Document:

f8k030410ex10ii_recovery.htm

    Exhibit 10.2

     

    PROMISSORY
NOTE

     

    
      	$4,500,000.00	Denver,
      Colorado 	  January
      29, 2010

    

                             

    For value
received, the undersigned, Recovery Energy, Inc., a
Nevada corporation (“Borrower”),
hereby promises to pay to the order of Hexagon Investments, LLC, a
Colorado limited liability company (“Lender”),
the principal sum of Four Million Five Hundred Thousand Dollars ($4,500,000.00),
together with interest on the unpaid principal balance thereof as set forth in
the Credit Agreement (as defined below), both principal and interest payable as
herein provided in lawful money of the United States of America at the offices
of Lender under the Credit Agreement, 730 17th Street, Suite 800, Denver,
Colorado 80202 or at such other place, as from time to time may be designated by
the holder of this Note.

     

    This Note
(a) is issued and delivered under that certain Credit Agreement, effective as of
January 29, 2010, between Borrower and Lender referred to therein (as from time
to time supplemented, amended or restated, the “Credit
Agreement”), and is the “Note” as defined therein, (b) is subject to the
terms and provisions of the Credit Agreement, which contains provisions for
payments and prepayments hereunder and acceleration of the maturity hereof upon
the happening of certain stated events, and (c) is secured by and entitled to
the benefits of certain Security Documents (as identified and defined in the
Credit Agreement).  Payments on this Note shall be made and applied as
provided in the Credit Agreement.  Reference is hereby made to the
Credit Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties thereto and for the meanings assigned to
terms used and not defined herein and to the Security Documents for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto.

     

    The
principal amount of this Note, together with all interest accrued hereon, shall
be due and payable in full on the Maturity Date.

     

    Notwithstanding
the foregoing paragraph and all other provisions of this Note, in no event shall
the interest payable hereon, whether before or after maturity, exceed the
maximum amount of interest that, under applicable Law, may be contracted for,
charged, or received on this Note, and this Note is expressly made subject to
the provisions of the Credit Agreement that more fully set out the limitations
on how interest accrues hereon.

     

    If this
Note is placed in the hands of an attorney for collection after default, or if
all or any part of the indebtedness represented hereby is proved, established or
collected in any court or in any bankruptcy, receivership, debtor relief,
probate or other court proceedings, Borrower agrees to pay reasonable attorneys’
fees and collection costs to the holder hereof in addition to the principal and
interest payable hereunder.

     

    Borrower
hereby waives demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    This Note
and the rights and duties of the Borrower and Lender shall be governed by the
Laws of the State of Colorado (without regard to principles of conflicts of
law), except to the extent the same are governed by applicable federal
law.

     

    
      	 	RECOVERY ENERGY,
      INC.,
	 	a Nevada
      corporation
	 	 	 
	 	By:	 /s/
      Jeffrey A. Beunier
	 	 	Jeffrey
      A. Beunier, Chief Executive Officerf8k022610ex10iii_recovery.htm

     

    
      Exhibit
10.3

       

       

      WHEN
RECORDED

      AND/OR

      FILED
RETURN TO:

       

      Deborah
J. Thomas

      Holme
Roberts & Owen LLP

      1700
Lincoln, Suite 4100

      Denver,
Colorado 80203

       

      

      DEED OF TRUST, MORTGAGE,
SECURITY AGREEMENT,

      ASSIGNMENT OF PRODUCTION AND
PROCEEDS,

      FINANCING STATEMENT AND
FIXTURE FILING

       

      from

       

      RECOVERY
ENERGY INC.

      (Organizational
I.D. No. 74-3231613),

      AS
DEBTOR

       

      to

       

      JACOB
B. MUELLER, TRUSTEE

       

      and to
and for the benefit of

       

      HEXAGON
INVESTMENTS, LLC

      Dated as
of January 29, 2010

       

      
        
          
            

          

         

      

      THIS
INSTRUMENT SHALL BE GOVERNED BY THE PROVISIONS OF THE NEBRASKA TRUST DEEDS ACT,
NEBRASKA REVISED STATUTES, SECTIONS 76-1001, ET SEQ.

       

      THIS
INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

       

      THIS
INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.

       

      EXHIBIT ”A”
CONTAINS A LEGAL DESCRIPTION OF THE REAL ESTATE CONCERNED.  DEBTOR HAS
AN INTEREST OF RECORD IN THE REAL ESTATE.  SOME OF THE PERSONAL
PROPERTY CONSTITUTING A PORTION OF THE COLLATERAL IS OR IS TO BECOME FIXTURES
RELATED TO THE REAL ESTATE.

       

      THIS
INSTRUMENT COVERS FIXTURES AND AS-EXTRACTED COLLATERAL.

       

      THIS
INSTRUMENT IS TO BE RECORDED IN THE REAL ESTATE RECORDS OF THE COUNTY RECORDER
IN EACH COUNTY WHERE THE REAL ESTATE IS LOCATED.

       

      A POWER
OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT.  A POWER OF SALE MAY
ALLOW SECURED PARTY OR THE TRUSTEE TO TAKE THE COLLATERAL AND SELL IT WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION.

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      DEED OF TRUST,
MORTGAGE,

       

      SECURITY
AGREEMENT,

       

      ASSIGNMENT OF PRODUCTION AND
PROCEEDS,

       

      FINANCING
STATEMENT

       

      AND FIXTURE
FILING

       

      This Deed
of Trust, Mortgage, Security Agreement, Assignment of Production and Proceeds,
Financing Statement and Fixture Filing (this “Instrument”), dated
as of January 29, 2010, is from RECOVERY ENERGY, INC., a
Nevada corporation (“Debtor”), with
Organizational I.D. No. 74-3231613 and with an address of 1515 Wynkoop Street,
Suite 200, Denver, Colorado 80202, to Jacob B. Mueller, a member of
the Nebraska State Bar Association (“Trustee”), with an
address of P.O. Box 637, Ogallala, Nebraska 69153 and to and for the benefit of
HEXAGON INVESTMENTS, LLC,
a Colorado limited liability company (“Secured Party”), with
an address of 730 17th Street,
Suite 800, Denver, Colorado  80202.

       

      COLLATERAL

       

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

       

      1. The
entire estates or the undivided interests therein as described in Exhibit “A” in
and to all of the mineral estates, surface estates, leasehold estates and other
estates described in Exhibit “A” and in and to the mineral interests, royalty
interests, working interests, operating rights interest, record title interests,
overriding royalty interests, production payment interests, net profit interests
and other interests described in Exhibit “A” and in and to the leases, licenses,
subleases, sublicenses, easements, rights-of-way, farmouts, farmins, minerals
agreements, unit agreements, cooperative development agreements, communitization
agreements, unit operating agreements, pooling agreements, joint operating
agreements and other documents and instruments described in Exhibit “A” and any
other estates, property interests and rights described in Exhibit “A”, covering
or relating to all or any part of the land described either in Exhibit “A” or in
the leases, licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in Exhibit “A” (the
“Land”; the term “Land” as used herein includes, without limitation, the land
specifically described in Exhibit “A” and all land described in or covered by
the leases, licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in Exhibit “A” whether
or not such land is specifically described in Exhibit “A”), together with any
and all other right, title and interest of Debtor of whatever kind or character
(whether now owned or hereafter acquired by operation of law or otherwise)
(which right, title and interest of Debtor shall, for all purposes of this
Instrument, be deemed to include, without limitation, any and all right, title
and interest now owned or hereafter acquired by Debtor in any amendment,
modification, supplement, restatement, extension, renewal or replacement of any
of the leases, licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in Exhibit “A”) in, to
and under or that covers, affects or otherwise relates to the Land or the
leases, licenses, subleases, sublicenses, easements, rights of way, agreements
and other documents and instruments described in Exhibit “A” or to any of the
estates, property, interests or rights described or referred to above or herein
(collectively, the “Collateral”); including, without limitation, the
following:

       

       

      
        
          
          

        

        
          -1-

          
            

          

        

        
          
          

        

      

       

       

      (a) All of
Debtor’s right, title and interest of whatever kind or character (whether now
owned or hereafter acquired by operation of law or otherwise) in, to and under
or that covers, affects or otherwise relates to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit “A” or to any of the estates,
property, interests or rights described or referred to above or herein, even
though Debtor’s interest therein may be incorrectly described in, omitted from
or not described in Exhibit “A”;

       

      (b) All of
Debtor’s right, title and interest (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under all presently existing and
hereafter created oil, gas or mineral unitization, cooperative development,
pooling, spacing or communitization agreements, declarations or orders, and in
and to the lands and properties covered and the units created thereby
(including, without limitation, units formed under orders, rules, regulations or
other official acts of any federal, state, tribal, local or other authority
having jurisdiction and so called “working interest units” created under
operating and similar agreements or otherwise), that cover, affect or otherwise
relate to the Land or the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
Exhibit “A” or to any of the estates, property, interests or rights described or
referred to above or herein;

       

      (c) All of
Debtor’s right, title and interest (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under all presently existing and
hereafter created operating agreements, equipment leases, production sales,
purchase, exchange or processing agreements, transportation or gathering
agreements, farmout or farmin agreements, disposal agreements, area of mutual
interest agreements and other contracts or agreements that cover, affect or
otherwise relate to the Land or the leases, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and instruments
described in Exhibit “A” or to any of the estates, property, interests or rights
described or referred to above or herein or the operations thereon, or the
production, treatment, storage, gathering, transportation, handling, processing,
manufacturing, sale or marketing of Hydrocarbons (as hereinafter defined)
produced therefrom or allocated or attributed thereto, including, without
limitation, those contracts and agreements listed in Exhibit “A” as the same may
be amended or supplemented from time to time; and

       

      (d) All of
Debtor’s right, title and interest of whatever kind or character (whether now
owned or hereafter acquired by operation of law or otherwise) in, to and under
all presently existing or hereafter created easements, servitudes,
rights-of-way, surface leases, licenses, permits and other surface rights used,
or held for use, in connection with the Land or any of the estates, property,
interests or rights described or referred to above or herein, or the operations
thereon, or the production, treatment, storage, gathering, transportation,
handling, processing, manufacturing, sale or marketing of Hydrocarbons produced
therefrom or allocated or attributed thereto, including, without limitation, the
easements and rights-of-way described in Exhibit “A” hereto as same may be
amended or supplemented from time to time;

       

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

       

      2. All of
the oil, gas, drip gasoline, natural gasoline, natural gas liquids, condensate,
distillate, casinghead gas and other solid, liquid or gaseous hydrocarbons and
other associated or related substances of whatever kind or character and in
whatever form or phase, including, without limitation, gases produced from
coal-bearing formations and strata such as so-called “coal-bed gas” and
“coal-bed methane” (collectively, “Hydrocarbons”) in, on, under or allocated or
attributed to any of the estates, property, interests or rights described or
referred to above or herein or any other interest of Debtor (whether now owned
or hereafter acquired by operation of law or otherwise) in, to and under or that
covers, affects or otherwise relates to the Land or to any of the estates,
property, interests or rights described or referred to above or
herein;

       

      3. All
wells, platforms, derricks, casing, tubing, tanks, tank batteries, treaters,
separators, rods, pumps, pumping units, flow lines, water lines, transportation
lines, gathering lines, gas lines, machinery, pipelines, power lines and other
goods and equipment, and all of the personal property and fixtures, as defined
under applicable state law, now or hereafter located in, on, under, affixed,
allocated or attributed to or obtained or used in connection with any of the
estates, property, interests or rights described or referred to above or herein
or any other interest of Debtor (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under or that covers, affects or
otherwise relates to the Land or to any of the estates, property, interests or
rights described or referred to above or herein, or that are used or purchased
for the production, treatment, storage, gathering, transportation, handling,
processing, manufacturing, sale or marketing of Hydrocarbons;

       

      4. All of
the accounts, contract rights and general intangibles now or hereafter arising
in connection with the production, treatment, storage, gathering,
transportation, handling, processing, manufacturing, sale or marketing of
Hydrocarbons produced from or allocated or attributed to any of the estates,
property, interests or rights described or referred to above or herein or any
other interest of Debtor (whether now owned or hereafter acquired by operation
of law or otherwise) in, to or under or that covers, affects or otherwise
relates to the Land or to any of the estates, property, interests or rights
described or referred to above or herein and all other accounts, contract rights
and general intangibles now or hereafter arising in connection with the estates,
property, interests or rights described or referred to above or
herein;

       

      5. All of
the severed and extracted Hydrocarbons, including, without limitation,
“as-extracted collateral” (as defined in the applicable version of the Uniform
Commercial Code in effect in each jurisdiction in which any of the Land is
located) produced from or allocated or attributed to any of the estates,
property, interests or rights described or referred to above or herein or any
other interest of Debtor (whether now owned or hereafter acquired by operation
of law or otherwise) in, to and under or that covers, affects or otherwise
relates to the Land or to any of the estates, property, interests or rights
described or referred to above or herein;

       

      6. All
renewals, extensions and restatements of, modifications, changes, amendments and
supplements to, and substitutions for the estates, property, interests and
rights described or referred to in paragraphs 1 through 5 above, and all
additions and accessions thereto;

       

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

       

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

       

      8. All of
the proceeds and products of the estates, property, interests and rights
described or referred to in paragraphs 1 through 7 above, including, without
limitation, condemnation awards and the proceeds of any and all insurance
policies (including title insurance policies as well as other types of insurance
policies) covering all or any part of said estates, property, interests or
rights and, to the extent they may constitute proceeds, instruments, accounts,
securities, general intangibles, contract rights and inventory.

       

      GRANTING
CLAUSES

       

      In
consideration of ten dollars and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Debtor, and the
matters hereinafter set forth, Debtor hereby irrevocably:

       

      A. Real
Property.  Grants, bargains, sells, assigns, transfers and
conveys to Trustee, with POWER OF SALE, for the benefit of Secured Party, that
part of the Collateral that is real property (including any fixtures that are
real property under applicable state law), subject to the assignment made under
paragraph C below; TO HAVE AND TO HOLD all of the Collateral that is real
property (including any fixtures that are real property under applicable state
law), together with all of the rights, privileges, benefits, hereditaments and
appurtenances in any way belonging, incidental or pertaining thereto, to Trustee
and its successors and assigns, forever, IN TRUST, NEVERTHELESS, for the
security and benefit of Secured Party and its successors and assigns, subject to
all of the terms, conditions, covenants, agreements and trusts herein set
forth;

       

      B. Personal
Property.  Grants to Secured Party a security interest in that
part of the Collateral that is personal property (including any fixtures that
are personal property under applicable state law); and

       

      C. Assignment of
Production.  Absolutely assigns to Secured Party all of the
severed and extracted Hydrocarbons produced from or allocated or attributed to
any of the Collateral or any other interest of Debtor (whether now owned or
hereafter acquired by operation of law or otherwise) in, to and under or that
covers, affects or otherwise relates to the Land or to any of the estates,
property rights or other interests described or referred to above, together with
all of the proceeds thereof.

       

      ARTICLE
I

       

      Obligations

       

      Section
1.1       Obligations
Secured.  This Instrument is executed, acknowledged and
delivered by Debtor to secure and enforce the following indebtedness,
liabilities and obligations (the “Obligations”):

       

       

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

       

      A. Note.  All
indebtedness (including principal, interest, fees and penalties), liabilities
and obligations under or pursuant to the Promissory Note, dated January 29,
2010, in the principal amount of $4,500,000, made by Debtor and payable to the
order of Secured Party (the “Note”);

       

      B. Credit
Agreement.  All indebtedness, liabilities and obligations of
whatever kind or character, now existing or hereafter created or arising under
or pursuant to that certain Credit Agreement (the “Credit Agreement”),
dated as of  January 29, 2010, between Secured Party and
Debtor;

       

      C. This
Instrument.  All indebtedness, liabilities and obligations of
Debtor to Secured Party of whatever kind or character, now existing or hereafter
created or arising under or pursuant to this Instrument, including, without
limitation, those arising under or pursuant to the representations, warranties,
covenants and indemnities contained herein and any and all amounts advanced to
protect the liens and security interests herein granted and all reasonable
attorneys’ fees, court costs, and expenses of whatever kind or character now
existing or hereafter created or arising, incident thereto or to the collection
of the indebtedness, liabilities and obligations hereby secured and enforcement
of the liens and security interests herein granted and created;

       

      D. Other
Obligations.  All other indebtedness, liabilities and
obligations of Debtor to Secured Party of whatever kind or character now
existing or hereafter created or arising, whether fixed, absolute or contingent,
direct or indirect, primary or secondary, joint, several or joint and several,
due or to become due, and however evidenced whether by note, open account,
overdraft, endorsement, surety agreement, guarantee or otherwise, it being
contemplated that Debtor may hereafter become indebted to Secured Party in such
further sum or sums; and

       

      E. Renewals, Extensions and
Amendments.  All indebtedness, liabilities and obligations of
whatever kind or character, now existing or hereafter created or arising under
or pursuant to all renewals, extensions and restatements of, modifications,
changes, amendments and supplements to and substitutions for, all or any part of
the foregoing.

       

      Section
1.2                       Maximum Indebtedness
Secured.  Debtor, Secured Party and Trustee agree and
acknowledge that Secured Party may elect to make additional advances under the
terms of the Note, the Credit Agreement or otherwise, and that any such future
advances shall be subject to, and secured by, this Instrument.  Should
the Obligations decrease or increase pursuant to the terms of the Note, the
Credit Agreement or otherwise, at any time or from time to time, this Instrument
shall retain its priority position of record until the termination of the Credit
Agreement and until full, final and complete payment of all the
Obligations.  The aggregate unpaid principal amount, exclusive of
interest, of the Obligations outstanding at any particular time (after having
given effect to all advances and all repayments made prior to such time) which
is secured by the Collateral shall not aggregate in excess of Nine Million
Dollars ($9,000,000).  Such amount does not in any way imply that
Secured Party is obligated to make any future advances to Debtor at any time
unless specifically so provided in the Credit Agreement  or any other
loan document.

       

       

      
        
          
          

        

        
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      ARTICLE
II

       

      Warranties, Representations
and Covenants

       

      Section
2.1       Representations and
Warranties.  Debtor warrants and represents as
follows:

       

      A. Power and
Authority.  Debtor has the power and authority to mortgage,
pledge and hypothecate the Collateral as provided herein.

       

      B. Title.  Unless
otherwise indicated in Exhibit “A”, to the best of Debtor's knowledge the
oil and gas leases and licenses described in Exhibit “A” cover all of the oil,
gas and other Hydrocarbons in and under the Land.  Debtor has good and
defensible title to the Collateral; and Debtor has good and defensible title to
the undivided interests in the leases, licenses, sublicenses, sublicensing,
easements, rights-of-way, agreements and other documents and instruments as
described in Exhibit “A” free and clear of all royalties and other burdens,
charges, liens, security interests, encumbrances, agreements, contracts,
assignments and other matters, except (1) landowner’s royalties and the
overriding royalties and the agreements and contracts specifically described in
Exhibit “A”, (2) the liens and security interests evidenced by this Instrument,
(3) statutory liens for taxes which are not yet delinquent, (4) liens under
operating agreements, pooling orders and unitization agreements, and mechanics'
and materialmen's liens, with respect to obligations which are not yet due, and
(5) other interests in favor of Secured Party.  To the best of
Debtor's knowledge the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
Exhibit “A” are valid and subsisting and are in full force and
effect.  To the best of Debtor's knowledge, all rents and royalties
due and payable under the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
Exhibit “A” have been paid.  All wells located on the Land have been
drilled, operated and produced in conformity with all applicable laws and rules,
regulations and orders of all regulatory authorities having jurisdiction, and
are subject to no penalties on account of past production.  To the
best of Debtor's knowledge none of such wells are deviated from the vertical
more than the maximum permitted by applicable laws, rules, regulations and
orders.  To the best of Debtor's knowledge such wells are in fact
bottomed under and are producing from, and the well bores are wholly within, the
lands described in Exhibit “A”.  Debtor warrants and will forever
defend the title to the Collateral, subject to the aforesaid, against the claims
of all persons claiming or to claim the same or any part thereof by, through or
under the Debtor but not otherwise.

       

      C. Working and Net Revenue
Interests.

       

      1. With
respect to each of the oil and gas leases and wells described in
Exhibit “A,” Debtor’s share of development and operating costs with respect
to the portion of the Land covered thereby as described in Exhibit “A”,
without regard to pooling and unitization, is not greater than the “Working
Interest” or “WI” specified in Exhibit “A”; and Debtor’s share of the gross
production of all oil, gas and other Hydrocarbons produced, saved and marketed
from said Land, without regard to pooling and unitization, is no less than the
“Net Revenue Interest” or “NRI” specified in Exhibit “A”.

       

       

      
        
          
          

        

        
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      2. With
respect to each of the overriding royalty interests described in
Exhibit “A”, Debtor’s share of the gross production of oil, gas and other
Hydrocarbons produced, saved and marketed from the portion of the Land subject
thereto as described in Exhibit “A”, is no less than the percentage
specified in Exhibit “A”.

       

      3. With
respect to each of the mineral interests described in Exhibit “A”, Debtor’s
share of the oil, gas and other Hydrocarbons in and under and that may be
produced, saved and marketed from the portion of the Land subject thereto as
described in Exhibit “A” is no less than the stated percentage specified in
Exhibit “A”.

       

      4. With
respect to each of the royalty interests described in Exhibit “A”, Debtor’s
share of the gross production of oil, gas and other Hydrocarbons produced, saved
and marketed from the portion of the Land subject thereto as described in
Exhibit “A” is no less than the percentage specified in
Exhibit “A”.

       

      5. With
respect to each of the units and pools described in Exhibit “A”, Debtor’s
share of development and operating costs with respect to the portion of the Land
covered thereby as described in Exhibit “A” or in the agreements creating
such units and pools recorded as described in Exhibit “A” and the wells on
said Land, is no greater than the “Working Interest” or “WI” specified in
Exhibit “A”; and Debtor’s share of the gross production of oil, gas and
other Hydrocarbons produced, saved and marketed from said Land and said wells is
no less than the “Net Revenue Interest” or “NRI” specified in
Exhibit “A.”

       

      All such
shares of development and operating costs and of gross production are not and
will not be subject to change (other than changes that arise pursuant to
nonconsent provisions of operating agreements described in Exhibit “A” in
connection with operations hereafter proposed) except, and only to the extent,
that such changes are reflected in Exhibit “A”.

       

      D. Operations of Oil and Gas
Properties.  The Collateral (and all properties spaced,
communitized, unitized or otherwise aggregated therewith) will be maintained,
operated and developed in a good and workmanlike manner and in conformity in all
material respects with all applicable laws, rules, regulations and orders of all
federal, state, tribal and local governmental bodies, authorities and agencies
and in conformity in all material respects with the provisions of all leases,
subleases or other contracts and agreements comprising a part of the
Collateral.  To the best of Debtor's knowledge none of the Collateral
is subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of an
overproduction (whether or not the same was permissible at the time) prior to
the date hereof.

       

      E. Sale of
Production.

       

      1. All
proceeds from the sale of Debtor’s interests in Hydrocarbons from the Collateral
are currently being paid in full to Debtor by the purchaser or remitter thereof
on a timely basis and at prices and terms comparable to market prices and terms
generally available at the time such prices and terms were negotiated for oil
and gas production from producing areas situated near the Collateral, and none
of such proceeds are currently being held in suspense by such purchaser or any
other party.

       

       

       

      
        
          
          

        

        
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      2. Neither
Debtor, nor to the best of Debtor's knowledge its predecessors in title, have
entered into or are subject to any agreement or arrangement (including “take or
pay” or similar arrangements) nor to the best of Debtor's knowledge is the
Collateral subject to any such agreement or arrangement, to deliver Hydrocarbons
produced or to be produced from the Collateral at some future time without then
or thereafter receiving full payment therefor.

       

      3. To the
best of Debtor's knowledge none of the Collateral is or will become subject to
any contractual or other arrangement whereby payment for production from such
Collateral is to be deferred for a substantial period after the month in which
such production is delivered (that is, in the case of oil, not in excess of 60
days, and in the case of gas, not in excess of 90 days).

       

      4. Except
for existing production sales contracts, processing agreements or transportation
agreements, none of the Collateral is or will become subject to any contractual
or other arrangement for the sale of crude oil that cannot be canceled on 180
days’ or less notice; and none of the Collateral is or will become subject to a
gas sales contract that contains terms that are not customary in the
industry.

       

      5. To the
best of Debtor's knowledge none of the Collateral is subject at the present time
to any regulatory refund obligation and, no facts exist that might cause the
same to be imposed.

       

      6. None of
the Collateral is subject to a gas balancing arrangement under which an
imbalance exists with respect to which imbalance Debtor or the Collateral is in
an overproduced status and is required to (i) permit one or more third
parties to take a portion of the production attributable to such Collateral
without payment (or without full payment) therefor or (ii) make payment in
cash, in order to correct such imbalance.

       

      F. Condition of Personal
Property.  The inventory, equipment, fixtures and other
tangible personal property and fixtures forming a part of the Collateral are in
good repair and condition.  All of such Collateral is located on the
Land.

       

      G. Contracts and
Agreements.  Except for contracts and agreements that do not
have a material effect on the use, ownership, value or operation of the
Collateral, to the best of Debtor's knowledge Exhibit “A” sets forth all
operating agreements, equipment leases, production sales, purchase, exchange or
processing agreements, transportation or gathering agreements, farmout or farmin
agreements, disposal agreements, area of mutual interest agreements and other
contracts and agreements that cover, effect or otherwise relate to the Land or
the leases, licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in Exhibit ”A”
that relate to operations thereon, or the production, treatment, storage,
gathering, transportation, handling, processing, manufacturing, sale or
marketing of hydrocarbons produced therefrom or allocated or attributed
thereto.

       

       

      
        
          
          

        

        
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      H. Consents and Preferential
Rights to Purchase.  Except as specifically set forth in
Exhibit A, to the best of Debtor's knowledge there are no preferential
rights to purchase all or any portion of the Collateral and there are no rights
of third parties to consent to the transfer of all or any portion of the
Collateral.

       

      I. Taxes.  To
the best of Debtor's knowledge all ad valorem, property, production, severance,
excise and similar taxes and assessments based on or measured by the ownership
of property or the production of Hydrocarbons or the receipt of proceeds
therefrom relating to the Collateral that have become due and payable have been
properly and timely paid.

       

      J. Federal State and Tribal
Interests Leases.  Debtor is duly qualified to own, hold and
operate leases, easements, rights-of-way, mineral agreements and other
agreements covering, affecting or otherwise relating to federal, state and
tribal lands (including leases, easements and rights-of-way issued by the Bureau
of Land Management; leases, easements and rights-of-way issued by the Bureau of
Indian Affairs; and leases, easements, rights-of-way, mineral agreements and
other agreements with tribal governments or agencies or allottees).

       

      K. Environmental
Matters.

       

      1.   To
the best of Debtor's knowledge the Collateral is being, operated in compliance
with all applicable Environmental Laws (as hereinafter defined); and no
conditions exist on or with respect to the Collateral or, on any property
adjoining the Collateral that would subject Debtor, Secured Party or the owner
of any adjoining property to any damages (including actual, consequential,
exemplary and punitive damages), penalties, injunctive relief or cleanup costs
under any Environmental Laws (as hereinafter defined), or that require or are
likely to require cleanup, removal, remedial action or other response by Debtor,
Secured Party or the owner of any adjoining property pursuant to any
Environmental Laws.  Debtor is not a party to any litigation or
administrative proceeding, nor, to the best of Debtor’s knowledge, is any
litigation, administrative proceeding or investigation threatened against Debtor
or the Collateral, that asserts or alleges that Debtor or its predecessors in
title to the Collateral violated or are violating Environmental Laws or that
Debtor or such predecessors are required to clean up, remove or take remedial or
other responsive action due to the use, storage, treatment, disposal, discharge,
leaking or release of any Hazardous Substances or Solid Waste (as such terms are
hereinafter defined).  Neither Debtor nor to the best of Debtor's
knowledge such predecessors or any part of the Collateral is subject to any
judgment, decree, order or citation related to or arising out of Environmental
Laws and Debtor has not been named or listed as a potentially responsible party
by any governmental or other entity in a matter arising under or relating to any
Environmental Laws.  This representation shall continue to be true and
correct following disclosure to the applicable governmental authorities of all
relevant facts, conditions, and circumstances, if any, pertaining to the
Collateral or to Debtor.

       

       

      
        
          
          

        

        
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      2. Debtor
undertook, at the time of acquisition of the Collateral, all appropriate inquiry
into the previous ownership and uses of the Collateral consistent with good
commercial and industry practice.  To the best of Debtor's knowledge
no Hazardous Substances or Solid Waste have been disposed of or otherwise
released on, to or from the Collateral, except in full compliance with all
Environmental Laws.  The use which Debtor makes and intends to make of
the Collateral will not result in the use or storage of any Hazardous Substances
or Solid Waste on, in or in connection with the Collateral, or disposal from the
Collateral, except in full compliance with all Environmental Laws, or result in
any requirement that Debtor apply for or obtain a permit under RCRA (as
hereinafter defined) or other Environmental Law for the treatment, storage or
disposal of Hazardous Substances or Solid Waste.  To the best of
Debtor's knowledge there are no regulated underground storage tanks located on
or in the Collateral.

       

      3. As used
herein, the term “Environmental Laws”
shall mean any and all present and future laws (whether common or statutory),
compacts, treaties, conventions or rules, regulations, codes, plans,
requirements, criteria, standards, orders, decrees, judgments, injunctions,
notices or demand letters issued, promulgated or entered thereunder by any
federal, tribal, state or local governmental entity relating to public or
employee health and safety, pollution or protection of the environment,
including the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of
1986 (“CERCLA”), the
Resource Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984, (“RCRA”), the Federal
Safe Drinking Water Act, the Federal Water Pollution Control Act, the Oil
Pollution Act of 1990, the Emergency Planning and Community Right-to-Know Act of
1986, the Clean Air Act and any and all other federal, state, tribal and local
laws, rules, regulations and orders relating to reclamation of land, wetlands
and waterways or relating to use, storage, emissions, discharge, cleanup,
release or threatened release of pollutants, contaminants, chemicals or
industrial, toxic or Hazardous Substances or Solid Waste on or into the
workplace or the environment (including ambient air, oceans, waterways,
wetlands, surface water, ground water (tributary and nontributary), land surface
or subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic, hazardous or similar
substances, as all of the foregoing may be amended, supplemented and
reauthorized from time to time.

       

      4. As used
herein, the term “Hazardous Substances” shall mean any and all
(a) “hazardous substances,” as defined by CERCLA; (b) “hazardous
wastes,” as defined by RCRA; (c) any pollutant, contaminate or hazardous,
dangerous or toxic chemicals, materials or substances within the meaning of any
Environmental Law; (d) any radioactive material, including any source,
special nuclear or by-product material as defined at 42 U.S.C. § 2011 et seq., as amended;
and (e) asbestos in any form or condition.  As used herein, the
term “release” shall have the meaning specified in CERCLA, and the terms “Solid Waste,”
“disposal” or “disposed” shall have the meaning specified in RCRA.  In
the event CERCLA, RCRA or any other applicable Environmental Law is amended so
as to broaden the meaning of any terms defined thereby, such broader meaning
shall apply subsequent to the effective date of such amendment; and to the
extent that the laws of any state in which the Collateral are located establish
a meaning for “hazardous substance,” “release,” “solid waste,” “hazardous
wastes,” or “disposal” that is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply.

       

       

       

      
        
          
          

        

        
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      L. Non-Foreign Person
Status.  Debtor is not a “foreign person” within the meaning of
the Internal Revenue Code of 1986, as amended (the “Code”), Sections 1445
and 7701; that is, Debtor is not a nonresident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate as those terms are defined
in the Code and any regulations promulgated thereunder.

       

      M. Structure.  Debtor’s
name, identity, entity structure, organizational identification number and state
of organization are correctly reflected in the preamble to this
Instrument.

       

      Section
2.2        Covenants.  Debtor
covenants and agrees as follows:

       

      A. Obligations.  Debtor
shall pay when due and perform the Obligations in accordance with the terms
thereof and hereof.

       

      B. Recording and
Filing.  Debtor shall (1) promptly and at Debtor’s own
expense, file in such offices, at such times and as often as may be necessary,
this Instrument and every other instrument in addition or supplemental hereto,
including applicable financing statements, as may be necessary to create,
perfect, maintain and preserve the first priority of the liens and security
interests intended to be created hereby and the rights and remedies of Secured
Party and Trustee hereunder; (2) promptly furnish to Secured Party evidence
satisfactory to Secured Party of all such filings; and (3) otherwise do all
things necessary or expedient to be done effectively to create, perfect,
maintain and preserve the priority of the liens and security interests intended
to be created hereby as a first lien on real property and fixtures and a first
priority security interest in personal property and fixtures.

       

      C. Modifications and
Dispositions.  Without the prior written consent of Secured
Party, Debtor shall not (1) amend, modify or otherwise revise any lease,
license or other agreement described in Exhibit “A”; (2) release,
surrender, abandon or forfeit the Collateral or any part thereof; (3) sell,
convey, assign, lease, sublease, alienate, mortgage or grant security interests
in or otherwise dispose of or encumber the Collateral or any part thereof,
except to the extent explicitly permitted by the Loan Agreement and except sales
of severed Hydrocarbons in the ordinary course of Debtor’s business and for fair
consideration, and except for the liens and security interests created by this
Instrument and liens for taxes, assessments and governmental charges not
delinquent; or (4) consent to, permit or authorize any such act by another
party with respect to the Land, the Collateral or any part thereof.

       

       

      
        
          
          

        

        
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      D. Maintenance of
Collateral.  Debtor shall, at Debtor’s own expense,
(1) keep in full force and effect all of the leases, licenses and other
agreements described in Exhibit “A” and all rights-of-way, easements and
privileges necessary or appropriate for the proper operation of such leases,
licenses and agreements, by the proper payment of all rentals, royalties and
other sums due thereunder and the proper performance of all obligations and
other acts required thereunder; (2) cause the Collateral to be properly
maintained, developed and continuously operated for the production of
Hydrocarbons and protected against drainage and damage in a good and workmanlike
manner as a prudent operator would in accordance with good oil field practice
and applicable federal, state, tribal and local laws, rules, regulations and
orders; (3) pay or cause to be paid when due all expenses incurred in
connection with such maintenance, development, operation and protection of the
Collateral; (4) keep all goods, including equipment, inventory and fixtures
included in the Collateral in good and effective repair, working order and
operating condition and make all repairs, renewals, replacements, substitutions,
additions and improvements thereto and thereof as are necessary and proper;
(5) permit Secured Party, and its respective agents, employees,
contractors, designees and consultants, to enter upon the Collateral for the
purpose of investigating and inspecting the condition and operation of the
Collateral, and do all things necessary or proper to enable Secured Party to
exercise this right whenever Secured Party so desires; and (6) do all other
things necessary to keep unimpaired Secured Party’s and Trustee’s interests in
the Collateral.

       

      E. Notification of
Breach.  Debtor shall promptly, and in no event later than 3
days after becoming aware, notify Secured Party (1) if any representation
or warranty of Debtor contained in this Agreement is discovered to be or becomes
untrue, or (2) Debtor fails to perform or comply with any covenant or
agreement contained in this Agreement or it is reasonably anticipated that
Debtor will be unable to perform or comply with any covenant or agreement
contained in this Agreement.  Debtor shall cause all the
representations and warranties of Debtor contained in this Agreement to be true
and correct in all material respects from time to time and all
times.

       

      F. Defense of
Title.  If the title or interest of Debtor, Trustee or Secured
Party to the Collateral or any part thereof, or the lien or encumbrance created
by this Instrument, or the rights or powers of Secured Party or Trustee
hereunder, shall be attacked, either directly or indirectly, or if any legal
proceedings are commenced against Debtor or the Collateral, Debtor shall
promptly give written notice thereof to Secured Party and at Debtor’s own
expense shall take all reasonable steps diligently to defend against any such
attack or proceedings, employing attorneys acceptable to Secured
Party.  Secured Party and Trustee may take such independent action in
connection therewith as they may in their discretion deem advisable, and all
costs and expenses, including, without limitation, attorneys’ fees and legal
expenses, incurred by or on behalf of Secured Party and by Trustee in connection
therewith shall be a demand obligation owing by Debtor to Secured Party and
shall bear interest at the Late Payment Rate until paid, and shall constitute a
part of the Obligations and be indebtedness secured and evidenced by this
Instrument.

       

      
        
          
          

        

        
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      G. Environmental
Matters.  Debtor shall comply with all Environmental Laws and
shall maintain and obtain all permits, licenses and approvals required under
Environmental Laws.  Debtor shall not cause or permit the Collateral
or Debtor to be in violation of, or do anything or permit anything to be done
that will subject the Collateral, Debtor or Secured Party to any remedial
obligations under any applicable Environmental Laws, assuming disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Collateral or
otherwise.  Debtor shall promptly notify Secured Party in writing of
any existing, pending or threatened investigation or inquiry by any governmental
authority in connection with any applicable Environmental
Laws.  Debtor shall take all steps necessary to determine that no
Hazardous Substances or Solid Waste have been used or stored on, in or in
connection with the Collateral, or disposed of or otherwise released on, to or
from the Collateral, except in full compliance with all Environmental
Laws.  Debtor shall not cause or permit the use or storage of
Hazardous Substances or Solid Waste on, in or in connection with the Collateral
or disposal of Hazardous Substances or Solid Waste from the Collateral, except
in full compliance with all Environmental Laws, or make any use of the
Collateral that results in any requirement that Debtor apply for or obtain a
permit under RCRA or other Environmental Law for the treatment, storage or
disposal of Hazardous Substances or Solid Waste.  Debtor covenants and
agrees to keep or cause the Collateral to be kept free of any Hazardous
Substances or Solid Waste except in full compliance with all Environmental Laws,
and, promptly upon the discovery that the presence of any such substance on the
Collateral is not in full compliance, to remove the same (or if removal is
prohibited by law, to take whatever action is required by law) at its sole
expense.  Upon Secured Party’s reasonable request based upon the
condition of or operations on the Collateral, at any time and from time to time,
Debtor shall provide at Debtor’s sole expense inspections, tests and audits of
the Collateral from an engineering or consulting firm approved by Secured Party
indicating the presence or absence of Hazardous Substances or Solid Waste on, in
or under the Collateral that are not in compliance with applicable Environmental
Laws.  If Debtor fails to provide same after 20 days’ notice, Secured
Party may order same, and Debtor grants to Secured Party and its respective
employees, agents, contractors, designees and consultants access to the
Collateral and a license (which is coupled with an interest and irrevocable) to
perform inspections, tests and audits.  The cost of such inspections,
tests and audits shall be a demand obligation owing by Debtor to Secured Party
and shall bear interest at the Late Payment Rate until paid, and shall
constitute a part of the Obligations and be indebtedness secured and evidenced
by this Instrument.  Nothing contained herein shall relieve Debtor
from conducting its own inspections, tests and audits or taking any other steps
necessary to comply with all Environmental Laws, nor shall anything contained
herein be construed to imply or impose any duty on Secured Party concerning
Debtor’s compliance or noncompliance therewith.  Secured Party’s
rights under this paragraph are for the sole purpose of protecting Secured
Party’s security for the repayment of the Obligations and shall not under any
circumstances be construed as granting the right to participate or constitute
participation in the management of the Collateral or the business conducted
thereon.

       

      H. Change in
Structure.   Debtor shall not cause or permit any change
to be made in its name, identity, entity structure, organizational
identification number or state of organization, unless Debtor shall have
notified Secured Party of such change at least thirty days prior to the
effective date of such change, and shall have first taken all action required by
Secured Party for the purpose of further perfecting or protecting the security
interest in favor of Secured Party in the Collateral.  In any notice
furnished pursuant to this Subsection 2.2-H, Debtor shall expressly state that
the notice is required by this Instrument and contains facts that may require
additional filings of financing statements or other notices for the purposes of
continuing perfection of Secured Party’s security interest in the
Collateral.

       

      
        
          
          

        

        
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      I. Further
Assurances.  Debtor shall execute, acknowledge and deliver, or
cause to be executed, acknowledged or delivered, to Secured Party such other and
further instruments and do such other acts as in the reasonable opinion of
Secured Party may be necessary or desirable to effect the intent of this
Instrument, promptly upon request of Secured Party and at Debtor’s
expense.

       

      Section
2.3        Costs, Expenses and
Indemnities.  Debtor agrees to pay and indemnify Secured Party
and Trustee as follows:

       

      A. Costs and
Expenses.  Debtor shall indemnify Secured Party and Trustee
from and reimburse and pay Secured Party for all fees, costs and expenses
(including, without limitation, attorneys’ fees, court costs and legal expenses
and consultant’s and expert’s fees and expenses), incurred or expended by
Secured Party or Trustee in connection with (1) the breach by Debtor of any
representation or warranty contained in this Instrument, the Loan Agreement, the
Notes or any other documents and instruments evidencing, securing or otherwise
relating to the Obligations, (2) the failure by Debtor to perform any
agreement, covenant, condition, indemnity or obligation contained in this
Instrument, the Loan Agreement, the Notes or any other documents and instruments
evidencing, securing or otherwise relating to the Obligations, (3) Secured
Party’s or Trustee’s exercise of any of its rights and remedies under this
Instrument, the Loan Agreement, the Notes and the other documents and
instruments evidencing, securing or otherwise relating to the Obligations, or
(4) the protection of the Collateral and the liens thereon and security
interests therein.  All such fees, costs and expenses shall be a
demand obligation owing by Debtor to Secured Party and shall bear interest at
the Late Payment Rate until paid, and shall constitute a part of the Obligations
and be indebtedness secured and evidenced by this Instrument.  The
liabilities of Debtor as set forth in this Section 2.3-A shall survive the
termination of this Instrument.

       

      B. Indemnity.  Debtor
shall indemnify and hold harmless Secured Party and persons or entities owned or
controlled by or affiliated with Secured Party and their respective directors,
officers, shareholders, partners, employees, consultants and agents (herein
individually, an “Indemnified Party,”
and collectively, “Indemnified Parties”)
from and against, and reimburse and pay Indemnified Parties with respect to, any
and all claims, demands, liabilities, losses, damages (including, without
limitation, actual, consequential, exemplary and punitive damages), causes of
action, judgments, penalties, fees, costs and expenses (including, without
limitation, attorneys’ fees, court costs and legal expenses and consultant’s and
expert’s fees and expenses), of any and every kind or character, known or
unknown, fixed or contingent, that may be imposed upon, asserted against or
incurred or paid by or on behalf of any Indemnified Party on account of, in
connection with, or arising out of (1) any bodily injury or death or
property 

       

       

      
        
          
          

        

        
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      damage
occurring in or upon or in the vicinity of the Collateral through any cause
whatsoever, (2) any act performed or omitted to be performed hereunder or
the breach of or failure to perform any warranty, representation, indemnity,
covenant, agreement or condition contained in this Instrument, the Loan
Agreement, the Notes or any other documents and instruments evidencing, securing
or relating to the Obligations, (3) any transaction, act, omission, event
or circumstance arising out of or in any way connected with the Collateral or
with this Instrument, the Loan Agreement, the Notes or any other documents and
instruments evidencing, securing or relating to the Obligations, and
(4) the violation of or failure to comply with any statute, law, rule,
regulation or order, including, without limitation, Environmental Laws and
statutes, laws, rules, regulations and orders relating to Hazardous Substances
or Solid Waste.  Without limiting the generality of the foregoing, it
is the intention of Debtor and Debtor agrees that the foregoing indemnities
shall apply to each Indemnified Party with respect to claims, demands,
liabilities, losses, damages (including, without limitation, actual,
consequential, exemplary and punitive damages), causes of action, judgments,
penalties, fees, costs and expenses (including, without limitation, attorneys’
fees, court costs and legal expenses and consultant’s and expert’s fees and
expenses) of any and every kind or character, known or unknown, fixed or
contingent, that in whole or in part are caused by or arise out of the
negligence of such Indemnified Party; however, such indemnities shall not apply
to any Indemnified Party to the extent the subject of the indemnification is
caused by or arises out of the gross negligence or willful misconduct of such
Indemnified Party.  The foregoing indemnities shall not terminate upon
the release, foreclosure or other termination of this Instrument, but shall
survive the foreclosure of the liens and security interests created by this
Instrument or conveyance in lieu of foreclosure and the repayment and
performance of the Obligations and the discharge and release of the liens and
security interest created by this Instrument and the other instruments and
documents evidencing, securing or relating to the Obligations.  Any
amount to be paid hereunder by Debtor to Secured Party or for which Debtor has
indemnified an Indemnified Party shall be a demand obligation owing by Debtor to
Secured Party and shall bear interest at the Late Payment Rate until paid, and
shall constitute a part of the Obligations and be indebtedness secured and
evidenced by this Instrument.  The rights, powers and remedies herein
conferred are cumulative, and not exclusive, of any and all other rights, powers
and remedies existing at law or in equity (including, without limitation,
rights, powers and remedies under Environmental Laws) or provided for in any
other documents or instruments evidencing, securing or relating to the
Obligations and nothing in this paragraph or elsewhere in this Instrument or in
any other documents or instruments evidencing, securing or relating to the
Obligations shall limit or impair any rights, powers or remedies of Secured
Party under any Environmental Laws, including ,without limitation, any rights of
contribution or indemnification available thereunder. The liabilities of Debtor
as set forth in this Section 2.3-B shall survive the termination of this
Instrument.

       

      Section
2.4                       Performance by Secured
Party.  Debtor agrees that, if Debtor fails to perform any act
which Debtor is required to perform hereunder, Secured Party and Trustee may,
but shall not be obligated to, perform or cause to be performed such act, and
any expense so incurred by Secured Party or by Trustee in connection therewith
shall be a demand obligation owing by Debtor to Secured Party and shall bear
interest at the Late Payment Rate until paid, and shall constitute a part of the
Obligations and be indebtedness secured and evidenced by this Instrument, and
Secured Party shall be subrogated to all of the rights of the party receiving
such payment.  Debtor hereby irrevocably appoints Secured Party as
Debtor’s attorney-in-fact and proxy, with full authority in the place and stead
of Debtor and in the name of Debtor or otherwise, from time to time to take any
action and to execute any instrument which Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement.  Such
appointment is coupled with an interest and shall be irrevocable from the date
hereof and so long as any part of the Obligations is outstanding.

       

      
        
          
          

        

        
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      ARTICLE
III

       

      Collection of Proceeds of
Production

       

      Section
3.1       Assignment of
Proceeds.  Pursuant to paragraph C of the granting clause
of this Instrument, Secured Party is absolutely assigned and entitled to receive
all of the severed and extracted Hydrocarbons produced from or allocated or
attributed to all of the Collateral, together with all of the proceeds thereof
and payments in lieu thereof such as “take or pay” or similar
payments.  Debtor acknowledges and agrees that said assignment is
intended to be an absolute and unconditional assignment and not merely a pledge
of or creation of a security interest in said Hydrocarbons and proceeds or an
assignment as additional security.  Debtor shall execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered, transfer orders
or letters-in-lieu thereof directing all pipeline companies or other purchasers
of Hydrocarbons to make payments directly to Secured Party.  All
parties producing, purchasing, receiving or having in their possession any such
Hydrocarbons or proceeds are hereby authorized and directed by Debtor to treat
and regard Secured Party as the party entitled in Debtor’s place and stead to
receive such Hydrocarbons and proceeds; and said parties shall be fully
protected in so treating and regarding Secured Party and shall be under no
obligation to see to the application by Secured Party of any such proceeds
received by it.  For its convenience, Secured Party may, with respect
to any or all such Hydrocarbons or proceeds, permit Debtor to receive such
Hydrocarbons or proceeds until such time as Secured Party shall have made
written demand therefor.  Such election by Secured Party shall not in
any way waive the right of Secured Party to demand and receive such Hydrocarbons
and proceeds thereafter allocated or attributed to the Collateral and shall not
in any way diminish the absolute and unconditional right of Secured Party to
receive all of such Hydrocarbons and proceeds and cash proceeds not theretofore
expended or distributed by Debtor.  Any such Hydrocarbons or proceeds
received by Debtor shall, when received, constitute trust funds in Debtor’s
hands and shall be held by Debtor for the benefit of Secured
Party.  Debtor hereby agrees that upon the first to occur of either
(A) written demand of Secured Party, or (B) the occurrence of any
event which constitutes an Event of Default (as hereinafter defined) or which
upon the giving (or receiving) of notice or lapse of time, or both, would
constitute such an Event of Default, all cash, proceeds, instruments and other
property, of whatever kind or character, received by Debtor on account of the
Collateral, whether received by Debtor in the exercise of its collection rights
hereunder or otherwise, shall, in accordance with instructions then given by
Secured Party, be remitted to Secured Party or deposited to an account
designated by Secured Party, in the form received (properly assigned or endorsed
to the order of Secured Party or for collection and in accordance with Secured
Party’s instructions) not later than the first banking business day following
the day of receipt, to be applied as provided in Section 3.2 hereof and, until
so applied, may be held by Secured Party in a separate account on which Debtor
may not draw.  Debtor agrees not to commingle any such property,
following the receipt of any such demand from Secured Party or the occurrence of
an Event of Default, with any of its other funds or property and agrees to hold
the same upon an express trust for Secured Party until remitted to Secured
Party.

       

       

      
        
          
          

        

        
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      Section
3.2       Application of
Proceeds.  Secured Party shall apply all of the proceeds
received pursuant to Section 3.1 hereof in satisfaction of the Obligations as
provided below, unless otherwise agreed to by Secured Party and
Debtor.  All such proceeds received and to be applied by Secured Party
up to the close of business on the last day of each calendar month shall be
applied by Secured Party on or before the fifth business day of the next
succeeding calendar month as follows (with any balance remaining after such
application to be paid to Debtor):

       

      A. First, to
the payment to Secured Party and Trustee of all outstanding or unreimbursed
fees, costs and expenses incurred by Secured Party or Trustee pursuant hereto,
and any part of the Obligations not evidenced by written instrument, including,
without limitation, all charges and penalties, including interest thereon, due
Secured Party;

       

      B. Second,
to the payment of all interest accrued on the Obligations; and

       

      C. Third, to
the payment or prepayment of the principal of the Obligations in any order the
Secured Party may elect from time to time;

       

      If any
date of application specified above shall be a Saturday, Sunday or legal
holiday, the proceeds to be applied by Secured Party pursuant to this Section
3.2 shall be applied on the business day next succeeding such date which is not
a Saturday, Sunday or legal holiday, and the amount to be applied as described
above shall be the amount accrued up to such date.  If the proceeds
received by Secured Party pursuant to Section 3.1 during any month are not
sufficient to make the minimum payments of principal of and interest on the
Obligations required by the terms of the Loan Agreement or the Notes, then
Debtor on or before the due date shall make payment to Secured Party of an
amount sufficient when added to such proceeds received to make the minimum
required payments of principal and interest of the Obligations.

       

      Section
3.3      Inclusion in
Sale.  Upon any sale of any of the Collateral pursuant to
Article V hereof and expiration of any mandatory redemption periods, the
Hydrocarbons thereafter produced from or attributed to the part of the
Collateral so sold, and the proceeds thereof, shall be included in such sale and
shall pass to the purchaser free and clear of the provisions of this Article
III.

       

      Section
3.4       No Liability in Secured
Party.  Secured Party is hereby absolved from all liability for
failure to enforce collection of any such proceeds and from all other
responsibility in connection therewith, except the responsibility to account to
Debtor for proceeds actually received.

       

       

      
        
          
          

        

        
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      Section
3.5       Indemnity.  Debtor
shall indemnify Secured Party against all claims, actions, liabilities,
judgments, costs, attorneys’ fees or other charges of every kind or nature
(“Claims”) made
against or incurred by Secured Party as a consequence of the assertion, either
before or after the payment in full of the Obligations, that Secured Party
received Hydrocarbons or proceeds pursuant to this Article III which were
claimed by third persons.  Secured Party shall have the right to
employ attorneys and to defend against any Claims, and unless furnished with
reasonable indemnity, Secured Party shall have the right to pay or compromise
and adjust all Claims.  Debtor shall indemnify and pay to Secured
Party all such amounts as may be paid with respect thereto or as may be
successfully adjudicated against Secured Party, and such amounts shall be a
demand obligation owing by Debtor to Secured Party and shall bear interest at
the Late Payment Rate until paid, and shall constitute a part of the Obligations
and be indebtedness secured and evidenced by this Instrument.  The
liabilities of Debtor as set forth in this Section 3.5 shall survive the
termination of this Instrument.

       

      Section
3.6      Rights of Secured
Party.  Secured Party shall have the immediate and continuing
right to demand, collect, receive and receipt for all production, proceeds and
payments assigned hereunder, and Secured Party is hereby appointed agent and
attorney-in-fact of Debtor (which appointment is coupled with an interest and is
irrevocable) for the purpose of executing any release, receipt, division order,
transfer order, relinquishment or other instrument that Secured Party deems
necessary in order for Secured Party to collect and receive such production,
proceeds and payments.  In addition, Debtor agrees that, upon the
request of Secured Party, it will promptly execute and deliver to Secured Party
such transfer orders, payment orders, division orders and other instruments as
Secured Party may deem necessary, convenient or appropriate in connection with
the payment and delivery directly to Secured Party of all proceeds, production,
and payments assigned hereunder.  Debtor hereby authorizes and directs
that, upon the request of Secured Party, all pipeline companies, purchasers,
transporters and other parties now or hereafter purchasing oil, gas or other
mineral production produced from or allocated or attributed to the Collateral or
any other interest of Debtor (whether now owned or hereafter acquired by
operation of law or otherwise), in, to or relating to the Land or to any of the
estates, property, rights or other interests included in the Collateral, or any
part thereof, or now or hereafter having in their possession or control any
production from or allocated to the Collateral or any other interest of Debtor
(whether now owned or hereafter acquired by operation of law or otherwise), in,
to or relating to the Land or to any of the estates, property, rights or other
interests included in the Collateral, or any part thereof, or the proceeds
therefrom, or now or hereafter otherwise owing monies to Debtor under contracts
and agreements herein assigned, shall, until Secured Party directs otherwise,
pay and deliver such proceeds, production or amounts directly to Secured Party
at Secured Party’s address set forth in the introduction to this Instrument, or
in such other manner as Secured Party may direct such parties in writing, and
this authorization shall continue until the assignment of production and
proceeds contained herein is released and reassigned.  Debtor agrees
that all division orders, transfer orders, receipts and other instruments that
Secured Party may from time to time execute and deliver for the purpose of
collecting and receipting for such proceeds, production or payments may be
relied upon in all respects, and that the same shall be binding upon Debtor and
its successors and assigns.  No payor making payments to Secured Party
at its request under the assignment of production and proceeds contained herein
shall have any responsibility to see to the application of any of such funds,
and any party paying or delivering proceeds, production or amounts to Secured
Party under such assignments shall be released thereby from any and all
liability to Debtor to the full extent and amount of all payments, production or
proceeds so delivered.  Should Secured Party bring suit against any
third party for collection of any amounts or sums included within the assignment
of production and proceeds contained herein (and Secured Party shall have the
right to bring any such suit), it may sue either in its own name or in the name
of Debtor, or both.

       

       

       

      
        
          
          

        

        
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      Section
3.7      Change of
Connection.  Should any purchaser taking the production from
the Collateral or any other interest of Debtor (whether now owned or hereafter
acquired by operation of law or otherwise), in, to or relating to the Land or to
any of the estates, property, rights or other interests included in the
Collateral, or any part thereof, fail to make any payment promptly to Secured
Party, in accordance with the assignment of production and proceeds herein made,
then Secured Party, to the fullest extent permissible under applicable law,
shall have the right to demand a change of connection and to designate another
purchaser with whom a new connection may be made, without any liability on the
part of Secured Party in making such selection; and failure of Debtor to consent
to and promptly effect such change of connection shall constitute an Event of
Default under Article V below.

       

      Section
3.8      No Delegation or
Assumption.  Nothing in this Instrument shall be deemed or
construed to create a delegation to or assumption by Secured Party, of the
duties and obligations of Debtor under any agreement or contract relating to the
Collateral or any portion thereof, and all of the parties to any such contract
shall continue to look to Debtor for performance of all covenants and other
obligations and the satisfaction of all representations, warranties, covenants,
indemnities and other agreements of Debtor thereunder, notwithstanding the
assignment of production and proceeds contained herein or the exercise by
Secured Party, prior to foreclosure, of any of its rights hereunder or under
applicable law.

       

      Section
3.9       Cumulative.  The
assignment of production and proceeds contained herein shall not be construed to
limit in any way the other rights and remedies of Secured Party hereunder,
including, without limitation, its right to accelerate the indebtedness
evidenced by the Obligations upon an Event of Default and the other rights and
remedies herein conferred, conferred in the other documents and instruments
evidencing, securing or relating to the Obligations, or conferred by operation
of law.  Monies received under the assignment of production and
proceeds contained herein shall not be deemed to have been applied in payment of
the Obligations unless and until such monies actually are applied thereto by
Secured Party.

       

      ARTICLE
IV

       

      Termination and
Release

       

      Section
4.1       Release Upon
Termination.  If all of the Obligations shall be paid in full
and otherwise satisfied pursuant to the terms and conditions of this Instrument
and the other documents and instruments evidencing, securing or relating to the
Obligations, and if Secured Party has no further obligation to advance any
amounts to Debtor, then all of the Collateral shall revert to Debtor, the liens
and security interests created by this Instrument shall terminate and Secured
Party or Trustee, or both, as required by applicable law, shall, promptly after
the request of Debtor or as otherwise required by applicable law, execute,
acknowledge and deliver to Debtor a release or reconveyance of this Instrument
and such other instruments as may be necessary to evidence the termination of
the liens and security interests created by this Instrument.

       

       

      
        
          
          

        

        
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      Section
4.2       Partial
Release.  No partial release or reconveyance from the liens and
security interests created by this Instrument of any part of the Collateral by
Trustee or Secured Party shall in any way alter, vary or diminish the force or
effect of this Instrument or impair, release or subordinate the liens and
security interests created by this Instrument on the remainder of the
Collateral.  Except as specifically provided in any such partial
release or reconveyance (i) this Instrument and liens and security
interests created hereby shall remain in full force and effect, (ii) such
partial release or reconveyance will not modify or affect the terms, conditions
or provisions of this Instrument, and (iii) nothing contained in any such
partial release or reconveyance shall be deemed to be, or construed as, a waiver
of any such terms, conditions or provisions or as a waiver of any other term,
condition or provision.

       

      Section
4.3       Execution.  Except
as may be required by applicable law, Secured Party shall have full power and
authority to execute, acknowledge and deliver any release or reconveyance of
this Instrument without the joinder therein or execution thereof by Trustee, and
any such release or reconveyance shall be binding upon Secured Party and
Trustee.  All releases and reconveyances executed in connection with
this Instrument shall be without warranty of any kind, express, implied or
statutory.

       

      Section
4.4       Costs, Expenses and
Effect.  Debtor shall pay all legal fees and other fees, costs
and expenses incurred by Secured Party and Trustee for preparing and reviewing
instruments of termination and release or reconveyance and the execution and
delivery thereof and Secured Party may require payment of the same prior to
delivery of such instruments.  The release and reconveyance of this
Instrument and the termination of the liens and security interests created by
this Instrument, in whole or in part, shall not terminate or otherwise affect
Secured Party’s right or ability to exercise any right, power or remedy relating
to any claim for breach of warranty or representation, for failure to perform
any covenant or other agreement, under any indemnity or for fraud, deceit or
other misrepresentation or omission.

       

      ARTICLE
V

       

      Default

       

      Section
5.1       Events of
Default.  The occurrence of any of the following events shall
constitute an event of default (“Event of Default”)
and upon the occurrence thereof the liens and security interests created hereby
shall be subject to foreclosure in any manner provided for herein or provided
for by applicable law:

       

      A. Failure
of Debtor to pay any fee or other amount due Secured Party or Trustee under this
Instrument within 10 days after the date that any such payment is
due;

       

      B. Failure
of Debtor to perform or observe any covenant, agreement, indemnity, condition or
provision in this Instrument and such failure shall continue for 30 days after
the earlier to occur of (1) Debtor becoming aware of such failure, and
(2) written notice of such failure has been given to Debtor;

       

      C. Any of
Debtor’s representations or warranties made in this Instrument or any statement
or certificate at any time given in writing pursuant hereto or in connection
herewith shall be false or misleading in any material respect as of the date
made or deemed made; or

       

      
        
          
          

        

        
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      D. An “Event
of Default” as defined in the Credit Agreement  shall
occur.

       

      Section
5.2       Treatment of
Fixtures.  If an Event of Default shall have occurred and be
continuing, if deemed appropriate by Secured Party or if required by applicable
law, Secured Party may elect to treat the fixtures included in the Collateral
either as real property or as personal property, or both, and proceed to
exercise such rights as apply to the type of property selected.

       

      Section
5.3       Acceleration and
Foreclosure.  If an Event of Default shall have occurred and be
continuing, in addition to any other rights, powers and remedies herein
conferred or conferred by operation of law, (a) Secured Party and Trustee
shall have all of the rights, powers and remedies of a secured party, a
beneficiary under a deed of trust, and a trustee under a deed of trust granted
under applicable law, (b) Secured Party may, without notice, demand or
declaration of default, which are hereby waived by Debtor to the extent such
waiver is not prohibited by applicable law, declare all indebtedness secured
hereby due and payable, and (c) whether or not Secured Party exercises such
option, it may, at its option and in its sole discretion, without any prior
notice to or demand upon Debtor, proceed by one or more actions in equity or at
law for the seizure and sale of the Collateral or any portion thereof, for the
foreclosure or sale of the Collateral or any portion thereof by judicial
foreclosure by appropriate proceedings in any court of competent jurisdiction,
by the power of sale granted herein, by a trustee’s sale, or in any other manner
then permitted by law, for the specific performance of any covenant or agreement
of Debtor herein contained or in aid of the execution of any right, power or
remedy herein granted, or for the enforcement of any other appropriate equitable
or legal remedy and to recover judgment against Debtor.  In
furtherance, and not in limitation, thereof:

       

      A. Deed of
Trust.  This Instrument shall constitute a trust deed under
applicable law, as amended and as may be amended from time to time, or any
future law containing provisions under which the sale of property securing debts
is authorized or permitted; and, if an Event of Default shall have occurred and
be continuing, Trustee shall, whenever requested by Secured Party, cause the
Collateral to be sold in accordance with the provisions thereof and
hereof.  In addition, if an Event of Default shall have occurred and
be continuing, this Instrument may be foreclosed as to any of the Collateral by
judicial action or in any manner then permitted by applicable law.

       

      B. Election.  In
the event a sale of the Collateral under the power of sale shall be commenced by
Trustee, Secured Party may at any time before the sale of the Collateral, elect
to abandon the sale, and Secured Party may then institute a suit for the
collection of the Obligations and for the foreclosure of this Instrument by
judicial action.  It is agreed that if Secured Party should institute
a suit for the foreclosure of this Instrument by judicial action, Secured Party
may at any time before the entry of a final judgment, dismiss such suit, and
then sell, cause to be sold or direct Trustee to sell, the Collateral under the
power of sale herein granted in accordance with the provisions of this
Instrument.

       

      
        
          
          

        

        
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      C. Additional
Actions.  This Instrument shall also constitute and may be
enforced from time to time as an assignment, chattel mortgage, contract, deed of
trust, financing statement and security agreement, and from time to time as any
one or more thereof as appropriate under applicable law.  Secured
Party shall be entitled to all of the rights, remedies and benefits of a secured
party and a beneficiary granted under applicable law; and, to the fullest extent
of such law, shall be entitled to enforce such rights, remedies and
benefits.  Debtor intends and hereby grants to Secured Party all
rights, powers and remedies accorded a secured party and a beneficiary under
applicable law whether or not such rights, powers and remedies are expressly
granted or reserved herein.

       

      D. Notice, Place and Manner of
Sale.  Any sale of the Collateral under this Article V
shall take place at such place or places and otherwise in such manner and upon
such notice as may be required by law; or, in the absence of any such
requirement, as Secured Party may deem appropriate.  Debtor expressly
agrees that, except as may be required by applicable law, Secured Party or
Trustee may offer the Collateral as a whole or in such parcels or lots as
Secured Party or Trustee elects, regardless of the manner in which the
Collateral may be described.

       

      E. Postponement of
Sale.  Any sale of the Collateral conducted under this
Article V may be postponed from time to time as provided by applicable law;
or, in the absence of any such provisions, Secured Party may postpone the sale
of the Collateral or any part thereof by public announcement at the time and
place of such sale, and from time to time thereafter may further postpone such
sale by public announcement made at the time of sale fixed by the preceding
postponement.  Sale of a part of the Collateral will not exhaust the
power of sale, and sales may be made from time to time until all Collateral is
sold or the Obligations are paid in full.

       

      F. Secured Party’s Right to
Purchase.  Secured Party shall have the right to bid or to
become the purchaser at any sale made pursuant to the provisions of this
Article V, and shall have the right to credit upon the amount of the bid
made therefor the amount payable to it out of the net proceeds of such
sale.

       

      G. Conveyance to
Purchaser.  Any deed, bill of sale or other conveyance executed
by or on behalf of Trustee, Secured Party, the sheriff or other official or
party responsible for conducting the sale shall be prima facie evidence of the
compliance with all statutory requirements for the sale and execution of such
deed, bill of sale or other conveyance and will conclusively establish the truth
and accuracy of the recitals and other matters stated therein, including,
without limitation, nonpayment or nonperformance of the Obligations, violation
of the terms and covenants contained herein, and the advertisement and conduct
of such sale in the manner provided herein or as provided by applicable
law.  Debtor, to the extent not prohibited by applicable law, does
hereby ratify and confirm all legal acts that Trustee and Secured Party may do
in carrying out the provisions of this Instrument.  Any sale of the
Collateral or any portion thereof pursuant to the provisions of this
Article V will operate to divest all right, title, interest, claim and
demand of Debtor in and to the property sold and will be a perpetual bar against
Debtor and shall, subject to applicable law, vest title in the purchaser free
and 

       

       

      
        
          
          

        

        
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      clear of
all liens, security interests and encumbrances, including, without limitation,
liens, security interests and encumbrances junior or subordinate to the liens,
security interests and encumbrances created by this Instrument.  Upon
any sale of the Collateral or any portion thereof pursuant to the provisions of
this Article V, the receipt by Secured Party, Trustee, the sheriff or other
official or party responsible for conducting the sale, shall be sufficient
discharge to the purchaser or purchasers at any sale for the purchase money, and
such purchaser or purchasers and the heirs, devisees, personal representatives,
successors and assigns thereof shall not, after paying such purchase money and
receiving such receipt of Secured Party, Trustee, the sheriff or such other
official or party, be obliged to see to the application thereof or be in anywise
answerable for any loss, misapplication or nonapplication
thereof.  Any purchaser at a sale will, subject to mandatory
redemption periods, if any, receive immediate possession of the Collateral
purchased, and Debtor agrees that if Debtor retains possession of the Collateral
or any part thereof subsequent to such sale, Debtor will be considered a tenant
at sufferance of the purchaser, and will, if Debtor remains in possession after
demand to remove, be guilty of forcible detainer, and will be subject to
eviction and removal, forcible or otherwise, with or without process of law and
all damages to Debtor by reason thereof are hereby expressly waived by
Debtor.

       

      H. Federal
Transfers.  Upon a sale conducted pursuant to this
Article V of all or any portion of the Collateral consisting of interests
(the “Federal
Interests”) in leases, easements, rights-of-way, agreements or other
documents and instruments covering, affecting or otherwise relating to federal
lands (including, without limitation, leases, easements and rights-of-way issued
by the Bureau of Land Management); Debtor agrees to take all action and execute
all instruments necessary or advisable to transfer the Federal Interests to the
purchaser at such sale, including, without limitation, to execute, acknowledge
and deliver assignments of the Federal Interests on officially approved forms in
sufficient counterparts to satisfy applicable statutory and regulatory
requirements, to seek and request approval thereof and to take all other action
necessary or advisable in connection therewith.  By separate
instruments, Debtor has irrevocably appointed, and by this Instrument hereby
irrevocably appoints, Secured Party as Debtor’s attorney-in-fact and proxy, with
full power and authority in the place and steed of Debtor, in the name of Debtor
or otherwise, to take any such action and to execute any such instruments on
behalf of Debtor that Secured Party may deem necessary or advisable to so
transfer the Federal Interests, including, without limitation, the power and
authority to execute, acknowledge and deliver such assignments, to seek and
request approval thereof and to take all other action deemed necessary or
advisable by Secured Party in connection therewith; and Debtor hereby adopts,
ratifies and confirms all such actions and instruments.  By separate
instruments Debtor has also irrevocably appointed Secured Party as Debtor’s
attorney-in-fact and proxy, with full power and authority in the place and steed
of Debtor, in the name of Debtor or otherwise, to take any such action and to
execute any such instruments on behalf of Debtor that Secured Party may deem
necessary or advisable to so transfer the Federal Interests, including, without
limitation, the power and authority to execute, acknowledge and deliver such
assignments, to seek and request approval thereof and to take all other action
deemed necessary or advisable by Secured Party in connection therewith; and by
such separate instruments Debtor has adopted, ratified and confirmed all such
actions and instruments.  Such powers of attorney and proxies are
coupled with an interest, shall survive the dissolution, termination,
reorganization or other incapacity of Debtor and shall be
irrevocable.  No action taken by Secured Party shall constitute
acknowledgment of, or assumption of liabilities relating to, the Federal
Interests, and neither Debtor nor any other party may claim that Secured Party
is bound, directly or indirectly, by any such action.

       

       

      
        
          
          

        

        
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      Section
5.4       Personal
Property.  If an Event of Default shall have occurred and be
continuing, in addition to all other rights, powers and remedies herein
conferred or conferred by operation of law, Secured Party shall have all of the
rights and remedies of an assignee and secured party granted by applicable law,
including, without limitation, the applicable Uniform Commercial Code as then in
effect, and shall, to the extent permitted by applicable law, have the right and
power, but not the obligation, to take possession of the personal property
included in the Collateral and any proceeds thereof wherever located, and for
that purpose Secured Party may enter upon any premises on which any or all of
such personal property is located and take possession of and operate such
personal property or remove the same therefrom.  Secured Party may
require Debtor to assemble such personal property and make it available to
Secured Party at a place to be designated by Secured Party that is reasonably
convenient to both parties.  The following presumptions shall exist
and shall be deemed conclusive with regard to the exercise by Secured Party of
any of its remedies with respect to personal property:

       

      A. If notice
is required by applicable law, Debtor agrees that five days’ prior written
notice of the time and place of any public sale or of the time after which any
private sale or any other intended disposition thereof is to be made shall be
deemed reasonable notice to Debtor.  No such notice is necessary if
such property is perishable, threatens to decline speedily in value or is of a
type customarily sold on a recognized market.

       

      B. If
Secured Party in good faith believes that the Securities Act of 1933 or any
other state or federal law prohibits or restricts the customary manner of sale
or distribution of any of such property, Secured Party may sell such property
privately or in any other manner deemed advisable by Secured Party at such price
or prices as Secured Party determines in its sole discretion.  Debtor
recognizes that such prohibition or restriction may cause such property to have
less value than it otherwise would have and that, consequently, such sale or
disposition by Secured Party may result in a lower sales price than if the sale
were otherwise held.

       

      Section
5.5      Possession.  If
an Event of Default shall have occurred and be continuing, in addition to all
other rights, powers and remedies herein conferred or conferred by operation of
law, Secured Party shall, to the extent not prohibited by applicable law, have
the right and power, but not the obligation, to enter upon and take immediate
possession of the Collateral or any portion thereof, to exclude Debtor
therefrom, to hold, use, operate, manage, enjoy and control such Collateral, to
make all such repairs, replacements, alterations, additions and improvements to
the same as Secured Party may deem proper or expedient, to sell all of the
severed and extracted Hydrocarbons included in the same subject to the
provisions of Article III hereof, to demand, collect and retain all other
earnings, rents, issues, profits, proceeds and other sums due or to become due
with respect to such Collateral accounting for and applying to the payment of
the Obligations only the net earnings arising therefrom after charging against
the receipts therefrom all fees, costs, expenses, charges, damages and losses
incurred by reason thereof plus interest thereon at the Default Rate without any
liability to Debtor in connection therewith.  Such possession shall at
once be delivered to Secured Party upon request, and on refusal or failure to so
deliver possession, the delivery of such possession may be enforced by Secured
Party by any appropriate civil suit, proceeding or other action.

       

       

      
        
          
          

        

        
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      Section
5.6      Appointment of
Receiver.  If an Event of Default shall have occurred and be
continuing, in addition to all other rights, powers and remedies herein
conferred or conferred by operation of law, Secured Party shall be entitled to
the appointment of a receiver of the Collateral without the necessity of the
posting of a bond or notice; and shall, to the extent not prohibited by
applicable law, be entitled to such receiver as a matter of right, without
regard to the solvency or insolvency of Debtor, the value or adequacy of the
Collateral or the Collateral being in danger of being materially injured or
reduced in value as security by removal, destruction, deterioration,
accumulation of prior liens or otherwise; and such receiver may be appointed by
any court of competent jurisdiction upon ex parte application,
and without notice, notice being expressly waived by Debtor to the extent such
waiver is not prohibited by applicable law.  Debtor does hereby
consent to the appointment of such receiver or receivers, waives any and all
defenses to such appointment, and agrees not to oppose any application therefor
by Secured Party, and agrees that such appointment shall in no manner impair,
prejudice or otherwise affect the rights of Secured Party under this
Article V.  Nothing herein is to be construed to deprive Secured
Party of any other right, remedy or privilege it may now or hereafter have under
law to have a receiver appointed.  Any money advanced by Secured Party
in connection with any such receivership shall be a demand obligation owing by
Debtor to Secured Party and shall bear interest, from the date of making such
advancement until paid, at the Default Rate.  Any such receiver shall
have all powers conferred by the court appointing such receiver, which powers
shall, to the extent not prohibited by applicable law include, without
limitation, the right to enter upon and take immediate possession of the
Collateral or any part thereof, to exclude Debtor therefrom, to hold, use,
operate, manage and control such Collateral, to make all such repairs,
replacements, alterations, additions and improvements to the same as such
receiver or Secured Party may deem proper or expedient, to lease, sell or
otherwise transfer the Collateral or any portion thereof as such receiver or
Secured Party may deem proper or expedient, to sell all of the Hydrocarbons
included in the same subject to the provisions of Article III hereof, to
demand and collect all of the other earnings, rents, issues, profits, proceeds
and other sums due or to become due with respect to such Collateral, accounting
for only the net earnings arising therefrom after charging against the receipts
therefrom all fees, costs, expenses, charges, damages and losses incurred by
reason thereof plus interest thereon at the Default Rate without any liability
to Debtor in connection therewith which net earnings shall be turned over by
such receiver to Secured Party to be applied by Secured Party to the payment of
the Obligations in the order set forth in Section 5.10.

       

      Section
5.7       Waiver by
Debtor.  To the extent not prohibited by applicable law, Debtor
agrees that Debtor shall not at any time have, invoke, utilize or assert any
right under any laws pertaining to the marshaling of assets or liens, the sale
of property in the inverse order of alienation, the exemption of homesteads, the
administration of estates of decedents, appraisement, moratorium, valuation,
stay, extension or redemption now or hereafter in force, and Debtor hereby
waives the benefit of all such laws to the fullest extent not prohibited by
applicable law.

       

      
        
          
          

        

        
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      Section
5.8       Remedies
Cumulative.  All rights, powers and remedies herein conferred
are cumulative, and not exclusive, of (a) any and all other rights and remedies
herein conferred, (b) any and all rights, powers and remedies existing at law or
in equity, and (c) any and all other rights, powers and remedies provided for in
any other documents or instruments evidencing, securing or relating to the
Obligations, and Secured Party shall, in addition to the rights, powers and
remedies herein conferred, be entitled to avail itself of all such other rights,
powers and remedies as may now or hereafter exist at law or in equity for the
collection of and enforcement of the Obligations and the enforcement of the
warranties, representations, covenants, indemnities and other agreements
contained in this Instrument and the other documents and instruments evidencing,
securing or relating to the Obligations and the foreclosure of the liens and
security interests created by this Instrument.  Each and every such
right, power and remedy may be exercised from time to time and as often and in
such order as may be deemed expedient by Secured Party and the exercise of any
such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter, any other right, power or
remedy.  No delay or omission by Secured Party or by Trustee, the
sheriff or other official or person in the exercise of any right, power or
remedy will impair any such right, power or remedy or operate as a waiver
thereof or of any other right, power or remedy then or thereafter
existing.

       

      Section
5.9       Costs and
Expenses.  All fees, costs and expenses (including, without
limitation, reasonable attorneys’ fees and legal expenses, court costs, filing
fees, and mortgage, transfer, stamp and other excise taxes, inspection fees,
appraisers’ fees, outlays for documentary and expert evidence, stenographers’
charges, publication, notice and advertising costs, postage, photocopies,
telephone charges and costs of procuring all abstracts of title, title searches
and examinations, title opinions, title insurance policies and similar title
data and assurances as Secured Party or Trustee may deem appropriate either to
prosecute such suit or to evidence to bidders at the sales that may be had
pursuant to such proceeding the condition of the title to or the value of the
Collateral, trustee’s fees and expenses, sheriff’s fees and expenses, receiver’s
fees and expenses, and fees and expenses of agents of Secured Party and Trustee,
costs and expenses of defending, protecting and maintaining the Collateral and
Secured Party’s and Trustee’s interest therein including repair and maintenance
costs and expenses and costs and expenses of protecting and securing the
Collateral including insurance costs and all other fees, costs and expenses
provided for or authorized by applicable law), incurred by or on behalf of
Secured Party or Trustee in protecting and enforcing their rights hereunder or
incident to the enforcement of this Instrument and the liens and security
interests created hereby, shall be a demand obligation owing by Debtor to
Secured Party and shall bear interest at the Default Rate until paid, and shall
constitute a part of the Obligations and be indebtedness secured and evidenced
by this Instrument.

       

      Section
5.10     Application of
Proceeds.  The proceeds of any sale of the Collateral or any
part thereof made pursuant to this Article V shall be applied as may be
required by applicable law, or, in the absence of any such requirements, as
follows:

       

      A. First, to
the payment of all fees, costs and expenses referred to in Section 6.1(k) of the
Credit Agreement and incident to the enforcement of this Instrument and the
liens and security interests created hereby, including, without limitation, the
fees, costs and expenses described in Section 5.9 hereof;

       

      
        
          
          

        

        
          -26-

          
            

          

        

        
          
          

        

      

       

       

       

      B. Second,
to the payment of accrued interest remaining unpaid on the Notes;

       

      C. Third, to
the payment or prepayment of principal remaining unpaid on the Notes in such
order as Secured Party may elect;

       

      D. Fourth,
to the payment or prepayment of the Obligations other than the Obligations
evidenced by the Notes in such order as Secured Party may elect;
and

       

      E. Fifth,
the remainder, if any, shall be paid to Debtor or such other person or persons
as may be legally entitled thereto.

       

      Section
5.11    Waiver of Statute of
Limitations.  Debtor hereby waives the right to assert any
statute of limitations as a defense to the Obligations (including, without
limitation, the indebtedness, liabilities and obligations under and pursuant to
this Instrument, the Notes, the Credit Agreement  and any other
instrument evidencing, securing or otherwise relating to the Obligations), to
the fullest extent permitted by applicable law.

       

      Section
5.12     Limitation on Rights and
Waivers.  All rights, powers and remedies herein conferred
shall be exercisable by Trustee and Secured Party only to the extent not
prohibited by applicable law; and all waivers and relinquishments of rights and
similar matters shall only be effective to the extent such waivers or
relinquishments are not prohibited by applicable law.

       

      ARTICLE
VI

       

      Trustee

       

      Section
6.1      Resignation and Removal of
Trustee.  Trustee may resign in writing addressed to Secured
Party, or be removed at any time with or without cause by an instrument in
writing duly executed by Secured Party, and such resignation or removal shall be
effective upon the appointment of a successor Trustee.  In case of the
death, resignation or removal of Trustee, a successor Trustee may be appointed
by Secured Party as may be required by applicable law or, in the absence of any
such requirement, by Secured Party without formality other than an appointment
and designation in writing.  Such appointment and designation will be
full evidence of the right and authority to make the same and of all facts
therein recited, and upon the making of any such appointment and designation,
this Instrument will vest in the named successor trustee all the right, title
and interest of Trustee in and to all of the Collateral, and said successor will
thereupon succeed to all the rights, powers, privileges, immunities and duties
hereby conferred upon Trustee.  All references herein to Trustee shall
be deemed to refer to the Trustee from time to time acting
hereunder.

       

      Section
6.2      Substitute Trustees and
Agents.  To the extent not prohibited by applicable law,
Trustee may appoint or delegate any one or more persons as agents to perform any
act or acts of Trustee under this Instrument in the name and on behalf of
Trustee, including any act or acts necessary or incident to any sale conducted
by Trustee.  If Trustee shall have given notice of sale hereunder, any
successor trustee may complete the sale and the conveyance of the Collateral
pursuant thereto as if such notice had been given by the successor trustee
conducting the sale.  To facilitate the administration of the
Trustees’ duties under this Instrument, Secured Party may appoint multiple
trustees to serve in such capacity or in such jurisdictions as Secured Party may
designate.

       

       

      
        
          
          

        

        
          -27-

          
            

          

        

        
          
          

        

      

       

       

      Section
6.3       Liability of
Trustee.  Trustee shall not be liable for any error of judgment
or act done by Trustee in good faith, or be otherwise responsible or accountable
under any circumstances whatsoever, except for Trustee’s gross negligence,
willful misconduct or bad faith.  Trustee shall have the right to rely
on any instrument, document or signature authorizing or supporting any action
taken or proposed to be taken by Trustee hereunder, believed by Trustee in good
faith to be genuine.  All monies received by Trustee shall, until used
or applied as herein provided, be held in trust for the purposes for which they
were received but need not be segregated in any manner from any other monies
except to the extent required by law, and Trustee shall be under no liability
for interest on any monies received by Trustee hereunder except as may be
provided by applicable law.  Debtor hereby ratifies and confirms any
and all acts Trustee shall do lawfully by virtue hereof.

       

      Section
6.4      Indemnification of
Trustee.  Debtor shall reimburse Trustee for, and indemnify,
defend and hold harmless Trustee against, any and all liability and expenses
which may be incurred by Trustee in the performance of Trustee’s duties, except
to the extent attributable to Trustee’s gross negligence, willful misconduct or
bad faith.  In addition, Debtor shall indemnify, defend and hold
harmless Trustee against any and all claims, actions, liabilities, judgments,
costs, expenses, attorneys’ fees or other charges of whatsoever kind or nature
made against or incurred by Trustee, and arising out of, or in any way relating
to, Trustee performing the duties of Trustee hereunder, except to the extent
attributable to Trustee’s gross negligence, willful misconduct or bad
faith.

       

      ARTICLE
VII

       

      Miscellaneous
Provisions

       

      Section
7.1       Waiver.  Any
and all covenants of Debtor in this Instrument may from time to time, be waived
by Secured Party by an instrument in writing signed by Secured Party to such
extent and in such manner as Secured Party may desire, but no such waiver will
ever affect or impair Secured Party’s rights hereunder, except to the extent
specifically stated in such written instrument.  All changes to,
amendments and modifications of this Instrument must be in writing and signed by
Secured Party.

       

      Section
7.2       Severability.  If
any provision of this Instrument or of any of the instruments and documents
evidencing, securing or relating to the Obligations is invalid or unenforceable
in any jurisdiction, such provision shall be fully severable from this
Instrument and the other provisions hereof and of said instruments and documents
shall remain in full force and effect in such jurisdiction and the remaining
provisions hereof shall be liberally construed in favor of Secured Party and
Trustee in order to carry out the provisions and intent hereof.  The
invalidity of any provision of this Instrument in any jurisdiction shall not
affect the validity or enforceability of any such provision in any other
jurisdiction.

       

      Section
7.3       Subrogation.  This
Instrument is made with full substitution and subrogation of Secured Party and
Trustee in and to all covenants and warranties by others heretofore given or
made with respect to the Collateral or any part thereof.

       

       

      
        
          
          

        

        
          -28-

          
            

          

        

        
          
          

        

      

       

       

      Section
7.4       Financing
Statement.  This Instrument shall be deemed to be and may be
enforced from time to time as an assignment, contract, deed of trust, financing
statement or security agreement, and from time to time as any one or more
thereof is appropriate under applicable state law.  Debtor hereby
authorizes Secured Party to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral without the signature of Debtor at any time after the execution of
this Instrument, and hereby ratifies any thereof filed prior to the execution of
this Instrument.  Any such financing statement may describe the
property subject thereto as “all assets of Debtor” or words of similar
meaning.

       

      Section
7.5        Rate of
Interest.  Except as otherwise provided in the Credit
Agreement, all interest required hereunder and under the Obligations shall be
calculated on the basis of a year of 360 days.

       

      Section
7.6        Recording.  All
recording references in the Exhibits hereto are to the official real
property records of the county in which the affected Land is located and in
which records such documents are or in the past have been customarily recorded,
whether real estate records, deed records, oil and gas records, oil and gas
lease records or other records.  The references in this Instrument and
in the Exhibits hereto to liens, encumbrances and other burdens are for the
purposes of defining the nature and extent of Debtor’s warranties and shall not
be deemed to ratify, recognize or create any rights in third
parties.

       

      Section
7.7       Execution in
Counterparts.  This Instrument may be executed in one or more
original counterparts.  To facilitate filing and recording, there may
be omitted from any counterpart the parts of the Exhibits hereto containing
specific descriptions of the Collateral that relate to land located in counties
other than the county in which the particular counterpart is to be filed or
recorded.  Each counterpart shall be deemed to be an original for all
purposes, and all counterparts shall together constitute but one and the same
instrument.

       

      Section
7.8       Notices.  All
notices and other communications made or required to be given pursuant to this
Instrument shall be in writing and shall be deemed given if delivered personally
or by facsimile transmission (if receipt is confirmed by the facsimile operator
of the recipient), or delivered by overnight courier service or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof):

       

      To
Debtor:

       

      Recovery
Energy, Inc.

      1515
Wynkoop Street, Suite 200

      Denver,
Colorado  80202

      Attn:  Jeffrey
A. Beunier, Chief Executive Officer

      Facsimile
No.  (888) 887-4449

       

       

      
        
          
          

        

        
          -29-

          
            

          

        

        
          
          

        

      

       

       

      To Secured
Party:

       

      Hexagon
Investments, LLC

      730
17th
Street, Suite 800

      Denver,
Colorado  80202

      Attn:   Brian
Fleischmann

      Facsimile
No.  (303) 571-1221

       

      Any
notice hereunder delivered in person or by facsimile (if receipt is confirmed by
the facsimile operator of the recipient) shall be deemed given on the date
thereof, any notice by registered or certified mail shall be deemed given three
days after the date of mailing; and any notice by overnight courier shall be
deemed given two days after shipment or the date of receipt, whichever is
earlier.

       

      Section
7.9      Binding
Effect.  This Instrument shall bind and inure to the benefit of
the respective successors and assigns of Debtor, Secured Party and
Trustee.  Notwithstanding any other provision of this Instrument, if
any right, interest or estate in property granted by this Instrument or pursuant
hereto does not vest upon the date hereof, such right, interest or estate shall
vest, if at all, within 21 years less 1 day after the death of the last
surviving descendant of Joseph P. Kennedy, father of John F. Kennedy, former
President of the United States of America, who is living on the date of the
execution of this Instrument by Debtor or the effective date hereof, whichever
is earlier.

       

      Section
7.10    References.  All
references in this Instrument to Exhibits, Articles, Sections, Subsections,
paragraphs, subparagraphs and other subdivisions refer to the Exhibits,
Articles, Sections, Subsections, paragraphs, subparagraphs and other
subdivisions of this Instrument unless expressly provided
otherwise.  Titles and headings appearing at the beginning of any
subdivision are for convenience only and do not constitute any part of any such
subdivision and shall be disregarded in construing the language contained in
this Instrument.  The words “this Instrument,” “herein,” “hereof,”
“hereby,” “hereunder” and words of similar import refer to this Instrument as a
whole and not to any particular subdivision unless expressly so
limited.  The phrases “this Section,” “this Subsection” “this
paragraph,” “this subparagraph” and similar phrases refer only to the Sections,
Subsections, paragraphs or subparagraphs hereof in which the phrase
occurs.  Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Credit Agreement.  The word “or”
is not exclusive, and the word “including” (and its derivatives) shall mean
“including, without limitation.”  All references to days are to
calendar days unless otherwise specifically stated.  Pronouns in
masculine, feminine and neuter gender shall be construed to include any other
gender.  Words in the singular form shall be construed to include the
plural and words in the plural form shall be construed to include the singular,
unless the context otherwise requires.

       

      Section
7.11     Filing.  Some
of the above described goods are or are to become fixtures on the Land described
in Exhibit “A”.  This Instrument is to be filed for record in, among
other places, the real estate records of each county identified in Exhibit
“A”.  This Instrument covers fixtures.  Debtor is the owner
of an interest of record in the real estate concerned.

       

       

      
        
          
          

        

        
          -30-

          
            

          

        

        
          
          

        

      

       

       

      Section
7.12     WAIVER OF JURY TRIAL,
PUNITIVE DAMAGES, ETC.  DEBTOR
HEREBY:  (A) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS INSTRUMENT, THE NOTES, THE CREDIT AGREEMENT  OR ANY OTHER
DOCUMENTS AND INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS OR
ANY TRANSACTION PROVIDED FOR THEREIN OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR
IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES
THAT IT HAS BEEN INDUCED TO ENTER INTO THIS INSTRUMENT, THE NOTES, THE CREDIT
AGREEMENT  AND ANY OTHER DOCUMENTS AND INSTRUMENTS EVIDENCING,
SECURING OR RELATING TO THE OBLIGATIONS AND THE TRANSACTIONS PROVIDED FOR HEREIN
AND THEREIN, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED IN
THIS SECTION.

       

      Section
7.13     USURY
SAVINGS.  IT IS THE INTENTION OF THE PARTIES HERETO TO COMPLY
WITH ALL APPLICABLE USURY LAWS; ACCORDINGLY, IT IS AGREED THAT NOTWITHSTANDING
ANY PROVISIONS TO THE CONTRARY IN THIS INSTRUMENT, THE NOTES, THE CREDIT
AGREEMENT  OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING
OR OTHERWISE RELATING TO THE OBLIGATIONS, IN NO EVENT SHALL SUCH DOCUMENTS OR
INSTRUMENTS REQUIRE THE PAYMENT OR PERMIT THE COLLECTION OF INTEREST (WHICH
TERM, FOR PURPOSES HEREOF, SHALL INCLUDE ANY AMOUNT WHICH, UNDER APPLICABLE LAW,
IS DEEMED TO BE INTEREST, WHETHER OR NOT SUCH AMOUNT IS CHARACTERIZED BY THE
PARTIES AS INTEREST) IN EXCESS OF THE MAXIMUM AMOUNT PERMITTED BY SUCH
LAWS.  IF ANY EXCESS INTEREST IS UNINTENTIONALLY CONTRACTED FOR,
CHARGED OR RECEIVED UNDER THE NOTES OR UNDER THE TERMS OF THIS INSTRUMENT, THE
CREDIT AGREEMENT  OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING,
SECURING OR RELATING TO THE OBLIGATIONS, OR IN THE EVENT THE MATURITY OF THE
INDEBTEDNESS EVIDENCED BY THE NOTES IS ACCELERATED IN WHOLE OR IN PART, OR IN
THE EVENT THAT ALL OR PART OF THE PRINCIPAL OR INTEREST OF THE NOTE SHALL BE
PREPAID, SO THAT THE AMOUNT OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED
UNDER THE AMOUNT OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE NOTE
OR UNDER THIS INSTRUMENT, THE CREDIT AGREEMENT  OR ANY OTHER DOCUMENTS
OR INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS, ON THE
AMOUNT OF PRINCIPAL ACTUALLY OUTSTANDING FROM 

       

      
        
          
          

        

        
          -31-

          
            

          

        

        
          
          

        

      

       

       

       

      TIME TO
TIME UNDER THE NOTE SHALL EXCEED THE MAXIMUM AMOUNT OF INTEREST PERMITTED BY THE
APPLICABLE USURY LAWS, THEN IN ANY SUCH EVENT (A) THE PROVISIONS OF THIS
SECTION SHALL GOVERN AND CONTROL, (B) NEITHER DEBTOR NOR ANY OTHER PERSON
OR ENTITY NOW OR HEREAFTER LIABLE FOR THE PAYMENT THEREOF, SHALL BE OBLIGATED TO
PAY THE AMOUNT OF SUCH INTEREST TO THE EXTENT THAT IT IS IN EXCESS OF THE
MAXIMUM AMOUNT OF INTEREST PERMITTED BY SUCH APPLICABLE USURY LAWS, (C) ANY
SUCH EXCESS WHICH MAY HAVE BEEN COLLECTED SHALL BE EITHER APPLIED AS A CREDIT
AGAINST THE THEN UNPAID PRINCIPAL AMOUNT THEREOF OR REFUNDED TO DEBTOR AT
SECURED PARTY’S OPTION, AND (D) THE EFFECTIVE RATE OF INTEREST SHALL BE
AUTOMATICALLY REDUCED TO THE MAXIMUM LAWFUL RATE OF INTEREST ALLOWED UNDER THE
APPLICABLE USURY LAWS AS NOW OR HEREAFTER CONSTRUED BY THE COURTS HAVING
JURISDICTION THEREOF.  IT IS FURTHER AGREED THAT WITHOUT LIMITATION OF
THE FOREGOING, ALL CALCULATIONS OF THE RATE OF INTEREST CONTRACTED FOR, CHARGED
OR RECEIVED UNDER THE NOTE OR UNDER THIS INSTRUMENT, THE CREDIT
AGREEMENT  OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING
OR RELATING TO THE OBLIGATIONS WHICH ARE MADE FOR THE PURPOSE OF DETERMINING
WHETHER SUCH RATE EXCEEDS THE MAXIMUM LAWFUL RATE OF INTEREST, SHALL BE MADE, TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAWS, BY AMORTIZING, PRORATING,
ALLOCATING AND SPREADING IN EQUAL PARTS DURING THE PERIOD OF THE FULL STATED
TERM OF THE OBLIGATIONS EVIDENCED THEREBY, ALL INTEREST AT ANY TIME CONTRACTED
FOR, CHARGED OR RECEIVED FROM DEBTOR OR OTHERWISE BY SECURED PARTY IN CONNECTION
WITH THE OBLIGATIONS.

       

      Section
7.14     GOVERNING
LAW.  THIS INSTRUMENT AND ALL MATTERS ARISING UNDER OR GROWING
OUT HEREOF SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEBRASKA, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS
OF LAWS, AND THE LAWS OF THE UNITED STATES OF AMERICA.

       

      Section
7.15     Nebraska Trust
Deed.  This Mortgage shall constitute a trust deed under the
Nebraska Trust Deeds Act, Neb. Rev. Stat. §§ 76-1001 et seq., as amended and as
may be amended from time to time.  Mortgagor expressly subjects the
Mortgaged Property to such Act, and the Trustee and Mortgagee shall be accorded
all the rights, powers and remedies of a trustee and a beneficiary as provided
therein.  All rights, powers and remedies of the Nebraska Trust Deeds
Act are hereby incorporated by reference as if the rights, powers and remedies
were expressly provided herein, with Mortgagee as a “beneficiary,” Mortgagor as
a “trustor,” Trustee as a “trustee,” this Mortgage as a “trust deed” and that
portion of the Mortgaged Property constituting real property as “trust
property.”

       

      MORTGAGOR
UNDERSTANDS THAT (A) THIS MORTGAGE IS A TRUST DEED AND NOT A MORTGAGE (UNLESS
MORTGAGEE ELECTS TO FORECLOSE THIS MORTGAGE AS A MORTGAGE), AND (B) THE POWER OF
SALE PROVIDED FOR IN THIS MORTGAGE PROVIDES SUBSTANTIALLY DIFFERENT RIGHTS AND
OBLIGATIONS TO MORTGAGOR THAN A MORTGAGE IN EVENT OF DEFAULT OR BREECH OF AN
OBLIGATION.

       

       

      
        
          
          

        

        
          -33-

          
            

          

        

        
          
          

        

      

       

       

       

       

      Executed
as of the date first above written.

       

      
        	 
      	
                DEBTOR:

              
	 	 
	 
      	
                RECOVERY
      ENERGY, INC.

              
	 
      	 
      	
                a
      Nevada corporation,

              
	 	 	 
	 
      	
                By

              	
                /s/
      Jeffrey A. Beunier

              
	 
      	 
      	
                Jeffrey
      A. Beunier, Chief Executive Officer

              
	 	 	 
	 
      	
                Organizational
      I.D. No. 74-3231613

              

      

      

       

       

      
        
          
          

        

        
          -34-

          
            

          

        

        
          
          

        

      

      
 

      ACKNOWLEDGMENT
CERTIFICATE

       

      
        	
                STATE
      OF COLORADO

              	
                )

              	 
      
	 
      	
                )

              	
                ss.

              
	
                CITY
      AND COUNTY OF DENVER

              	
                )

              	 
      

      

      

      The
foregoing instrument was acknowledged before me this  26th day
of February 2010 by Jeffrey A. Beunier, Chief Executive Officer of RECOVERY
ENERGY, INC., a Nevada corporation, on behalf of the corporation.

       

       

      /s/ Ruth L.
Elder                             

      Notary
Public

       

      My
commission expires: 4/30/2013

       

      (NOTARIAL
SEAL)

       

       

      
        
          
          

        

        
          -33-

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
“A”

       

      Attached
to and made a part of that certain

      Deed of
Trust, Mortgage,

      Security
Agreement, Assignment of Production and Proceeds,

      Financing
Statement and Fixture Filing,

      dated as
of January 29, 2010 (the “Mortgage”),

      from
Recovery Energy, Inc. as Debtor,

      to Jacob
B. Mueller, as Trustee,

      and to
and for the benefit of

      Hexagon
Investments, LLC, as Secured Party

       

      
        	
                1.  

              	
                Capitalized
      terms used herein without definition shall have the meaning ascribed
      thereto in the Mortgage.

              

      

       

      
        	
                2.  

              	
                The
      terms “Working Interest” and “WI” as used herein with respect to a lease,
      shall mean the interest in and to the full and entire leasehold estate
      created under and by virtue of the lease described as to the described
      lands and formations (or as to all formations if no formation is
      described) and arising therefrom, insofar as said interest in said
      leasehold estate is burdened with the obligation to bear and pay costs of
      operations, without regard of any valid lessor’s royalties, overriding
      royalties or similar burdens, and without regard to the percent of the
      mineral estate underlying the lands covered by the lease owned by the
      lessor(s) of the referenced lease.

              

      

       

      
        	
                3.  

              	
                The
      terms “Net Revenue Interest” and “NRI” as used herein with respect to a
      lease shall mean the interest in and to applicable production of all
      Hydrocarbons produced, saved and sold from, under or by virtue of the
      lease described herein as to the described lands and formations (or as to
      all formations if no formation is
described).

              

      

       

      
        	
                4.  

              	
                The
      terms “Working Interest” and “WI” as used herein with respect to a well,
      unit, pool or communitized area, shall mean the interest in and to the
      well or the full and entire unitized, pooled or communitized area created
      under and by virtue of each of the described unitization, pooling,
      communitization or similar agreements, and all rights of every kind and
      character appurtenant thereto, arising therefrom insofar as the said
      interest in said well or unitized, pooled, communitized or other interest
      is burdened with the obligation to bear and pay costs of operations,
      without regard to any valid lessor’s royalties, overriding royalties or
      similar burdens.

              

      

       

      
        	
                5.  

              	
                The
      terms “Net Revenue Interest” and “NRI” as used herein with respect to a
      well, unit, pool or communitized area, shall mean the interest in and to
      applicable production of all Hydrocarbons produced, saved and sold from,
      under or by virtue of such well or such unitized, pooled or communitized
      area.

              

      

       

      
        	
                6.  

              	
                The
      abbreviation “APO” means “after payout” and the abbreviation “BPO” means
      “before payout,” and such terms indicate that Debtor’s Working Interest
      and Net Revenue Interest are subject to change based on the terms of
      certain instruments or agreements specifically described and
      referenced.  The abbreviation “ORRI” means overriding royalty
      interest.

              

      

       

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

       

      
        	
                7.  

              	
                The
      Mortgage covers all right, title and interest of Debtor (whether now owned
      or hereafter acquired by operation of law or otherwise) in and to the land
      specifically described in this Exhibit “A” and the land described in
      or covered by the leases, licenses, subleases, sublicenses, easements,
      rights-of-way, agreements and other documents and instruments described in
      this Exhibit “A” whether or not such land is specifically described
      in this Exhibit “A”; and any references to specific lands, depth
      limitations, horizons, formations, zones, unit designations, unit tract
      descriptions and descriptions of undivided leasehold interests, “Working
      Interest” or “WI” and “Net Revenue Interest” or “NRI” contained in this
      Exhibit “A” are for the purposes of defining the nature and extent of
      Debtor’s warranties and shall not be deemed to limit or restrict the
      interests covered by the Mortgage or the liens and security interests
      created thereby.

              

      

       

      
        	
                8.  

              	
                This
      Exhibit “A” consists of this Preamble and 3 pages numbered A-1 through
      A-3.

              

      

       

      
        	
                9.  

              	
                To
      facilitate recording, only the pertinent pages of the Exhibits will be
      filed for recording as follows:

              

      

       

      
        	
                County

              	 	
                Pages

              
	 
      	 	 
      
	
                Kimball,
      Nebraska

                 

                Banner,
      Nebraska

              	 	
                A-1
      through A-4

                 

                A-5

              

      

      

       

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

       

       

       

      EXHIBIT
“A”

       

      Description of the Land and
Collateral

      Kimball County,
Nebraska

       

      

       

      WILKE (DILL EAST FIELD)
LEASES and LANDS:

       

      
        
          	
                  Lessor:

                	
                  Gary
      L. Schneider, Individually and as heir of Maxine Schneider,
      deceased

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  May
      20, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 44

                
	
                  Description:

                	
                  Township 15 North, Range 56
      West

                
	 
      	 
      
	 
      	 
      
	
                  Lessor:

                	
                  Peggy
      Atkins and Howard Atkins, wife and husband

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  May
      20, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 48

                
	
                  Description:

                	
                  Township 15 North, Range 56
      West

                
	 
      	 
      
	 
      	 
      
	
                  Lessor:

                	
                  Galeen
      B. Hergenrader and Kenneth Hergenrader, wife and
husband

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  May
      16, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 52

                
	
                  Description:

                	
                  Township 15 North, Range 56
      West

                
	 
      	 
      
	 
      	 
      
	
                  Lessor:

                	
                  Paula
      Wilke, a/k/a Paula J. Wilke and Erwin Wilke, Jr., wife and
      husband

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  June
      26, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 132

                
	
                  Description:

                	
                  Township 15 North, Range 56
      West

                
	 
      	
                  Section
      5:  S/2

                
	Amendment
      of Oil and Gas Dated:     July
      9, 2008
	
                  Recorded:

                	
                  Book
      206 OG, Page 221

                
	
                  Description:

                	
                  Township 15 North, Range 56
      West

                
	 
      	
                  Section
      5:  S/2

                
	 
      	 
      

        

      

       

      WILKE (DILL EAST FIELD)
WELLS

      

      Well
Name:            Wilke
24-5

      Located:                 SE/4SW/4
of Section 5, T15N-R56W, Kimball County, NE

      API:  26105226270000       Working
Interest:  87.50%        Net
Revenue Interest: 70.00%

      Equipment
and Inventory:  consisting of a pumping unit, rods, tubing and
casing

       

       

      
        
          
          

        

        
          A-1

          
            

          

        

        
          
          

        

      

       

      
 

      Well
Name:            Wilke
23-5

      Located:                 NE/4SW/4
of Section 5, T15N-R56W, Kimball County, NE

      API:  26105226250000       Working
Interest: 87.50%         Net Revenue
Interest: 70.00%

      Equipment
and Inventory:  consisting of a pumping unit, rods, tubing and
casing

      

      Well
Name:           Wilke
34-5

      Located:                 SW/4SE/4
of Section 5, T15N-R56W, Kimball County, NE

      API:  26105226290000       Working
Interest:  87.50%        Net
Revenue Interest: 70.00%

      Equipment
and Inventory:  consisting of a pumping unit, rods, tubing and
casing

      

      Well
Name:           Wilke
33-5

      Located:                 NW/4SE/4
of Section 5, T15N-R56W, Kimball County, NE

      API:  26105226280000       Working
Interest:  87.50%        Net
Revenue Interest: 70.00%

      Equipment
and Inventory:  consisting of a pumping unit, rods, tubing and
casing

      

      Well
Name:           Wilke
44-5

      Located:                 SE/4SE/4
of Section 5, T15N-R56W, Kimball County, NE

      API:  26105226320000       Working
Interest:  87.50%        Net
Revenue Interest: 70.00%

      Equipment
and Inventory:  consisting of a pumping unit, rods, tubing and
casing

      

      Well
Name:           Wilke
14-5

      Located:                SW/4SW/4
of Section 5, T15N-R56W, Kimball County, NE

      API:  26105226520000      
Working
Interest:  87.50%        Net
Revenue Interest: 70.00%

      Equipment
and Inventory:  consisting of a pumping unit, rods, tubing and
casing

      

      Wilke
Tank Battery consisting of 8 400 bbl tanks and an 8 foot treater.

      

      LUKASSEN LEASES and
LANDS:

       

      
        
          	
                  Lessor:

                	
                  Antelope
      Energy Company, LLC, a Colorado limited liability
  company

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  August
      4, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 647

                
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      16 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      34:  S/2SW/4SW/4

                
	 
      	 
      
	
                  Lessor:

                	
                  Marian
      J. Payne, a single woman

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  July
      25, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 487

                
	Correction
      of Description Recorded:   Book
      207, Page 354
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      15 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      3:  N/2 of Lot 4, also described as
  N/2NW/4NW/4

                
	 
      	 
      

           

           

           

          
            
              
              

            

            
              A-2

              
                

              

            

            
              
              

            

          

           

           

          	
                  Lessor:

                	
                  Judith
      Ann Mays, a married woman dealing in her sole and separate
      property

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  July
      25, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 487

                
	Correction
      of Description Recorded:   Book
      207, Page 356
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      15 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      3:  N/2 of Lot 4, also described as
  N/2NW/4NW/4

                
	 
      	 
      
	
                  Lessor:

                	
                  William
      O. Smith a/k/a William Otis Smith and Rita Marie Smith, husband and
      wife

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  May
      16, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 33

                
	Correction
      of Description Recorded:   Book
      207, Page 352
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      15 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      3:  N/2 of Lot 4, also described as
  N/2NW/4NW/4

                
	 
      	 
      
	
                  Lessor:

                	
                  Rita
      J. Bingaman f/k/a Rita Jeanne Smith and Gary P. Bingaman, wife and
      husband

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  May
      16, 2008

                
	
                  Recorded:

                	
                  Book
      206 OG, Page 29

                
	Correction
      of Description Recorded:Book
      207, Page 350
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      15 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      3:  N/2 of Lot 4, also described as
  N/2NW/4NW/4

                
	 
      	 
      
	
                  Lessor:

                	
                  Mary
      L. Soper, individually and as Trustee of the Ronald R. Soper Family Trust,
      dated October 4, 1995

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  July
      15, 2009

                
	
                  Recorded:

                	
                  Book
      208 OG, Page 760

                
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      15 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      3:  N/2 of Lot 4, also described as
  N/2NW/4NW/4

                
	 
      	 
      
	
                  Lessor:

                	
                  Steven
      Knigge, a single man

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  July
      15, 2009

                
	
                  Recorded:

                	
                  Book
      208 OG, Page 763

                
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      15 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      3:  N/2 of Lot 4, also described as
  N/2NW/4NW/4

                
	 
      	 
      

           

           

          
            
              
              

            

            
              A-3

              
                

              

            

            
              
              

            

          

           

           

          	
                  Lessor:

                	
                  Linda
      McDowall, f.k.a. Linda Wilson, a single woman

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  July
      15, 2009

                
	
                  Recorded:

                	
                  Book
      208 OG, Page 766

                
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      15 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      3:  N/2 of Lot 4, also described as
  N/2NW/4NW/4

                
	 
      	 
      
	
                  Lessor:

                	
                  Marla
      Knigge,f.k.a. Marla Teasley, a single woman

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  July
      15, 2009

                
	
                  Recorded:

                	
                  Book
      208 OG, Page 769

                
	
                  Covering:

                	
                  INSOFAR
      AND ONLY INSOFAR AS THE LEASE COVERS:

                
	 
      	
                  TOWNSHIP
      15 NORTH, RANGE 56 WEST, 6th P.M.

                
	 
      	
                  Section
      3:  N/2 of Lot 4, also described as
  N/2NW/4NW/4

                
	 
      	 
      

        

      

      
LUKASSEN
WELL

      

      Well
Name:           Lukassen
14-34

      Located:                 S/2SW/4SW/4
of Section 34, T16N-R56W, Kimball County, NE

      API:  26105226450000       Working
Interest:  100.00%      Net Revenue
Interest: 80.00%

      Equipment
and Inventory:  consisting of a pumping unit, rods, tubing and
casing

      

      Lukassen
Tank Battery consisting of 3 – 400 bbl tanks and a 4 foot treater

       

       

      
        
          
          

        

        
          A-4

          
            

          

        

        
          
          

        

      

       

       

      Banner County,
Nebraska

       

      

      

      OMEGA PROSPECT LEASES and
LANDS:

       

      
        
          	
                  Lessor:

                	
                  Katharine
      E. Nelson,, Individually and as Trustee of the Katharine E. Nelson Living
      Trust, dated 5-19-2003

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  September
      20, 2008

                
	
                  Recorded:

                	
                  Book
      131 OG, Page 455, in Banner County, Nebraska

                
	
                  Description:

                	
                  Township 17 North, Range 55 West, 6th P.M.

                
	 
      	
                  Section
      11:  NE, S2

                
	 
      	 
      
	
                  Lessor:

                	
                  Ruth
      L. Pile, individually and as Trustee of the Ruth L. Pile Revocable Trust,
      dated 6-26-1998

                
	
                  Lessee:

                	
                  Edward
      Mike Davis, L.L.C.

                
	
                  Dated:

                	
                  October
      9, 2008

                
	
                  Recorded:

                	
                  Book
      131 OG, Page 459, in Banner County, Nebraska

                
	
                  Description:

                	
                  Township 17 North, Range 55 West, 6th P.M.

                
	 
      	
                  Section
      12:  W/2

                
	 
      	 
      

        

      

       

       

       

       

      A-5

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