EXHIBIT 10.2

(CO, LA, MT, ND, NM, OK, TX, WY)

DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE
ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
 
FROM
 
ST. MARY LAND & EXPLORATION COMPANY
 
TO

WACHOVIA BANK, NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT,
 
OR, ALTERNATIVELY, TO

JAY CHERNOSKY, TRUSTEE

FOR THE BENEFIT OF

WACHOVIA BANK, NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
 
Dated Effective as of April 14, 2009
 
A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.
 
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF
FUTURE ADVANCES, AND COVERS PROCEEDS OF COLLATERAL.
 
THIS INSTRUMENT COVERS, AMONG OTHER THINGS, (A) GOODS WHICH ARE OR ARE TO BECOME
FIXTURES RELATED TO THE REAL PROPERTY DESCRIBED HEREIN, AND (B) AS-EXTRACTED
COLLATERAL RELATED TO THE REAL PROPERTY DESCRIBED HEREIN (INCLUDING WITHOUT
LIMITATION, OIL, GAS, OTHER MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE
EXTRACTED FROM THE EARTH AND ACCOUNTS ARISING OUT OF THE SALE AT THE WELLHEAD OR
MINEHEAD THEREOF).  THIS INSTRUMENT IS TO BE FILED FOR RECORD, AMONG OTHER
PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE COUNTIES AND/OR PARISHES
REFERENCED IN EXHIBIT A HERETO AND SUCH FILING SHALL SERVE, AMONG OTHER
PURPOSES, AS A FIXTURE FILING AND AS A FINANCING STATEMENT COVERING AS-EXTRACTED
COLLATERAL. THE MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL
 

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ESTATE AND/OR IMMOVABLE PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN
SECTION 1.1 OF THIS INSTRUMENT.
 
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
AGENT (AS HEREINAFTER DEFINED) OR TRUSTEE (AS HEREINAFTER DEFINED) TO TAKE THE
MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE
ACTION UPON DEFAULT BY THE MORTGAGOR (AS HEREINAFTER DEFINED) UNDER THIS
MORTGAGE.
 
Note to North Dakota Recording Officer: Attached to counterparts hereto to be
filed in the State of North Dakota (as Annex II) is an adequate statement of the
interest.
 
EMPLOYER IDENTIFICATION NUMBER OF MORTGAGOR: 41-05 18430
 
ORGANIZATIONAL IDENTIFICATION NUMBER OF MORTGAGOR: 0044728
 

WHEN RECORDED OR FILED RETURN TO:

Vinson & Elkins L.L.P.
2500 First City Tower
1001 Fannin Street
Houston, Texas 77002
Attention: Linda Daugherty
Phone Number: (713) 758-4513

Houston 3941837v.4
 
 

 

DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE
ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
(this “Mortgage”)
 
ARTICLE I.

 
Granting Clauses: Secured Indebtedness
 
Section 1.1   Grant and Mortgage. St. Mary Land & Exploration Company, a
Delaware corporation (“Company” and “Mortgagor”), for and in consideration of
the sum of Ten Dollars ($10.00) to Mortgagor in hand paid, and in order to
secure the payment of the secured indebtedness hereinafter referred to and the
performance of the obligations, covenants, agreements, warranties and
undertakings of Mortgagor hereinafter described, does hereby (a) GRANT, BARGAIN,
SELL, CONVEY, TRANSFER, ASSIGN AND SET OVER to Trustee (as hereinafter defined),
and grant to Trustee a POWER OF SALE (pursuant to this Mortgage and applicable
law) with respect to, those of the following described properties, rights and
interests which are located in (or cover properties located in) the State of
Texas or which are located within (or cover properties located within) the
offshore area over which the United States of America asserts jurisdiction and
to which the laws of any such state are applicable with respect to this Mortgage
and/or the liens or security interests created hereby (the “Deed of Trust
Mortgaged Properties”), and (b) MORTGAGE, ASSIGN, WARRANT, PLEDGE AND
HYPOTHECATE to Agent (as defined in Section 1.3(a) below), and grant to Agent a
POWER OF SALE (pursuant to this Mortgage and applicable law) with respect to,
all of the following described rights, interests and properties which were not
granted to Trustee in clause (a) above (including, without limitation, those of
the following described properties, rights and interests which are located in
(or cover properties located in) the States of Colorado, Louisiana, Montana, New
Mexico, North Dakota, Oklahoma or Wyoming or which are located within (or cover
properties located within) the offshore area over which the United States of
America asserts jurisdiction and to which the laws of any such state are
applicable with respect to this Mortgage and/or the liens or security interests
created hereby) (the “Other Mortgaged Properties”):
 
A.   The oil, gas and/or other mineral properties, mineral servitudes, and/or
mineral rights which are described in Exhibit A attached hereto and made a part
hereof;
 
B.   Without limitation of the foregoing, all other right, title and interest of
Mortgagor of whatever kind or character (whether now owned or hereafter acquired
by operation of law or otherwise) in and to (i) the oil, gas and/or mineral
leases or other agreements described in Exhibit A hereto, (ii) the lands
described or referred to in Exhibit A (or described in any of the instruments
described or referred to in Exhibit A), without regard to any limitations as to
specific lands or depths that may be set forth in Exhibit A hereto or in any of
the leases or other agreements described in Exhibit A hereto and (iii) any other
lands (including submerged lands) located anywhere in the United States of
America or located offshore the United States of America but within the offshore
area over which the United States of America or any State thereof asserts
jurisdiction;
 
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C.   All of Mortgagor’s interest (whether now owned or hereafter acquired by
operation of law or otherwise) in and to all presently existing and hereafter
created oil, gas and/or mineral unitization, pooling and/or communitization
agreements, declarations and/or orders, and in and to the properties, rights and
interests covered and the units created thereby (including, without limitation,
units formed under orders, rules, regulations or other official acts of any
federal, state or other authority having jurisdiction), which cover, affect or
otherwise relate to the properties, rights and interests described in clause A
or B above;
 
D.   All of Mortgagor’s interest in and rights under (whether now owned or
hereafter acquired by operation of law or otherwise) all presently existing and
hereafter created operating agreements, equipment leases, production sales
contracts, processing agreements, transportation agreements, gas balancing
agreements, farmout and/or farm-in agreements, salt water disposal agreements,
area of mutual interest agreements, and other contracts and/or agreements which
cover, affect, or otherwise relate to the properties, rights and interests
described in clause A, B or C above or to the operation of such properties,
rights and interests or to the treating, handling, storing, processing,
transporting or marketing of oil, gas, other hydrocarbons, or other minerals
produced from (or allocated to) such properties, rights and interests
(including, but not limited to, those contracts listed in Exhibit A hereto), as
same may be amended or supplemented from time to time;
 
E.   All of Mortgagor’s interest (whether now owned or hereafter acquired by
operation of law or otherwise) in and to all improvements, fixtures, movable or
immovable property and other real and/or personal property (including, without
limitation, all wells, pumping units, wellhead equipment, tanks, pipelines, flow
lines, gathering lines, compressors, dehydration units, separators, meters,
buildings, injection facilities, salt water disposal facilities, and power,
telephone and telegraph lines), and all easements, servitudes, rights-of-way,
surface leases, licenses, permits and other surface rights, which are now or
hereafter used, or held for use, in connection with the properties, rights and
interests described in clause A, B or C above, or in connection with the
operation of such properties, rights and interests, or in connection with the
treating, handling, storing, processing, transporting or marketing of oil, gas,
other hydrocarbons, or other minerals produced from (or allocated to) such
properties, rights and interests; and
 
F.   All rights, estates, powers and privileges appurtenant to the foregoing
rights, interests and properties.
 
TO HAVE AND TO HOLD (a) the Deed of Trust Mortgaged Properties unto the Trustee,
and its successors or substitutes in this trust, and to its or their successors
and assigns, in trust, however, upon the terms, provisions and conditions herein
set forth, and (b) the Other Mortgaged Properties unto Agent, and Agent’s
successors and assigns, upon the terms, provisions and conditions herein set
forth (the Deed of Trust Mortgaged Properties and the Other Mortgaged Properties
are herein sometimes collectively called the “Mortgaged Properties”). As used
throughout this Mortgage, the term “Trustee” shall mean with respect to all of
the Deed of Trust Mortgaged Properties which are located in (or which cover
properties located in) the State of Texas, Jay Chernosky whose address is 1001
Fannin Street, Suite 2255, Houston, Texas 77002.
 
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Section 1.2   Grant of Security Interest.  In order to further secure the
payment of the secured indebtedness hereinafter referred to and the performance
of the obligations, covenants, agreements, warranties, and undertakings of
Mortgagor hereinafter described, Mortgagor hereby grants to Agent (as defined in
Section 1.3(a) below) a security interest in the entire interest of Mortgagor
(whether now owned or hereafter acquired by operation of law or otherwise) in
and to:
 
(a)   to the extent a security interest may be created therein, the Mortgaged
Properties;
 
(b)   all oil, gas, other hydrocarbons, and other minerals produced from or
allocated to the Mortgaged Properties, and any products processed or obtained
therefrom (herein collectively called the “Production”), together with all
proceeds of Production (regardless of whether Production to which such proceeds
relate occurred on or before or after the date hereof), and together with all
liens and security interests securing payment of the proceeds of the Production,
including, but not limited to, those liens and security interests provided for
under (i) statutes enacted in the jurisdictions in which the Mortgaged
Properties are located, or (ii) statutes made applicable to the Mortgaged
Properties under federal law (or some combination of federal and state law);
 
(c)   without limitation of any other provisions of this Section 1.2, all
payments received in lieu of production from the Mortgaged Properties
(regardless of whether such payments accrued, and/or the events which gave rise
to such payments occurred, on or before or after the date hereof), including,
without limitation, “take or pay” payments and similar payments, payments
received in settlement of or pursuant to a judgment rendered with respect to
take or pay or similar obligations or other obligations under a production sales
contract, payments received in buyout or buydown or other settlement of a
production sales contract, and payments received under a gas balancing or
similar agreement as a result of (or received otherwise in settlement of or
pursuant to judgment rendered with respect to) rights held by Mortgagor as a
result of Mortgagor (and/or its predecessors in title) taking or having taken
less gas from lands covered by a Mortgaged Property (or lands pooled or unitized
therewith) than their ownership of such Mortgaged Property would entitle them to
receive (the payments described in this subsection (c) being herein called
“Payments in Lieu of Production”);
 
(d)   all equipment, inventory, improvements, fixtures, accessions, goods and
other personal property or movable property of whatever nature now or hereafter
located on or used or held for use in connection with the Mortgaged Properties
(or in connection with the operation thereof or the treating, handling, storing,
processing, transporting, or marketing of Production), and all licenses and
permits of whatever nature now or hereafter used or held for use in connection
with the Mortgaged Properties (or in connection with the operation thereof or
the treating, handling, storing, processing, transporting, or marketing of
Production), and all renewals or replacements of the foregoing or substitutions
for the foregoing;
 
(e)   all contract rights, choses in action (i.e., rights to enforce contracts
or to bring claims thereunder), commercial tort claims and other general
intangibles (regardless of whether the same arose, and/or the events which gave
rise to the same occurred, on or before or after the date hereof) related to the
Mortgaged Properties, the operation thereof (whether Mortgagor is operator or
non-operator), or the treating, handling, storing, processing, transporting, or
 
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marketing of Production (including, without limitation, any of the same relating
to payment of proceeds of Production or to payment of amounts which could
constitute Payments in Lieu of Production);
 
(f)   Without limitation of the generality of the foregoing, any rights and
interests of Mortgagor under any present or future hedge or swap agreements,
cap, floor, collar, exchange, forward or other hedge or protection agreements or
transactions relating to crude oil, natural gas or other hydrocarbons, or any
option with respect to any such agreement or transaction now existing or
hereafter entered into by or on behalf of Mortgagor;
 
(g)   all geological, geophysical, engineering, accounting, title, legal, and
other technical or business data concerning the Mortgaged Properties, the
Production or any other item of Property (as hereinafter defined) which are now
or hereafter in the possession of Mortgagor or in which Mortgagor can otherwise
grant a security interest, and all books, files, records, magnetic media,
software and other forms of recording or obtaining access to such data;
 
(h)   all money, documents, instruments, chattel paper (including without
limitation, electronic chattel paper and tangible chattel paper), rights to
payment evidenced by chattel paper, securities, accounts, payment intangibles,
general intangibles, letters of credit, letter-of-credit rights, supporting
obligations and rights to payment of money arising from or by virtue of any
transaction (regardless of whether such transaction occurred on or before or
after the date hereof) related to the Mortgaged Properties, the Production or
any other item of Property;
 
(i)   all rights, titles and interests now owned or hereafter acquired by
Mortgagor in any and all goods, inventory, equipment, as-extracted collateral,
documents, money, instruments, intellectual property, certificated securities,
uncertificated securities, investment property, letters of credit, rights to
proceeds of written letters of credit and other letter-of-credit rights,
commercial tort claims, deposit accounts, payment intangibles, general
intangibles, contract rights, chattel paper (including, without limitation,
electronic chattel paper and tangible chattel paper), rights to payment
evidenced by chattel paper, software, supporting obligations and accounts,
wherever located, and all rights and privileges with respect thereto (all of the
properties, rights and interests described in subsections (a), (b), (c), (d),
(e), (f), (g) and (h) above and this subsection (i) being herein sometimes
collectively called the “Collateral”); and
 
(j)   all proceeds of the Collateral, whether such proceeds or payments are
goods, money, documents, instruments, chattel paper, securities, accounts,
payment intangibles, general intangibles, fixtures, real/immovable property,
personal/ movable property or other assets (the Mortgaged Properties, the
Collateral and the proceeds of the Collateral being herein sometimes
collectively called the “Property”).
 
Except as otherwise expressly provided in this Mortgage, all terms in this
Mortgage relating to the Collateral and the grant of the foregoing security
interest which are defined in the Texas Uniform Commercial Code (the “UCC”)
shall have the meanings assigned to them in Article 9 (or, absent definition in
Article 9, in any other Article) of the UCC, as those meanings may be amended,
revised or replaced from time to time. Notwithstanding the foregoing, the
parties intend that the terms used herein which are defined in the UCC have, at
all times, the broadest and most inclusive meanings possible. Accordingly, if
the UCC shall in the future be amended or
 
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held by a court to define any term used herein more broadly or inclusively than
the UCC in effect on the date of this Mortgage, then such term, as used herein,
shall be given such broadened meaning. If the UCC shall in the future be amended
or held by a court to define any term used herein more narrowly, or less
inclusively, than the UCC in effect on the date of this Mortgage, such amendment
or holding shall be disregarded in defining terms used in this Mortgage
 
Section 1.3   Secured Indebtedness.  This Mortgage is executed and delivered by
the Mortgagor to secure and enforce the payment and performance of the
following:
 
(a)           Payment of and performance of any and all indebtedness,
obligations and liabilities, whether now in existence or hereafter arising,
whether by acceleration or otherwise, including the principal of, interest on
(including, without limitation, interest accruing after the maturity of the
“Loans” (as defined in the hereinafter defined Credit Agreement) made by each
Lender and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to the Mortgagor, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) of the Mortgagor and all other amounts,
payments and premiums due under or in connection with that certain Third Amended
and Restated Credit Agreement dated as of the Effective Date, by and among
Mortgagor, Wachovia Bank, National Association, as Administrative Agent (in such
capacity, together with its successors in such capacity, by operation of law or
as otherwise provided in the hereinafter defined Credit Agreement, the “Agent”)
and the Lenders from time to time party thereto, and as the same may from time
to time be amended or supplemented, the “Credit Agreement”) or any other “Loan
Document” (as defined in the Credit Agreement), including, without limitation,
the “Notes” (as defined in the Credit Agreement) in the aggregate original
principal amount of $678,000,000 with final maturity on or before July 31, 2012,
and further including any additional Loans or any increases to the Loans which
may be made pursuant to the Credit Agreement; provided, the Lenders have no
obligation to make any such additional Loans or increase.
 
(b)           Payment and performance of any and all indebtedness, obligations
and liabilities of any Guarantor (as defined in the Credit Agreement) whether
now existing or hereafter arising under or in connection with the “Guaranty
Agreement” (as defined in the Credit Agreement).
 
(c)           Any sums which may be advanced or paid by the Agent or any Lender
under the terms hereof or of the Credit Agreement or any Loan Document on
account of the failure of the Mortgagor to comply with the covenants of the
Mortgagor contained herein or in the Credit Agreement or any other Loan
Document; and all other indebtedness of the Mortgagor arising pursuant to the
provisions of this Mortgage.
 
(d)           Payment of and performance of any and all present or future
obligations of the Mortgagor according to the terms of any present or future
interest rate or currency swap, rate cap, rate floor, rate collar, forward rate
agreement or other exchange or rate protection agreements or any option with
respect to any such transaction now existing or hereafter entered into between
the Mortgagor and any Lender or any Affiliate (as defined in the Credit
Agreement) of such Lender.
 
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(e)           Payment of and performance of any and all present or future
obligations of the Mortgagor according to the terms of any present or future
swap agreements, cap, floor, collar, forward agreement or other exchange or
protection agreements relating to crude oil, natural gas or other hydrocarbons
or any option with respect to any such transaction now existing or hereafter
entered into between the Mortgagor and any Lender or any Affiliate of such
Lender.
 
(f)           Performance of all “Letter of Credit Agreements” (as defined in
the Credit Agreement) executed from time to time by Mortgagor or any Subsidiary
of the Mortgagor under or pursuant to the Credit Agreement and all reimbursement
obligations for drawn or undrawn portions under any “Letter of Credit” (as
defined in the Credit Agreement) now outstanding or hereafter issued under or
pursuant to the Credit Agreement.
 
(g)           All renewals, extensions, amendments, increases and changes of, or
substitutions or replacements for, all or any part of the obligations described
under paragraphs (a) through (f) in this Section 1.3.
 
Section 1.4   Secured Indebtedness.  The indebtedness referred to in Section
1.3, and all renewals, extensions and modifications thereof, and all
substitutions therefor, in whole or in part, are herein sometimes referred to as
the “secured indebtedness” or the “indebtedness secured hereby.”  It is
contemplated and acknowledged that the secured indebtedness may include
revolving credit loans and advances from time to time, and that this Mortgage
shall have effect, as of the date hereof, to secure all secured indebtedness,
regardless of whether any amounts are advanced on the date hereof or on a later
date or, whether having been advanced, are later repaid in part or in whole and
further advances made at a later date.
 
Section 1.5           MAXIMUM SECURED AMOUNT.  NOTWITHSTANDING ANY PROVISION
HEREOF TO THE CONTRARY, THE OUTSTANDING INDEBTEDNESS SECURED BY PROPERTY LOCATED
IN THE STATES OF LOUISIANA, MONTANA OR NEW MEXICO SHALL NOT, AT ANY TIME OR FROM
TIME TO TIME, EXCEED AN AGGREGATE MAXIMUM AMOUNT OF $1,500,000,000.
 
Section 1.6   Line of Credit Mortgage.  THIS INSTRUMENT SECURES A LINE OF CREDIT
USED PRIMARILY FOR BUSINESS, COMMERCIAL, OR AGRICULTURAL PURPOSES. THIS MORTGAGE
WILL CONSTITUTE A LINE OF CREDIT MORTGAGE IN ACCORDANCE WITH SECTION 48-7-4.B
NMSA 1978 COMP.
 
ARTICLE II.
 
Representations, Warranties and Covenants
 
Section 2.1   Mortgagor represents, warrants, and covenants as follows to the
extent that any violation of such representations, warranties or covenants shall
not individually or collectively created a Material Adverse Effect regarding the
Property :
 
(a)   Title and Permitted Encumbrances.  Mortgagor has, and Mortgagor covenants
to maintain, good and defensible title to the Property, free and clear of all
liens, security interests, and encumbrances except for (i) the contracts,
agreements, burdens, encumbrances and other matters set forth in the
descriptions of certain of the Mortgaged Properties on Exhibit A hereto,
 
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(ii) the liens and security interests evidenced by this Mortgage, (iii)
statutory liens for taxes which are not yet delinquent, (iv) liens under
operating agreements, pooling orders and unitization agreements, and mechanics’
and materialmen’s liens, with respect to obligations which are not yet due, and
(v) other liens and security interests (if any) in favor of Agent (the matters
described in the foregoing clauses (i), (ii), (iii), (iv), and (v) being herein
called the “Permitted Encumbrances”); Mortgagor will warrant and defend title to
the Property, subject as aforesaid, against the claims and demands (including
claims which would be a Permitted Encumbrance under items (iii) and (iv) above)
of all persons claiming or to claim the same or any part thereof. Without
limitation of the foregoing, the ownership by Mortgagor of the Mortgaged
Properties does and will, with respect to each well or unit identified on
Schedule I, attached hereto and made a part hereof, entitle Mortgagor to receive
(subject to the terms and provisions of this Mortgage) a decimal or percentage
share of the oil, gas and other hydrocarbons produced from, or allocated to,
such well or unit equal to not less than the decimal or percentage share set
forth, for such well or unit, in the column headed “Net Revenue Interest” (or
words of similar import) on Schedule I, and cause Mortgagor to be obligated to
bear a decimal or percentage share of the cost of operation of such well or unit
equal to not more than the decimal or percentage share set forth, for such well
or unit, in the column headed “Working Interest” (or words of similar import) on
Schedule I. The above-described shares of production which Mortgagor is entitled
to receive and shares of expenses which Mortgagor is obligated to bear are not
and will not be subject to change (other than changes which arise pursuant to
non-consent provisions of operating agreements described in Exhibit A in
connection with operations hereafter proposed), except, and only to the extent
that, such changes are reflected in Schedule I. There is not and will not be any
unexpired financing statement covering any part of the Property on file in any
public office naming any party other than Agent as secured party. Upon request
by Agent, Mortgagor will deliver to Agent schedules of all internal and third
party information identifying the Mortgaged Properties (such as, for example,
lease names and numbers assigned by Mortgagor or the operator of any Mortgaged
Property, well and/or unit and/or property names and numbers assigned by
purchasers of Production, and internal identification names and numbers used by
Mortgagor in accounting for revenues, costs, and joint interest transactions
attributable to the Mortgaged Properties). The listing of Permitted Encumbrances
above is made for the purpose of limiting certain warranties and covenants made
by Mortgagor herein; such listing is not intended to affect the description
herein of the Mortgaged Properties nor to subordinate the liens and security
interests hereunder to any Permitted Encumbrances.
 
(b)           Leases and Contracts; Performance of Obligations. The oil, gas
and/or mineral leases, contracts, servitudes and other agreements forming a part
of the Property, to the extent the same cover or otherwise relate to the
Property, are in full force and effect, and Mortgagor agrees to so maintain them
in full force and effect. All rents, royalties and other payments due and
payable under such leases, contracts, servitudes and other agreements, or under
the Permitted Encumbrances, or otherwise attendant to the ownership or operation
of the Property, have been, and will continue to be, properly and timely paid.
Mortgagor is not in default with respect to Mortgagor’s obligations (and
Mortgagor is not aware of any default by any third party with respect to such
third party’s obligations) under such leases, contracts, servitudes and other
agreements, or under the Permitted Encumbrances, or otherwise attendant to the
ownership or operation of any part of the Property, where such default could
adversely affect the ownership or operation of the Property; Mortgagor will
fulfill all such obligations coming due in the future. There are no situations
where Mortgagor is aware that a contingent liability may exist to account
 
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on a basis less favorable to Mortgagor than on the basis on which Mortgagor is
currently accounting.
 
(c)   Sale of Production.  No Mortgaged Property is or will become subject to
any contractual or other arrangement (i) whereby payment for production is or
can be deferred for a substantial period after the month in which such
production is delivered (i.e., for wells in pay status, in the case of oil, not
in excess of 60 days, and in the case of gas, not in excess of 90 days, and for
wells not in pay status, the time period provided by statute) or (ii) whereby
payments are made to Mortgagor other than by checks, drafts, wire transfer
advises or other similar writings, instruments or communications for the
immediate payment of money. Except for production sales contracts, processing
agreements or transportation agreements (or other agreements relating to the
marketing of Production) listed on Exhibit A (in connection with the Mortgaged
Properties to where they relate), and except as otherwise disclosed to the Agent
in writing, (i) no Mortgaged Property is or will become subject to any
contractual or other arrangement for the sale, processing or transportation of
Production (or otherwise related to the marketing of Production) which cannot be
cancelled on 120 days’ (or less) notice and (ii) all contractual or other
arrangements for the sale, processing or transportation of Production (or
otherwise related to the marketing of Production) shall be bona fide
transactions, and except for contractual and other arrangements with Four Winds
Marketing, LLC, will be with third parties not affiliated with Mortgagor, and
shall, with respect to all contracts and other arrangements be at the best price
(and on the best terms) then available (such price shall, in the case of
Production sales which are subject to price controls, be determined giving
consideration to such fact). Mortgagor is presently receiving a price for all
production from (or attributable to) each Mortgaged Property covered by a
production sales contract listed on Exhibit A as computed in accordance with the
terms of such contract, and is not having deliveries of production from such
Mortgaged Property curtailed substantially below such property’s delivery
capacity. Neither Mortgagor, nor any of its predecessors in title, has received
prepayments (including, but not limited to, payments for gas not taken pursuant
to “take or pay” or other similar arrangements) for any oil, gas or other
hydrocarbons produced or to be produced from the Mortgaged Properties after the
date hereof, and Mortgagor hereby covenants not to enter into any such advance
or prepayment arrangements whereby it accepts consideration for oil, gas or
other hydrocarbons not yet produced. No Mortgaged Property is or will become
subject to any “take or pay” or other similar arrangement (i) which can be
satisfied in whole or in part by the production or transportation of gas from
other properties or (ii) as a result of which production from the Mortgaged
Properties may be required to be delivered to one or more third parties without
payment (or without full payment) therefor as a result of payments made, or
other actions taken, with respect to other properties. To the best of
Mortgagor’s knowledge, the gas imbalances set forth in Schedule 7.19 of the
Credit Agreement reflects the net gas balancing position of the Mortgaged
Properties as of the Effective Date (as such term is defined in the Credit
Agreement).  Except as otherwise disclosed to Agent in writing, as of December
31, 2008, there is no Mortgaged Property with respect to which Mortgagor, or its
predecessors in title, has, prior to such date, taken more (“overproduced”), or
less (“underproduced”), gas from the lands covered thereby (or pooled or
unitized therewith) than its ownership interest in such Mortgaged Property would
entitle it to take which has resulted, on such date, in Mortgagor being
materially overproduced or materially underproduced with respect to such
Mortgaged Property. Mortgagor will not after the date hereof become
“overproduced” (as above defined) with respect to any well on the Mortgaged
Properties (or on any unit in which the Mortgaged Properties participate), in an
amount in excess of Mortgagor’s
 
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Houston 3941837v.4
 
 

 
 
share of gas produced from such well during the preceding four calendar months.
No Mortgaged Property is or will become subject to a gas balancing arrangement
under which one or more third parties may take a portion of the production
attributable to the Mortgaged Property without payment (or without full payment)
therefor as a result of production having been taken from, or as a result of
other actions or inactions with respect to, other properties. No Mortgaged
Property is subject at the present time to any regulatory refund obligation and,
to the best of Mortgagor’s knowledge, no facts exist which might cause the same
to be imposed.
 
(d)   Condition of Personal or Movable Property.  The equipment, inventory,
improvements, fixtures, goods and other tangible personal/movable property
forming a part of the Property are and will remain (and with respect to Property
not operated by Mortgagor, to the best of Mortgagor’s knowledge, such equipment,
inventory, fixtures, goods and other tangible personal/movable property are and
will remain) in good repair and condition and are and will be adequate for the
normal operation of the Property in accordance with prudent industry standards;
all of such Property is, and will remain, located on the Mortgaged Properties,
except for that portion thereof which is or shall be located elsewhere
(including that usually located on the Mortgaged Properties but temporarily
located elsewhere) in the course of the normal operation of the Property, or
which is hereafter sold or otherwise disposed of as permitted under the Credit
Agreement.
 
(e)   Operation of Mortgaged Properties.  The Mortgaged Properties, and with
respect to Mortgaged Properties not operated by Mortgagor, to the best of
Mortgagor’s knowledge, such non-operated Mortgaged Properties, (and properties
unitized therewith) are being (and, to the extent the same could adversely
affect the ownership or operation of the Mortgaged Properties after the date
hereof, have in the past been), and hereafter will be, maintained, operated and
developed in a good and workmanlike manner, in accordance with prudent industry
standards and in conformity with all applicable laws and all rules, regulations
and orders of all duly constituted authorities having jurisdiction and in
conformity with all oil, gas and/or other mineral leases and other contracts and
agreements forming a part of the Property and in conformity with the Permitted
Encumbrances; specifically in this connection, (i) no Mortgaged Property is
subject to having allowable production after the date hereof reduced below the
full and regular allowable (including the maximum permissible tolerance) because
of any overproduction (whether or not the same was permissible at the time)
prior to the date hereof and (ii) none of the wells located on the Mortgaged
Properties (or properties unitized therewith) are or will be deviated from the
vertical more than the maximum permitted by applicable laws, regulations, rules
and orders, and such wells are, and will remain, bottomed under and producing
from, with the well bores wholly within, the Mortgaged Properties (or, in the
case of wells located on properties unitized therewith, such unitized
properties). There are no wells listed on Schedule I hereto (“Schedule I Wells”)
being redrilled, deepened, plugged back or reworked, and no other operations are
being conducted for which consent is required under the applicable operating
agreement (or which are other than normal operation of existing wells on the
Mortgaged Properties); except as otherwise disclosed to Agent in writing, there
are no proposals in excess of $1,500,000 net to Mortgagor’s interest currently
outstanding (whether made by Mortgagor or by any other party) to re-drill,
deepen, plug back, or rework Schedule I Wells, or to conduct any other
operations under the applicable joint operating agreement, or to abandon any
Schedule I Wells (nor are there any such proposals which have been approved
either by Mortgagor or any other party, with respect to which the operations
covered thereby have not been commenced).
 
-9-

Houston 3941837v.4
 
 

 
 
Except as otherwise disclosed to Agent in writing, there are no dry holes, or
otherwise inactive wells, located on the Mortgaged Properties or on lands pooled
or unitized therewith (including, without limitation, any wells which would, if
located in Texas, require compliance with Railroad Commission Rule 14(b)(2))
that in the aggregate will cost more than $1,500,000, net to Mortgagor’s
interest and net of salvage proceeds, to plug and abandon, except for wells that
have been properly plugged and abandoned that have not been taken into account
in Mortgagor’s financial statements as furnished to Agent. Mortgagor has, and
will have in the future, all governmental licenses and permits necessary or
appropriate to own and operate the Property; Mortgagor has not received notice
of any violations in respect of any such licenses or permits.
 
(f)   Sale or Disposal.  Mortgagor will not, without the prior written consent
of Agent, sell, exchange, lease, transfer, or otherwise dispose of any part of,
or interest in, the Property other than (i) sales, transfers and other
dispositions of machinery, equipment and other personal/ movable property and
fixtures made in connection with a release, surrender or abandonment of a lease,
(ii) sales, transfers and other dispositions of machinery, equipment and other
personal/movable property and fixtures in connection with the abandonment of a
well, (iii) sales, transfers and other dispositions of machinery, equipment and
other personal/movable property and fixtures which are (A) obsolete for their
intended purpose and disposed of in the ordinary course of business or (B)
replaced by articles of at least equal suitability and value owned by Mortgagor
free and clear of all liens except this Mortgage and the Permitted Encumbrances,
(iv) sales of Production which are made in the ordinary course of business and
in compliance with Section 2.1(c) hereof; provided that nothing in clause (iv)
shall be construed as limiting Agent’s rights under Article III of this
Mortgage, and (v) sales, transfers and other dispositions of oil and gas leases,
but only to the extent such sale, transfer or other disposition is in the
ordinary course of business and does not materially and adversely affect the
value of the Property in the aggregate. In the event and during the continuation
of a default (as hereinafter defined), Mortgagor shall at all times keep the
Property and its proceeds separate and distinct from other property of Mortgagor
and shall keep accurate and complete records of the Property and its proceeds.
 
(g)   Suits and Claims.  Except as otherwise disclosed to Agent in writing,
there are no Suits, actions, claims, investigations, inquiries, proceedings or
demands pending (or, to the best of Mortgagor’s knowledge, threatened) which
affect the Properties (including, without limitation, any which challenge or
otherwise pertain to Mortgagor’s title to the Properties) and no judicial or
administrative actions, suits or proceedings pending (or, to the best of
Mortgagor’s knowledge, threatened) against Mortgagor. Notwithstanding the
foregoing, Mortgagor’s representation in this Section with respect to pending
suits, actions, claims, investigations, inquiries, proceedings or demands which
affect Properties which are not operated by Mortgagor, except those pertaining
to Mortgagor’s title to such non-operated Properties, will be limited to the
best of Mortgagor’s knowledge.
 
(h)   Environmental.
 
(A)   Current Status. The Property (and with respect to Property not operated by
Mortgagor, to the best of Mortgagor’s knowledge, such non-operated Property) and
Mortgagor are not in material violation of Applicable Environmental Laws (as
defined below), or subject to any existing, pending or, to the best knowledge of
Mortgagor,
 
-10-

Houston 3941837v.4
 
 

 
 
threatened investigation or inquiry by any governmental authority or any other
person under or with respect to Applicable Environmental Laws, or subject to any
remedial obligations under Applicable Environmental Laws, and are in compliance
with all permits and licenses required under Applicable Environmental Laws, and
this representation will continue to be true and correct following disclosure to
the applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Property and Mortgagor. “Applicable
Environmental Laws” shall mean any applicable laws, orders, rules, or
regulations (including, without limitation, the common law) pertaining to
safety, health or the environment, as such laws, orders, rules or regulations
now exist or are hereafter enacted and/or amended. Applicable Environmental Laws
include, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (as amended, hereinafter called “CERCLA”), the
Resource Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984 (as amended, hereinafter called
“RCRA”) and applicable state and local law). Mortgagor undertook, at the time of
acquisition of the Property, all appropriate inquiry into the previous ownership
and uses of the Property consistent with good commercial or customary practice.
Mortgagor has taken all commercial and reasonable steps necessary to determine
and has determined that no hazardous substances or solid wastes have been
disposed of or otherwise released at, into, upon or under the Property. The use
which Mortgagor makes and intends to make of the Property will not result in the
use, treatment, storage or disposal or other release of any hazardous substance
or solid waste at, into, upon or under the Property, except such usage, and
temporary storage in anticipation of usage, as is in the ordinary course of
business and in compliance with Applicable Environmental Laws. The terms
“hazardous substance” and “release” as used in this Mortgage shall have the
meanings specified in CERCLA, and the terms “solid waste” and “disposal” (or
“disposed”) shall have the meanings specified in RCRA; provided, in the event
either CERCLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the effective
date of such amendment and provided further, to the extent that the laws of the
states in which the Mortgaged Properties are located establish a meaning for
“hazardous substance,” “release,” “solid waste,” or “disposal” which is broader
than that specified in either CERCLA or RCRA, such broader meaning shall apply.
The “Associated Property” (as such term is hereinafter defined) is not in
violation of any Applicable Environmental Laws for which Mortgagor or its
predecessors in the Property would be responsible. The term “Associated
Property” as used in this Mortgage shall mean any and all interests in and to
(and or carved out of) the lands which are described or referred to in Exhibit A
hereto, or which are otherwise described in any of the oil, gas and/or mineral
leases or other instruments described in or referred to in such Exhibit A,
whether or not such property interests are owned by Mortgagor.
 
(B)   Future Performance. Mortgagor will use its best efforts not to cause or
permit the Property or the Associated Property or Mortgagor to be in material
violation of, or do anything or permit anything to be done which will subject
the Property or the Associated Property to any material remedial obligations
under, or result in material
 
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Houston 3941837v.4
 
 

 
 
noncompliance with applicable permits and licenses under, any Applicable
Environmental Laws, assuming disclosure to the applicable governmental
authorities of all relevant facts, conditions and circumstances, if any,
pertaining to the Property or the Associated Property and Mortgagor will
promptly notify Agent in writing of any existing, pending or, to the best
knowledge of Mortgagor, threatened investigation, claim, suit or inquiry by any
governmental authority or any person in connection with any Applicable
Environmental Laws, provided that, with respect to Properties not operated by
Mortgagor, Mortgagor shall notify Agent of any investigations, claims, suits or
inquiries, whether existing, pending, or threatened, of which Mortgagor becomes
aware. Mortgagor will take all steps reasonably necessary to determine that no
hazardous substances or solid wastes have been disposed of or otherwise released
on or to the Property or the Associated Property. Mortgagor will use commercial
and reasonable efforts not to cause or permit the disposal or other release of
any hazardous substance or solid waste at, into, upon or under the Property or
the Associated Property and covenants and agrees to keep or cause the Property
and/or the Associated Property to be kept free of any hazardous substance or
solid waste (except such use, and temporary storage in anticipation of use, as
is required in the ordinary course of business, all while in compliance with
Applicable Environmental Laws), and to remove the same (or if removal is
prohibited by law, to take whatever action is required by law) promptly upon
discovery at its sole expense. Upon Agent’s reasonable request, at any time and
from time to time during the existence of this Mortgage, Mortgagor will provide
at Mortgagor’s sole expense an inspection or audit of the Property and the
Associated Property from an engineering or consulting firm approved by Agent,
indicating the presence or absence of hazardous substances and solid waste on
the Property and/or the Associated Property and compliance with Applicable
Environmental Laws. In the event of a violation, Mortgagor will diligently work
to cure such violation, including remediation, if necessary, and so long as
Mortgagor diligently prosecutes efforts to cure the violation, Mortgagor will
not be in breach of this provision.
 
(i)   Not Abandon Wells; Participate in Operations. Mortgagor will not, without
prior written consent of Agent, abandon, or consent to the abandonment of, any
well producing from the Mortgaged Properties (or properties unitized therewith)
so long as such well is capable (or is subject to being made capable through
drilling, reworking or other operations which it would be commercially feasible
to conduct) of producing oil, gas, or other hydrocarbons or other minerals in
commercial quantities (as determined without considering the effect of this
Mortgage). In the event and during the continuation of a default, Mortgagor will
not, without prior written consent of Agent, elect not to participate in a
proposed operation on the Mortgaged Properties where the effect of such election
would be the forfeiture either temporarily (i.e. until a certain sum of money is
received out of the forfeited interest) or permanently of any material interest
in the Mortgaged Properties.
 
(j)   Defense of Mortgage. If the validity or priority of this Mortgage or of
any rights, titles, liens or security interests created or evidenced hereby with
respect to the Property or any part thereof or the title of Mortgagor to the
Property shall be endangered or questioned or shall be attacked directly or
indirectly or if any legal proceedings are instituted against Mortgagor with
respect thereto, Mortgagor will give prompt written notice thereof to Agent and
at Mortgagor’s own cost and expense will diligently endeavor to cure any defect
that may be developed or claimed, and will take all necessary and proper steps
for the defense of such legal proceedings,
 
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Houston 3941837v.4
 
 

 
 
including, but not limited to, the employment of counsel, the prosecution or
defense of litigation and the release or discharge of all adverse claims, and
Trustee and Agent, or either of them (whether or not named as parties to legal
proceedings with respect thereto), are hereby authorized and empowered to take
such additional steps as in their judgment and discretion may be necessary or
proper for the defense of any such legal proceedings or the protection of the
validity or priority of this Mortgage and the rights, titles, liens and security
interests created or evidenced hereby, including but not limited to the
employment of independent counsel, the prosecution or defense of litigation, the
compromise or discharge of any adverse claims made with respect to the Property,
the purchase of any tax title and the removal of prior liens or security
interests, and all reasonable expenditures so made of every kind and character
shall be a demand obligation (which obligation Mortgagor hereby expressly
promises to pay) owing by Mortgagor to Agent or Trustee (as the case may be) and
shall bear interest from the date expended until paid at the rate described in
Section 2.3 hereof, and the party incurring such expenses shall be subrogated to
all rights of the person receiving such payment.
 
(k)   Fees and Expenses; Indemnity. Mortgagor will pay all reasonable appraisal
fees, recording fees, taxes, brokerage fees and commissions, abstract and other
records search fees, attorneys’ fees and expenses and all other reasonable costs
and expenses of every character incurred by Mortgagor or Agent or any Lender in
connection with the closing of the loan or loans evidenced by the Loan Documents
and any and all amendments, supplements or modifications to such loan
transaction or transactions. Mortgagor will reimburse Trustee, Agent and each
Lender (for purposes of this paragraph, the terms “Trustee”, “Agent” and
“Lender” shall include the directors, officers, partners, employees and agents
of Trustee, Agent or any Lender, respectively, and any persons or entities owned
or controlled by or affiliated with Trustee, Agent or any Lender, respectively)
for all expenditures, including reasonable attorneys’ fees and expenses,
incurred or expended in connection with (i) the breach by Mortgagor of any
covenant, agreement or condition contained herein or in any other Loan Document,
(ii) the exercise of any rights and remedies hereunder or under any other Loan
Document, and (iii) the protection of the Property and/or liens and security
interests therein. Mortgagor will indemnify and hold harmless Trustee, Agent and
each Lender from and against (and will reimburse such indemnified parties for)
all claims, demands, liabilities, losses, damages (including, without limitation
consequential damages), causes of action, judgments, penalties, costs and
expenses (including, without limitation reasonable attorneys’ fees and expenses)
which may be imposed upon, asserted against or incurred or paid by the Trustee,
the Agent or any Lender on account of, in connection with, or arising out of (A)
any bodily injury or death or natural resource, human health or property damage
occurring in, at, into, under or upon (or, to the extent such injury, death or
damage is related to Mortgagor or Mortgagor’s ownership or operation of the
Property, in the vicinity of) the Property through any cause whatsoever, (B) any
act performed or omitted to be performed hereunder or the breach of any
representation or warranty herein, (C) the exercise of any rights and remedies
hereunder or under any other Loan Document, (D) any transaction, act, omission,
event or circumstance arising out of or in any way connected with the Property
or with this Mortgage or any other Loan Document, (E) any violation on or prior
to the Release Date (as hereinafter defined) of any Applicable Environmental
Law, (F) any act, omission, event or circumstance existing or occurring on or
prior to the Release Date (including without limitation the presence on or under
the Property or the Associated Property or release at, into, upon, under or from
the Property or the Associated Property of hazardous substances or solid wastes
disposed of or otherwise released) resulting from or in connection with the
 
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Houston 3941837v.4
 
 

 
 
ownership, construction, occupancy, operation, use and/or maintenance of the
Property or the Associated Property, regardless of whether the act, omission,
event or circumstance constituted a violation of any Applicable Environmental
Law at the time of its existence or occurrence, and (G) any and all claims or
proceedings (whether brought by private party or governmental agencies) for
human health, bodily injury, property damage, abatement or remediation,
environmental damage, cleanup, mitigation, removal, natural resource damage or
impairment or any other injury or damage resulting from or relating to any
hazardous or toxic substance, solid waste or contaminated material located upon
or migrating into, from or through the Property or the Associated Property
(whether or not the release of such materials was caused by Mortgagor, a tenant
or subtenant or a prior owner or tenant or subtenant on the Property or the
Associated Property and whether or not the alleged liability is attributable to
the use, treatment, handling, storage, generation, transportation, removal or
disposal of such substance, waste or material or the mere presence of such
substance, waste or material on or under the Property or the Associated
Property), which the Trustee and/or the Agent and/or any Lender may have
liability with respect to due to the making of the loan or loans evidenced by
any Notes, the granting of this Mortgage, the exercise of any rights under the
Loan Documents, or otherwise. Agent shall have the right to compromise and
adjust any such claims, actions and judgments, and in addition to the rights to
be indemnified as herein provided, all amounts paid in compromise, satisfaction
or discharge of any such claim, action or judgment, and all court costs,
reasonable attorneys’ fees and other expenses of every character expended by
Agent, Trustee or any Lender pursuant to the provisions of this section shall be
a demand obligation (which obligation Mortgagor hereby expressly promises to
pay) owing by Mortgagor to the applicable party or parties. The “Release Date”
as used herein shall mean the earlier of the following two dates: (i) the date
on which the indebtedness and obligations secured hereby have been paid and
performed in full, or (ii) the date on which the lien of this Mortgage is
foreclosed or a deed in lieu of such foreclosure is fully effective and
recorded.  WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR
AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH
RESPECT TO CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS’ FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY.  However, such
indemnities shall not apply to any particular indemnified party (but shall apply
to the other indemnified parties) to the extent the subject of the
indemnification is caused by or arises out of and (x) are determined by a court
of competent jurisdiction by final and nonappealable judgment to have resulted
from the gross negligence or willful misconduct of such indemnitee or (y) result
from a claim brought by the Mortgagor or any Guarantor against an indemnitee for
a material breach in bad faith of such indemnitee's obligations under this
Mortgage, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, if the Mortgagor or such Guarantor has obtained a final and
nonappealable judgment in its favor on such claim as determined by a court of
competent jurisdiction. The foregoing indemnities shall not terminate upon the
Release Date or upon the release, foreclosure or other termination of this
Mortgage but will survive the Release Date, foreclosure of this Mortgage or
conveyance in lieu of foreclosure, and the repayment of the secured indebtedness
and the discharge and release of this Mortgage and the other documents
evidencing and/or securing the secured indebtedness. Any amount to be paid
hereunder by
 
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Houston 3941837v.4
 
 

 
 
Mortgagor to Agent, Trustee and/or any Lender shall be a demand obligation owing
by Mortgagor to the applicable party or parties and shall be subject to and
covered by the provisions of Section 2.3 hereof.
 
(l)   Insurance. Mortgagor will keep (and with respect to Property not operated
by Mortgagor, will use its best efforts to keep) such part of the Property which
is of an insurable nature and of a character usually insured by persons
operating similar properties, insured with companies of recognized
responsibility satisfactory to Agent and in such amounts as are acceptable to
Agent (and in the absence of specification of such amounts by Agent, in the
amount of the full value of such property, less reasonable deductibles not to
exceed deductibles customary in the industry for similarly situated businesses
and properties), against loss or damage by fire, casualty and from other hazards
customarily insured against by persons operating similar properties. Mortgagor
shall also provide such other insurance as Agent may from time to time
reasonably require; such coverage to be carried with companies of recognized
responsibility satisfactory to Agent. All policies evidencing such insurance
shall contain clauses providing that the proceeds thereof shall be payable to
Agent as its interest may appear and providing that such policies may not be
cancelled, reduced or otherwise affected without at least thirty (30) days prior
written notice to Agent. Upon request by Agent, Mortgagor shall deliver to Agent
the original policies, evidence of payment of premiums, certificates evidencing
renewals, and such other information regarding such insurance as Agent may
request. In the event of any loss under any insurance policies so carried by
Mortgagor, Agent shall have the right (but not the obligation) to make proof of
loss and collect the same, and all amounts so received shall be applied toward
costs, charges and expenses (including reasonable attorneys’ fees), if any,
incurred in the collection thereof, then to the payment, in the order determined
by Agent in its own discretion, of the secured indebtedness, and any balance
remaining shall be subject to the order of Mortgagor. Agent is hereby authorized
but not obligated to enforce in its name or in the name of Mortgagor payment of
any or all of said policies or settle or compromise any claim in respect
thereof, and to collect and make receipts for the proceeds thereof and Agent is
hereby appointed Mortgagor’s agent and attorney-in-fact to endorse any check or
draft payable to Mortgagor in order to collect the proceeds of insurance. In the
event of foreclosure of this Mortgage, or other transfer of title to the
Property in extinguishment in whole or in part of the secured indebtedness, all
right, title and interest of Mortgagor in and to such policies then in force
concerning the Property and all proceeds payable thereunder shall thereupon vest
in the purchaser at such foreclosure or other transferee in the event of such
other transfer of title. Mortgagor shall at all times maintain adequate
insurance against its liability on account of damages to persons or property,
which insurance shall be carried by companies of recognized responsibility
satisfactory to Agent, and shall be for such amounts and insure against such
risks as are customary in the industry for similarly situated businesses and
properties. Mortgagor shall at all times maintain cost of regaining control of
well insurance and similar insurance to the extent customary in the industry in
the pertinent area of operations.
 
(m)   Further Assurances. Mortgagor will, on request of Agent, (i) promptly
correct any defect, error or omission which may be discovered in the contents of
this Mortgage, or in any other Loan Document, or in the execution or
acknowledgment of this Mortgage or any other Loan Document; (ii) execute,
acknowledge, deliver and record and/or file such further instruments (including,
without limitation, further deeds of trust, mortgages, security agreements,
financing statements, continuation statements, and assignments of production,
accounts, funds,
 
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Houston 3941837v.4
 
 

 
 
contract rights, general intangibles, and proceeds) and do such further acts as
may be necessary, desirable or proper to carry out more effectively the purposes
of this Mortgage and the other Loan Documents and to more fully identify and
subject to the liens and security interests hereof any property intended to be
covered hereby, including specifically, but without limitation, any renewals,
additions, substitutions, replacements, or appurtenances to the Property; and
(iii) execute, acknowledge, deliver, and file and/or record any document or
instrument (including specifically any financing statement) desired by Agent to
protect the lien or the security interest hereunder against the rights or
interests of third persons. Mortgagor shall pay all costs connected with any of
the foregoing.
 
(n)   Name and Place of Business and Formation. Except as disclosed in the
Credit Agreement, Mortgagor has not, during the preceding five years, been known
by or used any other corporate or partnership, trade or fictitious name.
Mortgagor will not cause or permit any change to be made in its name, identity,
state of formation or corporate or partnership structure, or its federal
employer identification number unless Mortgagor shall have notified Agent of
such change at least thirty (30) days prior to the effective date of such
change, and shall have first taken all action required by Agent for the purpose
of further perfecting or protecting the liens and security interests in the
Property created hereby. Mortgagor’s exact name is the name set forth in this
Mortgage. Mortgagor’s location is as follows:
 
Mortgagor is a registered organization which is organized under the laws of one
of the states comprising the United States (e.g. corporation, limited
partnership, registered limited liability partnership or limited liability
company). Mortgagor is located (as determined pursuant to the UCC) in the state
under the laws which it was organized, as follows:
 
Name of
Mortgagor                                                                           State
of Organization
 
Company                                                                                            
Delaware

 
Mortgagor’s principal place of business and chief executive office, and the
place where Mortgagor keeps its books and records concerning the Property
(including, particularly, the records with respect to “Production Proceeds”, as
defined in Section 3.1 hereof, from the Mortgaged Properties) has for the
preceding four months, been, and will continue to be (unless Mortgagor notifies
Agent of any change in writing at least thirty (30) days prior to the date of
such change), the address set forth opposite the signature of Mortgagor to this
Mortgage.
 
(o)   Not a Foreign Person. Mortgagor is not a “foreign person” within the
meaning of the Internal Revenue Code of 1986, as amended, (hereinafter called
the “Code”), Sections 1445 and 7701 (i.e. Mortgagor is not a non-resident alien,
foreign corporation, foreign partnership, foreign trust or foreign estate as
those terms are defined in the Code and any regulations promulgated thereunder).
 
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Houston 3941837v.4
 
 

 
 
Section 2.2   Compliance by Operator.  As to any part of the Mortgaged
Properties which is not a working interest, Mortgagor agrees to take all such
commercial and reasonable action and to exercise all rights and remedies as are
reasonably available to Mortgagor to cause the owner or owners of the working
interest in such properties to comply with the covenants and agreements
contained herein; and as to any part of the Mortgaged Properties which is a
working interest but which is operated by a party other than Mortgagor,
Mortgagor agrees to take all such commercial and reasonable action and to
exercise all rights and remedies as are reasonably available to Mortgagor
(including, but not limited to, all rights under any operating agreement) to
cause the party who is the operator of such property to comply with the
covenants and agreements contained herein.
 
Section 2.3   Performance on Mortgagor’s Behalf.  Mortgagor agrees that, if
Mortgagor fails to perform any act or to take any action which hereunder
Mortgagor is required to perform or take, or to pay any money which hereunder
Mortgagor is required to pay, Agent, in Mortgagor’s name or its own name, may,
but shall not be obligated to, perform or cause to be performed such act or take
such action or pay such money, and any expenses so incurred by Agent and any
money so paid by Agent shall be a demand obligation owing by Mortgagor to Agent
(which obligation Mortgagor hereby expressly promises to pay) and Agent, upon
making such payment, shall be subrogated to all of the rights of the person,
corporation or body politic receiving such payment. Each amount due and owing by
Mortgagor to Trustee and/or Agent and/or any Lender pursuant to this Mortgage
shall bear interest each day, from the date of such expenditure or payment until
paid, at a rate equal to the rate as provided for past due principal under the
Notes (provided that, should applicable law provide for a maximum permissible
rate of interest on such amounts, such rate shall not be greater than such
maximum permissible rate); all such amounts, together with such interest
thereon, shall be a part of the secured indebtedness and shall be secured by
this Mortgage.
 
ARTICLE III.
 
Assignment of Production, Accounts and Proceeds
 
Section 3.1   Assignment of Production.  Mortgagor does hereby absolutely and
unconditionally assign, transfer and set over to Agent all Production which
accrues to Mortgagor’s interest in the Mortgaged Properties, all proceeds of
such Production and all Payments in Lieu of Production (herein collectively
referred to as the “Production Proceeds”), together with the immediate and
continuing right to collect and receive such Production Proceeds.  Mortgagor
directs and instructs any and all purchasers of any Production to pay to Agent
all of the Production Proceeds accruing to Mortgagor’s interest until such time
as such purchasers have been furnished with evidence that all secured
indebtedness has been paid and that this Mortgage has been released. Mortgagor
agrees that no purchasers of the Production shall have any responsibility for
the application of any funds paid to Agent.
 
Section 3.2   Effectuating Payment of Production Proceeds to Agent.  Independent
of the foregoing provisions and authorities herein granted, Mortgagor agrees to
execute and deliver any and all transfer orders, division orders and other
instruments that may be requested by Agent or that may be required by any
purchaser of any Production for the purpose of effectuating payment of the
Production Proceeds to Agent. If under any existing sales
 
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Houston 3941837v.4
 
 

 
 
agreements, other than division orders or transfer orders, any Production
Proceeds are required to be paid by the purchaser to Mortgagor so that under
such existing agreements payment cannot be made of such Production Proceeds to
Agent, Mortgagor’s interest in all Production Proceeds under such sales
agreements and in all other Production Proceeds which for any reason may be paid
to Mortgagor shall, when received by Mortgagor, constitute trust funds in
Mortgagor’s hands and shall be immediately paid over to Agent. Without
limitation upon any of the foregoing, Mortgagor hereby constitutes and appoints
Agent as Mortgagor’s special attorney in-fact (with full power of substitution,
either generally or for such periods or purposes as Agent may from time to time
prescribe) in the name, place and stead of Mortgagor to do any and every act and
exercise any and every power that Mortgagor might or could do or exercise
personally with respect to all Production and Production Proceeds (the same
having been assigned by Mortgagor to Agent pursuant to Section 3.1 hereof),
expressly inclusive, but not limited to, the right, power and authority to:
 
(a)   Execute and deliver in the name of Mortgagor any and all transfer orders,
division orders, letters in lieu of transfer orders, indemnifications,
certificates and other instruments of every nature that may be requested or
required by any purchaser of Production from any of the Mortgaged Properties for
the purposes of effectuating payment of the Production Proceeds to Agent or
which Agent may otherwise deem necessary or appropriate to effect the intent and
purposes of the assignment contained in Section 3.1; and
 
(b)   If under any product sales agreements other than division orders or
transfer orders, any Production Proceeds are required to be paid by the
purchaser to Mortgagor so that under such existing agreements payment cannot be
made of such Production Proceeds to Agent, to make, execute and enter into such
sales agreements or other agreements as are necessary to direct Production
Proceeds to be payable to Agent;
 
giving and granting unto said attorney-in-fact full power and authority to do
and perform any and every act and thing whatsoever necessary and requisite to be
done as fully and to all intents and purposes, as Mortgagor might or could do if
personally present; and Mortgagor shall be bound thereby as fully and
effectively as if Mortgagor had personally executed, acknowledged and delivered
any of the foregoing certificates or documents. The powers and authorities
herein conferred upon Agent may be exercised by Agent through any person who, at
the time of the execution of the particular instrument, is an officer of Agent.
The power of attorney herein conferred is granted for 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
Agent or any substitute shall be fully protected in treating the powers and
authorities conferred by this paragraph as continuing in full force and effect
until advised by Agent that all the secured indebtedness is fully and finally
paid. Agent may, but shall not be obligated to, take such action as it deems
appropriate in an effort to collect the Production Proceeds and any reasonable
expenses (including reasonable attorney’s fees) so incurred by Agent shall be a
demand obligation of Mortgagor and shall be part of the secured indebtedness,
and shall bear interest each day, from the date of such expenditure or payment
until paid, at the rate described in Section 2.3 hereof.
 
Section 3.3   Change of Purchaser.  To the extent a default has occurred
hereunder and is continuing, should any person now or hereafter purchasing or
taking Production fail to
 
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Houston 3941837v.4
 
 

 
 
make payment promptly to Agent of the Production Proceeds, Agent shall, subject
to then existing contractual prohibitions, have the right to make, or to require
Mortgagor to make, a change of purchaser, and the right to designate or approve
the new purchaser, and Agent shall have no liability or responsibility in
connection therewith so long as ordinary care is used in making such
designation.
 
Section 3.4   Application of Production Proceeds.  So long as no default has
occurred hereunder, the Production Proceeds received by Agent during each
calendar month shall on the first business day of the next succeeding calendar
month (or, at the option of Agent, on any earlier date) be applied by Agent as
follows:
 
FIRST, to the payment of all secured indebtedness then due and payable, in such
manner and order as Agent deems advisable;
 
SECOND, to the prepayment of the remainder of the secured indebtedness in such
manner and order and to such extent as Agent deems advisable; and
 
THIRD, the remainder, if any, of the Production Proceeds shall be paid over to
Mortgagor or to Mortgagor’s order or to such other parties as may be entitled
thereto by law.
 
After a default hereunder has occurred, all Production Proceeds from time to
time in the hands of Agent shall be applied by it toward the payment of all
secured indebtedness (principal, interest, attorneys’ fees and other fees and
expenses) at such times and in such manner and order and to such extent as Agent
deems advisable.
 
Section 3.5   Release From Liability; Indemnification.  Agent and its successors
and assigns are hereby released and absolved from all liability for failure to
enforce collection of the Production Proceeds and from all other responsibility
in connection therewith, except the responsibility of each to account to
Mortgagor for funds actually received by each. Mortgagor agrees to indemnify and
hold harmless Agent (for purposes of this paragraph, the term “Agent” shall
include the directors, officers, partners, employees and agents of Agent and any
persons or entities owned or controlled by or affiliated with Agent) from and
against all claims, demands, liabilities, losses, damages (including, without
limitation, consequential damages), causes of action, judgments, penalties,
costs and expenses (including, without limitation, reasonable attorneys’ fees
and expenses) imposed upon, asserted against or incurred or paid by Agent by
reason of the assertion that Agent received, either before or after payment in
full of the secured indebtedness, funds from the production of oil, gas, other
hydrocarbons or other minerals claimed by third persons (and/or funds
attributable to sales of production which (i) were made at prices in excess of
the maximum price permitted by applicable law or (ii) were otherwise made in
violation of laws, rules, regulations and/or orders governing such sales), and
Agent shall have the right to defend against any such claims or actions,
employing attorneys of its own selection, and if not furnished with indemnity
satisfactory to it, Agent shall have the right to compromise and adjust any such
claims, actions and judgments, and in addition to the rights to be indemnified
as herein provided, all amounts paid by Agent in compromise, satisfaction or
discharge of any such claim, action or judgment, and all court costs, reasonable
attorneys’ fees and other expenses of every character expended by Agent pursuant
to the provisions of this section shall be a
 
 -19-
Houston 3941837v.4
 
 

 
 
demand obligation (which obligation Mortgagor hereby expressly promises to pay)
owing by Mortgagor to Agent and shall bear interest, from the date expended
until paid, at the rate described in Section 2.3 hereof. The foregoing
indemnities shall not terminate upon the Release Date or upon the release,
foreclosure or other termination of this Mortgage but will survive the Release
Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure, and the
repayment of the secured indebtedness and the discharge and release of this
Mortgage and the other documents evidencing and/or securing the secured
indebtedness.  WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND
MORTGAGOR AGREES THAT THE FOREGOING RELEASES AND INDEMNITIES SHALL APPLY TO EACH
INDEMNIFIED PARTY WITH RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES,
DAMAGES (INCLUDING, WITHOUT LIMITATION, CONSEQUENTIAL DAMAGES), CAUSES OF
ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION,
REASONABLE ATTORNEYS’ FEES AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY
OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED
PARTY.  However, such indemnities shall not apply to any particular indemnified
party (but shall apply to the other indemnified parties) to the extent the
subject of the indemnification is caused by or arises out of the gross
negligence or willful misconduct of such particular indemnified party.
 
Section 3.6   Mortgagor’s Absolute Obligation to Pay Notes.  Nothing herein
contained shall detract from or limit the obligations of Mortgagor to make
prompt payment of the Notes, and any and all other secured indebtedness, at the
time and in the manner provided herein and in the Loan Documents, regardless of
whether the Production and Production Proceeds herein assigned are sufficient to
pay same, and the rights under this Article III shall be cumulative of all other
rights under the Loan Documents.
 
Section 3.7   Rights Under Oklahoma Oil and Gas Owners’ Lien Act.  Mortgagor
hereby grants, sells, assigns and sets over unto Agent during the term hereof,
all of Mortgagor’s rights and interests pursuant to the provisions of the Oil
and Gas Owners’ Lien Act (OKLA. STAT. tit. 52, §§ 548.l-548.6 (the “Oklahoma
Act”), hereby vesting in Agent all of Mortgagor’s rights as an interest owner to
the continuing security interest in and lien upon the oil or gas severed or the
proceeds of sale. Agent may, at its option, file the verified notice of lien in
order to perfect such lien, but shall not be obligated to make such filing and
shall not be held liable to Mortgagor for any act or omission pursuant to the
Oklahoma Act.
 
Section 3.8   Rights Under New Mexico Act.  Mortgagor hereby grants, sells,
assigns and sets over unto Agent, during the term hereof, all of Mortgagor’s
rights and interests pursuant to the provisions of Sections 48-9-1, et seq.,
N.M.S.A. 1978 Comp. (the “New Mexico Act”), hereby vesting in Agent all of
Mortgagor’s rights as an interest owner to the continuing security interest in
and lien upon the oil or gas severed or the proceeds of sale. Agent may, at its
option, file the verified notice of lien in order to perfect such lien, but
shall not be obligated to make such filing and shall not be held liable to
Mortgagor for any act or omission pursuant to the New Mexico Act.
 
Section 3.9   Rights Under Wyoming Statutes.  Mortgagor hereby appoints Agent as
its attorney-in-fact to pursue any and all lien rights of the Mortgagor to liens
and security
 
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Houston 3941837v.4
 
 

 
 
interests in the Mortgaged Properties securing payment of Production Proceeds
attributable to the Mortgaged Properties, including, without limitation, those
liens and security interests provided for by Section 34.1-9-3 19, Wyoming
Statutes Annotated, 1988 Republished Edition (June 1991), as amended or
recodified. Mortgagor further assigns to Agent any and all such liens, security
interests, financing statements, or similar interests of Mortgagor attributable
to its interests in the Mortgaged Properties or Production Proceeds therefrom
arising under or created by statutory provision, judicial decision, or
otherwise.
 
ARTICLE IV.
 
Remedies Upon Default
 
Section 4.1   Default.  The term “default” as used in this Mortgage shall mean
the occurrence of any of the following events:
 
(a) the occurrence of an “Event of Default” as defined in the Credit Agreement;
or
 
(b)   the failure of Mortgagor to pay over to Agent any Production Proceeds
which are receivable by Agent under this Mortgage but which are paid to
Mortgagor rather than Agent (either as provided for in Section 3.2 hereof or
otherwise), except Production Proceeds paid over to Mortgagor by Agent under
clause THIRD of Section 3.4; or
 
(c)   the breach or failure of Mortgagor timely and properly to observe, keep or
perform any covenant, agreement, warranty or condition herein required to be
observed, kept or performed, if such breach or failure is not remedied within
the applicable grace period provided for herein or, if no grace period is
provided then within 30 days after the earlier of (i) Mortgagor becoming aware
of such breach or failure or (ii) written notice and demand by Agent for the
performance of such covenant, agreement, warranty or condition; provided,
however, if in the reasonable judgment of the Agent, the Mortgagor is diligently
pursuing a cure for any such breach or failure and such a cure is practicable
within a reasonable time, Agent may grant additional time beyond said 30 days to
remedy such breach or failure; or
 
(d)   any representation contained herein (or in any certificate delivered by
Mortgagor in connection herewith), or otherwise heretofore or hereafter made by
or on behalf of Mortgagor as Mortgagor, shall prove to have been false or
misleading in any material respect on the date made (or on the date as of which
made) and the result of such misrepresentation shall be material with respect
either to the Mortgagor or the interests of the Agent or the Lenders.
 
Section 4.2   Acceleration of Secured Indebtedness.  Upon the occurrence of a
default described in Section 4.1 above, all of the secured indebtedness shall
thereupon be immediately due and payable, without presentment, demand, protest,
notice of protest, declaration or notice of acceleration or intention to
accelerate, putting the Mortgagor in default, dishonor, notice of dishonor or
any other notice or declaration of any kind, all of which are hereby expressly
waived by Mortgagor, and the liens evidenced hereby shall be subject to
foreclosure in any manner provided for herein or provided for by law as Agent
may elect. During the continuance of any other default, Agent at any time and
from time to time may without notice to Mortgagor or any other person declare
any or all of the secured indebtedness immediately due
 
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Houston 3941837v.4
 
 

 
 
and payable and all such secured indebtedness shall thereupon be immediately due
and payable, without presentment, demand, protest, notice of protest,
declaration or notice of acceleration or intention to accelerate, putting the
Mortgagor in default, dishonor, notice of dishonor or any other notice or
declaration of any kind, all of which are hereby expressly waived by Mortgagor,
and the liens evidenced hereby shall be subject to foreclosure in any manner
provided for herein or provided for by law as Agent may elect.
 
Section 4.3   Pre-Foreclosure Remedies.  Upon the occurrence of a default, or
any event or circumstance which, with the lapse of time or the giving of notice,
or both, would constitute a default hereunder, and following any period to
attempt to cure such default, if any, provided in the Credit Agreement, Agent is
authorized, prior or subsequent to the institution of any foreclosure
proceedings, to enter upon the Property, or any part thereof, and to take
possession of the Property and all books and records relating thereto, and to
exercise without interference from Mortgagor any and all rights which Mortgagor
has with respect to the management, possession, operation, protection or
preservation of the Property. If necessary to obtain the possession provided for
above, Agent may invoke any and all remedies to dispossess Mortgagor, including,
without limitation, summary proceeding or restraining order, Mortgagor agrees to
peacefully surrender possession of the Property upon default. All costs,
expenses and liabilities of every character incurred by Agent in managing,
operating, maintaining, protecting or preserving the Property shall constitute a
demand obligation (which obligation Mortgagor hereby expressly promises to pay)
owing by Mortgagor to Agent and shall bear interest from date of expenditure
until paid at the rate described in Section 2.3 hereof, all of which shall
constitute a portion of the secured indebtedness and shall be secured by this
Mortgage and by any other instrument securing the secured indebtedness. In
connection with any action taken by Agent pursuant to this Section 4.3, AGENT
SHALL NOT BE LIABLE FOR ANY LOSS SUSTAINED BY MORTGAGOR RESULTING FROM ANY ACT
OR OMISSION OF AGENT (INCLUDING AGENT’S OWN NEGLIGENCE) IN MANAGING THE PROPERTY
UNLESS SUCH LOSS IS CAUSED BY THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF
AGENT, nor shall Agent be obligated to perform or discharge any obligation, duty
or liability of Mortgagor arising under any agreement forming a part of the
Property or arising under any Permitted Encumbrance or otherwise arising.
Mortgagor hereby assents to, ratifies and confirms any and all actions of Agent
with respect to the Property taken under this Section 4.3.
 
Section 4.4   Foreclosure.
 
(a)   Upon the occurrence of a default, Trustee is authorized and empowered and
it shall be Trustee’s special duty at the request of Agent to sell the Deed of
Trust Mortgaged Properties, or any part thereof, as an entirety or in parcels as
Agent may elect, at such place or places and otherwise in the manner and upon
such notice as may be required by law or, in the absence of any such
requirement, as Trustee may deem appropriate. If Trustee shall have given notice
of sale hereunder, any successor or substitute Trustee thereafter appointed may
complete the sale and the conveyance of the property pursuant thereto as if such
notice had been given by the successor or substitute Trustee conducting the
sale. Cumulative of the foregoing and the other provisions of this Section 4.4:
 
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Houston 3941837v.4
 
 

 
 
(i)   As to any portion of the Deed of Trust Mortgaged Properties located in the
State of Texas (or within the offshore area over which the United States of
America asserts jurisdiction and to which the laws of such state are applicable
with respect to this Mortgage and/or the liens or security interests created
hereby), such sales of all or any part of such Deed of Trust Mortgaged
Properties shall be conducted at the courthouse of any county (whether or not
the counties in which such Deed of Trust Mortgaged Properties are located are
contiguous) in the State of Texas in which any part of such Deed of Trust
Mortgaged Properties is situated or which lies shoreward of any Deed of Trust
Mortgaged Property (i.e., to the extent a particular Deed of Trust Mortgaged
Property lies offshore within the reasonable projected seaward extension of the
relevant county boundary), at public venue to the highest bidder for cash
between the hours of ten o’clock a.m. and four o’clock p.m. on the first Tuesday
in any month or at such other place, time and date as provided by the statutes
of the State of Texas then in force governing sales of real estate under powers
conferred by deed of trust, after having given notice of such sale in accordance
with such statutes.
 
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
TRUSTEE TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO COURT IN
A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE.
 
(b)   Upon the occurrence of a default, (i) this Mortgage may be foreclosed as
to the Other Mortgaged Properties, or any part thereof, in any manner permitted
by applicable law, or (ii) the Agent may, to the extent permitted by applicable
law, sell the Other Mortgaged Properties, or any part thereof, as an entirety or
in parcels as Agent may elect, at such place or places and otherwise in the
manner and upon such notice as may be required by law or, in the absence of any
such requirement, as the Agent may deem appropriate (Mortgagor expressly
granting the power of sale). Cumulative of the foregoing and the other
provisions of this Section 4.4:
 
(i)   As to Other Mortgaged Properties located in the State of Louisiana (or
within the offshore area over which the United States of America asserts
jurisdiction and to which the laws of such state are applicable with respect to
this Mortgage and/or the liens or security interests created hereby), Agent may
foreclose this Mortgage by executory process, or any other process, subject to,
and on the terms and conditions required or permitted by, applicable law, and
shall have the right to appoint a keeper of such Other Mortgaged Properties.
 
(ii)   As to Other Mortgaged Properties located in the State of Oklahoma,
Mortgagor hereby confers on Agent the power to sell the Mortgaged Properties in
accordance with the Oklahoma Power of Sale Mortgage Foreclosure Act (OKLA. STAT.
tit. 46, §§ 41-49), as the same maybe amended from time to time. Mortgagor
hereby represents and warrants that this Mortgage transaction does not involve a
consumer loan as said term is defined in Section 3-104 of Title 14A of the
Oklahoma Statutes, that this Mortgage does not secure an extension of credit
made primarily for agricultural purposes
 
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Houston 3941837v.4
 
 

 
 
as defined in paragraph 4 of Section 1-301 of Title 14A of the Oklahoma
Statutes, and that this Mortgage is not a mortgage on the Mortgagor’s homestead.
 
(iii)   As to Other Mortgaged Properties located in the State of New Mexico,
Lender may, at its election, proceed by suit or suits, at law or in equity, to
enforce the payment of the secured indebtedness in accordance with the terms
hereof and of the Notes or other instruments evidencing it, to foreclose the
lien and security interest of this Mortgage against all or any portion of the
Other Mortgaged Properties, and to have said properties sold under the judgment
or decree of a court of competent jurisdiction pursuant to Section 39-5-19 NMSA
1978, as that statutory provision may be amended or recodified.
 
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
AGENT TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO COURT IN A
FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE.
 
(c)   Upon the occurrence of a default, Agent may exercise its rights of
enforcement with respect to the Collateral under the Texas Business and Commerce
Code, as amended, the Louisiana Commercial Laws, as amended, the Uniform
Commercial Code of the State of Oklahoma, as amended, the Uniform Commercial
Code of the State of New Mexico, or under the Uniform Commercial Code or any
other statute in force in any state to the extent the same is applicable law.
Cumulative of the foregoing and the other provisions of this Section 4.4:
 
(i)   To the extent permitted by law, Agent may enter upon the Mortgaged
Properties or otherwise upon Mortgagor’s premises to take possession of,
assemble and collect the Collateral or to render it unusable; and
 
(ii)   Agent may require Mortgagor to assemble the Collateral and make it
available at a place Agent designates which is mutually convenient to allow
Agent to take possession or dispose of the Collateral; and
 
(iii)   Written notice mailed to Mortgagor as provided herein at least five
(5) days prior to the date of public sale of the Collateral or prior to the date
after which private sale of the Collateral will be made shall constitute
reasonable notice; and
 
(iv)   in the event of a foreclosure of the liens and/or security interests
evidenced hereby, the Collateral, or any part thereof, and the Mortgaged
Properties, or any part thereof, may, at the option of Agent, be sold, as a
whole or in parts, together or separately (including, without limitation, where
a portion of the Mortgaged Properties is sold, the Collateral related thereto
may be sold in connection therewith); and
 
(v)   the expenses of sale provided for in clause FIRST of Section 4.7 shall
include the reasonable expenses of retaking the Collateral, or any part thereof,
holding the same and preparing the same for sale or other disposition; and
 
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Houston 3941837v.4
 
 

 
 
(vi)   should, under this subsection, the Collateral be disposed of other than
by sale, any proceeds of such disposition shall be treated under Section 4.7 as
if the same were sales proceeds; and
 
(vii)   as to the Collateral located in or otherwise subject to the laws of the
State of Louisiana, Agent may foreclose this Mortgage as a security agreement
affecting the Collateral by executory process, or any other process, subject to,
and on the terms and conditions required or permitted by applicable law, and
shall have the right to appoint a keeper of such Collateral.
 
(d)   To the extent permitted by applicable law, the sale hereunder of less than
the whole of the Property shall not exhaust the powers of sale herein granted or
the right to judicial foreclosure, and successive sale or sales may be made
until the whole of the Property shall be sold, and, if the proceeds of such sale
of less than the whole of the Property shall be less than the aggregate of the
indebtedness secured hereby and the expense of conducting such sale, this
Mortgage and the liens and security interests hereof shall remain in full force
and effect as to the unsold portion of the Property just as though no sale had
been made; provided, however, that Mortgagor shall never have any right to
require the sale of less than the whole of the Property. In the event any sale
hereunder is not completed or is defective in the opinion of Agent, such sale
shall not exhaust the powers of sale hereunder or the right to judicial
foreclosure, and Agent shall have the right to cause a subsequent sale or sales
to be made. Any sale may be adjourned by announcement at the time and place
appointed for such sale without further notice except as may be required by law.
The Trustee or his successor or substitute, and the Agent acting under power of
sale, may appoint or delegate any one or more persons as agent to perform any
act or acts necessary or incident to any sale held by it (including, without
limitation, the posting of notices and the conduct of sale), and such
appointment need not be in writing or recorded.  Any and all statements of fact
or other recitals made in any deed or deeds, or other instruments of transfer,
given in connection with a sale as to nonpayment of the secured indebtedness or
as to the occurrence of any default, or as to all of the secured indebtedness
having been declared to be due and payable, or as to the request to sell, or as
to notice of time, place and terms of sale and the properties to be sold having
been duly given, or, with respect to any sale by the Trustee, or any successor
or substitute trustee, as to the refusal, failure or inability to act of Trustee
or any substitute or successor trustee or the appointment of any substitute or
successor trustee, or as to any other act or thing having been duly done, shall
be taken as prima facie evidence of the truth of the facts so stated and
recited. Notwithstanding any reference herein to the Notes or the Credit
Agreement or any other Loan Document, all persons dealing with the Mortgaged
Properties shall be entitled to rely on any document, or certificate, of the
Agent as to the occurrence of an event, such as an Event of Default, and shall
not be charged with or forced to review any provision of any other document to
determine the accuracy thereof. With respect to any sale held in foreclosure of
the liens and/or security interests covered hereby, it shall not be necessary
for the Trustee, Agent, any public officer acting under execution or order of
the court or any other party to have physically present or constructively in
his/her or its possession, either at the time of or prior to such sale, the
Property or any part thereof.
 
(e)   As to Property now or hereafter located in, or otherwise subject to the
laws of, the State of Louisiana, Mortgagor acknowledges the secured
indebtedness, whether now existing or to arise hereafter, and for Mortgagor,
Mortgagor’s heirs, devisees, personal representatives,
 
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Houston 3941837v.4
 
 

 
 
successors and assigns, hereby confesses judgment for the full amount of the
secured indebtedness in favor of the Lender. Mortgagor further agrees that the
Agent may cause all or any part of the Property to be seized and sold after due
process of law, the Mortgagor waiving the benefit of all laws or parts of laws
relative to the appraisement of property seized and sold under executory process
or other legal process, and consenting that all or any part of the Property may
be sold without appraisement, either in its entirety or in lots and parcels, as
the Agent may determine, to the highest bidder for cash or on such terms as the
plaintiff in such proceedings may direct. Mortgagor hereby waives (i) the
benefit of appraisement provided for in articles 2332, 2336, 2723, and 2724 of
the Louisiana Code of Civil Procedure and all other laws conferring the same;
(ii) the demand and three (3) days notice of demand as provided in articles 2639
and 2721 of the Louisiana Code of Civil Procedure; (iii) the notice of seizure
provided for in articles 2293 and 2721 of the Louisiana Code of Civil Procedure;
(iv) the three (3) days delay provided for in articles 2331 and 2722 of the
Louisiana Code of Civil Procedure; and (v) all other laws providing rights of
notice, demand, appraisement, or delay. Mortgagor expressly authorizes and
agrees that Agent shall have the right to appoint a keeper of such Property
pursuant to the terms and provisions of La. R.S. 9:5131 et seq. and La. R.S.
9:5136 et seq., which keeper may be the Agent, any agent or employee thereof, or
any other person, firm, or corporation. Compensation for the services of the
keeper is hereby fixed at five percent (5%) of the amount due or sued for or
claimed or sought to be protected, preserved, or enforced in the proceeding for
the recognition or enforcement of this Mortgage and shall be secured by the
liens and security interests of this Mortgage.
 
Section 4.5   Effective as Mortgage.  As to the Deed of Trust Mortgaged
Properties, this instrument shall be effective as a mortgage as well as a deed
of trust and upon the occurrence of a default may be foreclosed as to the Deed
of Trust Mortgaged Properties, or any portion thereof, in any manner permitted
by applicable law, and any foreclosure suit may be brought by Trustee or by
Agent. To the extent, if any, required to cause this instrument to be so
effective as a mortgage as well as a deed of trust, Mortgagor hereby mortgages
the Deed of Trust Mortgaged Properties to Agent. In the event a foreclosure
hereunder as to the Deed of Trust Mortgaged Properties, or any part thereof,
shall be commenced by Trustee, or his substitute or successor, Agent may at any
time before the sale of such properties direct Trustee to abandon the sale, and
may then institute suit for the foreclosure of this Mortgage as to such
properties. It is agreed that if Agent should institute a suit for the
foreclosure of this Mortgage, Agent may at any time before the entry of a final
judgment in said suit dismiss the same, and require Trustee, its substitute or
successor, to sell the Deed of Trust Mortgaged Properties, or any part thereof,
in accordance with the provisions of this Mortgage.
 
Section 4.6   Receiver.  In addition to all other remedies herein provided for,
Mortgagor agrees that, upon the occurrence of a default or any event or
circumstance which, with the lapse of time or the giving of notice, or both,
would constitute a default hereunder, Agent shall as a matter of right be
entitled to the appointment of a receiver or receivers for all or any part of
the Property, whether such receivership be incident to a proposed sale (or
sales) of such property or otherwise, and without regard to the value of the
Property or the solvency of any person or persons liable for the payment of the
indebtedness secured hereby, and Mortgagor does hereby consent to the
appointment of such receiver or receivers, waives any and all defenses to such
appointment, and agrees not to oppose any application therefor by Agent, and
agrees that such appointment shall in no manner impair, prejudice or otherwise
affect the rights
 
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of Agent under Article III hereof. Mortgagor expressly waives notice of a
hearing for appointment of a receiver and the necessity for bond or an
accounting by the receiver. Nothing herein is to be construed to deprive Agent
or any Lender of any other right, remedy or privilege it may now or hereafter
have under the law to have a receiver appointed. Any money advanced by Agent in
connection with any such receivership shall be a demand obligation (which
obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to
Agent and shall bear interest, from the date of making such advancement by Agent
until paid, at the rate described in Section 2.3 hereof.
 
Section 4.7   Proceeds of Foreclosure.  The proceeds of any sale held in
foreclosure of the liens and/or security interests evidenced hereby shall be
applied:
 
FIRST, to the payment of all necessary costs and expenses incident to such
foreclosure sale, including but not limited to all court costs and charges of
every character in the event foreclosed by suit or any judicial proceeding and
including but not limited to a reasonable fee to the Trustee if such sale was
made by the Trustee acting under the provisions of Section 4.4(a) and including
but not limited to the compensation of the keeper, if any;
 
SECOND, to the payment of the secured indebtedness (including specifically
without limitation the principal, interest and attorneys’ fees due and unpaid on
the Notes and the amounts due and unpaid and owed under this Mortgage) in such
manner and order as Agent may elect; and
 
THIRD, the remainder, if any there shall be, shall be paid to Mortgagor, or to
Mortgagor’s heirs, devisees, representatives, successors or assigns, or such
other persons as may be entitled thereto by law.
 
Section 4.8   Lender as Purchaser.  Any Lender shall have the right to become
the purchaser at any sale held in foreclosure of the liens and/or security
interests evidenced hereby, and any Lender purchasing at any such sale shall
have the right to credit upon the amount of the bid made therefor, to the extent
necessary to satisfy such bid, the secured indebtedness owing to such Lender, or
if such Lender holds less than all of such indebtedness, the pro rata part
thereof owing to such Lender, accounting to all other Lenders not joining in
such bid in cash for the portion of such bid or bids apportionable to such
non-bidding Lender or Lenders.
 
Section 4.9   Foreclosure as to Matured Debt.  Upon the occurrence of a default,
Agent shall have the right to proceed with foreclosure of the liens and/or
security interests evidenced hereby without declaring the entire secured
indebtedness due, and in such event, any such foreclosure sale may be made
subject to the unmatured part of the secured indebtedness and shall not in any
manner affect the unmatured part of the secured indebtedness, but as to such
unmatured part, this Mortgage shall remain in full force and effect just as
though no sale had been made. The proceeds of such sale shall be applied as
provided in Section 4.7 except that the amount paid under clause SECOND thereof
shall be only the matured portion of the secured indebtedness and any proceeds
of such sale in excess of those provided for in clauses FIRST and SECOND
(modified as provided above) shall be applied as provided in clause SECOND AND
 
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THIRD of Section 3.4 hereof. Several sales may be made hereunder without
exhausting the right of sale for any unmatured part of the secured indebtedness.
 
Section 4.10   Remedies Cumulative.  All remedies herein provided for are
cumulative of each other and of all other remedies existing at law or in equity
and are cumulative of any and all other remedies provided for in any other Loan
Document, and, in addition to the remedies herein provided, there shall continue
to be available all such other remedies as may now or hereafter exist at law or
in equity for the collection of the secured indebtedness and the enforcement of
the covenants herein and the foreclosure of the liens and/or security interests
evidenced hereby, and the resort to any remedy provided for hereunder or under
any such other Loan Document or provided for by law shall not prevent the
concurrent or subsequent employment of any other appropriate remedy or remedies.
 
Section 4.11   Discretion as to Security.  Agent may resort to any security
given by this Mortgage or to any other security now existing or hereafter given
to secure the payment of the secured indebtedness, in whole or in part, and in
such portions and in such order as may seem best to Agent in its sole and
uncontrolled discretion, and any such action shall not in any way be considered
as a waiver of any of the rights, benefits, liens or security interests
evidenced by this Mortgage.
 
Section 4.12   Mortgagor’s Waiver of Certain Rights. To the full extent
Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist
upon, plead, claim or take the benefit or advantage of any law now or hereafter
in force providing for any appraisement, valuation, stay, extension or
redemption, and Mortgagor, for Mortgagor, Mortgagor’s heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Property, to the extent permitted by applicable
law, hereby waives and releases all rights of appraisement, valuation, stay of
execution, redemption, notice of intention to mature or declare due the whole of
the secured indebtedness, notice of election to mature or declare due the whole
of the secured indebtedness and all rights to a marshaling of assets of
Mortgagor, including the Property, or to a sale in inverse order of alienation
in the event of foreclosure of the liens and/or security interests hereby
created. Mortgagor shall not have or assert any right under any statute or rule
of law pertaining to the marshaling of assets, sale in inverse order of
alienation, the exemption of homestead, the administration of estates of
decedents, or other matters whatever to defeat, reduce or affect the right under
the terms of this Mortgage to a sale of the Property for the collection of the
secured indebtedness without any prior or different resort for collection, or
the right under the terms of this Mortgage to the payment of the secured
indebtedness out of the proceeds of sale of the Properly in preference to every
other claimant whatever.  If any law referred to in this section and now in
force, of which Mortgagor or Mortgagor’s heirs, devisees, representatives,
successors or assigns or any other persons claiming any interest in the
Mortgaged Properties or the Collateral might take advantage despite this
section, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to preclude the application of this section.
 
Section 4.13   Mortgagor as Tenant Post-Foreclosure.  In the event there is a
foreclosure sale hereunder and at the time of such sale Mortgagor or Mortgagor’s
heirs, devisees, representatives, successors or assigns or any other persons
claiming any interest in the Property by, through or under Mortgagor are
occupying or using the Property, or any part thereof, each
 
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and all shall immediately become the tenant of the purchaser at such sale, which
tenancy shall be a tenancy from day to day, terminable at the will of either
landlord or tenant, at a reasonable rental per day based upon the value of the
property occupied, such rental to be due daily to the purchaser. To the extent
permitted by applicable law, the purchaser at such sale shall, notwithstanding
any language herein apparently to the contrary, have the sole option to demand
immediate possession following the sale or to permit the occupants to remain as
tenants at will. In the event the tenant fails to surrender possession of said
property upon demand, the purchaser shall be entitled to institute and maintain
a summary action for possession of the property (such as an action for forcible
entry and detainer) in any court having jurisdiction.
 
Section 4.14   Waiver of Oklahoma Appraisement.  As to Property situated in or
otherwise subject to the laws of the State of Oklahoma, appraisement of the
Property is hereby waived (or not) at the option of Agent, such option to be
exercised at the time judgment is rendered in any foreclosure hereof or at any
time prior thereto.
 
Section 4.15   Limitation on New Mexico Redemption Period.  Pursuant to Section
39-5-19 of New Mexico Statutes, 1978 Annotated, the redemption period after
foreclosure sale for any Property situated in or otherwise subject to the laws
of the State of New Mexico shall be limited to one (1) month.
 
ARTICLE V.
 
Miscellaneous
 
Section 5.1   Scope of Mortgage.  This Mortgage is a deed of trust and mortgage
of both real/immovable and personal/movable property, a security agreement, a
financing statement and an assignment, and also covers proceeds and fixtures.
 
Section 5.2   Effective as a Financing Statement.  This Mortgage, among other
things, covers goods which are or are to become fixtures related to the real
property described herein, and covers as-extracted collateral related to the
real property described herein. This Mortgage shall be effective as a financing
statement (i) filed as a fixture filing with respect to all fixtures included
within the Property, (ii) covering as-extracted collateral with respect to all
as-extracted collateral included within the Property (including, without
limitation, all oil, gas, other minerals and other substances of value which may
be extracted from the earth and all accounts arising out of the sale at the
wellhead or minehead thereof), and (iii) covering all other Property. This
Mortgage is to be filed for record in the real/immovable property records of
each county or parish where any part of the Mortgaged Properties is situated or
which lies shoreward of any Mortgaged Property (i.e., to the extent a Mortgaged
Property lies offshore within the projected seaward extension of the relevant
county or parish boundaries), and may also be filed in the offices of the Bureau
of Land Management, the Minerals Management Service, the General Land Office or
any relevant federal, state, local or tribal agency (or any successor agencies).
The mailing address of Mortgagor is the address of Mortgagor set forth at the
end of this Mortgage and the address of Agent from which information concerning
the security interests hereunder may be obtained is the address of Agent set
forth at the end of this Mortgage. Nothing contained in this paragraph shall be
construed to limit the scope of this Mortgage nor its effectiveness as a
financing statement covering any type of Property.
 
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Section 5.3   Reproduction of Mortgage as Financing Statement; Authorization to
File.  A carbon, photographic, facsimile or other reproduction of this Mortgage
or of any financing statement relating to this Mortgage shall be sufficient as a
financing statement for any purpose. Without limiting any other provision
herein, Mortgagor hereby authorizes Agent to file, in any filing or recording
office, one or more financing statements and any renewal or continuation
statements thereof, describing the Property, including, without limitation, a
financing statement covering “all assets of Mortgagor, all proceeds therefrom
and all rights and privileges with respect thereto.”
 
Section 5.4   Notice to Account Debtors.  In addition to, but without limitation
of, the rights granted in Article III hereof, Agent may, at any time after a
default has occurred that is continuing, notify the account debtors or obligors
of any accounts, chattel paper, negotiable instruments or other evidences of
indebtedness included in the Collateral to pay Agent directly.
 
Section 5.5   Waivers.  Agent may at any time and from time to time in writing
waive compliance by Mortgagor with any covenant herein made by Mortgagor to the
extent and in the manner specified in such writing, or consent to Mortgagor’s
doing any act which hereunder Mortgagor is prohibited from doing, or to
Mortgagor’s failing to do any act which hereunder Mortgagor is required to do,
to the extent and in the manner specified in such writing, or release any part
of the Property or any interest therein or any Production Proceeds from the lien
and security interest of this Mortgage, without the joinder of Trustee. Any
party liable, either directly or indirectly, for the secured indebtedness or for
any covenant herein or in any other Loan Document may be released from all or
any part of such obligations without impairing or releasing the liability of any
other party. No such act shall in any way impair any rights or powers hereunder
except to the extent specifically agreed to in such writing.
 
Section 5.6   No Impairment of Security.  The lien, security interest and other
security rights hereunder shall not be impaired by any indulgence, moratorium or
release which may be granted, including, but not limited to, any renewal,
extension or modification which may be granted with respect to any secured
indebtedness, or any surrender, compromise, release, renewal, extension,
exchange or substitution which maybe granted in respect of the Property
(including, without limitation, Production Proceeds), or any part thereof or any
interest therein, or any release or indulgence granted to any endorser,
guarantor or surety of any secured indebtedness.
 
Section 5.7   Acts Not Constituting Waiver.  Any default may be waived without
waiving any other prior or subsequent default. Any default may be remedied
without waiving the default remedied. Neither failure to exercise, nor delay in
exercising, any right, power or remedy upon any default shall be construed as a
waiver of such default or as a waiver of the right to exercise any such right,
power or remedy at a later date. No single or partial exercise of any right,
power or remedy hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time, No modification or waiver of any
provision hereof nor consent to any departure by Mortgagor therefrom shall in
any event be effective unless the same shall be in writing and signed by Agent
and then such waiver or consent shall be effective only in the specific
instances, for the purpose for which given and to the extent therein specified.
No notice to nor demand on Mortgagor in any case shall of itself entitle
Mortgagor to any other or further
 
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notice or demand in similar or other circumstances.  Acceptance of any payment
in an amount less than the amount then due on any secured indebtedness shall be
deemed an acceptance on account only and shall not in any way excuse the
existence of a default hereunder.
 
Section 5.8   Mortgagor’s Successors.  In the event the ownership of the
Property or any part thereof becomes vested in a person other than Mortgagor,
then, without notice to Mortgagor, such successor or successors in interest may
be dealt with, with reference to this Mortgage and to the indebtedness secured
hereby, in the same manner as with Mortgagor, without in any way vitiating or
discharging Mortgagor’s liability hereunder or for the payment of the
indebtedness or performance of the obligations secured hereby. No transfer of
the Property, no forbearance, and no extension of the time for the payment of
the indebtedness secured hereby shall operate to release, discharge, modify,
change or affect, in whole or in part, the liability of Mortgagor hereunder or
for the payment of the indebtedness or performance of the obligations secured
hereby or the liability of any other person hereunder or for the payment of the
indebtedness secured hereby.
 
Section 5.9   Place of Payment.  All secured indebtedness which may be owing
hereunder at any time by Mortgagor shall be payable at the place designated in
the Credit Agreement (or if no such designation is made, at the address of Agent
indicated at the end of this Mortgage), or at such other place as Agent may
designate in writing.
 
Section 5.10   Subrogation to Existing Liens.  To the extent that proceeds of
the Notes are used to pay indebtedness secured by any outstanding lien, security
interest, charge or prior encumbrance against the Property, such proceeds have
been advanced at Mortgagor’s request, and the party or parties advancing the
same shall be subrogated to any and all rights, security interests and liens
owned by any owner or holder of such outstanding liens, security interests,
charges or encumbrances, irrespective of whether said liens, security interests,
charges or encumbrances are released, and it is expressly understood that, in
consideration of the payment of such indebtedness, Mortgagor hereby waives and
releases all demands and causes of action for offsets and payments to, upon and
in connection with the said indebtedness.
 
Section 5.11   Application of Payments to Certain Indebtedness.  If any part of
the secured indebtedness cannot be lawfully secured by this Mortgage or if any
part of the Property cannot be lawfully subject to the lien and security
interest hereof to the full extent of such indebtedness, then all payments made
shall be applied on said indebtedness first in discharge of that portion thereof
which is not secured by this Mortgage.
 
Section 5.12   Compliance With Usury Laws.  It is the intent of Mortgagor,
Lender and all other parties to the Loan Documents to contract in strict
compliance with applicable usury law from time to time in effect. In furtherance
thereof, it is stipulated and agreed that none of the terms and provisions
contained herein or in the other Loan Documents shall ever be construed to
create a contract to pay, for the use, forbearance or detention of money,
interest in excess of the maximum amount of interest permitted to be charged by
applicable law from time to time in effect.
 
Section 5.13   Substitute Trustee.  The Trustee may resign by an instrument in
writing addressed to Agent, or Trustee may be removed at any time with or
without cause by an
 
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instrument in writing executed by Agent. In case of the death, resignation,
removal, or disqualification of Trustee, or if for any reason Agent shall deem
it desirable to appoint a substitute or successor trustee to act instead of the
herein named trustee or any substitute or successor trustee, then Agent shall
have the right and is hereby authorized and empowered to appoint a successor
trustee, or a substitute trustee, without other formality than appointment and
designation in writing executed by Agent and the authority hereby conferred
shall extend to the appointment of other successor and substitute trustees
successively until the indebtedness secured hereby has been paid in full, or
until the Property is sold hereunder. In the event the secured indebtedness is
owned by more than one person or entity, the holder or holders of not less than
a majority in the amount of such indebtedness shall also have the right and
authority to make the appointment of a successor or substitute trustee as
provided for in the preceding sentence or to remove Trustee as provided in the
first sentence of this section.  Such appointment and designation by Agent shall
be full evidence of the right and authority to make the same and of all facts
therein recited.  If Agent is a corporation or association and such appointment
is executed in its behalf by an officer of such corporation or association, such
appointment shall be conclusively presumed to be executed with authority and
shall be valid and sufficient without proof of any action by the board of
directors or any superior officer of the corporation or association. Agent may
act through an agent or attorney-in-fact in substituting trustees. Upon the
making of any such appointment and designation, all of the estate and title of
Trustee in the Deed of Trust Mortgaged Properties shall vest in the named
successor or substitute Trustee and such successor or substitute shall thereupon
succeed to, and shall hold, possess and execute, all the rights, powers,
privileges, immunities and duties herein conferred upon Trustee; but
nevertheless, upon the written request of Agent or of the successor or
substitute Trustee, the Trustee ceasing to act shall execute and deliver an
instrument transferring to such successor or substitute Trustee all of the
estate and title in the Deed of Trust Mortgaged Properties of the Trustee so
ceasing to act, together with all the rights, powers, privileges, immunities and
duties herein conferred upon the Trustee, and shall duly assign, transfer and
deliver any of the properties and moneys held by said Trustee hereunder to said
successor or substitute Trustee.  All references herein to Trustee shall be
deemed to refer to Trustee (including any successor or substitute appointed and
designated as herein provided) from time to time acting hereunder.
 
Section 5.14   No Liability for Trustee.  THE TRUSTEE SHALL NOT BE LIABLE FOR
ANY ERROR OF JUDGMENT OR ACT DONE BY TRUSTEE IN GOOD FAITH, OR BE OTHERWISE
RESPONSIBLE OR ACCOUNTABLE UNDER ANY CIRCUMSTANCES WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, THE TRUSTEE’S NEGLIGENCE), EXCEPT FOR TRUSTEE’S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. The Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or proposed to be taken by the Trustee hereunder, believed by the Trustee in
good faith to be genuine. All moneys received by Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated in any manner from any other moneys
(except to the extent required by law), and Trustee shall be under no liability
for interest on any moneys received by him hereunder. Mortgagor hereby ratifies
and confirms any and all acts which the herein named Trustee or its successor or
successors, substitute or substitutes, shall do lawfully by virtue hereof.
Mortgagor will reimburse Trustee for, and indemnify and save Trustee harmless
against, any and all liability and expenses (including attorneys fees) which may
be incurred by Trustee in the performance of his duties. The foregoing
indemnities shall not terminate upon the
 
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release, foreclosure or other termination of this Mortgage but will survive such
release, termination and/or foreclosure of this Mortgage, or conveyance in lieu
of foreclosure, and the repayment of the secured indebtedness and the discharge
and release of this Mortgage and the other documents evidencing and/or securing
the secured indebtedness. Any amount to be paid hereunder by Mortgagor to
Trustee shall be a demand obligation owing by Mortgagor to Trustee and shall be
subject to and covered by the provisions of Section 2.3 hereof.
 
Section 5.15   Release of Mortgage.  If all of the secured indebtedness be paid
as the same becomes due and payable, all other requirements of the Credit
Agreement are satisfied and all of the covenants, warranties, undertakings and
agreements made in this Mortgage are kept and performed, and if neither the
Mortgagor nor any Lender is bound to the other or to any third person to permit
any obligation or secured indebtedness to be incurred then or thereafter, then,
upon sixty (60) days prior written notice (or such lesser number of days as may
be mandated by applicable law), the Mortgagor may request that this Mortgage be
terminated.  Upon such termination the Mortgagor may further request that a
written act of release of this Mortgage be provided (except this Mortgage shall
be reinstated to the extent expressly provided herein, and will continue with
respect to indemnification and other rights which are to continue following the
release hereof). Agent agrees to deliver such an act of release (subject to the
foregoing limitation), all at the cost and expense of the Mortgagor, within
thirty (30) days (or such lesser number of days as may be mandated by applicable
law) of receiving such request unless Agent in good faith, has cause to believe
that Mortgagor is not entitled to a termination of this Mortgage.
Notwithstanding the foregoing, it is understood and agreed that certain
indemnifications, and other rights, which are provided herein to continue
following the release hereof, shall continue in effect notwithstanding such
release; and provided that if any payment to Lender, or Agent, is held to
constitute a preference or a voidable transfer under applicable state or federal
laws or if for any other reason Lender, or Agent, is required to refund such
payment to the payor thereof or to pay the amount thereof to any third party,
this Mortgage shall be reinstated to the extent of such payment or payments.
 
Section 5.16   Notices.  All notices, requests, consents, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy, by delivery service with proof of delivery, or by registered or
certified United States mail, postage prepaid, at the addresses specified at the
end of this Mortgage (unless changed by similar notice in writing given by the
particular party whose address is to be changed).  Any such notice or
communication shall be deemed to have been given (a) in the case of personal
delivery or delivery service, as of the date of first attempted delivery at the
address and in the manner provided herein, (b) in the case of telecopy, upon
receipt, and (c) in the case of registered or certified United States mail,
three days after deposit in the mail. Notwithstanding the foregoing, or anything
else in the Loan Documents which may appear to the contrary, any notice given in
connection with a foreclosure of the liens and/or security interests created
hereunder, or otherwise in connection with the exercise by Agent, any Lender or
Trustee of their respective rights hereunder or under any other Loan Document,
which is given in a manner permitted by applicable law shall constitute proper
notice; without limitation of the foregoing, notice given in a form required or
permitted by statute shall (as to the portion of the Property to which such
statute is applicable) constitute proper notice.
 
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Section 5.17   Invalidity of Certain Provisions.  A determination that any
provision of this Mortgage is unenforceable or invalid shall not affect the
enforceability or validity of any other provision and the determination that the
application of any provision of this Mortgage to any person or circumstance is
illegal or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
 
Section 5.18   Gender; Titles.  Within this Mortgage, words of any gender shall
be held and construed to include any other gender, and words in the singular
number shall be held and construed to include the plural, unless the context
otherwise requires. Titles appearing at the beginning of any subdivisions hereof
are for convenience only, do not constitute any part of such subdivisions, and
shall be disregarded in construing the language contained in such subdivisions.
 
Section 5.19   Recording.  Mortgagor will cause this Mortgage and all amendments
and supplements thereto and substitutions therefor and all financing statements
and continuation statements relating thereto to be recorded, filed, re-recorded
and refiled in such manner and in such places as Trustee or Agent shall
reasonably request and will pay all such recording, filing, re-recording and
refiling taxes, fees and other charges.
 
Section 5.20   Reporting Compliance. Mortgagor agrees to comply with any and all
reporting requirements applicable to the transaction evidenced by the Notes and
secured by this Mortgage which are set forth in any law, statute, ordinance,
rule, regulation, order or determination of any governmental authority, and
further agrees upon request of Agent to furnish Agent with evidence of such
compliance.
 
Section 5.21   Certain Consents.  Except where otherwise expressly provided
herein, in any instance hereunder where the approval, consent or the exercise of
judgment of Agent or any Lender is required, the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of such party, and such party shall not, for any reason or to any
extent, be required to grant such approval or consent or exercise such judgment
in any particular manner, regardless of the reasonableness of either the request
or the judgment of such party.
 
Section 5.22   Certain Obligations of Mortgagor.  Without limiting Mortgagor’s
obligations hereunder, Mortgagor’s liability hereunder and the indebtedness
secured hereby shall extend to and include all post petition interest, expenses,
and other duties and liabilities with respect to Mortgagor’s obligations
hereunder which would be owed but for the fact that the same may be
unenforceable due to the existence of a bankruptcy, reorganization or similar
proceeding.
 
Section 5.23   Authority of Agent.  The persons constituting Lender may, by
agreement among them, provide for and regulate the exercise of rights and
remedies hereunder, but, unless and until modified to the contrary in writing
signed by all such persons and recorded in the same counties and parishes as
this Mortgage is recorded, (i) all persons other than Mortgagor and its
affiliates shall be entitled to rely on the releases, waivers, consents,
approvals, notifications and other acts (including, without limitation,
appointment of substitute or successor trustee, or trustees, hereunder and the
bidding in of all or any part of the secured indebtedness held by any one or
more Lenders, whether the same be conducted under the provisions hereof or
otherwise) of Agent, without inquiry into any such agreements or the existence
of required
 
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consent or approval of any persons constituting Lender and without the joinder
of any party other than Agent in such releases, waivers, consents, approvals,
notifications or other acts and (ii) all notices, requests, consents, demands
and other communications required or permitted to be given hereunder may be
given to Agent.
 
Section 5.24   Counterparts.  This Mortgage may be executed in several
counterparts, all of which are identical, except that, (a) to facilitate
recordation, certain counterparts hereof may include only that portion of
Exhibit A which contains descriptions of the properties located in (or otherwise
subject to the recording or filing requirements and/or protections of the
recording or filing acts or regulations of) the recording jurisdiction in which
the particular counterpart is to be recorded, and other portions of Exhibit A
shall be included in such counterparts by reference only and (b) Schedule I is
attached only to the master counterparts hereof being retained by Mortgagor and
Agent, (c) only those counterparts hereof being retained by Agent and Mortgagor
or otherwise containing counterpart descriptions of Mortgaged Properties located
in (or otherwise subject to the recording or filing requirements and/or
protections of the recording or filing acts or regulations of) the State of
Louisiana will have Annex I attached thereto, Annex I is included in all other
counterparts by reference only, (d) only those counterparts being retained by
Agent and Mortgagor otherwise containing counterpart descriptions of Mortgaged
Properties located in (or otherwise subject to the recording or filing
requirements and/or protections of the recording or filing acts or regulations
of) North Dakota will have Annex II attached thereto, Annex II is included in
all other counterparts by reference only and (e) the execution of this Mortgage
by Mortgagor may not be witnessed on those counterparts hereof containing
descriptions of Mortgaged Properties located in states where witnesses are not
required and/or encouraged by applicable law.  All of such counterparts together
shall constitute one and the same instrument.
 
Section 5.25   Multiple Parties Constituting Mortgagor.  Unless the context
clearly indicates otherwise, as used in this Mortgage, “Mortgagor” means the
Mortgagors named in Section 1.1 hereof or any of them.  The obligations of
Mortgagor hereunder shall be joint and several.
 
Section 5.26   Successors and Assigns.  The terms, provisions, covenants,
representations, indemnifications and conditions hereof shall be binding upon
Mortgagor, and the successors and assigns of Mortgagor, and shall inure to the
benefit of Agent, Trustee and each person constituting Lender and their
respective successors and assigns, and shall constitute covenants running with
the Mortgaged Properties. Should the agency under which Agent serves be
terminated, or otherwise cease to exist, Lenders (including the respective
successors and assigns of each person constituting Lender named herein) shall be
deemed to be the successors to Agent. All references in this Mortgage to
Mortgagor, Agent, Trustee or Lenders shall be deemed to include all such
successors and assigns.
 
Section 5.27   FINAL AGREEMENT OF THE PARTIES.  THE WRITTEN LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
 
-35-
Houston 3941837v.4
 
 

 
 
Section 5.28   CHOICE OF LAW.  WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW,
THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT
THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF THE PROPERTY IS
LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE PROPERTY)
NECESSARILY OR, IN THE SOLE DISCRETION OF LENDER, APPROPRIATELY GOVERNS WITH
RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION,
PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND
REMEDIES OF THE TRUSTEE OR THE LENDER GRANTED HEREIN, THE LAW OF SUCH STATE
SHALL APPLY AS TO THAT PORTION OF THE PROPERTY LOCATED IN (OR WHICH IS OTHERWISE
SUBJECT TO THE LAWS OF) SUCH STATE.
 
Section 5.29   Reliance on Certificate or Statement of Agent.  All third parties
may rely upon a certificate or statement of the Agent as to the occurrence of
any act or event, including, but not limited to, the occurrence of a default
hereunder, or the occurrence of an Event of Default under the Credit Agreement.
 
Section 5.30   Appearance. Resolutions,  For purposes of Louisiana law,
including but not limited to the availability of executory process, Mortgagor
has appeared on this date before the undersigned Notary Public and witnesses in
order to execute this Mortgage. Mortgagor attaches, as Annex I, to counterparts
hereof being recorded in Louisiana certified resolutions of its Board of
Directors authorizing the execution and delivery of this Mortgage.
 
Section 5.31   Paraph.  Mortgagor acknowledges that no promissory note or other
instrument has been presented to the undersigned Notary Public to be paraphed
for identification herewith.
 
Section 5.32   Acceptance by Agent.  In accordance with the provisions of
Louisiana Civil Code article 3289, Agent has accepted the benefits of the
Mortgage without the necessity of execution by Agent.
 
[Signatures Begin on Next Page]
 
-36-
Houston 3941837v.4
 
 

 

THUS DONE AND PASSED this 14th day of April, 2009, to be effective, however, as
of April 14, 2009 (the “Effective Date”), in my presence and in the presence of
the undersigned competent witnesses who hereunto sign their names with Mortgagor
and me, Notary, after reading of the whole.
 

WITNESSES:                                                                ST.
MARY LAND & EXPLORATION
COMPANY
 
 
    /s/ FARAH PALIWALA
Name: Farah Paliwala                                  By:   /s/ MILAM RANDOLPH
PHARO        
                                        Milam Randolph Pharo
            /s/ SERGIL VMOYRADOV                             Senior Vice
President and General Counsel
Name: Sergil
Vmoyradov                                                                          

 

                    /s/ JENNIFER Y. AARON
                 NOTARY PUBLIC

The address and tax identification number of the Company is:
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 41-05 18430

The  address of Agent is:
1525 W. WT Harris Blvd.,
Charlotte, North Carolina 28262

The address of Trustee is:
Jay Chernosky
1001 Fannin Street, Suite 2255
Houston, Texas 77002

      Signature Page
to
Deed of Trust, Mortgage, Line of Credit Mortgage Assignment, Security Agreement,
Fixture Filing and Financing Statement
 
 

 

STATE OF TEXAS                                       §
                 §
COUNTY OF HARRIS                                 §

BE IT REMEMBERED THAT I, the undersigned authority, a notary public duly
qualified, commissioned, sworn and acting in and for the county and state
aforesaid, and being authorized in such county and state to take
acknowledgments, hereby certify that, on this __ day of April, 2009, THERE
personally appeared before me: Milam Randolph Pharo, Senior Vice President and
General Counsel of St. Mary Land & Exploration Company, a Delaware corporation,
known to me to be such officer, such corporation being a party to the foregoing
instrument.

COLORADO, LOUISIANA, MONTANA, NEVADA, NEW MEXICO, NORTH DAKOTA, OKLAHOMA, SOUTH
DAKOTA, TEXAS, UTAH and
WYOMING
The foregoing instrument was acknowledged before me on this day, by
such person, the above designated officer of the corporation specified
following such person’s name, on behalf of said corporation.
 
On this date before me, the undersigned authority, personally came and
appeared such person, to me personally known and known by me to be the person
whose genuine sign ature is affixed to the foregoing document as the above
designated officer of the corporation specified following such and person’s
name, who signed said document before me, and who acknowledged, in my presence,
that he signed the above and foregoing document as his own free act and deed on
behalf of such corporation by authority of its board of directors and as the
free act and deed of such corporation and for the uses and purposes therein set
forth and apparent.
 
This instrument was acknowledged before me on this day, by such person, the
above designated officer of the corporation specified following such person’s
name, on behalf of said corporation.

 
IN WITNESS WHEREOF, I have hereunto set my hand and official seal in the City of
Houston, Harris County, Texas on the day and year first above written.
 
                                /s/ JENNIFER Y. AARON

NOTARY PUBLIC, in and for the State of Texas

            
            Jennifer Y. Aaron
My commission
expires:                                                              (printed
name)
 
05-01-2011

[SEAL]

           Acknowledgment Page
to
Deed of Trust, Mortgage, Line of Credit Mortgage Assignment, Security Agreement,
Fixture Filing and Financing Statement
 
 

 

ANNEX I

Annex I
 
 

 

ANNEX II

Annex II
 
 

 

EXHIBIT A
 
[Description of leases and lands, grouped with wells]

Need actual land descriptions for the States of North Dakota, Oklahoma and
Wyoming -references to recorded instruments containing descriptions sufficient
for all other states
 

Exhibit A

 
 

 

SCHEDULE I
 
[List of Wells with corresponding Working Interests and Net Revenue interests]

Schedule I