Exhibit 10.2

 

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION,

FIXTURE FILING AND FINANCING STATEMENT

(Wyoming Oil and Gas Properties)

 

FROM

LILIS ENERGY, INC., Mortgagor

(Charter/File/Organizational No. E061582207-2)

 

TO

 

INDEPENDENT BANK, Mortgagee

 

Dated as of July 25, 2016

 

A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. 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 MORTGAGE.

 

THIS INSTRUMENT IS A MORTGAGE OF BOTH REAL AND PERSONAL PROPERTY AND IS, AMONG
OTHER THINGS, A MORTGAGE, A SECURITY AGREEMENT, A FIXTURE FILING AND A FINANCING
STATEMENT.

 

“THIS INSTRUMENT CONTAINS AFTER ACQUIRED PROPERTY PROVISIONS.”

 

“THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.”

 

THIS INSTRUMENT WAS PREPARED BY, AND RECORDED COUNTERPARTS SHOULD BE RETURNED
TO:

 

JACKSON WALKER LLP

2323 Ross Avenue, Suite 600

Dallas, Texas 75201-2725

Attention:   Frank P. McEachern, Esq.

 

 

 

 

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION,

FIXTURE FILING AND FINANCING STATEMENT

 

THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION, FIXTURE FILING AND
FINANCING STATEMENT (this “Mortgage”) is from Lilis Energy, Inc., a Nevada
corporation, as Mortgagor (the “Mortgagor”), to Independent Bank (“Mortgagee”).
The addresses of the Mortgagor and the Mortgagee are set forth in Section 9.14
hereof. This Mortgage is dated July 25, 2016.

 

ARTICLE I
DEFINITIONS

 

1.1.        For all purposes of this Mortgage, unless the context otherwise
requires:

 

“Accounts and Contract Rights” means all accounts (including accounts in the
form of joint interest billings), contract rights and general intangibles of the
Mortgagor now or hereafter existing, or hereafter acquired by, or on behalf of,
the Mortgagor or the Mortgagor’s successors in interest, relating to the sale,
purchase, exchange, extraction, transportation or processing of Hydrocarbons
produced or to be produced from the Mortgaged Property, together with all
accounts and proceeds accruing to the Mortgagor attributable to the sale of
Hydrocarbons produced from the Mortgaged Property.

 

“As-Extracted Collateral” means Hydrocarbons which may be extracted from the
Mortgaged Property, and the accounts relating thereto, which will be financed at
the wellheads of the wells located on the Mortgaged Property and accounts
arising out of the sale thereof.

 

“Borrower” means Brushy Resources, Inc., a Delaware corporation.

 

“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas, are authorized or required by law to
remain closed.

 

“Certificates of Ownership Interests” means the Certificates of Ownership
Interests, if any, delivered by the Mortgagor in connection with the Credit
Agreement.

 

“Code” means the Uniform Commercial Code as in effect in Texas or, to the extent
that the Laws of any jurisdiction wherein the affected Mortgaged Property is
located or the Mortgagor was formed require the application of the Uniform
Commercial Code adopted by such jurisdiction to an enforcement action against
such Mortgaged Property, such other jurisdiction.

 

“Credit Agreement” means the Credit Agreement between the Borrower and IBTX
pursuant to which one or more of the Notes were issued, as the Credit Agreement
has been or may hereafter be amended, restated, supplemented or otherwise
modified from time to time.

 

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“Debtor” has the meaning given such term in Section 9.13 hereof.

 

“Effective Date” means the date on which this Mortgage is executed.

 

“Event of Default” has the meaning stated in Article VII of this Mortgage.

 

“Exhibit A” means, unless specifically indicated otherwise, Exhibit A attached
hereto.

 

“Governmental Authority” means any nation, country, commonwealth, territory,
government, state, county, parish, municipality, or other political subdivision
and any entity exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.

 

“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline
and condensate and all other liquid or gaseous hydrocarbons.

 

“IBTX” means Independent Bank, a Texas state bank.

 

“Indemnified Parties” has the meaning stated in Section 4.6 of this Mortgage.

 

“Lands” means the lands described in Exhibit A and in the mortgages and
amendments to mortgage listed on Exhibit A and includes any lands, the
description of which is contained in Exhibit A or incorporated in or referred to
in Exhibit A by reference to another instrument or document, including, without
limitation, all lands described in the Oil and Gas Leases, and also includes any
lands now or hereafter unitized, pooled, spaced, or otherwise combined, whether
by statute, order, agreement, declaration or otherwise, with lands the
description of which is contained in Exhibit A or is incorporated in Exhibit A
by reference.

 

“Loan Obligations” means the “Obligations,” as such term is defined in the
Credit Agreement.

 

“Loan Papers” means the Notes, this Mortgage, the Credit Agreement and all other
documents, instruments and agreements delivered to IBTX at any time in
connection with the Credit Agreement, as any of the foregoing are amended,
restated or supplemented, renewed or extended from time to time.

 

“Mortgaged Property” has the meaning stated in Article II of this Mortgage.

 

“Net Revenue Interest” means Mortgagor’s share of the total production of oil,
gas and other Hydrocarbons produced from the Lands, after deducting Mortgagor’s
share of all lessors’ royalties, overriding royalties, production payments and
other payments out of, or measured by, production.

 

“Notes” means the promissory note or notes identified in Section 3.1.1 of this
Mortgage, and all renewals, extensions, replacements and modifications thereof.

 

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“Oil and Gas Leases” means, collectively, oil, gas and mineral leases, oil and
gas leases, oil leases, gas leases, other mineral leases, subleases and
assignments of operating rights pertaining to any of the foregoing, and all
other interests pertaining to any of the foregoing, including, without
limitation, all royalty and overriding royalty interests, production payments
and net profit interests, mineral fee interests, and all contingent reversionary
and carried interests relating to any of the foregoing and all other rights
therein, which are described and/or to which reference may be made on Exhibit A
and/or in any document or instrument referred to in Exhibit A and/or which cover
or relate to any of the Lands.

 

“Operating Equipment” means all personal property and fixtures pertaining,
affixed or incidental to, situated upon or used or useful in connection with all
or any part of the Mortgaged Property, including, without limitation, all
surface or subsurface machinery, equipment, facilities, or other personal
property of whatsoever kind or nature (but excluding drilling rigs, trucks,
automotive equipment or other personal property taken to the premises to drill a
well or for other similar temporary uses) now or hereafter located on any of the
Lands which are useful for the production, treatment, storage, sale or
transportation of oil or gas, including, but not by way of limitation, all oil
wells, gas wells, water wells, injection wells, casing, tubing, rods, pumping
units and engines, Christmas trees, derricks, separators, gun barrels, flow
lines, tanks, gas systems, (for gathering, treating and compression), water
systems (for treating, disposal and injection), power plants, poles, lines,
transformers, starters and controllers, machine shops, tools, storage yards and
equipment stored therein, buildings and camps, telegraph, telephone and other
communication systems, roads, loading racks and shipping facilities.

 

“Person” means a natural person, a corporation, a partnership, a limited
partnership, a limited liability company, an association, a joint venture, a
trust or any other entity or organization, including a Governmental Authority.

 

“Proceeds” has the meaning given such term in Section 5.1 hereof.

 

“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.

 

“Section” and “Article” mean and refer to a section or article of this Mortgage,
unless specifically indicated otherwise.

 

“Secured Indebtedness” or “Indebtedness” means all the indebtedness,
obligations, and liabilities described or referred to in Section 3.1 of this
Mortgage.

 

“Secured Party” has the meaning given such term in Section 9.13.1 hereof.

 

“Subject Interests” has the meaning stated in Article II of this Mortgage.

 

“Well Data” means all logs, drilling reports, division orders, transfer orders,
operating agreements, abstracts, title opinions, files, records, memoranda and
other written or electronic information in the possession or control of the
Mortgagor relating to any wells located on any of the Lands described in
Exhibit A or in the mortgages and amendments to mortgage listed on Exhibit A.

 

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1.2.          Other Defined Terms. The capitalized terms used herein have the
meanings assigned to them in the Credit Agreement, unless they are otherwise
defined herein or the context otherwise requires.

 

ARTICLE II
GRANTING CLAUSE - MORTGAGED PROPERTY

 

2.1.        The Mortgagor, for and in consideration of the premises and of the
Secured Indebtedness hereinafter defined, has GRANTED, BARGAINED, SOLD,
WARRANTED, MORTGAGED, PLEDGED, ASSIGNED, TRANSFERRED and CONVEYED, and by these
presents does GRANT, BARGAIN, SELL, WARRANT, MORTGAGE, PLEDGE, ASSIGN, TRANSFER
and CONVEY, unto the Mortgagee WITH POWER OF SALE, all the Mortgagor’s right,
title and interest, whether now owned or hereafter acquired, in all of the
hereinafter described properties, rights and interests; and, insofar as such
properties, rights and interests consist of equipment, general intangibles,
accounts, contract rights, inventory, fixtures, proceeds and products of
collateral or any other personal property of a kind or character defined in or
subject to the applicable provisions of the Code, the Mortgagor hereby grants to
the Mortgagee a security interest therein, whether now owned or hereafter
acquired, namely:

 

2.1.1.          All of those certain Oil and Gas Leases, Lands, minerals,
interests, and other properties (all such Oil and Gas Leases, Lands, interests
and other properties being herein called the “Subject Interests”, as hereinafter
further defined) which are described on Exhibit A and/or to which reference may
be made on Exhibit A and/or which cover any of the Lands described on Exhibit A
and/or which are located in or under any of the Lands described on Exhibit A
and/or which are covered by any of the leases, assignments, mortgages,
amendments to mortgage or other documents described on or referred to in
Exhibit A or any document or instrument referred to in Exhibit A, which
Exhibit A is made a part of this Mortgage for all purposes, and is incorporated
herein by reference as fully as if copied at length in the body of this Mortgage
at this point;

 

2.1.2.          All rights, titles, interests, and estates now owned or
hereafter acquired by the Mortgagor in and to (i) any and all properties now or
hereafter pooled or unitized with any of the Subject Interests, and (ii) all
presently existing or future unitization, communitization, and pooling
agreements and the units created thereby which include all or any part of the
Subject Interests, including, without limitation, all units formed under or
pursuant to any Laws. The rights, titles, interests, and estates described in
this Section 2.1.2 shall also be included within the term “Subject Interests” as
used herein.

 

2.1.3.          All presently existing and future agreements hereafter entered
into between the Mortgagor and any third party that provide for acquisition by
the Mortgagor of any interest in any of the properties or interests specifically
described in Exhibit A or in the mortgages and amendments to mortgage listed on
Exhibit A or which relate to any of the properties and interests specifically
described in Exhibit A or in the mortgages and amendments to mortgage listed on
Exhibit A;

 

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2.1.4.          The Hydrocarbons (including inventory) which are in, under,
upon, produced or to be produced from or attributable to the Lands and/or the
Subject Interests;

 

2.1.5.          The Accounts and Contract Rights;

 

2.1.6.          The Operating Equipment;

 

2.1.7.          The As-Extracted Collateral;

 

2.1.8.          The Well Data;

 

2.1.9.          The rights and security interests, if any, of the Mortgagor held
by the Mortgagor to secure the obligation of the first purchaser to pay the
purchase price of the Hydrocarbons;

 

2.1.10.        All surface leases, rights-of-way, franchises, easements,
servitudes, licenses, privileges, tenements, hereditaments and appurtenances now
existing or in the future obtained in connection with any of the aforesaid, and
all other things of value and incident thereto which the Mortgagor may at any
time have or be entitled to; and

 

2.1.11.       All and any different and additional rights of any nature, of
value or convenience in the enjoyment, development, operation or production, in
any wise, of any Property or interest included in any of the foregoing clauses,
and in all revenues, income, rents, issues, profits and other benefits arising
therefrom or from any contract now in existence or hereafter entered into
pertaining thereto, and in all rights and claims accrued or to accrue for the
removal by anyone of oil and gas from, or other act causing damage to, any of
such properties or interests;

 

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien of this Mortgage by means of
supplements hereto, being hereinafter called the “Mortgaged Property”;

 

subject, however, to (i) the restrictions, exceptions, reservations, conditions,
limitations, interests and other matters, if any, set forth or referred to in
the specific descriptions of such properties and interests in Exhibit A or in
the mortgages and amendments to mortgage listed on Exhibit A (including all
presently existing royalties, overriding royalties, payments out of production
and other burdens which are referred to in Exhibit A or in the mortgages and
amendments to mortgage listed on Exhibit A and which are taken into
consideration in computing the decimal or fractional interest as set forth in
the Certificates of Ownership Interests); (ii) any operator’s lien arising by
operation of applicable Law (or pursuant to the provisions of an operating
agreement designating a Person other than the Mortgagor as operator) which has
been perfected under applicable Law prior to the date of this Mortgage or of
which the Mortgagee has constructive or actual notice as of the date hereof;
(iii) the assignment of production contained in Article V hereof; and (iv) the
condition that the Mortgagee shall not be liable in any respect for the
performance of any covenant or obligation of the Mortgagor with respect to the
Mortgaged Property;

 

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TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its successors and
assigns, forever, WITH POWER OF SALE to secure the payment of the Secured
Indebtedness and to secure the performance of the obligations of the Mortgagor
contained herein.

 

ARTICLE III
INDEBTEDNESS SECURED

 

3.1.        Notes and Secured Indebtedness. This Mortgage is given to secure the
following indebtedness, obligations and liabilities:

 

3.1.1.     The Loan Obligations, as evidenced in part by those certain
promissory note or notes (together with all renewals, extensions, and
modifications thereof and notes given in substitution therefor) executed by the
Borrower and payable to the order of IBTX in the aggregate original principal
amount of up to $100,000,000, which notes bear interest as provided therein and
contain provisions for payment of attorneys’ fees as therein set forth;

 

3.1.2.     Any sums advanced as expenses or costs incurred by, or on behalf of,
the Mortgagee (or any receiver appointed hereunder) which are made or incurred
pursuant to, or permitted by, the terms of this Mortgage or the other Loan
Papers, plus interest thereon at the rate herein specified or otherwise agreed
upon, from the date of advance or expenditure until reimbursed; and

 

3.1.3.     All other and additional debts, obligations and liabilities of every
kind and character of the Mortgagor now or hereafter owed to IBTX, regardless of
whether such debts, obligations and liabilities are specifically listed and
described above or are direct or indirect, primary or secondary, joint, several,
or joint and several, fixed or contingent, and whether incurred by the Mortgagor
as a maker, endorser, guarantor, surety or otherwise, and regardless of whether
such present or future debts, obligations and liabilities may, prior to their
acquisition by IBTX, be or have been payable to, or be or have been in favor of,
some other Person or have been acquired by IBTX in a transaction with one other
than the Mortgagor, together with any and all renewals and extensions of such
debts, obligations and liabilities, or any part thereof (it being contemplated
that IBTX may in the future lend additional sums of money to the Mortgagor, from
time to time, but shall not be obligated to do so, and that all such additional
sums and loans shall be part of the Secured Indebtedness).

 

3.2.        Final Maturity. Unless earlier payment is required by the terms of
instruments secured by this Mortgage (including earlier payment as a result of
the acceleration of payment of obligations secured by this Mortgage), the
obligations secured by this Mortgage shall mature ten years following the date
of this Mortgage or, if such due date can be extended under applicable law
without filing an amendment to this Mortgage, such later date as is specified
(by amendment or otherwise) in such instruments.

 

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ARTICLE IV
COVENANTS, REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF MORTGAGOR

 

The Mortgagor covenants, represents, warrants, and agrees that:

 

4.1.        Payment of Indebtedness. The Mortgagor will duly and punctually pay
or cause to be paid all of the Secured Indebtedness.

 

4.2.        Warranties. (a) The Oil and Gas Leases are valid, subsisting leases,
superior and paramount to all other oil and gas leases respecting the properties
to which they pertain; (b) the Mortgagor owns an interest in the oil and gas
leases and properties described in Exhibit A or in the mortgages, amendments to
mortgage and other instruments described in Exhibit A and, to the extent of the
interest specified in the Certificates of Ownership Interests, has valid and
defensible title to each property right or interest constituting the Mortgaged
Property and has a good and legal right to make the grant and conveyance made in
this Mortgage, it being understood that the Mortgagor’s interest in each Oil and
Gas Lease or Operating Equipment shall exceed Mortgagor’s Net Revenue Interest
in production from such Oil and Gas Lease to the extent of the Mortgagor’s
proportionate share of all royalties, overriding royalties, and other such
payments out of production burdening the Mortgagor’s interest in each such Oil
and Gas Lease; (c) the Mortgagor’s present Net Revenue Interest in the Mortgaged
Property is not less than that specified in the Certificates of Ownership
Interests; (d) the Mortgaged Property is free from all encumbrances or liens
whatsoever, except as may be specifically set forth in Exhibit A or in the
mortgages, amendments to mortgage and other instruments described in Exhibit A
or as permitted by the provisions of Section 4.5.6; and (e) the Mortgagor is not
obligated, by virtue of any deficiency presently existing under any contract
providing for the sale by the Mortgagor of Hydrocarbons which contains a “take
or pay” clause or under any similar arrangement, to deliver Hydrocarbons at some
future time without then or thereafter receiving full payment therefor. The
Mortgagor will warrant and forever defend the Mortgaged Property unto the
Mortgagee, its successors and assigns against every Person whomsoever lawfully
claiming the same or any part thereof, and the Mortgagor will maintain and
preserve the lien and security interest hereby created so long as any of the
Secured Indebtedness remains unpaid.

 

4.3.        Further Assurances. The Mortgagor will execute and deliver such
other and further instruments and will do such other and further acts as in the
opinion of the Mortgagee may be necessary or desirable to carry out more
effectively the purposes of this Mortgage, including, without limiting the
generality of the foregoing, (a) prompt correction of any defect which may
hereafter be discovered in the title to the Mortgaged Property or in the
execution and acknowledgment of this Mortgage, any Notes, or any other document
used in connection herewith or at any time delivered to the Mortgagee in
connection with any Secured Indebtedness, and (b) prompt execution and delivery
of all division or transfer orders that in the reasonable opinion of the
Mortgagee are needed to transfer effectively the assigned proceeds of production
from the Mortgaged Property to the Mortgagee.

 

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4.4.        Taxes. Subject to the Mortgagor’s right to contest the same in good
faith and by appropriate proceedings, the Mortgagor will promptly pay all taxes,
assessments and governmental charges legally imposed upon this Mortgage or upon
the Mortgaged Property or upon the interest of the Mortgagee therein, or upon
the income, profits, proceeds and other revenues thereof; provided that, in the
alternative, the Mortgagor may, in the event of the enactment of such a Law, and
must, if it is unlawful for the Mortgagor to pay such taxes, prepay that portion
of the Secured Indebtedness which the Mortgagee in good faith determines is
secured by Property covered by such Law within 60 days after demand therefor by
the Mortgagee.

 

4.5.        Operation of the Mortgaged Property. So long as the Secured
Indebtedness or any part thereof remains unpaid, and whether or not the
Mortgagor is the operator of the Mortgaged Property, the Mortgagor shall, at the
Mortgagor’s own expense and subject to the terms of the Loan Papers:

 

4.5.1.          Maintain, develop and operate the Subject Interests in a good
and workmanlike manner and will observe and comply with all of the terms and
provisions, express or implied, of the Oil and Gas Leases in order to keep the
Oil and Gas Leases in full force and effect so long as the Oil and Gas Leases
are capable of producing Hydrocarbons in commercial quantities;

 

4.5.2.          Comply in all material respects with all contracts and
agreements applicable to or relating to the Mortgaged Property or the production
and sale of Hydrocarbons therefrom and all applicable proration and conservation
Law of the jurisdictions in which the Mortgaged Property is located, and all
applicable Law, rules and regulations of every 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 therefrom;

 

4.5.3.          Commence such development as may be reasonably necessary to the
prudent and economical operation of the Mortgaged Property, including such work
as may be appropriate to protect the Mortgaged Property from diminution in the
production capacity thereof and against drainage of Hydrocarbons thereunder by
reason of production on other Properties;

 

4.5.4.          At all times, maintain, preserve and keep all Operating
Equipment in proper repair, working order and condition, and make all necessary
or appropriate repairs, renewals, replacements, additions and improvements
thereto, so that the efficiency of such Operating Equipment shall at all times
be properly preserved and maintained, provided that no item of Operating
Equipment need be so repaired, renewed, replaced, added to or improved, if the
Mortgagor shall in good faith determine that such action is not necessary or
desirable for the continued efficient and profitable operation of the business
of the Mortgagor, and that the failure to take such action will not prejudice
the interests of the Mortgagee;

 

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4.5.5.          Not abandon or cease developing, maintaining, operating and
producing Hydrocarbons from, or cause or permit its agent to abandon, or cease
developing, maintaining, operating, and producing Hydrocarbons from, any
producing Mortgaged Property without first having undertaken and completed all
reasonably prudent measures under the circumstances to restore such producing
Mortgaged Property to economic production, and then only if the aggregate
projected future ad valorem and severance taxes and operating expenses with
respect to said Mortgaged Property exceed the projected future gross revenues
attributable thereto;

 

4.5.6.          Cause the Mortgaged Property to be kept free and clear of all
liens, security interests, charges and encumbrances of every character, other
than (i) Permitted Liens, and (ii) those hereafter consented to in writing by
the Mortgagee; provided, that no intention to subordinate the first priority
liens, security interests, and encumbrances granted in favor of the Mortgagee is
hereby implied or expressed or is to be inferred by the permitted existence of
the liens, security interests and encumbrances referred to in this Section 4.5.6
or elsewhere herein;

 

4.5.7.          Maintain or cause to be maintained insurance with such insurers,
in such amounts and covering such risks as is required by the Credit Agreement;
and

 

4.5.8.          Not sell, convey, trade, exchange, pool or unitize any portion
of the Mortgaged Property or any of Mortgagor’s rights, titles, or interests
therein or thereto, except as specifically provided otherwise herein;

 

provided, however, that with respect to Mortgaged Property which is operated by
operators other than the Mortgagor or any of its Affiliates, the Mortgagor shall
not be obligated itself to perform any undertakings contemplated by the
covenants and agreements contained herein which are performable only by such
operators and are beyond the control of the Mortgagor; and provided further,
that the Mortgagor agrees to promptly take all actions available to the
Mortgagor under any operating agreement or otherwise to bring about the
performance of any such undertaking required to be performed by such operators.

 

4.6.        Recording. The Mortgagor will promptly and at the Mortgagor’s
expense, record, register, deposit and file this Mortgage and every other
instrument in addition or supplemental hereto in such offices and places and at
such times and as often as may be necessary to preserve, protect and renew the
lien and security interest hereof as a first lien and security interest on real
or personal property, as the case may be, and the rights and remedies of the
Mortgagee, and otherwise will do and perform all matters or things necessary or
expedient to be done or observed by reason of any law or regulation of any state
or of the United States or of any other competent authority, for the purpose of
effectively creating, maintaining and preserving the lien and security interest
hereof on the Mortgaged Property. In this connection and at the option of the
Mortgagee but at the Mortgagor’s expense, the Mortgagee may record, register,
deposit and file this Mortgage and supplements hereto.

 

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4.7.        Records, Statements and Reports. The Mortgagor will keep proper
books of record and account in which complete correct entries will be made of
the Mortgagor’s transactions in accordance with sound accounting principles
consistently applied and will furnish or cause to be furnished to the Mortgagee
(a) all reports required under the Loan Papers, and (b) such other information
concerning the business and affairs and financial condition of the Mortgagor as
the Mortgagee may from time to time reasonably request.

 

4.8.        No Governmental Approvals. The Mortgagor warrants that no approval
or consent of any regulatory or administrative commission or authority, or of
any other governmental body, is necessary to authorize the execution and
delivery of this instrument, or any of the other Loan Papers or the Notes, or to
authorize the observance or performance by the Mortgagor of the covenants herein
or therein contained.

 

4.9.        Right of Entry. The Mortgagor will permit the Mortgagee or its
agents or designated representatives to enter upon the Mortgaged Property, and
all parts thereof, for the purpose of investigating and inspecting the condition
and operation thereof.

 

4.10.      Flood Insurance Regulation. Notwithstanding any provision in this
Mortgage to the contrary, in no event is any Building (as defined in the
applicable Flood Insurance Regulation) or Manufactured (Mobile) Home (as defined
in the applicable Flood Insurance Regulation) located on the Mortgaged Property
within an area having special flood hazards and in which flood insurance is
available under the National Flood Insurance Act of 1968 included in the
definition of “Mortgaged Property” and no Building or Manufactured (Mobile) Home
is hereby encumbered by this Mortgage. As used herein, “Flood Insurance
Regulations” shall mean (i) the National Flood Insurance Act of 1968 as now or
hereafter in effect or any successor statute thereto, (ii) the Flood Disaster
Protection Act of 1973 as now or hereafter in effect or any successor statue
thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC
4001, et seq.), as the same may be amended or recodified from time to time, and
(iv) the Flood Insurance Reform Act of 2004 and any regulations promulgated
thereunder.

 

ARTICLE V
ASSIGNMENT OF PRODUCTION

 

5.1.        Assignment. As further security for the payment of the Secured
Indebtedness and performance of the obligations contained herein, the Mortgagor
hereby transfers, assigns, warrants and conveys to the Mortgagee all
Hydrocarbons, and the proceeds and products obtained or processed from (such
proceeds and products being in this Article V called “Proceeds”), produced and
to be produced from, or which accrue by pooling, unitization or otherwise, to
the Mortgaged Property, in order to provide a source of future payment of the
Loan Obligations and the other Secured Indebtedness. All parties producing,
purchasing or receiving any such Hydrocarbons, or having such, or Proceeds
therefrom, in their possession for which they or others are accountable to the
Mortgagee by virtue of the provisions of this Article V, are authorized and
directed to treat and regard the Mortgagee as the assignee and transferee of the
Mortgagor and entitled in the Mortgagor’s place and stead to receive such
Hydrocarbons and all Proceeds therefrom; and such parties and each of them shall
be fully protected in so treating and regarding the Mortgagee, and shall be
under no obligation to see to the application by the Mortgagee of any such
proceeds or payments received by the Mortgagee.

 

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5.2.        Payments. This Article V constitutes a present assignment effective
as of the Effective Date, but in the event that the Mortgagee should elect not
to exercise immediately its right to receive Hydrocarbons or Proceeds, then the
purchasers or other persons obligated to make such payment may continue to make
payment to Mortgagor until such time as written demand has been made upon them
by the Mortgagee that payment be made directly to the Mortgagee. Such failure to
notify shall not in any way waive the right of the Mortgagee to receive any
payments not theretofore paid out to the Mortgagor before the giving of written
notice. In the event payments are made directly to the Mortgagee, and then, at
the request of the Mortgagee, payments are for a period or periods of time paid
to the Mortgagor, the Mortgagee shall nevertheless have the continuing right,
effective upon written notice, to require that future payments be again made to
the Mortgagee. The Mortgagor and the Mortgagee agree, and it is the intention of
the Mortgagor and the Mortgagee, that in no event will any reduction in the Loan
Obligations or the other Secured Indebtedness be measured by the fair market
value of the Hydrocarbons, other minerals, proceeds, or other rents, profits, or
income assigned to the Mortgagee under this instrument.

 

5.3.        No Restriction on the Rights. Nothing herein contained shall detract
from or limit the absolute obligation of the Mortgagor to make payment of the
Secured Indebtedness regardless of whether the Hydrocarbons and Proceeds
assigned by this Article V are sufficient to pay the same, and the rights under
this Article V shall be in addition to all other security now or hereafter
existing to secure the payment of the Secured Indebtedness.

 

5.4.        Use of Proceeds. The Mortgagee or any receiver appointed in judicial
proceedings for the enforcement of this Mortgage shall have the right to receive
all of the Hydrocarbons herein assigned and the Proceeds therefrom and may, in
the sole discretion of the Mortgagee, apply all of such Proceeds as follows or
in such other order of priority as the Mortgagee may determine:

 

First: To the payment and satisfaction of all costs and expenses incurred in
connection with the collection of such Proceeds;

 

Second: To the payment and satisfaction of the Loan Obligations;

 

Third: To the payment and satisfaction of any other or additional amounts owed
to IBTX; and

 

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Fourth: Any surplus thereafter remaining shall be paid to the Mortgagor or the
Mortgagor’s successors or assigns, as their interests may appear of record, or
as otherwise required by Law.

 

Upon any sale of the Mortgaged Property or any part thereof pursuant to
Article VIII, the Hydrocarbons thereafter produced from the Mortgaged Property
so sold, and the Proceeds therefrom, shall be included in such sale and shall
pass to the purchaser free and clear of the assignment contained in this
Article V.

 

5.5.        Mortgagee as Agent and Attorney-in-Fact. The Mortgagor hereby
irrevocably designates and appoints the Mortgagee as the Mortgagor’s true and
lawful agent and attorney-in-fact (with full power of substitution, either
generally or for such limited periods or purposes as the Mortgagee may from time
to time prescribe), with full power and authority, for and on behalf and in the
name of the Mortgagor, to execute, acknowledge and deliver all such division
orders, transfer orders, certificates and other documents of every nature, with
such covenants, warranties, indemnities and other provisions as may from time to
time, in the opinion of the Mortgagee, be necessary or proper to effectuate the
intent and purpose of the assignment contained in Section 5.1 hereof. The
Mortgagor shall be bound thereby as fully and effectively as if the Mortgagor
had personally executed, acknowledged and delivered any such division order,
transfer order, certificate and other documents. The powers and authorities
herein conferred on the Mortgagee may be exercised by the Mortgagee through any
Person who, at the time of the execution of a particular instrument, is an
officer of the Mortgagee. The power of attorney conferred by this Section 5.5 is
granted for a valuable consideration and hence is coupled with an interest and
is irrevocable so long as the Secured Indebtedness, or any part thereof, shall
remain unpaid. All Persons dealing with the Mortgagee, or any officer thereof
above designated, or any substitute, shall be fully protected in treating the
powers and authorities conferred by this Section 5.5 as continuing in full force
and effect until advised in writing by the Mortgagee that all the Secured
Indebtedness is fully and finally paid.

 

5.6.        Indemnity. The Mortgagor agrees to indemnify the Mortgagee on a
current basis against all claims, actions, liabilities, judgments, costs,
attorneys’ fees or other charges of whatsoever kind or nature (collectively,
“claims”), INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING IN THIS SECTION
ARISING FROM THE SOLE, COMPARATIVE, CONCURRENT OR CONTRIBUTORY NEGLIGENCE OF THE
MORTGAGEE, but not any loss or claims caused by or arising from the gross
negligence or willful misconduct of the Person seeking protection under this
indemnity, as a consequence of the assertion, either before or after the payment
in full of the Secured Indebtedness, that the Mortgagee received Hydrocarbons
herein assigned or the proceeds thereof claimed by third persons, and the
Mortgagee shall have the right to defend against any such claims, employing
attorneys therefor, and unless furnished with reasonable indemnity, the
Mortgagee shall have the right to pay or compromise and adjust all such claims
against it. The Mortgagor will indemnify and pay to the Mortgagee any and all
such amounts as may be paid in respect thereof or as may be successfully
adjudged against the Mortgagee. The obligations of the Mortgagor as hereinabove
set forth in this Section 5.6 shall survive the release of this instrument and
the payment of the Secured Indebtedness and the cancellation of the Loan
Obligations.

 

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ARTICLE VI
ADDITIONS TO MORTGAGED PROPERTY; SUBROGATION

 

6.1.        Additions to Mortgaged Property. It is understood and agreed that
the Mortgagor may periodically subject additional properties to the lien and
security interest of this Mortgage. In the event that additional properties are
to be subjected to the lien and security interest hereof, the parties hereto
agree to execute a supplemental mortgage, satisfactory in form and substance to
the Mortgagee, together with any security agreement, financing statement or
other security instrument required by the Mortgagee, all in form and substance
satisfactory to the Mortgagee and in a sufficient number of executed (and, where
necessary or appropriate, acknowledged) counterparts for recording purposes.
Upon execution of such supplemental mortgage, all additional properties thereby
subjected to the lien and security interest of this Mortgage shall become part
of the Mortgaged Property for all purposes.

 

6.2.        Subrogation. To the extent that the proceeds of any Secured
Indebtedness was or is used to pay any indebtedness or obligations secured by
any lien, security interest, charge or prior encumbrance against the Mortgaged
Properties or such proceeds have been or will be advanced by the Mortgagee to
the Mortgagor or to any other Person, then the Mortgagee shall be subrogated to
any and all of such liens, security interests, charges or prior encumbrances,
irrespective of whether such liens, security interests, charges or prior
encumbrances are released (unless such release is executed by the Mortgagee).

 

ARTICLE VII
EVENTS OF DEFAULT

 

7.1.        Events of Default. The occurrence of any one or more of the
following which has not been waived shall constitute an “Event of Default” under
this Mortgage:

 

7.1.1.     Any event of default or default specified in the Loan Papers shall
have occurred and the cure period, if any, with respect thereto shall have
elapsed; or

 

7.1.2.     The failure of any principal or interest on the Notes to be paid when
due or to be paid at the maturity thereof, whether stated or by acceleration.

 

ARTICLE VIII
ENFORCEMENT OF THE SECURITY

 

8.1.        General Remedies. Upon the occurrence and during the continuance of
an Event of Default, the Mortgagee may, at its sole option and discretion,
subject to any mandatory requirements or limitations of Law then in force and
applicable thereto:

 

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8.1.1.         Exercise all of the rights, remedies, powers and privileges of
the Mortgagor with respect to the Mortgaged Property or any part thereof, give
or withhold all consents required therein which the Mortgagor would otherwise be
entitled to give or withhold, and perform or attempt to perform any covenants in
this Mortgage which the Mortgagor is obligated to perform; provided that, no
payment or performance by the Mortgagee shall constitute a waiver of any Event
of Default, and the Mortgagee shall be subrogated to all rights and liens
securing the payment of any debt, claim, tax, or assessment for the payment of
which the Mortgagee may make an advance or pay;

 

8.1.2.         Appoint as a matter of right, or seek the appointment of, a
receiver or receivers to serve without bond for all or any part of the Mortgaged
Property, whether such receivership be incident to a proposed sale thereof or
otherwise, and the Mortgagor does hereby consent to the appointment of such
receiver or receivers to serve without bond, waives any and all defenses to such
appointment and does hereby agree not to oppose any application therefor by the
Mortgagee and does hereby agree that there shall be no necessity of showing
fraud, insolvency or mismanagement by the Mortgagor for the appointment of a
receiver or receivers of the Mortgaged Property; and any such receiver may be
appointed by any court of competent jurisdiction upon ex parte application, and
without notice, notice being expressly waived. Nothing herein is to be construed
to deprive the Mortgagee of any other right, remedy or privilege it may now or
hereafter have under law to have a receiver appointed. Any money advanced by the
Mortgagee or such receiver in connection with any such receivership shall be a
demand obligation owing by the Mortgagor to the Mortgagee and shall bear
interest, from the date of making such advancement until paid, at the Default
Rate or the maximum rate of interest permitted by applicable Law, which ever is
less. Any such receiver shall have all powers conferred by the court appointing
such receiver, which powers shall, to the extent not prohibited by applicable
law include: the right to enter upon and take immediate possession of the
Mortgaged Property or any part thereof; to exclude the Mortgagor therefrom; to
hold, use, operate, manage and control such Mortgaged Property; to make all such
repairs, replacements, alterations, additions and improvements to the same as
such receiver or the Mortgagee may deem proper or expedient; to lease, sell or
otherwise transfer the Mortgaged Property or any portion thereof as such
receiver or the Mortgagee may deem proper or expedient; to sell all of the
severed and extracted Hydrocarbons included in the same; to demand and collect
all of the other earnings, rents, issues, profits, proceeds and other sums due
or to become due with respect to such Mortgaged Property, accounting for only
the net earnings arising therefrom after charging against the receipts therefrom
all fees, costs, expenses, charges, damages and losses incurred by reason
thereof plus interest thereon at the Default Rate or the maximum rate of
interest permitted by applicable Law, whichever is less, without any liability
to the Mortgagor in connection therewith which net earnings shall be turned over
by such receiver to the Mortgagee to be applied by the Mortgagee to the payment
of the Secured Indebtedness.

 

8.1.3.          Execute and deliver to such Person or Persons as may be
designated by the Mortgagee appropriate powers of attorney to act for and on
behalf of the Mortgagor in all transactions with any federal, state or local
agency relating to any of the Mortgaged Property; and

 

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8.1.4.          Exercise any and all other rights or remedies granted to the
Mortgagee pursuant to the provisions of any of the Loan Papers or by Law;
provided, that the Mortgagee shall have no obligation to do or refrain from
doing any of the acts, or to make or refrain from making any payment, referred
to in this Section 8.1. Any receiver or receivers of the Mortgaged Property, or
any portion thereof, shall serve without bond.

 

8.2.        Power of Sale; Abandonment of Sale. Upon the occurrence and during
the continuance of an Event of Default, the Mortgagee may proceed with
foreclosure, and in such event the Mortgagee is hereby authorized to sell the
Mortgaged Property, or any part thereof, under the power of sale granted herein.

 

A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE
MORTGAGEE TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS MORTGAGE.

 

Any sale of the Mortgaged Property under this Article VIII shall take place at
such place or places and otherwise in such manner and upon such notice as may be
required by Law; or, in the absence of any such requirement, as Mortgagee may
deem appropriate. If the Lands are situated in more than one county (or judicial
district thereof), and if permitted by applicable Law, such sale of the
Mortgaged Property, or part thereof, may be made in any county in the State
wherein any part of the Lands then subject to the lien and security interest
hereof are situated. After such sale, the Mortgagee shall make to the purchaser
or purchasers thereunder good and sufficient deeds and assignments, in the name
of the Mortgagor, conveying the Mortgaged Property, or any part thereof, so sold
to the purchaser or purchasers with appropriate warranties of title on behalf of
the Mortgagor. Sale of a part of the Mortgaged Property shall not exhaust the
power of sale, and sales may be made from time to time until the Secured
Indebtedness is paid and performed in full. It shall not be necessary to have
present or to exhibit at any such sale any of the personal property. In addition
to the rights and powers of sale granted under the preceding provisions of this
Section, if default is made in the payment of any installment of, or performance
of, the Secured Indebtedness, the Mortgagee, at its option, at once, or at any
time thereafter while any matured installment remains unpaid, without declaring
the entire Secured Indebtedness to be due and payable, may sell the Mortgaged
Property subject to such unmatured Secured Indebtedness and the liens and
security interests securing its payment, in the same manner, on the same terms,
at the same place and time, and after having given notice in the same manner,
all as provided in the preceding provisions of this Section. Sales made without
maturing the Secured Indebtedness may be made hereunder whenever there is a
default in the payment of any installment of the Secured Indebtedness without
exhausting the power of sale granted hereby, and without affecting in any way
the power of sale granted under this Section or the unmatured balance of the
Secured Indebtedness (except as to any proceeds of any sale which the Mortgagee
may apply as a prepayment on the Secured Indebtedness) or the liens and security
interests securing payment of the Secured Indebtedness. It is intended by each
of the foregoing provisions of this Section that the Mortgagee may, where
permitted by Law, sell not only the Subject Interests but also all items
constituting a part of the Mortgaged Property, or any part thereof, together
with the Lands, or any part thereof, all as a unit and as a part of the single
sale, or may sell any part of the Mortgaged Property separately from the
remainder of the Mortgaged Property. It is agreed that in any deed or deeds
given by the Mortgagee any and all statements of fact or other recitals therein
made as to the identity of the Mortgagee, or as to the occurrence or existence
of any Event of Default, or as to the acceleration of the maturity of the
Secured Indebtedness, or as to the request to sell, notice of sale, time, place,
terms, and manner of sale and receipt, distribution, and application of the
money realized therefrom, and, without being limited by the foregoing, as to any
other act or thing having been duly done by the Mortgagee, shall be taken by all
courts of Law and equity as prima facie evidence that such statements or
recitals are for all purposes correct statements of the facts and are without
further question to be so accepted, and the Mortgagor does hereby ratify and
confirm any and all acts that the Mortgagee may lawfully perform by virtue
hereof. In the event a foreclosure under the power of sale hereunder should be
commenced by the Mortgagee in accordance with this Section, Mortgagee may at any
time before the sale abandon the sale, and may then institute suit for the
collection of the Secured Indebtedness, and/or for the foreclosure of the liens
hereof by judicial proceeding.

 

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8.3.        Judicial Proceedings; Receiver. This Mortgage shall be effective as
a mortgage and may be foreclosed as to any of the Property covered hereby in any
manner permitted by the Law of any state in which the affected Mortgaged
Property is situated. Upon occurrence of an Event of Default which has not been
waived by the Mortgagee, Mortgagee, in lieu of or in addition to exercising the
power of sale hereinabove given, may proceed, where permitted by Law, by a suit
or suits in equity or at Law, whether for a foreclosure by judicial proceeding
hereunder, or for the sale of the Mortgaged Property, or for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver or
receivers of the Mortgaged Property and of the income, rents issues, products,
profits and proceeds thereof in accordance with Section 8.1.2 hereof pending any
foreclosure hereunder or the sale of the Mortgaged Property, or for the
enforcement of any other appropriate legal or equitable remedy. The appointment
of a receiver shall in no manner affect the rights of the Mortgagee under
Article V hereof. If Mortgagee should institute a suit for the collection of the
Secured Indebtedness and/or for a foreclosure of the liens hereof by judicial
proceeding, it may at any time before the entry of a final judgment in said suit
dismiss the same, and, where permitted by Law, sell the Mortgaged Property under
the power of sale granted hereunder in accordance with the terms of this
Mortgage and applicable Law.

 

8.4.        Certain Aspects of a Sale. The Mortgagee shall have the right to
become the purchaser at any sale of the Mortgaged Property to the extent not
prohibited by Law, and the Mortgagee shall have the right to credit upon the
amount of the bid made therefor, the amount payable out of the net proceeds of
such sale to it. Recitals contained in any conveyance made to any purchaser at
any sale made hereunder shall conclusively establish the truth and accuracy of
the matters therein stated, including, without limiting the generality of the
foregoing, nonpayment of the unpaid principal sum of, interest accrued on, and
fees payable in respect of, the Secured Indebtedness after the same have become
due and payable, and advertisement and conduct of such sale in the manner
provided herein or applicable Law.

 

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8.5.        Receipt to Purchaser. Upon any sale the receipt of the Mortgagee, or
of the officer making such sale under judicial proceedings, shall be sufficient
discharge to the purchaser or purchasers at any sale for his or their purchase
money, and such purchaser or purchasers, or his or their assigns or personal
representatives, shall not, after paying such purchase money and receiving such
receipt of the Mortgagee or of such officer therefor, be obligated to see to the
application of such purchase money, or be in anywise answerable for any loss,
misapplication or nonapplication thereof.

 

8.6.        Effect of Sale. Any sale or sales of the Mortgaged Property, where
permitted by law, shall operate to divest all right, title, interest, claim and
demand whatsoever either at law or in equity, of the Mortgagor of, in, and to
the premises and the property sold, and shall be a perpetual bar, both at law
and in equity, against the Mortgagor, and the Mortgagor’s successors or assigns,
and against any and all persons claiming or who shall thereafter claim all or
any of the property sold from, through, or under the Mortgagor, or the
Mortgagor’s successors or assigns. Nevertheless, the Mortgagor, if requested by
the Mortgagee to do so, shall join in the execution and delivery of all proper
conveyances, assignments and transfers of the properties so sold.

 

8.7.        Application of Proceeds. The proceeds of any sale of the Mortgaged
Property, or any part thereof shall be applied as required by applicable Law or,
in the absence of any such requirement, as follows (as appropriately modified to
comply with any mandatory provisions of Law):

 

First: To the payment of all expenses incurred by the Mortgagee in the
performance of its duties including, without limiting the generality of the
foregoing, all expenses of any entry, or taking of possession, of any sale, of
advertisement thereof, and of conveyances, and, as well, court costs,
compensation of agents and employees and legal fees;

 

Second: To the payment and satisfaction of the Loan Obligations;

 

Third: To the payment and satisfaction of any other or additional amounts owed
to IBTX; and

 

Fourth: Any surplus thereafter remaining shall be paid to the Mortgagor or the
Mortgagor’s successors or assigns, as their interests may appear of record, or
as otherwise required by Law.

 

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8.8.        Mortgagor’s Waiver of Appraisement, Marshaling, etc. Rights. The
Mortgagor agrees, to the fullest extent that the Mortgagor may lawfully so
agree, that the Mortgagor will not at any time insist upon or plead or in any
manner whatever claim the benefit of any appraisement, valuation, stay,
extension or redemption Law now or hereafter in force, in order to prevent or
hinder the enforcement or foreclosure of this Mortgage or the absolute sale of
the Mortgaged Property or the possession thereof by any purchaser at any sale
made pursuant to any provision hereof, or pursuant to the decree of any court of
competent jurisdiction; but the Mortgagor, for the Mortgagor and all who may
claim through or under the Mortgagor, so far as the Mortgagor or those claiming
through or under the Mortgagor now or hereafter lawfully may, hereby waives the
benefit of all such Laws. The Mortgagor, for the Mortgagor and all who may claim
through or under the Mortgagor, waives, to the extent that the Mortgagor may
lawfully do so, any and all right to have the Mortgaged Property marshaled upon
any foreclosure of the lien hereof, or sold in inverse order of alienation, and
agrees that the Mortgagee or any court having jurisdiction to foreclose such
lien may sell the Mortgaged Property as an entirety. If any law in this Section
referred to and now in force, of which the Mortgagor or the Mortgagor’s
successor or successors might take advantage despite the provisions hereof,
shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to constitute any part of the contract herein contained or
to preclude the operation or application of the provisions of this Section.

 

8.9.        Waiver of Deficiency Statute.

 

(a)          In the event an interest in any of the Mortgaged Property is
foreclosed upon pursuant to a judicial foreclosure sale, the Mortgagor agrees as
follows: notwithstanding the provisions of Sections 51.003, 51.004, and 51.005
of the Property Code (as in effect in the state of Texas and herein so called
and as the same may be amended from time to time), and to the extent permitted
by Law, the Mortgagor agrees that the Mortgagee shall be entitled to seek a
deficiency judgment from the Mortgagor and any/or other party obligated on the
Secured Indebtedness equal to the difference between the amount owing on the
Secured Indebtedness and the amount for which the Mortgaged Property was sold
pursuant to judicial foreclosure sale. The Mortgagor expressly recognizes that
this clause a of this Section constitutes a waiver of the above-cited provisions
of the Property Code which would otherwise permit the Mortgagor and other
persons against whom recovery of deficiencies is sought or any Guarantor
independently (even absent the initiation of deficiency proceedings against
them) to present competent evidence of the fair market value of the Mortgaged
Property as of the date of the foreclosure sale and offset against any
deficiency the amount by which the foreclosure sale price is determined to be
less than such fair market value. The Mortgagor further recognizes and agrees
that this waiver creates an irrebuttable presumption that the foreclosure sale
price is equal to the fair market value of the Mortgaged Property for purposes
of calculating deficiencies owed by the Mortgagor and/or others against whom
recovery of a deficiency is sought.

 

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(b)          Alternatively, in the event the waiver provided for in clause (a)
above is determined by a court of competent jurisdiction to be unenforceable,
the following shall be the basis for the finder of fact's determination of the
fair market value of the Mortgaged Property as of the date of the foreclosure
sale in proceedings governed by Sections 51.003, 51.004 and 51.005 of the
Property Code (as amended from time to time): (i) the Mortgaged Property shall
be valued in an "as is" condition as of the date of the foreclosure sale,
without any assumption or expectation that the Mortgaged Property will be
repaired or improved in any manner (including, without limitation, the
re-working of existing wells or the drilling of any new wells) before a resale
of the Mortgaged Property after foreclosure; (ii) the valuation shall be based
upon an assumption that the foreclosure purchaser desires a resale of the
Mortgaged Property for cash promptly (but not later than 12 months) following
the foreclosure sale; (iii) all reasonable closing costs customarily borne by
the seller in oil and gas transactions should be deducted from the gross fair
market value of the Mortgaged Property, including, without limitation, brokerage
commissions, title opinions, engineering evaluations of the Mortgaged Property,
tax prorations, attorneys' fees, and marketing costs; (iv) the gross fair market
value of the Mortgaged Property shall be further discounted to account for any
estimated holding costs associated with maintaining the Mortgaged Property
pending sale, including, without limitation, utilities expenses, management
fees, taxes and assessments (to the extent not accounted for in (iii) above),
and other maintenance, operational and ownership expenses; and (v) any expert
opinion testimony given or considered in connection with a determination of the
fair market value of the Mortgaged Property must be given by persons having at
least five years experience in appraising property similar to the Mortgaged
Property and who have conducted and prepared a complete written engineering
appraisal of the Mortgaged Property taking into consideration the factors set
forth above.

 

8.10.      Miscellaneous State Provisions. [Reserved]

 

8.11.      Power of Attorney to Mortgagee. Mortgagor does hereby designate
Mortgagee as the agent of Mortgagor to act in the name, place, and stead of
Mortgagor in the exercise of each and every remedy set forth herein and in
conducting any and all operations and taking any and all action reasonably
necessary to do so, recognizing such agency in favor of Mortgagee to be coupled
with the interests of Mortgagee under this Mortgage and, thus, irrevocable so
long as this Mortgage is in force and effect.

 

8.12.      Costs and Expenses. All costs, expenses (including attorneys’ fees),
and payments incurred or made by the Mortgagee in protecting and enforcing its
rights hereunder, shall constitute a demand obligation owing by the Mortgagor to
the party incurring such or making costs, expenses, or payments and shall bear
interest at the Default Rate or the rate per annum equal to the maximum rate of
interest permitted by applicable Law, whichever is less, all of which shall
constitute a portion of the Secured Indebtedness.

 

8.13.      Operation of the Mortgaged Property by the Mortgagee. Upon the
occurrence of an Event of Default which has not been waived by the Mortgagee,
and in addition to all other rights herein conferred on the Mortgagee, the
Mortgagee (or any Person designated by the Mortgagee) shall have the right and
power, but shall not be obligated, to enter upon and take possession of any of
the Mortgaged Property without the necessity of posting bond, and to exclude the
Mortgagor, and the Mortgagor’s agents or servants, wholly therefrom, and to
hold, use, administer, manage and operate the same to the extent that the
Mortgagor shall be at the time entitled to do any of such things and in the
Mortgagor’s place and stead. The Mortgagee (or any Person designated by the
Mortgagee) may, but shall not be obligated to, operate the same without any
liability or duty to the Mortgagor in connection with such operations, except to
use ordinary care in the operation of such Mortgaged Property, and the Mortgagee
or any Person designated by the Mortgagee, shall have the right to collect and
receive all Hydrocarbons produced and sold from the Mortgaged Property, to make
repairs, purchase machinery and equipment, conduct work-over operations, drill
additional wells and to exercise every power, right and privilege of the
Mortgagor with respect to the Mortgaged Property. When and if the expenses of
such operation and development (including costs of unsuccessful work-over
operations or additional wells) have been paid and the Secured Indebtedness
paid, such Mortgaged Property shall, if there has been no sale or foreclosure
thereof, be returned to the Mortgagor.

 

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8.14.      No Additional Duties Created. Notwithstanding any provision of this
Article VIII or any other provision of this Mortgage, with respect to that
portion of the Mortgaged Property located in any jurisdiction, the Mortgagee
shall be entitled to enforce the rights and remedies described herein with
respect to such portion of the Mortgaged Property in such jurisdiction in
accordance with the Laws in effect in such jurisdiction at the time such
enforcement action is taken, and the Mortgagor hereby waives its right to
require the Mortgagee to comply with any contrary terms and provisions of this
Mortgage in such circumstance, it being the intention of the Mortgagor and
Mortgagee that the waivers of Mortgagor herein and the powers granted to the
Mortgagee herein are for the sole benefit of the Mortgagee and are neither
intended to limit the rights and powers of the Mortgagee as are permissible
under applicable Law to enforce the Liens granted herein nor intended to
establish a standard or duty of performance by the Mortgagee in excess of or in
addition to that required by the Laws of such jurisdiction as in effect at the
time the particular right or remedy is sought to be enforced. In furtherance
thereof, with respect to that portion of the Mortgaged Property located in any
jurisdiction, any actions by the Mortgagee to enforce the Liens granted herein
which are not prohibited by the Law of such jurisdiction wherein the affected
Mortgaged Property is located, shall be deemed to be in compliance with, and not
prohibited by or in violation of, the terms of this Mortgage.

 

8.15.      Federal and Tribal Transfers. Upon a sale conducted pursuant to this
Article VIII of all or any portion of the Mortgaged Property consisting of
interests (the “Federal and Tribal Interests”) in leases, easements,
rights-of-way, agreements or other documents and instruments covering, affecting
or otherwise relating to federal on-shore or tribal lands (including, without
limitation, leases, easements and rights-of-way issued by the Bureau of Land
Management; leases, easements and rights-of-way issued by the Bureau of Indian
Affairs; and leases, easements, rights-of-way and minerals agreements with
tribal governments or agencies or allottees), the Mortgagor agrees to take all
action and execute all instruments necessary or advisable to transfer the
Federal and Tribal Interests to the purchaser at such sale, including without
limitation, to execute, acknowledge and deliver assignments of the Federal and
Tribal Interests on officially approved forms in sufficient counterparts to
satisfy applicable statutory and regulatory requirements, to seek and request
approval thereof and to take all other action necessary or advisable in
connection therewith. The Mortgagor hereby irrevocably appoints the Mortgagee as
the Mortgagor’s attorney-in-fact and proxy, with full power and authority in the
place and steed of the Mortgagor, in the name of the Mortgagor or otherwise, to
take any such action and to execute any such instruments on behalf of the
Mortgagor that the Mortgagee may deem necessary or advisable to so transfer the
Federal and Tribal Interests, including without limitation, the power and
authority to execute, acknowledge and deliver such assignments, to seek and
request approval thereof and to take all other action deemed necessary or
advisable by the Mortgagee in connection therewith; and the Mortgagor hereby
adopts, ratifies and confirms all such actions and instruments. Such power of
attorney and proxy is coupled with an interest, shall survive the dissolution,
termination, reorganization or other incapacity of the Mortgagor and shall be
irrevocable. No such action by the Mortgagee shall constitute acknowledgment of,
or assumption of liabilities relating to, the Federal and Tribal Interests, and
neither the Mortgagor nor any other party may claim that the Mortgagee is bound,
directly or indirectly, by any such action.

 

 20 

 

 

8.16.      Limitation on Rights and Waivers. All rights, powers and remedies
herein conferred shall be exercisable by Mortgagee only to the extent not
prohibited by applicable Law; and all waivers and relinquishments of rights and
similar matters shall only be effective to the extent such waivers or
relinquishments are not prohibited by applicable Law.

 

ARTICLE IX
MISCELLANEOUS

 

9.1.        Advances by the Mortgagee. Each and every covenant herein contained
shall be performed and kept by the Mortgagor solely at the Mortgagor’s expense.
If the Mortgagor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this Mortgage, the Mortgagee or any
receiver appointed hereunder, may, but shall not be obligated to, make advances
to perform the same in the Mortgagor’s behalf, and the Mortgagor hereby agrees
to repay such sums upon demand plus interest at a rate per annum equal to the
maximum rate of interest permitted by applicable Law. No such advance shall be
deemed to relieve the Mortgagor from any Event of Default hereunder.

 

9.2.        Defense of Claims. The Mortgagor will notify the Mortgagee, in
writing, promptly of the commencement of any legal proceedings affecting or
which could adversely affect the lien and security interest hereof or the status
of or title to the Mortgaged Property, or any part thereof, and will take such
action, employing attorneys agreeable to the Mortgagee, as may be necessary to
preserve the Mortgagor’s and the Mortgagee’s rights affected thereby; and should
the Mortgagor fail or refuse to take any such action, the Mortgagee may, but
shall not be obligated to, take such action on behalf and in the name of the
Mortgagor and at the Mortgagor’s expense. Moreover, the Mortgagee may, but shall
not be obligated to, take such independent action in connection therewith as it
may in its discretion deem proper without any liability or duty to the Mortgagor
except to use ordinary care, the Mortgagor hereby agreeing that all sums
advanced or all expenses incurred in such actions plus interest at the maximum
rate of interest permitted by applicable Law, will, on demand, be reimbursed to
the Mortgagee or any receiver appointed hereunder.

 

9.3.        Defeasance. If the Secured Indebtedness shall be paid and discharged
in full, IBTX has no further obligation to advance amounts to or for the benefit
of the Mortgagor, and the Mortgagee has no commitment to permit or intention to
allow the creation of additional Secured Indebtedness, then the Mortgagee will,
upon request of the Mortgagor and at the Mortgagor’s expense, execute and
deliver to the Mortgagor all releases and other instruments reasonably requested
by the Mortgagor for the purpose of releasing and discharging the lien and
security interest created hereunder. Otherwise this Mortgage shall remain and
continue in full force and effect.

 

 21 

 

 

9.4.        Other Security. The Mortgagee may take or may hold other security
from Persons other than the Mortgagor for the Secured Indebtedness and may
release or modify the same without notice to or consent of the Mortgagor. The
Mortgagee may resort first to such other security or any part thereof or first
to the security herein given or any part thereof, or from time to time to either
or both, even to the partial or complete abandonment of either security, and
such action shall not be a waiver of any rights conferred by this Mortgage,
which shall continue as a first lien and security interest upon the Mortgaged
Property not expressly released until all Secured Indebtedness secured hereby is
fully paid and IBTX has no further commitment to advance amounts or extend
credit to or for the benefit of the Mortgagor or any other payor of Secured
Indebtedness.

 

9.5.        Instrument an Assignment, Etc. This Mortgage shall be deemed to be
and may be enforced from time to time as an assignment, chattel mortgage,
contract, financing statement, real estate mortgage, pledge, or security
agreement, and from time to time as any one or more thereof; and notwithstanding
anything contained in this Mortgage and in addition to any rights, powers and
remedies granted to the Mortgagee herein, the Mortgagee shall have all of the
rights, powers and remedies of a secured party and mortgagee granted under
applicable Law.

 

9.6.        Limitation on Interest. No provision of this Mortgage or of the
other Loan Papers shall require the payment or permit the collection of
interest, or be construed to create a contract regarding the same, in excess of
the maximum rate permitted by Law or which is otherwise contrary to Law. If any
excess of interest in such respect is herein or in the other Loan Papers
provided for, or shall be adjudicated to be so provided for herein or in the
other Loan Papers, such amount which would be deemed excessive interest shall be
deemed a partial prepayment of the principal of the Secured Indebtedness and
treated hereunder as such; and, if the entire principal amount of the Secured
Indebtedness owed is paid in full, any remaining excess shall be repaid to the
payors on the applicable Secured Indebtedness. In determining whether the
interest paid or payable, under any specific contingency, exceeds the Highest
Lawful Rate in effect from day to day, the Mortgagor and the holders of the
Secured Indebtedness shall, to the maximum extent permitted under applicable
Law, (i) characterize any nonprincipal payment as an expense, fee, or premium
rather than as interest, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) amortize, prorate, allocate, and spread the total amount of
interest throughout the entire contemplated term of the Secured Indebtedness so
that the interest rate is uniform throughout the entire term of the Secured
Indebtedness; provided that, if the interest received by the holders of the
Secured Indebtedness for the actual period of existence thereof exceeds the
Highest Lawful Rate in effect from day to day, the holders of the Secured
Indebtedness shall apply or refund to the payors on the applicable Secured
Indebtedness the amount of such excess as provided in this Section, and, in such
event, the holders of the Secured Indebtedness shall not be subject to any
penalties provided by any Laws for contracting for, charging, taking, reserving,
or receiving interest in excess of the Highest Lawful Rate in effect from day to
day.

 

 22 

 

 

9.7.        Unenforceable or Inapplicable Provisions. The parties hereto have
negotiated the terms of this Mortgage for its use or possible future use in more
than one jurisdiction. Thus, if any provision of this Mortgage is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction, and such other provisions shall be
liberally construed in favor of the Mortgagee in order to effectuate the
provisions hereof, and the invalidity of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction. In furtherance of the foregoing and not in
limitation thereof, if, for any jurisdiction wherein any of the Mortgaged
Property is located, any duty, power or authority is assigned, granted or
delegated to the Mortgagee hereunder which is impermissible to be so assigned,
granted or delegated to the Mortgagee under the Laws of such jurisdiction
(including, with respect to the State of Texas, Section 51.0074 of the Property
Code as enacted in Texas), such assignment, grant or delegation shall be deemed
to be an assignment, grant or delegation exclusively to the Mortgagee, its
successors and assigns, and may be enforced by the Mortgagee if not prohibited
by the Law of such jurisdiction. With respect to any jurisdiction wherein a
portion of the Mortgaged Property is situated, any reference herein to a statute
or the Law of another jurisdiction shall be deemed inapplicable to, and not used
in, the interpretation of the duties, powers or authority of the Mortgagee under
this Mortgage.

 

9.8.        Rights Cumulative. Each and every right, power and remedy herein
given to the Mortgagee shall be cumulative and not exclusive; and each and every
right, power and remedy whether specifically herein given or otherwise existing
may be exercised from time to time and so often and in such order as may be
deemed expedient by the 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 the 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.

 

9.9.        Waiver of Covenants by Mortgagee. Any and all covenants in this
Mortgage may from time to time by instrument in writing signed by the Mortgagee
be waived to such extent and in such manner as the Mortgagee may desire, but no
such waiver shall ever affect or impair the Mortgagee’s rights and remedies or
liens and security interests hereunder, except to the extent specifically stated
in such written instrument.

 

9.10.      Successors and Assigns.

 

9.10.1.          This instrument is binding upon the Mortgagor, and the
Mortgagor’s heirs, successors and assigns, and shall inure to the benefit of the
Mortgagee, and its successors and assigns, and the provisions hereof shall
likewise be covenants running with the Lands.

 

 23 

 

 

9.10.2.          The parties hereto agree that the Notes may be transferred
without the necessity for a notarial act of transfer thereof, and that any such
transfer shall carry with it into the hands of any future holder or holders of
the Notes full and entire subrogation of title in and to the Notes and to any
and all rights and privileges under this instrument herein granted to the
Mortgagee, as holder of the Notes. This Mortgage is for the benefit of the
Mortgagee and for such other Person or Persons as may from time to time become
or be the holders of any of the Secured Indebtedness, and this Mortgage shall be
transferable and negotiable, with the same force and effect and to the same
extent as the Secured Indebtedness may be transferable.

 

9.11.      Article and Section Headings. The article and section headings in
this instrument are inserted for convenience and shall not be considered a part
of this Mortgage or used in its interpretation.

 

9.12.      Counterpart. This Mortgage may be executed in any number of
counterparts, each of which shall for all purposes be deemed to be an original,
and all of which are identical except that, to facilitate recordation in any
particular county or parish, counterpart portions of Exhibit A which describe
properties situated in parishes or counties other than the county or parish in
which such counterpart is to be recorded may be omitted. Exhibit A might not be
paginated and any pagination might not be consecutive. Exhibit A may also
contain language indicating that it is attached to a document other than this
Mortgage or that a particular page is the end of Exhibit A, when neither is
applicable. Such language shall be ignored for the purposes of interpreting this
Mortgage.

 

9.13.      Special Filing as Financing Statement.

 

9.13.1.          This Mortgage shall likewise be a Security Agreement and a
Financing Statement and Mortgagor, as debtor (the “Debtor”), hereby grants to
the Mortgagee, its successors and assigns, as secured party (the “Secured
Party”), a security interest in all personal property, fixtures, accounts,
equipment, inventory, contract rights and general intangibles described or
referred to in Article II hereof and all proceeds and products from the sale,
lease or other disposition of the Mortgaged Property or any part thereof. The
addresses shown in this Article are the addresses of the Debtor and Secured
Party and information concerning the security interest may be obtained from the
Secured Party at its address. Without in any manner limiting the generality of
any of the foregoing provisions hereof: (a) some portion of the goods described
or to which reference is made herein are or are to become fixtures on the Lands
described or to which reference is made herein; (b) the minerals and the like
(including oil and gas) included in the Mortgaged Property and the accounts
resulting from the sale thereof will be financed at the wellhead(s) or
minehead(s) of the well(s) or mine(s) located on the Lands described or to which
reference is made herein; and (c) this Mortgage is to be filed of record, among
other places, in the real estate records of each county in which the Lands, or
any part thereof, are situated, as a financing statement, but the failure to do
so will not otherwise affect the validity or enforceability of this instrument.

 

9.13.2.          The charter/file/organizational I.D. number of the Mortgagor is
as set forth on the cover page hereof.

 

 24 

 

 

9.13.3.          The Mortgagee is authorized to complete and file financing
statements covering the security interests granted in this Mortgage. Any such
financing statements may identify the property or collateral subject thereto as
“all assets,” “all property” or words of similar import.

 

9.14.      Notices. Whenever this Mortgage requires or permits any consent,
approval, notice, request, or demand from one party to another, the consent,
approval, notice, or demand must be in writing to be effective and shall be
personally delivered or sent to the party to be notified at the address or
facsimile number stated below (or such other address as may have been designated
by written notice by the party pursuant to this Section):

 

MORTGAGOR-DEBTOR MORTGAGEE-SECURED PARTY     Lilis Energy, Inc. Independent Bank
216 16th Street, Suite #1350 2100 McKinney Avenue, Suite 1200 Denver,
Colorado  80202 Dallas, Texas 75201 Attn: Kevin Nanke Attn:  Energy Lending

 

Each such notice, request or other communication shall be effective (i) if given
by facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received (the receipt thereof shall
be deemed to have been acknowledged upon the sending Person’s receipt of its
facsimile machine’s confirmation of successful transmission; provided that if
the day on which such facsimile is received is not a Business Day or is after
4:00 p.m. on a Business Day, then the receipt of such facsimile shall be deemed
to have been acknowledged on the next following Business Day), (ii) if given by
mail, three Business Days after such communication is deposited in the mail with
first class postage prepaid, addressed as aforesaid, or (iii) if given by any
other means, when delivered (or, in the case of electronic transmission,
received) at the address specified in this Section.

 

9.15.      No Waiver by Mortgagee. No course of dealing on the part of
Mortgagee, its officers or employees, nor any failure or delay by Mortgagee with
respect to exercising any of its rights or remedies hereunder shall operate as a
waiver thereof nor shall the exercise or partial exercise of any such right or
remedy preclude the subsequent exercise thereof or the exercise of any other
right or remedy.

 

9.16.      Governing Agreement. This Mortgage is made pursuant and subject to
the terms and provisions of the Credit Agreement. In the event of a direct
conflict between the terms and provisions of this Mortgage and those of the
Credit Agreement, the terms and provisions of the Credit Agreement shall govern
and control, except that if the two documents contain different formal
definitions for the same term or terms, the formal definition of such term or
terms herein shall be applicable in construing this Mortgage. The inclusion in
this Mortgage of provisions not addressed in the Credit Agreement shall not be
deemed a conflict, and all such additional provisions contained herein shall be
given full force and effect. The indemnification and releases contained herein
are in addition to any indemnification or releases contained in the Credit
Agreement.

 

 25 

 

 

9.17.      Drafting of Mortgage. Mortgagor declares that it has contributed to
the drafting of this Mortgage or has had the opportunity to have it reviewed by
its counsel before signing it and agrees that it has been purposefully drawn and
correctly reflects its understanding of the transaction that it contemplates.

 

9.18.      Execution by Mortgagee Corrections. The Mortgagee may at any time
without obtaining the consent of the Mortgagor execute this Mortgage (and have
such execution witnessed or acknowledged) for any purposes which it deems
necessary or appropriate and, if deemed appropriate, subsequently file this
Mortgage of record. Additionally, in the event it is determined that Exhibit A
or the mortgages, amendments to mortgage or other instruments described in
Exhibit A contain any errors or inaccurate or incomplete descriptions of the Oil
and Gas Leases and Lands intended to be covered hereby or referred to in any
Certificates of Ownership Interests, the Mortgagee may, without obtaining the
consent of the Mortgagor, attempt to correct any such errors or omissions and
make accurate and complete any such inaccuracies, omissions or misdescriptions
and, if deemed appropriate, subsequently file or re-file this Mortgage of
record.

 

9.19.      Governing Law. This Mortgage is intended to be performed in the State
of Texas and the substantive Law of such State and or the United States of
America shall govern the validity, construction, enforcement and interpretation
of this Mortgage, unless otherwise specified herein, except that to the extent
that the Law of the state in which a portion of the Mortgaged Property is
located (or that is otherwise applicable to a portion of the Mortgaged Property)
necessarily or, in the sole discretion of Mortgagee, appropriately governs with
respect to procedural and substantive matters relating to the creation,
perfection and enforcement of the Liens and other rights and remedies of
Mortgagee granted herein, the Laws of such state shall apply as to that portion
of the Mortgaged Property located in (or otherwise subject to the Laws of) such
state.

 

9.20.      NOTICE: THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 26 

 

 

IN WITNESS WHEREOF, the undersigned has executed or caused to be executed this
Mortgage as of the date first set forth above.

 

  MORTGAGOR:       LILIS ENERGY, INC.         By: /s/ Avi Mirman     Avi Mirman
    Chief Executive Officer

 

Signature Page to Mortgage (Wyoming)
(Brushy Resources, Inc. Credit Facility)

 

 

 

 

ACKNOWLEDGEMENT

 

STATE OF _____________ §   § COUNTY OF ______________ §

 

This instrument was acknowledged before me on July 25, 2016, by Avi Mirman,
Chief Executive Officer of Lilis Energy, Inc., a Nevada corporation, on behalf
of said corporation.

 

Given under my hand and seal of office this 25th day of July, A.D., 2016.

 

  ____________________________________   Notary Public in and for the State of
________

 

Acknowledgement Page to Mortgage (Wyoming)
(Brushy Resources, Inc. Credit Facility)

 

 

 

 

EXHIBIT A
TO MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION,

FIXTURE FILING AND FINANCING STATEMENT

 

This Exhibit A sets forth the description of certain property interests covered
by the Mortgage. All of the terms defined in the Mortgage are used in this
Exhibit A with the same meanings given therein.

 

This Exhibit A and the Mortgage cover and include the following:

 

(a)          All right, title and interest, whether now owned and existing or
hereafter acquired or arising, of Mortgagor in and to the oil, gas and mineral
leases described herein and/or lands described in and subject to such oil, gas
and mineral leases (regardless, as to such leases and/or lands, of any surface
acreage and/or depth limitations set forth in any description of any of such
oil, gas and mineral leases), and all right, title and interest, whether now
owned and existing or hereafter acquired or arising, of Mortgagor in and to any
of the oil, gas and minerals in, on or under the lands, if any, described on
this Exhibit, including, without limitation, all contractual rights, fee
interests, leasehold interests, overriding royalty interests, non-participating
royalty interests, mineral interests, production payments, net profits interests
or any other interest measured by or payable out of production of oil, gas or
other minerals from the oil, gas and mineral leases and/or lands described
herein; and

 

(b)          All of the foregoing interests of Mortgagor as such interests may
be enlarged by the discharge of any payments out of production or by the removal
of any charges or encumbrances, together with all interests, whether now owned
and existing or hereafter acquired or arising, of Mortgagor 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 Mortgagor after the termination or
expiration of any oil and gas lease, the interests of Mortgagor 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

 

(c)          All right, title and interest, whether now owned and existing or
hereafter acquired or arising, of Mortgagor in, to and under or derived from any
operating, farmout and bidding agreements, assignments and subleases, whether or
not described in this Exhibit, to the extent, and only to the extent, that such
agreements, assignments and subleases (i) cover or include any present right,
title and interest of Mortgagor in and to the leases and/or lands described in
this Exhibit, or (ii) cover or include any other undivided interests now or
hereafter held by Mortgagor in, to and under the described leases and/or lands,
including, without limitation, any future operating, farmout and bidding
agreements, assignments, subleases and pooling, unitization and communitization
agreements and the units created thereby (including, without limitation, all
units formed under orders, regulations, rules or other official acts of any
governmental body or agency having jurisdiction) to the extent and only to the
extent that such agreements, assignments, subleases, or units cover or include
the described leases and/or lands; and

 

Exhibit A

 

 

 

 

(d)          All right, title and interest, whether now owned and existing or
hereafter acquired or arising, of Mortgagor in, to and under or derived from all
presently existing and future advance payment agreements, oil, casinghead gas
and gas sales, exchange and processing contracts and agreements, including,
without limitation, those contracts and agreements that are described on this
Exhibit, to the extent, and only to the extent, those contracts and agreements
cover or include the described leases and/or lands; and

 

(e)          All right, title and interest, whether now owned and existing or
hereafter acquired or arising, of Mortgagor 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 the Mortgage to cover all of the right, title
and interest of Mortgagor in and to the described leases and/or lands, whether
now owned and existing or hereafter acquired or arising, Mortgagor hereby
specifically warrants and represents that the interests covered by this Exhibit
are not greater than the working interest nor less than the net revenue
interest, overriding royalty interest, net profit interest, production payment
interest, royalty 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. In the event Mortgagor owns any other or greater interest, such
additional interest shall also be covered by and included in the Mortgage.

 

Any reference herein to wells or units is for warranty of interest,
administrative convenience and identification and is not intended to limit or
restrict the right, title, interest of properties covered by the Mortgage and
all of Mortgagor’s right, title and interest in the Lands, Subject Interests and
Mortgaged Property described herein are and shall be subject to the Mortgage,
regardless of the presence of any Units or Wells not herein referenced.

 

The Leases covered by the Mortgage includes all leases and force pooled
interests now or thereafter owned by Mortgagor included within the counties
referred to in this Exhibit whether or not the schedules of leases included in
this Exhibit list all such leases.

 

No depth limitation exception contained in any description of leases and other
real property interests set forth in this Exhibit shall exclude from the grants
of the Mortgaged Property and collateral contained in the Mortgage any depth
owned by Mortgagor within the geographic area described in this Exhibit for such
leases and other real property interests.

 

Exhibit A

 

 

 

 

The designation “Working Interest” or “W.I.” when used in this Exhibit 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 “N.R.I.” means 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, 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, and other similar taxes and,
in instances where the document creating the overriding royalty interest so
provides, costs associated with compression, dehydration, other treating or
processing, or transportation of production of oil, gas, or other minerals
relating to the marketing of such production. The designation “Royalty Interest”
or “RI” means an interest in production which results from an ownership in the
mineral fee estate or royalty estate in the relevant land and which is free of
any obligation for the expense of exploration, development, and production,
bearing only its pro rata share of severance, production, and other similar
taxes and, in instances where the document creating the royalty interest so
provides, costs associated with compression, dehydration, other treating or
processing or transportation of production of oil, gas, or other minerals
relating to the marketing of such production.

 

The references to book or volume and page herein refer to the recording location
of each respective Mortgaged Property described herein in the county/parish
where the land covered by the Mortgaged Property is located.

 

Except as expressly set forth in Section 4.10 of this Mortgage, this Mortgage
covers all lands, leases and properties of the Mortgagor, whether now owned or
hereafter acquired, located in any county/parish identified elsewhere in this
Exhibit or located in any county/parish wherein this Mortgage has been recorded.

 

Exhibit A

 

 

 

 

EXHIBIT A  (cont’d)

 

LARAMIE COUNTY, WYOMING

 

Lilis
Lease                           County /   Recording #   Lessor   Lessee  
Twnshp   Range   Section   Legal Description   State   Bk   PG/Doc #            
                          10018   May, Judith Ann   Edward Mike Davis, LLC   15
  60   28   All   Laramie, WY   2159   466-468 10019   May, Shirley   Edward
Mike Davis, LLC   15   60   28   All   Laramie, WY   2161   385-387 10020  
Stevens, Wilda May   Edward Mike Davis, LLC   15   60   28   All   Laramie, WY  
2161   367-369 10085   Irwin, Thomas W. (Ttee of the Thomas W. Irwin Family
Trust)   Edward Mike Davis, LLC   16   60   32   NW, less 5.0 acres in NWNW  
Laramie, WY   2161   435-437 10122   Gardner Bros Partnership   Edward Mike
Davis, LLC   15   60   26   Lots 1 (35.04), 2 (35.12), 3 (35.20), 4 (36.27),
W2W2 (aka "All)   Laramie, WY   2159   475-477             15   60   34   E2,
less 18.45   Laramie, WY                     15   60   35   Lots 1 (34.63), 2
(34.89), 3(35.15), 4(35.42), W2W2   Laramie, WY         10124   Langseth, Eric
Craig and Carla Marie   Edward Mike Davis, LLC   15   60   26   Lots 1 (35.04),
2 (35.12), 3 (35.20), 4 (36.27), W2W2 (aka "All)   Laramie, WY   2159   478    
        15   60   34   E2, less 18.45   Laramie, WY                     15   60
  35   Lots 1 (34.63), 2 (34.89), 3(35.15), 4(35.42), W2W2   Laramie, WY        
10125   Wilkerson,Janice Leah   Edward Mike Davis, LLC   15   60   26   Lots 1
(35.04), 2 (35.12), 3 (35.20), 4 (36.27), W2W2 (aka "All)   Laramie, WY   2181  
1512             15   60   34   E2, less 18.45   Laramie, WY                    
15   60   35   Lots 1 (34.63), 2 (34.89), 3(35.15), 4(35.42), W2W2   Laramie, WY
        10133   Anderson Livestock Inc.   Edward Mike Davis, LLC   16   60   11
  Lots 1(34.12), 2(34.15), 3(34.17), 4(34.19)   Laramie, WY   2158   1303-1305  
          16   60   14   Lots 1(34.25), 2(34.35), 3(34.45), 4(34.55)   Laramie,
WY                     16   60   15   NW   Laramie, WY        

 

Exhibit A – Laramie County, WY

 

 

 

 

Lilis
Lease                           County /   Recording #   Lessor   Lessee  
Twnshp   Range   Section   Legal Description   State   Bk   PG/Doc #            
                                      16   60   22   SE   Laramie, WY          
          16   60   23   North 130 acres of the W2   Laramie, WY         10157  
Jessen Wheat Company, LLC   Edward Mike Davis, LLC   16   60   28   SE  
Laramie, WY   2158   1299-1302 10179   Anderson, Dean V.   Edward Mike Davis,
LLC   15   60   2   Lots 1 (34.66), 2 (40.12), 3 (34.63), SWNW   Laramie, WY  
2159   451-453 10180   Anderson, Dennis E.   Edward Mike Davis, LLC   15   60  
2   Lots 1 (34.66), 2 (40.12), 3 (34.63), SWNW   Laramie, WY   2159   448-450
10181   Anderson, Dwayne A.   Edward Mike Davis, LLC   15   60   2   Lots 1
(34.66), 2 (40.12), 3 (34.63), SWNW   Laramie, WY   2159   454-456 10182  
Jessen, Michael (Guardian for Rose Jessen)   Edward Mike Davis, LLC   15   60  
2   Lots 4 (34.60), 5 (34.57), W2SW   Laramie, WY   2158   1296-1298 10184  
Rochelle Energy LP   Edward Mike Davis, LLC   15   60   8   NE   Laramie, WY  
2179   1230-1232             15   60   15   All   Laramie, WY                  
  15   60   21   NE   Laramie, WY         10185   Herman, David   Edward Mike
Davis, LLC   15   60   9   E2   Laramie, WY   2149   503-505             16   60
  20   NE   Laramie, WY         10186   Cooney, Phyllis A., Trusttee   Edward
Mike Davis, LLC   15   60   10   N2   Laramie, WY   2158   1292-1294 10187  
Randol, Emmy Lou   Edward Mike Davis, LLC   15   60   15   All   Laramie, WY  
2158   1357-1359             15   60   17   S2   Laramie, WY                    
15   60   20   NW, NE   Laramie, WY                     15   60   21   All  
Laramie, WY         10191   Mattson Ranch Company   Edward Mike Davis, LLC   15
  60   16   All, less a 10.925 acre tract   Laramie, WY   2161   376-378        
    15   60   22   All   Laramie, WY        

 

Exhibit A – Laramie County, WY

 

 

 

 

Lilis
Lease                           County /   Recording #   Lessor   Lessee  
Twnshp   Range   Section   Legal Description   State   Bk   PG/Doc #            
                                      15   60   23   Lots 1 (35.04), 2 (35.12),
3 (35.20), 4 (36.27), W2W2   Laramie, WY                     16   60   32   NW,
less 5.0 acres in NWNW   Laramie, WY         10192   Bunger, Peggy   Edward Mike
Davis, LLC   15   60   20   E2NE   Laramie, WY   2161   388-390 10193   Ford,
Lana   Edward Mike Davis, LLC   15   60   20   E2NE   Laramie, WY   2161  
355-357 10194   King, Judy   Edward Mike Davis, LLC   15   60   20   E2NE  
Laramie, WY   2158   1348-1350 10196   Simmons, Diana   Edward Mike Davis, LLC  
15   60   20   E/2NE   Laramie, WY   2165   1338-1340 10197   Skirrow, Linda  
Edward Mike Davis, LLC   15   60   20   E/2NE   Laramie, WY   2158   1351-1353
10198   Soderquist, Sharon   Edward Mike Davis, LLC   15   60   20   E/2NE  
Laramie, WY   2165   1341-1343 10199   Young, Donald J.and Clarrisa   Edward
Mike Davis, LLC   15   60   20   E/2NE   Laramie, WY   2158   1354-1356 10200  
Young, Irene   Edward Mike Davis, LLC   15   60   20   E/2NE   Laramie, WY  
2159   472-474 10201   Young, Larry   Edward Mike Davis, LLC   15   60   20  
E/2NE   Laramie, WY   2161   358-360 10202   Gross, John   Edward Mike Davis,
LLC   15   60   27   NE, S2   Laramie, WY   2192   1549-1551 10203   May, Lee  
Edward Mike Davis, LLC   15   60   28   All   Laramie, WY   2192   1551-1553
10204   Sorensen, Melanie   Edward Mike Davis, LLC   15   60   28   All  
Laramie, WY   2179   1224-1226 10206   Bulkley, Robert (Heir of Estate of
Beverly Bulkley)   Edward Mike Davis, LLC   16   60   28   SW   Laramie, WY  
2169   985-987 10207   Reher, Ilene M.   Edward Mike Davis, LLC   16   60   28  
NE   Laramie, WY   2161   379-381             16   60   28   NW, less two tracts
  Laramie, WY         10208   Smith, Dorothy W.   Edward Mike Davis, LLC   16  
60   28   SW   Laramie, WY   2169   982-984 10209   Smith, Helen J. (Heir to
estate of Barry B. Smith)   Edward Mike Davis, LLC   16   60   28   SW  
Laramie, WY   2169   978-980

 

Exhibit A – Laramie County, WY

 

 

 

 

Lilis
Lease                           County /   Recording #   Lessor   Lessee  
Twnshp   Range   Section   Legal Description   State   Bk   PG/Doc #            
                          10210   Smith, Richard E.   Edward Mike Davis, LLC  
16   60   28   SW   Laramie, WY   2165   1350-1352 10211   Fornstrom Farms, LLC
  Land Right Services, LLC   16N   60W   32   SW, Less a tract   Laramie, WY  
2206   1144/562548 10212   Moffit, Juanita   Edward Mike Davis, LLC   16   60  
32   NE, less 1.0 acre tract   Laramie, WY   2161   382-384 10213   Holgerson
Ranch Company   Edward Mike Davis, LLC   17   60   4   S/2NE/4, N/2SE/4  
Laramie, WY   2067   80-82             17   60   20   W2   Laramie, WY        
10216   Wenzel, F. Bernard and et al   Edward Mike Davis, LLC   17   60   10  
NE/4   Laramie, WY   2054   877-879 10217   Rabou Land Company, LLC   Edward
Mike Davis, LLC   17   60   18   Lots 1(45.04), 2(44.80), 3(44.56), 4(44.32),
E2, E2W2   Laramie, WY   2165   1347-1349 10218   Albin Baptist Church   Edward
Mike Davis, LLC   17   60   20   SE, less a 16.80 acre tract and a 6.17 acre
tract   Laramie, WY   2159   469-471 10219   Anderson, James S. & Connie Louise
(Heir to Charles, R. Anderson estate)   Edward Mike Davis, LLC   17   60   20  
NE, less 6.13 acres   Laramie, WY   2161   364-366 10220   Anderson, Norma Jean
  Edward Mike Davis, LLC   17   60   20   NE, less 6.13 acres   Laramie, WY  
2161   391-393 10221   Anderson, Sam   Edward Mike Davis, LLC   17   60   20  
NE, less 6.13 acres   Laramie, WY   2161   361-363 10222   Freeburg Farms, Inc.
  Edward Mike Davis, LLC   17   60   20   NE, less 6.13 acres   Laramie, WY  
2161   370-372 10223   Laird, Joan   Edward Mike Davis, LLC   17   60   20   NE,
less 6.13 acres   Laramie, WY   2161   373-375 10224   Nordyke, Marie   Edward
Mike Davis, LLC   17   60   20   NE, less 6.13 acres   Laramie, WY   2169  
975-977 10226   Bowman, Darlene M. (Trustee of the Dale A. Bowman Living Trust)
  Edward Mike Davis, LLC   18   60   27   N/2NW/4SW/4   Laramie, WY   2136  
1323-1325 10227   Dorigatti, Debra Kay   Edward Mike Davis, LLC   18   60   27  
N/2NW/4SW/4   Laramie, WY   2144   690-692 10228   Flohr, Shelly   Edward Mike
Davis, LLC   18   60   27   N/2NW/4SW/4   Laramie, WY   2144   687-689 10229  
Willoughby, Mark James   Edward Mike Davis, LLC   18   60   27   N/2NW/4SW/4  
Laramie, WY   2144   684-686

 

Exhibit A – Laramie County, WY

 

 

 

 

Lilis
Lease                           County /   Recording #   Lessor   Lessee  
Twnshp   Range   Section   Legal Description   State   Bk   PG/Doc #            
                          10254   Hedges, Mary Jean   Edward Mike Davis, LLC  
19N   67W   23   W/2SE, SW   Laramie, WY   1924   1330/436304             19N  
67W   25   NE, E/2NW, SWNW                         19N   67W   26   W/2NE, NENE,
W/2, NWSE                         19N   67W   27   SE                        
19N   67W   35   E/2SE, E/2W/2SE             10283   Wyoming, State of; WY Lease
#1   Land Rights Services, LLC   15N   60W   17   NE, E/2NW, PART OF THE W/2NW  
Laramie       551592 10289   Wyoming, State of; WY Lease #1   Land Rights
Services, LLC   17N   67W   23   NW   Laramie       551593 10299   Wyoming,
State of; WY Lease #1   Land Rights Services, LLC   19N   67W   29   ALL  
Laramie       UNK 10300   Wyoming, State of; WY Lease #1   Land Rights Services,
LLC   19N   67W   26   SENE, NESE   Laramie       UNK 10307   Fornstrom, K.
James & E.A. (Trustees of the K. James Fornstrom Trust and E. A. Fornstrom
Trust)   Recovery Energy, Inc.   16N   60W   32   SE   Laramie       568977
10322   Eugene Hanson & Son, Inc.   Interzone Energy, Inc.   16N   61W   26   N2
  Laramie, WY       417796 10324   Lyon, William R. & Patricia A.   Terry Land
Services Company   15N   61W   14   E/2   Laramie, WY       599101 10325   Lyon,
Jack R. & Barbara E.   Terry Land Services Company   15N   61W   14   E/2  
Laramie, WY       599100 10328   Hagstrom, Steven Dean   Terry Land Services
Company   15N   63W   14   SE/4   Laramie, WY       600691 10340   Anderson,
Mark W., Trustee of Mark W. Anderson Living Trust dtd 3/24/98   Delta Petroleum
Corporation   15N   63W   2   Lots 1-4, S/2N/2   Laramie, WY       495436 10341
  Anderson, Mark W., Trustee of Mark W. Anderson Living Trust dtd 3/24/98  
Peterson Energy Management, Inc.   15N   63W   2   SE/4   Laramie, WY      
279547 10342   Seaver, Evelyn M.   Peterson Energy Management, Inc.   15N   63W
  2   SE/4   Laramie, WY       279548 10343   Vikings, LLC   Edward Mike Davis,
LLC   15N   63W   2   Lots 1-2, S/2NE/4 (NE/4)   Laramie, WY       592432

 

Exhibit A – Laramie County, WY

 

 

 

 

Lilis
Lease                           County /   Recording #   Lessor   Lessee  
Twnshp   Range   Section   Legal Description   State   Bk   PG/Doc #            
                          10344   Anderson, Leonard & Norma J.   Edward Mike
Davis, LLC   15N   63W   2   N/2SW, SWSW   Laramie, WY       611788 10346  
Trimble, Claudia M., Gladys Woods, as AIF   Delta Petroleum Corporation   15N  
63W   10   N/2, W/2NESE, NWSE, S/2SE, SW/4   Laramie, WY       506306 10347  
Wymer, Peggy   Land Rights Services, LLC   15N   63W   2   N/2SW, SWSW  
Laramie, WY       617752 10348   Wisroth, Donald G. and Sandra   Recovery
Energy, Inc.   14N   60W   4   ALL   Laramie, Wy       626483             14N  
60W   5   LOTS 1-2, S/2NE, SE   Laramie, Wy         10349   Wisroth, Robert W. &
Elsie   Recovery Energy, Inc.   14N   60W   4   ALL   Laramie, Wy       628810  
          14N   60W   5   LOTS 1-2, S/2NE, SE   Laramie, Wy         10350  
Moore, Esther M. & John D.   Recovery Energy, Inc.   14N   60W   4   ALL  
Laramie, WY       628811             14N   60W   5   LOTS 1-2, S/2NE, SE  
Laramie WY        

 

Exhibit A – Laramie County, WY

 

 

 

 

Lilis Energy Wells Well Name   Type   API #   County   State   Township   Range
  Section   Status Anderson 32-2   Oil   49021209890000   Laramie   WY   15   63
  2   Prod Hanson 42-26   Oil   49021209410000   Laramie   WY   16   61   26  
Prod Sentry 1-2   Oil   49021203110000   Laramie   WY   15   N   63   2

 

Exhibit A – Laramie County, WY