DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP
1345 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
August 9, 2007
Baseline Oil & Gas Corp.
00000 X. Xxxxxxx (X-00)
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, President
Re: Credit Agreement dated as of April 12, 2007 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), by and
among Baseline Oil & Gas Corp. (the "Borrower") Drawbridge Special
Opportunities Fund LP, as Administrative Agent ("Administrative Agent")
and the financial institutions that are or may become lenders thereunder
("Lenders").
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement for all purposes. Any
capitalized term used herein that is not defined herein shall have the meaning
attributed to it in the Credit Agreement. Pursuant to the Credit Agreement, you
have submitted a request to increase the Borrowing Base from $11,713,224 to
$14,124,624 in order for the Borrower to have availability under the Credit
Agreement to request additional Revolving Loans for the purpose of making a
deposit required under the Asset Purchase and Sale Agreement dated as of August
6, 2007 by and between DSX Energy Limited, LLP, Kebo Oil & Gas, Inc., et. al.
and Borrower ("Purchase Agreement") for the acquisition of the South Texas
Blessing Properties. Lenders hereby consent to the increase in the Borrowing
Base subject to the further provisions of this Letter Agreement.
On the date of the funding of any Revolving Loan pursuant to such
increase in the Borrowing Base, the conditions of Section 7.03 of the Credit
Agreement shall have been satisfied. Within five (5) days of the execution of
this Letter Agreement, Borrower will provide the Lenders in the aggregate
260,000 warrants to purchase shares of the Borrower's common stock on the same
terms and conditions as the Warrant, except with respect to the Exercise Price
(as defined in the Warrant agreement dated April 12, 2007 issued by the
Borrower) which will be $0.52 and will amend the Registration Rights Agreement
made by the Borrower in favor of the Lenders dated as of April 12, 2007 to
provide the rights thereunder to the additional warrants to be issued hereunder.
In addition, in connection with increasing the Borrowing Base, Borrower will pay
to the Administrative Agent for the ratable benefit of the Lenders a fee equal
to $250,000 ("Bridge Fee"). Such Bridge Fee shall be deemed to be earned and
payable as of the date of this Letter Agreement. Borrower will pay to
Administrative Agent $125,000 of the Bridge Fee as of the date that this Letter
Baseline Oil & Gas Corp.
Attention: Xxxxxx X. Xxxxxxx, President
August 9, 2007
Page 2
Agreement is executed. The remaining $125,000 of this fee shall be due on the
Repayment Date (defined below). Notwithstanding the preceding however, in the
event that Borrower elects not to consummate the transaction under the Purchase
Agreement, Borrower terminates the Purchase Agreement and Borrower repays a
minimum of $2,300,000 of the Bridge Advance (defined below) on or prior to the
date that is three (3) days after the date that Borrower has terminated the
Purchase Agreement ("Termination Date"), then that portion of the Bridge Fee due
and payable as of the Repayment Date shall be waived by the Lenders.
In consideration for Administrative Agent and Lenders agreeing to
increase the Borrowing Base as provided for above, Borrower agrees that any
Revolving Loans made under the Credit Agreement from and after the date of this
Letter Agreement through the Repayment Date (each a "Bridge Advance") shall bear
interest at the Term Loan Rate until such time that such Bridge Advances have
been repaid in full.
In addition, you have requested that the Lenders and the Administrative
Agent extend the date of the payment on the Loans required pursuant to Section
9.20 of the Credit Agreement. Administrative Agent and the Lenders agree to
extend the date that any payment required under Section 9.20 is due until
October 31, 2007 ("Repayment Date"). All Bridge Advances are required to be
prepaid on or before the Repayment Date. Notwithstanding the preceding or
anything in the Credit Agreement to the contrary, in the event that the purchase
transaction contemplated by the Purchase Agreement does not occur prior to the
Repayment Date, Borrower shall be required to make a prepayment of $2,300,000 on
the Bridge Advances on or before the Termination Date. The remaining balance of
the Bridge Advances, if any, will be payable in accordance with the terms of the
Credit Agreement. Such prepayment of the Bridge Advances and the payment under
Section 9.20 shall be made through a payment outside of the waterfall payments
provided for in Article VI of the Credit Agreement. Such prepayment on the
Bridge Advances will come from a capital contribution of the holders of the
Equity Interest of the Borrower and will be in addition to and not in
substitution of any payments under Article VI of the Credit Agreement. Failure
to make such payments of the Bridge Advances or the payments required by Section
9.20 by the Repayment Date or the Termination Date, as the case may be, shall
constitute an Event of Default under Credit Agreement. This Letter Agreement
shall be deemed a Loan Document for all purposes.
[Remainder of Page Intentionally Left Blank.]
Baseline Oil & Gas Corp.
Attention: Xxxxxx X. Xxxxxxx, President
August 9, 2007
Page 3
If the foregoing is acceptable to you please indicate your
acknowledgement and agreement to the terms and provisions of this Letter
Agreement by executing this Letter Agreement in the space provided below.
Sincerely,
DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP, as
Administrative Agent and Lender
By: Drawbridge Special Opportunities GP LLC,
its general partner
By: _______________________________
Name: _______________________________
Title: _______________________________
X.X. XXXXX SPECIAL OPPORTUNITIES
FUND, L.P., as Lender
By: X.X. Xxxxx Partners, LLC, its general
partner
By: _______________________________
Name: _______________________________
Title: _______________________________
AGREED TO AND ACCEPTED
THIS 9th DAY OF AUGUST, 2007:
BASELINE OIL & GAS CORP.
By: _______________________________
Name: _______________________________
Title: _______________________________
