EX-10.49






SUBORDINATED DEED OF TRUST, MORTGAGE,

SECURITY AGREEMENT,

ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT




Dated as of August 1, 2007




From




Permian Legend Petroleum LP




To




Karl J. Reiter, Trustee

and

BaseLine Capital, Inc.




THIS SUBORDINATED DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND
FINANCING STATEMENT IS TO BE FILED FOR RECORD IN THE REAL ESTATE RECORDS.



THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF FUTURE ADVANCES AND
COVERS PROCEEDS OF COLLATERAL.



THIS INSTRUMENT CONTAINS A NOTICE OF SECURITY INSTRUMENT AFFECTING REAL PROPERTY IN EACH COUNTY IN
WHICH IT IS RECORDED.



THIS INSTRUMENT SHALL BE EFFECTIVE AS, AMONG OTHER THINGS, A SECURITY AGREEMENT AND FINANCING

STATEMENT UNDER THE UNIFORM COMMERCIAL CODE. COLLATERAL INCLUDES FIXTURES AFFIXED TO, AND AS

EXTRACTED COLLATERAL (INCLUDING OIL, GAS AND MINERALS) PRODUCED FROM THE REAL PROPERTY DESCRIBED

HEREIN, AND ACCOUNTS ATTRIBUTABLE THERETO, SAID PRODUCTION AND ACCOUNTS BEING FINANCED AT THE

WELLHEAD OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT “A” ATTACHED HERETO AND MADE A

PART HEREOF. GRANTOR IS THE OWNER OF A RECORD INTEREST IN THE REAL PROPERTY DESCRIBED IN THIS DEED

OF TRUST.SUBORDINATED DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT




	 	 	 	 	 
	STATE OF TEXAS

COUNTIES OF HASKELL,

JONES, NOLAN, REAGAN,

RUNNELS AND TAYLOR

	 	§

§

§

§
	 	



KNOW ALL MEN BY THESE PRESENTS;

§









THAT as of the 1st day of August, 2007, PERMIAN LEGEND PETROLEUM LP, a Texas limited
partnership (herein called “Grantor”) whose address is 3327 W. Wadley Ave., Suite 3, #267, Midland,
Texas 79707, and organizational number is 800842699, to secure payment and performance of the
Obligation (hereinafter defined), and for and in consideration of the sum of Ten and No/100 Dollars
($10) cash and other valuable consideration in hand paid to Grantor, the receipt and adequacy of
which are hereby acknowledged, and for and in consideration of the debt and trusts hereinafter
mentioned, has GRANTED, BARGAINED, SOLD, ASSIGNED, TRANSFERRED, and CONVEYED, and by these
presents, does GRANT, BARGAIN, SELL, ASSIGN, TRANSFER and CONVEY, unto KARL J. REITER, Trustee,
whose address is 508 West Wall, Suite 775, Midland, Texas 79701, (hereinafter called the
“Trustee”), for the benefit of BASELINE CAPITAL, INC., whose address is 508 West Wall, Suite 775,
Midland, Texas 79701 (hereinafter called “Beneficiary”), and to the Trustee’s successor or
successors or substitutes in this trust, with power of sale (and where appropriate to effectuate
the provisions of Section 5.14 hereof, does hereby MORTGAGE and WARRANT to Beneficiary), all of
Grantor’s interest in the real and personal properties, rights, titles, interests and estates
described or to which reference is made in Paragraphs I through VI, inclusive, below, whether now
owned by Grantor or hereafter acquired by Grantor (herein collectively called the “Mortgaged
Property”), to-wit:



Paragraph I. Oil and Gas Leases and Other Properties. All of those certain oil and gas
and/or oil, gas and mineral leases, lands, interests and other properties (all such leases being
herein called the “Subject Leases,” and all of Grantor’s interest in such leases, lands, minerals
and royalty interests and other properties being herein called the “Subject Interests”), which are
described and/or to which reference maybe made on Exhibit “A” attached to and made a part
of this Deed of Trust for all purposes and incorporated herein by reference as fully as if copied
verbatim in the body of this Deed of Trust at this point, including, without limitation, all of
Grantor’s interest in all oil and/or gas leasehold interests, overriding royalty interests, mineral
interests, royalty interests and other oil and gas interests in the lands described on Exhibit
“A” attached hereto.



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



Paragraph III. Hydrocarbons. All as-extracted collateral and all oil, gas, casinghead
gas, drip gasoline, natural gasoline and condensate, all other liquid and gaseous hydrocarbons, and
all other minerals, whether similar to the foregoing or not (herein collectively called
“Hydrocarbons”), now or hereafter accruing to or produced from the Subject Interests and/or to
which Grantor now or hereafter may be entitled as a result of or by virtue of its record and/or
beneficial ownership of anyone or more of the Subject Interests.



Paragraph IV. Contracts. All present and future rights of Grantor (including, without
limitation, all rights to receive payments, including but not limited to lease bonuses, rents,
tolls, incomes, royalties, payments received for the disposal of salt water and revenue derived
from joint interest billings) under or by virtue of all present and future Operating Agreements,
contracts for the purchase, exchange, processing, transportation or sale of Hydrocarbons, Salt
Water Disposal Agreements and other contracts and agreements relating in any way to all or any part
of the Mortgaged Property as the same may be amended or supplemented from-time to time and the
proceeds derived therefrom (the “Subject Contracts”).



Paragraph V. Other Property. All tenements, hereditaments, appurtenances and
properties in anywise appertaining, belonging, affixed or incidental to the Subject Leases, in
which Grantor now owns or hereinafter acquires an interest, including, without limitation, any and
all property, real or personal, in which Grantor now owns or hereafter acquires an interest which
is situated upon and/or used or useful in connection with all or any part of the Subject Leases and
including all equipment; pipelines; gathering lines; trunk lines; lateral lines; pipeline easements
and right-of-ways, compressor, dehydration and pumping equipment, sites and leases; pumps;
compressors; dehydration units; separators; heater treaters; valves; flow lines; gauge meters;
alarms; supplies; machinery; derricks; buildings; tanks; casings; Christmas trees; tubing; rods;
liquid extractors; engines; boilers; tools; appliances; cables; wires; surface leases;
rights-of-way; easements; servitudes; and franchises; and all accessions, additions, substitutes
and replacements to or for, and all accessories and attachments to, any of the foregoing (all such
surface leases, easements, licenses, rights-of-way and franchises being herein called the “Subject
Easements,” and all such tangible property described in Paragraph V being herein called the
“Personal Property”).



Paragraph VI. Other Rights to Hydrocarbons. Any and all other rights, titles, estates,
royalties and interests (whether or not presently included with the Subject Interests) now owned or
hereafter acquired by Grantor (a) in and to all Hydrocarbons in and under and that maybe produced
and saved from the lands described or to which reference is made in Exhibit “A” (the
“Land”) and (b) in and to all reversions, remainders, tolls, rents, revenues, issues, proceeds,
earnings, income and profits from the land.



TO HAVE AND TO HOLD the Mortgaged Property, together with all and singular the rights,
privileges, contracts and appurtenances now or thereafter at any time before the foreclosure or
release hereof in anywise appertaining or belonging thereto, unto the Trustee and to his successors
or substitutes hereunder and to their successors and assigns, forever, and Grantor hereby binds and
obligates Grantor and Grantor’s heirs and successors to warrant and forever defend, all and
singular, the Mortgaged Property unto the Trustee and to his successors or substitutes hereunder
and to their successors and assigns, against the lawful claims of any and all persons whomsoever
claiming or to claim the same, or any part thereof, except Liens in favor of the Senior Lender as
set forth in the Subordination Agreement (defined below).



This conveyance is made in trust, however, upon the terms and provisions hereinafter set out
to secure the full and final payment and performance of the Obligation.



To further secure the Obligation, Grantor hereby grants to BASELINE CAPITAL, INC. whose
address is 508 West Wall, Suite 775, Midland, Texas 79701, a security interest in the Mortgaged
Property insofar as such Mortgaged Property consists of as-extracted collateral, equipment, general
intangibles, accounts, inventory, fixtures, rights to receive payments and any and all other
personal property of any kind or character defined in and subject to the provisions of the
applicable Uniform Commercial Code of each state where any of such Mortgaged Property is situated
(the “Code”), including the proceeds and products from any and all of such Mortgaged Property [all
of such Mortgaged Property (and the proceeds and products thereof) being herein called the
“Collateral”]. Upon the happening of any Default, Beneficiary is and shall be entitled to all of
the Rights afforded a secured party by the applicable Code with reference to the Collateral, or
Trustee or Beneficiary may proceed as to both the real and personal property covered hereby in
accordance with the Rights granted under this Deed of Trust in respect to the real property covered
hereby. Such Rights shall be cumulative and in addition to those granted to Trustee or Beneficiary
under any other provision of this Deed of Trust or under any other instrument executed in
connection with or as security for all or any part of the Obligation.



REFERENCE IS MADE TO SECTION 5.13 FOR THE DEFINITIONS OF SEVERAL OF THE TERMS USED HEREIN.



ARTICLE ONE

SECURED OBLIGATION




This Subordinated Deed of Trust, Mortgage, Security Agreement, Assignment of Production and
Financing Statement (herein called the “Deed of Trust”) is made to secure and enforce the following
note or notes, obligations, indebtedness, covenants, conditions, agreements, loans, advances, debts
and liabilities (herein collectively called the “Obligation”):



Section 1.1. Note (whether one or more). That certain Promissory Note dated as of the
date of this Deed of Trust having a face amount of $500,000.00 executed by Grantor, (“Borrower”)
and payable to Beneficiary bearing interest as specified therein, being payable at Beneficiary’s
office in Midland, Texas or at such other office as Beneficiary shall direct in writing and, if not
sooner matured (by acceleration or otherwise) finally maturing on August 1, 2010 (the “Note”).



Section 1.2. Loan Agreement. All indebtedness and obligations of Borrower to
Beneficiary under or arising pursuant to that certain Loan Agreement dated as of the date of this
Deed of Trust by and between Borrower and Beneficiary (such Loan Agreement as the same may from
time to time be amended, modified, renewed, extended or restated, in whole or in part, being herein
called the “Loan Agreement”).



Section 1.3. Costs and Expenses. All out-of-pocket sums advanced and costs and
expenses reasonably incurred by Beneficiary, including without limitation, all legal, accounting,
engineering, management, consulting or like fees, made and incurred in connection with the
foregoing Sections 1.1 and 1.2 or any part thereof, or in connection with the acquisition,
perfection, realization, maintenance or preservation of the security therefor, or in connection
with the following Section 1.4, or any part thereof, whether such advances, costs or expenses shall
have been made and incurred at the request of Grantor or Beneficiary.



Section 1.4. Renewals, Extensions and Rearrangements. Any and all renewals, extensions
and/or rearrangements of all or any part of the Note, indebtedness, obligations, debts, loans,
advances, covenants, agreements and liabilities described or to which reference is made in the
foregoing Sections 1.1, 1.2. and 1.3.



ARTICLE TWO

CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS OF GRANTOR




Section 2.1. Representations and Warranties. For the purpose of inducing Beneficiary
to enter into this transaction and with knowledge that Beneficiary is relying on the
representations and warranties made herein without independent investigations, Grantor hereby
covenants, agrees, represents and warrants unto Beneficiary:




(a) Authority. Grantor has authority to execute this Deed of Trust, to grant,
bargain, sell, mortgage, assign, transfer and convey the Mortgaged Property to the Trustee
and Beneficiary pursuant to this Deed of Trust, and to make the covenants, representations,
warranties and assignments contained in this Deed of Trust.




(b) Title. Grantor (i) has good and indefeasible title to (ii) is the lawful
owner and holder of, and (iii) is possessed of the Mortgaged Property free and clear of any
and all Liens except Liens in favor of the Senior Lender as set forth in the Subordination
Agreement.




(c) Percentage or Decimal Interests. If listed in Exhibit “A,” the
percentage or decimal interests of Grantor’s participation in the total production of
Hydrocarbons produced and saved from the Mortgaged Property described in Exhibit “A”
are at least and in no event will ever be less than as represented and the representations
and warranties of Grantor set forth in Exhibit “A” are incorporated herein by
reference as if copied verbatim in the body of this Deed of Trust at this point.



Section 2.2. Covenants of Grantor. Grantor, for Grantor and Grantor’s successors,
covenants and agrees to:




(a) Additional Documents. At any time, and from time to time, upon request



by Beneficiary, forthwith execute and deliver to Beneficiary any and all additional instruments and
further assurances, and do all acts and things, as may be necessary or proper, in Beneficiary’s
reasonable opinion, to effect the intent of these presents and to evidence and perfect more fully
the Rights and Liens herein created or intended to be created and to protect the Rights of
Beneficiary hereunder.




(b) Existence and Authority. If applicable, continuously maintain in good
standing Grantor’s corporate existence in the State of Texas and in the state in which
organized or formed.




(c) Cure of Defects. If the validity or priority of this Deed of Trust or of
any Rights or Liens created or evidenced hereby with respect to the Mortgaged Property or
any material part thereof shall be endangered or questioned or shall be attacked directly or
indirectly or if any legal proceedings are instituted against Grantor with respect thereto,
give written notice thereof within three (3) days of such event to the Beneficiary and, at
Grantor’s own cost and expense, diligently endeavor to cure any defect that may be developed
or claimed, and take all necessary and proper steps for the defense of such legal
proceedings, including, but not limited to the employment of counsel acceptable to
Beneficiary, the prosecution or defense of litigation and the release or discharge of all
adverse claims, and Trustee and Beneficiary, or either of them (whether or not named as
parties to legal proceedings with respect thereto), are hereby authorized and empowered to
take such additional steps as in their judgment and discretion may be necessary or proper
for the defense of any such legal proceedings, including, but not limited to, the
prosecution or defense of litigation, and the compromise or discharge of any adverse claims
made with respect to the Mortgaged Property, and all expense so incurred of every kind and
character shall be a demand obligation owing by Grantor to Beneficiary.




(d) Notice of Change. Provide Beneficiary within three (3) days of such event
written notice of any (i) claim, action, notice, suspension or proceeding which could, in
the event of an unfavorable outcome, have a material adverse effect on the business and
financial affairs of Grantor or on the ability to fully perform and abide by the terms,
covenants and conditions hereof; (ii) change in any material fact or circumstances stated,
covenanted, represented or warranted herein or in any of the documents contemplated hereby
or (iii) default in or acceleration of any of Grantor’s obligations of payment or
performance under any instrument or obligation the default in or accelerated payment or
performance of which would have a material adverse effect on Grantor’s business or financial
affairs.




(e) Intentionally Omitted.




(f) Payment of Taxes. Pay, or cause to be paid, before delinquent, all lawful
Taxes in respect to the Mortgaged Property, or any part thereof, and from time to time, upon
request of Beneficiary, to furnish to Beneficiary evidence satisfactory to Beneficiary of
the timely payment of such Taxes.




(g) Compliance with Subject Leases, Interests, Contracts and Easements. Timely
perform all obligations under, and not violate any of, the Subject Leases, Subject
Interests, Subject Contracts or Subject Easements.




(h) Maintenance of Mortgaged Property. At all times maintain, preserve and keep
the Mortgaged Property in good repair and condition, and from time to time to make all
necessary and proper repairs, replacements and renewals; and not to commit or permit any
waste on or of the Mortgaged Property, and not to do anything to the Mortgaged Property that
may impair its value.




(i) Performance of Obligation. Pay and perform all of the Obligation.




(j) Performance of Covenants. Punctually and properly perform all of Grantor’s
covenants, duties and liabilities under this Deed of Trust and any other security
instrument.




(k) Compliance with Laws. Comply with all Laws applicable to the Mortgaged
Property and its ownership, use and operation.




(l) Additional Reports. From time to time, upon request of Beneficiary,
promptly furnish to Beneficiary such financial statements and reports relating to the
Mortgaged Property as Beneficiary may request.




(m) Sales of Mortgaged Property. Not, without the prior written consent of
Beneficiary, sell, trade, transfer, convey, assign, exchange, pledge, encumber, create any
Lien (except Liens in favor of the Senior Lender as set forth in the Subordination
Agreement) with respect to or otherwise dispose of the Mortgaged Property or any part
thereof, or any interest therein except items of Personal Property which have become
obsolete or worn beyond practical use and which have been replaced by adequate substitutes
having a value equal to or greater than the replaced items when new.




(n) Title Opinions. Furnish to Beneficiary copies of any title opinions and any
abstracts of title requested by Beneficiary from time to time that Grantor has or may
hereafter obtain affecting any part of the Mortgaged Property.




(o) Properties Not Operated by Grantor. Anything in this Section 2.2 to the
contrary notwithstanding, Grantor, with respect to those Subject Interests which are
operated by operators other than Grantor, shall not be obligated itself to perform
undertakings performable only by such operators and which are beyond the control of Grantor.
In each such case, however, Grantor will promptly take all actions available to it, under
applicable operating arrangements or otherwise, to bring about the performance of any such
undertakings required to be performed by such operators.



ARTICLE THREE

DEFAULTS AND REMEDIES




Section 3.1. Defaults. The term “Default,” as used herein shall mean (subject to any
grace periods provided for in the Loan Agreement): (a) the failure of Grantor to observe perform
any covenant or agreement contained in this Deed of Trust; (b) the failure of Grantor to pay when
due any installment of principal or interest on the Obligation; or any part thereof, or any other
part of the Obligation, as and when the same shall be due and payable (whether at stated maturity,
by acceleration, or otherwise); (c) failure by Grantor to comply with any agreement with
Beneficiary; (d) the occurrence of any event or condition which results in, or with lapse of time
or service of notice or both, could result in a default in the payment of any indebtedness or the
performance of any obligation to Beneficiary made herein or otherwise; (e) the discovery by
Beneficiary of the incorrectness of any material representation made to Beneficiary; (f) the
liquidation, termination or dissolution of Grantor; (g) the occurrence of an event causing material
loss or depreciation in the Collateral’s value (whether by casualty, actions by governmental
authorities, loss of permits, authorities, franchises, certificates or rights or otherwise); (h)
the occurrence of any claim, action, notice, suspension or proceeding which affects all or a
material part of the Collateral or the security interest or liens granted to Beneficiary; (i) the
occurrence of the default in or acceleration of any of Grantor’s obligations of payment or
performance under any instrument or obligation, the default in or accelerated payment or
performance of which would, in Beneficiary’s good faith opinion, have a material adverse effect on
Grantor’s business or financial affairs or on the ability to fully perform and abide by the terms,
covenants and conditions hereof or would be a default under any agreement between Grantor and
Beneficiary; (j) the application for, or consent to the appointment of a receiver, trustee,
custodian, or liquidator for Grantor or any of Grantor’s properties; (k) the seeking by Grantor of
the protection of any bankruptcy, insolvency, reorganization, composition, moratorium or similar
proceeding; (1) the admission in writing of Grantor’s inability to pay its debts as they regularly
mature; (m) the filing of an answer admitting the material allegations of a petition filed against
Grantor in any bankruptcy, insolvency, reorganization, composition, moratorium or similar
proceeding; (n) the permitting of any involuntary petition in bankruptcy to be filed against
Grantor and to remain undismissed for more than thirty (30) days; (o) the permitting of any
attachment, sequestration, garnishment, execution or similar proceeding against Grantor or any of
Grantor’s properties to remain undismissed for more than thirty (30) days; (p) the making of any
assignment for the benefit of creditors of Grantor; or (q) the occurrence of a default or an event
of default under the Loan Agreement.



Section 3.2. Remedies. If a Default shall occur and be continuing, Beneficiary may, at
its option, do anyone or more of the following to the extent permitted by applicable Law:




(a) Payment or Performance by Beneficiary. If Grantor has failed to keep or
perform any covenant whatsoever contained in this Deed of Trust or any other security
instrument, Beneficiary may, but shall not be obligated to any Person to do so, perform or
attempt to perform such covenant, and any payment made or expense incurred in the
performance or attempted performance of any such covenant shall be a part of the Obligation,
and Grantor promises, upon demand, to pay to Beneficiary, at the place where the Note is
payable, or at such other place as Beneficiary may direct by written notice, all sums so
advanced or paid by Beneficiary, with interest at the Highest Lawful Rate, from the date
when paid or incurred by Beneficiary until paid by Grantor. No such payment by Beneficiary
shall constitute a waiver of any Default. In addition to the Liens hereof, Beneficiary shall
be subrogated to all Rights and Liens securing the payment of any debt, claim, tax or
assessment for the payment of which Beneficiary may make an advance, or which Beneficiary
may pay.




(b) Acceleration. Beneficiary may, at its option, declare the aggregate unpaid
principal amount of and interest on the Note and all other parts of the Obligation to be,
and the same shall thereupon become, immediately due and payable without presentment,
demand, protest, notice of acceleration, notice of intent to accelerate, notice of protest
or notice of dishonor, or any other notice of any kind, all of which are expressly waived by
Grantor.




(c) Foreclosure. Beneficiary may request Trustee to proceed with foreclosure,
and in such event Trustee is hereby authorized and empowered, and it shall be his duty, upon
such request of Beneficiary, and to the extent permitted by applicable law, to sell all or
any part of the Mortgaged Property 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
applicable law, or in the absence of any such requirement, as Trustee and/or Beneficiary may
deem appropriate, and to make conveyance to the purchaser or purchasers thereof. Any sale of
any part of the Mortgaged Property is situated shall be made to the highest bidder or
bidders for cash, at the Courthouse door of, or at such other place as may be required or
permitted by applicable law, in the County (or judicial district) in the state wherein the
Land included within the Mortgaged Property to be sold is situated; provided that if the
Land is situated in more than one County (or judicial district) of any state, such sale of
the Mortgaged Property, or any part thereof, may be made in any County (or judicial
district) in the state wherein any part of the Land included within the Mortgaged Property
to be sold is situated. Any such sale shall be made at public outcry, on the day of any
month, during the hours of such day and after written notices thereof have been publicly
posted in such places and for such time periods and after all Persons entitled to notice
thereof have been sent such notice, all as required by applicable law in effect at the time
of such sale; and nothing herein shall be deemed to require Beneficiary or Trustee to do,
and Beneficiary and Trustee shall not be required to do, any act other than as required by
applicable law in effect at the time of such sale. Any such sale may be as a whole or in
such parcels as Trustee may select. After such sale, Trustee shall make to the purchaser or
purchasers thereunder good and sufficient deeds and assignments, in the name of Grantor,
conveying the Mortgaged Property, or part thereof, so sold to the purchaser or purchasers
with general warranty of title (subject to the Liens, if any, in favor of Senior Lender as
set forth in the Subordination Agreement) by Grantor. Sale of a part of the Mortgaged
Property shall not exhaust the power of sale, but sales may be made from time to time until
the Obligation is paid and performed in full. It shall not be necessary to have present or
to exhibit at any. such sale any of the Collateral. In addition to the Rights and powers of
sale granted under the preceding provisions of this Subsection 3.2(c), if default is made in
the payment of any installment of the Obligation, Beneficiary, at its option, at once or at
any time thereafter while any matured installment remains unpaid, without declaring the
entire Obligation to be due and payable may orally or in writing direct the Trustee to
enforce this trust and to sell the Mortgaged Property subject to such unmatured Obligation
and the Liens securing its payment in the same manner, on the same terms, at the same place
and time, and after having given notice in the same manner, all as provided in the preceding
provisions of this Subsection 3.2(c). After such sale, Trustee shall make due conveyance to
the purchaser or purchasers. Sales made without maturing the Obligation may be made
hereunder whenever there is a default in the payment of any installment of the Obligation
without exhausting the power of sale granted hereby, and without affecting in any way the
power of sale granted under this Subsection 3.2(c) on the unmatured balance of the
Obligation (except as to any proceeds of any sale which Beneficiary may apply as a
prepayment on the Obligation) or the Liens securing payment of the Obligation. It is
intended by each of the foregoing provisions of this Subsection 3.2(c) that Trustee may,
after any request or direction by Beneficiary, sell, not only the Subject Interests included
within, but also, all other items constituting a part of the Mortgaged Property, or any part
thereof, along with the Land, or any part thereof, included within the Mortgaged Property
all as a unit and as a part of a single sale, or may sell any part of the Mortgaged Property
separately from the remainder of the Mortgaged Property. It is agreed that, in any deed or
deeds given by Trustee, any and all statements of fact or other recitals therein made as to
the identity of Beneficiary, or as to the occurrence or existence of any Default, or as to
the acceleration of the maturity of the Obligation, or as to the request to sell, notice of
sale, time, place, terms and manner of sale, and the receipt, distribution and application
of the money realized therefrom, or as to the due and proper appointment of a substitute
trustee, and, without being limited by the foregoing, as to any other act or thing having
been duly done by Beneficiary or by Trustee, shall be taken by all courts of law and equity
as prima facie evidence that the said statements or recitals state facts and are without
further question to be so accepted, and Grantor does hereby ratify and confirm any and all
acts that Trustee may lawfully do in the premises by virtue hereof. In the event of the
resignation (such resignation being hereby authorized for any reason) or death of Trustee,
or his removal from his County of residence stated on the first page hereof, or his failure,
refusal or inability, for any reason, to make any such sale or to perform any of the trusts
herein declared, or, at the option of Beneficiary, without cause, the Beneficiary may
appoint, in writing, a substitute trustee, who shall thereupon succeed to all the estates,
titles, rights, powers and trusts herein granted to and vested in Trustee. Such appointment
may be made on behalf of Beneficiary by any person who is then the president, or any vice
president, or the cashier or secretary, or branch manager, or a senior representative, or
any other authorized officer or agent of Beneficiary. In the event of the resignation (such
resignation being hereby authorized for any reason) or death of any such substitute trustee,
or his failure, refusal or inability to make such sale or perform such trusts, or, at the
option of Beneficiary, without cause, successive substitute trustees may thereafter, from
time to time, be appointed by Beneficiary in the same manner. Wherever herein the word
“Trustee” is used, the same shall mean the Person who is the duly appointed trustee or
substitute trustee hereunder at the time in question.




(d) Suit. Beneficiary may, or Trustee may upon written request of Beneficiary,
proceed by suit or suits, at law or in equity, to enforce the payment and performance of the
Obligation in accordance with the terms hereof, of the Note or the other security
instruments, or other documents and/or writings securing and/or evidencing it, to foreclose
the Liens and this Deed of Trust as against all or any part of the Mortgaged Property and to
have all or any part of the Mortgaged Property sold under the judgment or decree of a Court
of competent jurisdiction.




(e) Appointment of Receiver. Beneficiary, as a matter of right and without
regard to the sufficiency of the security, and without any showing of insolvency, fraud or
mismanagement on the part of Beneficiary, and without the necessity of filing any judicial
or other proceeding other than the proceeding for appointment of a receiver, shall be
entitled to the appointment of a receiver or receivers of the Mortgaged Property, or any
part thereof, and of the income, rents, issues and profits thereof




(f) Possession of Mortgaged Property. Beneficiary may enter upon the Land
included within the Mortgaged Property, take possession of the Mortgaged Property, and
remove the Personal Property included within the Mortgaged Property, or any part thereof,
with or without any responsibility or liability on the part of Beneficiary, take possession
of any property located on or in the Mortgaged Property which is not a part of the Mortgaged
Property and hold or store such property at Grantor’s expense.




(g) Assemble Collateral. Beneficiary may require Grantor to assemble the
Collateral included within the Mortgaged Property, or any part thereof, and make it
available to Beneficiary at a place to be designated by Beneficiary which is reasonably
convenient to Grantor and Beneficiary.




(h) Disposition of Collateral. After notification, if any, as hereafter
provided in this Subsection 3.2(h), Beneficiary may sell, lease or otherwise dispose of, at
the office of Beneficiary, or on the Land, or elsewhere, as chosen by Beneficiary, all or
any part of the Collateral included within the Mortgaged Property, in its then condition, or
following any commercially reasonable preparation or processing, and each Sale [as used in
this Subsection 3.2(h), the term “Sale” means any such sale, lease, or other disposition
made pursuant to this Subsection 3.2(h)] may be a unit or in parcels, by public or in
private proceedings, and by way of one or more contracts, and, at any Sale, it shall not be
necessary to exhibit the Collateral, or part hereof, being sold, leased or otherwise
disposed of. The Sale of any part of the Collateral shall not exhaust Beneficiary’s power of
Sale, but Sales maybe made from time to time until the Obligation is paid and performed in
full. Reasonable notification of the time and place of any public Sale pursuant to this
Subsection 3.2(h), or reasonable notification of the time after which any private Sale is to
be made pursuant to this Subsection 3.2(h), shall be sent to Grantor and to any other person
entitled under the applicable Code to notice. It is agreed that notice sent or given not
less than twenty-one calendar days prior to the taking of the action to which the notice
relates, is reasonable notification and notice for such purposes of this Subsection 3.2(h).



Section 3.3. Purchase of Mortgaged Property by Beneficiary. If Beneficiary is the
purchaser of the Mortgaged Property, or any part thereof (and it is specifically agreed that
Beneficiary may be the purchaser of the Mortgaged Property, or any part thereof, if permitted by
applicable Law), at any sale thereof, whether such sale be under the power of sale hereinabove
vested in Trustee, or upon any other foreclosure of the Liens hereof, or otherwise, Beneficiary
shall, upon any such purchase, acquire good title to the Mortgaged Property so purchased, free of
the Liens of these presents.



Section 3.4. Operation of Properties by Beneficiary. Should any part of the Mortgaged
Property come into the possession of Beneficiary, whether before or after Default, Beneficiary may
use or operate the Mortgaged Property for the purpose of preserving it or its value, pursuant to
the order of a Court of appropriate jurisdiction, or in accordance with any other Rights held by
Beneficiary in respect to the Mortgaged Property. Grantor covenants promptly to reimburse and pay
to Beneficiary, at the place where the Note is payable, or at such other place as may be designated
by Beneficiary in writing, the amount of all reasonable expenses (including the cost of any
insurance, taxes, attorneys fees of the Beneficiary and other charges) incurred by Beneficiary in
connection with its custody, preservation, use or operation of the Mortgaged Property, together
with interest thereon from the date incurred by Beneficiary at the Highest Lawful Rate, and all
such expenses, cost, taxes, interest and other charges shall be a part of the Obligation. It is
agreed, however, that the risk of loss or damage to the Mortgaged Property is on Grantor, and
Beneficiary shall have no liability whatever for decline or diminution in value of the Mortgaged
Property except to the extent directly resulting from Beneficiary’s gross negligence or willful
misconduct, nor for failure to obtain or maintain insurance, nor for failure to determine whether
any insurance ever in force is adequate as to the amount or as to the risks insured.



Section 3.5. Possession of Property After Foreclosure. In case the Liens hereof shall
be foreclosed by Trustee’s sale, or by other judicial or non-judicial action, the purchaser at any
such sale shall receive, as an incident to his ownership, immediate possession of the Mortgaged
Property, or any part thereof so conveyed, and, subsequent to foreclosure, Grantor and Grantor’s
successors shall be considered as tenants at sufferance of the purchaser at foreclosure sale, and
anyone occupying the property after demand made for possession thereof shall be guilty of forcible
detainer and shall be subject to eviction and removal, forcible, or otherwise, with or without
process of law, and all damages by reason thereof are hereby expressly waived.



Section 3.6. Application of Proceeds. The proceeds from any sale, lease or other
disposition made pursuant to this Article Three, any proceeds of Hydrocarbons collected by
Beneficiary pursuant to Article Four, and sums received pursuant to Section 5.5 shall be applied by
Trustee, or by Beneficiary, as the case may be, to the payment or prepayment of the Obligation,
whether or not matured, as may be determined by the Beneficiary in its sole discretion until the
Obligation is paid in full.



Section 3.7. Abandonment of Sale. In the event a foreclosure hereunder should be
commenced by Trustee in accordance with Subsection 3.2(c), Beneficiary may at any time before the
sale direct Trustee to abandon the sale, and may then institute suit for collection of the
Obligation, and/or for the foreclosure of the Liens hereof. If Beneficiary should institute a suit
for the collection of the Obligation, and/or for a foreclosure of the Liens hereof, it may at any
time before the entry of a final judgment in said suit dismiss the same, and sell and/or require
Trustee to sell (and the Trustee is hereby expressly authorized to sell) the Mortgaged Property, or
any part thereof, in accordance with the provisions of this Deed of Trust.



Section 3.8. Waiver of Appraisement and Redemption. To the full extent Grantor may
lawfully do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take
the benefit or advantage of any appraisement, valuation, stay, extension or redemption Laws, now or
hereafter in force, in order to prevent or hinder the enforcement of this Deed of Trust or the
absolute sale of the Mortgaged Property, or any part thereof, or the possession thereof by any
purchaser at any such sale, but Grantor, insofar as Grantor now or hereafter may lawfully do so,
hereby waives the benefit of all such Laws; provided, however, that the appraisement of any of the
Mortgaged Property is hereby expressly waived or not waived at the option of Trustee and/or
Beneficiary, such option to be exercised prior to or at the time judgment is rendered in any
foreclosure of this Deed of Trust. Grantor expressly waives, to the extent Grantor may lawfully do
so, all rights to have the Mortgaged Property marshaled upon any foreclosure of this Deed of Trust.
In the event Grantor cannot waive his right to redemption under applicable state law, Grantor
agrees to limit said redemption period to the shortest legal time.



ARTICLE FOUR

ASSIGNMENT OF PRODUCTION




Section 4.1. Additional Security. Subject to the terms of the Subordination Agreement
(defined below), to additionally secure the Obligation, Grantor has, effective as of 7:00 A.M.,
local time, on August 1, 2007, at the site of each of the Subject Interests, ASSIGNED, TRANSFERRED
and CONVEYED, and does hereby ASSIGN, TRANSFER and CONVEY, unto Beneficiary all of the following:




(a) All Hydrocarbons, and the proceeds therefrom and products obtained or process
therefrom (such proceeds and products being herein called “Proceeds”), produced and to be
produced from the Mortgaged property, and Grantor hereby authorizes and empowers Beneficiary
to demand, collect and receive such Hydrocarbons and Proceeds, to endorse and cash any
checks and drafts payable to Grantor or Beneficiary for the account of Grantor received from
or in connection with such Hydrocarbons and Proceeds and to execute any release, receipt,
division order, transfer order and relinquishment or other instrument that may be required
or necessary to collect and receive such hydrocarbons and Proceeds. Grantor hereby
authorizes and directs all pipeline companies, gathering companies, and others purchasing
such Hydrocarbons or having in their possession any such Hydrocarbons or Proceeds, to pay
and deliver to Beneficiary all such Hydrocarbons and Proceeds. Grantor agrees that all
division orders, transfer orders, receipts and other instruments which Beneficiary may from
time to time execute and deliver for the purpose of collecting or receipting for
Hydrocarbons or Proceeds may be relied upon in all respects and that the same shall be
binding upon Grantor and Grantor’s successors. Grantor agrees to execute and deliver all
necessary, convenient and appropriate instruments, including transfer and division orders,
which may be required by Beneficiary in connection with the receipt by Beneficiary of such
Hydrocarbons or Proceeds and to indemnify and keep and hold Beneficiary free and harmless
from all parties whomsoever having or claiming an adverse interest in such Hydrocarbons and
Proceeds and in this respect agrees to pay all expenses, costs, charges and attorney’s fees
that may be incurred by Beneficiary as to any such matters.




(b) All Proceeds hereafter payable to or to become payable to Grantor or to which
Grantor is entitled under all gas sales or exchange contracts, all oil, distillate, or
condensate sales or exchange contracts, all gas transportation contracts, and all gas
processing contracts now or hereafter are to become a part of the Mortgaged Property.




(c) All amounts, sums, revenues and income which become payable to Grantor from any of
the Mortgaged Property (including any after-acquired properties) or under any contract,
present or future, relating to, any gas pipeline system and processing plant or unit now or
hereafter constituting a part of the Mortgaged Property.




(d) All lease bonus, delay rentals, royalties and shut-in gas royalties which become
payable to Grantor from any of the Mortgaged Property.



Section 4.2. Transfer Orders. Grantor agrees to execute such transfer orders, payment
orders, division orders and other instruments as may be needed by Beneficiary or requested by it
incident to its having all assigned payments made direct to it at its office in Midland, Texas.
Grantor hereby authorizes and directs all such pipeline companies, purchasers, transporters and
other parties owing moneys to Grantor under contracts herein assigned, to pay such amounts direct
to Beneficiary as follows:




BASELINE CAPITAL, INC. 5


08 West Wall, Suite 775


Midland, Texas 79701



and such authorization shall continue until this Deed of Trust is released. Beneficiary is
authorized to collect, receive for all such amounts, and no party making payment shall have any
responsibility to see to the application of any funds paid to the Beneficiary but shall be fully
protected in making such payment to Beneficiary under the assignments herein contained. Should
Beneficiary bring suit against any third party for collection of any amounts or sums included
within this assignment (and Beneficiary shall have the Right to bring any such suit), it may sue
either in its own name or in the name of Grantor.



Section 4.3. Payments of Proceeds. In the event that, for its convenience, Beneficiary
should elect with respect to particular properties or contracts not to exercise immediately its
Right to receive Hydrocarbons or Proceeds, then the purchasers or other persons obligated to make
such payment shall continue to make payment to Grantor until such time as written demand has been
made upon them by Beneficiary or Trustee that payment be made direct to Beneficiary. Such failure
to notify shall not in any way waive the Right of Beneficiary to receive any payments not
theretofore paid out to Grantor before the giving of written notice. In this regard, in the event
payments are made direct to Beneficiary, and then, at the request of Beneficiary payments are, for
a period or periods of time, paid to Grantor, Beneficiary shall nevertheless have the Right,
effective upon written notice, to require that future payments be again made to Beneficiary.



Section 4.4. Proceeds Held in Trust by Grantor. If under any existing gas sales or
exchange agreements or products sales or exchange contracts, other than division orders or transfer
orders, or under any gas transportation contract, any Proceeds are required to be paid by the
purchaser or transporter direct to Grantor so that under such existing agreements payment cannot be
made to Beneficiary in the absence of foreclosure, then Grantor’s interest in all proceeds under
such sales agreement and in all other Proceeds which for any reason may be paid to Grantor shall,
when received by Grantor, constitute trust funds in his hands and shall be immediately paid over to
Beneficiary, if Beneficiary has requested that such payments be delivered to it under this
assignment.



ARTICLE FIVE

MISCELLANEOUS




Section 5.1. Release. If the Obligation is paid and performed in full in accordance
with the terms of this Deed of Trust and the Note and other security instruments and documents and
writing evidencing or securing all or any part of the Obligation, and if Grantor shall well and
truly perform all of Grantor’s covenants contained herein, then this conveyance shall be released
at Grantor’s request and expense; otherwise, it shall remain in full force and effect, provided
that no release hereof shall impair Grantor’s warranties and indemnities contained herein.



Section 5.2. Rights Cumulative. All Rights and Liens herein expressly conferred are
cumulative of all other Rights and Liens herein, or by law or in equity provided, or provided in
any other security instrument, and shall not be deemed to deprive Beneficiary or Trustee of any
such other legal or equitable Rights and Liens by judicial proceedings, or otherwise, appropriate
to enforce the conditions, covenants and terms of this Deed of Trust and other security
instruments, and the employment or enforcement of any Rights hereunder, or otherwise, shall not
prevent the concurrent or subsequent employment or enforcement of any other Rights.



Section 5.3. Waivers. Any and all covenants in this Deed of Trust may from time to
time, by instrument in writing signed by Beneficiary and delivered to Grantor, be waived to such
extent and in such manner as Beneficiary may desire, but no such waiver shall ever affect or impair
Beneficiary’s Rights and Liens hereunder, except to the extent specifically stated in such written
instruments.



Section 5.4. Sale of Mortgaged Property. In the event Grantor or any of Grantor’s
successors conveys any interest in the Mortgaged Property, or in any part thereof, to any other
party, Beneficiary may, without notice to Grantor or Grantor’s successors, deal with any owner of
any part of the Mortgaged Property with reference to this Deed of Trust and the Obligation, either
by way of forbearance on the part of Beneficiary, or extension of time of payment of the
Obligation, or release of all or any part of the Mortgaged Property, or any other property securing
payment and performance of the Obligation, without in any way modifying or affecting Beneficiary’s
Rights and Liens hereunder or the liability of Grantor or any other party liable for payment and
performance of the Obligation, in whole or in part, provided, that no action taken or omitted to be
taken by Beneficiary under this Section 5.4 shall be deemed a waiver of any Default occurring by
reason of any such conveyance.



Section 5.5. Condemnation Sale. Beneficiary shall be entitled to receive any and all
sums which may be awarded or become payable to Grantor for the condemnation of the Mortgaged
Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu
thereof, any sums which may be awarded or become payable to Grantor for damages caused by public
works or construction on or near the Mortgaged Property. All such sums are hereby assigned to
Beneficiary, and Grantor shall, upon request of Beneficiary, make, execute, acknowledge and deliver
any and all additional assignments and documents as may be necessary from time to time to enable
Beneficiary to collect and receipt for any such sums. Beneficiary shall not be, under any
circumstances, liable or responsible for failure to collect, or exercise diligence in the
collection of, any of such sums.



Section 5.6. Renewals of Indebtedness. It is understood and agreed that the proceeds
of the Note or of any further loans or advances, to the extent the same are utilized to renew or
extend any indebtedness or take up any outstanding Liens against the Mortgaged Property, or any
portion thereof, have been advanced by Beneficiary at Grantor’s request and upon Grantor’s
representation that such amounts are due and payable, Beneficiary shall be subrogated to any and
all Rights and Liens owned or claimed by any owner or holder of such outstanding Rights and



Section 5.7. Waiver of Marshaling. Grantor hereby waives all rights of marshaling in
event of any foreclosure of the Liens hereby created.



Section 5.8. Number and Gender of Words, Etc. Whenever herein the singular number is
used, the same shall include the plural where appropriate, and vice versa, and words such as
“herein,” “hereinafter” and other words of similar import shall refer to this Deed of Trust and not
to any particular section or portion hereof, and words of any gender shall include each others
gender where appropriate.



Section 5.9. Headings. The captions, headings and arrangements used in this Deed of
Trust are for convenience only and do not in any way affect, limit, amplify or modify the terms and
provisions hereof.



Section 5.10. Notices. Whenever this Deed of Trust requires or permits any consent,
approval, notice, request or demand from one party to another, the consent, approval, notice,
request or demand must be in writing to be effective and shall be deemed to have been given on the
day personally delivered or, if mailed, on the day it is enclosed in an envelope, properly stamped,
sealed and deposited in a post office or official depository maintained by the United States Postal
Service, certified mail, return receipt requested, addressed to the party to be notified at the
address stated below (or at such other address as may have been designated by written notice):



	 	 	 
	If to Grantor:
	 	PERMIAN LEGEND PETROLEUM LP

3327 W. Wadley Ave., Suite 3, #267

Midland, Texas 79707

	If to Beneficiary:
	 	BASELINE CAPITAL, INC.








508 West Wall, Suite 775


Midland, Texas 79701



Section 5.11. Governing Law. Without regard to principles of conflicts of law, this
Deed of Trust shall be construed and enforced in accordance with and governed by the Laws of the
State of Texas applicable to contracts made and to performed entirely within the State of Texas and
the Laws of the United States of America, except that to the extent that the Law of another state
in which a portion of the Mortgaged Property is located (or which is otherwise applicable to a
portion of the Mortgaged Property) necessarily or, in the sole discretion of Beneficiary,
appropriately governs with respect to procedural and substantive matters relating to the creation,
perfection and enforcement of the liens, security interests and other rights and remedies granted
herein, the Law of such other state shall apply as to that portion of the Mortgaged Property
located in (or otherwise subject to the Laws of) such state.



Section 5.12. Invalid Provisions. If any provision of this Deed of Trust is invalid or
unenforceable in any jurisdiction applicable to this Deed of Trust, then, to the extend permitted
by law, (a) the other provisions hereof shall remain in full force and effect in such jurisdiction
and shall be liberally construed in favor of Beneficiary in order to carry out the intentions of
the parties hereto as nearly may be possible; and (b) the invalidity or unenforceability of such
provision in any jurisdiction shall not affect the validity or enforceability thereof in any other
jurisdiction. If the Rights and Liens created by this Deed of Trust shall be invalid or
unenforceable as to any part of the Obligation, the unsecured portion of the Obligation shall be
completely paid prior to the payment of the remaining and secured portion of the Obligation, and
all payments made on the Obligation shall be considered to have been paid on and applied first to
the complete payment of the unsecured portion of the Obligation.



Section 5.13. Definitions. As used herein, the following terms shall have the meanings
indicated:




“Grantor’s Successors” means each and all of the immediate and remote successors, assigns,
heirs, executors, administrators and legal representatives of Grantor.




“Highest Lawful Rate” means the maximum rate of interest which Beneficiary is allowed from
time to time to contract for, charge, take, reserve or receive under applicable Laws after
taking into account, to the extent required by applicable Laws, any and all relevant
payments or charges under either Note and, for purposes of such determination, the “Highest
Lawful Rate” shall mean the greater of (a) the maximum rate of interest from time to time
permitted under the Laws of the United States of America (including without limitation the
rate of interest permitted to be charged under 12 US.C. Sec. 85), and (b) the maximum rate
of interest permitted to be charged under the Laws of the State of Texas.




“Holder” means any present or future holder of the Obligation or any part thereof.




“Laws” means all applicable constitutions, treaties, statutes, laws, ordinances,
regulations, orders, writs, injunctions or decrees of all Tribunals.




“Lien” means any lien, mechanic’s lien, materialman’s lien, pledge, conditional sale
agreement, title retention agreement, financing lien, production payment, security interest,
mortgage, deed of trust or other encumbrance, whether arising by agreement or under Law.




“Person” means any individual, firm, corporation, association, partnership, joint venture,
company, trust, Tribunal or other entity.




“Rights” means rights, remedies, powers and privileges.




“Section” means a Section of this Deed of Trust, unless specifically indicated otherwise.




“Senior Lender” means American State Bank, Midland, Texas. “Subordination Agreement” has the
meaning set forth in Section 5.17.




“Subordination Agreement” has the meaning set forth in Section 5.17.




“Taxes” means all taxes, assessments, fees, levies, imposts, duties, deductions, withholding
or other similar charges from time to time or at any time imposed by any Law or any
Tribunal.




“Tribunal” means any court or any governmental department, commission, board, bureau, agency
or instrumentality of the United States or of any state, commonwealth, nation, territory,
possession, county, parish or municipality, whether now or hereafter constituted and/or
existing.




“Trustee” means the Person who is at the time the duly appointed trustee or successor or
substitute trustee under this Deed of Trust at the time in question.



Section 5.14. Form of Deed of Trust. This instrument may be construed and enforced
from time to time whether within the State of Texas, and outside the State Texas, as a mortgage,
deed of trust, chattel mortgage, conveyance, assignment, security agreement, pledge, financing
statement, hypothecation or contract, or anyone or more of them as may be appropriate under
applicable Laws, in order fully to effectuate the Lien hereof and the purposes and agreements
herein set forth. To the extent, if any, required to cause this instrument to be so effective as a
mortgage as well as a deed of trust, Grantor hereby mortgages the Mortgaged Property to Beneficiary
as security for the Obligation. Insofar as this instrument is a security agreement and financing
statement, Grantor is the debtor and Beneficiary is the secured party. The addresses shown in
Section 5.10 are the addresses of the debtor and secured party and information concerning the
security interest granted hereby may be obtained from the secured party at such address. Without
any manner limiting the generality of any of the foregoing provisions hereof: (a) some portions of
the goods described or to which reference is made herein are or are to become fixtures on the Land
described or to which reference is made herein; (b) as-extracted collateral (including oil, gas and
minerals) included in the Mortgaged Property and the accounts resulting from the sale thereof will
be financed at the wellhead(s) or minehead(s) or the well(s) or mine(s) located on the Land
described or to which reference is made herein; and (c) this instrument is to be filed of record in
the real estate records in the counties in which any portion of the Mortgaged Property is situated
as a financing statement but the failure to do so will not otherwise affect the validity or
enforceability of this instrument.



Section 5.15. Binding Effect. This Deed of Trust is binding upon Grantor and Grantor’s
successors and shall inure to the benefit of Beneficiary and their respective successors and
assigns, and the provisions hereof shall likewise be covenants running with the Land. The duties,
covenants, conditions, obligations and warranties of Grantor in this Deed of Trust shall be joint
and several obligations of Grantor and Grantor’s successors. Each and every party who signs this
Deed of Trust, other than Beneficiary, and each and every subsequent owner of the Mortgaged
Property, or any part thereof, jointly and severally covenants and agrees that he or it will
perform, or cause to be performed, each and every condition, term, provision and covenant of this
Deed of Trust.



Section 5.16. Arbitration. Grantor and Beneficiary agree that upon the written demand
of either party, whether made before or after the institution of any legal proceedings, but prior
to the rendering of any judgment in that proceeding, all disputes, claims and controversies between
them, whether individual, joint, or class in nature, arising from this Deed of Trust or any other
documents or otherwise, including without limitation contract disputes and tort claims, shall be
resolved by binding arbitration pursuant to the Commercial Rules of the American Arbitration
Association (“AAA”). Any arbitration proceeding held pursuant to this arbitration provision shall
be conducted in Midland, Midland County, Texas. No act to take or dispose of any Collateral shall
constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement.
This arbitration provision shall not limit the right of either party during any dispute, claim or
controversy to seek, use, and employ ancillary, or preliminary rights and/or remedies, judicial or
otherwise, for the purposes of realizing upon, preserving, protecting, foreclosing upon or
proceeding under forcible entry and detainer for possession of, any real or personal property, and
any such action shall not be deemed an election of remedies. Such remedies include, without
limitation, obtaining injunctive relief or a temporary restraining order, invoking a power of sale
under any deed of trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property, including exercising the
right of set-off, or taking or disposing of such property with or without judicial process pursuant
to the Uniform Commercial Code. Any disputes, claims or controversies concerning the lawfulness of
reasonableness of an act, or exercise of any right or remedy concerning any Collateral, including
any claim to rescind, reform, or otherwise modify any agreement relating to the Collateral, shall
also be arbitrated; provided, however that no arbitrator shall have the right or the power to
enjoin or restrain any act of either party. Judgment upon any award rendered by any arbitrator may
be entered in any court having jurisdiction. The statute of limitations, estoppel, waiver, laches
and similar doctrines which would otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall
be deemed the commencement of any action for these purposes. The Federal Arbitration Act (Title 9
of the United States Code) shall apply to the construction, interpretation, and enforcement of this
arbitration provision.



Section 5.17. Subordination. This Deed of Trust is executed subject to the terms of
that certain Subordination Agreement dated of even date herewith among Senior Lender, Borrower and
Beneficiary (the “Subordination Agreement”). This Deed of Trust and the Liens granted herein are
also subject and subordinate to that certain after-payout interest in favor of Beneficiary pursuant
to an Assignment of Oil and Gas Leases and Bill of Sale dated of even date herewith described in
the Loan Agreement and in that certain Memorandum of Assignment of even date herewith and executed
by Grantor.



NOTICE




THIS DEED OF TRUST, THE NOTE DESCRIBED ABOVE AND THE ACCOMPANYING UCC-1 FINANCING STATEMENT
AND LOAN AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS EXECUTED AT OR NEAR THE TIME OF EXECUTION OF
THIS DEED OF TRUST CONSTITUTE A “LOAN AGREEMENT” AS DEFINED IN SECTION 26.02(a) OF THE TEXAS
BUSINESS & COMMERCE CODE, AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



1



DATED and EFFECTIVE as of the date set out above although EXECUTED on the date of the
acknowledgments annexed hereto.




GRANTOR:




PERMIAN LEGEND PETROLEUM LP,




By: Permian Legend ,LLC, its general partner



	 	 	 
	By: /s/
	 	Ronnie L. Steinocher

	 
	 	 

	 	 	Ronnie L. Steinocher, Manager








	 	 	By: /s/ Lisa Hamilton






	 	 	Lisa P. Hamilton, Manager






BENEFICIARY:




BASELINE CAPITAL, INC., a Texas corporation




By: /s/ Karl J. Reiter

Karl J. Reiter, President




	 	 	 
	STATE OF TEXAS

COUNTY OF MIDLAND

	 	§

§

§






This instrument was acknowledged before me on this 25th day of July, 2007, by Ronnie L.
Steinocher and Lisa P. Hamilton, Managers of Permian Legend LLC, a Texas limited liability company,
acting as general partner of Permian Legend Petroleum LP, a Texas limited partnership, on behalf of
said limited liability company and limited partnership.




NOTARY PUBLIC — STATE OF TEXAS



Seal



	 	 	 
	STATE OF TEXAS

COUNTY OF MIDLAND

	 	§

§

§






This instrument was acknowledged before me on this 25th day of July, 2007, by KARL J. REITER,
President of BASELINE CAPITAL, INC., a Texas corporation, on behalf of said corporation.




NOTARY PUBLIC — STATE OF TEXAS



Seal




2