Exhibit 10.31

 

WHEN RECORDED, THIS INSTRUMENT SHOULD BE RETURNED TO:

 

David G. Stolfa

3300 South Columbine Circle

Englewood, CO 80113

 

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR
STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED
FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S
LICENSE NUMBER.

 

DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF PRODUCTION AND PROCEEDS,

FINANCING STATEMENT AND FIXTURE FILING

FROM REDWOOD ENERGY PRODUCTION, L.P.

TO MICHAEL M. LOGAN, AS TRUSTEE, AND

BANK OF OKLAHOMA, NATIONAL ASSOCIATION

 

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.

THIS INSTRUMENT COVERS AS-EXTRACTED COLLATERAL.

 

THE OIL AND GAS INTERESTS INCLUDED IN THE PROPERTY COVERED HEREBY WILL BE
FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN,
OR THE DESCRIPTION OF WHICH IS INCORPORATED IN, EXHIBIT “A” ATTACHED HERETO AND
MADE A PART HEREOF, AND THIS FINANCING STATEMENT IS TO BE FILED OR FILED FOR
RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS PURSUANT TO APPLICABLE
LAW.

 

THOSE PORTIONS OF THE COLLATERAL WHICH ARE MINERALS OR OTHER SUBSTANCES OF VALUE
WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING, WITHOUT LIMITATION, OIL AND
GAS), AND THE ACCOUNTS RELATING THERETO, WILL BE FINANCED AT THE WELLHEADS OF
THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN, OR THE DESCRIPTION OF WHICH IS
INCORPORATED IN, EXHIBIT “A”.  MORTGAGOR HAS AN INTEREST IN SUCH EXTRACTED
MINERALS AND OTHER SUBSTANCES OF VALUE BEFORE EXTRACTION.

 

SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE COLLATERAL IS OR IS
TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN, OR THE DESCRIPTION OF WHICH IS
INCORPORATED IN, EXHIBIT “A”. MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL
ESTATE CONCERNED, WHICH IS DESCRIBED IN, OR THE DESCRIPTION OF WHICH IS
INCORPORATED IN, EXHIBIT “A”.

 

A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT.  A POWER OF SALE MAY ALLOW
THE TRUSTEE OR THE MORTGAGEE TO TAKE THE COLLATERAL AND SELL IT WITHOUT GOING TO
COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR HEREUNDER.

 

MORTGAGOR HEREBY AUTHORIZES BOK TO FILE ONE OR MORE FINANCING STATEMENTS
COVERING ALL PERSONAL PROPERTY OF MORTGAGOR.

 

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DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF PRODUCTION AND PROCEEDS,

FINANCING STATEMENT AND FIXTURE FILING

 

THIS DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND
PROCEEDS, FINANCING STATEMENT AND FIXTURE FILING (this “Instrument”), dated as
of December 31, 2008, is from REDWOOD ENERGY PRODUCTION, L.P., a Texas limited
partnership (“Mortgagor”), with an address at One Maritime Plaza, Suite 700, San
Francisco, California 94111, to MICHAEL M. LOGAN, as trustee, with an address at
1675 Broadway, Suite 1650, Denver, Colorado 80202 (“Trustee”), and to BANK OF
OKLAHOMA, NATIONAL ASSOCIATION, a national banking association (“BOK”), with an
address at 1675 Broadway, Suite 1650, Denver, Colorado 80202.

 

Pursuant to the terms of an Amended and Restated Term Loan Agreement dated as of
December 31, 2008, as the same may hereafter be amended, modified, extended or
amended and restated from time to time (the “Term Loan Agreement”), BOK is to
make an amortizing term loan (the “Loan”) to Madisonville Midstream LLC
(“Borrower”).  The Loan is being guaranteed by Mortgagor.

 

All of the property described under 1 through 8 below is herein collectively
called the “Collateral”:

 

1.          All of the present right, title and interest of Mortgagor and any
and all additional interests hereafter acquired by Mortgagor (all of the
foregoing being herein collectively called the “Interests”), including without
limitation the Working Interests defined on Exhibit “A” attached hereto and Net
Revenue Interests defined on Exhibit “A” attached hereto: (a) in and to all of
the fee estates, surface estates, easements, rights-of-way, mineral estates,
leasehold estates, oil and gas leases, oil, gas and mineral leases, licenses,
subleases and sublicenses described or referred to in Exhibit “A” attached
hereto and made a part hereof or covering or relating to all or any part of the
land described in Exhibit “A” or the description of which is incorporated in
Exhibit “A”, and (b) in and to any other interests covering or relating to all
or any part of the land described in Exhibit “A” or the description of which is
incorporated in Exhibit “A” (the “Land”);

 

2.          All of the oil, gas, casinghead gas, coalbed methane and other
hydrocarbons, whether solid, liquid or gaseous, and all other associated or
related substances (“Hydrocarbons”) owned by Mortgagor and attributable to any
of the Interests, including without limitation all of the severed and extracted
Hydrocarbons owned by Mortgagor and any and all “as-extracted collateral” (as
defined in the applicable version of the Uniform Commercial Code);

 

3.          All of the items incorporated as part of or attributed or affixed to
any of the real property included in the Interests;

 

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4.           All wells, platforms, derricks, casing, tubing, tanks, tank
batteries, separators, dehydrators, compressors, rods, pumps, flow lines, water
lines, gas lines, machinery, pipelines, power lines and other goods and
equipment, and all other personal property and fixtures, now or hereafter owned,
leased or used by Mortgagor and attributable to any of the Interests, including
without limitation any and all such items which are used or purchased for the
production, treatment, storage, transportation, manufacture or sale of
Hydrocarbons and any and all such items described on Exhibit “A”;

 

5.           All of the inventory, accounts, contract rights, chattel paper,
payment intangibles, promissory notes, supporting obligations and general
intangibles of Mortgagor, whether heretofore or hereafter arising, in connection
with the Interests and any other contract or agreement relating to the
exploration for Hydrocarbons, the operation of any property for the production
of Hydrocarbons or the treatment, storage, transportation, gathering, handling,
processing, manufacture, sale or marketing of Hydrocarbons, including without
limitation any of the foregoing described on Exhibit “A” and any and all
operating, pooling, commodity hedge, swap, exchange, forward, futures, floor,
collar or cap agreements entered into by or on behalf of Mortgagor or to which
Mortgagor is a party or has rights;

 

6.           All logs, maps, geologic data, seismic data, gravitational data,
magnetic data, other geophysical data, geochemical data, engineering data,
formation tests, core samples, drilling reports, division orders, transfer
orders, title opinions, reserve reports, lease files, well files and other
information, data and records, whether in paper, electronic or any other form,
and related computer hardware and software relating to or used in connection
with any of the Interests, to the extent that Mortgagor has the right to grant a
mortgage and security interest therein;

 

7.           All of the rights, privileges, benefits, hereditaments and
appurtenances in any way belonging, incidental or appertaining to any of the
property described under Paragraphs 1 through 6 above; and

 

8.           All of the proceeds and products of the property described under
Paragraphs l through 7 above, including without limitation condemnation awards
and the proceeds of any and all title insurance policies and other insurance
policies covering all or any part of said property and, to the extent they may
constitute proceeds, instruments, accounts, chattel paper, payment intangibles,
promissory notes, supporting obligations, securities, general intangibles and
contract rights.

 

IN CONSIDERATION of ten dollars ($10.00) in hand paid to Mortgagor, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Mortgagor hereby:

 

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A.         Grants, bargains, sells, assigns, transfers, pledges, mortgages and
conveys the Collateral to Trustee, WITH POWER OF SALE pursuant to this
Instrument and applicable law, for the benefit of BOK, but subject to the rights
of BOK under the assignment made in paragraph C below;

 

B.          Grants, bargains, sells, assigns, transfers, pledges, mortgages and
grants a security interest in the Collateral to BOK, WITH POWER OF SALE pursuant
to this Instrument and applicable law;

 

TO HAVE AND TO HOLD the Collateral to BOK and its successors and assigns
forever, and TO HAVE AND TO HOLD the Collateral to Trustee and his successors
and assigns forever, IN TRUST, subject to all of the terms, conditions,
covenants and agreements herein set forth, for the security and benefit of BOK;
and

 

C.          Assigns to BOK all of the severed and extracted Hydrocarbons
produced from or attributed to any of the Collateral, together with all amounts
that become payable to Mortgagor with respect to any of the Collateral, whether
now owned or hereafter acquired, and all of the proceeds thereof.

 

AND in furtherance thereof Mortgagor warrants, represents, covenants and agrees
as follows:

 

ARTICLE I

 

Obligations

 

Section 1.1             This Instrument is executed, acknowledged and delivered
by Mortgagor to secure and enforce the following obligations (herein called the
“Obligations”):

 

A.         Payment of and performance of all obligations of Borrower under or in
connection with the Promissory Note dated December 31, 2008, as the same may be
amended, renewed, extended or substituted for (the “Note”), made by Borrower in
the face amount of $6,697,847.18, payable to the order of BOK on or before
December 31, 2011 (or such earlier date as may be specified in the Term Loan
Agreement), with interest at the rates specified in the Term Loan Agreement;

 

B.          All indebtedness, liabilities and obligations of Borrower or
Mortgagor to BOK, of every kind and character, now existing or hereafter
arising, pursuant to the Term Loan Agreement;

 

C.          All other indebtedness, liabilities and obligations of Borrower or
Mortgagor to BOK, of every kind and character, now existing or hereafter
arising, whether direct or indirect, primary or secondary, joint, several or
joint and several (including, without limitation, Mortgagor’s guaranty of the
Note and the Loan, any and all obligations of Borrower or Mortgagor to BOK for
fees,

 

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costs and expenses pursuant to or in connection with any loan agreements now or
hereafter in force and any hedging obligations that Borrower or Mortgagor may
hereafter incur to BOK), it being contemplated that Borrower or Mortgagor may
hereafter become indebted to BOK in such further sums;

 

D.          Payment of all sums advanced and costs and expenses incurred by BOK
(whether directly or indirectly or on its behalf by Trustee and including
without limitation all reasonable legal fees) in connection with the Obligations
or any part thereof, any renewal, extension or change of or substitution for the
Obligations or any part thereof, or the acquisition or perfection of the
security therefor, whether such advances, costs and expenses were made or
incurred at the request of Mortgagor, Trustee or BOK;

 

E.          Payment of all other indebtedness and liabilities and performance of
all other obligations of Mortgagor to BOK arising pursuant to this Instrument or
in connection with this Instrument; and

 

F.          All renewals, extensions, amendments and changes of, or
substitutions or replacements for, all or any part of the items described under
A through E above; provided that such renewals, extensions, amendments, changes
of, or substitutions or replacements for, all or any part of the foregoing:

 

(1)     shall not together in unpaid principal amount aggregate more than
$20,000,000 at any time, which amount contemplates all futures advances;

 

(2)     shall have been made on or before December 31, 2011; and

 

(3)     shall completely mature prior to December 31, 2013.

 

Section 1.2             The maximum amount of the Obligations that may be
outstanding at any time or from time to time that shall be secured by this
Instrument, including as a mortgage or as a pledge or assignment of
Hydrocarbons, is $20,000,000.

 

ARTICLE II

 

Warranties, Representations and Covenants

 

Section 2.1             Mortgagor warrants, represents and covenants to and with
BOK that: (a) Mortgagor has the right to receive at all times the “Net Revenue
Interest” specified in Exhibit “A” of all Hydrocarbons produced from the wells
located on the Collateral; (b) Mortgagor’s share of development and operating
costs with respect to any of the wells or properties included in the Collateral
is no greater than the “Working Interest” specified in Exhibit “A” for that

 

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well or property (unless Mortgagor’s right to receive production proceeds from
such well or property has been increased by a proportionate amount over the
applicable “Net Revenue Interest” specified for such well or property in
Exhibit “A”); (c) Mortgagor is the lawful owner of good and defensible title to
the Collateral, free and clear of all liens, security interests, encumbrances
and burdens, except liens, security interests and other matters permitted by the
terms of the Term Loan Agreement; (d) each loan, the payment of which
constitutes an Obligation hereunder, is or shall be for a business or commercial
purpose; and (e) so long as any or all parts of the Obligations remain unpaid or
unsatisfied, Mortgagor will defend the title to the Collateral against the
claims of all persons whomsoever claiming or to claim the same or any part
thereof.

 

Section 2.2             Mortgagor covenants that, so long as any part of the
Obligations remains unpaid or unsatisfied, unless BOK shall have otherwise
consented in writing:

 

A.         Mortgagor shall promptly and, insofar as not contrary to applicable
law, at Mortgagor’s own expense, file and refile in such offices, at such times
and as often as may be necessary, this Instrument and every other instrument in
addition or supplemental hereto, including applicable financing statements, as
may be necessary to create, perfect, maintain and preserve the lien, encumbrance
and security interest intended to be created hereby and the rights and remedies
of BOK and Trustee hereunder;

 

B.          Mortgagor shall execute, acknowledge and deliver to BOK and/or
Trustee such other and further instruments and do such other acts as in the
reasonable opinion of BOK may be necessary or desirable to more fully identify
and subject to the lien, encumbrance and security interest and assignment
created hereby any property intended by the terms hereof to be covered hereby,
to assure the first priority thereof, and otherwise to effect the intent of this
Instrument, promptly upon request of BOK and at Mortgagor’s expense; and

 

C.          If the title, interest, lien or encumbrance, as the case may be, of
Mortgagor, BOK or Trustee to the Collateral or any part thereof, or the security
of this Instrument, or the rights or powers of BOK or Trustee hereunder, shall
be attacked, either directly or indirectly, or if any legal proceedings are
commenced involving Mortgagor or the Collateral, Mortgagor shall promptly give
written notice thereof to BOK and at Mortgagor’s own expense shall take all
reasonable steps diligently to defend against any such attack or proceedings;
and BOK and/or Trustee may take such independent action in connection therewith
as it may in its discretion deem advisable, and all costs and expenses,

 

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including, without limitation, reasonable attorneys’ fees and legal expenses,
incurred by BOK or Trustee in connection therewith shall be a demand obligation
owing by Mortgagor to BOK, shall bear interest at the rate provided in the Note,
and shall be a part of the Obligations.

 

ARTICLE III

 

Collection of Proceeds of Production

 

Section 3.1             Pursuant to the assignment made by Mortgagor in
paragraph C of the granting clause of this Instrument, BOK is entitled to
receive all of the severed and extracted Hydrocarbons produced from or
attributed to all of the Interests, together with all of the proceeds thereof.
Mortgagor acknowledges and agrees that said assignment is intended to be an
absolute and unconditional assignment and not merely a pledge of or creation of
a security interest therein or assignment as additional security.  Mortgagor
hereby authorizes and directs all parties producing, purchasing, receiving or
having in their possession any such Hydrocarbons or proceeds to treat and regard
BOK as the party entitled, in Mortgagor’s place and stead, to receive such
Hydrocarbons and proceeds; and said parties shall be fully protected in so
treating and regarding BOK and shall be under no obligation to see to the
application by BOK of any such proceeds received by it.  Notwithstanding the
foregoing, so long as there is no Event of Default (as defined in Section 5.1
below), Mortgagor shall continue to receive all the severed and extracted
Hydrocarbons produced or attributed to all of the Interests, together with all
of the proceeds thereof.

 

Section 3.2             All of the proceeds received by BOK pursuant to
Section 3.1 shall be applied by BOK in accordance with the terms of the Term
Loan Agreement and Section 5.10 below.

 

Section 3.3             Upon any sale of any of the Collateral by or for the
benefit of BOK pursuant to Article V, the Hydrocarbons thereafter produced from
or attributed to the part of the Collateral so sold, and the proceeds thereof,
shall be included in such sale and shall pass to the purchaser free and clear of
the provisions of this Article.

 

Section 3.4             BOK is hereby absolved from all liability for failure to
enforce collection of any such Hydrocarbons or proceeds and from all other
responsibility in connection therewith, except the responsibility to account to
Mortgagor for proceeds actually received.

 

Section 3.5             Mortgagor shall indemnify BOK against all claims,
actions, liabilities, judgments, costs,

 

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reasonable attorneys’ fees and other charges of whatsoever kind or nature
(herein called “Claims”) made against or incurred by BOK as a consequence of the
assertion, either before or after the payment in full of the Obligations, that
BOK received Hydrocarbons or proceeds pursuant to this Article which were
claimed by or due to third persons.  BOK shall have the right to employ
attorneys and to defend against any Claims, and unless furnished with reasonable
indemnity, BOK shall have the right to pay or compromise and adjust all Claims.
Mortgagor shall indemnify and pay to BOK all such amounts as may be paid in
respect thereof or as may be successfully adjudicated against BOK.  The
liabilities of Mortgagor as set forth in this Section shall survive the
termination of this Instrument.

 

Section 3.6             Nothing in this Instrument shall be deemed or construed
to create a delegation to or assumption by BOK of the duties and obligations of
Mortgagor under any agreement or contract relating to the Collateral or any
portion thereof, and all of the parties to any such contract shall continue to
look to Mortgagor for performance of all covenants and other obligations and the
satisfaction of all representations and warranties of Mortgagor thereunder,
notwithstanding the assignment of production and proceeds herein made or the
exercise by BOK, prior to foreclosure, of any of its rights hereunder or under
applicable law.

 

ARTICLE IV

 

Termination

 

If all of the Obligations of Mortgagor shall be paid or performed in full
pursuant to the terms and conditions of this Instrument and the instruments
evidencing the Obligations and if BOK has no further obligation to make advances
to Mortgagor, then BOK shall, promptly after the request of Mortgagor, execute,
acknowledge and deliver to Mortgagor proper instruments evidencing the
termination of this Instrument.  Mortgagor shall pay all reasonable legal fees
and other expenses incurred by BOK for preparing and reviewing such instruments
of termination and the execution and delivery thereof, and BOK may require
payment of the same prior to delivery of such instruments.  Otherwise, this
Instrument shall remain and continue in full force and effect.

 

ARTICLE V

 

Default

 

Section 5.1             The occurrence of any “Event of Default” (as described
in the Term Loan Agreement), including without limitation the expiration of any
applicable grace

 

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period (an “Event of Default”), shall, automatically (as described in the Term
Loan Agreement), or at the option of BOK, make all amounts then remaining unpaid
on the Obligations immediately due and payable, and the liens, encumbrances and
security interests evidenced or created hereby shall be subject to foreclosure
in any manner provided for herein or provided for by law.

 

Section 5.2             Upon the occurrence and during the continuance of any
Event of Default, BOK and/or Trustee may elect to treat the fixtures included in
the Collateral as real property, as personal property, or, if so permitted by
applicable law, as both, and proceed to exercise such rights as apply to the
type or types of property selected.

 

Section 5.3             Upon the occurrence and during the continuance of any
Event of Default, in addition to all other rights and remedies herein conferred,
BOK and/or Trustee shall have all of the rights and remedies of a mortgagee and
trustee under a deed of trust or a mortgage with respect to all of the
Collateral.  This Instrument shall be effective as a mortgage as well as a deed
of trust and, upon the occurrence of an Event of Default, may be foreclosed as
to any of the Collateral in any manner permitted by applicable law, and any
foreclosure suit may be brought by Trustee or BOK; and to the extent, if any,
required to cause this Instrument to be so effective as a mortgage and security
agreement as well as a deed of trust, Mortgagor hereby grants and mortgages and
grants a security interest in the Collateral to BOK upon the terms set forth in
this Instrument.  The provisions set forth in this Section 5.3 shall not in any
way limit any other provision of this Instrument.  BOK and/or Trustee shall, to
the extent permitted by applicable law, have the right and power, but not the
obligation, to enter upon and take immediate possession of the real property
included in the Collateral or any part thereof, to exclude Mortgagor therefrom,
to hold, use, operate, manage and control such real property, to make all such
repairs, replacements, alterations, additions and improvements to the same as
BOK and/or Trustee may deem proper, to sell all of the severed and extracted
Hydrocarbons included in the same subject to the provisions of Article III, to
demand, collect and retain all other earnings, proceeds and other sums due or to
become due with respect to such real property, accounting for and applying to
the payment of the Obligations only the net earnings arising therefrom after
charging against the receipts therefrom all costs, expenses, charges, damages
and losses incurred by reason thereof plus interest thereon at an annual rate
which equals the default rate of interest payable on overdue principal, as
described in the Term Loan Agreement, as fully and effectually as if BOK and/or
Trustee were the absolute owner of such real property and without any liability
to Mortgagor in connection therewith.

 

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Section 5.4             Upon the occurrence and during the continuance of any
Event of Default, BOK and/or Trustee, in lieu of or in addition to exercising
any other power, right or remedy herein granted or by law or equity conferred,
may proceed by an action or actions in equity or at law for the seizure and sale
of the real property included in the Collateral or any part thereof, for the
specific performance of any covenant or agreement herein contained or in aid of
the execution of any power, right or remedy herein granted or by law or equity
conferred, for the foreclosure or sale of such real property or any part thereof
under the judgment or decree of any court of competent jurisdiction, for the
appointment of a receiver pending any foreclosure hereunder or the sale of such
real property or any part thereof or for the enforcement of any other
appropriate equitable or legal remedy.

 

Section 5.5             Upon the occurrence and during the continuance of any
Event of Default, in addition to all other powers, rights and remedies herein
granted or by law or equity conferred, BOK shall have all of the rights and
remedies of an assignee and secured party granted by applicable law, including
the Uniform Commercial Code, and shall, to the extent permitted by applicable
law, have the right and power, but not the obligation, to take possession of the
personal property included in the Collateral, and for that purpose BOK may enter
upon any premises on which any or all of such personal property is located and
take possession of and operate such personal property or remove the same
therefrom.  BOK may require Mortgagor to assemble such personal property and
make it available to BOK at a place to be designated by BOK which is reasonably
convenient to both parties.  The following presumptions shall exist and shall be
deemed conclusive with regard to the exercise by BOK of any of its remedies with
respect to personal property:

 

Upon the occurrence and during the continuance of an Event of Default, Trustee,
its successor or substitute, is authorized and empowered and it shall be its
special duty at the request of BOK to sell the Collateral or any part thereof
situated in the State of Texas at the courthouse of any county in the State of
Texas or such other location as provided by applicable law in which the
Collateral is situated, at public venue to the highest bidder for cash between
the hours of 10 o’clock a.m. and 4 o’clock p.m. on the first Tuesday in any
month after having given notice of such sale in accordance with the statutes of
the State of Texas then in force governing sales of real estate under powers
conferred by deeds of trust.

 

Section 5.6             Upon the occurrence and during the continuance of any
Event of Default, BOK and/or Trustee may, with respect to all or any portion of
the Collateral, subject

 

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to any mandatory requirements of applicable law, sell or have sold the real
property or interests therein included in the Collateral or any part thereof at
one or more sales, as an entirety or in parcels, at such place or places and
otherwise in such manner and upon such notice as may be required by law or by
this Instrument, or, in the absence of any such requirement, as BOK and/or
Trustee may deem appropriate.  BOK and/or Trustee may postpone the sale of such
real property or interests therein or any part thereof by public announcement at
the time and place of such sale, and from time to time thereafter may further
postpone such sale by public announcement made at the time of sale fixed by the
preceding postponement.  Sale of a part of such real property or interests
therein or any defective or irregular sale hereunder will not exhaust the power
of sale, and sales may be made from time to time until all such property is sold
without defect or irregularity or the Obligations are paid in full.  BOK and/or
Trustee shall have the right to appoint one or more attorneys-in-fact to act in
conducting the foreclosure sale and executing a deed to the purchaser.  It shall
not be necessary for any of the Collateral at any such sale to be physically
present or constructively in the possession of BOK and/or Trustee.

 

Section 5.7             BOK or any other person owning, directly or indirectly,
any interest in any of the Obligations shall have the right to become the
purchaser at any sale made pursuant to the provisions of this Article V and
shall have the right to credit upon the amount of the bid made therefor the
amount payable to it under or in connection with the Obligations.  Recitals
contained in any conveyance to any purchaser at any sale made hereunder will
conclusively establish the truth and accuracy of the matters therein stated,
including without limitation nonpayment of the Obligations and advertisement and
conduct of such sale in the manner provided herein or provided by law. 
Mortgagor hereby ratifies and confirms all legal acts that BOK and/or Trustee
may do in carrying out the provisions of this Instrument.

 

Section 5.8             Effective upon the occurrence and during the continuance
of any Event of Default, Mortgagor hereby waives and relinquishes, to the
maximum extent permitted by law, and subject to any mandatory requirements of
applicable law, Mortgagor hereby agrees that Mortgagor shall not at any time
hereafter have or assert, any right under any law pertaining to: marshalling,
whether of assets or liens, the sale of property in the inverse order of
alienation, the exemption of homesteads, the administration of estates of
decedents, appraisement, valuation, stay, extension, redemption, subrogation, or
abatement, suspension, deferment, diminution or reduction of any of the
Obligations (including, without limitation, setoff), now or hereafter in force. 
Mortgagor expressly agrees that BOK and/or Trustee

 

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may offer the Collateral as a whole or in such parcels or lots as BOK and/or
Trustee, in its sole discretion elects, regardless of the manner in which the
Collateral may be described.

 

Section 5.9             All costs and expenses (including reasonable attorneys’
fees, legal expenses, filing fees, and mortgage, transfer, stamp and other
excise taxes) incurred by BOK and/or Trustee in perfecting, protecting and
enforcing its rights hereunder, whether or not an Event of Default shall have
occurred, shall be a demand obligation of Mortgagor to BOK and shall bear
interest at the rate provided in the Note, all of which shall be part of the
Obligations.

 

Section 5.10           The proceeds of any sale of the Collateral or any part
thereof made pursuant to this Article V shall be applied as follows:

 

A.            First, to the payment of all costs and expenses incident to the
enforcement of this Instrument, including, without limitation, a reasonable
compensation to the agents, attorneys and counsel of BOK and/or Trustee;

 

B.            Second, to the payment or prepayment of the Obligations, in such
order as BOK shall elect; and

 

C.            Third, the remainder, if any, shall be paid to Mortgagor or such
other person or persons as may be entitled thereto by law.

 

Section 5.11           Upon any sale made under the powers of sale herein
granted and conferred, the receipt of BOK and/or Trustee will be sufficient
discharge to the purchaser or purchasers at any sale for the purchase money, and
such purchaser or purchasers and the heirs, devisees, personal representatives,
successors and assigns thereof will not, after paying such purchase money and
receiving such receipt of BOK and/or Trustee, be obligated to see to the
application thereof or be in any way answerable for any loss, misapplication or
non-application thereof.

 

ARTICLE VI

 

Trustee

 

Section 6.1             Trustee may resign in writing addressed to BOK or be
removed at any time with or without cause by an instrument in writing duly
executed by BOK.  In case of the death, resignation or removal of Trustee, a
successor Trustee may be appointed by BOK without other formality than an
appointment and designation in writing unless otherwise required by applicable
law.  Such appointment and designation will be full evidence of the

 

11

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right and authority to make the same and of all facts therein recited, and upon
the making of any such appointment and designation, this Instrument will vest in
the named successor trustee all the right, title and interest of Trustee in all
of the Collateral, and said successor will thereupon succeed to all the rights,
powers, privileges, immunities and duties hereby conferred upon Trustee.  All
references herein to Trustee will be deemed to refer to the trustee from time to
time acting hereunder.

 

Section 6.2             BOK shall indemnify Trustee against all claims, actions,
liabilities, judgments, costs, attorneys’ fees or other charges of whatsoever
kind or nature made against or incurred by Trustee, and arising out of the
performance by Trustee of the duties of Trustee hereunder.

 

ARTICLE VII

 

Miscellaneous Provisions

 

Section 7.1             Each and every right, power and remedy hereby granted to
BOK and/or Trustee shall be cumulative and not exclusive, and each and every
right, power and remedy whether specifically hereby granted or otherwise
existing may be exercised from time to time and as often and in such order as
may be deemed expedient by BOK and/or Trustee, and the exercise of any such
right, power or remedy will not be deemed a waiver of the right to exercise, at
the same time or thereafter, any other right, power or remedy. All changes to
and modifications of this Instrument must be in writing and signed by Mortgagor
and BOK.

 

Section 7.2             If any provision hereof or of any of the other documents
constituting, evidencing or creating all or any part of the Obligations is
invalid or unenforceable in any jurisdiction, the other provisions hereof or of
said documents shall remain in full force and effect in such jurisdiction and
the remaining provisions hereof will be liberally construed in favor of BOK and
Trustee in order to carry out the provisions hereof and of such other documents.
The invalidity of any provision of this Instrument in any jurisdiction will not
affect the validity or enforceability of any such provision in any other
jurisdiction.

 

Section 7.3             This Instrument will be deemed to be and may be enforced
from time to time as a contract, financing statement, real estate mortgage, or
security agreement, and from time to time as any one or more thereof, as is
appropriate under applicable state law.  A carbon, photographic or other
reproduction of this Instrument or any financing statement in connection
herewith shall be sufficient as a financing statement for any and all purposes.

 

12

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Section 7.4             Notwithstanding anything to the contrary contained
herein, no rate of interest required hereunder or under the Obligations shall
exceed the maximum legal rate under applicable law, and, in the event any such
rate is found to exceed such maximum legal rate, Mortgagor shall be required to
pay only such maximum legal rate.

 

Section 7.5             Insofar as permitted by otherwise applicable law, this
Instrument and the Obligations shall be construed under and governed by the laws
of the State of Colorado (excluding choice-of-law and conflict-of-law rules);
provided, however, that, with respect to any portion of the Collateral located
outside of the State of Colorado, the laws of the place in which such property
is located shall apply to the extent necessary to permit BOK and/or Trustee to
enforce or realize upon its rights and remedies hereunder with respect to such
property, and any such enforcement or realization proceedings shall be conducted
in compliance with the applicable laws of the state where the Collateral is
located.

 

Section 7.6             This instrument may be executed in any number of
counterparts, each of which will for all purposes be deemed to be an original,
and all of which are identical except that: (a) to facilitate recordation, in
particular counterparts hereof, portions of Exhibit “A” hereto which describe
properties situated in counties or parishes other than the county or parish in
which the counterpart is to be recorded have been omitted, and (b) to
accommodate different execution formalities for different states in which the
Collateral is located, the signature blocks and title pages in counterparts to
be filed in certain states may contain captions, witnesses, acceptances and
other formalities not included in other counterparts.  Each counterpart shall be
deemed to be an original for all purposes, and all counterparts shall together
constitute but one and the same instrument.

 

Section 7.7             Unless otherwise specified in Exhibit “A” hereto, all
recording references in Exhibit “A” hereto are to the official real property
records of the county in which the affected land is located.  The references in
Exhibit “A” hereto to liens, encumbrances and other burdens shall not be deemed
to recognize or create any rights in third parties.

 

Section 7.8             All deliveries and notices hereunder shall be deemed to
have been duly made or given if made or given in conformity with the provisions
of the Term Loan Agreement.

 

Section 7.9             This Instrument shall bind and inure to the benefit of
the respective successors and assigns of

 

13

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Mortgagor, BOK and Trustee, including, without limitation, any and all other
banks, lending institutions and parties which may participate in the
indebtedness evidenced by the Obligations or any of them.  Notwithstanding any
other provision contained herein, if any property interest granted by this
Instrument does not vest on the execution and delivery of this Instrument, it
shall vest, if at all, no later than 20 years after the execution and delivery
of this Instrument.  As used herein, the term “person” shall mean individual,
corporation, limited liability company, partnership, joint venture, agency or
other form of entity or association.

 

Section 7.10           Some of the above goods are or are to become fixtures on
the Land.  The above described minerals or other substances of value which may
be extracted from the earth (including without limitation oil and gas), and the
accounts relating thereto will be financed at the wellhead of the well or wells
located on the Land.  This Instrument is to be filed for record in, among other
places, the real estate records of each county in which the affected real estate
is located; to wit, all of those listed in Exhibit “A.” Mortgagor is the owner
of a record interest in a portion of the real estate concerned.  The mailing
address of Mortgagor and the address of BOK from which information concerning
the security interest may be obtained are as set forth above.

 

Section 7.11           BOK and/or Trustee shall be entitled to enforce payment
of any indebtedness and performance of any other of the Obligations secured
hereby and to exercise all rights and powers under this Instrument or under any
other instrument or other agreement or any laws now or hereafter in force,
notwithstanding the fact that some or all of said indebtedness and other
Obligations secured hereby may now or hereafter be otherwise secured, whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise.  Neither the
acceptance of this Instrument nor its enforcement, whether by court action or
pursuant to the power of sale or other powers herein contained shall prejudice
or in any manner affect BOK’s right to realize upon or enforce any other
security now or hereafter held by BOK, it being agreed that BOK shall be
entitled to enforce this Instrument and any other security now or hereafter held
by BOK in such order and manner as it may in its absolute discretion determine.

 

SECTION 7.12       STATUTE OF FRAUDS NOTICE.  THIS WRITTEN MORTGAGE AND THE
OTHER WRITTEN DOCUMENTS EXECUTED BY MORTGAGOR IN CONNECTION WITH THE LOAN
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO 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
HERETO.

 

14

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EXECUTED as of the date first above written.

 

 

REDWOOD ENERGY PRODUCTION, L.P.

 

By:

Redwood Energy Company,

 

 

its General Partner

 

 

 

 

 

By:

  /s/ Stuart J. Doshi

 

 

 

  Stuart J. Doshi,

 

 

 

  President and Chief Executive Officer

 

 

STATE OF TEXAS

)

 

)  ss.

COUNTY OF HARRIS

)

 

This instrument was acknowledged before me on December 31, 2008, by Stuart J.
Doshi, as the President and Chief Executive Officer of Redwood Energy Company, a
Texas corporation, the General Partner of REDWOOD ENERGY PRODUCTION, L.P., a
Texas limited partnership, on behalf of said limited partnership Given under my
hand and official seal.

 

 

 

 

/s/ Ann R. Razo

 

Ann R. Razo, Notary Public

 

(Name Printed)

 

(SEAL)                  My commission expires:                           , 20

 

15

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PREAMBLE TO

 

EXHIBIT “A”

 

1.                                       Well names, unit designations, unit
tract descriptions and descriptions of undivided leasehold interests, Net
Revenue Interests and Working Interests contained in Exhibit “A” shall not be
deemed to limit the interests covered hereby.

 

2.                                       Reference is made to the land
descriptions contained in the documents of title recorded as described in
Exhibit “A”.  To the extent that any of the land descriptions in Exhibit “A” is
incorrect or not legally sufficient, the land descriptions contained in the
leases or other documents recorded as described in Exhibit “A” are incorporated
herein by this reference.

 

3.                                       Unless provided otherwise, all
recording references in Exhibit “A” are to the official real property records of
the county or counties in which the Interests are located and in which records
such documents are or in the past have been customarily recorded, whether Deed
Records, Oil and Gas Records, oil and Gas Lease Records or other records.

 

A-i

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EXHIBIT A

 

MADISON COUNTY, TEXAS

 

As used herein, the “Rodessa/Sligo Interval” means the stratigraphic equivalent
of those sands, zones, and horizons occurring below the surface of the earth
encountered between the depths of 11,427 feet and 12,378 feet (electric log
measurements) in the Ruby Magness Well No. 1 located in the Amy Boatwright
Survey, A-7, Madison County, Texas.

 

As used herein and in the Instrument (which is defined in the underlying Deed of
Trust), “Working Interest” or “WI” means, with respect to a lease or a unit,
Mortgagor’s (as defined in the Instrument) undivided ownership, operating, and
expense-bearing interest (expressed as a percentage) of the costs of exploring,
drilling, and operating for, and producing Hydrocarbons (as defined in the
Instrument) from such lease or unit.

 

As used herein and in the Instrument, “Net Revenue Interest” or “NRI” means with
respect to a lease or a unit, Mortgagor’s share of Hydrocarbons (expressed as a
percentage) attributable to its Working Interest and produced from or
attributable to a unit or lease well after deducting all landowner royalties,
overriding royalties, nonparticipating royalties, production payments, and other
similar burdens or payments out of production.

 

Redwood Energy Production, L.P. — “Ruby Magness Gas Unit No. 1”

 

Those certain lands and leases located within the Ruby Magness Gas Unit No. 1
and described in the Third Amended Pooling Designation of the Redwood Energy
Production, L.P.-Ruby Magness Gas Unit No. 1 acknowledged February 22, 2005, and
recorded in Volume 780, Page 240, Official Records, Madison County, Texas. This
Instrument is intended to cover any and all interests of Mortgagor in and to
said lands and leases, but the representations and warranties of Mortgagor with
respect to the Working Interest and Net Revenue Interest set forth below shall
apply INSOFAR AND ONLY INSOFAR as said lands and leases in said Unit cover and
include the Rodessa/Sligo Interval.

 

WORKING INTEREST

 

100.000

%

NET REVENUE INTEREST

 

75.133294

%

 

Redwood Energy Production, L.P. — “Angela Fannin Gas Unit No. 1”

 

Those certain lands and leases located within the Angela Fannin Gas Unit No. 1
and described in the Amended Pooling Designation of the Redwood Energy
Production, L.P.-Angela Fannin Gas Unit No. 1 acknowledged November 7, 2005, and
recorded in Volume 780, Page 235, Official Records, Madison County, Texas. This
Instrument is intended to cover any and all interests of Mortgagor in and to
said lands and leases, but the representations and warranties of Mortgagor with
respect to the Working Interest and

 

A-1

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EXHIBIT A

 

MADISON COUNTY, TEXAS

 

Net Revenue Interest set forth below shall apply INSOFAR AND ONLY INSOFAR as
said lands and leases in said Unit cover and include the Rodessa/Sligo Interval.

 

WORKING INTEREST

 

100.000

%

NET REVENUE INTEREST

 

69.916167

%

 

Redwood Energy Production, L.P. — “Mitchell Gas Unit”

 

1.                                       Oil, Gas and Mineral Lease between W.H.
Scott, et ux, as lessor, and W.T. Barrett, as lessee, dated 8/12/1952, recorded
in Vol. 100, Pg. 438, Deed Records of Madison County, Texas.

 

2.                                       Oil, Gas and Mineral Lease between P.W.
Harper, et ux, as lessor, and W.T. Barrett, as lessee, dated 8/12/1952, recorded
in Vol. 100, Pg. 448, Deed Records of Madison County, Texas.

 

3.                                       Oil, Gas and Mineral Lease between
Helen Daily Susman, et al, as lessor, and W.T. Barrett, as lessee, dated
10/16/1952, recorded in Vol. 100, Pg. 443, Deed Records of Madison County,
Texas.

 

4.                                       Oil, Gas and Mineral Lease between
Ralph A. Johnston, et al, as lessor, and L.C. Oldham, Jr., as lessee, dated
2/16/1953, recorded in Vol. 103, Pg. 271, Deed Records of Madison County, Texas.

 

5.                                       Oil, Gas and Mineral Lease between
Ralph A. Johnston, et al, as lessor, and L.C. Oldham, Jr., as lessee, dated
2/16/1953, recorded in Vol. 103, Pg. 276, Deed Records of Madison County, Texas.

 

6.                                       Oil, Gas and Mineral Lease between
Virginia M. Robinson, as lessor, and W.T. Barrett, as lessee, dated 9/5/1953,
recorded in Vol. 100, Pg. 469, Deed Records of Madison County, Texas.

 

7.                                       Oil, Gas and Mineral Lease between J.P.
Sanders, et ux, as lessor, and W.T. Barrett, as lessee, dated 8/13/1952,
recorded in Vol. 100, Pg. 465, Deed Records of Madison County, Texas.

 

8.                                       Oil, Gas and Mineral Lease between
Lummie Morgan, et ux, as lessor, and W.T. Barrett, as lessee, dated 8/25/1952,
recorded in Vol. 100, Pg. 459, Deed Records of Madison County, Texas.

 

9.                                       Oil, Gas and Mineral Lease between
Grace Upchurch, et al, as lessor, and W.T. Barrett, as lessee, dated 8/12/1952,
recorded in Vol. 100, Pg. 454, Deed Records of Madison County, Texas.

 

A-2

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EXHIBIT A

 

MADISON COUNTY, TEXAS

 

This Instrument is intended to cover any and all interests of Mortgagor in and
to the above-described lands and leases, but the representations and warranties
of Mortgagor with respect to the Working Interests and Net Revenue Interests set
forth below shall apply INSOFAR AND ONLY INSOFAR as said lands and leases cover
and include the Rodessa/Sligo Interval.

 

WORKING INTEREST

 

100.000

%

NET REVENUE INTEREST

 

70.00

%

 

Redwood Energy Production, L.P. — “Wilson Well”

 

Oil, Gas and Mineral Lease between Lorene Wilson, et al, as lessor, and L.C.
Oldham, Jr., as lessee, dated 11/12/1953, recorded in Vol. 108, Pg. 105, Deed
Records of Madison County, Texas. This Instrument is intended to cover any and
all interests of Mortgagor in and to said lease and the lands covered thereby,
but the representations and warranties of Mortgagor with respect to the Working
Interest and Net Revenue Interest set forth below shall apply INSOFAR AND ONLY
INSOFAR as said lands and lease cover and include the Rodessa/Sligo Interval.

 

WORKING INTEREST

 

100.000

%

NET REVENUE INTEREST

 

70.00

%

 

Madisonville Net Profits Interest

 

Mortgagor’s Working Interest is subject to that certain Assignment of Net
Profits Interest, effective as of December 29, 2000, from Mortgagor to Panther
Rodessa, L.P. et al.

 

A-3

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