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EXHIBIT 10.2

WHEN RECORDED OR FILED,
PLEASE RETURN TO:
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2500
Houston, Texas  77002
Attention:  Linda Daugherty
 
 
 
 
 
   
Space above for County Recorder’s Use

MORTGAGE, MORTGAGE – COLLATERAL REAL ESTATE MORTGAGE, DEED OF TRUST, ASSIGNMENT
OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING
STATEMENT
 
 

FROM

ENERGY ONE LLC

TO

RUSSELL OTTS, AS TRUSTEE

FOR THE BENEFIT OF

BNP PARIBAS,
as Administrative Agent,

and the Other Secured Persons
 

A CARBON, PHOTOGRAPHIC, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT
AS A FINANCING STATEMENT.
 
 
 
 
 

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A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT.  IN CERTAIN STATES, A POWER
OF SALE MAY ALLOW THE TRUSTEE OR THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY
AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
MORTGAGOR UNDER THIS INSTRUMENT.

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.

THIS INSTRUMENT COVERS PROCEEDS OF MORTGAGED PROPERTY.

THIS INSTRUMENT COVERS MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE
EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND GAS) AND THE
ACCOUNTS RELATED THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS OF THE WELL OR
WELLS LOCATED ON THE PROPERTIES DESCRIBED IN THE EXHIBIT HERETO.  THIS FINANCING
STATEMENT IS TO BE FILED OR FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL
ESTATE RECORDS OR SIMILAR RECORDS OF THE RECORDERS OF THE COUNTIES LISTED ON THE
EXHIBIT HERETO AND WITH A CLERK OF COURT (OR, AS TO ORLEANS PARISH, THE RECORDER
OF MORTGAGES) IN ANY PARISH IN THE STATE OF LOUISIANA.  THE MORTGAGOR HAS AN
INTEREST OF RECORD IN THE REAL ESTATE AND IMMOVABLE PROPERTY CONCERNED, WHICH
INTEREST IS DESCRIBED IN THE EXHIBIT ATTACHED HERETO.

PORTIONS OF THE MORTGAGED PROPERTY ARE GOODS WHICH ARE OR ARE TO BECOME AFFIXED
TO OR FIXTURES ON THE LAND DESCRIBED IN OR REFERRED TO IN THE EXHIBIT
HERETO.  THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD OR RECORDED, AMONG
OTHER PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF EACH COUNTY IN
WHICH SAID LAND OR ANY PORTION THEREOF IS LOCATED AND WITH A CLERK OF COURT (OR,
AS TO ORLEANS PARISH, THE RECORDER OF MORTGAGES) IN ANY PARISH IN THE STATE OF
LOUISIANA.  THE MORTGAGOR IS THE OWNER OF RECORD INTEREST IN THE REAL ESTATE
CONCERNED.  THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX OF FINANCING
STATEMENTS OR THE UCC RECORDS.

 
 
 
 

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TABLE OF CONTENTS
 

 
Page
 
ARTICLE I
DEFINITIONS
     
Section 1.01
Terms Defined Above
2
Section 1.02
UCC and Other Defined Terms
2
Section 1.03
Definitions.
2
 
ARTICLE II
GRANT OF LIEN AND SECURED OBLIGATIONS
     
Section 2.01
Grant of Liens
4
Section 2.02
Grant of Security Interest
5
Section 2.03
Secured Obligations
6
Section 2.04
Fixture Filing, Etc
7
Section 2.05
Pro Rata Benefit
7
 
ARTICLE III
ASSIGNMENT OF AS-EXTRACTED COLLATERAL
     
Section 3.01
Assignment.
7
Section 3.02
No Modification of Payment Obligations
8
Section 3.03
Rights and Title of Consignee
9
 
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
     
Section 4.01
Title
9
Section 4.02
Defend Title
9
Section 4.03
Not a Foreign Person
9
Section 4.04
Power to Create Lien and Security
9
Section 4.05
Revenue and Cost Bearing Interest
10
Section 4.06
Rentals Paid; Leases in Effect
10
Section 4.07
Operation By Third Parties
10
Section 4.08
Abandon, Sales
10
Section 4.09
Failure to Perform
10
 
ARTICLE V
RIGHTS AND REMEDIES
     
Section 5.01
Event of Default
10
Section 5.02
Foreclosure and Sale.
10
Section 5.03
Substitute Trustees and Agents
12
Section 5.04
Judicial Foreclosure; Receivership
12
Section 5.05
Foreclosure for Installments
12
Section 5.06
Separate Sales
13

 
 
 
 

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Section 5.07
Possession of Mortgaged Property
13
Section 5.08
Occupancy After Foreclosure
13
Section 5.09
Remedies Cumulative, Concurrent and Nonexclusive
14
Section 5.10
Discontinuance of Proceedings
14
Section 5.11
No Release of Obligations
14
Section 5.12
Release of and Resort to Collateral
14
Section 5.13
Waiver of Redemption, Notice and Marshalling of Assets, Etc
15
Section 5.14
Application of Proceeds
15
Section 5.15
Resignation of Operator
15
Section 5.16
Indemnity
16
 
ARTICLE VI
THE TRUSTEE
     
Section 6.01
Duties, Rights, and Powers of Trustee
16
Section 6.02
Successor Trustee
17
Section 6.03
Retention of Moneys
17
 
ARTICLE VII
MISCELLANEOUS
     
Section 7.01
Instrument Construed as Mortgage, Etc
17
Section 7.02
Releases.
17
Section 7.03
Severability
18
Section 7.04
Successors and Assigns
18
Section 7.05
Satisfaction of Prior Encumbrance
18
Section 7.06
Application of Payments to Certain Obligations
18
Section 7.07
Nature of Covenants
19
Section 7.08
Notices
19
Section 7.09
Counterparts
19
Section 7.10
Governing Law
19
Section 7.11
Financing Statement; Fixture Filing
19
Section 7.12
Execution of Financing Statements
19
Section 7.13
Exculpation Provisions
20
Section 7.14
References
21
Section 7.15
Swap Agreements.
21
 
ARTICLE VIII
STATE SPECIFIC PROVISIONS
     
Section 8.01
State Specific Provisions Generally
21
Section 8.02
Special Louisiana Provisions.
21
Section 8.03
Special North Dakota Provisions.
22
     
Exhibit A  Oil and Gas Properties
 

 
 
 
 
 

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THIS MORTGAGE, MORTGAGE – COLLATERAL REAL ESTATE MORTGAGE, DEED OF TRUST,
ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT, FIXTURE FILING AND
FINANCING STATEMENT (this “Mortgage”) is entered into as of the Effective Date
by Energy One LLC, a Wyoming limited liability company (the “Mortgagor”), in
favor of (i) Russell Otts, a resident of Harris County, Texas, as Trustee, for
the benefit of BNP Paribas, as Administrative Agent (together with its
successors and assigns, the “Mortgagee”), and the Other Secured Persons with
respect to all Mortgaged Properties located in the Deed of Trust State and (ii)
the Mortgagee for its benefit and the benefit of the Other Secured Parties with
respect to all Mortgaged Properties located in each Mortgage State and with
respect to all UCC Collateral.
 
R E C I T A L S
 
A.           On even date herewith, the Mortgagor, as borrower, the Lenders, the
Mortgagee, as administrative agent for the Lenders and others, executed a Credit
Agreement (such agreement, as may from time to time be amended or supplemented,
the “Credit Agreement”) pursuant to which, upon the terms and conditions stated
therein, the Lenders agreed to make loans and other extensions of credit to and
on behalf of the Mortgagor.
 
B.           The Mortgagor and certain Lenders or Affiliates of Lenders have or
may enter into certain ISDA Master Agreements, confirmations and other
contractual arrangements, whether or not evidenced pursuant to standard ISDA
documentation (any such agreements or instruments with Lenders or their
Affiliates collectively, “Swap Documents”) to evidence one or more swap,
forward, future, put, call or other exchange or derivative transactions or
options or similar agreements, whether exchange traded, “over-the-counter” or
otherwise, involving, or settled by reference to, one or more rates, currencies,
commodities (including electricity), equity or debt instruments or securities,
or economic, financial or pricing indices or measures of economic, financial or
pricing risk or value or any similar transaction or any combination of these
transactions (collectively, “Swap Agreements”).
 
C.           On even date herewith, the Mortgagor, each of the other signatories
thereto and the Mortgagee executed a Guaranty and Pledge Agreement (such
agreement, as may from time to time be amended or supplemented, the “Guaranty”)
pursuant to which, upon the terms and conditions stated therein, the Mortgagor
and certain of the other signatories thereto have agreed to grant a security
interest to the Mortgagee in certain assets specified therein and each of the
signatories thereto have agreed to guarantee the obligations of the Mortgagor
under the Credit Agreement and the Swap Agreements (the Credit Agreement, the
Swap Agreements and the Guaranty collectively being the “Secured Transaction
Documents”).
 
D.           The Mortgagee and the Other Secured Persons have conditioned their
obligations under the Secured Transaction Documents upon the execution and
delivery by the Mortgagor of this Mortgage, and the Mortgagor has agreed to
enter into this Mortgage to secure all obligations owing to the Mortgagee and
the Other Secured Persons under the Secured Transaction Documents.
 
 
 
 
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E.           Therefore, in order to comply with the terms and conditions of the
Secured Transaction Documents and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Mortgagor hereby
agrees as follows:
 
ARTICLE I
 
DEFINITIONS
 

Section 1.01                       Terms Defined Above.  As used in this
Mortgage, each term defined above has the meaning indicated above.
 
Section 1.02                       UCC and Other Defined Terms.  Unless
otherwise defined in the Applicable UCC, each capitalized term used in this
Mortgage and not defined in this Mortgage shall have the meaning ascribed to
such term in the Credit Agreement.  Any capitalized term not defined in either
this Mortgage or the Credit Agreement shall have the meaning ascribed to such
term in the Applicable UCC.
 
Section 1.03                       Definitions.
 
“Applicable UCC” means the provisions of the Uniform Commercial Code presently
in effect in the jurisdiction in which the relevant UCC Collateral is situated
or which otherwise is applicable to the creation or perfection of the Liens
described herein or the rights and remedies of Mortgagee under this Mortgage.
 
“Collateral” means collectively all the Mortgaged Property and all the UCC
Collateral.
 
“Deed of Trust State” has the meaning ascribed such term in Section 2.01.
 
“Event of Default” has the meaning ascribed to such term in Section 5.01.
 
“Future Advances” means future obligations and future advances that the
Mortgagee or any Other Secured Person may make pursuant to any Secured
Transaction Document.
 
“Hydrocarbon Interests” means all rights, titles, interests and estates and the
lands and premises covered or affected thereby now or hereafter acquired by the
Mortgagor in and to oil and gas leases, oil, gas and mineral leases, or other
liquid or gaseous hydrocarbon leases, fee interests, surface interests, mineral
fee interests, overriding royalty and royalty interests, net profit interests
and production payment interests, including any reserved or residual interests
of whatever nature, in each case, which are described on Exhibit A; provided
that, it is the intent of the Mortgagor that all of its interests be subject to
the Lien of this Mortgage even if (i) its interests on Exhibit A shall be
incorrectly described or a description of a part or all of such property or the
Mortgagor’s interests therein be omitted limited to particular lands, specified
depths or particular types of property interests or (ii) such properties or
interests may be hereafter acquired.
 
“Hydrocarbons” means all oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined or separated therefrom and all other minerals which may be
produced and saved from or
 
 
 
 
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attributable to the Oil and Gas Properties of the Mortgagor, including all oil
in tanks, and all rents, issues, profits, proceeds, products, revenues and other
incomes from or attributable to the Hydrocarbon Interests or other properties
constituting Oil and Gas Properties.
 
“Indemnified Parties” means the Trustee, the Mortgagee, each Other Secured
Person and their officers, directors, employees, representatives, agents,
attorneys, accountants and experts.
 
“Lien” means any interest in property securing an obligation owed to, or a claim
by, a Person other than the owner of the property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties.
 
“Mortgaged Property” means the Oil and Gas Properties and other properties and
assets described in Section 2.01(a) through Section 2.01(e).
 
“Mortgage State” has the meaning ascribed such term in Section 2.01.
 
“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the properties now
or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently
existing or future unitization, communitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
Interests; (d) all operating agreements, production sales or other contracts,
farmout agreements, farm-in agreements, area of mutual interest agreements,
equipment leases and other agreements which relate to any of the Hydrocarbon
Interests or any interests therein or to the production, sale, purchase,
exchange, processing, handling, storage, transporting or marketing of the
Hydrocarbons from or attributable to such Oil and Gas Properties; (e) all
Hydrocarbons; (f) all tenements, hereditaments, appurtenances and properties in
any manner appertaining, belonging, affixed or incidental to the Hydrocarbon
Interests, including all compressor sites, settling ponds and equipment or pipe
yards; and (g) all properties, rights, titles, interests and estates described
or referred to above whether now owned or hereinafter acquired, including any
and all property, real or personal, immoveable or moveable, situated upon, used,
held for use or useful in connection with the operating, working or development
of any of such Hydrocarbon Interests or property (excluding drilling rigs,
automotive equipment, rental equipment or other personal property which may be
on such premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells, injection wells
or other wells, buildings, structures, fuel separators, liquid extraction
plants, plant compressors, pumps, pumping units, pipelines, sales and flow
lines, gathering systems, field gathering systems, salt water disposal
facilities, tanks and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, steam generation facilities, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements, servitudes licenses and
other surface and subsurface rights, together with all additions, substitutions,
replacements, accessions and attachments to any and all of the foregoing.
 
 
 
 
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“Other Secured Persons” means each Lender, each Issuing Bank under the Credit
Agreement, each Lender or Affiliate of a Lender which is party to a Swap
Agreement, each Indemnified Party and any legal owner, holder, assignee or
pledgee of any of the Secured Obligations.
 
“Paid In Full In Cash” means (i) the irrevocable and indefeasible payment in
full in cash of all principal, interest (including interest accruing during the
pendency of an insolvency or liquidation proceeding, regardless of whether
allowed or allowable in such insolvency or liquidation proceeding) and premium,
if any, on all Loans outstanding under the Credit Agreement, (ii) the payment in
full in cash or posting of cash collateral in respect of all other obligations
or amounts that are outstanding under the Credit Agreement, including the
posting of the cash collateral for outstanding Letters of Credit as required by
the terms of the Credit Agreement, (iii) the termination of all Commitments
under the Credit Agreement and (iv) the termination of all Swap Agreements and
the payment in full in cash or posting of acceptable collateral in respect of
all other obligations or amounts that are owed to any Lender (or Lender
Affiliate) under such Swap Agreements as required by the terms thereof or the
novation of such Swap Agreements to third parties.
 
“Permitted Encumbrances” means all Liens permitted to be placed on the Mortgaged
Properties under Section 9.03 of the Credit Agreement.
 
“Post-Default Rate” means the post-default rate per annum set forth in Section
3.02(c) of the Credit Agreement applicable to past due payments, but in no event
to exceed the Highest Lawful Rate.
 
“Secured Obligations” has the meaning assigned to such term in Section 2.03.
 
“UCC Collateral” means the property and other assets described in Section 2.02.
 
 
ARTICLE II
 
GRANT OF LIEN AND SECURED OBLIGATIONS
 
Section 2.01                       Grant of Liens.  To secure payment of the
Secured Obligations, the Mortgagor does by these presents hereby:
 
(i)           GRANT, BARGAIN, SELL, ASSIGN, MORTGAGE, TRANSFER and CONVEY to the
Trustee, for the use and benefit of the Mortgagee and the Other Secured Persons,
all the following properties, rights and interests which are located in (or
cover or relate to such Oil and Gas Properties located in) the State of Texas
(the “Deed of Trust State”) TO HAVE AND TO HOLD unto the Trustee forever to
secure the Secured Obligations; and
 
(ii)           GRANT, BARGAIN, SELL, WARRANT, MORTGAGE, ASSIGN, TRANSFER,
PLEDGE, HYPOTHECATE and CONVEY AND, to the extent permitted by applicable law,
GRANT A POWER OF SALE to the Mortgagee, for its benefit and the benefit of the
Other Secured Persons, with mortgage covenants, and upon the statutory mortgage
condition for the breach of which this Mortgage may be subject to foreclosure as
provided by applicable law, all the following properties, rights and interests
which are located in (or cover or relate to
 
 
 
 
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properties located in) the States of Louisiana and North Dakota (collectively,
the “Mortgage States”):
 
(a) All rights, titles, interests and estates now owned or hereafter acquired by
the Mortgagor in and to the Oil and Gas Properties described on Exhibit A.
 
(b) All rights, titles, interests and estates now owned or hereafter acquired by
the Mortgagor in and to all geological, geophysical, engineering, accounting,
title, legal and other technical or business data concerning the Oil and Gas
Properties, the Hydrocarbons or any other item of property which are in the
possession of the Mortgagor, and all books, files, records, magnetic media,
computer records and other forms of recording or obtaining access to such data.
 
(c) All rights, titles, interests and estates now owned or hereafter acquired by
the Mortgagor in and to all Hydrocarbons.
 
(d) Any property that may from time to time hereafter, by delivery or by writing
of any kind, be subjected to the Liens hereof by the Mortgagor or by anyone on
the Mortgagor’s behalf; and the Trustee and/or the Mortgagee are hereby
authorized to receive the same at any time as additional security hereunder.
 
(e) All of the rights, titles and interests of every nature whatsoever now owned
or hereafter acquired by the Mortgagor in and to the Oil and Gas Properties
described in Exhibit A and all other rights, titles, interests and estates and
every part and parcel thereof, including, without limitation, any rights,
titles, interests and estates as the same may be enlarged by the discharge of
any payments out of production or by the removal of any charges or Permitted
Encumbrances to which any of such Oil and Gas Properties or other rights,
titles, interests or estates are subject or otherwise; all rights of the
Mortgagor to Liens securing payment of proceeds from the sale of production from
any of such Oil and Gas Properties, together with any and all renewals and
extensions of any of such related rights, titles, interests or estates; all
contracts and agreements supplemental to or amendatory of or in substitution for
the contracts and agreements described or mentioned above; and any and all
additional interests of any kind hereafter acquired by the Mortgagor in and to
the such related rights, titles, interests or estates.
 
Any fractions or percentages specified on Exhibit A in referring to the
Mortgagor’s interests are solely for purposes of the warranties made by the
Mortgagor pursuant to Section 4.01 and Section 4.05 and shall in no manner limit
the quantum of interest affected by this Section 2.01 with respect to any Oil
and Gas Property or with respect to any unit or well identified on Exhibit A.
 
Section 2.02                       Grant of Security Interest.  To further
secure the Secured Obligations, the Mortgagor hereby grants to the Mortgagee,
for its benefit and the benefit of the Other Secured Persons, a security
interest in and to all of the following (whether now or hereafter acquired by
operation of law or otherwise):
 
(a) all Accounts relating to this Mortgage;
 
 
 
 
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(b) all General Intangibles (including, without limitation, rights in and under
any Payment Intangible, Swap Agreement or any Commodity Contract) and all rights
under insurance contracts and rights to insurance proceeds relating to this
Mortgage;
 
(c) all Inventory, all Equipment and all Fixtures relating to the Mortgaged
Property;
 
(d) all Letter-of-Credit Rights (whether or not the letter of credit is
evidenced by a writing);
 
(e) all As-Extracted Collateral from or attributable to the Oil and Gas
Properties;
 
(f) all books and records pertaining to the Oil and Gas Properties;
 
(g) to the extent not otherwise included, all Proceeds and products of any and
all of the foregoing and all collateral security, guarantees and other
Supporting Obligations given with respect to any of the foregoing.
 
Section 2.03                       Secured Obligations.  This Mortgage is
executed and delivered by the Mortgagor to secure and enforce the following (the
“Secured Obligations”):
 
(a) Payment of and performance of any and all indebtedness, fees, interest,
indemnities, reimbursements, obligations and liabilities of the Mortgagor or any
Guarantor (including interest accruing during the pendency of an insolvency or
liquidation proceeding, regardless of whether allowed or allowable in such
insolvency or liquidation proceeding) pursuant to the Credit Agreement, the
Guaranty, this Mortgage or any other Loan Document, whether now existing or
hereafter arising and being in the original principal amount of Seventy-Five
Million United States Dollars (US $75,000,000.00), including performance of all
Letter of Credit Agreements executed from time to time by the 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 now outstanding or hereafter issued under or pursuant to the Credit
Agreement.
 
(b) Any sums which may be advanced or paid by the Trustee or the Mortgagee or
any Other Secured Person under the terms hereof or of the Credit Agreement or
any Secured Transaction Document on account of the failure of the Mortgagor or
any of the Mortgagor’s Subsidiaries to comply with the covenants of the
Mortgagor contained herein, in the Credit Agreement or any other Secured
Transaction Document whether pursuant to Section 4.09 or otherwise and all other
obligations, liabilities and indebtedness of the Mortgagor or any Guarantor
arising pursuant to the provisions of this Mortgage or any Secured Transaction
Document.
 
(c) Any additional loans made by the Mortgagee or any Lender to the Mortgagor or
any Guarantor.  It is contemplated that the Mortgagee and the Lenders may lend
additional sums to the Mortgagor from time to time, but shall not be obligated
to do so, and the Mortgagor agrees that any such additional loans shall be
secured by this Mortgage.
 
 
 
 
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(d) Payment of and performance of any and all present or future obligations of
the Mortgagor under any Swap Document or any Swap Agreement, including any
deferred premiums in respect of puts, floors or options constituting Swap
Agreements.
 
(e) Any and all renewals, modifications, substitutions, rearrangements or
extensions of any of the foregoing, whether in whole or in part.
 
Section 2.04                       Fixture Filing, Etc.  Without in any manner
limiting the generality of any of the other provisions of this Mortgage: (i)
some portions of the goods described or to which reference is made herein are or
are to become Fixtures on the land described or to which reference is made
herein or on Exhibit A; (ii) the security interests created hereby under
applicable provisions of the Applicable UCC will attach to all As-Extracted
Collateral (all minerals including oil and gas and the Accounts resulting from
the sale thereof at the wellhead or minehead located on the Oil and Gas
Properties described or to which reference is made herein or on Exhibit A) and
all other Hydrocarbons; (iii) this Mortgage is to be filed of record in the real
estate records or other appropriate records as a financing statement; and (iv)
the Mortgagor is the record owner of the real estate or interests in the real
estate or immoveable property comprised of the Mortgaged Property.
 
Section 2.05                       Pro Rata Benefit.  This Mortgage is executed
and granted for the pro rata benefit and security of the Mortgagee and the Other
Secured Persons to secure the Secured Obligations for so long as same remains
unpaid and thereafter until the Secured Obligations have been Paid In Full In
Cash.
 
ARTICLE III
 
ASSIGNMENT OF AS-EXTRACTED COLLATERAL
 
Section 3.01                       Assignment.
 
(a) The Mortgagor has absolutely and unconditionally assigned, transferred,
conveyed and granted a security interest, and does hereby absolutely and
unconditionally assign, transfer, convey and grant a security interest unto the
Mortgagee in and to:
 
(i)           all of its As-Extracted Collateral located in or relating to the
Mortgaged Properties located in the county where this Mortgage is filed,
including without limitation, all As-Extracted Collateral relating to the
Hydrocarbon Interests, the Hydrocarbons and all products obtained or processed
therefrom;
 
(ii)           the revenues and proceeds now and hereafter attributable to such
Mortgaged Properties, including the Hydrocarbons, and said products and all
payments in lieu, such as “take or pay” payments or settlements; and
 
(iii)           all amounts and proceeds hereafter payable to or to become
payable to the Mortgagor or now or hereafter relating to any part of such
Mortgaged Properties and all amounts, sums, monies, revenues and income which
become payable to the Mortgagor from, or with respect to, any of the Mortgaged
Properties, present or future, now or hereafter constituting a part of the
Hydrocarbon Interests.
 
 
 
 
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(b) The Hydrocarbons and products are to be delivered into pipe lines connected
with the Mortgaged Property, or to the purchaser thereof, to the credit of the
Mortgagee, for its benefit and the benefit of the Other Secured Persons, free
and clear of all taxes, charges, costs and expenses; and all such revenues and
proceeds shall be paid directly to the Mortgagee, at its offices in Houston,
Texas, with no duty or obligation of any party paying the same to inquire into
the rights of the Mortgagee to receive the same, what application is made
thereof, or as to any other matter.
 
(c) The Mortgagor agrees to perform all such acts, and to execute all such
further assignments, transfers and division orders and other instruments as may
be required or desired by the Mortgagee or any party in order to have said
proceeds and revenues so paid to the Mortgagee.  In addition to any and all
rights of a secured party under Sections 9-607 and 9-609 of the Applicable UCC,
the Mortgagee is fully authorized to receive and receipt for said revenues and
proceeds; to endorse and cash any and all checks and drafts payable to the order
of the Mortgagor or the Mortgagee for the account of the Mortgagor received from
or in connection with said revenues or proceeds and to hold the proceeds thereof
in a Deposit Account with the Mortgagee as additional collateral securing the
Secured Obligations; and to execute transfer and division orders in the name of
the Mortgagor, or otherwise, with warranties binding the Mortgagor.  All
proceeds received by the Mortgagee pursuant to this grant and assignment shall
be applied as provided in Section 5.14.
 
(d) The Mortgagee shall not be liable for any delay, neglect or failure to
effect collection of any proceeds or to take any other action in connection
therewith or hereunder; but the Mortgagee shall have the right, at its election,
in the name of the Mortgagor or otherwise, to prosecute and defend any and all
actions or legal proceedings deemed advisable by the Mortgagee in order to
collect such funds and to protect the interests of the Mortgagee and/or the
Mortgagor, with all costs, expenses and attorneys’ fees incurred in connection
therewith being paid by the Mortgagor.
 
(e) The Mortgagor hereby appoints the Mortgagee as its attorney-in-fact to
pursue any and all rights of the Mortgagor to Liens in the Hydrocarbons securing
payment of proceeds of runs attributable to the Hydrocarbons.  In addition to
the Liens granted to the Trustee and/or the Mortgagee in Section 2.01(e), the
Mortgagor hereby further transfers and assigns to the Mortgagee any and all such
Liens, security interests, financing statements or similar interests of the
Mortgagor attributable to its interest in the As-Extracted Collateral, any other
Hydrocarbons and proceeds of runs therefrom arising under or created by said
statutory provision, judicial decision or otherwise.  The power of attorney
granted to the Mortgagee in this Section 3.01, being coupled with an interest,
shall be irrevocable until the Secured Obligations have been Paid In Full In
Cash.
 
Section 3.02                       No Modification of Payment
Obligations.  Nothing herein contained shall modify or otherwise alter the
obligation of the Mortgagor to make prompt payment of all amounts constituting
Secured Obligations when and as the same become due regardless of whether the
proceeds of the As-Extracted Collateral and Hydrocarbons are sufficient to pay
the same and the rights provided in accordance with the foregoing assignment
provision shall be cumulative of all other security of any and every character
now or hereafter existing to secure
 
 
 
 
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payment of the Secured Obligations.  Nothing in this Article III is intended to
be an acceptance of collateral in satisfaction of the Secured Obligations.
 
Section 3.03                       Rights and Title of Consignee.  In addition
to the rights, titles and interests hereby conveyed pursuant to Section 2.01 of
this Mortgage, the Mortgagor hereby grants to the Mortgagee those Liens given to
purchasers of Hydrocarbons to secure their sale at the wellhead, including those
rights provided in Tex. Bus. & Com. Code Ann. §9.343 (Vernon Supp. 1989) (“Tex.
UCC”), as amended from time to time.
 
 
ARTICLE IV
 
REPRESENTATIONS, WARRANTIES AND COVENANTS
 
The Mortgagor hereby represents, warrants and covenants as follows:
 
Section 4.01                       Title.  To the extent of the undivided
interests specified on Exhibit A, the Mortgagor has good and defensible title to
and is possessed of the Hydrocarbon Interests and has good title to the UCC
Collateral.  The Collateral is free of all Liens except Permitted Encumbrances.
 
Section 4.02                       Defend Title.  This Mortgage is, and always
will be kept, a direct first priority Lien upon the Collateral; provided that
Permitted Encumbrances may exist, but no intent to subordinate the priority of
the Liens created hereby is intended or inferred by such existence.  The
Mortgagor will not create or suffer to be created or permit to exist any Lien,
security interest or charge prior or junior to or on a parity with the Lien of
this Mortgage upon the Collateral or any part thereof other than such Permitted
Encumbrances.  The Mortgagor will warrant and defend the title to the Collateral
against the claims and demands of all other Persons whomsoever and will maintain
and preserve the Lien created hereby (and its priority) until the Secured
Obligations shall be Paid In Full In Cash.  If (i) an adverse claim is made
against or  a cloud develops upon the title to any part of the Collateral other
than a Permitted Encumbrance or (ii) any Person, including the holder of a
Permitted Encumbrance, shall challenge the priority or validity of the Liens
created by this Mortgage, then the Mortgagor agrees to immediately defend
against such adverse claim, take appropriate action to remove such cloud or
subordinate such Permitted Encumbrance, in each case, at the Mortgagor’s sole
cost and expense.  The Mortgagor further agrees that the Trustee and/or the
Mortgagee may take such other action as they deem advisable to protect and
preserve their interests in the Collateral, and in such event the Mortgagor will
indemnify the Trustee and the Mortgagee against any and all cost, attorneys’
fees and other expenses which they may incur in defending against any such
adverse claim or taking action to remove any such cloud.
 
Section 4.03                       Not a Foreign Person.  The Mortgagor is not a
“foreign person” within the meaning of the Code, Sections 1445 and 7701 (i.e.
the 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).
 
Section 4.04                       Power to Create Lien and Security.  The
Mortgagor has full power and lawful authority to grant, bargain, sell, assign,
transfer, mortgage and convey a security interest in all of the Collateral in
the manner and form herein provided.  No authorization, approval,
 
 
 
 
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consent or waiver of any lessor, sublessor, Governmental Authority or other
party or parties whomsoever is required in connection with the execution and
delivery by the Mortgagor of this Mortgage.
 
Section 4.05                       Revenue and Cost Bearing Interest.  The
Mortgagor’s ownership of the Hydrocarbon Interests and the undivided interests
therein as specified on Exhibit A will, after giving full effect to all
Permitted Encumbrances, afford the Mortgagor not less than those net interests
(expressed as a fraction, percentage or decimal) in the production from or which
is allocated to such Hydrocarbon Interest specified as Net Revenue Interest on
Exhibit A and will cause the Mortgagor to bear not more than that portion
(expressed as a fraction, percentage or decimal), specified as Working Interest
on Exhibit A, of the costs of drilling, developing and operating the wells
identified on Exhibit A except to the extent of any proportionate corresponding
increase in the Net Revenue Interest.
 
Section 4.06                       Rentals Paid; Leases in Effect.  All rentals
and royalties due and payable in accordance with the terms of any leases or
subleases comprising a part of the Mortgaged Property have been duly paid or
provided for, and all leases or subleases comprising a part of the Oil and Gas
Property are in full force and effect.
 
Section 4.07                       Operation By Third Parties.  If any portion
of the Mortgaged Property is comprised of interests which are not working
interests or which are not operated by the Mortgagor or one of its Affiliates,
then with respect to such interests and properties, the Mortgagor’s covenants as
expressed in this Article IV are modified to require that the Mortgagor use
reasonable commercial efforts to obtain compliance with such covenants by the
working interest owners or the operator or operators of such Mortgaged
Properties.
 
Section 4.08                       Abandon, Sales.  The Mortgagor will not sell,
lease, assign, transfer or otherwise dispose or abandon any of the Collateral
except as permitted by the Credit Agreement.
 
Section 4.09                       Failure to Perform.  The Mortgagor agrees
that if it fails to perform any act or to take any action which it is required
to perform or take hereunder or pay any money which the Mortgagor is required to
pay hereunder, each of the Mortgagee and the Trustee, in the Mortgagor’s name or
its or their own name, may, but shall not be obligated to, perform or cause to
perform such act or take such action or pay such money, and any expenses so
incurred by either of them and any money so paid by either of them shall be a
demand obligation owing by the Mortgagor to the Mortgagee or the Trustee, as the
case may be, and each of the Mortgagee and the Trustee, upon making such
payment, shall be subrogated to all of the rights of the Person receiving such
payment.  Each amount due and owing by the Mortgagor to each of the Mortgagee
and the Trustee pursuant to this Mortgage shall bear interest from the date of
such expenditure or payment to such Person until paid at the Post-Default Rate.
 
ARTICLE V
 
RIGHTS AND REMEDIES
 
Section 5.01                       Event of Default.  An Event of Default under
the Credit Agreement shall be an “Event of Default” under this Mortgage.
 
Section 5.02                       Foreclosure and Sale.
 
 
 
 
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(a) If an Event of Default shall occur and be continuing, to the extent provided
by applicable law, the Mortgagee shall have the right and option to proceed with
foreclosure by: (i) with respect to that portion of the Mortgaged Property
located in the Deed of Trust State directing the Trustee to proceed, and (ii)
with respect to that portion of the Mortgaged Property located in any Mortgage
State proceeding, with foreclosure and to sell all or any portion of such
Mortgaged Property at one or more sales, as an entirety or in parcels, at such
place or places in otherwise such manner and upon such notice as may be required
by law, or, in the absence of any such requirement, as the Mortgagee may deem
appropriate, and to make conveyance to the purchaser or purchasers.  Where the
Mortgaged Property is situated in more than one jurisdiction, notice as above
provided shall be posted and filed in all such jurisdictions (if such notices
are required by law), and all such Mortgaged Property may be sold in any such
jurisdiction and any such notice shall designate the jurisdiction where such
Mortgaged Property is to be sold.  Nothing contained in this Section 5.02 shall
be construed so as to limit in any way any rights to sell the Mortgaged Property
or any portion thereof by private sale if and to the extent that such private
sale is permitted under the laws of the applicable jurisdiction or by public or
private sale after entry of a judgment by any court of competent jurisdiction so
ordering.  The Mortgagor hereby irrevocably appoints the Trustee and the
Mortgagee, with full power of substitution, to be the attorneys-in-fact of the
Mortgagor and in the name and on behalf of the Mortgagor to execute and deliver
any deeds, transfers, conveyances, assignments, assurances and notices which the
Mortgagor ought to execute and deliver and do and perform any and all such acts
and things which the Mortgagor ought to do and perform under the covenants
herein contained and generally, to use the name of the Mortgagor in the exercise
of all or any of the powers hereby conferred on the Trustee and/or the
Mortgagee.  At any such sale: (i) whether made under the power herein contained
or any other legal enactment, or by virtue of any judicial proceedings or any
other legal right, remedy or recourse, it shall not be necessary for the Trustee
or the Mortgagee, as appropriate, to have physically present, or to have
constructive possession of, the Mortgaged Property (the Mortgagor hereby
covenanting and agreeing to deliver any portion of the Mortgaged Property not
actually or constructively possessed by the Trustee or the Mortgagee immediately
upon his or its demand) and the title to and right of possession of any such
property shall pass to the purchaser thereof as completely as if the same had
been actually present and delivered to purchaser at such sale, (ii) each
instrument of conveyance executed by the Trustee or the Mortgagee shall contain
a general warranty of title, binding upon the Mortgagor and its successors and
assigns, (iii) each and every recital contained in any instrument of conveyance
made by the Trustee or the Mortgagee shall conclusively establish the truth and
accuracy of the matters recited therein, including, without limitation,
nonpayment of the Secured Obligations, advertisement and conduct of such sale in
the manner provided herein and otherwise by law and appointment of any successor
trustee hereunder, (iv) any and all prerequisites to the validity thereof shall
be conclusively presumed to have been performed, (v) the receipt of the Trustee,
the Mortgagee or of such other party or officer making the sale shall be a
sufficient discharge to the purchaser or purchasers for its purchase money and
no such purchaser or purchasers, or its assigns or personal representatives,
shall thereafter be obligated to see to the application of such purchase money,
or be in any way answerable for any loss, misapplication or nonapplication
thereof, (vi) to the fullest extent permitted by law, the Mortgagor shall be
completely and irrevocably divested of all of its right, title, interest, claim
and demand whatsoever, either at law or in equity, in and to the property sold
and such sale shall be a perpetual bar both at law and in equity against the
Mortgagor, and against any and all other
 
 
 
 
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persons claiming or to claim the property sold or any part thereof, by, through
or under the Mortgagor, and (vii) to the extent and under such circumstances as
are permitted by law, the Mortgagee may be a purchaser at any such sale, and
shall have the right, after paying or accounting for all costs of said sale or
sales, to credit the amount of the bid upon the amount of the Secured
Obligations (in the order of priority set forth in Section 5.14) in lieu of cash
payment.
 
(b) If an Event of Default shall occur and be continuing, then (i) the Mortgagee
shall be entitled to all of the rights, powers and remedies afforded a secured
party by the Applicable UCC with reference to the UCC Collateral or (ii) the
Trustee or the Mortgagee may proceed as to any Collateral in accordance with the
rights and remedies granted under this Mortgage or applicable law in respect of
the Collateral.  Such rights, powers and remedies shall be cumulative and in
addition to those granted to the Trustee or the Mortgagee under any other
provision of this Mortgage or under any other Loan Document or any Secured
Transaction Document.  Written notice mailed to the Mortgagor as provided herein
at least ten (10) days prior to the date of public sale of any part of the
Collateral which is personal property subject to the provisions of the
Applicable UCC, or prior to the date after which private sale of any such part
of the Collateral will be made, shall constitute reasonable notice.
 
Section 5.03                       Substitute Trustees and Agents.  The Trustee
or Mortgagee 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 the Trustee or
Mortgagee, including the posting of notices and the conduct of sale, but in the
name and on behalf of the Trustee or Mortgagee.  If the Trustee or Mortgagee
shall have given notice of sale hereunder, any successor or substitute trustee
or mortgagee agent 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 or mortgagee agent conducting the sale.
 
Section 5.04                       Judicial Foreclosure; Receivership.  If any
of the Secured Obligations shall become due and payable and shall not be
promptly paid, the Trustee or the Mortgagee shall have the right and power to
proceed by a suit or suits in equity or at law, whether for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for any foreclosure hereunder or for
the sale of the Collateral under the judgment or decree of any court or courts
of competent jurisdiction, or for the appointment of a receiver pending any
foreclosure hereunder or the sale of the Collateral under the order of a court
or courts of competent jurisdiction or under executory or other legal process,
or for the enforcement of any other appropriate legal or equitable remedy.  Any
money advanced by the Trustee and/or the Mortgagee in connection with any such
receivership shall be a demand obligation (which obligation the Mortgagor hereby
expressly promises to pay) owing by the Mortgagor to the Trustee and/or the
Mortgagee and shall bear interest from the date of making such advance by the
Trustee and/or the Mortgagee until paid at the Post-Default Rate.
 
Section 5.05                       Foreclosure for Installments.  The Mortgagee
shall also have the option to proceed with foreclosure in satisfaction of any
installments of the Secured Obligations which have not been paid when due either
through the courts or by directing the Trustee to proceed with foreclosure in
satisfaction of the matured but unpaid portion of the Secured Obligations as if
under a full foreclosure, conducting the sale as herein provided and without
declaring the entire
 
 
 
 
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principal balance and accrued interest and other Secured Obligations then due;
such sale may be made subject to the unmatured portion of the Secured
Obligations, and any such sale shall not in any manner affect the unmatured
portion of the Secured Obligations, but as to such unmatured portion of the
Secured Obligations this Mortgage shall remain in full force and effect just as
though no sale had been made hereunder.  It is further agreed that several sales
may be made hereunder without exhausting the right of sale for any unmatured
part of the Secured Obligations, it being the purpose hereof to provide for a
foreclosure and sale of the security for any matured portion of the Secured
Obligations without exhausting the power to foreclose and sell the Mortgaged
Property for any subsequently maturing portion of the Secured Obligations.
 
Section 5.06                       Separate Sales.  The Collateral may be sold
in one or more parcels and to the extent permitted by applicable law in such
manner and order as the Mortgagee, in its sole discretion, may elect, it being
expressly understood and agreed that the right of sale arising out of any Event
of Default shall not be exhausted by any one or more sales.
 
Section 5.07                       Possession of Mortgaged Property.  If an
Event of Default shall have occurred and be continuing, then, to the extent
permitted by applicable law, the Trustee or the Mortgagee shall have the right
and power to enter into and upon and take possession of all or any part of the
Collateral in the possession of the Mortgagor, its successors or assigns, or its
or their agents or servants, and may exclude the Mortgagor, its successors or
assigns, and all persons claiming under the Mortgagor, and its or their agents
or servants wholly or partly therefrom; and, holding the same, the Mortgagee may
use, administer, manage, operate and control the Collateral and conduct the
business thereof to the same extent as the Mortgagor, its successors or assigns,
might at the time do and may exercise all rights and powers of the Mortgagor, in
the name, place and stead of the Mortgagor, or otherwise as the Mortgagee shall
deem best.  All costs, expenses and liabilities of every character incurred by
the Trustee and/or the Mortgagee in administering, managing, operating, and
controlling the Mortgaged Property shall constitute a demand obligation (which
obligation the Mortgagor hereby expressly promises to pay) owing by the
Mortgagor to the Trustee and/or the Mortgagee and shall bear interest from date
of expenditure until paid at the Post-Default Rate.
 
Section 5.08                       Occupancy After Foreclosure.  In the event
there is a foreclosure sale hereunder and at the time of such sale the Mortgagor
or the Mortgagor’s heirs, devisees, representatives, successors or assigns or
any other person claiming any interest in the Collateral by, through or under
the Mortgagor, are occupying or using the Mortgaged Property or any part
thereof, each 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 the landlord or tenant, or 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
Mortgaged Property (such as an action for forcible entry and detainer) in any
court having jurisdiction.
 
 
 
 
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Section 5.09                       Remedies Cumulative, Concurrent and
Nonexclusive.  Every right, power, privilege and remedy herein given to the
Trustee or the Mortgagee shall be cumulative and in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
in equity, at law or by statute (including specifically those granted by the
Applicable UCC in effect and applicable to the Collateral or any portion
thereof).  Each and every right, power, privilege and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time and so often and in such order as may be deemed expedient by the Trustee or
the Mortgagee, and the exercise, or the beginning of the exercise, or the
abandonment, of any such right, power, privilege or remedy shall not be deemed a
waiver of the right to exercise, at the same time or thereafter any other right,
power, privilege or remedy.  No delay or omission by the Trustee or the
Mortgagee or any Other Secured Person in the exercise of any right, power or
remedy shall impair any such right, power, privilege or remedy or operate as a
waiver thereof or of any other right, power, privilege or remedy then or
thereafter existing.
 
Section 5.10                       Discontinuance of Proceedings.  If the
Trustee or the Mortgagee shall have proceeded to invoke any right, remedy or
recourse permitted hereunder or under any Secured Transaction Document or
available at law and shall thereafter elect to discontinue or abandon same for
any reason, then it shall have the unqualified right so to do and, in such an
event, the parties shall be restored to their former positions with respect to
the Secured Obligations, this Mortgage, the Credit Agreement, the Collateral and
otherwise, and the rights, remedies, recourses and powers of the Trustee and the
Mortgagee, as applicable, shall continue as if same had never been invoked.
 
Section 5.11                       No Release of Obligations.  Neither the
Mortgagor, any Guarantor nor any other person hereafter obligated for payment of
all or any part of the Secured Obligations shall be relieved of such obligation
by reason of: (a) the failure of the Trustee to comply with any request of the
Mortgagor, or any Guarantor or any other Person so obligated to foreclose the
Lien of this Mortgage or to enforce any provision hereunder or under the Credit
Agreement; (b) the release, regardless of consideration, of the Mortgaged
Property or any portion thereof or interest therein or the addition of any other
property to the Mortgaged Property; (c) any agreement or stipulation between any
subsequent owner of the Mortgaged Property and the Mortgagee extending,
renewing, rearranging or in any other way modifying the terms of this Mortgage
without first having obtained the consent of, given notice to or paid any
consideration to the Mortgagor, any Guarantor or such other Person, and in such
event the Mortgagor, Guarantor and all such other persons shall continue to be
liable to make payment according to the terms of any such extension or
modification agreement unless expressly released and discharged in writing by
the Mortgagee; or (d) by any other act or occurrence save and except if the
Secured Obligations are Paid In Full In Cash and any other obligations hereunder
or under the Credit Agreement are completely fulfilled.
 
Section 5.12                       Release of and Resort to Collateral.  The
Mortgagee may release, regardless of consideration, any part of the Collateral
without, as to the remainder, in any way impairing, affecting, subordinating or
releasing the Lien created in or evidenced by this Mortgage or its stature as a
first and prior Lien in and to the Collateral, and without in any way releasing
or diminishing the liability of any Person liable for the repayment of the
Secured Obligations.  For payment of the Secured Obligations, the Mortgagee may
resort to any other
 
 
 
 
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security therefor held by the Mortgagee or the Trustee in such order and manner
as the Mortgagee may elect.
 
Section 5.13                       Waiver of Redemption, Notice and Marshalling
of Assets, Etc.  To the fullest extent permitted by law, the Mortgagor hereby
irrevocably and unconditionally waives and releases (a) all benefits that might
accrue to the Mortgagor by virtue of any present or future moratorium law or
other law exempting the Collateral from attachment, levy or sale on execution or
providing for any appraisement, valuation, stay of execution, exemption from
civil process, redemption or extension of time for payment; (b) all notices of
any Event of Default or of the Mortgagee’s or any other secured Person’s
intention to accelerate maturity of the Secured Obligations or of any election
to exercise or any actual exercise of any right, remedy or recourse provided for
hereunder or under any Secured Transaction Document or available at law; and (c)
any right to a marshalling of assets or a sale in inverse order of
alienation.  If any law referred to in this Mortgage and now in force, of which
the Mortgagor or its successor or successors might take advantage despite the
provisions hereof, shall hereafter be repealed or cease to be in force, such law
shall thereafter be deemed not to constitute any part of the contract herein
contained or to preclude the operation or application of the provisions
hereof.  If the laws of any state which provides for a redemption period do not
permit the redemption period to be waived, the redemption period shall be
specifically reduced to the minimum amount of time allowable by statute.
 
Section 5.14                       Application of Proceeds.  The proceeds of any
sale of the Mortgaged Property or any part thereof and all other monies received
in any proceedings for the enforcement hereof or otherwise, whose application
has not elsewhere herein been specifically provided for, shall be applied:
 
(a) First, to the payment of all reasonable expenses incurred by the Trustee or
the Mortgagee incident to the enforcement of this Mortgage, the Credit Agreement
or any Secured Transaction Document to collect any portion of the Secured
Obligations (including, without limiting the generality of the foregoing,
expenses of any entry or taking of possession, of any sale, of advertisement
thereof, and of conveyances, and court costs, compensation of agents and
employees, legal fees and a reasonable commission to the Trustee acting, if
applicable), and to the payment of all other reasonable charges, expenses,
liabilities and advances incurred or made by the Trustee or the Mortgagee under
this Mortgage or in executing any trust or power hereunder; and
 
(b) Second, as set forth in Section 10.02(c) of the Credit Agreement.
 
Section 5.15                       Resignation of Operator.  In addition to all
rights and remedies under this Mortgage, at law and in equity, if any Event of
Default shall occur and the Trustee or the Mortgagee shall exercise any remedies
under this Mortgage with respect to any portion of the Mortgaged Property (or
the Mortgagor shall transfer any Mortgaged Property “in lieu of” foreclosure)
whereupon the Mortgagor is divested of its title to any of the Collateral, the
Mortgagee shall have the right to request that any operator of any Mortgaged
Property which is either the Mortgagor or any Affiliate of the Mortgagor to
resign as operator under the joint operating agreement applicable thereto, and
no later than 60 days after receipt by the Mortgagor
 
 
 
 
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of any such request, the Mortgagor shall resign (or cause such other Person to
resign) as operator of such Collateral.
 
Section 5.16                       Indemnity.  The Indemnified Parties shall not
be liable, in connection with any action taken, for any loss sustained by the
Mortgagor resulting from an assertion that the Mortgagee has received funds from
the production of Hydrocarbons claimed by third persons or any act or omission
of any Indemnified Party in administering, managing, operating or controlling
the Mortgaged Property INCLUDING SUCH LOSS WHICH MAY RESULT FROM THE ORDINARY
NEGLIGENCE OF AN INDEMNIFIED PARTY unless such loss is caused by the willful
misconduct or gross negligence of the Indemnified Party seeking indemnity.  No
Indemnified Party shall be obligated to perform or discharge any obligation,
duty or liability of the Mortgagor.  The Mortgagor shall and does hereby agree
to indemnify each Indemnified Party for, and to hold each Indemnified Party
harmless from, any and all liability, loss or damage which may or might be
incurred by any Indemnified Party by reason of this Mortgage or the exercise of
rights or remedies hereunder.  If any Indemnified Party shall make any
expenditure on account of any such liability, loss or damage, the amount
thereof, including costs, expenses and reasonable attorneys’ fees, shall be a
demand obligation (which obligation the Mortgagor hereby expressly promises to
pay) owing by the Mortgagor to such Indemnified Party and shall bear interest
from the date expended until paid at the Post-Default Rate.  The Mortgagor
hereby assents to, ratifies and confirms any and all actions of each Indemnified
Party with respect to the Mortgaged Property taken under and in compliance with
the terms of this Mortgage.  The liabilities of the Mortgagor as set forth in
this Section 5.16 shall survive the termination of this Mortgage.
 
ARTICLE VI
 
THE TRUSTEE
 
Section 6.01                       Duties, Rights, and Powers of Trustee.  The
Trustee shall have no duty to see to any recording, filing or registration of
this Mortgage or any other instrument in addition or supplemental thereto, or to
give any notice thereof, or to see to the payment of or be under any duty in
respect of any tax or assessment or other governmental charge which may be
levied or assessed on the Mortgaged Property, or any part thereof, or against
the Mortgagor, or to see to the performance or observance by the Mortgagor of
any of the covenants and agreements contained herein.  The Trustee shall not be
responsible for the execution, acknowledgment or validity of this Mortgage or of
any instrument in addition or supplemental hereto or for the sufficiency of the
security purported to be created hereby, and makes no representation in respect
thereof or in respect of the rights of the Mortgagee.  The Trustee shall have
the right to advice of counsel upon any matters arising hereunder and shall be
fully protected in relying as to legal matters on the advice of counsel.  The
Trustee shall not incur any personal liability hereunder except for the
Trustee’s own willful misconduct; and 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 him hereunder, believed by him in good faith to
be genuine.
 
 
 
 
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Section 6.02                       Successor Trustee.  The Trustee may resign by
written notice addressed to the Mortgagee or be removed at any time with or
without cause by an instrument in writing duly executed on behalf of the
Mortgagee.  In case of the death, resignation or removal of the Trustee, a
successor may be appointed by the Mortgagee by instrument of substitution
complying with any applicable Governmental Requirements, or, in the absence of
any such requirement, without formality other than appointment and designation
in writing.  Written notice of such appointment and designation shall be given
by the Mortgagee to the Mortgagor, but the validity of any such appointment
shall not be impaired or affected by failure to give such notice or by any
defect therein.  Such appointment and designation shall be full evidence of the
right and authority to make the same and of all the facts therein recited.  Upon
the making of any such appointment and designation, this Mortgage shall vest in
the successor all the estate and title in and to all of the Mortgaged Property
in the Deed of Trust State, and the successor shall thereupon succeed to all of
the rights, powers, privileges, immunities and duties hereby conferred upon the
Trustee named herein, and one such appointment and designation shall not exhaust
the right to appoint and designate an additional successor but such right may be
exercised repeatedly until the Secured Obligations are Paid In Full In Cash.  To
facilitate the administration of the duties hereunder, the Mortgagee may appoint
multiple trustees to serve in such capacity or in such jurisdictions as the
Mortgagee may designate.
 
Section 6.03                       Retention of Moneys.  All moneys received by
the 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 the
Trustee shall be under no liability for interest on any moneys received by him
hereunder.
 
ARTICLE VII
 
MISCELLANEOUS
 
Section 7.01                       Instrument Construed as Mortgage, Etc.  With
respect to any portions of the Mortgaged Property located in any State or other
jurisdiction the laws of which do not provide for the use or enforcement of a
deed of trust or the office, rights and authority of the Trustee as herein
provided, the general language of conveyance hereof to the Trustee is intended
and the same shall be construed as words of mortgage unto and in favor of the
Mortgagee and the rights and authority granted to the Trustee herein may be
enforced and asserted by the Mortgagee in accordance with the laws of the
jurisdiction in which such portion of the Mortgaged Property is located and the
same may be foreclosed at the option of the Mortgagee as to any or all such
portions of the Mortgaged Property in any manner permitted by the laws of the
jurisdiction in which such portions of the Mortgaged Property is situated.  This
Mortgage may be construed as a mortgage, deed of trust, conveyance, assignment,
security agreement, fixture filing, pledge, financing statement, hypothecation
or contract, or any one or more of them, in order fully to effectuate the Lien
hereof and the purposes and agreements herein set forth.
 
Section 7.02                       Releases.
 
(a) Full Release.  If all Secured Obligations shall be Paid In Full In Cash, the
Mortgagee shall forthwith cause satisfaction and discharge of this Mortgage to
be entered upon the record at the expense of the Mortgagor and shall execute and
deliver or cause to be executed
 
 
 
 
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and delivered such instruments of satisfaction and reassignment as may be
appropriate.  Otherwise, this Mortgage shall remain and continue in full force
and effect.
 
(b) Partial Release.  If any of the Mortgaged Property shall be sold,
transferred or otherwise disposed of by the Mortgagor in a transaction permitted
by the Credit Agreement, then the Mortgagee, at the request and sole expense of
the Mortgagor, shall promptly execute and deliver to the Mortgagor all releases,
re-conveyances or other documents reasonably necessary or desirable for the
release of the Liens created hereby on the Mortgaged Property.
 
(c) Possession of Notes.  The Mortgagor acknowledges and agrees that possession
of any Note (or any replacements of any said Note or other instrument evidencing
any part of the Secured Obligations) at any time by the Mortgagor or any
guarantor shall not in any manner extinguish the Secured Obligations or this
Mortgage, and the Mortgagor shall have the right to issue and reissue any of the
Notes from time to time as its interest or as convenience may require, without
in any manner extinguishing or affecting the Secured Obligations or the Lien of
this Mortgage.
 
Section 7.03                       Severability.  If any provision hereof is
invalid or unenforceable in any jurisdiction, the other provisions hereof shall
remain in full force and effect in such jurisdiction and the remaining
provisions hereof shall be liberally construed in favor of the Trustee, the
Mortgagee and the Other Secured Persons in order to effectuate the provisions
hereof.  The invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction.
 
Section 7.04                       Successors and Assigns.  The terms used to
designate any party or group of persons shall be deemed to include the
respective heirs, legal representatives, successors and assigns of such Persons.
 
Section 7.05                       Satisfaction of Prior Encumbrance.  To the
extent that proceeds of the Credit Agreement are used to pay indebtedness by any
outstanding Lien against the Mortgaged Property then it is the parties agreement
that: (a) such proceeds have been advanced at the Mortgagor’s request, and (b)
the Mortgagee and the Lenders shall be subrogated to any and all rights and
Liens owned by any owner or holder of such outstanding Liens, irrespective of
whether said Liens are or have been released.  It is expressly understood that,
in consideration of the payment of such other indebtedness, the Mortgagor hereby
waives and releases all demands and causes of action for offsets and payments
to, upon and in connection with the said indebtedness.  This Mortgage is made
with full substitution and subrogation of the Trustee and the Mortgagee and his
successors in this trust and his and their assigns in and to all covenants and
warranties by others heretofore given or made in respect of the Mortgaged
Property or any part thereof.
 
Section 7.06                       Application of Payments to Certain
Obligations.  If any part of the Secured Obligations cannot be lawfully secured
by this Mortgage or if any part of the Mortgaged Property cannot be lawfully
subject to the Lien hereof to the full extent of the Secured Obligations, then
all payments made shall be applied on said Secured Obligations first in
discharge of that portion thereof which is not secured by this Mortgage.
 
 
 
 
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Section 7.07                       Nature of Covenants.  The covenants and
agreements herein contained shall constitute covenants running with the land and
interests covered or affected hereby and shall be binding upon the heirs, legal
representatives, successors and assigns of the parties hereto.
 
Section 7.08                       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
registered or certified United States mail, postage prepaid, or by personal
service (including express or courier service) at the addresses specified in
Section 7.12 (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 either at the time of personal
delivery or, in the case of delivery at the address and in the manner provided
herein, upon receipt; provided that, service of notice as required by the laws
of any state in which portions of the Mortgaged Property may be situated shall
for all purposes be deemed appropriate and sufficient with the giving of such
notice.
 
Section 7.09                       Counterparts.  This Mortgage is being
executed in several counterparts, all of which are identical, except that to
facilitate recordation, if the Mortgaged Property is situated in more than one
county or parish, descriptions of only those portions of the Mortgaged Property
located in the county or parish in which a particular counterpart is recorded
shall be attached as Exhibit A to such counterpart.  Each of such counterparts
shall for all purposes be deemed to be an original and all such counterparts
shall together constitute but one and the same instrument.  Complete copies of
this Mortgage containing the entire Exhibit A have been retained by the
Mortgagee.
 
Section 7.10                       Governing Law.  Insofar as permitted by
otherwise applicable law, this Mortgage shall be construed under and governed by
the laws of the State of Texas; provided, however, that, with respect to any
portion of the Mortgaged Property located outside of the State of Texas, the
laws of the place in which such property is located in shall apply to the extent
of procedural and substantive matters relating only to the creation, perfection,
foreclosure of Liens and enforcement of rights and remedies against the
Mortgaged Property.
 
Section 7.11                       Financing Statement; Fixture Filing.  This
Mortgage shall be effective as a financing statement filed as a fixture filing
with respect to all Fixtures included within the Mortgaged Property and is to be
filed or filed for record in the real estate records, mortgage records or other
appropriate records of each jurisdiction where any part of the Mortgaged
Property (including said fixtures) are situated.  This Mortgage shall also be
effective as a financing statement covering As-Extracted Collateral (including
oil and gas and all other substances of value which may be extracted from the
ground) and accounts financed at the wellhead or minehead of wells or mines
located on the properties subject to the Applicable UCC and is to be filed for
record in the real estate records, UCC records or other appropriate records of
each jurisdiction where any part of the Mortgaged Property is situated.
 
Section 7.12                       Execution of Financing Statements.  Pursuant
to the Applicable UCC, the Mortgagor authorizes the Mortgagee, its counsel or
its representative, at any time and from time to time, to file or record
financing statements, continuation statements, amendments thereto and other
filing or recording documents or instruments with respect to the Mortgaged
Property
 
 
 
 
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without the signature of the Mortgagee in such form and in such offices as the
Mortgagee reasonably determines appropriate to perfect the security interests of
the Mortgagee under this Agreement.  The Mortgagor also authorizes the
Mortgagee, its counsel or its representative, at any time and from time to time,
to file or record such financing statements that describe the collateral covered
thereby as “all assets of the Mortgagor”, “all personal property of the
Mortgagor” or words of similar effect. The Mortgagor shall pay all costs
associated with the filing of such instruments.
 
In that regard, the following information is provided:
 
Name of Debtor:
Energy One LLC
Address of Debtor
877 N. 8th W.
State of Organization
Wyoming
Organizational ID Number
2010-000586153
Facsimile:
307.857.3050
Telephone:
307.856.9271
   
Principal Place of
 
Business of Debtor:
Wyoming
       
Name of Secured Party:
BNP Paribas,
 
as Administrative Agent
Address of Secured
1200 Smith Street, Suite 3100
Party:
Houston, Texas 77002
Facsimile:
713.659.6915
Telephone:
713.982.1172
   
Owner of Record of
 
Real Property:
Energy One LLC

 
 
Section 7.13                       Exculpation Provisions.  Each of the parties
hereto specifically agrees that it has a duty to read this Mortgage; and agrees
that it is charged with notice and knowledge of the terms of this Mortgage; that
it has in fact read this Mortgage and is fully informed and has full notice and
knowledge of the terms, conditions and effects of this Mortgage; that it has
been represented by independent legal counsel of its choice throughout the
negotiations preceding its execution of this Mortgage; and has received the
advice of its attorney in entering into this Mortgage; and that it recognizes
that certain of the terms of this Mortgage result in one party assuming the
liability inherent in some aspects of the transaction and relieving the other
party of its responsibility for such liability.  Each party hereto agrees and
covenants that it will not contest the validity or enforceability of any
exculpatory provision of this Mortgage on the basis that the party had no notice
or knowledge of such provision or that the provision is not “conspicuous.”
 
 
 
 
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Section 7.14                       References.  The words “herein,” “hereof,”
“hereunder” and other words of similar import when used in this Mortgage refer
to this Mortgage as a whole, and not to any particular article, section or
subsection.  Any reference herein to a Section shall be deemed to refer to the
applicable Section of this Mortgage unless otherwise stated herein.  Any
reference herein to an exhibit or schedule shall be deemed to refer to the
applicable exhibit or schedule attached hereto unless otherwise stated herein.
 
Section 7.15                       Swap Agreements.
 
(a) Only Lender Counterparties Secured. Subject to Section 7.15(b), the benefit
of the provisions of this Mortgage relating to collateral securing Indebtedness
attributable to Swap Agreements shall extend to the benefit of a Lender while
such Person is a Lender, but only while such Person or its Affiliate is a
Lender, regardless of whether such Swap Agreement between such Persons was in
existence prior to the Effective Date of this Mortgage.
 
(b) Lien Not Extinguished by Termination.  If Swap Agreements remain outstanding
among the Mortgagor or any Guarantor and any Lender or Affiliate when the
Indebtedness under the Credit Agreement has been Paid In Full In Cash then the
Liens created by this Mortgage shall not be terminated, such Lender or Affiliate
being entitled to all of the benefits of this Mortgage until all Swap Agreements
between the Mortgage and such Lender are Paid In Full In Cash.
 
ARTICLE VIII
 
STATE SPECIFIC PROVISIONS
 
Section 8.01                       State Specific Provisions Generally.  The
state specific provisions detailed in this Article VIII apply to (1) Mortgaged
Property located in that state or commonwealth and (2) UCC Collateral subject to
the applicable law of that state or commonwealth.
 
Section 8.02                       Special Louisiana Provisions.
 
(a) Maximum Amount.  Notwithstanding any provision hereof to the contrary, the
maximum principal amount of the indebtedness that may be outstanding at any time
and from time to time that this Mortgage secures is fixed at Seventy-Five
Million and No/100 United States Dollars (US $75,000,000).
 
(b) Executory Process.  Cumulative of the provisions provided in Section 5.02 of
this Mortgage, the Mortgagee may foreclose this Mortgage by executory 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 Mortgaged Properties.
 
(c) Keeper.  The Mortgagee shall have the right to appoint a keeper of the
Mortgaged Property pursuant to the terms and provisions of La. R.S. 9:5131 et
seq. and 9:5136 et seq.
 
(d) Confession of Judgment.  For purposes of executory process the Mortgagor
acknowledges the Secured Obligations, whether now existing or to arise
hereafter, and confesses judgment thereon if not paid when due.  Upon the
occurrence of an Event of
 
 
 
 
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Default and any time thereafter so long as the same shall be continuing, and in
addition to all other rights and remedies granted the Mortgagee hereunder, it
shall be lawful for and the Mortgagor hereby authorizes the Mortgagee without
making a demand or putting the Mortgagor in default, a putting in default being
expressly waived, to cause all and singular the Mortgaged Property to be seized
and sold after due process of law, the Mortgagor waiving the benefit of any and
all laws or parts of laws relative to appraisement of Mortgaged Property seized
and sold under executory process or other legal process, and consenting that the
Mortgaged Property be sold without appraisement, either in its entirety or in
lots or parcels, as the Mortgagee may determine, to the highest bidder for cash
or on such other terms as the plaintiff in such proceedings may direct.  The
Mortgagee shall be granted all rights and remedies granted it hereunder as well
as all rights and remedies granted to Agent under Louisiana law including the
Uniform Commercial Code then in effect in Louisiana.
 
(e) Waivers.  The 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 by articles 2293 and 2721 of the Louisiana
Code of Civil Procedure; and
 
(iv) The three (3) days delay provided for in articles 2331 and 2722 of the
Louisiana Code of Civil Procedure.
 
(f) Notary Public.  The parties relieve and release the undersigned notary
public of any duty to produce and attach mortgage or conveyance certificates.
 
(g) No Paraph.  The Mortgagor acknowledges that no promissory note or other
instrument has been presented to the undersigned Notary Public(s) to be paraphed
for identification herewith.
 
Section 8.03                       Special North Dakota Provisions.
 
(a) Future Advances.  Future obligations are secured by this Mortgage even
though all or part may not yet be matured. Nothing in this Mortgage, however,
shall constitute a commitment to enter into any additional or future
transaction.  Any such commitment would require a separate writing.
 
(b) Collateral Real Estate Mortgage.  THE PARTIES AGREE THAT THIS MORTGAGE
CONSTITUTES A COLLATERAL REAL ESTATE MORTGAGE PURSUANT TO NORTH DAKOTA CENTURY
CODE CHAPTER 35-03.
 
 [SIGNATURES BEGIN NEXT PAGE]
 
 
 
 
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Thus Done and Passed on this 30th day of July, 2010 to be effective as of the
30th day of July, 2010 (the “Effective Date”), before the undersigned Notary
Public and competent witnesses.
 

ENERGY ONE LLC

    /s/ Mark J. Larsen                                      
Name:  Mark J. Larsen
Title:    Manager
WITNESSES:

   /s/  Steven R. Youngbauer                           
Printed Name:

  /s/  Michelle Henry                                       
Printed Name:

           Hollie De Watterson                    
Notary Public

Notarial No. __N/A______________

SEAL:

NORTH DAKOTA AND TEXAS

STATE OF WYOMING
§
 
§
COUNTY OF FREMONT
§

This instrument was acknowledged before me on July  , 2010 by Mark J. Larsen,
Manager of Energy One LLC, a Wyoming limited liability company, on behalf of
said limited liability company.

    /s/  Hollie De Watterson                       
Notary Public

Seal
 
 
 
 
 
 

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