EXHIBIT
      10.7

     

    SUBORDINATED
      SECURITY AGREEMENT

     

    THIS
      SUBORDINATED SECURITY AGREEMENT is made as of January 3, 2008, by Forster
      Drilling Corporation, a Nevada corporation (“Borrower”),
      Forster Drilling, Inc., a Texas corporation, Forster Tool & Supply, Inc., a
      Nevada corporation, and Forster Exploration & Production, Inc., a Nevada
      corporation, each a wholly-owned subsidiary of Borrower (the “Subsidiaries”; and
      collectively with the Borrower, “Grantor”),
      in
      favor of Bank of the Ozarks (“Trustee”).

     

    WHEREAS,
      concurrently herewith, Grantor and Trustee have entered into that certain
      Indenture, of even date herewith (the “Indenture”).

     

    WHEREAS,
      the Subsidiaries shall derive substantial benefit and advantage from the
      financial accommodations to Borrower set forth in the Indenture, and it shall
      be
      to Subsidiaries direct interest and economic benefit to assist Borrower in
      processing such financial accommodation.

     

    WHEREAS,
      the Indenture requires that Grantor shall have executed and delivered to Trustee
      this Agreement to secure Borrower’s obligations to Trustee and the holders of
      the notes to be issued under the Indenture (individually, a “Note”
and,
      collectively, the “Notes”
in
      the
      manner set forth herein.

     

    WHEREAS,
      Borrower and Trustee, together with First Security Bank, Searcy, Arkansas have
      entered into an Intercreditor Agreement (the “Intercreditor
      Agreement”)
      of
      even date herewith and all provisions herein are subject to such
      agreement.

     

    WHEREAS,
      Grantor desires to secure Borrower’s obligations to Trustee and the holders of
      the Notes in the manner set forth herein.

     

    NOW,
      THEREFORE, in consideration of the Secured Obligations (as hereinafter defined)
      and other good and valuable consideration, the receipt and sufficiency of which
      are hereby acknowledged by Borrower, and to induce Trustee to enter into the
      Indenture and for the holders of the Notes to purchase the Notes, the parties
      hereto agree as follows:

     

    1. Definitions.
      Capitalized terms not otherwise defined herein which are defined in the
      Indenture shall have the meanings set forth therein or which are defined in
      the
      UCC shall have the meanings set forth therein. In addition to any other terms
      defined elsewhere in this Agreement, the following terms shall have the
      following meanings:

     

    “Accounts”
shall
      mean all accounts as that term is defined in the UCC related to the Tangible
      Collateral and all rights of Grantor now existing and hereafter acquired to
      payment for goods sold or leased or for services rendered which are not
      evidenced by an Instrument or Chattel Paper, that relate to the Tangible
      Collateral, whether or not earned by performance, together with (a) all security
      interests or other security held by or granted to Grantor to secure such rights
      to payment,
      (b) all other rights related thereto (including rights of stoppage in transit)
      and (c) all rights in any of such sold or leased goods which are returned or
      repossessed.

    

      Signature
        Page

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Chattel
      Paper”
shall
      mean all chattel paper as that term is defined in the UCC related to the
      Tangible Collateral and any document or documents that relates to the Tangible
      Collateral and evidence both a monetary obligation and a security interest
      in,
      or a lease or consignment of, specific goods; provided that when a transaction
      is evidenced both by a security agreement or a lease and by an Instrument or
      series of Instruments, the group of documents taken together constitute Chattel
      Paper.

     

    “Collateral”
shall
      mean Tangible Collateral wherever located, in which Grantor now has any right
      or
      interest and the Accounts, Chattel Paper, Contract Rights, Documents, Equipment,
      General Intangibles, Instruments, Inventory, Stock Rights, cash, bank accounts,
      special collateral accounts, uncertificated securities (as that term is defined
      in the UCC), insurance policies, all books and records (in whatever form or
      medium), customer lists, credit files, computer files, programs, printouts,
      source codes, software and other computer materials and records (related to
      any
      of the foregoing) and all Proceeds (including without limitation proceeds as
      that term is defined in the UCC), insurance proceeds, unearned premiums, tax
      refunds, rents, profits, offspring and products thereof related to the Tangible
      Collateral.

     

    “Contract
      Rights”
shall
      mean any right to payment under a contract not yet earned by performance and
      not
      evidenced by an Instrument or Chattel Paper which relates to the
      Collateral.

     

    “Documents”
shall
      mean all documents as that term is defined in the UCC and all documents of
      title
      and goods evidenced thereby (including, without limitation, all bills of lading,
      dock warrants, dock receipts, warehouse receipts and orders for the delivery
      of
      goods), together with any other document which in the regular course of business
      or financing is treated as adequately evidencing that the Person in possession
      of it is entitled to receive, hold and dispose of such document and the goods
      it
      covers which relate to the Collateral.

     

    “Equipment”
shall
      mean the equipment listed on Schedule I. “Secondary Equipment” shall mean that
      certain subset of the Equipment identified on Schedule I as to which the Trustee
      is herein granted an initial security interest which Trustee shall release
      upon
      request of the Borrower in the event Expansion Debt (as defined in the
      Indenture) is issued in accordance with the terms of Section 4.09 of the
      Indenture.

     

    “Event
      of Default”
shall
      mean any Event of Default as defined in the Indenture. 

     

    “General
      Intangibles”
shall
      mean general intangibles as that term is defined in the UCC related to the
      Collateral and all intangible personal property of every kind and nature which
      relate to the Collateral (including, without limitation, all Contract Rights,
      other rights to receive payments of money, chooses in action, security
      interests, indemnification claims, judgments, tax refunds and tax refund claims,
      royalty and product rights, inventions, work in progress, leasehold interests
      in
      real or personal property, rights to receive rentals of real or personal
      property or payments under letters of credit, insurance proceeds and guarantee
      claims other than Accounts); notwithstanding the foregoing, General Intangibles
      does not include patents, patent applications, trademarks, trademark
      applications, trade names, copyrights, copyright applications, permits,
      licenses, franchises, know-how, trade secrets, other items of intellectual
      property and proprietary rights, goodwill (whether or not associated with any
      of
      the foregoing), and computer software.

     

    
      
        
        

      

      
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    “Guaranty”
shall
      mean the guaranty of the Subsidiaries in Article XI of the
      Indenture.

     

    “Instruments”
shall
      mean all negotiable instruments as that term is defined in the UCC related
      to
      the Collateral, certificated securities (as that term is defined in the UCC)
      and
      any replacements therefor and Stock Rights related thereto, and other writings
      which evidence rights to the payment of money (whether absolute or contingent)
      and which are not themselves security agreements or leases and are of a type
      which in the ordinary course of business are transferred by delivery with any
      necessary endorsement or assignment (including, without limitation, all checks,
      drafts, notes, bonds, debentures, government securities, certificates of
      deposit, letters of credit, preferred and common stocks, options and warrants),
      and that relates to the Collateral.

     

    “Inventory”
shall
      mean the inventory set forth on Schedule II. “Secondary Inventory” shall mean
      that certain subset of the Inventory identified on Schedule II as to which
      the
      Trustee is herein granted an initial security interest which Trustee shall
      release upon request of the Borrower in the event Expansion Debt (as defined
      herein) is issued in accordance with the terms of Section 4.09 of the
      Indenture.

     

    “Permitted
      Liens”
shall
      mean all liens permitted under this Agreement or the Indenture.

     

    “Pledge
      Agreement”
shall
      mean the Subordinated Pledge Agreement, dated as of the date hereof, between
      Trustee and Borrower (as Pledgor thereunder).

     

    “Proceeds”
shall
      mean all proceeds as that term is defined in the UCC and, in addition, any
      and
      all amounts or items of property received when any Collateral or proceeds
      thereof are sold, exchanged, collected or otherwise disposed of, both cash
      and
      non-cash, including proceeds of insurance, indemnity, warranty or guarantee
      paid
      or payable on or in connection with any Collateral.

     

    “Receivables”
shall
      mean all Accounts, Chattel Paper and Contract Rights and all Instruments
      representing rights to receive payments.

     

    “Rigs”
shall
      mean the rigs set forth on Schedule III.

     

    “Secured
      Obligations”
shall
      mean, collectively, (a) all liabilities, obligations and indebtedness (whether
      actual or contingent, whether owed jointly or severally, whether for the payment
      of money and, if for the payment of money, whether for principal, interest,
      premium, fees, expenses or otherwise) now existing or hereafter incurred of
      Borrower to Trustee or the holders of Notes under the Notes, the Indenture,
      this
      Agreement and the Pledge Agreement and of the Subsidiaries to Trustee or the
      holders of Notes under this Agreement, the Indenture and the Guaranty, as the
      same may be amended, modified or supplemented from time to time, together with
      any and all extensions, renewals, refinancings or refundings thereof in whole
      or
      in part, (b) all other liabilities, obligations and indebtedness (whether actual
      or contingent, whether owed jointly or severally, whether for the payment of
      money and, if for the payment of money, whether for principal,
      interest, premium, fees, expenses or otherwise) of Borrower or any of its
      Subsidiaries to Trustee or the holders of Notes now existing or hereafter
      incurred, whether under other financing arrangements or otherwise, whether
      related to the Notes, whether contemplated by Trustee or Borrower at the date
      hereof and whether direct, indirect, matured or contingent, joint or several,
      or
      otherwise, together with any and all extensions, renewals, refinancings or
      refundings thereof in whole or in part, (c) all costs and expenses
      (including, without limitation, to the extent permitted by law, reasonable
      attorneys’ fees and other legal expenses) incurred by Trustee in the enforcement
      and collection of any of the liabilities, obligations and indebtedness referred
      to in clause (a) or (b) above, and (d) all payments and advances made by
      Trustee for the maintenance, preservation, protection or enforcement of, or
      realization upon, any property or assets now or hereafter made subject to any
      lien granted pursuant to the Indenture or this Agreement or pursuant to any
      other agreement, instrument or note relating to any of the Secured Obligations
      (including, without limitation, advances for taxes, insurance, storage,
      transportation, repairs and the like).

     

    
      
        
        

      

      
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    “SEC
      Filings”
shall
      include all reports filed since June 2006 by the Borrower pursuant to the 1934
      Act.

     

    “Senior
      Security Agreement”
shall
      mean the agreement of even date hereof by and among the Borrow, the Subsidiaries
      and First Security Bank.

     

    “Stock
      Rights”
shall
      mean any stock, any dividend or other distribution and any other right or
      property which Grantor shall receive
      or shall become entitled to receive pursuant to the Pledge
      Agreement.

     

    “Tangible
      Collateral”
shall
      mean the Equipment and Inventory.

     

    “UCC”
shall
      mean the Uniform Commercial Code as in effect in any applicable
      jurisdiction.

     

    2. Grant
      of the Security Interest.

     

    (a) Grantor
      hereby grants to and creates in favor of Trustee a continuing security interest
      and lien under the UCC and all other applicable laws in and to all of Grantor’s
      right, title and interest in and to the Collateral as security for the full
      and
      timely payment, observance and performance of the Secured Obligations in
      accordance with the terms thereof.

     

    (b) In
      furtherance of the intent of the parties hereto and the parties to the
      Intercreditor Agreement, the security interests and liens granted hereunder
      shall be treated as a severable second priority security interest and lien
      granted to Trustee as the collateral agent under the Indenture and, the security
      interests and liens granted by Grantor under the Senior Security Agreement
      shall
      be treated as a severable first priority security interest, for the purpose
      of
      determining the relative rights in the Collateral.

     

    3. Grantor’s
      Continuing Obligations.

     

    Notwithstanding
      any provision hereof to the contrary, (a) Grantor shall remain liable under
      all
      contracts and agreements included in the Collateral to which it is a party
      or by
      which it is bound to the extent required therein and shall use its best efforts
      to pay, perform and observe all of its liabilities
      and obligations thereunder, (b) Trustee shall have no obligation to pay, perform
      or observe any of the Grantor’s liabilities or obligations under such contracts
      and agreements as a result of exercising its rights under this Agreement or
      otherwise and (c) Trustee’s exercise of its rights under this Agreement or
      otherwise shall not release Grantor from any of its liabilities or obligations
      under such contracts and agreements.

     

    
      
        
        

      

      
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    4. Names,
      Addresses and Locations.

     

    (a) Grantor
      represents and warrants that, except as specified on Schedule
      IV
      hereto
      or in the SEC Filings, (i) during the five-year period prior to the execution
      and delivery of this Agreement, it has not used any name or names under which
      it
      has invoiced account debtors, maintained records concerning Collateral or
      otherwise conducted business other than the exact name under which it has
      executed this Agreement, (ii) during such five-year period, it has not entered
      into any merger, consolidation, corporate reorganization or purchase of
      substantial assets in any bulk transfer or other transactions in which the
      transferor was not acting in the ordinary course of business and (iii) the
      address of Grantor set forth in Section 29 hereof is the address of Grantor’s
      chief executive office and is the address at which Grantor keeps all books
      and
      records (in whatever form or medium, including all computer data, software
      and
      source codes) concerning the Collateral and the Proceeds thereof.

     

    (b) If
      Grantor desires to establish a new location for its chief executive office
      or a
      new location for any offices, plants or facilities where any Collateral or
      any
      books or records relating to the Collateral may be kept or to establish a new
      name in which it may invoice account debtors, maintain records concerning the
      Collateral or otherwise conduct business, it shall first, with respect to each
      such new location or name, (i) give Trustee at least 30 days prior written
      notice of its intention to do so and provide Trustee with such information
      in
      connection therewith as Trustee may reasonably request and (ii) if financing
      statements are on file with respect to any Collateral, take such action, upon
      request of Trustee, as may be necessary to maintain at all times the perfection
      and priority of the security interests in the Collateral granted to Trustee
      hereunder.

     

    5. Location
      of Inventory.
      Grantor
      represents and warrants that (a) all of its Inventory is located at the
      locations specified on Schedule
      IV
      hereto
      (except to the extent any such Inventory is in transit or located at Grantor’s
      job site in the ordinary course of business), and (b) except as specified on
      Schedule
      IV,
      none of
      such locations are leased by Grantor as lessee and none of Grantor’s Inventory
      is in the possession of any bailee, warehouseman, processor or other third
      party, except for Inventory in transit which is being sold in the ordinary
      course of business. All of Grantor’s Inventory shall be kept at all times at the
      locations specified on Schedule
      IV
      and at
      no other locations unless such Inventory is in transit or located at Grantor’s
      job site in the ordinary course of business, except upon compliance with the
      requirements of Section 4(b).

     

    6. Location
      of Equipment.
      Grantor
      represents and warrants that (a) all of its Equipment is located at the
      locations specified on Schedule IV
      hereto
      (except to the extent any such Equipment is in transit or located at Grantor’s
      job site in the ordinary course of business)and (b) except as specified on
Schedule
      IV,
      none of
      such locations are leased by Grantor as lessee and none of Grantor’s Equipment
      is in the possession of any bailee, warehouseman, processor or other third
      party. All of Grantor’s Equipment shall be kept and maintained at all times at
      the locations specified
      in Schedule
      IV
      and at
      no other locations unless such Equipment is in transit or located at Grantor’s
      job site in the ordinary course of business, except (a) upon compliance with
      the
      requirements of Section 4(b) of this Agreement and (b) disposal of obsolete
      equipment in the ordinary course of business.

     

    
      
        
        

      

      
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    7. Instruments.
      Grantor
      represents and warrants that except as specified on Schedule
      IV
      hereto,
      it does not own or possess any Instruments other than checks and other drafts
      received in the ordinary course of business.

     

    8. Reserved.

     

    9. Filing
      Requirements; Other Financing Statements.
      Grantor
      represents and warrants that (a) none of its Equipment is covered by any
      certificate of title, except for the vehicles specified on Schedule
      V
      hereto,
      (b) none of the Collateral consists of property subject to any statute or treaty
      referred to in Section 9-311 of the UCC (c) none of the Collateral is of a
      type
      for which security interests or liens may be filed under any federal statute,
      and (d) no financing statements describing any portion of the Collateral have
      been filed in any jurisdiction except for financing statements which have lapsed
      or have been terminated and financing statements naming the [other Indenture]
      and as set forth on Schedule
      VI.

     

    10. Receivables;
      Right of Collection.

     

    (a) Grantor
      represents and warrants that the names of the account debtors and contract
      obligors, the amounts owing, the due dates and other information with respect
      to
      all Receivables are and shall be correctly stated in all material respects
      in
      all records of Grantor relating thereto and in all invoices and reports with
      respect thereto furnished to Trustee by Grantor from time to time.

     

    (b) Except
      as
      otherwise provided in this Agreement, Grantor shall collect and enforce, at
      its
      expense, all amounts due or hereafter due with respect to all Receivables in
      accordance with applicable law and commercially reasonable practices and
      procedures. Promptly upon request from Trustee, Grantor shall deliver to Trustee
      duplicate copies of all invoices rendered to account debtors in respect of
      all
      Accounts.

     

    (c) If
      an
      Event of Default shall occur and be continuing or shall exist, Trustee shall
      have the right upon written notice to Grantor to collect and dispose of all
      Proceeds arising from all Receivables and to apply such Proceeds to the payment
      of the Secured Obligations as determined in Trustee’s sole discretion. At any
      such time and upon such written notice to Grantor, Trustee may (i) notify
      account debtors and contract obligors of the grant to and creation in favor
      of
      Trustee of the security interest in the Receivables and the Proceeds thereof
      under this Agreement, (ii) direct such account debtors and contract obligors
      to
      make any payments from time to time due in respect of any such Receivables
      directly to Trustee at such places as it directs following acceleration of
      the
      Secured Obligations and (iii) assume entire control over all of the Proceeds
      of
      such Receivables. Trustee, its officers, employees and authorized agents are
      hereby irrevocably appointed attorneys-in-fact of Grantor, effective following
      the occurrence and during the continuance of an Event of Default, to endorse
      any
      check or draft which may be payable to Grantor in order to collect the
      Receivables and any Proceeds thereof, which appointment is irrevocable and
      coupled with an interest.
      Upon receipt of written notice from Trustee of the revocation of Grantor’s right
      of collection, Grantor shall promptly remit directly to Trustee all Proceeds
      of
      Receivables then or subsequently in its possession, and any collections and
      receipts with respect to such Proceeds and Receivables shall be held in trust
      by
      Grantor for the benefit of Trustee.

     

    
      
        
        

      

      
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    (d) Grantor
      shall not make or agree to make any discount, credit, rebate or other reduction
      in the original amount owing on any Receivable or accept in satisfaction of
      any
      Receivable less than
      the
      original amount thereof, except that so long as an Event of Default is not
      occurring, Grantor may in the ordinary course of business allow adjustments
      to
      the original amount owing on a Receivable in accordance with its customary
      and
      commercially reasonable credit policies and collection practices in effect
      from
      time to time. Except in the ordinary course of business or with the prior
      written consent of Trustee in each case, Grantor shall not make any sale to
      any
      customer on a bill and hold, guaranteed sale, sale or return, sale on approval,
      consignment or any other repurchase or return basis, or re-date any invoice
      or
      make sales on extended dating beyond that customary in its industry, or
      otherwise change the terms of sale customarily offered to its
      customers.

     

    11. Vehicles;
      Bailments; Legal Compliance.

     

    (a) Grantor
      shall give Trustee written notice of its acquisition of any vehicle, tractor
      or
      trailer covered by a certificate of title or similar evidence of ownership
      acquired form Proceeds of any Collateral, and upon request of Trustee, Grantor
      shall promptly execute and deliver any instruments and documents that may be
      necessary, or that Trustee may request, in order to perfect its security
      interest in all property subject to a certificate of title.

     

    (b) If
      any of
      Grantor’s Inventory or Equipment is in the possession or control of any
      warehouseman or any of Grantor’s processors or other bailees, Grantor shall
      notify Trustee and if Trustee so requests, notify such warehousemen, processors
      and other bailees in writing (with a copy to Trustee) of Trustee’s security
      interest in such property and, upon Trustee’s request, instruct them to hold all
      such Inventory and Equipment for Trustee’s account and subject to Trustee’s
      instructions. If more than $250,000
      in fair market value of the Inventory and Equipment of Granter is held by any
      such bailee, Grantor shall file a financing statement in the appropriate
      jurisdiction against such bailee in a form appropriate for the underlying
      transaction.

     

    (c) Grantor
      represents, warrants and covenants that it has not or will not produce its
      Inventory in violation of the Fair Labor Standards Act of 1938 (29 U.S.C.
§ 201 et.
      seq.)
      or in
      violation of any other applicable law.

     

    12. Insurance;
      Risk of Loss.

     

    (a) Grantor
      shall maintain, at its expense, insurance with respect to the Collateral against
      such risks and casualties, in such amounts and with such insurers as required
      by
      the Note. Such insurance policy shall (i) contain a loss payable clause and
      a
      Trustees’ loss payable endorsement in favor of Trustee as its interest may
      appear and (ii) provide that at least 30 days prior written notice of any
      cancellation or lapse of such policy must be given to Trustee by the
insurer.
      The risk of loss of, damage to or destruction of the Inventory, Equipment and
      other Collateral shall be on the Grantor.

     

    
      
        
        

      

      
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    (b) If
      Grantor fails to obtain and keep in full force and effect the insurance coverage
      required by the Note or fails to pay the premiums therefor when due, Trustee
      may
      (but shall not be obligated to) do so for the account of Grantor (without
      waiving or releasing any obligation or default of Grantor hereunder), and the
      cost thereof shall be added to the Secured Obligations and shall be payable
      upon
      demand with interest accruing thereon at the Default interest rate provided
      from
      the Notes (the
      "Default Interest Rate").

     

    13. Rights
      in Collateral.

     

    (a) Other
      than the liens set forth on Schedule
      VI,
      Grantor
      represents, warrants and covenants that it has and shall have at all times
      valid
      title to all Collateral, free and clear of all liens, claims, charges and
      encumbrances (except for Permitted Liens), and Grantor shall defend such title
      against the claims and demands of all other Persons. Other than for the Stock
      Rights, vehicles and bank accounts, Grantor represents and warrants that this
      Agreement creates a valid security interest in the Collateral which, upon filing
      of proper financing statements in the jurisdictions and the taking of all other
      steps regarding perfection specified on Schedule
      VII
      attached
      hereto, shall constitute a valid perfected lien on and security interest in
      the
      Collateral, subject only to Permitted Liens which are accorded priority. Grantor
      represents and warrants that to the best of Grantor’s knowledge, except as
      previously disclosed, all Receivables are valid, binding and enforceable in
      accordance with their respective terms and that no party to any Receivable
      is in
      default with respect thereto, except to the extent of allowances for
      uncollectible accounts reflected on the financial statements of Grantor in
      accordance with generally accepted accounting principles consistently
      applied.

     

    (b) Except
      for dispositions permitted by the Indenture or in the ordinary course of
      business, Grantor shall not sell, transfer, assign, convey or otherwise dispose
      of, or extend, amend, terminate or otherwise modify any term or provision of,
      any Collateral, any interest therein or any Proceeds thereof, nor waive or
      release any right with respect thereto, without, the prior written consent
      of
      Trustee.

     

    (c) Grantor
      assumes full responsibility for taking any and all steps to preserve its rights
      with respect to the Collateral against all prior parties. Trustee shall be
      deemed to have exercised reasonable care in the preservation and custody of
      the
      portion of the Collateral as may be in Trustee’s possession if Trustee takes
      such action as is required by applicable law and as Grantor shall reasonably
      request in writing; provided that such requested action shall not, in the
      judgment of Trustee, impair Trustee’s prior security interest in such Collateral
      or its rights in or the value of such Collateral, and provided further that
      such
      written request is received by Trustee in sufficient time to permit Trustee
      to
      take the requested action. In the absence of such written request, Trustee
      shall
      be deemed to have exercised reasonable care in the custody and preservation
      of
      the Collateral in its possession if the Collateral is accorded treatment
      substantially equal to that which Trustee accords its own property.

     

    
      
        
        

      

      
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      14. Records.
        With
        respect to Collateral in which it has rights or interests, Grantor shall
        at all
        times maintain accurate and complete records with respect to each item of
        Collateral constituting fixed assets, shall keep aggregate records regarding
        Inventory or Receivables, and shall otherwise keep books and records in
        accordance with the terms of the Indenture.

       

      15. Taxes
        and Charges.
        Grantor
        shall pay and discharge all taxes, levies and other impositions levied on
        any
        Collateral in which Grantor has rights or interests, in accordance with the
        terms of the Indenture, unless such failure to pay would not have a material
        adverse effect on the market value of the Collateral or if Grantor contest
        such
        tax, levy or imposition. If Grantor shall fail to do so, Trustee may (but
        shall
        not be obligated to) pay such taxes, levies or impositions for the account
        of
        Grantor (without waiving or releasing any obligation or default by Grantor
        hereunder), and the amount thereof shall be added to the Secured Obligations
        and
        shall be payable upon demand with interest accruing at the Default Interest
        Rate.

    

     

    16. Preservation
      and Protection of Security Interest.
      Except
      as otherwise provided herein, Grantor shall use its best efforts to diligently
      preserve and protect Trustee’s security interest in the Collateral in which
      Grantor has rights or interests and Borrower shall, at its expense, cause such
      security interest in such Collateral, other than the, vehicles and bank accounts
      (until required herein) owned by the Borrower to be perfected and continue
      perfected so long as the Secured Obligations or any portion thereof are
      outstanding
      and
      unpaid (including, without limitation, by means of the delivery of all
      instruments, documents of title and securities to Trustee with endorsements
      and
      documents of transfer satisfactory to Trustee), and for such purposes, Grantor
      shall from time to time at Trustee’s request and at its expense file or record,
      or cause to be filed or recorded, such instruments, documents and notices
      (including, without limitation, financing statements and continuation
      statements) as Trustee may deem necessary or advisable from time to time to
      perfect and continue perfected such security interests during the period, in
      accordance with the foregoing provision, that each Grantor has the obligation
      to
      cause such security interest to be perfected. Grantor shall do all such other
      acts and things and shall execute and deliver all such other instruments and
      documents (including, without limitation, further security agreements, pledge
      agreements, pledges, endorsements, assignments and notices) as Trustee may
      deem
      necessary or advisable from time to time to perfect and preserve the priority
      of
      Trustee’s security interest in the Collateral, as a perfected security interest
      in the Collateral (except as otherwise provided herein), prior to the rights
      of
      any other secured party or lien creditor, except with respect to Permitted
      Liens, which are accorded priority or as contemplated in the Intercreditor
      Agreement. Trustee, and its officers, employees and authorized agents, or any
      of
      them, are hereby irrevocably appointed the attorneys-in-fact of Grantor to
      do,
      at Grantor’s expense, all acts and things which Trustee may deem necessary or
      advisable to preserve, perfect and continue perfected Trustee’s security
      interest in the Collateral (including, without limitation, the signing of
      financing, continuation or other similar statements and notices on behalf of
      Grantor), which appointment is irrevocable and coupled with an interest.


     

    17. Federal
      Claims.
      Grantor
      shall notify Trustee of any Collateral which constitutes a claim against the
      United States government or any instrumentality or agency thereof, the
      assignment of which claim is governed by federal law. Upon the request of
      Trustee, Grantor shall at its expense take all actions required to comply,
      to
      Trustee’s satisfaction, with the Assignment of Claims
      Act of 1940, as amended, or any similar applicable law, with respect to any
      such
      Collateral having a value in excess of $10,000.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      18. Intercreditor
        Agreement.
        The
        Trustee hereby acknowledges and agrees that the exercise of remedies pursuant
        to
        paragraph 19 hereof and all other provisions of this Agreement are, and shall
        at
        all times be, subject to the limitations on the Trustee’s remedies set forth in
        the Intercreditor Agreement.

    

     

    19. Remedies
      on Default.
      Subject
      to the terms and conditions set forth in the Intercreditor
      Agreement:

     

    (a) If
      any
      Event of Default shall occur and be continuing or shall exist, Trustee may
      (i)
      to the full extent permitted by law, take possession and control of all or
      any
      part of the Collateral and Proceeds thereof and the books and records pertaining
      thereto, with or without judicial process, and (ii) after ten days prior written
      notice, proceed to exercise one or more of the rights and remedies accorded
      to a
      secured party by the UCC and otherwise by law or by the terms of the Indenture
      or this Agreement. Trustee’s rights and remedies shall include, without
      limitation, the power to (i) sell, lease, assign or otherwise dispose of and
      deliver all or any portion of the Collateral at public or private sale or sales
      at such place and time and on such terms as Trustee may see fit (subject to
      the
      requirements, including commercial reasonableness, of applicable law), (ii)
      endorse in the name of Grantor any Instrument representing Collateral, (iii)
      prosecute claims and legal actions regarding Accounts, other Receivables and
      General Intangibles, (iv) perform any agreement or contract which constitutes
      Collateral and (v) sell, assign, license, sublicense or otherwise dispose of,
      all right, title and interest in and to any General Intangibles included in
      the
      Collateral (including, without limitation, assignments, recordings,
      registrations and applications therefor in the United States Patent and
      Trademark Office, the United States Copyright Office or any similar domestic
      or
      foreign office or agency) and for the purpose of recording, registering and
      filing of, or accomplishing any other formality with respect to the foregoing,
      execute and deliver any and all agreements, documents, instruments of assignment
      or other papers necessary or advisable to effect such purpose. Without
      precluding any other methods of sale, the sale of Collateral shall be deemed
      to
      have been made in a commercially reasonable manner if conducted in conformity
      with reasonable commercial practices of secured lenders disposing of similar
      property, but in any event, Trustee may sell the Collateral on such terms as
      Trustee may choose without assuming any credit risk and without any obligation
      to advertise or give notice of any kind not expressly required under this
      Agreement or by the UCC or otherwise. All of the rights and remedies of Trustee
      under this Agreement shall be cumulative and not exclusive of other rights
      and
      remedies which it otherwise would have, whether under the Indenture, the UCC
      or
      otherwise. After the occurrence of an Event of Default, promptly upon the
      request of Trustee, Grantor shall assemble so much of the Collateral (including,
      without limitation, all books and records relating thereto) in its possession
      as
      is capable of physical delivery and make the same available to Trustee at such
      locations designated by Trustee reasonably convenient to both parties and shall
      permit Trustee, or Trustee’s representatives and agents, to enter any premises
      where all or any part of the Collateral, or the books and records relating
      thereto, or both, are located, to take possession of all or any part of the
      Collateral and to remove all or any part of the Collateral. The right of Trustee
      to have the Collateral assembled and made available to it is of the essence
      of
      this Agreement, and Trustee may, at its election, enforce such right by a bill
      in equity for injunctive relief for specific performance.
      Trustee shall not be under any obligation to marshal any assets in favor of
      Grantor or any other Person or against or in payment of all or any of the
      Secured Obligations.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (b) Grantor
      agrees that in any sale of any of the Collateral, Trustee is authorized to
      comply with any limitation or restriction in connection with such sale which
      it
      is advised by its counsel is appropriate (i) to avoid violation of
      applicable law, or (ii) to obtain any required approval of such sale or of
      a
      purchase of such sale by any governmental regulatory authority or official.
      Grantor further agrees that such compliance shall not result in any such sale
      being deemed not to have been made in a commercially reasonable manner, nor
      shall Trustee be liable or accountable to Grantor for any discount allowed
      by
      reason of the fact that any Collateral is sold in compliance with any such
      limitation or restriction.

     

    (c) If
      any
      Event of Default shall occur and be continuing or shall exist, Trustee shall
      have the right, in addition to all other rights and remedies available to it
      hereunder or otherwise, without notice to Grantor, to set-off against and to
      appropriate and apply to the unpaid balance of the Notes and all other Secured
      Obligations, any obligations owing to Grantor by Trustee and any funds held
      in
      any manner for the account of Grantor by Trustee, and Trustee is hereby granted
      a security interest in and lien on all such obligations for such purpose. Such
      set-off rights shall exist whether or not Trustee shall have made any demand
      under this Agreement, the Indenture or any other Secured Obligations and whether
      the Notes and such other obligations are matured or unmatured.

     

    20. Further
      Funding; Expansion Debt.
      Section
      4.09 of the Indenture provides that Borrower may incur certain additional debt
      (herein called Expansion Debt as also defined in the Indenture) for the purpose
      of acquiring or constructing certain additional assets (herein called Expansion
      Assets as also defined in the Indenture). In the event that such Expansion
      Debt
      is incurred in accordance with the limitations of Section 4.09 of the Indenture
      but not issued in a manner that makes it part of the Indenture, as amended
      or
      modified, or issued under the Indenture but otherwise incurred with a separate
      lender, then Trustee agrees to release the security interest in the Secondary
      Equipment and Secondary Inventory not comprising the Rigs and, if required
      by
      the subsequent lender, the Stock Rights but only to the extent related to the
      Secondary Equipment and Secondary Inventory being released. 

     

    21. Application
      of Proceeds.
      Any
      Collateral or Proceeds of the Collateral received or realized upon at any time
      by Trustee shall be applied in the manner set forth in the Note (or if not
      so
      set forth, in a manner acceptable to, and at the election of, the Trustee).
      If
      the Proceeds of the Collateral together with the proceeds of any other
      collateral granted to Trustee by Borrower to secure the Secured Obligations,
      and
      of any sales or other dispositions thereof, shall be insufficient to fully
      discharge and satisfy the Secured Obligations, Borrower shall be liable for
      the
      deficiency, and if a surplus results after lawful application of such proceeds,
      either the Borrower or any other Grantor, to the extent such party has an
      entitlement to any such surplus.

     

    22. Bank
      Accounts.
      After
      the date of this Agreement, at the request of Trustee, Grantor shall execute
      and
      deliver to Trustee a depository account agreement or blocked account agreement,
      in form and substance reasonably satisfactory to Trustee and Grantor and
      accompanied by an appropriate executed acknowledgment, with respect to each
      bank
      or other financial institution where Grantor maintains accounts so that Trustee
      shall have control over the bank account upon the occurrence and continuance
      of
      an Event of Default, thereafter the Bank Account shall be subject to the terms
      of such depository account agreement of blocked account agreement. 

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      23. Continuing
        Validity of Obligations.

       

      (a) The
        agreements and obligations of the Grantor hereunder are continuing agreements
        and obligations and are absolute and unconditional irrespective of the
        genuineness, validity or enforceability of the Notes or any other instrument
        or
        instruments now or hereafter evidencing the Secured Obligations or any part
        thereof or of this Agreement or any other agreement or agreements now or
        hereafter entered into by Trustee and Grantor pursuant to which the Secured
        Obligations or any part thereof is issued or of any other circumstance which
        might otherwise constitute a legal or equitable discharge of such agreements
        and
        obligations other than payment in full of the Secured
        Obligations.

    

     

    (b) Without
      limitation upon the foregoing, such agreements and obligations of Grantor shall
      continue in full force and effect as long as the Secured Obligations or any
      part
      thereof remains outstanding and unpaid and shall remain in full force and effect
      without regard to and shall not be released, discharged or in any way affected
      by (i) any renewal, refinancing or refunding of the Secured Obligations in
      whole
      or in part, (ii) any extension of the time of payment of the Notes or other
      instrument or instruments now or hereafter evidencing the Secured Obligations
      or
      any part thereof, (iii) any amendment to or modification of the terms of the
      Notes or other instrument or instruments now or hereafter evidencing the Secured
      Obligations or any part thereof or any other agreement or agreements now or
      hereafter entered into by Trustee and Grantor pursuant to which the Secured
      Obligations or any part thereof is issued or secured, or (iv) any substitution,
      exchange or release of, or failure to preserve, perfect or protect, or other
      dealing in respect of, the Collateral or any other property or any security
      for
      the payment of the Secured Obligations or any part thereof. 

     

    (c) To
      the
      extent that Grantor makes a payment or payments to Trustee or Trustee receives
      any payment or proceeds of the Collateral, which payment or proceeds or any
      part
      thereof are subsequently invalidated, declared to be fraudulent or preferential,
      set aside or
      required to be repaid to Grantor or a trustee, receiver or any other party
      under
      any bankruptcy law, state or federal law, common law or equitable cause of
      action, then, to the extent of such payment or proceeds, the Secured Obligations
      or portion thereof intended to be satisfied and this Agreement shall be revived
      and continue in full force and effect, as if such payment or proceeds had not
      been received by such party.

     

    24. Defeasance.
      Upon
      payment in full of the Secured Obligations, this Agreement shall terminate
      and
      be of no further force and effect (except for the provisions of Sections 25
      hereof which shall survive), and in such event Trustee shall, at Grantor’s
      expense and without recourse, representation or warranty, redeliver and reassign
      to Grantor the Collateral and take all action necessary to terminate Trustee’s
      security interest in the Collateral. This Agreement shall be binding upon and
      inure to the benefit of the parties hereto and their respective successors
      and
      assigns.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    
       

      25. Indemnification
        and Expenses.
        Grantor
        shall indemnify and hold harmless Trustee from and against any and all claims
        and losses arising out of or attributable to this Agreement, the Notes and
        all
        other related agreements, and the granting to Trustee of a security interest
        and
        lien in the Collateral hereunder, except claims and losses arising from
        Trustee’s breach hereof or Trustee’s gross negligence or willful misconduct.
        Grantor shall, jointly and severally, pay Trustee on demand the amount of
        any
        out-of-pocket expenses (including, without limitation, reasonable attorneys’
fees and other legal expenses) incurred by Trustee in connection with the
        enforcement of this Agreement, the Indenture and the Notes and as otherwise
        provided in this Agreement with interest accruing thereon at the Default
        Interest Rate.

    

     

    26. Saving
      Clause.
      Notwithstanding any other provision contained in this Agreement or the Notes,
      the aggregate interest rate per annum charged with respect to the Notes
      (including all charges and fees deemed to be interest pursuant to applicable
      law) shall not exceed the maximum rate per annum permitted by applicable law.
      In
      the event that the aggregate interest rate per annum payable with respect to
      the
      Notes (including all charges and fees deemed to be interest under applicable
      laws) exceeds the maximum legal rate, Borrower shall only pay Trustee interest
      at the maximum permitted rate, and Borrower shall continue to make such interest
      payments at the maximum permitted rate until all such interest payments and
      other charges and fees payable hereunder (in the absence of such legal
      limitations) have been paid in full.

     

    27. Modifications,
      Amendments or Waivers.
      The
      provisions of this Agreement may be modified, amended or waived, but only by
      a
      written instrument signed by Grantor and the Trustee.

     

    28. No
      Implied Waivers; Cumulative Remedies; Writing Required.
      No
      delay or failure of Trustee in exercising any right, power or remedy under
      this
      Agreement or the Indenture shall affect or operate as a waiver thereof, nor
      shall any single or partial exercise thereof or any abandonment or
      discontinuance of steps to enforce such a right, power or remedy preclude any
      further exercise thereof or of any other right, power or remedy. The rights
      and
      remedies of Trustee under this Agreement and the Indenture are cumulative and
      not exclusive of any rights or remedies which it would otherwise have,
      including, without limitation, any rights and remedies under any other
      agreement. Any waiver, permit, consent or approval of any kind or character
      on
      the part of Trustee of any breach or default or any such waiver of any provision
      or condition of this Agreement and the Indenture must be in writing and shall
      be
      effective only to the extent in such writing specifically set
      forth.

     

    29. Notices.
      All
      notices, requests, demands, waivers and other communication required or
      permitted to be given under this Agreement shall be in writing and shall be
      deemed to have been duly given if (a) delivered personally, (b) mailed by
      first-class, certified mail, return receipt, postage prepaid, or (c) sent by
      next-day or overnight mail or delivery or (d) sent by telecopy (with electronic
      confirmation of receipt) or telegram.

     

    If
      to
      the Trustee:

    


    Bank
      of
      the Ozarks

    12615
      Chenal Parkway

    Little
      Rock, AR 72211

    Attention:
      Shelia Mayden, Senior Vice President

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      with
        a
        copy, which will 

      not
        constitute notice to 

      the
        Trustee, to:

      


      Jack
        Nelson Jones Fink Jiles & Gregory, P.A.

      425
        West
        Capitol Avenues, Suite 3400

      Little
        Rock, AR 72201

      Attention:
        Joe Gregory

    

     

    If
      to
      the Borrower:

    


    Forster
      Drilling Corporation

    Attn:
      W.
      Scott Thompson

    2425
      Fountainview Drive, Suite 305

    Houston,
      Texas 77057

    


    with
      a
      copy, in each case, which will

    not
      constitute notice to

    Grantor,
      to:

    


    Brewer
      & Pritchard, PC

    Attn:
      Thomas C. Pritchard

    3
      Riverway, Suite 1800

    Houston,
      Texas 77056

    


    or,
      in
      each case, at such other address as may be specified in writing to the other
      parties.

     

    All
      such
      notices, requests, demands, waivers and other communications shall be deemed
      to
      have been received (a) if by personal delivery on the date after such delivery,
      (b) if by certified mail, on the seventh business day after the mailing thereof,
      (c) if by next-day or overnight mail or delivery, on the day delivered, (d)
      if
      by telecopy or telegram, on the next day following the day on which such
      telecopy or telegram was sent, provided that a copy is also sent by certified
      or
      registered mail.

     

    30. Survival.
      All
      representations, warranties, covenants and agreements of Grantor contained
      herein or made in writing in connection herewith shall survive the execution
      and
      delivery of this Agreement and the issuance of the Notes.

     

    31. Governing
      Law; Waivers and Jurisdiction.

     

    (a) Governing
      Law.
      This
      Agreement shall in all respects be governed by, and construed and enforced
      in
      accordance with, the laws of the State of Texas, without giving effect to any
      choice of law or conflict of law rules or provisions (whether of the State
      of
      Texas or any other jurisdiction) that would cause the application of the laws
      of
      any jurisdiction other than the State of Texas, except that the filing,
      perfection, effect of perfection and enforcement of security interests and
      liens
      in other jurisdictions shall be governed by the laws of the applicable
      jurisdictions in accordance with the UCC.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    
      (b) Waivers.
        To the extent permitted by law, Grantor hereby waives personal service of
        any
        and all process upon them and consent that all such service of process be
        made
        by certified mail (with return receipt) directed to them at their addresses
        set
        forth in Section 29 hereof, and service so made shall be deemed to be completed
        on the seventh Business Day after the same shall have been deposited in the
        U.S.
        mails, postage prepaid. In addition, Grantor hereby waives, to the extent
        permitted by law, trial by jury, any objections based on
forum non conveniens and any objections to venue
        of any action arising out of, connected with, related to or incidental to
        the
        transactions contemplated by or the relationships established in connection
        with
        this Agreement.

    

     

    (c) Exclusive
      Jurisdiction.
      All
      disputes among or between Trustee and Grantor arising out of, connected with,
      related to or incidental to the transactions contemplated by or the relationship
      established between them in connection with this Agreement and whether arising
      in contract, tort, equity or otherwise, shall be resolved only by state or
      federal courts located in the State of Texas, Harris County, and Grantor hereby
      consents and submits to the jurisdiction of any state or federal court located
      within such county and state. Trustee and Grantor acknowledge, however, that
      any
      appeals from those courts may be required to be heard by a court located outside
      the State of Texas, Harris County. Grantor waives in all disputes any objections
      that they may have to the location of the court considering the dispute. Nothing
      in this Section 31 shall affect the right of Trustee to serve legal process
      in
      any other manner permitted by law or affect the right of Trustee to bring any
      action or proceeding against Grantor or its property in the courts of any other
      jurisdiction.

     

    32. Herein,
      etc.
      Words
      such as “herein,” “hereunder,” “hereof” and the like shall be deemed to refer to
      this Agreement as a whole and not to any particular document or Article, Section
      or other portion of a document.

     

    33. Severability.
      Whenever possible, each prevision of this Agreement shall be interpreted in
      such
      manner as to be effective and valid under applicable law, but if any provision
      of this Agreement is held to be prohibited by or invalid under applicable law
      in
      any jurisdiction, such provision shall be ineffective only to the extent of
      such
      prohibition or invalidity, without invalidating any other provision of this
      Agreement.

     

    34. Headings.
      Section
      and subsection headings in this Agreement are included for convenience of
      reference only and shall not constitute a part of this Agreement for any other
      purpose.

     

    35. Counterparts.
      This
      Agreement may be executed in any number of counterparts and by either party
      hereto on separate counterparts, each of which, when so executed and delivered,
      shall be an original, but all such counterparts shall together constitute one
      and the same instrument.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      day
      and year first above written.

    
      
        

          
            	
                    BANK
                      OF THE OZARKS

                  
	 
	 
	
                    By: 

                  	 	
                    /s/
                      Shelia Mayden

                  
	
                    Its:
                      Sr.
                      Vice President

                  
	 
	 
	
                    FORSTER
                      DRILLING CORPORATION

                  
	 
	 
	
                    By:

                  	 	
                    /s/
                      Fred Forster III

                  
	
                    Name:

                  	
                    Fred
                      Forster III

                  
	
                    Title:

                  	
                    President

                  
	 
	 
	
                    FORSTER
                      DRILLING, INC.

                  
	 
	 
	
                    By:

                  	 	
                    /s/
                      W. Scott Thompson

                  
	
                    Name:

                  	
                    W.
                      Scott Thompson

                  
	
                    Title:

                  	
                    Secretary

                  
	 
	 
	
                    FORSTER
                      TOOL & SUPPLY, INC.

                  
	 
	 
	
                    By:

                  	 	
                    /s/
                      W. Scott Thompson

                  
	
                    Name:

                  	
                    W.
                      Scott Thompson

                  
	
                    Title:

                  	
                    Secretary

                  
	
                     

                  
	 
	
                    FORSTER
                      EXPLORATION 

                  
	
                    &
                      PRODUCTION, INC.

                  
	 
	 
	
                    By:

                  	 	
                    /s/
                      W. Scott Thompson

                  
	
                    Name:

                  	
                    W.
                      Scott Thompson

                  
	
                    Title:

                  	
                    Secretary

                  


          

        

      

       

      Schedule
        to Subordinated Security Agreement