For purposes of this Paragraph, “Property Taxes” means taxes imposed annually on Mortgagors which are based on or measured by the estimated value (at the time such taxes are assessed) of any

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Hydrocarbons situated within the Mortgaged Property as calculated by the governing authority where located and “Severance Taxes” means taxes imposed at the time Hydrocarbons are produced from a well which are based on or measured by the amount or value of such production.

(d) Rentals Paid; Leases in Effect. All rentals and royalties due and payable in accordance with the terms of the leases comprising a part of the Subject Interest have been duly paid or provided for except to the extent failure to pay such rentals and royalties could not reasonably be expected to result in a Material Adverse Effect.

(e) Operation of Mortgaged Property. The Mortgaged Property (and properties unitized therewith) has been maintained, operated and developed in a good and workmanlike manner according to practices and procedures that are standard in the petroleum industry in the area where the Mortgaged Property is located and in conformity with all applicable laws and all rules, regulations and orders of all duly constituted authorities having jurisdiction and in material conformity with the provisions of all leases, subleases or other material contracts comprising a part of the Subject Interests and other contracts and agreements forming a part of the Mortgaged Property; specifically in this connection, (i) no Mortgaged Property is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) and (ii) none of the wells comprising a part of the Mortgaged Property (or properties unitized therewith) are, to the knowledge of Mortgagors, deviated from the vertical more than the maximum permitted by applicable laws, regulations, rules and orders, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Mortgaged Property (or, in the case of wells located on properties unitized therewith, such unitized properties).

(f) Pipelines and Pipeline Assets. All Pipelines and Pipeline Assets have been constructed and operated in conformity in all material respects with all applicable laws, rules, regulations and orders of all regulatory authorities having jurisdiction.

Any fractions or percentages specified on attached Exhibit A-1 in referring to Mortgagors’ interests are solely for the purposes of the warranties made by Mortgagors above and shall in no manner limit the quantum of interest with respect to any Subject Interests or with respect to any Unit or Well identified on Exhibit A-1. If any of the Lands covered by the Subject Interests or Lands Associated with Pipeline or other instrument mentioned on Exhibit A-1 and Exhibit A-2 are incorrectly described, then nevertheless this Mortgage shall cover all Mortgagors’ interest in such Subject Interests, the Lands Associated with Pipeline and other instrument as to all of the lands covered thereby, unless limited by express words to the contrary on Exhibit A-1 and Exhibit A-2.

1346039v5 9

ARTICLE IV

COVENANTS OF MORTGAGORS

In consideration of the Secured Indebtedness, Mortgagors, for themselves and their successors and assigns, hereby ratify, covenant and agree that Mortgagors shall comply with all Affirmative Covenants described in Article VI of the Credit Agreement, and Mortgagors shall not violate any of the Negative Covenants described in Article VII of the Credit Agreement. In addition, Mortgagors hereby covenant and agree as follows:

A.        Defend Title. Mortgagors will not create or suffer to be created or permit to exist any lien, or security interest senior to, junior to, or on a parity with, the lien and security interest of this Mortgage upon the Mortgaged Property or any part thereof or upon the rents, issues, revenues, profits and other income therefrom, except Permitted Encumbrances. Except for the Permitted Encumbrances, Mortgagors will warrant and defend the title to the Mortgaged Property against the claims and demands of all other persons whomsoever and will maintain and preserve the lien and security interests created hereby so long as any of the Secured Indebtedness remains unpaid. Except for the Permitted Encumbrances, should an adverse claim be made against or a cloud develop upon the title to any part of the Mortgaged Property, Mortgagors agree they will immediately defend against such adverse claim or take appropriate action to remove such cloud at Mortgagors’ cost and expense, and Mortgagors further agree that Mortgagee may take such other action as Mortgagee reasonably deems advisable to protect and preserve its interests in the Mortgaged Property, and in such event Mortgagors will indemnify Mortgagee against any and all costs, attorneys’ fees and other expenses which it may reasonably incur in defending against any such adverse claim or taking action to remove any such cloud.

B.        Correct Defects. Upon request of Mortgagee, Mortgagors will promptly correct any defect which may be discovered after the execution and delivery of this Mortgage, in the note or notes above described or other documents executed in connection herewith, in the execution or acknowledgment hereof or thereof or in the description of the Mortgaged Property, and will execute, acknowledge, and deliver such division orders, transfer orders and other assurances and instruments as shall, in the opinion of Mortgagee, be necessary or proper to convey and assign to Mortgagee all of the Mortgaged Property herein conveyed or assigned, or intended to be so.

C.        Notifications. Mortgagors will notify Mortgagee of the destruction, loss, termination or acquisition of any Mortgaged Property within two (2) Business Days (as defined in the Credit Agreement) of Mortgagors’ receipt of notice thereof.

D.        Pooling. Except as required by law, rule or regulation, Mortgagors will not, without the prior written consent of Mortgagee, which consent shall not be unreasonably withheld, voluntarily pool or unitize all or any part of the Mortgaged Property where the pooling or unitization would result in the diminution of Mortgagors’ net revenue interest in production from the pooled or unitized lands. Immediately after the formation of any pool or unit in accordance herewith, Mortgagors will furnish to Mortgagee a conformed copy of the pooling agreement, declaration of pooling, or other instrument creating the pool or unit. The interest of Mortgagors included in any pool or unit attributable to the Mortgaged Property or any part

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thereof shall become a part of the Mortgaged Property and shall be subject to liens and security interests hereof in the same manner and with the same effect as though the pool or unit and the interest of Mortgagors therein were specifically described in Exhibit A-1 hereto. In the event any proceedings of any governmental body which could result in pooling or unitizing all or any part of the Mortgaged Property are commenced, Mortgagors shall give immediate written notice thereof to Mortgagee.

 

E. Maintenance and Operation of Mortgaged Property.

(a) Mortgagors will, from time to time, pay or cause to be paid before they become delinquent and payable all taxes, assessments and governmental charges lawfully levied or assessed upon the Mortgaged Property or any part thereof, or upon or arising from any of the rents, issues, revenues, profits and other income from the Mortgaged Property, or incident to or in connection with the production of Hydrocarbons or other minerals therefrom, or the operation and development thereof; provided, that the foregoing covenant shall be suspended so long as the amount, applicability or validity of any such charges is being diligently contested in good faith by appropriate proceedings and if Mortgagors shall have set up reserves therefor which are adequate under generally accepted accounting principles.

(b) Mortgagors will at their own expense do or cause to be done all things reasonably necessary to preserve and keep in full repair, working order and efficiency (subject to reasonable wear and tear) all of the Mortgaged Property, including, without limitation, all equipment, machinery and other tangible or movable personal property, and from time to time will make or cause to be made all the needful and proper repairs, renewals and replacements so that at all times the state and condition of the Mortgaged Property will be fully preserved and maintained in accordance with the standards of a prudent operator.

(c) Mortgagors will promptly pay and discharge before delinquent, or cause to be promptly paid or discharged before delinquent, all rentals, delay rentals, royalties and indebtedness accruing under, and in all material respects perform or cause to be performed each and every act, matter or thing required by, each and all of the assignments, deeds, leases, sub-leases, contracts and agreements described or referred to herein or affecting Mortgagors’ interests in the Mortgaged Property, and will do or cause to be done all other things necessary to keep unimpaired Mortgagors’ rights with respect thereto and prevent any forfeiture thereof or default thereunder. Mortgagors will operate or cause to be operated the Mortgaged Property in a careful and efficient manner in accordance with the practices of the industry and in compliance in all material respects with all applicable contracts and agreements and in compliance with all applicable proration and conservation laws of the jurisdiction in which the Mortgaged Property is situated, and, in all material respects, all applicable laws, rules and regulations of every other agency and authority from time to time constituted to regulate the development and operation of the Mortgaged Property and the production and sale of Hydrocarbons and Other Minerals therefrom. Mortgagors

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will do or cause to be done such development work as may be reasonably necessary to the prudent and economical operation of the Mortgaged Property in accordance with the most approved practices of operators in the industry.

(d) If any tax is levied or assessed against the Secured Indebtedness or any part thereof, or against this Mortgage, or against the Mortgagee with respect to said Secured Indebtedness or any part thereof or this Mortgage (excluding, however, any income tax payable by Mortgagee), Mortgagors shall promptly pay the same.

(e) Do all things necessary to keep unimpaired Mortgagors’ rights and remedies in or under the Mortgaged Property and shall not abandon, shall, convey, assign, lease or otherwise transfer any right, title or interest of Mortgagors in, to, or under the Pipelines or the Pipeline Assets, or consent to any of the foregoing, directly or indirectly, without the express prior written consent of Mortgagee.

(f) Perform or cause to be performed, each and all covenants, agreements, terms, conditions and limitations imposed upon Mortgagors or their predecessors in interest and expressly contained in any assignment or other form of conveyance, under or through which the Pipelines, Pipeline Assets, Lands Associated with Pipeline, or Rights-of-Way and Franchises, or an undivided interest therein are now held, and perform or cause to be performed all material (expressed or implied) covenants and obligations imposed upon Mortgagors in connection with any document or instrument relating thereto.

(g) Cause, or in the event Mortgagors are not the operators of the Pipeline Assets, use its best efforts to cause, the Pipeline Assets to be maintained, developed, and continuously operated for the gathering, storing, transmission and distribution of Hydrocarbons in a good and workmanlike manner as would be operated by a prudent operator and in compliance with all applicable operating agreements and contracts, and all applicable federal, state, and local laws, rules and regulations, excepting those being diligently contested in good faith.

(h) Cause the Pipelines to be kept in good and effective operating condition (reasonable wear and tear excepted), and all repairs, renewals, replacements, additions and improvements thereof or thereto, needful to the gathering, storing, transmission and distribution of Hydrocarbons through the Pipelines, to be promptly made.

F.        Taxes/Insurance. Mortgagors will carry with standard insurance companies satisfactory to the Mortgagee, insurance with respect to the Mortgaged Property against such liabilities, casualties, risks and contingencies and in amounts as is customary in the industry; and acceptable certificates evidencing the same thereof shall be delivered to Mortgagee annually after the execution of this Mortgage. Mortgagors will at all times maintain workers’ compensation insurance with a responsible insurance company where required by, and in accordance with, the laws of the state (i) in which the Mortgaged Property is located or (ii) which requires workers’ compensation to be maintained on such employees. In the event Mortgagors shall fail or neglect to pay any taxes, general or special, or shall fail or neglect to relieve the

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Mortgaged Property from any lien which might become superior or equal to the lien of this Mortgage, or fail to carry such workers’ compensation or other insurance, Mortgagee, at its option, may pay such taxes, liens, charges or encumbrances, or any part thereof, or effect such workmen’s compensation insurance, and Mortgagors will promptly reimburse Mortgagee, as the case may be, therefor; and any and all such sums so paid hereunder shall be paid by Mortgagors upon demand at Mortgagee’s principal offices, and shall constitute a part of the Secured Indebtedness.

G.        Operation by Third Parties. All or portions of the Mortgaged Property may be comprised of interests in the Subject Interest which are other than working interests or which may be operated by a party or parties other than Mortgagor and with respect to all or any such Subject Interests and properties as may be comprised of interests other than working interests or which may be operated by parties other than Mortgagors, Mortgagors’ covenants set forth in as expressed in Paragraph F are modified to require that Mortgagors use commercially reasonable efforts to obtain compliance with such covenants by the working interest owners or the operator or operators of such Subject Interest.

H.        Labor/Materials. Mortgagors agree to promptly pay before delinquent, or cause to be paid before delinquent, all bills for labor and materials incurred in the operation of the Mortgaged Property, except any that is being contested in good faith and as to which satisfactory accruals have been provided; will promptly pay its share of all costs and expenses incurred under any joint operating agreement affecting the Mortgaged Property or any portion thereof; will furnish Mortgagee, as and when requested, full information as to the status of any joint account maintained with others under any such operating agreement; will not take any action to incur any liability or lien thereunder; and will not enter into any new operating agreement or amendment of existing operating agreement affecting the Mortgaged Property that in Mortgagors’ commercially reasonable opinion would diminish or alter Mortgagors’ net revenue interest therein, all without prior written consent of the Mortgagee.

I.         Legal Proceedings. Mortgagors will promptly notify Mortgagee or other holder or holders of the Secured Indebtedness, in writing, of the commencement of any legal proceedings affecting the Mortgaged Property or any part thereof, and will take such action as may be necessary to preserve their and Mortgagee’s rights affected thereby; and should Mortgagors fail or refuse to take any such action, Mortgagee may at its election take such action on behalf and in the name of Mortgagors and at Mortgagors’ cost and expense.

J.         Waivers. Mortgagors hereby expressly waive any and all rights or privileges of marshalling of assets, sale in inverse order of alienation, notices, appraisements, redemption and any prerequisite to the full extent permitted by applicable law, in the event of foreclosure of the lien or liens and/or security interests created herein. Mortgagee at all times shall have the right to release any part of the Mortgaged Property now or hereafter subject to the lien or security interest of this Mortgage, any part of the proceeds of production or other income herein or hereafter assigned or pledged, or any other security it now has or may hereafter have securing the Secured Indebtedness, without releasing any other part of the Mortgaged Property, proceeds or income, and without affecting the liens or security interests hereof as to the part or parts thereof not so released, or the right to receive future proceeds and income.

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K.        Disposition. Without prior approval and written consent of Mortgagee, Mortgagors will not sell, assign, lease, transfer or otherwise dispose of all or any portion of the Mortgaged Property except as provided in the Credit Agreement, nor shall Mortgagors mortgage, pledge or otherwise encumber the Mortgaged Property or any part thereof, regardless of whether the lien or encumbrance is senior, coordinate, junior, inferior or subordinate to the lien and security interest created hereby, except for Permitted Encumbrances or except for as provided in the Credit Agreement.

L.        Notice of Assignments. Upon request of Mortgagee, Mortgagors will execute and deliver written notices of assignments to any persons, corporations or other entities owing or which may in the future owe to Mortgagors monies or accounts arising in connection with any of the following matters: (a) any oil, gas or mineral production from the Mortgaged Property; (b) any gas contracts, processing contracts or other contracts relating to the Mortgaged Property; or (c) the operation of or production from any part of the Mortgaged Property. The notices of assignments shall advise the third parties that all of the monies or accounts described above have been assigned to Mortgagee, and if required by Mortgagee, shall also require and direct that future payments thereof, including amounts then owing and unpaid, be paid directly to the Lockbox or directly to the Lender Account, as such terms are defined in the Credit Agreement.

M.       Prohibitions Ineffective. Any mortgage, pledge, encumbrance, unitization, pooling, or communitization (except as required by Law, rule or regulation) or other action or instrument in violation of the prohibitions contained in this Article IV shall be of no force or effect against Mortgagee.

ARTICLE V

RIGHTS AFTER EVENT OF DEFAULT

A.        If an Event of Default shall occur and be continuing, the Mortgagee shall have the right and option to proceed with foreclosure and to sell, to the extent permitted by law, all or any portion of the Mortgaged Property at one or more sales, as an entirety or in parcels, at such place or places and otherwise in such manner and upon such notice as may be required by applicable law or, in the absence of any such requirements, as the Mortgagee may deem appropriate, and to make conveyance to the purchaser or purchasers.

B.        Notwithstanding any other provision of this Article V, if any of the Secured Indebtedness shall become due and payable and shall not be promptly paid, Mortgagee shall have the right and power to proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property under the order of a court or courts of competent jurisdiction or under executory or other legal process, or for the enforcement of any other appropriate legal or equitable remedy. Any money advanced by Mortgagee in connection with any such receivership shall be a demand obligation (which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagors

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to Mortgagee and shall bear interest from the date of making such advance by Mortgagee until paid at the Default Rate.

C.        Notwithstanding any other provision, Mortgagee shall also have the option to proceed with foreclosure in satisfaction of any installments of the Secured Indebtedness which have not been paid when due either through the courts or by proceeding with foreclosure in satisfaction of the matured but unpaid portion of the Secured Indebtedness as if under a full foreclosure, conducting the sale as herein provided and without declaring the entire principal balance and accrued interest due; such sale may be made subject to the unmatured portion of the Secured Indebtedness, and any such sale shall not in any manner affect the unmatured portion of the Secured Indebtedness, but, as to such unmatured portion of the Secured Indebtedness, this Mortgage shall remain in full force and effect just as though no sale had been made hereunder. It is further agreed that several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Secured Indebtedness, it being the purpose hereof to provide for a foreclosure and sale of the security for any matured portion of the Secured Indebtedness without exhausting the power to foreclose and sell the Mortgaged Property for any subsequently maturing portion of the Secured Indebtedness.

D.        The Mortgaged Property may be sold in one or more parcels and in such manner and order as Mortgagee, in his sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales.

E.        Upon the happening of any of the Events of Default, Mortgagee shall be entitled to all of the rights, powers and remedies afforded a secured party by the UCC with reference to the personal property, as-extracted collateral and fixtures in which Mortgagee has been granted a security interest hereby, or Mortgagee may proceed as to both the real and personal property covered hereby.

F.        Mortgagors agree to the full extent they lawfully may, that, in case one or more of the Events of Default shall have occurred and shall not have been remedied, then, and in every such case, Mortgagee shall have the right and power to enter into and upon and take possession of all or any part of the Mortgaged Property in the possession of Mortgagors, their successors or assigns, or their agents or servants, and may exclude Mortgagors, their successors or assigns, and all persons claiming under Mortgagors, and their agents or servants wholly or partly therefrom. All costs, expenses and liabilities of every character incurred by Mortgagee in administering, managing, operating, and controlling the Mortgaged Property shall constitute a demand obligation (which obligation Mortgagors hereby expressly promise to pay) owing by Mortgagors to Mortgagee and shall bear interest from date of expenditure until paid at the Interest Rate, all of which shall constitute a portion of the Secured Indebtedness and shall be secured by this Mortgage and all other Security Instruments.

G.        Every right, power and remedy herein given to Mortgagee shall be cumulative and in addition to every other right, power and remedy herein specifically given or now or hereafter existing in equity, at law or by statute (including specifically those granted by the UCC in effect and applicable to the Mortgaged Property or any portion thereof) each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised

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from time to time and so often and in such order as may be deemed expedient by Mortgagee, and the exercise, or the beginning of the exercise, of any such right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter any other right, power or remedy. No delay or omission by Mortgagee in the exercise of any right, power or remedy shall impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing.

H.        Neither Mortgagors, nor any guarantor or any other person hereafter obligated for payment of all or any part of the Secured Indebtedness shall be relieved of such obligation by reason of (a) the failure of Mortgagee to comply with any request of Mortgagors, or any guarantor or any other person so obligated, to foreclose the lien of this Mortgage or to enforce any provision hereunder or under the Credit Agreement; (b) the release, regardless of consideration, of the Mortgaged Property or any portion thereof or interest therein or the addition of any other property to the Mortgaged Property; (c) any agreement or stipulation between any subsequent owner of the Mortgaged Property and Mortgagee extending, renewing, rearranging or in any other way modifying the terms of this Mortgage without first having obtained the consent of, given notice to or paid any consideration to Mortgagors, any guarantor or such other person, and in such event Mortgagors, guarantor and all such other persons shall continue to be liable to make payment according to the terms of any such extension or modification agreement unless expressly released and discharged in writing by Mortgagee; or (d) by any other act or occurrence save and except the complete payment of the Secured Indebtedness and the complete fulfillment of all obligations hereunder or under the Credit Agreement.

I.         Mortgagee may release, regardless of consideration, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by this Mortgage or its stature as a first and prior lien and security interest in and to the Mortgaged Property, and without in any way releasing or diminishing the liability of any person or entity liable for the repayment of the Secured Indebtedness. For payment of the Secured Indebtedness, Mortgagee may resort to any other security therefor held by Mortgagee in such order and manner as Mortgagee may elect.

J.         To the fullest extent permitted by law, Mortgagors hereby irrevocably and unconditionally waive and release (a) all benefits that might accrue to Mortgagors by virtue of any present or future moratorium law or other law exempting the Mortgaged Property from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of any Event of Default or of Mortgagee’s intention to accelerate maturity of the Secured Indebtedness or of his election to exercise (or his actual exercise of) any right, remedy or recourse provided for hereunder or under the Credit Agreement; and (c) any right to a marshaling of assets or a sale in inverse order of alienation. If any law referred to in this Mortgage and now in force, (of which Mortgagors or their successor or successors might take advantage despite the provisions hereof), shall hereafter be repealed or cease to be in force, such law shall thereafter be deemed not to constitute any part of the contract herein contained or to preclude the operation or application of the provisions hereof.

K.        In case Mortgagee shall have proceeded to invoke any right, remedy or recourse permitted hereunder or under the Credit Agreement and shall thereafter elect to discontinue or

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abandon same for any reason, Mortgagee shall have the unqualified right so to do and, in such an event, Mortgagors and Mortgagee shall be restored to their former positions with respect to the Secured Indebtedness, this Mortgage, the Credit Agreement, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Mortgagee shall continue as if same had never been invoked.

L.        The proceeds of any sale of the Mortgaged Property or any part thereof and all other monies received by Mortgagee through any proceedings for the enforcement hereof or otherwise, whose application has not elsewhere herein been specifically provided for, shall be applied:

FIRST, to the payment of all expenses incurred by Mortgagee incident to the enforcement of this Mortgage, the Credit Agreement or any of the Secured Indebtedness (including, without limiting the generality of the foregoing, expenses of any entry or taking of possession, of any sale, of advertisement thereof and of conveyances, and court costs, compensation of agents and employees, and reasonable legal fees, and to the payment of all other charges, expenses, liabilities and advances incurred or made by Mortgagee under this Mortgage or in executing any power hereunder;

SECOND, to payment of the Secured Indebtedness in such order and manner as Mortgagee may elect; and

THIRD, to Mortgagors or as otherwise required by any applicable law.

In connection with any action taken by Mortgagee pursuant to this mortgage, Mortgagee and employees, representatives, agents, attorneys, accountants and experts (“Indemnified Parties”) shall not be liable for any loss sustained by Mortgagors resulting from an assertion that Mortgagee has received funds from the production of Hydrocarbons claimed by third persons or any act or omission of any Indemnified Party in administering, managing, operating or controlling the Mortgaged Property unless such loss is caused by the gross negligence or willful misconduct and bad faith of an Indemnified Party, nor shall Mortgagee be obligated to perform or discharge any obligation, duty or liability of Mortgagors. Unless such liability, loss, or damage is caused by the gross negligence or willful misconduct or bad faith of an Indemnified Party, Mortgagors shall and do hereby agree to indemnify each Indemnified Party for, and to hold each Indemnified Party harmless from, any and all liability, loss or damage which may or might be incurred by any Indemnified Party by reason of this Mortgage or the exercise of rights or remedies hereunder; should Mortgagee make any expenditure on account of any such liability, loss or damage, the amount thereof, including costs, expenses and reasonable attorneys’ fees, shall be a demand obligation (which obligation Mortgagors hereby expressly promise to pay) owing by Mortgagors to Mortgagee and shall bear interest from the date expended until paid at the Interest Rate, shall be a part of the Secured Indebtedness and shall be secured by this Mortgage and any other security instrument. Mortgagors hereby assent to, ratify and confirm any and all actions of Mortgagee with respect to the Mortgaged Property taken under this Mortgage. The liabilities of the Mortgagors as set forth in this Article V shall survive the termination of this Mortgage

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ARTICLE VI

ASSIGNMENT OF PRODUCTION AND REVENUES

(this “Assignment”)

Production

A.        In addition to the conveyance to Mortgagee herein made, Mortgagors do hereby transfer, assign, deliver and convey unto Mortgagee, its successors and assigns, all of the oil, gas and other minerals produced, saved or sold from the Mortgaged Property and attributable to the interest of Mortgagors therein subsequent to 7:00 A.M. on the 1st day of the month in which this Mortgage is executed, together with the proceeds of any sale thereof (“Hydrocarbon Proceeds”); Mortgagors hereby direct any purchaser now or hereafter taking any production from the Mortgaged Property to pay to Mortgagee such Hydrocarbon Proceeds derived from the sale thereof, and to continue to make payments directly to Mortgagee until notified in writing by Mortgagee to discontinue the same; and the purchaser of any such production shall have no duty or obligation to inquire into the right of Mortgagee to receive the same, what application is made thereof, or as to any other matter; and the payment made to Mortgagee shall be binding and conclusive as between such purchaser and Mortgagors. Mortgagors further agree to perform all such acts, and to execute all such further assignments, transfer and division orders, and other instruments as may be required or desired by Mortgagee or any other party to have such Hydrocarbon Proceeds so paid to Mortgagee.

Revenues

B.        In addition to the conveyance to Mortgagee herein made, Mortgagors do hereby transfer, assign, deliver and convey unto Mortgagee, its successors and assigns, all the income, revenues, rents, issues, profits and proceeds arising from the Pipelines relating to the Mortgaged Property and attributed to the interest of Mortgagors therein whether due, payable or accruing (collectively, the “Revenues”) under any and all present and future contracts or other agreements relating to the transmission of the Hydrocarbons or the ownership of all or any portion of the Mortgaged Property. Mortgagors hereby direct any payor to pay to Mortgagee such Revenues derived from such contracts and agreements, and to continue to make payments directly to Mortgagee until notified in writing by Mortgagee to discontinue the same; and the payor shall have no duty or obligation to inquire into the right of Mortgagee to receive the same, what application is made thereof, or as to any other matter; and the payment made to Mortgagee shall be binding and conclusive as between such payor and Mortgagors. Mortgagors agree to perform all such acts, and to execute all such further assignments, transfers and other instruments as may be required or desired by the Mortgagee or any party in order to have said Revenues so paid to the Mortgagee.

General

C.        The Mortgagee is fully authorized to (i) receive and receipt for said Revenues and Hydrocarbon Proceeds; (ii) to endorse and cash any and all checks and drafts payable to the order of Mortgagors or the Mortgagee for the account of Mortgagors received from or in connection with said Revenues and Hydrocarbon Proceeds and apply the proceeds thereof to the

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payment of the Secured Indebtedness, when received, regardless of the maturity of any of the Secured Indebtedness, or any installment thereof, and (iii) execute any instrument in the name of Mortgagors to facilitate any of the foregoing. Upon receipt of written instructions from Mortgagors, Mortgagee agrees to release to Mortgagors any Revenues and Hydrocarbon Proceeds belonging to third parties; provided that the Mortgagee shall not be liable for any delay, neglect, or failure to effect collection of any Revenues and Hydrocarbon Proceeds or to take any other action in connection therewith or hereunder; but shall have the right, at its election, in the name of Mortgagors or otherwise, to prosecute and defend any and all actions or legal proceedings deemed advisable by the Mortgagee in order to collect such funds and to protect the interests of the Mortgagee and/or Mortgagors, with all costs, expenses and attorney’s fees incurred in connection therewith being paid by Mortgagors. Unless Mortgagee has claimed or is claiming, for its benefit Revenues and Hydrocarbon Proceeds belonging to third parties and not attributable to the Mortgaged Property, Mortgagors hereby agree to indemnify the Mortgagee against all claims, actions, liabilities, judgments, costs, charges and attorneys’ fees made against or incurred by it, based on the assertion that it received Revenues claimed by third persons either before or after the payment in full of the Secured Indebtedness. Mortgagee shall have the right to defend against any such claims, actions and judgments, employing its attorneys therefor, and if it is not furnished with reasonable indemnity, it shall have the right to compromise and adjust any such claims, actions and judgments. Mortgagors agree to indemnify and pay to the Mortgagee any and all such claims, judgments, costs, charges and attorney’s fees as may be paid in any judgment, release or discharge thereof or as may be adjudged against the Mortgagee. Mortgagors hereby appoint Mortgagee as its attorney-in-fact to pursue any and all rights of Mortgagors to liens on and security interests in the Mortgaged Property. Mortgagors hereby further transfer and assign to Mortgagee any and all such liens, security interests, financing statements or similar interests of Mortgagors attributable to its interest in the Mortgaged Property and Revenues and Hydrocarbon Proceeds arising under or created by any statutory provision, judicial decision or otherwise. The power of attorney granted to Mortgagee in this paragraph, being coupled with an interest, shall be irrevocable so long as the Secured Indebtedness or any part thereof remains unpaid.

D.        Should any purchaser or other party taking the production from the Mortgaged Property or owing payment to Mortgagors fail to make prompt payment to Mortgagee in accordance with this Assignment, Mortgagee shall, if permitted by Law, have the right at Mortgagors’ expense to demand a change of connection and to designate another purchaser or other party with whom a new connection may be made, without any liability on the part of Mortgagee in making such selection, so long as ordinary care is used in the making thereof; and failure of Mortgagors to consent to and promptly effect such change of connection shall constitute an event of default hereunder, and the whole Secured Indebtedness may be immediately declared due and payable, at the option of Mortgagee, and the Mortgaged Property shall become subject to the foreclosure proceedings hereunder.

E.        Mortgagors authorize and empower Mortgagee to receive, hold and collect all sums of money paid to Mortgagee in accordance with this Assignment, and to apply the same as hereinafter provided, all without any liability or responsibility on the part of Mortgagee, save and except as to good faith in so receiving and applying such sums. All payments provided for in this Assignment shall be paid promptly to Mortgagee, and any provisions contained in the Note

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or any part thereof to the contrary notwithstanding, Mortgagee may apply the same or so much thereof as it elects to the payment of the Secured Indebtedness, application to be made in such manner as it may elect, regardless of whether the application so made shall exceed the payments of principal and interest then due as provided in the Note. After such application has been so made by Mortgagee, the balance of any such payment or payments remaining shall be paid to Mortgagors. Mortgagee agrees to give Mortgagors written notice simultaneously with its notice to the purchaser that such payments are to be paid to Mortgagee in accordance with the terms of this Article.

F.        It is understood and agreed that should such payments provided for by this Assignment be less than the sum or sums then due on the Secured Indebtedness, such sum or sums then due shall nevertheless be paid by Mortgagors in accordance with the provisions of the Loan Documents evidencing the Secured Indebtedness, and neither this Assignment nor any provisions hereof shall in any manner be construed to affect the terms and provisions of such Loan Documents. Likewise, neither this Assignment nor any provisions hereof shall in any manner be construed to affect the liens, rights, title and remedies herein granted securing the Secured Indebtedness or Mortgagors’ liability therefor. The rights under this Assignment are cumulative of all other rights, remedies, and powers granted under this Mortgage, and are cumulative of any other security which Mortgagee now holds or may hereafter hold to secure the payment of the Secured Indebtedness.

G.        Should Mortgagors receive any of the proceeds which under the terms hereof should have been remitted to Mortgagee, Mortgagors will immediately remit same in full to Mortgagee.

H.        Upon payment in full of all Secured Indebtedness, the remainder of such proceeds held by Mortgagee, if any, shall be paid over to Mortgagors upon demand, and a release of the interest hereby assigned will be made by Mortgagee to Mortgagors at their request and their expense.

I.         Mortgagee shall not be liable for any failure to collect, or for any failure to exercise diligence in collecting, any funds assigned hereunder. Mortgagee shall be accountable only for funds actually received.

J.         To the extent permissible under Applicable Law, Mortgagors hereby acknowledge that this Assignment is intended to be presently, unconditionally and immediately effective. Furthermore and to the extent permitted by Applicable Law, Mortgagors agree that Mortgagee is not required to assert any affirmative act, including the institution of any legal proceedings, to enforce this Assignment.

ARTICLE VII

ADDITIONAL REMEDIES

A.        If Mortgagors should fail to comply with any of the covenants or obligations of Mortgagors hereunder, then Mortgagee or its attorney in fact or agent may perform the same for the account and at the expense of Mortgagors but shall not be obligated so to do, and any and all

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expenses incurred or paid in so doing shall be payable by Mortgagors to Mortgagee, with interest at the rate agreed upon in the Credit Agreement, from the date when same was so incurred or paid, and the amount thereof shall be payable on demand and shall be secured by and under this Mortgage, and the amount and nature of such expense and the time when paid shall be presumptively established by the affidavit of Mortgagee or any officer or agent thereof, or by the affidavit of any attorney in fact or agent acting hereunder; provided, however, that the exercise of the privileges granted in this paragraph shall not be considered or constitute a waiver of the right of Mortgagee upon the happening of an Event of Default hereunder to declare the Secured Indebtedness at once due and payable but shall be cumulative of such right and all other rights herein given.

B.        To the extent permitted by Applicable Law, in case any one or more of the Events of Default shall occur, then in each and every such case Mortgagee, whether or not the Secured Indebtedness shall have been declared due and payable, in addition to the other rights and remedies hereunder, may exercise the following additional remedy, but shall not be obligated so to do: Mortgagee or its attorney in fact or agent may enter into and upon and take possession of all or any part of the Mortgaged Property and each and every part thereof and may exclude Mortgagors, their agents and servants wholly therefrom and have, hold, use, operate, manage and control the Mortgaged Property and each and every part thereof and produce the oil, gas and other minerals therefrom and market the same, all at the sole risk and expense of Mortgagors and at the expense of the Mortgaged Property, applying the net proceeds so derived, first, to the cost of maintenance and operation of such Mortgaged Property; second, to the payment of all Secured Indebtedness secured hereby, principal and interest, application to be made first to interest and then to principal; and the balance thereof, if any, shall be paid to Mortgagor. Upon such payment of all such costs and Secured Indebtedness, the Mortgaged Property shall be returned to Mortgagors in its then condition and Mortgagee shall not be liable to Mortgagors for any damage or injury to the Mortgaged Property except such as may be caused through his, its or their fraud or willful misconduct.

C.        To the extent permitted by Applicable Law, Mortgagors do hereby designate Mortgagee as Mortgagors’ agent to exercise each and every remedy set forth herein and to conduct any and all operations and take any and all action reasonably necessary to do so.

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ARTICLE VIII

MISCELLANEOUS

A.        Any provision in any document that may be executed in connection herewith to the contrary notwithstanding, the Mortgagee shall in no event be entitled to receive or collect, nor shall any amounts received hereunder be credited so that the Mortgagee shall be paid as interest, a sum greater than that authorized by Law. If any possible construction of this Mortgage or any instrument evidencing the Secured Indebtedness, or any or all other notes, guaranties or papers relating to the Secured Indebtedness, seems to indicate any possibility of a different power given to the Mortgagee, or any authority to ask for, demand, or receive any larger rate of interest, such as a mistake in calculation or wording, this clause shall override and control, and proper adjustments shall be made accordingly.

B.        This Mortgage, for convenience only, has been divided into Articles and paragraphs, and it is understood that the rights, powers, privileges, duties and other legal relations of the Mortgagors and the Mortgagee, shall be determined from this Mortgage as an entirety and without regard to the aforesaid division into Articles and paragraphs and without regard to headings prefixed to such Articles.

C.        The terms used to designate any of the parties herein shall be deemed to include the heirs, successors and assigns of such parties; the term “successors” shall include the heirs, trustees and legal representatives; and the term “Mortgagee” shall also include any lawful owner, holder or pledgee of any Secured Indebtedness. Whenever the context requires, reference herein made to the single number shall be understood to include the plural and the plural shall likewise be understood to include the singular. Words denoting sex shall be construed to include the masculine, feminine, and neuter when such construction is appropriate, and specific enumeration shall not exclude the general, but shall be construed as cumulative.

D.        Every right and remedy provided for herein shall be cumulative of each and every other right or remedy of Mortgagee, whether herein or otherwise conferred, and may be enforced concurrently therewith, and the unenforceability or invalidity of any one or more provisions, clauses, sentences or paragraphs of this Mortgage shall not render any other provision, clause, sentence or paragraph unenforceable or invalid. No security theretofore, herewith or subsequently taken by Mortgagee shall in any manner impair or affect the security given by this Mortgage or any security by endorsement or otherwise presently or previously given, and all security shall be taken, considered and held as cumulative. In addition to the rights and remedies expressly set forth herein, Mortgagee shall be entitled to all other rights and remedies at law and in equity, which rights and remedies, together with rights and remedies described above are cumulative.

E.        This Mortgage shall be binding upon the parties, their respective successors and assigns, and shall inure to the benefit of the Mortgagee, and the covenants and agreements herein contained shall constitute covenants running with the land.

F.        It is contemplated by the parties hereto that from time to time additional interests and properties may or will be added to the interests and properties on Exhibit A-1 and Exhibit A-

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2 attached hereto by means of supplements or amendments identifying this Mortgage and describing such interests and properties to be so added and included, and upon the execution of any such supplements or amendments, the lien, rights, titles and interests created herein shall immediately attach to and be effective as of the date of such supplemental indenture in respect to any such interests and properties so described, and the same being included in the term “Mortgaged Property,” as used herein.

G.        This Mortgage shall be deemed, and may be enforced from time to time, as a chattel mortgage, real estate mortgage, deed of trust, security agreement, assignment or contract, or as one or more thereof.

H.        Without in any manner limiting the generality of any of the foregoing hereof, some portions of the personal property described hereinabove are or are to become fixtures on the Lands or Lands Associated with Pipeline described herein or to which reference is made herein. In addition, the security interest created hereby under applicable provisions of the UCC attaches to minerals, including oil, gas and other as-extracted collateral, or accounts resulting from the sale thereof, at the wellhead or minehead located on the Lands or Lands Associated with Pipeline described or to which reference is made herein.

I.         This Mortgage may be filed as provided in Article 9 of the Texas Business and Commerce Code and Article 9 of the Kansas Uniform Commercial Code relating to the granting of security interests. In this connection, this instrument will be presented to a filing officer under the Uniform Commercial Code to be filed in the real estate records as a Financing Statement covering minerals and fixtures, pursuant to Section 9.502(c) of the Texas Business and Commerce Code and K.S.A. 84-9-501.

J.         For purposes of filing this Mortgage as a financing statement, the addresses for Mortgagors, as the debtors, and Mortgagee, as the secured party, are as set forth hereinabove.

K.        For the convenience of the parties, this Mortgage may be executed in multiple counterparts. For recording purposes, various counterparts have been executed and there may be attached to each such counterpart an Exhibit A-1 and Exhibit A-2 containing only the description of the Mortgaged Property, or portions thereof, which relates to the county or state in which the particular counterpart is to be recorded. A complete, original counterpart of this Mortgage with a complete Exhibit A-1 and Exhibit A-2 may be obtained from the Mortgagee. Each of the counterparts hereof so executed shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same Mortgage.

L.        The failure or delay of Mortgagee to file or give any notice as to this Mortgage, or to exercise any right, remedy or option to declare the maturity of the principal debt, or any other sums hereby secured, or the payment by Mortgagee of any taxes, liens, charges or assessments, shall not be taken or deemed a waiver of any rights to exercise such right or option or to declare any such maturity as to any past or subsequent violations of any of such covenants or stipulations, and shall not waive or prejudice any right or lien hereunder. Any election or failure by Mortgagee to exercise any rights, remedies or options hereunder shall not constitute a waiver or prejudice the exercise of other rights or remedies existing hereunder. All rights, powers, immunities, remedies and liens of Mortgagee existing and to exist hereunder or under any other

1346039v5 23

instruments, and all other or additional security, and Mortgagee’s rights at law and in equity, shall be cumulative and not exclusive, each of the other; and Mortgagee shall, in addition to the remedies herein expressly provided, be entitled to such other remedies as may now or hereafter exist at law or in equity for securing and collecting the Secured Indebtedness, for enforcing the covenants herein, and for foreclosing the liens hereof. Resort by Mortgagee to any remedy provided for hereunder or at law or in equity shall not prevent concurrent or subsequent resort to the same or any other remedy or remedies.

M.       In the event of a conflict between the terms and provisions of this Mortgage and those of the Credit Agreement, or in the event that obligations imposed upon the Mortgagors in the Mortgage and the Credit Agreement in relation to non-monetary matters are inconsistent and require differing levels of performance, the terms and provisions of the Credit Agreement shall govern and control.

N.        This Mortgage is executed by Mortgagee solely for the purpose of acknowledging and accepting the benefits conferred on the Mortgagee and to evidence the agreements of Mortgagee set forth herein.

O.        Mortgagors and Mortgagee intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof, the parties stipulate and agree that none of the terms and provisions contained in this Mortgage shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable Law from time to time in effect. No Borrower nor any present or future guarantors, endorsers or other Persons hereafter becoming liable for payment of the Secured Indebtedness shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable Law from time to time in effect. Mortgagee expressly disavows any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Secured Indebtedness is accelerated. If (a) the maturity of any Secured Indebtedness is accelerated for any reason, (b) any Secured Indebtedness is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) Mortgagee or any other holder of any or all of the Secured Indebtedness shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Secured Indebtedness to an amount in excess of that permitted to be charged by applicable Law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Secured Indebtedness or, at Mortgagors’ or such holder’s option, promptly returned to Mortgagors or the other payor thereof upon such determination. In determining whether or not the interest paid or payable under any specific circumstance exceeds the maximum amount permitted under applicable Law, Mortgagors or Mortgagee (and any other payors thereof) shall to the greatest extent permitted under applicable Law, (x) characterize any non principal payment as an expense, fee or premium rather than as interest, (y) exclude voluntary prepayments and the effects thereof, and (z) amortize, prorate, allocate and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Secured Indebtedness in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest

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from time to time in effect under applicable Law in order to lawfully charge the maximum amount of interest permitted under applicable Law.

P.        THIS MORTGAGE SUPERSEDES ALL PRIOR AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER AND CONSTITUTES (ALONG WITH THE DOCUMENTS REFERRED TO IN THIS MORTGAGE) A COMPLETE AND EXCLUSIVE STATEMENT OF THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER. THIS AGREEMENT MAY NOT BE AMENDED EXCEPT BY A WRITTEN AGREEMENT EXECUTED BY THE PARTY TO BE CHARGED WITH THE AMENDMENT. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE STATE OF KANSAS THAT APPLY MANDATORILY, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER PRINCIPLES OF CONFLICT OF LAWS THEREOF.

[Signatures on following page.]

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EXECUTED as of the date set forth in the notary below, but effective for all purposes as of the date first written above.

MORTGAGORS/DEBTORS:

ENERJEX KANSAS, INC.,

a Nevada corporation

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

THE STATE OF TEXAS §

§

COUNTY OF HARRIS §

BEFORE ME, the undersigned authority, on this day personally appeared Steve Cochennet, Chief Executive Officer of ENERJEX KANSAS, INC., a Nevada corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, as the act and deed of such corporation and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of July, 2008.

/s/

NOTARY PUBLIC, STATE OF TEXAS

(Signature and Acknowledgement Page to Kansas Mortgage)

DD ENERGY, INC.,

a Nevada corporation

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

THE STATE OF TEXAS §

§

COUNTY OF HARRIS §

BEFORE ME, the undersigned authority, on this day personally appeared Steve Cochennet, Chief Executive Officer of DD ENERGY, INC., a Nevada corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, as the act and deed of such corporation and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of July, 2008.

/s/

NOTARY PUBLIC, STATE OF TEXAS

(Signature and Acknowledgement Page to Kansas Mortgage)

MORTGAGEE:

TEXAS CAPITAL BANK, N.A.,

a national banking association

By: /s/ Jonathan Gregory

Jonathan Gregory

. Executive Vice President

.

THE STATE OF TEXAS §

§

COUNTY OF HARRIS §

BEFORE ME, the undersigned authority, on this day personally appeared Jonathan Gregory, Executive Vice President of TEXAS CAPITAL BANK, N.A., a national banking association, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, as the act and deed of such national banking association and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of July, 2008.

/s/

NOTARY PUBLIC, STATE OF TEXAS

(Signature and Acknowledgement Page to Kansas Mortgage)

EXHIBIT A

This Exhibit A consists of Exhibit A-1 and Exhibit A-2

A-1

EXHIBIT A-1

TO MORTGAGE

Oil and Gas Properties

This Exhibit A-1 sets forth the description of the property interests covered by the Mortgage to which this Exhibit A-1 is attached. All of the terms defined in the Mortgage are used in this Exhibit A-1 with the same meanings given therein. This Exhibit A-1 and the Mortgage cover and include the following:

(a)       Mortgagors’ interest in the Mortgaged Property as such may be enlarged by the discharge of any payments out of production or by the removal of any charges or encumbrances together with the Mortgagors’ interests in, to and under or derived from all renewals and extensions of any oil, gas and mineral leases described herein, it being specifically intended hereby that any new oil and gas lease (i) in which an interest is acquired by the Mortgagors after the termination or expiration of any oil and gas lease, the interests of the Mortgagors in, to and under or derived from which are subject to the lien and security interest hereof, and (ii) that covers all or any part of the property described in and covered by such terminated or expired leases, shall, to the extent, and only to the extent such new oil and gas lease may cover such property, be considered a renewal or extension of such terminated or expired lease; and

(b)       All right, title and interest of the Mortgagors in, to and under or derived from all existing and future permits, licenses, easements and similar rights and privileges that relate to or are appurtenant to any of the described leases and/or lands.

Notwithstanding the intention of this Agreement to cover all of the right, title and interest of Mortgagors in and to the described leases and/or lands, Mortgagors hereby specifically warrant and represent that the interests covered by this Exhibit A-1 are not greater than the working interest (without a proportionate increase in the associated NRI) nor less than the net revenue interest, overriding royalty interest, net profit interest, production payment interest or other interest payable out of or measured by production set forth in connection with each oil and gas well described in this Exhibit A-1. In the event the Mortgagors own any other or greater interest, such additional interest shall also be covered by and included in this Agreement. The designation “Working Interest” or “WI” means an interest owned in an oil, gas, and mineral lease that determines the cost bearing percentage of the owner of such interest. The designation “Net Revenue Interest” or “NRI” means net revenue interest, or that portion of the production attributable to the owner of a working interest after deduction for all royalty burdens, overriding royalty burdens, or other burdens on production, except severance, production, windfall profits and other similar taxes. The designation “Overriding Royalty Interest” or “ORRI” means an interest in production which is free of any obligation for the expense of exploration, development and production, bearing only its pro rata share of severance, production, windfall profits and other similar taxes.

Exhibit A-1

EXHIBIT A-2

TO MORTGAGE

Pipelines

All pipelines, gathering systems and related fixtures and equipment associated with the Wells and the Subject Interests.

Exhibit A-2

EX-10

SECURITY AGREEMENT

(All Personal Property)

THIS SECURITY AGREEMENT is made and entered into as of July 3, 2008 (this “Agreement”) among ENERJEX RESOURCES, INC., a Nevada corporation, ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation and DD ENERGY, INC., a Nevada corporation (collectively, “Debtors”) in favor of TEXAS CAPITAL BANK, N.A, a national banking association, as Administrative Agent for the Banks (“Secured Party”).

Background:

1.         On the same date as this Agreement, Debtors, as Borrowers, and Secured Party and the Banks executed that certain Credit Agreement (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”) pursuant to which the Banks agreed to make loans to Debtors from time to time on the conditions set out in the Credit Agreement.

2.         Borrowers, Secured Party and an Approved Counterparty (as defined in the Credit Agreement) entered into, or may enter into from time to time, an Intercreditor Agreement (as defined in the Credit Agreement).

3.         Lender has conditioned its obligations under the Credit Agreement upon, among other things, the execution and delivery by Debtors of this Agreement, and Debtors have agreed to enter into this Agreement.

Agreements:

In order to comply with the terms and conditions of the Credit Agreement and for and in consideration of the premises and the agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Debtors hereby agree with Secured Party as follows:

ARTICLE I

DEFINITIONS

Section 1.1      Terms Defined Above. As used in this Agreement, the terms “Debtors,” “Secured Party,” and “Credit Agreement” shall have the meanings indicated above.

Section 1.2      Definitions Contained in the Credit Agreement. Unless otherwise defined herein or the context otherwise requires, all capitalized terms used but not defined in this Agreement have the respective meanings given them in the Credit Agreement.

Section 1.3      Certain Definitions. As used in this Agreement, the following terms shall have the following meanings, unless the context otherwise requires:

“Accounts” has the meaning indicated in subsection 2.1(a) hereof.

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“Agreement” is defined in the preamble and means this Security Agreement, as the same may from time to time be amended or supplemented.

“Code” means (a) the Uniform Commercial Code as presently in effect in the State of Texas, as amended from time to time, and (b) with respect to rights in states other than Texas, the Uniform Commercial Code as enacted in the applicable state, as amended from time to time.

“Collateral” means all property, including without limitation cash or other proceeds, in which Secured Party shall have a security interest pursuant to Section 2.1 of this Agreement.

“Controlled Foreign Entity” means a “controlled foreign corporation” as defined in the Tax Code.

“Default” means the occurrence of any of the events specified in Section 5.3 hereof, whether or not any requirement for notice or lapse of time or other condition precedent has been satisfied.

“Equipment” has the meaning indicated in subsection 2.1(c) hereof.

“Event of Default” means the occurrence of any of the events specified in Section 5.3 hereof; providedthat any requirement for notice or lapse of time or other condition precedent has been satisfied.

“General Intangibles” has the meaning indicated in subsection 2.1(d) hereof.

“Inventory” has the meaning indicated in subsection 2.1(e) hereof.

“Other Liable Party” means any person, other than a Debtor, who is or becomes primarily or secondarily liable for any of the Secured Obligations or who grants Secured Party a lien on any property as security for the Secured Obligations.

“Related Rights” means all chattel paper, electronic chattel paper, payment intangibles, promissory notes, letter of credit rights, supporting obligations, documents and instruments relating to the Accounts or the General Intangibles and all rights now or hereafter existing in and to all security agreements, leases, and other contracts securing or otherwise relating to any Accounts or General Intangibles or any such chattel paper, electronic chattel paper, payment intangibles, promissory notes, letter of credit rights, documents and instruments.

“Secured Obligations” has the meaning indicated in Section 2.3 hereof.

“Security Documents” means this Agreement together with all financing statements filed in connection with this Agreement.

“Tax Code” means the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

Section 1.4      Terms Defined in Code. Unless otherwise defined herein, all terms used herein which are defined in the Code shall have the same meaning herein.

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ARTICLE II

SECURITY INTEREST

Section 2.1      Grant of Security Interest. As collateral security for all of the Secured Obligations, Debtors hereby grant to Secured Party a security interest in, a general lien upon, and a right of set-off against all of Debtors’ right, title and interest in all of its personal and fixture property of every kind and nature, whether tangible or intangible, including but not limited to the following, and whether now owned or hereafter acquired:

(a)       all of Debtors’ accounts (as defined in the Code) of any kind (the “Accounts”), and all rights in and to all security agreements, leases, and other contracts securing or otherwise relating to any Accounts;

(b)       all of Debtors’ goods, chattel paper, electronic chattel paper, payment intangibles, promissory notes, letters of credit and letter-of-credit rights, documents and instruments, in each case as defined in the Code, and all rights in and to all security agreements, leases, and other contracts securing or otherwise relating to any such chattel paper, documents and instruments;

(c)       all of Debtors’ equipment (as defined in the Code) in all of its forms, and wherever located, together with all parts thereof and all accessions or additions thereto, including all of Debtors’ vehicles (collectively, the “Equipment”);

(d)       all of Debtors’ general intangibles (as defined in the Code) of any kind (the “General Intangibles”), and all rights in and to all security agreements, leases, and other contracts securing or otherwise relating to any General Intangibles;

(e)       all of Debtors’ inventory (as defined in the Code) in all of its forms, and wherever located, together with all accessions or additions thereto and products thereof (collectively the “Inventory”);

(f)        all of Debtors’ investment property (as defined in the Code) wherever located;

(g)       all of Debtors’ deposit accounts (as defined in the Code) wherever located (other than trust accounts and joint operating accounts);

(h)       all of Debtors’ as-extracted collateral and fixtures, in each case as defined in the Code;

(i)        all of Debtors’ insurance claims and proceeds and commercial tort claims;

(j)        any other contract rights of Debtors or rights to the payment of money;

(k)       any additional tangible or intangible property from time to time delivered to or deposited with Secured Party as security for the Secured Obligations or otherwise pursuant to the terms of this Security Agreement; and

1346459v5 3

(l)        the proceeds, products, supporting obligations, Related Rights, additions to, substitutions for and accessions of any and all Collateral described in subsections (a)-(k) in this Section 2.1.

Section 2.2      Certain Limited Exclusions. Notwithstanding anything herein to the contrary, in no event shall the Collateral include (nor shall any component definition of Collateral include), or the security interest granted under Section 2.1 hereof attach to any of the outstanding Equity Interest of, a Controlled Foreign Entity in excess of sixty-five percent (65%) of the voting power of all classes of Equity Interest of such Controlled Foreign Entity entitled to vote.

Section 2.3      Secured Obligations. The security interest in, general lien upon, and right of set-off against the Collateral is granted to secure the following (collectively, the “Secured Obligations”):

(a)       the payment of all the Obligations (as defined in the Credit Agreement) of Debtors to Secured Party and the Banks now or hereafter existing including, without limitation, the Indebtedness of Debtors under the Note, and any and all renewals, extensions for any period or rearrangement of the Obligations;

(b)       the performance of all obligations of Debtors under this Agreement, the Permitted Swap Contracts (as defined in the Credit Agreement) and the other Loan Documents; and

(c)       all obligations of Debtors owed to an Approved Counterparty, as counterparty under those certain Permitted Swap Contracts defined in or arising pursuant to the terms of the Credit Agreement, including without limitation, any Master Swap Agreement executed pursuant to the Credit Agreement between any Debtor and an Approved Counterparty (together with all schedules and confirmations in respect thereof, as ratified, amended, supplemented, restated, extended or replaced from time to time).

ARTICLE III

REPRESENTATIONS AND WARRANTIES

In order to induce Secured Party to accept this Agreement, each Debtor represents and warrants to Secured Party (which representations and warranties will survive the creation of any Secured Obligations and the extension of any credit under the Credit Agreement) that:

Section 3.1      Ownership and Liens. Except for the security interest of Secured Party granted in this Agreement and except for liens, security interests and other encumbrances permitted under the Credit Agreement (“Permitted Encumbrances”), each Debtor owns title to the Collateral free and clear of any other liens, security interests and other encumbrances other than Permitted Encumbrances. Each Debtor has rights in or the right, power and authority to grant a security interest in the Collateral to Secured Party in the manner provided herein, free and clear of any other liens, security interests and other encumbrances other than Permitted Encumbrances. No other lien, security interest or other encumbrance has been created by any Debtor or is known by any Debtor to exist with respect to any Collateral other than Permitted Encumbrances. No financing statement or other security instrument is on file in any jurisdiction

1346459v5 4

covering any part of the Collateral other than those in favor of Secured Party and those filed with respect to Permitted Encumbrances. At the time the security interest in favor of Secured Party attaches to any after-acquired property included within the Collateral, title to such after-acquired property, free and clear of any other liens, security interests and other encumbrances (other than Permitted Encumbrances) will be vested in the applicable Debtor.

Section 3.2      Status of Accounts. Each Account hereafter arising will represent, and to the best knowledge of Debtors each Account now existing represents, the valid and legally enforceable obligations of a bona fide account debtor and is not and will not be subject to contra accounts, set-offs, defenses or counterclaims by or available to account debtors obligated on the Accounts except contra accounts, set-offs, defenses or counterclaims that, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect or as disclosed to Secured Party in writing; and the amount shown as to each Account on each Debtor’s books will be the true and undisputed amount owing and unpaid thereon, subject to any discounts, allowances, rebates, credits and adjustments to which the account debtor has a right and immaterial errors and omissions that, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, and which have arisen in each Debtor’s ordinary course of business, or which have otherwise been disclosed to Secured Party in writing.

Section 3.3      Status of Related Rights. All Related Rights are, and those hereafter arising will be, valid and genuine, except to the extent that any invalidity or lack of genuineness thereof could reasonably be expected to result in a Material Adverse Effect.

Section 3.4      Inventory Not Covered by Other Documents. No material portion of the Inventory is, and at the time the security interest in favor of Secured Party attaches no material portion of the Inventory hereafter acquired will be, covered by any document (as defined in the Code).

Section 3.5      Name; Organization; Authority. The exact legal name of each Debtor is set out in the preamble of this Agreement. Each Debtor is a corporation and is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization. The execution, delivery and performance of this Agreement has been duly authorized by all Corporate Action, and this Agreement constitutes the valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms, except as the enforceability thereof may be limited or affected by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general equitable principles.

Section 3.6      Location. As of the date hereof, each Debtor’s chief executive office and chief place of business is located at the address set out in Schedule 10.02 of the Credit Agreement. The office where each Debtor keeps its records concerning the Accounts and the General Intangibles and the originals of the Related Rights, if any, has the same address as such Debtor’s chief executive office and chief place of business. Debtors’ Inventory and Equipment (other than mobile goods) are located in the State of Kansas and such other states as Debtor shall have, from time to time, given written notice of to Secured Party.

Section 3.7      Secured Party’s Security Interest. This Agreement creates a valid and binding security interest in the Collateral securing the Secured Obligations, subject to the

1346459v5 5

Permitted Encumbrances. Upon filing the financing statements described in Section 4.9 of this Agreement covering the Collateral in the Office of the Secretary of State for the state in which each Debtor is organized and in the applicable filing offices of such other jurisdictions as are described in Section 4.9, Secured Party will have a perfected security interest in that Collateral in which a security interest may be perfected by filing, subject only to Permitted Encumbrances. No further or subsequent filing, recording, registration or other public notice of such security interest is necessary in any office or jurisdiction in order to perfect such security interest or to continue, preserve or protect such security interest except for continuation statements or for filings upon the occurrence of any of the events stated in Section 4.9 of this Agreement. Such perfected security interest in the Collateral shall constitute a first-priority security interest under the Code, subject only to Permitted Encumbrances.

ARTICLE IV

COVENANTS AND AGREEMENTS

Debtors will at all times comply with the covenants contained in this Article IV, from the date hereof and for so long as any part of the Secured Obligations are outstanding and until the Credit Agreement is terminated.

Section 4.1      Title; Prohibited Liens and Filings. Debtors agree to protect Debtors’ title to the Collateral. Debtors will not pledge, mortgage, otherwise encumber, create or suffer a lien to exist on any of the Collateral (other than Permitted Encumbrances and other than as permitted by the Credit Agreement) or, subject to Section 4.12 hereof, sell, assign, dispose or otherwise transfer any of the Collateral to or in favor of any Person other than Secured Party (other than as permitted by the Credit Agreement). Debtors will not file or permit to be filed or recorded any financing statement or other security instrument with respect to the Collateral other than in favor of Secured Party, in favor of other Persons with respect to Permitted Encumbrances, or as permitted by the Credit Agreement.

Section 4.2      Taxes, Etc. Debtors agree to pay prior to delinquency all taxes, charges, liens and assessments against the Collateral which, if unpaid, might result in the imposition of a lien on the Collateral; provided, however, Debtors shall not be required to pay any tax, charge, lien or assessment that is not yet past due or is being contested in good faith by appropriate proceedings diligently conducted by or on behalf of Debtors and if Debtors shall have set up reserves therefor adequate under generally accepted accounting principles.

Section 4.3      Possession of Collateral. Except (i) as otherwise contemplated in the Credit Agreement with regard to cash proceeds, (ii) where Secured Party chooses to perfect its security interest by possession in addition to the filing of a financing statement, or (iii) the Collateral is in transit in the ordinary course of business, the Collateral shall remain in Debtors’ possession or control at all times at Debtors’ risk of loss and shall (except for temporary removal consistent with its normal use) be kept at locations owned or leased by Debtors.

Section 4.4      Inspection of Collateral. Secured Party may inspect Debtors’ records concerning the Accounts and the General Intangibles, the originals of the Related Rights, if any, the Equipment, the Inventory and other Collateral in accordance with Section 6.10 of the Credit Agreement.

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Section 4.5      Filing Reproductions. At the option of Secured Party, a photographic or other reproduction of this Agreement or of a financing statement covering the Collateral may be filed as a financing statement.

Section 4.6      Delivery of Information. Debtors will transmit promptly to Secured Party all information that Debtors may have or receive with respect to (a) the Collateral, or (b) account debtors or obligors in respect of the Accounts, the General Intangibles and the Related Rights, in each case which could reasonably be expected to materially and adversely affect the aggregate value of the Collateral or Secured Party’s rights or remedies with respect thereto.

Section 4.7      Compromise of Collateral. Debtors will not adjust, settle or compromise any of the Accounts, the General Intangibles or the Related Rights without the prior written consent of Secured Party, or other than in a manner that does not materially and adversely affect the aggregate value of the Collateral and in the ordinary course of business.

Section 4.8      Expenses. Debtors agree to pay to Secured Party at Secured Party’s offices, all advances, charges, costs and expenses (including reasonable attorneys’ fees and legal expenses) incurred by Secured Party in connection with this Agreement, to the extent required by Section 10.04 of the Credit Agreement. The amount of all such advances, charges, costs and expenses shall constitute Secured Obligations and shall be due and payable by Debtors to Secured Party as provided in the Credit Agreement.

Section 4.9      Financing Statement Filings; Notifications. Debtors recognize that financing statements pertaining to the Collateral will be filed with the Office of the Secretary of State for the state in which Debtors are organized and certain Collateral Documents (as defined in the Credit Agreement) will be filed in each county in the State in which “Mortgaged Property” (as defined in the Mortgage) is located. Debtors will promptly notify Secured Party of any condition or event that may change the proper location for the filing of any financing statements or other public notice or recordings for the purpose of perfecting a security interest in the Collateral. Without limiting the generality of the foregoing, Debtors will (a) promptly notify Secured Party of any change to a jurisdiction other than as represented in Section 3.5 or Section 3.6: (i) in the location of any Debtor’s registered office; (ii) in the location of the Inventory (other than Inventory sold or leased in the ordinary course of business); (iii) in the location where the Equipment is kept (other than Equipment removed in the ordinary course of business for not more than thirty (30) days) or disposed of as permitted by the Credit Agreement; (iv) in the location of the office where any Debtor keeps its records concerning the Accounts; or (v) in the “location” of any Debtor within the meaning of the Code; (b) prior to any of the Collateral becoming so related to any particular real estate so as to become a fixture on such real estate, notify Secured Party of the description of such real estate and the name of the record owner thereof; and (c) promptly notify Secured Party of any change in any Debtor’s name, identity or organizational structure. In any notice furnished pursuant to this section, Debtors will expressly state that the notice is required by this Agreement and contains facts that will or may require additional filings of financing statements or other notices for the purpose of continuing perfection of Secured Party’s security interest in the Collateral.

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Section 4.10    Maintenance of Collateral Generally. Debtors will (a) maintain all the Collateral in good condition, repair, and working order (ordinary wear and tear excepted); (b) not abuse, waste, destroy or allow the Collateral to deteriorate, except, with respect to the Equipment only, for ordinary wear and tear from its intended use; (c) promptly, or in the case of any loss or damage to any goods included in the Collateral as soon as practicable, make or cause to be made all repairs, replacements or other improvements to the Collateral as are necessary or desirable to accomplish the foregoing; and (d) not use any Collateral in violation of any material law, statute, ordinance or regulation or allow it to be so used; except, in each case, to the extent Debtors’ failure to comply with the foregoing could not reasonably be expected to result in a Material Adverse Effect.

Section 4.11    Account Obligations. Debtors will duly perform or cause to be performed all material obligations of Debtors with respect to the goods or services, the sale or lease or rendition of which gave rise or will give rise to each Account relating thereto, except to the extent Debtors’ failure to so perform or to cause such performance could not reasonably be expected to result in a Material Adverse Effect.

Section 4.12    Use of Inventory. Until an Event of Default has occurred and is continuing, Debtors may use their Inventory in any lawful manner not inconsistent with this Agreement and the Credit Agreement and with the terms of insurance thereon and may sell, lease or otherwise dispose of their Inventory in the ordinary course of business. Debtors will not and shall not be permitted to use any item of Inventory in a manner inconsistent with the holding thereof for sale, lease or disposition in the ordinary course of business or in contravention of the terms of any material agreement. A sale, lease or disposition in the ordinary course of business does not include the exchange of items of Inventory for goods in kind or otherwise or transfers of items of Inventory made in satisfaction of present or future Secured Obligations, except pursuant to netting agreements or other similar arrangements with Approved Counterparties.

Section 4.13    Proceeds. All proceeds received by Debtors from the sale or disposition of any portion of the Collateral, all proceeds received by Debtors in the ordinary course of business and all other proceeds of the Collateral shall be delivered or paid to Secured Party as provided in the Credit Agreement. To evidence Secured Party’s rights in this regard, Debtors will assign or endorse proceeds to Secured Party as Secured Party reasonably requests. Secured Party may, from time to time, in its discretion, hold non-cash proceeds as part of the Collateral or apply cash proceeds of the Collateral received by Secured Party in the manner set out in Section 5.2 of this Agreement. Subject to the terms and conditions set out in the Credit Agreement, Debtors will notify obligors on all of the Accounts and Related Rights to make payments directly to Secured Party, and upon the occurrence and continuation of an Event of Default, Secured Party may endorse as Debtors’ agent any checks, instruments, chattel paper or other documents connected with the Collateral. Secured Party may take any action reasonably necessary to obtain, preserve and enforce the liens granted hereunder and maintain and preserve the Collateral.

Section 4.14    Insurance. Debtors shall have and maintain, or cause to be had and maintained, insurance as provided in the Credit Agreement. Following the occurrence and during the continuation of any Event of Default, Secured Party may act as attorney-in-fact for Debtors and Debtors hereby irrevocably appoint Secured Party as Debtors’ true and lawful attorney-in-fact with full power of substitution, in Secured Party’s name or either Debtor’s name

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or otherwise, but at Debtors’ cost and expense and without notice to Debtors to obtain and adjust such insurance and endorse any draft drawn by insurers of the goods included in the Collateral. If any insurance policy covering the goods included in the Collateral expires or is canceled before the Secured Obligations are paid in full or otherwise fully performed, and before the Credit Agreement is terminated, at Secured Party’s option, Secured Party may, at Debtors’ expense, obtain replacement insurance consistent with the amount and type thereof required by the Credit Agreement which may, but need not, be single interest insurance in favor of Secured Party.

Section 4.15    Collateral not to be Fixture or Accession. Debtors will not permit any material portion of the Collateral to be installed in or affixed to other goods so as to become an accession to such other goods unless such other goods are included in the Collateral; in the event that any material portion of the Collateral is to become so related to any particular real estate so as to become a fixture on such real estate or so installed or affixed to other goods, prior thereto Debtors will (i) notify Secured Party of such fact and (ii) upon demand of Secured Party furnish written consents to Secured Party’s security interest and disclaimers of any interest in such Collateral signed by any Person having an interest in such real estate or such other goods, if applicable.

Section 4.16    Loss or Damage to Equipment. Debtors shall provide notice to Secured Party of any material loss or damage to any Equipment, unless such loss or damage could not reasonably be expected to result in a Material Adverse Effect, and shall not permit any such Equipment to become a fixture to real estate or an accession to other personal property other than in compliance with the Credit Agreement and Section 4.15 above.

Section 4.17    Third-Party Acknowledgments; Control Agreements. If any material portion of the Collateral is in the possession of a third-party, upon Secured Party’s request, Debtors will join with Secured Party in notifying the third-party of Secured Party’s security interest and obtaining an acknowledgment in form and substance reasonably satisfactory to Secured Party from such third-party that it is holding such Collateral for the benefit of the Secured Party. Debtors will fully cooperate with Secured Party in obtaining a control agreement in form and substance reasonably satisfactory to Secured Party with respect to any Collateral consisting of deposit accounts (other than trust accounts and joint operating accounts), investment property, electronic chattel paper or letter of credit rights.

Section 4.18    Further Assurances. Debtors will from time to time sign, execute, deliver and file, alone or with Secured Party, upon reasonable request, any financing statements, security agreements or other documents necessary to perfect or continue in favor of Secured Party a first-priority security interest (subject to the Permitted Encumbrances) in the Collateral; procure any necessary instruments or documents as may be reasonably requested by Secured Party; and take all further action that may be necessary, or that Secured Party may reasonably request, in each case, to confirm, perfect, preserve and protect the security interests intended to be granted hereby. Notwithstanding the previous sentence, however, Debtors hereby authorize Secured Party to file such financing statements, without the signature of Debtors either in Secured Party’s name or in the name of Debtors. Debtors shall do all such additional and further acts or things, give such assurances and execute such documents or instruments as Secured Party reasonably requires to vest more completely in and assure to Secured Party its rights under this Agreement, including, without limiting the generality of the foregoing, (a) marking conspicuously each

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chattel paper or electronic chattel paper included in the Collateral and, at the request of Secured Party, each Debtor’s records pertaining to the Collateral with a legend, in form and substance reasonably satisfactory to Secured Party, indicating that such chattel paper or Collateral is subject to the security interest granted by this Agreement, and (b) if any Account, General Intangible or Related Right is evidenced by a promissory note, chattel paper, electronic chattel paper or other instrument, transferring, delivering, assigning to Secured Party such promissory note, chattel paper, electronic chattel paper or other instrument duly endorsed and authenticated and accompanied by duly executed instruments of transfer and assignment, all in form and substance reasonably satisfactory to Secured Party, to be held by Secured Party as Collateral under this Agreement.

ARTICLE V

RIGHTS, REMEDIES AND DEFAULT

Section 5.1      With Respect to Collateral. Secured Party is hereby fully authorized and empowered (without the necessity of any further consent or authorization from Debtors) and the right is expressly granted to Secured Party, and Debtors hereby constitute, appoint and make Secured Party as Debtors’ true and lawful attorney-in-fact and agent for Debtors and in Debtors’ name, place and stead with full power of substitution, in Secured Party’s name or Debtors’ name or otherwise, for Secured Party’s sole use and benefit, but at Debtors’ cost and expense, but only to exercise, without notice, the following powers at any time following the occurrence and during the continuation of an Event of Default hereunder with respect to all or any of the Collateral:

(a)       notify account debtors or the obligors on the Accounts, the General Intangibles and the Related Rights to make and deliver payment to Secured Party;

(b)       to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due by virtue thereof and otherwise deal with proceeds;

(c)       to receive, take, endorse, assign and deliver any and all checks, notes, drafts, documents and other negotiable and non-negotiable instruments and chattel paper taken or received by Secured Party in connection therewith;

(d)       to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto;

(e)       to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof or the relative goods, as fully and effectively as if Secured Party were the absolute owner thereof; and

(f)        to extend the time of payment of any or all thereof and to grant waivers and make any allowance or other adjustment with reference thereto;

provided, however, Secured Party shall be under no obligation or duty to exercise any of the powers hereby conferred upon it and shall be without liability for any act or failure to act in connection with the collection of, or the preservation of any rights under, any Collateral.

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Section 5.2      Application of Proceeds. All proceeds paid to and received by Secured Party on account of the Collateral will be, at the option of Secured Party, applied by Secured Party to the Secured Obligations in accordance with the terms and provisions of the Credit Agreement, whether or not such Secured Obligations shall have by their terms matured; provided, however, Secured Party need not apply or give credit for any item included in such sums until Secured Party has received final payment thereof as required under the Credit Agreement or solvent credits accepted as such by Secured Party; and providedfurther that Secured Party’s failure to so apply any such sums shall not be a waiver of Secured Party’s right to so apply such sums or any other sums at any time.

Section 5.3      Events of Default. An “Event of Default” under this Agreement shall occur upon the occurrence of an “Event of Default” under the Credit Agreement.

Section 5.4      Default Remedies. Upon the occurrence and during the continuation of any Event of Default, Secured Party may then, or at any time thereafter and from time to time after giving any notice required under the Credit Agreement, if any notice is required with respect to such Event of Default, apply, set-off, collect, sell in one or more sales, lease, or otherwise dispose of, any or all of the Collateral, in its then condition or, at Secured Party’s option, following any commercially reasonable preparation or processing, in such order as Secured Party may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere, or at any brokers’ board or securities exchange, either for cash or upon credit or for future delivery, and Secured Party may be the purchaser of any or all Collateral so sold and may hold the same thereafter in its own right free from any claim of Debtors or right of redemption. No such purchase or holding by Secured Party shall be deemed a retention by Secured Party in satisfaction of the Secured Obligations. All demands, notices and advertisements, and the presentment of property at sale are hereby waived except to the extent reasonably necessary to conduct a commercially reasonable sale. If, notwithstanding the foregoing provisions, any applicable provision of the Code or other law requires Secured Party to give reasonable notice of any such sale or disposition or other action, Debtors hereby agree that ten (10) days prior written notice shall constitute reasonable notice. Upon the occurrence and during the continuation of any Event of Default, Secured Party may require Debtors to assemble the Collateral and make it available to Secured Party at a place designated by Secured Party which is reasonably convenient to Secured Party and Debtors. Any sale hereunder may be conducted by an auctioneer or any officer or agent of Secured Party.

Section 5.5      Deficiency. Debtors shall remain liable to Secured Party for any unpaid Secured Obligations, advances, costs, charges and expenses, together with interest thereon and shall pay the same immediately to Secured Party as set out in the Credit Agreement.

Section 5.6      Secured Party’s Duties. The powers conferred upon Secured Party by this Agreement are solely to protect the interest of Secured Party in the Collateral and shall not impose any duty upon Secured Party to exercise any such powers. Secured Party shall be under no duty whatsoever to make or give any presentment, demand for performance, notice of nonperformance, protest, notice of protest, notice of dishonor, or other notice or demand in connection with any Collateral or the Secured Obligations, or to take any steps necessary to preserve any rights against prior parties. Secured Party shall not be liable for failure to collect or realize upon any or all of the Secured Obligations or Collateral, or for any delay in so doing, nor shall Secured Party be under any duty to take any action whatsoever with regard thereto.

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Secured Party shall use reasonable care in the custody and preservation of any Collateral in its possession. Secured Party shall have no duty to comply with any recording, filing, or other legal requirements necessary to establish or maintain the validity, priority or enforceability of, or Secured Party’s rights in or to, any of the Collateral.

Section 5.7      Secured Party’s Actions. To the extent permitted by applicable law, Debtors waive any right to require Secured Party to proceed against any Person, exhaust any Collateral, or have any Other Liable Party joined with Debtors in any suit arising out of the Secured Obligations or this Agreement or pursue any other remedy in Secured Party’s power; waive any and all notice of acceptance of this Agreement or of creation, modification, rearrangement, renewal or extension for any period of any of the Secured Obligations from time to time; and waive any defense arising by reason of any disability or other defense of any Other Liable Party, or by reason of the cessation from any cause whatsoever of the liability of any Other Liable Party. All dealings between Debtors and Secured Party, whether or not resulting in the creation of the Secured Obligations, shall conclusively be presumed to have been had or consummated in reliance upon this Agreement. Until all the Secured Obligations shall have been paid in full or otherwise fully performed and the Credit Agreement has terminated in accordance with its terms, Debtors shall have no right to subrogation, and Debtors waive until all the Secured Obligations shall have been paid in full or otherwise fully performed and the Credit Agreement has terminated in accordance with its terms, any right to enforce any remedy which Secured Party now has or may hereafter have against any Other Liable Party and waives any benefit of and any right to participate in any Collateral or security whatsoever now or hereafter held by Secured Party. Debtors authorize Secured Party, without notice or demand and without any reservation of rights against Debtors and without affecting Debtors’ liability hereunder or on the Secured Obligations, from time to time to (a) take and hold any other property of Debtors as collateral, other than the Collateral, for the payment of any or all of the Secured Obligations, and exchange, enforce, waive and release any or all of the Collateral or such other property; (b) upon the occurrence and during the continuation of any Event of Default, apply the Collateral or such other property to the Secured Obligations and direct the order or manner of sale thereof as Secured Party in its discretion may reasonably determine; (c) renew, extend for any period, accelerate, modify, compromise, settle or release the obligation of any Other Liable Party with respect to any or all of the Secured Obligations or Collateral; (d) waive, enforce, modify, amend or supplement any of the provisions of any of the Security Documents, the Credit Agreement or the Note or any other promissory note or document evidencing any of the Secured Obligations (except for an amendment or supplement to any of the foregoing to which a Debtor is a party to the extent such amendment or supplement requires the consent of Debtors); and (e) release or substitute any Other Liable Party.

Section 5.8      Transfer of Secured Obligations and Collateral. Secured Party may transfer any or all of Secured Party’s interest in the Secured Obligations in accordance with the terms of the Credit Agreement, and upon any such transfer Secured Party may transfer its security interest in any or all of the Collateral and shall be fully discharged thereafter from all liability with respect to the Collateral transferred, and the transferee shall be vested with all rights, powers and remedies of Secured Party hereunder with respect to Collateral so transferred; provided, however, with respect to any security interest in the Collateral not so transferred, Secured Party shall retain all rights, powers and remedies provided under this Agreement. Secured Party may at any time deliver any or all of the Collateral to Debtors whose receipt shall

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be a complete and full acquittance for the Collateral so delivered, and Secured Party shall thereafter be discharged from any liability therefor.

Section 5.9      Cumulative Security and Rights. The execution and delivery of this Agreement in no manner shall impair or affect any other security (by endorsement or otherwise) for the Secured Obligations. No security taken hereafter as security for the Secured Obligations shall impair in any manner or affect this Agreement. All such present and future additional security is to be considered as cumulative security. The rights, powers and remedies of Secured Party hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of any other rights, powers and remedies of Secured Party. Furthermore, regardless of whether or not the Uniform Commercial Code is in effect in the jurisdiction where such rights, powers and remedies are asserted, Secured Party shall have the rights, powers and remedies of a secured party under the Code. Secured Party may exercise its bankers’ lien or right of set-off with respect to the Secured Obligations in the same manner as if the Secured Obligations were unsecured.

Section 5.10    Continuing Agreement. This is a continuing Agreement and the grant of a security interest hereunder shall remain in full force and effect and all the rights, powers and remedies of Secured Party hereunder shall continue to exist until (a) the Secured Obligations are paid in full or otherwise fully performed, and (b) the Credit Agreement has terminated in accordance with its terms, at which time Secured Party shall deliver or cause to be delivered to Debtors, at Debtors’ expense, releases and satisfactions, or transfers without warranty, of all Collateral, including releases of deeds of trust and mortgages, financing statements, and other registrations of security with respect to the Collateral, and Debtors shall deliver to Secured Party a general release of all of Secured Party’s liabilities and obligations under the Loan Documents and an acknowledgment that the same have been terminated. Furthermore, it is contemplated by the parties hereto that there may be times when no Secured Obligations are owing; notwithstanding such occurrences, however, this Agreement shall remain valid and shall be in full force and effect as to subsequent Secured Obligations provided Secured Party has not executed a written termination statement and returned possession of the Collateral to Debtors. Otherwise this Agreement shall continue irrespective of the fact that the liability of any Other Liable Party may have ceased, or irrespective of the validity or enforceability of the Note or any of the Security Documents, including the Credit Agreement, to which any Other Liable Party may be a party, and notwithstanding the reorganization, death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding the reorganization or bankruptcy of any Debtor, or any other event or proceeding affecting any Debtor or any Other Liable Party.

Section 5.11    Exercise of Rights, Etc. Time shall be of the essence for the performance of any act under this Agreement or the Secured Obligations by Debtors or Other Liable Party, but neither Secured Party’s acceptance of partial or delinquent payments nor any forbearance, failure or delay by Secured Party in exercising any right, power or remedy shall be deemed a waiver of any obligation of Debtors or of Other Liable Party or of any right, power or remedy of Secured Party or preclude any other or further exercise thereof; and no single or partial exercise of any right, power or remedy shall preclude any other or further exercise thereof, or the exercise of any other right, power or remedy.

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Section 5.12    Remedy and Waiver. Secured Party may remedy any Default or Event of Default without waiving the Default or Event of Default or waiving any prior or subsequent Default or Event of Default.

Section 5.13    Non-Judicial Remedies. Secured Party may enforce its rights hereunder without prior judicial process or judicial hearing, and Debtors expressly waive, renounce and knowingly relinquish any and all legal rights which might otherwise require Secured Party to enforce its rights by judicial process. In so providing for non-judicial remedies, Debtors recognize and concede that such remedies are consistent with the usage of the trade, are responsive to commercial necessity, and are the result of bargain at arm’s length. Nothing herein is intended to prevent Secured Party or Debtors from resorting to judicial process at any party’s option.

Section 5.14    Compliance with Other Laws. Secured Party may comply in all material respects with the requirements of any applicable state or federal law in connection with the disposition of all or any part of the Collateral, and compliance with such laws will not be considered to adversely affect the commercial reasonableness of any sale of all or any part of the Collateral.

Section 5.15    Disclaimer of Warranties. Secured Party may sell the Collateral without giving any warranties as to the Collateral. Secured Party may specifically disclaim any warranties of title or similar warranties. The disclaimer of any such warranties will not be considered to adversely affect the commercial reasonableness of any sale of all or any part of the Collateral.

Section 5.16    Sales on Credit. If Secured Party sells all or any part of the Collateral upon credit, Debtors will be credited only with payments actually made by the purchaser, received by the Secured Party and applied against the Secured Obligations. In the event the purchaser fails to pay for the Collateral, Secured Party may resell the Collateral and Debtors shall be credited with the proceeds of such sale.

ARTICLE VI

MISCELLANEOUS

Section 6.1      Preservation of Liability. Neither this Agreement nor the exercise by Secured Party of (or the failure to so exercise) any right, power or remedy conferred herein or by law shall be construed as relieving any Person liable on the Secured Obligations from liability on the Secured Obligations and for any deficiency thereon.

Section 6.2      Notices. Any record, notice, demand or document which either party is required or may desire to give hereunder shall be given as provided in the Credit Agreement.

Section 6.3      Choice of Law. THIS SECURITY AGREEMENT HAS BEEN MADE IN AND THE SECURITY INTEREST GRANTED HEREBY IS GRANTED IN AND EACH SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS (EXCEPT TO THE EXTENT THAT THE LAWS OF ANY OTHER JURISDICTION GOVERN THE PERFECTION AND PRIORITY OF THE SECURITY INTEREST GRANTED HEREBY) WITHOUT REGARD TO ITS CONFLICTS OF LAWS PRINCIPLES.

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Section 6.4      Amendment and Waiver. This Agreement may not be amended (nor may any of its terms be waived) except in the manner provided in the Credit Agreement.

Section 6.5      Severability. If any provision of this Agreement is rendered or declared invalid, illegal or unenforceable by reason of any existing or subsequently enacted legislation or by a judicial decision which shall have become final, Debtors and Secured Party shall promptly meet and discuss substitute provisions for those rendered invalid, illegal or unenforceable, but all of the remaining provisions shall remain in full force and effect.

Section 6.6      Survival of Agreements. All representations and warranties of Debtors herein, and all covenants and agreements herein not fully performed before the effective date of this Agreement, shall survive such date.

Section 6.7      Counterparts. This Agreement may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof. Each counterpart shall be deemed an original, but all such counterparts taken together shall constitute one and the same instrument. This Agreement may be transmitted and signed by facsimile and portable document format (PDF). The effectiveness of any such documents and signatures shall, subject to applicable Laws, have the same force and effect as manually-signed originals and shall be binding on Debtors and Secured Party. Secured Party may also require that any such documents and signatures be confirmed by a manually-signed original; provided that, the failure to request or deliver the same shall not limit the effectiveness of any facsimile or PDF document or signature.

Section 6.8      Successors and Assigns. The covenants and agreements herein contained by or on behalf of Debtors shall bind Debtors, each Debtor’s legal representatives, successors and assigns and all persons who become bound as a debtor to this Agreement and shall inure to the benefit of Secured Party, its successors and permitted assigns, in each case as provided under the Credit Agreement.

Section 6.9      Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this Agreement are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto.

Section 6.10    WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, EACH OF THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE NOTE, THIS AGREEMENT OR THE OTHER SECURITY DOCUMENTS, OR ANY TRANSACTION CONTEMPLATED THEREBY, BEFORE OR AFTER MATURITY.

Section 6.11    Interest. It is the intention of the parties hereto to comply strictly to usury laws applicable to the Secured Party. Interest on the indebtedness is expressly limited so that in no contingency or event whatsoever, whether by acceleration of the maturity of the Note or otherwise, shall the interest taken, reserved, contracted for, charged or received by the Secured

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Party exceed the maximum amount permissible under applicable law. If from any circumstances whatsoever fulfillment of any provisions of the Credit Agreement, this Agreement, any of the other Security Documents or of any other document evidencing, securing or pertaining to the indebtedness evidenced by the Note, at the time performance of such provision shall be due, would be usurious under applicable law, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity so that the aggregate consideration which constitutes interest that is contracted for, taken, reserved, charged for, or received shall not exceed the maximum amount allowed by applicable law and such amount that would otherwise be excessive interest shall be applied to the reduction of the principal amount owing under the Note or on account of any other indebtedness of the Debtors to the Secured Party, or if principal of the Note and such other indebtedness has been paid in full, refunded to the Debtors. In determining whether or not the interest paid or agreed to be paid for the use, forbearance, or detention of sums hereunder exceeds the highest lawful rate, the Debtors and the Secured Party shall, to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, (c) amortize, prorate, allocate and spread the total amount of interest throughout the full term of such indebtedness so that the actual rate of interest on account of such indebtedness does not exceed the highest lawful rate, and/or (d) allocate interest between portions of such indebtedness, to the end that no such portion shall bear interest at a rate greater than that permitted by applicable law.

THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS ADDRESSED HEREIN AND THEREIN AND WILL NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

(Signatures on the following pages)

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IN WITNESS WHEREOF, the undersigned hereby execute this Agreement to be effective as of the date first set out above.

DEBTORS:

ENERJEX RESOURCES, INC.,

a Nevada corporation

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

ENERJEX KANSAS, INC.,

a Nevada corporation

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

DD ENERGY, INC.,

a Nevada corporation

By: /s/ Steve Cochennet

Steve Cochennet

Chief Executive Officer

Signature Page to Security Agreement

SECURED PARTY:

TEXAS CAPITAL BANK, N.A.,

as Administrative Agent and a Bank

By: /s/ Jonathan Gregory

Jonathan Gregory

Executive Vice President

Signature Page to Security Agreement

EX-10

July 3, 2008

EnerJex Kansas, Inc.

7300 West 110th Street

Seventh Floor

Overland Park, Kansas 66210

EnerJex Resources, Inc.

7300 West 110th Street

Seventh Floor

Overland Park, Kansas 66210

Attn: Steve Cochennet, CEO

Re:      Debenture Redemption and Amendment to Transaction Documents (this “Letter Agreement”)

Dear Mr. Cochennet:

Reference is made to that certain Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of April 11, 2007, by and among EnerJex Kansas, Inc. (f/k/a Midwest Energy, Inc.) (“EJK”), EnerJex Resources, Inc. (“Parent” and, together with EJK, the “Company”), DKR Soundshore Oasis Holding Fund Ltd, West Coast Opportunity Fund, LLC, Enable Growth Partners LP, Enable Opportunity Partners LP, Glacier Partners LP and Frey Living Trust (each individually a “Buyer” and, collectively, the “Buyers”) pursuant to which (i) the Company issued a new series of senior secured debentures of the Company (the “Debentures”); (ii) the Buyers purchased the Debentures from the Company in an aggregate amount equal to $9,000,000; (iii) the Company and Buyers entered into that certain Registration Rights Agreement (the “Registration Rights Agreement”), dated as of April 11, 2007; and (iv) the Company and Buyers entered into that certain Pledge and Security Agreement (the “Security Agreement”), dated as of April 11, 2007.

WHEREAS:

A.        The Company wishes to incur new indebtedness (the “New Company Debt”), pursuant to that certain credit agreement dated July 3, 2008 (the “Credit Agreement”), by and among Parent, EJK, DD Energy, Inc., Texas Capital Bank, N.A. and the several banks and financial institutions from time to time parties to the Credit Agreement (the “Banks”) in accordance with the terms of the Credit Agreement set forth on Exhibit A.

B.        The Buyers wish to enter into a Subordination Agreement between the Banks and the Buyers, in the form set forth on Exhibit B (the “Subordination Agreement”).

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C.        Pursuant to the terms and conditions of the Debentures, the Company is restricted from incurring any Indebtedness other than Permitted Indebtedness and therefore requires the written consent of the Buyers in order to incur the New Company Debt.

D.        As consideration for the Buyers’ agreement to consent to the incurrence by the Company of the New Company Debt, the Company desires to redeem those certain Debentures issued on April 11, 2007 (the “April Debentures”), including all accrued and unpaid Interest on such Debentures in the amounts set forth on Schedule 1 hereto.

E.        Following the redemption of the April Debentures, the Buyers will continue to hold those certain Debentures issued by the Company on June 21, 2007 (the “June Debentures”).

F.        The Company desires to raise additional capital through either (i) an equity offering or (ii) the incurrence of additional Indebtedness (any such equity offering or incurrence of additional Indebtedness, an “Offering”) following the redemption of the April Debentures.

G.        The Company and the Buyers agree that all of the proceeds received by the Company from any Offering shall first be applied to redeem the June Debentures.

H.        The Company and the Buyers wish to amend certain Sections of the Securities Purchase Agreement, the June Debentures, and the Registration Rights Agreement as set forth herein.

I.         Section 9(e) of the Securities Purchase Agreement, Section 9 of the Debentures, and Section 10 of the Registration Rights Agreement provide that the respective Transaction Document may be amended by written consent of the Company and holders of at least sixty-five percent of the aggregate number of Registrable Securities issued under the Securities Purchase Agreement, and the undersigned constitute such requisite holders.

NOW THEREFORE, in consideration of the premises and mutual promises herein contained, the Company and the Buyers hereby agree as follows:

1.         Defined Terms. Capitalized terms used in this Letter Agreement which are not defined herein shall have the meaning ascribed to them in the Securities Purchase Agreement, the Debentures, the Security Agreement or the Registration Rights Agreement, as applicable.

2.        Redemption and Consent to New Company Debt. Upon (a) each Buyer’s receipt of notice from the Banks that all of the conditions precedent to the New Company Debt have occurred, (b) each Buyer’s receipt of a fully executed counterpart of this Letter Agreement signed by the Company, and (c) the receipt of a federal funds wire transfer by the Buyers in the amounts set forth on Schedule 1 (in total, the “Payoff Amount”), which amount represents the entire obligations of Principal and accrued but unpaid Interest outstanding under the April Debentures (the time at which all of the conditions in the foregoing clauses (a), (b), and (c) shall first be satisfied is herein referred to as the “Payoff Effective Time”), the Buyers consent to the Company’s redemption of the April Debentures and the incurrence by the Company of the New Company Debt.

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3.        Subordination. The Buyers and the Banks shall enter into the Subordination Agreement which shall be effective as of the Payoff Effective Time.

4.        No Violation. The Buyers hereby agree that the redemption of the April Debentures as described in Section 2 is in compliance with, and shall not constitute a violation of, Section 5 of the Debentures (including the obligation to provide notice by the sixth (6th) Trading Day prior to redemption).

5.        Company Offering. The Company covenants and agrees that any net proceeds from any Offering shall first be applied to fully redeem the obligations of Principal and accrued but unpaid Interest outstanding under the June Debentures. If the net proceeds from any such Offering are not sufficient to fully redeem all obligations of Principal and accrued but unpaid Interest outstanding under the June Debentures, then the Company shall apply all of the net proceeds of the Offering to redeem a pro rata amount of the June Debentures from each holder based on the principal amount of the June Debentures at that time outstanding. For the avoidance of doubt, the parties agree that no provision of this Letter Agreement shall constitute (i) a waiver of Buyers’ rights pursuant to Section 4(o) of the Securities Purchase Agreement or (ii) a consent for the incurrence by the Company of further additional Indebtedness (other than the New Company Debt pursuant to paragraph 2 above).

6.        Amendments to June Debentures. The Company and the Buyers hereby agree that:

a. Section 8(a) of each of the June Debentures is modified in its entirety to read as follows:

“Rank. All payments due under this Debenture (a) shall rank pari passu with all Other Debentures and (b) except for payments with respect to the Credit Agreement in accordance with the terms of the Subordination Agreement, shall be senior in right of payment to all other Indebtedness of the Company and its Subsidiaries, other than Permitted Indebtedness to the extent secured by Permitted Liens.”

b. Section 8(g) of each of the June Debentures is modified in its entirety to read as follows:

“Additional Collateral. With respect to any Property acquired after the Initial Closing Date by the Company or any of its Subsidiaries as to which the Holder does not have a perfected Lien, promptly (i) execute and deliver to the Holder or its agent such amendments to the Security Agreement or such other documents as such Holder deems necessary or advisable to grant to the Holder a security interest in such Property and (ii) take all actions necessary or advisable to grant to the Holder, for the benefit of the Secured Parties, a perfected first priority security interest in such Property (subject only to any Permitted Senior Liens), including without limitation, the filing of Mortgages and UCC financing statements in such jurisdictions as may be required by the Security Agreement or by

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law or as may be requested by such Holder; provided that no such Mortgages shall be required on or before the date that is 20 days following the Initial Closing Date.”

c. New subsections (c), (d) and (e) are added to the definition of “Permitted Indebtedness” in Section 21(s) of each of the June Debentures, as follows:

“(c) indebtedness under the credit agreement dated July 3, 2008 (the “Credit Agreement”), by and among EnerJex Resources, Inc., EnerJex Kansas, Inc., DD Energy, Inc., Texas Capital Bank, N.A. and the several banks and financial institutions (the “Banks”) from time to time parties to the Credit Agreement;

(d) indebtedness under that certain contract entered into between Shell Trading (US) Company and EnerJex Kansas, Inc. referred to as  STUSCO Purchase Contract No.: DEA081800 on March 6, 2008 for a fixed-price swap for 130 barrels of oil per day of our crude oil production for an eighteen month period beginning April 1, 2008 and continuing through September 30, 2009, as may be extended or renewed;

(e) Indebtedness under that certain ISDA Master Agreement with BP Corporation North America Inc. ("BP"), whereby  the Company agreed to an 18-month fixed-price swap with BP beginning on October 1, 2009 for 130  barrels of oil per day at a  floor price of $132.50 per barrel of oil and a cap price of $155.70 per barrel of oil, beginning October 2009 through March 31, 2011, as may be extended or renewed (the contracts identified in this clause (e) and clause (d) above, collectively, the "Permitted Hedge Contracts"); and

(f) reimbursement obligations under the Irrevocable Standby Letter of Credit issued by Cornerstone Bank, on behalf of Enerjex Kansas, Inc., for the benefit of Shell Trading (US) Company in the amount of $2,000,000 (the “Cornerstone LC”).

d. Section 21(t) of each of the June Debentures shall be modified in its entirety to read as follows:

““Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings (subsections (i)-(iii) collectively, “Permitted Junior Liens”), and (iv) Liens securing the Company’s obligations under the Debentures, (v) Liens securing purchase money debt, Capital

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Lease Obligations or other Indebtedness incurred pursuant to clause (a) of the definition of Permitted Indebtedness, provided that such Liens do not extend and otherwise are not recourse to any assets of the Company or its Subsidiaries other than the interests in property, equipment, entities or other assets acquired with such purchase money debt, Capital Lease Obligations or other Indebtedness, (vi) Liens securing the Credit Agreement and Permitted Hedge Contracts, (vii) Liens in favor of operators, non-operators, vendors, carriers and others, which are incident to the exploration, development, operation and maintenance of oil and gas properties, and (viii) cash collateral deposited with Cornerstone Bank and securing the Cornerstone LC (subsections (iv)-(viii) collectively, “Permitted Senior Liens”).”

e. Sections 21(hh) and (ii) shall be renumbered Sections 21(ii) and (jj), respectively.

f. A new Section 21(hh) shall be added to each of the June Debentures, as follows:

““Subordination Agreement” means that certain subordination agreement dated as of July 3, 2008, by and among Texas Capital Bank, N.A., as administrative agent for itself and certain other creditors, DKR Soundshore Oasis Holding Fund Ltd., West Coast Opportunity Fund, LLC, Enable Growth Partners LP, Enable Opportunity Partners LP, Glacier Partners LP, and Frey Living Trust.”

7.        Amendments to Securities Purchase Agreement. The Company and the Buyers hereby agree that Sections 4(q) and 4(r) are deleted in their entirety, and the following is hereby substituted therefor: “[Intentionally Deleted]”.

8.         Amendments to Registration Rights Agreement. The Company and the Buyers hereby agree that:

a. Recital C. of the Registration Rights Agreement is deleted in its entirety, and the following is hereby substituted therefor: “[Intentionally Deleted]”;

b. The definition of “Registrable Securities” in Section 1(k) of the Registration Rights Agreement is modified in its entirety to read as follows:

“‘Registrable Securities’ means (i) the Closing Securities, (ii) the Interest Shares issued pursuant to the Debentures, and (iii) any share capital of the Parent issued or issuable with respect to the Closing Securities or the Interest Shares as a result of any share split, share dividend, recapitalization, exchange or similar event or otherwise.”

c. Section 2(a)(4) of the Registration Rights Agreement is deleted in its entirety, and the following is hereby substituted therefor: “[Intentionally Deleted]”.

d. The first sentence of Section 2(d) of the Registration Rights Agreement is modified in its entirety to read as follows:

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“If (i) a Registration Statement covering all of the Registrable Securities required to be covered thereby and required to be filed by Parent pursuant to this Agreement is not declared effective by the SEC on or before the respective Effectiveness Deadline (an “Effectiveness Failure”) or (ii) on any day after the Effective Date sales of all of the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(r)) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement or to register a sufficient number of shares of Common Stock) (a “Maintenance Failure”) then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell the underlying shares of Common Stock (which remedy shall not be exclusive of any other remedies available at law or in equity), Parent shall pay to each holder of Registrable Securities relating to such Registration Statement an amount in cash equal to 1.5% of the aggregate purchase price allocable to such Investor’s Registrable Securities included in such Registration Statement for each thirty day period (pro rated for periods totaling less than thirty days) following such Effectiveness Failure or Maintenance Failure, based on a purchase price of $0.50 per share of Registrable Securities, as adjusted for any stock splits, reverse stock splits, combinations or other similar actions.”

9.         Amendments to Security Agreement. The Company and the Buyers hereby agree that:

a. Section 3(e) of the Security Agreement shall be modified in its entirety to read as follows:

“Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule C and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interest to create in favor of each of the Secured Parties a valid, perfected and continuing perfected first priority lien in the Collateral (other than Permitted Senior Liens; provided however, each Debtor shall promptly inform the Secured Parties upon learning of any prior lien on such oil and gas interests that would be materially adverse to the interests of the Secured Parties thereon).”

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b. Section 3(f) of the Security Agreement shall be modified in its entirety to read as follows:

“This Agreement together with such mortgages, deeds of trust, trust deeds, assignment of production and other agreements to be provided pursuant to the Post-Closing Letter Agreement entered into on the Closing Date by and among the Secured Parties and the Debtors, creates, or will create, in favor of the Secured Parties a valid security interest in the Collateral securing the payment and performance of the Obligations and, upon making the filings described in the paragraph (g) set forth immediately below, will create a perfected first priority security interest in such Collateral (other than Permitted Senior Liens).”

c. The first sentence of Section 3(i) of the Security Agreement shall be modified in its entirety to read as follows:

“After making the filings contemplated by Section 3(f), each Debtor shall at all times maintain the liens and Security Interest provided for hereunder as valid and perfected first priority liens and security interests in the Collateral (subject only to Permitted Senior Liens) as described in Sections 3(e) and (f) of this Agreement in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 11 hereof.”

d. Section 3(s) of the Security Agreement shall be modified in its entirety to read as follows:

“Each Debtor will not change its name, corporate structure, or identity, or add any new fictitious name unless it provides at least thirty (30) days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue perfected the perfected first priority Security Interest granted and evidenced by this Agreement (subject only to Permitted Senior Liens).”

e. Section 12(b) of the Security Agreement shall be modified in its entirety to read as follows:

“On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interest granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Required Holders the grant or perfection of a perfected first priority

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security interest in all the Collateral under the UCC (other than Permitted Senior Liens).”

10.       Undertaking to File Registration Statements. The Company hereby agrees that it shall:

a. Prepare and file with the SEC, as soon as reasonably practicable following the timely filing of the Company’s Form 10-K for the fiscal year ended March 31, 2008 (the “Form 10-K”), and in any event no later than ten (10) Business Days after the filing of the Form 10-K (the “New Registration Deadline”), one or more post-effective amendments to the Registration Statements previously filed and the prospectuses used in connection with such Registration Statements, as may be necessary to make such Registration Statements effective under Rule 415 or a Registration Statement on Form S-3 (collectively, the “New Registration Statement”) in order to register all of the Registrable Securities (other than those Registrable Securities whose inclusion in the New Registration Statement have been waived by the holder of such Registrable Securities), and to have such New Registration Statement declared effective by the SEC by the date which is ninety (90) days after the New Registration Deadline (the “New Registration Effectiveness Deadline”); and

b. Following the effectiveness of the New Registration Statement, file such additional amendments and supplements to the New Registration Statement and the prospectus used in connection with such New Registration Statement as may be necessary to keep each such New Registration Statement effective during the Registration Period, in compliance with the Registration Rights Agreement.

11.       Waiver. The Buyers hereby waive any and all Events of Default previously made known to the Buyers by the Company in writing now existing under the April Debentures and all Transaction Documents to the extent related to the April Debentures.

12. Conditional Waiver.

a. The Buyers hereby waive any existing Event of Default previously made known to the Buyers by the Company in writing with respect to any and all violations of or defaults now existing under the Transaction Documents, and agree not to exercise any rights or remedies available as a result of the occurrence thereof, including, but not limited to, the imposition of interest at the Default Rate prior to the date hereof and any and all Registration Delay Payments which may have accrued under the Registration Rights Agreement prior to the date hereof.

b. Further, the Buyers hereby agree that the failure of the Company to file any amendment or supplement to the Registration Statements and the prospectuses used in connection with such Registration Statements from the date hereof until the earlier of (a) the effectiveness of the New Registration Statement, (b) the New Registration Deadline, if and only if the New Registration Statement is not filed within such period, or (c) the date that is ninety (90) days after the New

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Registration Deadline shall not constitute an Event of Default under the Registration Rights Agreement or under any of the other Transaction Documents.

c. For the avoidance of doubt, the Company and Buyers hereby agree that the failure by the Company to have the New Registration Statement declared effective by the SEC prior to the New Registration Effectiveness Deadline and maintained effective thereafter, in accordance with the terms of the Registration Rights Agreement, shall be deemed an Effectiveness Failure and/or a Maintenance Failure, as applicable (as defined in the Registration Rights Agreement).

d. In addition, the Buyers hereby waive any other existing Event of Default under the Transaction Documents that does not, directly or indirectly, have a material negative impact on the Buyers’ security interest in the collateral or other properties of the Company in which it has a security interest or have a material negative impact in the Buyers’ priority of payment under the Debentures.

e. The Company hereby represents and warrants to the Buyers that it has no knowledge of any other material Defaults or Events of Default under the Transaction Documents, other than those previously disclosed to the Buyers in writing.

f. The waivers granted by the Buyers in favor of the Company that are contained in this Agreement shall be null and void should (i) any Buyer ever be required to repay or disgorge any portion of the Payoff Amount, or (ii) in the event the Company has breached its representation in Section 12(e).

13.       Undertaking with Respect to Security Agreement. The Company hereby agrees to promptly take all actions necessary or advisable to grant to Buyers a security interest in such property of the Company in which Buyers do not currently have a perfected security interest (including, without limitation, the property known as the DD Energy Project, the Thoren Project and the Tri-County Project).

14.       Termination of Liens Upon Repayment of Debentures. Notwithstanding anything to the contrary in any Transaction Document, upon payment in full of the Debentures and all interest and expenses due thereunder, each Buyer shall, at the request and expense of the Company, terminate all liens on the assets of the Company and shall cooperate in executing any termination statement or similar statement with respect to any financing statement, mortgage, deed of trust or other security instrument existing pursuant thereto.

15.       Governing Law. This Letter Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Letter Agreement and all disputes arising hereunder shall be governed by, the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

16.       Expenses. The Company shall reimburse West Coast Opportunity Fund, LLC, as representative for the Buyers (the “Representative”), for all reasonable expenses incurred by the

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Representative related to the preparation and execution of this Letter Agreement and the other transactions contemplated hereby, including, without limitation, for reasonable legal expenses (the “Expenses”). The Expenses shall be accountable and be payable simultaneously with the execution of this Letter Agreement. Other than the Company’s responsibility to pay the Representative’s Expenses, each party hereto shall pay the fees and expenses of such party’s advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement, and shall hold the other parties hereto harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim for such fees and expenses.

17.       Amendment. It is the intention of the parties that this Letter Agreement modifies and amends the Transaction Documents to the extent set forth herein.

18.       No Waiver. The execution of this Letter Agreement is not, and shall not be deemed to constitute, a waiver, cure, or forbearance of any default arising prior or subsequent to the date of this Letter Agreement, nor shall it constitute a reinstatement of the terms described in the Transaction Documents, except as set forth herein. The Company agrees that no delay on the part of any of the Buyers in exercising any power or right shall operate as a waiver of any such power or right or preclude the further exercise of any other power or right. Any remedies contained herein are cumulative and not exclusive of any remedies provided by law. Notice to or demand in circumstances under which the terms of this Letter Agreement do not require such notice or demand shall not entitle the Company to further notice or demand nor constitute a waiver of the rights of the Buyers to take any other or further action without notice or demand.

19.       Continuing Validity of Transaction Documents. Except as expressly provided for in this Letter Agreement, the other Transaction Documents and all other documents executed in connection therewith shall continue unchanged in full force and effect, in accordance with their respective terms, and the parties hereby expressly confirm and reaffirm all of their respective liabilities, obligations, duties and responsibilities under and pursuant to the other Transaction Documents.

20.       Transaction Document. This Letter Agreement shall be deemed and constitute a “Transaction Document” under the Securities Purchase Agreement.

21.       Recitals. The recitals set forth above are true and correct and are hereby incorporated into this Letter Agreement as if set forth at length herein.

22.       Counterparts. This Letter Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.

23.       Headings. The headings of this Letter Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Letter Agreement.

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24.       Severability. If any provision of this Letter Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Letter Agreement in that jurisdiction or the validity or enforceability of any provision of this Letter Agreement in any other jurisdiction.

25.       Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the terms of this Letter Agreement and the consummation of the transactions contemplated hereby.

26.       Notices. Copies of notices to the Company pursuant to each Transaction Document shall be sent to Husch Blackwell Sanders LLP, 4801 Main Street, Suite 1000, Kansas City, Missouri 64112, Telephone: 816-983-8146, Facsimile: 816-983-8080, E-mail: jeff.haughey@huschblackwell.com, Attention: Jeffrey T. Haughey, rather than the Stoecklein Law Group.

Kindly confirm your agreement with the foregoing by signing the copy of this letter where indicated below.

[Signature Pages Follow]

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            IN WITNESS WHEREOF, the parties hereto have executed or caused this Letter Agreement to be duly executed by an authorized officer as of the date first above written.

Very Truly Yours,

DKR SOUNDSHORE OASIS HOLDING FUND LTD.

By: /s/Bradford L. Caswell
Name: Bradford L. Caswell
Title: Authorized Signatory

WEST COAST OPPORTUNITY FUND, LLC

By: /s/ Atticus Lowe
Name: Atticus Lowe
Title: Chief Investment Officer

ENABLE GROWTH PARTNERS LP

By: /s/ Brendan O’Neil
Name: Brendan O’Neil, CFA
Title: Principal and Portfolio Manager

ENABLE OPPORTUNITY PARTNERS LP

By: /s/ Brendan O’Neil
Name: Brendan O’Neil, CFA
Title: Principal and Portfolio Manager

GLACIER PARTNERS

By: /s/ Peter Costellanos
Name: Peter Costellanos
Title: Managing Partner

FREY LIVING TRUST

By: /s/ Philip Frey Jr.
Name: Philip Frey Jr.
Title: Trustee

[Additional Signature Page Follows]

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Agreed to and Accepted by:

COMPANY:

ENERJEX KANSAS, INC.

By: /s/ Steve Cochennet

Name: Steve Cochennet

Title: CEO/President

PARENT:

ENERJEX RESOURCES, INC.

By: /s/ Steve Cochennet

Name: Steve Cochennet

Title: CEO/President

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EX-31

EXHIBIT 31.1

CERTIFICATION

I, C. Stephen Cochennet, certify that:

1. I have reviewed this report on Form 10-K of EnerJex Resources, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

• Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

• Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 9, 2008

/s/ C. Stephen Cochennet

C. Stephen Cochennet

Chief Executive Officer and

Principal Accounting Officer

EX-32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of EnerJex Resources, Inc. (the “Company”) on Form 10-K for the year ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, C. Stephen Cochennet, Chief Executive and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ C. Stephen Cochennet

C. Stephen Cochennet

Chief Executive Officer and

Principal Accounting Officer

July 9, 2008