Document:

AMENDED
      AND RESTATED CREDIT AGREEMENT

     

    BETWEEN

     

    LOTHIAN
      OIL INC.,

     

    as
      “Parent Borrower”

     

    and

     

    UNITED
      HERITAGE CORPORATION,

    

    LOTHIAN
      OIL (USA) INC.,

    

    LOTHIAN
      OIL TEXAS I, INC.,

    and

    

    UHC
      NEW MEXICO CORPORATION

    “Subsidiary
      Borrowers”

    and,

    collectively,
      with Parent Borrower, “Borrowers”

    and

    

    STERLING
      BANK,

    as
      “Lender”

    

    dated
      JUNE 16, 2006,

    effective
      as of MARCH 31, 2006

     

    
      

    

    

    REDUCING
      REVOLVING LINE OF CREDIT OF UP TO $20,000,000

     

    
      
        
          

        

        
          

        

      

    

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

      TABLE
        OF CONTENTS

       

      
         

        
          	 	
                  Page

                
	 	 
	
                  ARTICLE
                    I DEFINITIONS AND INTERPRETATION

                	
                  1

                
	
                  1.1

                	
                  Terms
                    Defined Above

                	
                  1

                
	
                  1.2

                	
                  Additional
                    Defined Terms

                	
                  1

                
	
                  1.3

                	
                  Undefined
                    Financial Accounting Terms

                	
                  8

                
	
                  1.4

                	
                  References

                	
                  8

                
	
                  1.5

                	
                  Articles
                    and Sections

                	
                  8

                
	
                  1.6

                	
                  Number
                    and Gender

                	
                  8

                
	
                  1.7

                	
                  Incorporation
                    of Exhibits

                	
                  8

                
	 	
                   

                
	
                  ARTICLE
                    II TERMS OF FACILITY

                	
                  
                    8

                  

                
	
                  2.1

                	
                  Revolving
                    Line of Credit

                	
                  8

                
	
                  2.2

                	
                  Use
                    of Loan Proceeds

                	
                  8

                
	
                  2.3

                	
                  Interest

                	
                  8

                
	
                  2.4

                	
                  Repayment
                    of Loans and Interest

                	
                  8

                
	
                  2.5

                	
                  Outstanding
                    Amounts

                	
                  8

                
	
                  2.6

                	
                  Time,
                    Place, and Method of Payments

                	
                  8

                
	
                  2.7

                	
                  Borrowing
                    Base Determinations

                	
                  8

                
	
                  2.8

                	
                  Mandatory
                    Prepayments

                	
                  8

                
	
                  2.9

                	
                  Voluntary
                    Prepayments of Loans

                	
                  8

                
	
                  2.10

                	
                  Commitment
                    Fee

                	
                  8

                
	
                  2.11

                	
                  Facility
                    Fee

                	
                  8

                
	
                  2.12

                	
                  Reimbursement
                    for Engineering Expenses

                	
                  8

                
	
                  2.13

                	
                  Loans
                    to Satisfy Obligations of Borrowers

                	
                  8

                
	
                  2.14

                	
                  Security
                    Interest in Accounts; Right of Offset

                	
                  8

                
	
                  2.15

                	
                  General
                    Provisions Relating to Interest

                	
                  8

                
	
                  2.16

                	
                  Intentionally
                    Omitted

                	
                  8

                
	
                  2.17

                	
                  Power
                    of Attorney

                	
                  8

                
	
                  2.18

                	
                  Letters
                    of Credit

                	
                  8

                
	
                  2.19

                	
                  Letter
                    of Credit Fee

                	
                  8

                
	 	 
	
                  ARTICLE
                    III CONDITIONS

                	
                  
                    8

                  

                
	
                  3.1

                	
                  Receipt
                    of Loan Documents and Other Items

                	
                  8

                
	
                  3.2

                	
                  Each
                    Loan and Letter of Credit

                	
                  8

                
	 	
                   

                
	
                  ARTICLE
                    IV REPRESENTATIONS AND WARRANTIES

                	
                  8

                
	
                  4.1

                	
                  Due
                    Authorization

                	
                  8

                
	
                  4.2

                	
                  Corporate
                    Existence

                	
                  8

                
	
                  4.3

                	
                  Valid
                    and Binding Obligations

                	
                  8

                
	
                  4.4

                	
                  Security
                    Instruments

                	
                  8

                
	
                  4.5

                	
                  Title
                    to Assets

                	
                  8

                
	
                  4.6

                	
                  Scope
                    and Accuracy of Financial Statements

                	
                  8

                
	
                  4.7

                	
                  No
                    Material Misstatements

                	
                  8

                
	
                  4.8

                	
                  Liabilities,
                    Litigation, and Restrictions

                	
                  8

                

        

         

         

        
          
             

          

          
            
              Exhibit
                10 1 for 8-K-Amended and Restated Credit Agreement.DOC -
                i-

            

            
              

            

          

          
             

          

        

         

        
          	
                  4.9

                	
                  Authorizations;
                    Consents

                	
                  8

                
	
                  4.10

                	
                  Compliance
                    with Laws

                	
                  8

                
	
                  4.11

                	
                  ERISA

                	
                   

                
	
                  4.12

                	
                  Environmental
                    Laws

                	
                  8

                
	
                  4.13

                	
                  Compliance
                    with Federal Reserve Regulations

                	
                  8

                
	
                  4.14

                	
                  Investment
                    Company Act Compliance

                	
                  8

                
	
                  4.15

                	
                  Public
                    Utility Holding Company Act Compliance

                	
                  8

                
	
                  4.16

                	
                  Proper
                    Filing of Tax Returns; Payment of Taxes Due

                	
                  8

                
	
                  4.17

                	
                  Refunds

                	
                  8

                
	
                  4.18

                	
                  Gas
                    Contracts

                	
                  8

                
	
                  4.19

                	
                  Intellectual
                    Property

                	
                  8

                
	
                  4.20

                	
                  Casualties
                    or Taking of Property

                	
                  8

                
	
                  4.21

                	
                  Locations
                    of Borrowers

                	
                  8

                
	
                  4.22

                	
                  Subsidiaries

                	
                  8

                
	
                  4.23

                	
                  Purchasers
                    of Production

                	
                  8

                
	
                  4.24

                	
                  Patriot
                    Act

                	
                  8

                
	
                  4.25

                	
                  Affiliate
                    Transactions

                	
                  8

                
	 	
                   

                
	
                  ARTICLE
                    V AFFIRMATIVE COVENANTS

                	
                  
                    8

                  

                
	
                  5.1

                	
                  Maintenance
                    and Access to Records

                	
                  8

                
	
                  5.2

                	
                  Quarterly
                    Financial Statements; Compliance Certificates

                	
                  8

                
	
                  5.3

                	
                  Annual
                    Financial Statements

                	
                  8

                
	
                  5.4

                	
                  Oil
                    and Gas Reserve Reports

                	
                  8

                
	
                  5.5

                	
                  Title
                    Opinions; Title Defects

                	
                  8

                
	
                  5.6

                	
                  Notices
                    of Certain Events

                	
                  8

                
	
                  5.7

                	
                  Letters
                    in Lieu of Transfer Orders; Division Orders

                	
                  8

                
	
                  5.8

                	
                  Additional
                    Information

                	
                  8

                
	
                  5.9

                	
                  Compliance
                    with Laws

                	
                  8

                
	
                  5.10

                	
                  Payment
                    of Assessments and Charges

                	
                  8

                
	
                  5.11

                	
                  Maintenance
                    of Corporate Existence and Good Standing

                	
                  8

                
	
                  5.12

                	
                  Payment
                    of Note; Performance of Obligations

                	
                  8

                
	
                  5.13

                	
                  Further
                    Assurances

                	
                  8

                
	
                  5.14

                	
                  Initial
                    Fees and Expenses of Counsel to Lender

                	
                  8

                
	
                  5.15

                	
                  Subsequent
                    Fees and Expenses of Lender

                	
                  8

                
	
                  5.16

                	
                  Operation
                    of Oil and Gas Properties

                	
                  8

                
	
                  5.17

                	
                  Maintenance
                    and Inspection of Properties

                	
                  8

                
	
                  5.18

                	
                  Maintenance
                    of Insurance

                	
                  8

                
	
                  5.19

                	
                  INDEMNIFICATION

                	
                  8

                
	
                  5.20

                	
                  Hedging
                    Transaction Reports

                	
                  8

                
	
                  5.21

                	
                  Production
                    and Expense Reports

                	
                  8

                
	
                  5.22

                	
                  Commodity
                    Hedge Agreements

                	
                  8

                
	
                  5.23

                	
                  Additional
                    Borrowers

                	
                  8

                
	
                  5.24

                	
                  Additional
                    Properties

                	
                  8

                
	 	
                   

                
	
                  ARTICLE
                    VI NEGATIVE COVENANTS

                	
                  
                    8

                  

                
	
                  6.1

                	
                  Indebtedness

                	
                  8

                
	
                  6.2

                	
                  Contingent
                    Obligations

                	
                  8

                

        

         

        
          
             

          

          
            
              Exhibit
                10 1 for 8-K-Amended and Restated Credit Agreement.DOC
                ii

            

            
              

            

          

          
             

          

        

         

         

        
          	
                  6.3

                	
                  Liens

                	
                   

                
	
                  6.4

                	
                  Sales
                    of Assets

                	
                  8

                
	
                  6.5

                	
                  Leasebacks

                	
                  8

                
	
                  6.6

                	
                  Sale
                    or Discount of Receivables

                	
                  8

                
	
                  6.7

                	
                  Loans
                    or Advances

                	
                  8

                
	
                  6.8

                	
                  Investments

                	
                  8

                
	
                  6.9

                	
                  Dividends
                    and Distributions

                	
                  8

                
	
                  6.10

                	
                  Issuance
                    of Stock; Changes in Corporate Structure

                	
                  8

                
	
                  6.11

                	
                  Transactions
                    with Affiliates

                	
                  8

                
	
                  6.12

                	
                  Lines
                    of Business

                	
                  8

                
	
                  6.13

                	
                  Plan
                    Obligations

                	
                  8

                
	
                  6.14

                	
                  Current
                    Ratio

                	
                  8

                
	
                  6.15

                	
                  EBITDA
                    to Current Borrowing Base Ratio

                	
                  8

                
	
                  6.16

                	
                  Minimum
                    Consolidated Tangible Net Worth

                	
                  8

                
	
                  6.17

                	
                  Commodity
                    Hedge Agreements

                	
                  8

                
	
                  6.18

                	
                  UHC
                    Credit Documents

                	
                  8

                
	 	
                   

                
	
                  ARTICLE
                    VII EVENTS OF DEFAULT

                	
                  
                    8

                  

                
	
                  7.1

                	
                  Enumeration
                    of Events of Default

                	
                  8

                
	
                  7.2

                	
                  Remedies

                	
                  8

                
	 	
                   

                
	
                  ARTICLE
                    VIII MISCELLANEOUS

                	
                  
                    8

                  

                
	
                  8.1

                	
                  Transfers;
                    Participations

                	
                  8

                
	
                  8.2

                	
                  Survival
                    of Representations, Warranties, and Covenants

                	
                  8

                
	
                  8.3

                	
                  Notices
                    and Other Communications

                	
                  8

                
	
                  8.4

                	
                  Parties
                    in Interest

                	
                  8

                
	
                  8.5

                	
                  Rights
                    of Third Parties

                	
                  8

                
	
                  8.6

                	
                  Renewals;
                    Extensions

                	
                  8

                
	
                  8.7

                	
                  No
                    Waiver; Rights Cumulative

                	
                  8

                
	
                  8.8

                	
                  Survival
                    Upon Unenforceability

                	
                  8

                
	
                  8.9

                	
                  Amendments;
                    Waivers

                	
                  8

                
	
                  8.10

                	
                  Controlling
                    Agreement

                	
                  8

                
	
                  8.11

                	
                  Disposition
                    of Collateral

                	
                  8

                
	
                  8.12

                	
                  GOVERNING
                    LAW

                	
                  8

                
	
                  8.13

                	
                  JURISDICTION
                    AND VENUE

                	
                  8

                
	
                  8.14

                	
                  WAIVER
                    OF RIGHTS TO JURY TRIAL

                	
                  8

                
	
                  8.15

                	
                  ENTIRE
                    AGREEMENT

                	
                  8

                
	
                  8.16

                	
                  IMPORTANT
                    INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT

                	
                  8

                
	
                  8.17

                	
                  Counterparts

                	
                  8

                
	
                  8.18

                	
                  Amendment
                    and Restatement

                	
                  8

                
	
                  8.19

                	
                  Ratification
                    and Merger

                	
                  8

                

        

         

        
          
             

          

          
            
              Exhibit
                10
                1 for 8-K-Amended and Restated Credit Agreement.DOC
                iii

            

            
              

            

          

          
             

          

        

      

    

    

    LIST
      OF EXHIBITS

     

    
      	
              Exhibit
                I 

            	 	
              Form
                of Note

            
	
              Exhibit
                II

            	 	
              Form
                of Borrowing Request

            
	
              Exhibit
                III

            	 	
              Form
                of Compliance Certificate

            
	
              Exhibit
                IV

            	 	
              Disclosures

            
	
              Exhibit
                V

            	 	
              Borrowing
                Base Oil and Gas Properties

            
	
              Exhibit
                VI

            	 	
              Purchasers
                of Production

            
	
              Exhibit
                VII

            	 	
              Affiliate
                Transaction

            

    

     

     

    

    
      
        
          
            Exhibit
              10
              1 for 8-K-Amended and Restated Credit Agreement.DOC iv

          

           

        

        
           

          
            

          

        

        
           

          
          

        

      

    

    

    AMENDED
      AND RESTATED CREDIT AGREEMENT

     

    THIS
      AMENDED AND RESTATED CREDIT AGREEMENT is
      made
      and entered into the 16th
      day of
      June, 2006, effective as of March 31, 2006, by and between LOTHIAN
      OIL INC.,
      a
      Delaware corporation (the
      “Parent
      Borrower”),
      UNITED
      HERITAGE CORPORATION,
      a Utah
      corporation, LOTHIAN
      OIL (USA) INC.,
      a Texas
      corporation, LOTHIAN
      OIL TEXAS I, INC.,
      a Texas
      corporation, and UHC
      NEW MEXICO CORPORATION,
      a New
      Mexico corporation (“Subsidiary
      Borrowers”
and,
      collectively, with Parent Borrower, “Borrowers”),
      and
STERLING
      BANK,
      a Texas
      state chartered bank (the “Lender”).

     

    WITNESSETH:

     

    WHEREAS,
      Borrowers (other than United Heritage Corporation and UHC New Mexico
      Corporation) entered into that certain Credit Agreement dated April 28,
      2005, as amended (“Prior
      Credit Agreement”);

     

    WHEREAS,
      subsequent to the Prior Credit Agreement, Lothian Oil Inc. acquired a
      controlling interest in the capital stock of United Heritage
      Corporation.

     

    WHEREAS,
      Borrowers have requested that Lender amend and restate the Prior Credit
      Agreement; and

     

    In
      consideration of the mutual covenants and agreements herein contained, Borrowers
      and Lender hereby agree as follows:

     

    ARTICLE
      I

     

    DEFINITIONS
      AND INTERPRETATION

    1.1  Terms
      Defined Above.
      As used
      in this Credit Agreement, the terms “Parent
      Borrower,”
      “Subsidiary
      Borrower,”
      “Borrowers”
and
      “Lender”
shall
      have the meaning assigned to them hereinabove.

     

    1.2  Additional
      Defined Terms.
      As used
      in this Credit Agreement, each of the following terms shall have the meaning
      assigned thereto in this Section, unless the context otherwise
      requires:

     

    “Affiliate”
shall
      mean any Person directly or indirectly controlling, or under common control
      with, any Borrower and includes any Subsidiary of any Borrower and any
“affiliate” of any Borrower within the meaning of Reg. §240.12b-2 of the
      Securities Exchange Act of 1934, as amended, with “control,” as used in this
      definition, meaning possession, directly or indirectly, of the power to direct
      or cause the direction of management, policies or action through ownership
      of
      voting securities, contract, voting trust, or membership in management or in
      the
      group appointing or electing management or otherwise through formal or informal
      arrangements or business relationships.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Agreement”
shall
      mean this Amended and Restated Credit Agreement, as it may be amended,
      supplemented, or restated from time to time.

     

    “Available
      Commitment”
shall
      mean, at any time, an amount equal to the remainder, if any, of (a) the
      Borrowing Base in effect at such time minus
      (b)
      the
      Loan Balance.

     

    “Base
      Rate”
shall
      mean, at any time, the
      prime
      rate established in The
      Wall Street Journal’s“Money
      Rates”
or
      similar table. If multiple prime rates are quoted in the table, then the highest
      prime rate will be the Base Rate. In the event that the prime rate is no longer
      published by The
      Wall Street Journal
      in the
“Money
      Rates”
or
      similar table, then Lender may select an alternative published index based
      upon
      comparable information as a substitute Base Rate. Upon the selection of a
      substitute Base Rate, the applicable interest rate shall thereafter vary in
      relation to the substitute index. Each change in any interest rate provided
      for
      herein based upon the Base Rate resulting from a change in the Base Rate shall
      take effect without notice to Borrowers at the time of such change in the Base
      Rate. 

     

    “Borrowing
      Base”
shall
      mean, at any time with regard to the Borrowing Base Oil and Gas Properties,
      the
      amount determined by Lender in accordance with Section
      2.7
      then in
      effect.

     

    “Borrowing
      Base Oil and Gas Properties”
means
      those Oil and Gas Properties of Borrowers that will, with execution of the
      Loan
      Documents, be subject to liens created by certain of the Security Instruments
      to
      secure the Obligations, which initial Borrowing Base Oil and Gas Properties are
      described in Exhibit V
      attached
      hereto and made a part hereof together with such additional Oil and Gas
      Properties as are subsequently added to the Borrowing Base Oil and Gas
      Properties pursuant to Section
      2.8.

     

    “Borrowing
      Request”
shall
      mean each written request, in substantially the form attached hereto as
Exhibit
      II,
      by
      Parent Borrower to Lender for a borrowing or prepayment pursuant to Sections
      2.1, 2.8
      or
2.9,
      each of
      which shall:

     

    (a)  be
      signed
      by a Responsible Officer of Parent Borrower;

     

    (b)  specify
      the amount requested or prepaid and the date of the borrowing or prepayment
      (which shall be a Business Day); and

     

    (c)  be
      delivered to Lender no later than 11:00 a.m., Central Standard or Daylight
      Savings Time, as the case may be, on the Business Day of the requested borrowing
      or prepayment.

     

    “Business
      Day”
shall
      mean a day other than a Saturday, Sunday, legal holiday for commercial banks
      under the laws of the State of Texas, or any other day when banking is suspended
      in the State of Texas.

     

    “Change
      of Control”
      means an
      event or series of events by which (i) the holders of the capital ownership
      of any Borrower as of the Closing Date cease to own and control, directly and
      indirectly, at least fifty-one percent (51%) of such Borrower’s capital
      ownership or (ii) any Borrower ceases to own and control, directly and
      indirectly, 100% of the capital ownership in any of its Subsidiaries (except
      as
      provided in (i)
      above).

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    “Closing
      Date”
shall
      mean the effective date of this Agreement when all conditions precedent
      hereunder have been satisfied.

     

    “Collateral”
shall
      mean the Borrowing Base Oil and Gas Properties and any other Property now or
      at
      any time used or intended as security for the payment or performance of all
      or
      any portion of the Obligations, including, without limitation the Property
      covered by the Security Instruments.

     

    “Commitment”
shall
      mean the obligation of Lender, subject to applicable provisions of this
      Agreement, to make Loans to or for the benefit of Borrowers pursuant to
Section
      2.1
      and to
      issue Letters of Credit pursuant to Section
      2.18
      in an
      aggregate amount not to exceed $20,000,000.

     

    “Commitment
      Fee”
shall
      mean each fee payable to Lender by Borrowers pursuant to Section
      2.10.

     

    “Commitment
      Period”
shall
      mean the period from and including the Closing Date to but not including the
      Maturity Date.

     

    “Commodity
      Hedge Agreement”
shall
      mean any crude oil, natural gas, or other hydrocarbon floor, collar, cap, price
      protection, or swap agreement between any Borrower and a Person, in form and
      substance acceptable to Lender in its sole discretion.

     

    “Commonly
      Controlled Entity’ shall
      mean any Person which is under common control with any Borrower within the
      meaning of Section 4001 of ERISA.

     

    “Compliance
      Certificate”
shall
      mean each certificate, substantially in the form attached hereto as Exhibit
      III,
      executed by a Responsible Officer of Parent Borrower and furnished to Lender
      from time to time in accordance with Sections
      5.2
      and
5.3.

     

    “Consolidated
      Tangible Net Worth”
means,
      as of any reporting period, Stockholders’ Equity, less the sum of:

     

    (A) Goodwill,
      including any amounts, however designated on a consolidated balance sheet of
      Borrowers and their Subsidiaries, representing the excess of the purchase price
      paid for assets or stock acquired over the value assigned thereto on the books
      of Borrowers;

     

    (B) Patents,
      trademarks, trade names, and copyrights;

     

    (C) Any
      amount at which shares of capital stock of any Subsidiary appear as an asset
      on
      Borrowers’ balance sheet; and

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (D) Any
      other
      amount in respect of an intangible that should be classified as an asset on
      a
      consolidated balance sheet of Borrowers in accordance with GAAP.

     

    “Contingent
      Obligation”
shall
      mean, as to any Person, any obligation of such Person guaranteeing or in effect
      guaranteeing any Indebtedness, leases, dividends, or other obligations of any
      other Person (for purposes of this definition, a “primary
      obligation”)
      in any
      manner, whether directly or indirectly, including, without limitation, any
      obligation of such Person, regardless of whether such obligation is contingent,
      (a) to purchase any primary obligation or any Property constituting direct
      or
      indirect security therefor, (b) to advance or supply funds (i) for the purchase
      or payment of any primary obligation, or (ii) to maintain working or equity
      capital of any other Person in respect of any primary obligation, or otherwise
      to maintain the net worth or solvency of any other Person, (c) to purchase
      Property, securities or services primarily for the purpose of assuring the
      owner
      of any primary obligation of the ability of the Person primarily liable for
      such
      primary obligation to make payment thereof, or (d) otherwise to assure or hold
      harmless the owner of any such primary obligation against loss in respect
      thereof, with the amount of any Contingent Obligation being deemed to be equal
      to the stated or determinable amount of the primary obligation in respect of
      which such Contingent Obligation is made or, if not stated or determinable,
      the
      maximum reasonably anticipated liability in respect thereof as determined by
      such Person in good faith.

     

    “Current
      Assets”
shall
      mean all assets which would, in accordance with GAAP, be included as current
      assets, on a consolidated basis, on the balance sheet of Borrowers as of the
      date of calculation.

     

    “Current
      Liabilities”
shall
      mean all liabilities which would, in accordance with GAAP, be included as
      current liabilities, on a consolidated basis, on the balance sheet of Borrowers
      as of the date of calculation.

     

    “Default”
shall
      mean any event or occurrence which with the lapse of time or the giving of
      notice or both would become an Event of Default.

     

    “Default
      Rate”
shall
      mean a per annum interest rate equal to the Floating Rate plus
      four
      percent (4%), but in no event exceeding the Highest Lawful Rate.

     

    “Dollars”
and
      “$”
shall
      mean dollars in lawful currency of the United States of America.

     

    “EBITDA”
shall
      mean, for any period, Net Income for such period plus Interest Expense, federal
      and state income taxes, depreciation, depletion, amortization, and other
      non-cash expenses for such period deducted in the determination of Net Income
      for such period.

     

    “Environmental
      Complaint”
shall
      mean any written complaint, order, directive, claim, citation, notice of
      environmental report or investigation, or other notice by any Governmental
      Authority or any other Person with respect to (a) air emissions, (b) spills,
      releases, or discharges to soils, any improvements located thereon, surface
      water, groundwater, or the sewer, septic, waste treatment, storage, or disposal
      systems servicing any Property of Borrowers, (c) solid or liquid waste disposal,
      (d) the use, generation, storage, transportation, or disposal of any Hazardous
      Substance, or (e) other environmental, health, or safety matters affecting
      any
      Property of any Borrower or the business conducted thereon.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    “Environmental
      Laws”
shall
      mean (a) the following federal laws as they may be cited, referenced, and
      amended from time to time: the Clean Air Act, the Clean Water Act, the Safe
      Drinking Water Act, the Comprehensive Environmental Response, Compensation
      and
      Liability Act, the Endangered Species Act, the Resource Conservation and
      Recovery Act, the Occupational Safety and Health Act, the Hazardous Materials
      Transportation Act, the Superfund Amendments and Reauthorization Act, and the
      Toxic Substances Control Act; (b) any and all equivalent environmental statutes
      of any state in which Property of any Borrower is situated, as they may be
      cited, referenced and amended from time to time; (c) any rules or regulations
      promulgated under or adopted pursuant to the above federal and state laws;
      and
      (d) any other equivalent federal, state, or local statute or any requirement,
      rule, regulation, code, ordinance, or order adopted pursuant thereto, including,
      without limitation, those relating to the generation, transportation, treatment,
      storage, recycling, disposal, handling, or release of Hazardous
      Substances.

     

    “ERISA”
shall
      mean the Employee Retirement Income Security Act of 1974, as amended from time
      to time, and the regulations thereunder and interpretations
      thereof.

     

    “Event
      of Default”
shall
      mean any of the events specified in Section
      7.1.

     

    “Facility
      Fee”
has
      the
      meaning given to such term in Section
      2.11
      hereof.

     

    “Financial
      Statements”
shall
      mean statements of the financial condition of Borrowers on a consolidated basis
      and on a consolidating basis as at the point in time and for the period
      indicated and consisting of at least a balance sheet and related statements
      of
      operations, common stock and other stockholders’ equity; and cash flows for
      Borrowers and, when required by applicable provisions of this Agreement to
      be
      reviewed by certified public accountants acceptable to Lender and footnotes
      to
      any of the foregoing, all of which shall be prepared in accordance with GAAP
      for
      Borrowers, consistently applied and in comparative form with respect to the
      corresponding period of the preceding fiscal period.

     

    “Floating
      Rate”
shall
      mean an interest rate per annum equal to the Base Rate from time to time in
      effect plus (i) three-fourths of one percent (0.75%) at any time the Loan
      Balance is less than fifty percent (50%) of the Commitment and (ii) one and
      one-half percent (1.50%) at any time the Loan Balance is equal to or greater
      than fifty percent (50%) of the Commitment, but in no event exceeding the
      Highest Lawful Rate.

     

    “GAAP”
shall
      mean generally accepted accounting principles established by the Financial
      Accounting Standards Board or the American Institute of Certified Public
      Accountants and in effect in the United States from time to time.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    “G&A
      Expenses”
means
      the combined general and administrative expenses of the Borrowers, including
      capitalized general and administrative expenses, calculated in accordance with
      GAAP (excluding all non-cash charges).

     

    “Governmental
      Authority”
shall
      mean any nation, country, commonwealth, territory, government, state, county,
      parish, municipality, or other political subdivision and any entity exercising
      executive, legislative, judicial, regulatory, or administrative functions of
      or
      pertaining to government.

     

    “Guarantor”
means
      each Subsidiary of each Borrower, now or hereafter in existence that is not
      a
      Borrower hereunder (other than NHSC), including, without limitation, Lothian
      Oil
      II, UHC PC, and UHC PSC.

     

    “Guaranty”
means
      the Guaranty made by any Guarantor in favor of Lender, in form and substance
      satisfactory to Lender.

     

    “Hazardous
      Substances”
shall
      mean flammables, explosives, radioactive materials, hazardous wastes, asbestos,
      or any material containing asbestos, polychlorinated biphenyls (PCBs), toxic
      substances or related materials, petroleum, petroleum products, associated
      oil
      or natural gas exploration, production, and development wastes, or any
      substances defined as “hazardous substances,” “hazardous materials,” “hazardous
      wastes,” or “toxic substances” under the Comprehensive Environmental Response,
      Compensation and Liability Act, as amended, the Superfund Amendments and
      Reauthorization Act, as amended, the Hazardous Materials Transportation Act,
      as
      amended, the Resource Conservation and Recovery Act, as amended, the Toxic
      Substances Control Act, as amended, or any other law or regulation now or
      hereafter enacted or promulgated by any Governmental Authority.

     

    “Highest
      Lawful Rate”
shall
      mean the maximum non-usurious interest rate, if any (or, if the context so
      requires, an amount calculated at such rate), that at anytime or from time
      to
      time may be contracted for, taken, reserved, charged, or received under
      applicable laws of the State of Texas or the United States of America, whichever
      authorizes the greater rate, as such laws are presently in effect or, to the
      extent allowed by applicable law, as such laws may hereafter be in effect and
      which allow a higher maximum non-usurious interest rate than such laws now
      allow.

     

    “Indebtedness”
shall
      mean, as to any Person, without duplication, (a) all liabilities (excluding
      reserves for deferred income taxes, deferred compensation liabilities, and
      other
      deferred liabilities and credits) which in accordance with GAAP would be
      included in determining total liabilities as shown on the liability side of
      a
      balance sheet, (b) all obligations of such Person evidenced by bonds,
      debentures, promissory notes, or similar evidences of indebtedness, (c) all
      other indebtedness of such Person for borrowed money, and (d) all obligations
      of
      others, to the extent any such obligation is secured by a Lien on the assets
      of
      such Person (whether or not such Person has assumed or become liable for the
      obligation secured by such Lien).

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    “Insolvency
      Proceeding”
shall
      mean application (whether voluntary or instituted by another Person) for or
      the
      consent to the appointment of a receiver, trustee, conservator, custodian,
      or
      liquidator of any Person or of all or a substantial part of the Property of
      such
      Person, or the filing of a petition (whether voluntary or instituted by another
      Person) commencing a case under Title 11 of the United States Code, seeking
      liquidation, reorganization, or rearrangement or taking advantage of any
      bankruptcy, insolvency, debtor’s relief, or other similar law of the United
      States, the State of Texas, or any other jurisdiction.

     

    “Intellectual
      Property”
shall
      mean patents, patent applications, trademarks, tradenames, copyrights,
      technology, know-how, and processes.

     

    “Interest
      Expense”
shall
      mean, for any period, the total interest expense (including, without limitation,
      interest expense attributable to capitalized leases) of Borrowers, on a
      consolidated basis, for such period, determined in accordance with
      GAAP.

     

    “Investment”
in
      any
      Person shall mean any stock, bond, note, or other evidence of Indebtedness,
      or
      any other security (other than current trade and customer accounts) of,
      investment or partnership interest in or loan to, such Person.

     

    “L/C
      Exposure”
shall
      mean, at any time, the aggregate maximum amount available to be drawn under
      outstanding Letters of Credit at such time.

     

    “Letter
      of Credit”
shall
      mean any standby letter of credit issued by Lender for the account of Borrowers
      pursuant to Section
      2.18.

     

    “Letter
      of Credit Application”
shall
      mean the standard letter of credit application employed by Lender from time
      to
      time in connection with letters of credit.

     

    “Letter
      of Credit Fee”
shall
      mean each fee payable to Lender by Borrowers pursuant to Section
      2.19 upon
      or
      in connection with the issuance of a Letter of Credit.

     

    “Lien”
shall
      mean any interest in Property securing an obligation owed to, or a claim by,
      a
      Person other than the owner of such Property, whether such interest is based
      on
      common law, statute, or contract, and including, but not limited to, the lien
      or
      security interest arising from a mortgage, encumbrance, pledge, security
      agreement, conditional sale or trust receipt, or a lease, consignment, or
      bailment for security purposes (other than true leases or true consignments),
      liens of mechanics, materialmen, and artisans, maritime liens and reservations,
      exceptions, encroachments, easements, rights of way, covenants, conditions,
      restrictions, leases, and other title exceptions and encumbrances affecting
      Property which secure an obligation owed to, or a claim by, a Person other
      than
      the owner of such Property (for the purpose of this Agreement, each Borrower
      shall be deemed to be the owner of any Property which it has acquired or holds
      subject to a conditional sale agreement, financing lease, or other arrangement
      pursuant to which title to the Property has been retained by or vested in some
      other Person for security purposes), and the filing or recording of any
      financing statement or other security instrument in any public
      office.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    “Limitation
      Period”
shall
      mean any period while any amount remains owing on the Note and interest on
      such
      amount, calculated at the applicable interest rate, plus any fees or other
      sums
      payable under any Loan Document and deemed to be interest under applicable
      law,
      would exceed the amount of interest which would accrue at the Highest Lawful
      Rate.

     

    “Loan”
shall
      mean any loan made by Lender to or for the benefit of Borrowers pursuant to
      this
      Agreement and any payment made by Lender under a Letter of Credit.

     

    “Loan
      Balance”
shall
      mean, at any time, the outstanding principal balance of the Note at such time,
      plus the L/C Exposure at such time.

     

    “Loan
      Documents”
shall
      mean this Agreement, the Note, the Letters of Credit Applications, the Letters
      of Credit, the Security Instruments, the Guaranty, the Subordination Agreement
      and all other documents and instruments now or hereafter delivered pursuant
      to
      the terms of or in connection with such documents, and all renewals and
      extensions of, amendments and supplements to, and restatements of, any or all
      of
      the foregoing from time to time in effect.

     

    “Lothian
      Oil II”
means
      Lothian Oil Texas II, Inc., a Texas corporation.

     

    “Material
      Adverse Effect”
shall
      mean (a) any adverse effect on the business, operations, properties, financial
      condition, or prospects of any Borrower which materially increases the risk
      that
      any of the Obligations will not be repaid as and when due, or (b) any material
      adverse effect upon the Collateral.

     

    “Maturity
      Date”
shall
      mean April 30, 2008. 

     

    “Merger”
means
      the transactions described in the Merger Agreement.

     

    “Merger
      Agreement”
means
      that certain Merger Agreement and Plan of Reorganization dated February 22,
      2006
      between United Heritage Corporation and Lothian Oil Inc.

     

    “Monthly
      Borrowing Base Reduction”
shall
      mean the amount by which the Borrowing Base shall be reduced as of the last
      day
      of each calendar month pursuant to Section
      2.7,
      which
      amount shall be determined by Lender from time to time in its sole
      discretion.

     

    “Net
      Income”
shall
      mean, for any period, the net income (or loss) of Borrowers, on a consolidated
      basis, for such period, determined in accordance with GAAP.

     

    “Net
      Proceeds”
means
      (a) with respect to any sale, lease, transfer or other disposition of any
      asset by any Person, the aggregate amount of cash and non-cash proceeds from
      such transaction received by, or paid to or for the account of, such Person,
      net
      of customary and reasonable out-of-pocket costs, fees, and expenses, and
      (b) with respect to the issuance of equity securities, debt securities, or
      similar instruments, or the incurrence of Indebtedness, the cash and non-cash
      proceeds received from such issuance or incurrence, net of attorneys’ fees,
      investment banking fees, accountants fees, underwriting discounts and
      commissions and other customary fees and expenses actually incurred in
      connection with such issuance. Non-cash proceeds include any proceeds received
      by way of deferred payment of principal calculated on a combined basis as of
      such time pursuant to a note, installment receivable, purchase price
      adjustment receivable, or otherwise, but only as and when received.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    “NHSC”
means
      National Heritage Services Corporation, a Texas corporation, and a Subsidiary
      of
      United Heritage Corporation.

     

    “Note”
shall
      mean the promissory note of Borrowers, in the form attached hereto as
Exhibit
      I,
      together with all renewals, extensions for any period, increases, and
      rearrangements thereof.

     

    “Obligations”
shall
      mean, without duplication, (a) all Indebtedness evidenced by the Note, (b)
      the
      Reimbursement Obligations, (c) the undrawn, unexpired amount of all outstanding
      Letters of Credit, (d) the obligation of Borrowers for the payment of Commitment
      Fees, Facility Fees, Letter of Credit Fees, and reimbursement of engineering
      expenses, legal expenses, and (e) all other obligations and liabilities of
      Borrowers to Lender, now existing or hereafter incurred, under, arising out
      of
      or in connection with any Loan Document, and to the extent that any of the
      foregoing includes or refers to the payment of amounts deemed or constituting
      interest, only so much thereof as shall have accrued, been earned and which
      remains unpaid at each relevant time of determination.

     

    “Oil
      and Gas Properties”
shall
      mean fee, leasehold, or other interests in or under mineral estates or oil,
      gas,
      and other liquid or gaseous hydrocarbon leases with respect to Properties
      situated in the United States or offshore from any State of the United States,
      including, without limitation, overriding royalty and royalty interests,
      leasehold estate interests, net profits interests, production payment interests,
      and mineral fee interests, together with contracts executed in connection
      therewith and all tenements, hereditaments, appurtenances and Properties
      appertaining, belonging, affixed, or incidental thereto.

     

    “Parent
      Borrower”
means,
      as of the date hereof, Lothian Oil Inc., a Delaware corporation, and subsequent
      to the Merger, Lothian Oil Inc., a Delaware corporation and the surviving entity
      after the Merger of Lothian Oil Inc. into United Heritage Corporation and the
      name change to Lothian Oil Inc., as incorporated in Delaware.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    “Permitted
      Liens”
shall
      mean (a) Liens for taxes, assessments, or other governmental charges or levies
      not yet due or which (if foreclosure, distraint, sale, or other similar
      proceedings shall not have been initiated) are being contested in good faith
      by
      appropriate proceedings, and such reserve as may be required by GAAP shall
      have
      been made therefor, (b) Liens (including, but not limited to, pledges or
      deposits) in connection with workers’ compensation, unemployment insurance or
      other social security (other than Liens created by Section 4068 of ERISA),
      old-age pension, or public liability obligations which are not yet due or which
      are being contested in good faith by appropriate proceedings, if such reserve
      as
      may be required by GAAP shall have been made therefor, (c) Liens in favor of
      vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen,
      construction, or similar Liens arising by operation of law in the ordinary
      course of business in respect of obligations which are not yet due or which
      are
      being contested in good faith by appropriate proceedings, if such reserve as
      may
      be required by GAAP shall have been made therefor, (d) Liens in favor of
      operators and non-operators under joint operating agreements or similar
      contractual arrangements arising in the ordinary course of the business of
      Borrowers to secure amounts owing, which amounts are not yet due or are being
      contested in good faith by appropriate proceedings, if such reserve as may
      be
      required by GAAP shall have been made therefor, (e) Liens under production
      sales
      agreements, division orders, operating agreements, and other agreements
      customary in the oil and gas business for processing, producing, and selling
      hydrocarbons securing obligations not constituting Indebtedness and provided
      that such Liens do not secure obligations to deliver hydrocarbons at some future
      date without receiving full payment therefor within 90 days of delivery, (f)
      easements, rights of way, restrictions, and other similar encumbrances, and
      minor defects in the chain of title which are customarily accepted in the oil
      and gas financing industry, none of which interfere with the ordinary conduct
      of
      the business of Borrowers or materially detract from the value or use of the
      Property to which they apply, (g) Liens in favor of Lender and other Liens
      expressly permitted under the Security Instruments and (h) any other Liens
      approved by Lender in its sole discretion securing Indebtedness subordinated
      to
      the Obligations.

     

    “Person”
shall
      mean an individual, corporation, partnership, trust, unincorporated
      organization, government, any agency or political subdivision of any government,
      or any other form of entity.

     

    “Plan”
shall
      mean, at any time, any employee benefit plan which is covered by ERISA and
      in
      respect of which any Borrower or any Commonly Controlled Entity is (or, if
      such
      plan were terminated at such time, would under Section 4069 of ERISA be
      deemed to be) an “employer” as defined in Section 3(5) of ERISA.

     

    “Principal
      Office”
shall
      mean the principal office of Lender in Houston, Texas, presently located at
      2550
      North Loop West, Suite 800, Houston, Texas 77092.

     

    “Prior
      Credit Agreement”
has
      the
      meaning set forth in the first recital hereof.

     

    “Property”
shall
      mean any interest in any kind of property or asset, whether real, personal
      or
      mixed, tangible or intangible.

     

    “Proved
      Developed Producing Reserves”
means
      Proved Reserves which are categorized as both “Developed” and “Producing” in the
      Definitions for Oil and Gas reserves promulgated by the Society of Petroleum
      Engineers (or any generally recognized successor) as in effect at the time
      in
      question.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    “Proved
      Reserves”
means
      Proved Reserves as defined in the Definitions for Oil and Gas reserves
      promulgated by the Society of Petroleum Engineers (or any generally recognized
      successor) as in effect at the time in question.

     

    “Purchasers
      of Production”
means
      the Persons listed on Exhibit
      VI
      and all
      other Persons who purchase Hydrocarbons attributable or allocable to Borrowers’
interests in the Oil and Gas Properties (including the Borrowing Base Oil and
      Gas Properties).

     

    “PW9”
means
      the present worth of future net income, discounted to the present value at
      the
      simple interest rate of nine percent (9%) per year.

     

    “Rate
      Management Transaction”
shall
      mean any transaction (including an agreement with respect thereto) now existing
      or hereafter entered into between any Borrower and Lender or a Person acceptable
      to Lender, in its sole discretion, which is a rate swap, basis swap, forward
      rate transaction, equity or equity index swap, equity or equity index option,
      bond option, interest rate option, foreign exchange transaction, cap
      transaction, floor transaction, collar transaction, forward transaction,
      currency swap transaction, cross-currency rate swap transaction, currency option
      or any other similar transaction (including any option with respect to any
      of
      these transactions) or any combination thereof, whether linked to on or more
      interest rates, foreign currencies, equity prices or other financial
      measures.

     

    “Regulation
      D”
shall
      mean Regulation D of the Board of Governors of the Federal Reserve System,
      as
      the same may be amended or supplemented from time to time.

     

    “Regulatory
      Change”
shall
      mean the passage, adoption, institution, or amendment of any federal, state,
      local, or foreign Requirement of Law (including, without limitation, Regulation
      D), or any interpretation, directive, or request (whether or not having the
      force of law) of any Governmental Authority or monetary authority charged with
      the enforcement, interpretation, or administration thereof, occurring after the
      Closing Date and applying to a class of banks including Lender.

     

    “Reimbursement
      Obligation”
shall
      mean the obligation of Borrowers to provide to Lender or reimburse Lender for
      any amounts payable, paid, or incurred by Lender with respect to Letters of
      Credit.

     

    “Release
      of Hazardous Substances”
shall
      mean any emission, spill, release, disposal, or discharge, except in accordance
      with a valid permit, license, certificate, or approval of the relevant
      Governmental Authority, of any Hazardous Substance into or upon (a) the air,
      (b)
      soils or any improvements located thereon, (c) surface water or groundwater,
      or
      (d) the sewer or septic system, or the waste treatment, storage, or disposal
      system servicing any Property of Borrowers.

     

    “Requirement
      of Law”
shall
      mean, as to any Person, the certificate or articles of incorporation and
      by-laws, partnership agreements or other organizational or governing documents
      of such Person, and any applicable law, treaty, ordinance, order, judgment,
      rule, decree, regulation, or determination of an arbitrator, court, or other
      Governmental Authority, including, without limitation, rules, regulations,
      orders, and requirements for permits, licenses, registrations, approvals, or
      authorizations, in each case as such now exist or may be hereafter amended
      and
      are applicable to or binding upon such Person or any of its Property or to
      which
      such Person or any of its Property is subject.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    “Reserve
      Report”
shall
      mean each report delivered to Lender pursuant to Section 5.4.

     

    “Responsible
      Officer”
shall
      mean, as to any Person, its President, Chief Executive Officer or Chief
      Financial Officer.

     

    “Security
      Instruments”
shall
      mean the security instruments executed and delivered in satisfaction of the
      condition set forth in Section
      3.1(f),
      and all
      other documents and instruments at any time executed as security for all or
      any
      portion of the Obligations, as such instruments may be amended, restated, or
      supplemented from time to time.

     

    “Stock
      Pledge Agreement”
means
      the Pledge Agreement date of even date herewith from Borrowers to
      Lender.

     

    “Stockholders’
      Equity”
means,
      at any time, the sum of the following accounts set forth on a consolidated
      balance sheet of Borrowers, prepared in accordance with GAAP: (a) the par or
      stated value of all outstanding capital stock; (b) capital surplus; and (c)
      retained earnings or accumulated deficit, as the case may be.

     

    “Subordination
      Agreement”
means
      that certain Subordination Agreement dated of even date herewith among Lender,
      Parent Borrower, United Heritage Corporation and UHC NM, subordinating therein
      the liabilities and obligations of United Heritage Corporation and UHC NM owing
      to Parent Borrower to the Obligations of Borrowers to Lender
      hereunder.

     

    “Subsidiary”
shall
      mean, as to any Person, a corporation or other legally recognized business
      entity of which shares of stock or ownership interest having ordinary voting
      power (other than stock having such power only by reason of the happening of
      a
      contingency) to elect a majority of the board of directors or other managers
      of
      such corporation or business entity are at the time owned, or the management
      of
      which is otherwise controlled, directly or indirectly through one or more
      intermediaries, or both, by such Person.

     

    “Superfund
      Site”
shall
      mean those sites listed on the Environmental Protection Agency National Priority
      List and eligible for remedial action or any comparable state registries or
      list
      in any state of the United States.

     

    “Transferee”
shall
      mean any Person to which Lender has sold, assigned, transferred, or granted
      a
      participation in any of the Obligations, as authorized pursuant to Section
      8.1,
      and any
      Person acquiring, by purchase, assignment, transfer, or participation, from
      any
      such purchaser, assignee, transferee, or participant, any part of such
      Obligations.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    “UCC”
shall
      mean the Uniform Commercial Code as from time to time in effect in the State
      of
      Texas.

     

    “UHC
      Credit Documents”
means,
      collectively, (i) the Secured Credit Agreement between Parent Borrower, as
      lender, and United Heritage Corporation and UHC NM, as borrowers, (ii) the
      Term Note in the face amount of $4,000,000 executed by United Heritage
      Corporation and UHC NM payable to Parent Borrower and (iii) the Deed of
      Trust, Mortgage, Assignment of Production, Security Agreement and Financing
      Statement from UHC NM in favor of Michael H. Atnipp for the benefit of
      Parent Borrower, each dated October 7, 2005.

     

    “UHC
      NM”
means
      UHC New Mexico Corporation, a New Mexico corporation and a subsidiary of United
      Heritage Corporation.

     

    “UHC
      PC”
means
      UHC Petroleum Corporation, a Texas corporation.

     

    “UHC
      PSC”
means
      UHC Petroleum Services Corporation, a Texas corporation.

     

    “USA
      Patriot Act”
means
      the Uniting and Strengthening America by Providing Appropriate Tools Required
      to
      Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, Pub. L. 107-56,
      as
      amended, and regulations promulgated thereunder as in effect from time to
      time.

     

    1.3  Undefined
      Financial Accounting Terms.
      Undefined financial accounting terms used in this Agreement shall be defined
      according to GAAP at the time in effect.

     

    1.4  References.
      References in this Agreement to Exhibit, Article, or Section numbers shall
      be to
      Exhibits, Articles, or Sections of this Agreement, unless expressly stated
      to
      the contrary. References in this Agreement to “hereby,” “herein,” “hereinafter,”
“hereinabove,” “hereinbelow,” “hereof,” “hereunder” and words of similar import
      shall be to this Agreement in its entirety and not only to the particular
      Exhibit, Article, or Section in which such reference appears.

     

    1.5  Articles
      and Sections.
      This
      Agreement, for convenience only, has been divided into Articles and Sections;
      and it is understood that the rights and other legal relations of the parties
      hereto shall be determined from this instrument as an entirety and without
      regard to the aforesaid division into Articles and Sections and without regard
      to headings prefixed to such Articles or Sections.

     

    1.6  Number
      and Gender.
      Whenever the context requires, reference herein made to the single number shall
      be understood to include the plural; and likewise, the plural shall be
      understood to include the singular. Definitions of terms defined in the singular
      or plural shall be equally applicable to the plural or singular, as the case
      may
      be, unless otherwise indicated. Words denoting sex shall be construed to include
      the masculine, feminine and neuter, when such construction is appropriate;
      and
      specific enumeration shall not exclude the general but shall be construed as
      cumulative.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    1.7  Incorporation
      of Exhibits.
      The
      Exhibits attached to this Agreement are incorporated herein and shall be
      considered a part of this Agreement for all purposes.

     

    ARTICLE
      II

     

    TERMS
      OF FACILITY

    2.1  Revolving
      Line of Credit.
      

     

    (a)  Upon
      the
      terms and conditions (including, without limitation, the right of Lender to
      decline to make any Loan so long as any Default or Event of Default has occurred
      and is continuing) and relying on the representations and warranties contained
      in this Agreement, Lender agrees, during the Commitment Period, to make Loans,
      in immediately available funds at the Principal Office, to or for the benefit
      of
      Borrowers, from time to time on any Business Day designated by Borrowers
      following receipt by Lender of a Borrowing Request; provided,
      however,
      no Loan
      shall exceed the then existing Available Commitment.

     

    (b)  Subject
      to the terms of this Agreement, during the Commitment Period, Borrowers may
      borrow, repay, and reborrow such funds. Except for prepayments made pursuant
      to
Section
      2.8,
      each
      borrowing and prepayment of principal of Loans shall be in an amount at least
      equal to $100,000. Each borrowing or prepayment shall be deemed a separate
      borrowing or prepayment for purposes of the foregoing.

     

    (c)  The
      Loans
      made under this Section
      2.1
      shall be
      made and maintained at the Principal Office and shall be evidenced by the
      Note.

     

    (d)  Borrowers
      and Lenders acknowledge that $3,449,000.00 of principal and $14,948.27 of
      accrued and unpaid interest, plus a Letter of Credit in the amount of
      $500,000.00 remain outstanding under the Prior Credit Agreement and such
      outstanding amounts shall constitute outstanding principal and interest and
      a
      Letter of Credit hereunder, respectively, as Obligations as of the Closing
      Date.

     

    2.2  Use
      of
      Loan Proceeds.
      

     

    (a)  Proceeds
      of all Loans shall be used solely for (i) capital expenditures in relation
      to the development of the Borrowing Base Oil and Gas Properties, (ii) payment
      of
      fees and expenses hereunder and/or (iii) for general corporate
      purposes.

     

    (b)  Letters
      of Credit shall be used solely for general corporate purposes provided,
      however,
      no
      Letter of Credit may be used in lieu or in support of stay or appeal
      bonds.

     

    2.3  Interest.
      Subject
      to the terms of this Agreement (including, without limitation, Section
      2.15),
      interest on the Loans shall accrue and be payable at a rate per annum equal
      to
      the Floating Rate. Interest on all Loans shall be computed on the basis of
      a
      year of 360 days, as the case may be, and actual days elapsed (including the
      first day but excluding the last day) during the period for which payable.
      Interest provided for herein shall be calculated on unpaid sums actually
      advanced and outstanding pursuant to the terms of this Agreement and only for
      the period from the date or dates of such advances until repayment.
      Notwithstanding the foregoing, interest on past-due principal and, to the extent
      permitted by applicable law, past-due interest, shall accrue at the Default
      Rate, computed on the basis of a year of 360 days, as the case may be, and
      actual days elapsed (including the first day but excluding the last day) during
      the period for which payable, and shall be payable upon demand by Lender at
      any
      time as to all or any portion of such interest.

     

    
      
         

      

      
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    2.4  Repayment
      of Loans and Interest.
      Accrued
      and unpaid interest on the outstanding Loans under the Note shall be due and
      payable monthly commencing on the last day of June, 2006, and continuing on
      the
      last day of each calendar month thereafter while any amount of the outstanding
      principal balance remains outstanding, the payment in each instance to be the
      amount of interest which has accrued and remains unpaid in respect of the
      outstanding principal balance. The outstanding principal balance on the Note,
      together with all accrued and unpaid interest thereon, shall be due and payable
      on the Maturity Date.

     

    2.5  Outstanding
      Amounts.
      The
      outstanding principal balance of the Note reflected by the notations by Lender
      on its records shall be deemed rebuttably presumptive evidence of the principal
      amount owing on the Note. The liability for payment of principal and interest
      evidenced by the Note shall be limited to principal amounts actually advanced
      and outstanding pursuant to this Agreement and interest on such amounts
      calculated in accordance with this Agreement.

     

    2.6  Time,
      Place, and Method of Payments.
      All
      payments required pursuant to this Agreement or the Note shall be made in lawful
      money of the United States of America and in immediately available funds, shall
      be deemed received by Lender on the next Business Day following receipt if
      such
      receipt is after 2:00 p.m., Central Standard or Daylight Savings Time, as the
      case may be, on any Business Day, and shall be made at the Principal Office.
      Except as provided to the contrary herein, if the due date of any payment
      hereunder or under the Note would otherwise fall on a day which is not a
      Business Day, such date shall be extended to the next succeeding Business Day,
      and interest shall be payable for any principal so extended for the period
      of
      such extension.

     

    2.7  Borrowing
      Base Determinations.
      

     

    (a)  The
      Borrowing Base as of the Closing Date is acknowledged by Borrowers and Lender
      to
      be $5,250,000. The amount of the Borrowing Base (as adjusted from time to time
      under the terms of this Agreement) shall be reduced by the amount of the Monthly
      Borrowing Base Reduction beginning June 30, 2006 and on the last day of
      each month thereafter until redetermined by Lender. The Monthly Borrowing Base
      Reduction as of the Closing Date is equal to $0.00.

     

    (b)  The
      Borrowing Base shall be redetermined semi-annually December 1 and June 1
      beginning December 1, 2006, on the basis of information supplied by Borrowers
      in
      compliance with the provisions of this Agreement, including, without limitation,
      Reserve Reports, and all other information available to Lender. In addition
      to
      such semi-annual redetermination of the Borrowing Base, Lender shall, in the
      normal course of business following a request of Borrowers, redetermine the
      Borrowing Base; provided,
      however,
      Lender
      shall not be obligated to respond to more than two such requests during any
      calendar year, and in no event shall Lender be required to redetermine the
      Borrowing Base more than twice in any six-month period, including, without
      limitation, each scheduled semi-annual redetermination provided for
      above.

     

    
      
         

      

      
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    (c)  Notwithstanding
      the foregoing, Lender may at its discretion redetermine the Borrowing Base
      at
      any time and from time to time. 

     

    (d)  Upon
      each
      determination of the Borrowing Base by Lender, Lender shall notify Parent
      Borrower in writing of such determination, and the Borrowing Base so
      communicated to Parent Borrower shall become effective upon such written
      notification and shall remain in effect until the next subsequent determination
      of the Borrowing Base.

     

    (e)  Each
      time
      Lender redetermines the Borrowing Base as provided above, it shall
      contemporaneously redetermine the Monthly Borrowing Base Reduction in its sole
      discretion and shall notify Parent Borrower in writing of such determination,
      and the Monthly Borrowing Base Reduction so communicated to Parent Borrower
      shall become effective upon such written notification and shall remain in effect
      until the next subsequent determination of the Monthly Borrowing Base
      Reduction.

     

    (f)  The
      Borrowing Base shall represent the determination by Lender in its sole
      discretion, in accordance with the applicable definitions and provisions herein
      contained and its customary lending practices for loans of this nature, of
      the
      value, for loan purposes, of the Borrowing Base Oil and Gas Properties, subject,
      in the case of any increase in the Borrowing Base, to the credit approval
      process of Lender. Furthermore, Borrowers acknowledge that the determination
      of
      the Borrowing Base contains an equity cushion, which is acknowledged by
      Borrowers to be essential for the adequate protection of Lender.

     

    2.8  Mandatory
      Prepayments.
      

     

    (a)  Except
      with regard to the scheduled Monthly Borrowing Base Reductions, which require
      immediate principal repayments if the application of any such reduction results
      in the Loan Balance exceeding the Borrowing Base, if at any time the Loan
      Balance exceeds the Borrowing Base then in effect, Borrowers shall, within
      30
      days of notice from Lender of such occurrence, (i) prepay, or make arrangements
      acceptable to Lender for the prepayment of, the amount of such excess for
      application on the Loan Balance, (ii) provide additional collateral, of
      character and value satisfactory to Lender in its sole discretion, to secure
      the
      Obligations by the execution and delivery to Lender of security instruments
      in
      form and substance satisfactory to Lender, or (iii) effect any combination
      of
      the alternatives described in clauses (i) and (ii) of this Section and
      acceptable to Lender in its sole discretion. In the event that a mandatory
      prepayment is required under this Section and the Loan Balance is less than
      the
      amount required to be prepaid, Borrowers shall repay the entire Loan Balance
      and, in accordance with the provisions of the relevant Letter of Credit
      Applications executed by Borrowers or otherwise to the satisfaction of Lender,
      deposit with Lender, as additional collateral securing the Obligations, an
      amount of cash, in immediately available funds, equal to the L/C Exposure minus
      the Borrowing Base. The cash deposited with Lender in satisfaction of the
      requirement provided in this Section may be invested, at the sole discretion
      of
      Lender and then only at the express direction of Borrowers as to investment
      vehicle and maturity (which shall be no later than the latest expiry date of
      any
      then outstanding Letter of Credit), for the account of Borrowers in cash or
      cash
      equivalent investments offered by or through Lender. 

     

    
      
         

      

      
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    (b)  In
      addition to the foregoing, Borrowers shall immediately prepay the principal
      of
      the Note in an amount equal to:

     

    (i)  100%
      of
      Net Proceeds from the disposition of any asset, excluding sales permitted under
      this Agreement;

     

    (ii)  100%
      of
      insurance proceeds in respect of any insurance policy required to be maintained
      by Borrowers under the terms of this Agreement unless Borrowers reinvest such
      proceeds within thirty (30) days after the receipt of such proceeds relating
      to
      any such insurable loss to replace the lost or damaged assets;

     

    (iii)  50%
      of
      the Net Proceeds from the sale or issuance of any capital stock of any Borrower
      subsequent to the Closing Date; 

     

    (iv)  100%
      of
      any Indebtedness incurred by Borrowers, other than Indebtedness permitted under
      Section
      6.1
      hereof.

     

    2.9  Voluntary
      Prepayments of Loans.
      Subject
      to applicable provisions of this Agreement, Borrowers shall have the right
      at
      any time or from time to time to prepay Loans without prepayment penalty
provided,
      however,
      (a)
      Borrowers shall pay all accrued and unpaid interest on the amounts prepaid,
      and
      (b) no such prepayment shall serve to postpone the repayment when due of any
      Obligation.

     

    2.10  Commitment
      Fee.
      In
      addition to interest on the Note as provided herein and all other fees payable
      hereunder and to compensate Lender for maintaining funds available, Borrowers
      shall pay to Lender, in immediately available funds, on the last day of June,
      2006, and on the last day of each calendar month thereafter during the
      Commitment Period, a fee in the amount of one-half percent (1⁄2%) per annum,
      calculated on the basis of a year of 360 days, as the case may be, and actual
      days elapsed (including the first day but excluding the last day), on the
      average daily amount of the Available Commitment during the preceding
      month.

     

    2.11  Facility
      Fee.
      In
      addition to interest on the Note as provided herein and all other fees payable
      hereunder and to compensate Lender for the costs of the extension of credit
      hereunder, Borrowers shall pay to Lender a Facility Fee equal to one percent
      (1%) on any future increase over the initial Borrowing Base on the date of
      any
      such Borrowing Base redetermination.

     

    2.12  Reimbursement
      for Engineering Expenses.
      In
      addition to interest and other fees payable hereunder and to compensate Lender
      for the costs payable to third parties for evaluating the Borrowing Base Oil
      and
      Gas Properties and reviewing the Reserve Reports, Borrowers shall reimburse
      Lender all reasonable expenses relating to such reviews, in immediately
      available funds, on the Closing Date and on the date of each redetermination
      of
      the Borrowing Base.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    2.13  Loans
      to Satisfy Obligations of Borrowers.
      Lender
      may, but shall not be obligated to, make Loans for the benefit of Borrowers
      and
      apply proceeds thereof to the satisfaction of any condition, warranty,
      representation, or covenant of Borrowers contained in this Agreement or any
      other Loan Document. Any such Loan shall be evidenced by the Note and shall
      be
      made at the Floating Rate.

     

    2.14  Security
      Interest in Accounts; Right of Offset.
      As
      security for the payment and performance of the Obligations, Borrowers hereby
      transfer, assign, and pledge to Lender and grant to Lender a security interest
      in all funds of Borrowers now or hereafter or from time to time on deposit
      with
      Lender, with such interest of Lender to be retransferred, reassigned, and/or
      released by Lender, as the case may be, at the expense of Borrowers upon payment
      in full and complete performance by Borrowers of all Obligations. All remedies
      as secured party or assignee of such funds shall be exercisable by Lender upon
      the occurrence of any Event of Default, regardless of whether the exercise
      of
      any such remedy would result in any penalty or loss of interest or profit with
      respect to any withdrawal of funds deposited in a time deposit account prior
      to
      the maturity thereof. Furthermore, Borrowers hereby grant to Lender the right,
      exercisable at such time as any Obligation shall mature, whether by acceleration
      of maturity or otherwise, of offset or banker’s lien against all funds of
      Borrowers now or hereafter or from time to time on deposit with Lender,
      regardless of whether the exercise of any such remedy would result in any
      penalty or loss of interest or profit with respect to any withdrawal of funds
      deposited in a time deposit account prior to the maturity thereof.

     

    2.15  General
      Provisions Relating to Interest.
      

     

    (a)  It
      is the
      intention of the parties hereto to comply strictly with the usury laws of the
      State of Texas and the United States of America. In this connection, there
      shall
      never be collected, charged, or received on the sums advanced hereunder interest
      in excess of that which would accrue at the Highest Lawful Rate. For purposes
      of
      Chapter 303 of the Texas Finance Code (Vernon’s 2001), Borrowers agree that
      the Highest Lawful Rate shall be the “weekly ceiling” as defined in such
      Section, provided that Lender may also rely, to the extent permitted by
      applicable laws of the State of Texas or the United States of America, on
      alternative maximum rates of interest under other laws of the State of Texas
      or
      the United States of America applicable to Lender, if greater.

     

    (b)  Notwithstanding
      anything herein or in the Note to the contrary, during any Limitation Period,
      the interest rate to be charged on amounts evidenced by the Note shall be the
      Highest Lawful Rate, and the obligation, if any, of Borrowers for the payment
      of
      fees or other charges deemed to be interest under applicable law shall be
      suspended. During any period or periods of time following a Limitation Period,
      to the extent permitted by applicable laws of the State of Texas or the United
      States of America, the interest rate to be charged hereunder shall remain at
      the
      Highest Lawful Rate until such time as there has been paid to Lender (i) the
      amount of interest in excess of that accruing at the Highest Lawful Rate that
      Lender would have received during the Limitation Period had the interest rate
      remained at the otherwise applicable rate, and (ii) all interest and fees
      otherwise payable to Lender but for the effect of such Limitation
      Period.

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    (c)  If,
      under
      any circumstances, the aggregate amounts paid on the Note or under this
      Agreement or any other Loan Document include amounts which by law are deemed
      interest and which would exceed the amount permitted if the Highest Lawful
      Rate
      were in effect, Borrowers stipulate that such payment and collection will have
      been and will be deemed to have been, to the extent permitted by applicable
      laws
      of the State of Texas or the United States of America, the result of
      mathematical error on the part of Borrowers and Lender; and Lender shall
      promptly refund the amount of such excess (to the extent only of such interest
      payments in excess of that which would have accrued and been payable on the
      basis of the Highest Lawful Rate) upon discovery of such error by Lender or
      notice thereof from Borrowers. In the event that the maturity of any Obligation
      is accelerated, by reason of an election by Lender or otherwise, or in the
      event
      of any required or permitted prepayment, then the consideration constituting
      interest under applicable laws may never exceed the Highest Lawful Rate; and
      excess amounts paid which by law are deemed interest, if any, shall be credited
      by Lender on the principal amount of the Obligations, or if the principal amount
      of the Obligations shall have been paid in full, refunded to
      Borrowers.

     

    (d)  All
      sums
      paid, or agreed to be paid, to Lender for the use, forbearance and detention
      of
      the proceeds of any advance hereunder shall, to the extent permitted by
      applicable law, be amortized, prorated, allocated, and spread throughout the
      full term hereof until paid in full so that the actual rate of interest is
      uniform but does not exceed the Highest Lawful Rate throughout the full term
      hereof.

     

    2.16  Intentionally
      Omitted.

     

    2.17  Power
      of Attorney.
      Borrowers hereby designate Lender as its agent and attorney-in-fact, to act
      in
      its name, place, and stead for the purpose of completing and, upon the
      occurrence and continuance of an Event of Default, delivering any and all of
      the
      letters in lieu of transfer orders delivered by Borrowers to Lender pursuant
      to
Section
      3.1(f)(v)
      or
Section 5.7,
      including, without limitation, completing any blanks contained in such letters
      and attaching exhibits thereto describing the relevant Collateral. Borrowers
      hereby ratify and confirm all that Lender shall lawfully do or cause to be
      done
      by virtue of this power of attorney and the rights granted with respect to
      such
      power of attorney. This power of attorney is coupled with the interests of
      Lender in the Collateral, shall commence and be in full force and effect as
      of
      the Closing Date and shall remain in full force and effect and shall be
      irrevocable so long as any Obligation remains outstanding or unpaid or any
      Commitment exists. The powers conferred on Lender by this appointment are solely
      to protect the interests of Lender under the Loan Documents and shall not impose
      any duty upon Lender to exercise any such powers. Lender shall be accountable
      only for amounts that it actually receives as a result of the exercise of such
      powers and shall not be responsible to Borrowers or any other Person for any
      act
      or failure to act with respect to such powers, except for gross negligence
      or
      willful misconduct. Lender agrees not to provide the Purchasers of Production
      any executed letters in lieu prior to the occurrence of an Event of
      Default.

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    2.18  Letters
      of Credit .
      

     

    (a)  Upon
      the
      terms and conditions (including, without limitation, the right of Lender to
      decline to issue any Letter of Credit so long as any Default or Event of Default
      exists) and relying on the representations and warranties contained in this
      Agreement, Lender agrees, during the Commitment Period, to issue Letters of
      Credit following the receipt not less than two Business Days prior to the
      requested date for issuance of the relevant Letter of Credit, of a Letter of
      Credit Application executed by Borrowers; provided,
      however,
      (a) no
      Letter of Credit shall have an expiration date which is more than 365 days
      after
      the issuance thereof or subsequent to the Maturity Date, and (b) Lender shall
      not be obligated to issue any Letter of Credit if (i) the face amount thereof
      would exceed the Available Commitment, or (ii) after giving effect to the
      issuance thereof, the L/C Exposure, when added to the Loan Balance then
      outstanding, would exceed the Borrowing Base then in effect. Borrowers and
      Lender hereby acknowledge that as of the Closing Date $0.00 in Letters of Credit
      are outstanding under the Prior Credit Agreement, and all such Letters of Credit
      shall constitute Letters of Credit hereunder, as Obligations.

     

    (b)  Should
      Lender be called upon by the beneficiary of any Letter of Credit to honor all
      or
      any portion of the commitment thereunder, whether upon the presentation of
      drafts or otherwise, such payment by Lender on account of such Letter of Credit
      shall be treated, for all purposes, as a Floating Rate Loan and an advance
      against the Note.

     

    2.19  Letter
      of Credit Fee.
      In
      addition to interest on the Note as provided herein and all other fees payable
      hereunder, Borrowers agree to pay to Lender, on the date of issuance of each
      Letter of Credit, a fee equal to the greater of $500 or one percent (1%) per
      annum, calculated on the basis of a year of 360 days, as the case may be, and
      actual days elapsed (including the first day but excluding the last day), on
      the
      face amount of such Letter of Credit during the period for which such Letter
      of
      Credit is issued. Borrowers also agree to pay to Lender on demand its customary
      letter of credit transactional fees, including, without limitation, amendment
      fees, payable with respect to each Letter of Credit.

     

    ARTICLE
      III

     

    CONDITIONS

     

    The
      obligations of Lender to enter into this Agreement and to make Loans and issue
      Letters of Credit are subject to the satisfaction of the following conditions
      precedent:

     

    3.1  Receipt
      of Loan Documents and Other Items.
      Lender
      shall have no obligation under this Agreement unless and until all matters
      incident to the consummation of the transactions contemplated herein, including,
      without limitation, the review by Lender or its counsel of the title of
      Borrowers to their Oil and Gas Properties, shall be satisfactory to Lender,
      and
      Lender shall have received, reviewed, and approved the following items,
      appropriately executed when necessary and, where applicable, acknowledged by
      one
      or more authorized officers of Borrowers, all in form and substance satisfactory
      to Lender and dated, where applicable, of even date herewith or a date prior
      thereto and acceptable to Lender:

     

    
      
         

      

      
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    (a)  multiple
      counterparts of this Agreement as requested by Lender;

     

    (b)  the
      Note
      and multiple counterparts of the Guaranty;

     

    (c)  copies
      of
      the Articles of Incorporation or Certificate of Incorporation and all amendments
      thereto and the bylaws and all amendments thereto of each Borrower accompanied
      by a certificate issued by the secretary or an assistant secretary of each
      Borrower to the effect that each such copy is correct and complete, as well
      as
      any other information required by Section 326 of the USA PATRIOT Act or deemed
      necessary in the opinion of Lender to enable Lender to verify the identity
      of
      each Borrower as required by Section 326 of the USA PATRIOT Act.;

     

    (d)  certificates
      of incumbency and signatures of all officers of each Borrower who are authorized
      to execute Loan Documents on behalf of such entity each such certificate being
      executed by a Responsible Officer of each Borrower;

     

    (e)  copies
      of
      corporate resolutions approving the Loan Documents and authorizing the
      transactions contemplated herein and therein, duly adopted by the board of
      directors of each Borrower accompanied by certificates of the secretary or
      an
      assistant secretary of each Borrower to the effect that such copies are true
      and
      correct copies of resolutions duly adopted at a meeting or by unanimous consent
      of the board of directors of each Borrower and that such resolutions constitute
      all the resolutions adopted with respect to such transactions, have not been
      amended, modified, or revoked in any respect, and are in full force and effect
      as of the date of such certificate;

     

    (f)  multiple
      counterparts, as requested by Lender, of the following Security Instruments
      creating, evidencing, perfecting, and otherwise establishing Liens in favor
      of
      Lender in and to the Collateral or other items described below otherwise
      securing the Obligations:

     

    (i)  Deed
      of
      Trust, Mortgage, Security Agreement, Financial Statement and Assignment of
      Production (or ratifications and amendments of any such mortgage instruments
      executed and delivered in connection with the Prior Credit Agreement), executed
      by Borrowers covering all Oil and Gas Properties of Borrowers and all
      improvements, personal property, and fixtures related thereto;

     

    (ii)  Financing
      Statements from Borrowers, as debtor, constituent to the instrument described
      in
clause
      (i)
      above;

     

    (iii)  Security
      Agreement executed by Borrowers pledging accounts, contract rights, and all
      other personal property of Borrowers;

     

    (iv)  Financing
      Statement from Borrowers, as debtor, constituent to the instrument described
      in
clause
      (iii)
      above;

     

    (v)  undated
      letters, in form and substance satisfactory to Lender, executed by Borrowers
      to
      each Purchaser of Production and disburser of the proceeds of production from
      or
      attributable to the Borrowing Base Oil and Gas Properties, together with
      additional letters with the addressees left blank, authorizing and directing
      the
      addressees to make future payments attributable to production from the Borrowing
      Base Oil and Gas Properties directly to Lender; and

     

    
      
         

      

      
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    (vi)  the
      Stock
      Pledge Agreement (or amendments thereto) from each Borrower covering
      (i) all of its equity interests in all its Subsidiaries formed under the
      laws of any state within the United States and (ii) at least sixty-five percent
      (65%) of its equity interests in all of its Subsidiaries formed in any
      jurisdiction outside of the United States, together with (A) the stock
      certificates evidencing such equity interests and (B) blank stock powers
      relating thereto. 

     

    (g)  the
      Subordination Agreement;

     

    (h)  Financial
      Statements of Borrowers as of December 31, 2005;

     

    (i)  certificates
      dated as of a recent date from the Secretary of State or other appropriate
      Governmental Authority evidencing the existence or qualification and good
      standing of each Borrower and each of its Subsidiaries in its respective
      jurisdiction of incorporation and in any other jurisdictions where it does
      business;

     

    (j)  results
      of searches of the UCC Records of the Secretaries of State of the States of
      Delaware, New Mexico, Texas and Utah from a source acceptable to Lender and
      reflecting no Liens against any of the Collateral as to which perfection of
      a
      Lien is accomplished by the filing of a financing statement other than in favor
      of Lender;

     

    (k)  confirmation,
      acceptable to Lender, of the title of each Borrower to the Borrowing Base Oil
      and Gas Properties, free and clear of Liens other than Permitted
      Liens;

     

    (l)  all
      operating, lease, sublease, royalty, sales, exchange, processing, farmout,
      bidding, pooling, unitization, communitization, and other agreements relating
      to
      the Borrowing Base Oil and Gas Properties requested by Lender;

     

    (m)  engineering
      reports covering the Borrowing Base Oil and Gas Properties;

     

    (n)  the
      opinion of counsel to each Borrower licensed to practice in Texas (or another
      state in Lender’s sole discretion), and an opinion of counsel to each Borrower
      that is licensed to practice in New Mexico covering the Security Instruments
      that are required to be filed in the State of New Mexico regarding, among other
      things, the perfection of Liens and enforceability thereof, in each case, in
      the
      form and substance acceptable to Lender in its discretion;

     

    (o)  certificates
      evidencing the insurance coverage required pursuant to Section 5.18;

     

    (p)  payment
      of the fees described in Section
      5.14;
      and

     

    
      
         

      

      
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    (q)  such
      other agreements, documents, instruments, opinions, certificates, waivers,
      consents, and evidence as Lender may reasonably request.

     

    3.2  Each
      Loan and Letter of Credit.
      In
      addition to the conditions precedent stated elsewhere herein, Lender shall
      not
      be obligated to make any Loan or issue any Letter of Credit unless:

     

    (a)  Parent
      Borrower shall have delivered to Lender a Borrowing Request at least one
      Business Day prior to the requested date for the relevant Loan, or a Letter
      of
      Credit Application at least two Business Days prior to the requested issuance
      date for the relevant Letter of Credit and each statement or certification
      made
      in such Borrowing Request or Letter of Credit Application, as the case may
      be,
      shall be true and correct in all material respects on the requested date for
      such Loan or the issuance of such Letter of Credit;

     

    (b)  no
      Event
      of Default or Default shall exist or will occur as a result of the making of
      the
      requested Loan or the issuance of the requested Letter of Credit;

     

    (c)  if
      requested by Lender, Borrowers shall have delivered evidence satisfactory to
      Lender substantiating any of the matters contained in this Agreement which
      are
      necessary to enable Borrowers to qualify for such Loan or the issuance of such
      Letter of Credit;

     

    (d)  Lender
      shall have received, reviewed, and approved such additional documents and items
      as described in Section
      3.1
      as may
      be requested by Lender with respect to such Loan or Letter of
      Credit;

     

    (e)  no
      event
      shall have occurred which, in the reasonable opinion of Lender, could have
      a
      Material Adverse Effect;

     

    (f)  each
      of
      the representations and warranties contained in this Agreement shall be true
      and
      correct (unless they speak to a specific date or are based on facts which have
      changed by transactions contemplated or expressly permitted by this Agreement)
      and shall be deemed to be repeated by Borrowers as if made on the requested
      date
      for such Loan or the issuance of such Letter of Credit;

     

    (g)  all
      of
      the Security Instruments shall be in full force and effect and provide to Lender
      the security intended thereby;

     

    (h)  neither
      the consummation of the transactions contemplated hereby nor the making of
      such
      Loan nor the issuance of such Letter of Credit shall contravene, violate, or
      conflict with any Requirement of Law;

     

    (i)  Borrowers
      shall hold full legal title to the Collateral and be the sole beneficial owners
      thereof;

     

    (j)  Lender
      shall have received the reimbursement of all engineering expenses, and other
      fees payable to Lender hereunder and reimbursement from Borrowers, or special
      legal counsel for Lender shall have received payment from Borrowers, for (i)
      all
      reasonable fees and expenses of counsel to Lender for which Borrowers are
      responsible pursuant to applicable provisions of this Agreement and for which
      invoices have been presented as of or prior to the date of the relevant Loan
      or
      Letter of Credit Application, and (ii) estimated fees charged by filing officers
      and other public officials incurred or to be incurred in connection with the
      filing and recordation of any Security Instruments, for which invoices have
      been
      presented as of or prior to the date of the requested Loan or Letter of Credit
      Application; 

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    (k)  all
      matters incident to the consummation of the transactions hereby contemplated
      shall be satisfactory to Lender in its reasonable discretion; and

     

    (l)  any
      extension of credit hereunder is not prohibited by any law or regulation
      applicable to any Borrower or any of their Subsidiaries, including, but not
      limited to, the USA PATRIOT Act.

     

    ARTICLE
      IV

     

    REPRESENTATIONS
      AND WARRANTIES

     

    To
      induce
      Lender to enter into this Agreement and to make the Loans and issue Letters
      of
      Credit, each Borrower represents and warrants to Lender (which representations
      and warranties shall survive the delivery of the Note) that:

     

    4.1  Due
      Authorization.
      The
      execution and delivery by each Borrower of this Agreement and the borrowings
      hereunder, the execution and delivery by each Borrower of the Note, the
      repayment of the Note and interest and fees provided for in the Note and this
      Agreement, the execution and delivery of the Security Instruments by each
      Borrower and the performance of all obligations of each Borrower under the
      Loan
      Documents are within the power of each Borrower, have been duly authorized
      by
      all necessary corporate action by each Borrower, and do not and will not (a)
      require the consent of any Governmental Authority, (b) contravene or conflict
      with any Requirement of Law, (c) contravene or conflict with any indenture,
      instrument, or other agreement to which any Borrower is a party or by which
      any
      Property of any Borrower may be presently bound or encumbered, or (d) result
      in
      or require the creation or imposition of any Lien in, upon or of any Property
      of
      any Borrower under any such indenture, instrument, or other agreement, other
      than the Loan Documents.

     

    4.2  Corporate
      Existence.
      Each
      Borrower is a corporation duly organized, legally existing, and in good standing
      under the laws of its state of incorporation and is duly qualified as a foreign
      corporation and is in good standing in all jurisdictions wherein the ownership
      of Property or the operation of its business necessitates same, other than
      those
      jurisdictions wherein the failure to so qualify will not have a Material Adverse
      Effect.

     

    4.3  Valid
      and Binding Obligations.
      All
      Loan Documents to which each Borrower is a party, when duly executed and
      delivered by each such Borrower, will be the legal, valid, and binding
      obligations of such Borrower, enforceable against such Borrower in accordance
      with their respective terms.

     

    
      
         

      

      
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    4.4  Security
      Instruments.
      The
      provisions of each Security Instrument executed by each Borrower are effective
      to create in favor of Lender, a legal, valid, and enforceable Lien in all right,
      title, and interest of each Borrower in the Collateral described therein, which
      Liens, assuming the accomplishment of recording and filing in accordance with
      applicable laws prior to the intervention of rights of other Persons, shall
      constitute fully perfected first-priority Liens on all right, title, and
      interest of each Borrower in the Collateral described therein.

     

    4.5  Title
      to Assets.
      Each
      Borrower has good and indefeasible title to all of their Properties, free and
      clear of all Liens except Permitted Liens.

     

    4.6  Scope
      and Accuracy of Financial Statements.
      The
      Financial Statements of Borrowers as of December 31, 2005, present fairly
      the financial position and results of operations and cash flows of Borrowers
      as
      at the relevant point in time or for the period indicated, as applicable. No
      event or circumstance has occurred since such dates which could reasonably
      be
      expected to have a Material Adverse Effect.

     

    4.7  No
      Material Misstatements.
      No
      information, exhibit, statement, or report furnished to Lender by or at the
      direction of Borrowers in connection with this Agreement contains any material
      misstatement of fact or omits to state a material fact or any fact necessary
      to
      make the statements contained therein not misleading as of the date made or
      deemed made.

     

    4.8  Liabilities,
      Litigation, and Restrictions.
      Other
      than as listed under the heading “Liabilities” on Exhibit
      IV
      attached
      hereto, Borrowers have no liabilities, direct, or contingent, which may
      materially and adversely affect its business or operations or its ownership
      of
      the Collateral. Except as set forth under the heading “Litigation” on
Exhibit
      IV
      hereto,
      no litigation or other action of any nature affecting any Borrower is pending
      before any Governmental Authority or, to the best knowledge of any Borrower,
      threatened against or affecting any Borrower which might reasonably be expected
      to result in any impairment of its ownership of any Collateral or have a
      Material Adverse Effect. To the best knowledge of any Borrower, after due
      inquiry, no unusual or unduly burdensome restriction, restraint or hazard exists
      by contract, Requirement of Law, or otherwise relative to the business or
      operations of any Borrower or the ownership and operation of the Collateral
      other than such as relate generally to Persons engaged in business activities
      similar to those conducted by any Borrower.

     

    4.9  Authorizations;
      Consents.
      Except
      as expressly contemplated by this Agreement, no authorization, consent,
      approval, exemption, franchise, permit, or license of, or filing with, any
      Governmental Authority or any other Person is required to authorize or is
      otherwise required in connection with the valid execution and delivery by
      Borrowers of the Loan Documents or any instrument contemplated hereby, the
      repayment by Borrowers of the Note and interest and fees provided in the Note
      and this Agreement, or the performance by Borrowers of the
      Obligations.

     

    4.10  Compliance
      with Laws.
      Each
      Borrower and each Borrower’s Property, including, without limitation, the
      Borrowing Base Oil and Gas Properties, are in compliance with all applicable
      Requirements of Law, including, without limitation, Environmental Laws, the
      Natural Gas Policy Act of 1978, as amended, and ERISA, except to the extent
      non-compliance with any such Requirements of Law could not reasonably be
      expected to have a Material Adverse Effect.

     

    
      
         

      

      
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    4.11  ERISA.
      Borrowers do not maintain nor have they maintained any Plan. Borrowers do not
      currently contribute to or have any obligation to contribute to or otherwise
      have any liability with respect to any Plan.

     

    4.12  Environmental
      Laws.
      To the
      best knowledge and belief of Borrowers, except as would not have a Material
      Adverse Effect, or as described on Exhibit
      IV
      under
      the heading “Environmental Matters:”

     

    (a)  no
      Property of any Borrower is currently on or has ever been on, or is adjacent
      to
      any Property which is on or has ever been on, any federal or state list of
      Superfund Sites;

     

    (b)  no
      Hazardous Substances have been generated, transported, and/or disposed of by
      any
      Borrower at a site which was, at the time of such generation, transportation,
      and/or disposal, or has since become, a Superfund Site;

     

    (c)  except
      in
      accordance with applicable Requirements of Law or the terms of a valid permit,
      license, certificate, or approval of the relevant Governmental Authority, no
      Release of Hazardous Substances by any Borrower or from, affecting, or related
      to any Property of any Borrower or adjacent to any Property of any Borrower
      has
      occurred; and

     

    (d)  no
      Environmental Complaint has been received by any Borrower.

     

    4.13  Compliance
      with Federal Reserve Regulations.
      No
      transaction contemplated by the Loan Documents is in violation of any
      regulations promulgated by the Board of Governors of the Federal Reserve System,
      including, without limitation, Regulations T, U, or X.

     

    4.14  Investment
      Company Act Compliance.
      No
      Borrower is, nor is any Borrower directly or indirectly controlled by or acting
      on behalf of any Person which is, an “investment company” or an “affiliated
      person” of an “investment company” within the meaning of the Investment Company
      Act of 1940, as amended.

     

    4.15  Public
      Utility Holding Company Act Compliance.
      No
      Borrower is a “holding company,” or an “affiliate” of a “holding company” or of
      a “subsidiary company” of a “holding company,” within the meaning of the Public
      Utility Holding Company Act of 1935, as amended.

     

    4.16  Proper
      Filing of Tax Returns; Payment of Taxes Due.
      Borrowers have duly and properly filed its United States income tax return
      and
      all other tax returns which are required to be filed and has paid all taxes
      due
      except such as are being contested in good faith and as to which adequate
      provisions and disclosures have been made. The respective charges and reserves
      on the books of Borrowers with respect to taxes and other governmental charges
      are adequate.

     

    4.17  Refunds.
      Except
      as described on Exhibit
      IV under
      the
      heading “Refunds,” no orders of, proceedings pending before, or other
      requirements of, the Federal Energy Regulatory Commission, the Texas Railroad
      Commission, or any Governmental Authority exist which could result in any
      Borrower being required to refund any material portion of the proceeds received
      or to be received from the sale of hydrocarbons constituting part of the
      Borrowing Base Oil and Gas Properties.

     

    
      
         

      

      
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    4.18  Gas
      Contracts.
      Except
      as described on Exhibit
      IV
      under
      the heading “Gas Contracts,” Borrowers (a) are not obligated in any material
      respect by virtue of any prepayment made under any contract containing a
“take-or-pay” or “prepayment” provision or under any similar agreement to
      deliver hydrocarbons produced from or allocated to any of the Borrowing Base
      Oil
      and Gas Properties at some future date without receiving full payment therefor
      within 90 days of delivery, and (b) have not produced gas, in any material
      amount, subject to, and no Borrower nor any of the Borrowing Base Oil and Gas
      Properties is subject to, balancing rights of third parties or subject to
      balancing duties under governmental requirements, except as to such matters
      for
      which Borrowers have established monetary reserves adequate in amount to satisfy
      such obligations and has segregated such reserves from other
      accounts.

     

    4.19  Intellectual
      Property.
      Each
      Borrower owns or is licensed to use all Intellectual Property necessary to
      conduct all business material to its condition (financial or otherwise),
      business, or operations as such business is currently conducted. No claim has
      been asserted or is pending by any Person with the respect to the use of any
      such Intellectual Property or challenging or questioning the validity or
      effectiveness of any such Intellectual Property; and no Borrower knows of any
      valid basis for any such claim. The use of such Intellectual Property by any
      Borrower does not infringe on the rights of any Person, except for such claims
      and infringements as do not, in the aggregate, give rise to any material
      liability on the part of any Borrower.

     

    4.20  Casualties
      or Taking of Property.
      Except
      as disclosed on Exhibit
      IV under
      the
      heading “Casualties,” since December 31, 2005, neither the business nor any
      Property of any Borrower has been materially adversely affected as a result
      of
      any fire, explosion, earthquake, flood, drought, windstorm, accident, strike
      or
      other labor disturbance, embargo, requisition or taking of Property, or
      cancellation of contracts, permits, or concessions by any Governmental
      Authority, riot, activities of armed forces, or acts of God.

     

    4.21  Locations
      of Borrowers.
      The
      principal place of business and chief executive office of Borrowers is located
      at the address set forth in Section
      8.3
      or at
      such other location as Borrowers may have, by proper written notice hereunder,
      advised Lender, provided that such other location is within a state in which
      appropriate financing statements from Borrowers in favor of Lender have been
      filed.

     

    4.22  Subsidiaries.
      Borrowers have no Subsidiaries except those described on Exhibit IV
      under
      the heading “Subsidiaries.”

     

    4.23  Purchasers
      of Production.
      The
      Persons who are purchasing or will purchase Borrowers’ interests in oil and gas
      produced from the Borrowing Base Oil and Gas Properties as of the date of this
      Agreement are identified on Exhibit
      VI
      attached
      hereto. No such Purchaser of Production is an Affiliate of any
      Borrower.

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    4.24  Patriot
      Act.
      Each
      Borrower represents and warrants that no Borrower nor any Subsidiary or
      Affiliate of any Borrower is a country, individual or entity named on the
      Specifically Designated National and Blocked Persons list issued by the Office
      of Foreign Asset Control of the Department of the Treasury of the United States
      of America.

     

    4.25  Affiliate
      Transactions .
      All
      transactions among any Borrower and any Affiliate of any Borrower are listed
      on
Exhibit
      VII attached
      hereto.

     

    ARTICLE
      V

     

    AFFIRMATIVE
      COVENANTS

     

    So
      long
      as any Obligation remains outstanding or unpaid or any Commitment exists,
      Borrowers shall:

     

    5.1  Maintenance
      and Access to Records.
      Keep
      adequate records, in accordance with GAAP, of all its transactions so that
      at
      any time, and from time to time, its true and complete financial condition
      may
      be readily determined, and promptly following the reasonable request of Lender,
      make such records available for inspection by Lender and, at the expense of
      Borrowers, allow Lender to make and take away copies thereof.

     

    5.2  Quarterly
      Financial Statements; Compliance Certificates.
      Deliver
      to Lender, (a) on or before the 45th
      day
      after the close of each fiscal quarter of Borrowers, a copy of the unaudited
      Financial Statements of Borrowers, on a consolidated basis and on a
      consolidating basis, as at the close of such quarterly period and from the
      beginning of such fiscal year to the end of such period, such Financial
      Statements to be certified by a Responsible Officer of Borrowers as a fair
      presentation of the condition of Borrowers, subject to changes resulting from
      normal year-end audit adjustments, and (b) on or before the 45th
      day
      after the close of each fiscal quarter, with the exception of the last fiscal
      quarter, a Compliance Certificate.

     

    5.3  Annual
      Financial Statements.
      Deliver
      to Lender, on or before the 90th
      day
      after the close of each fiscal year of Borrowers, a copy of the annual
      unqualified audited Financial Statements of Borrowers, on a consolidated basis
      and on a consolidating basis, satisfactory to Lender and a Compliance
      Certificate.

     

    5.4  Oil
      and Gas Reserve Reports.
      

     

    (a)  Deliver
      to Lender no later than May 1 of each year during the term of this Agreement,
      engineering reports in form and substance satisfactory to Lender, certified
      by
      any nationally- or regionally-recognized independent consulting petroleum
      engineers acceptable to Lender as fairly and accurately setting forth (i) the
      proven and producing, shut-in, behind-pipe, and undeveloped oil and gas reserves
      (separately classified as such) attributable to the Borrowing Base Oil and
      Gas
      Properties as of March 31 of the year for which such reserve reports are
      furnished, (ii) the aggregate present value of the future net income with
      respect to such Borrowing Base Oil and Gas Properties, discounted at a stated
      per annum discount rate of proven and producing reserves, (iii) projections
      of
      the annual rate of production, gross income, and net income with respect to
      such
      proven and producing reserves, and (iv) information with respect to the
“take-or-pay,” “prepayment,” and gas-balancing liabilities of
      Borrowers.

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    (b)  Deliver
      to Lender no later than November 1 of each year during the term of this
      Agreement, engineering reports in form and substance satisfactory to Lender
      prepared either by any nationally- or regionally-recognized independent
      consulting petroleum engineers or under the supervision of a Responsible Officer
      of Parent Borrower evaluating the Borrowing Base Oil and Gas Properties as
      of
      September 30 of the year for which such reserve reports are furnished and
      updating the information provided in the reports pursuant to Section
      5.4(a).

     

    (c)  Each
      of
      the reports provided pursuant to this Section shall be submitted to Lender
      together with additional data concerning pricing, quantities of production
      from
      the Borrowing Base Oil and Gas Properties, volumes of production sold,
      purchasers of production, gross revenues, expenses, and such other information
      and engineering and geological data with respect thereto as Lender may
      reasonably request.

     

    5.5  Title
      Opinions; Title Defects.
      Upon
      the request of Lender, furnish to Lender title opinions, in form and substance
      and by counsel satisfactory to Lender, or other confirmation of title acceptable
      to Lender, covering Oil and Gas Properties constituting not less than 80% of
      the
      PW9 of the Proved Reserves value, determined by Lender in its sole discretion,
      of the Borrowing Base Oil and Gas Properties. Promptly, but in any event within
      30 days after notice by Lender of any defect, material in the opinion of Lender
      in value, in the title of Borrowers to any of its Oil and Gas Properties, clear
      such title defects, and, in the event any such title defects are not cured
      in a
      timely manner, pay all related costs and fees incurred by Lender to do
      so.

     

    5.6  Notices
      of Certain Events.
      Deliver
      to Lender, immediately upon having knowledge of the occurrence of any of the
      following events or circumstances, a written statement with respect thereto,
      signed by a Responsible Officer of Parent Borrower and setting forth the
      relevant event or circumstance and the steps being taken by Borrowers with
      respect to such event or circumstance:

     

    (a)  any
      Default or Event of Default;

     

    (b)  any
      default or event of default under any contractual obligation of any Borrower,
      or
      any litigation, investigation, or proceeding between any Borrower and any
      Governmental Authority which, in either case, if not cured or if adversely
      determined, as the case may be, could reasonably be expected to have a Material
      Adverse Effect;

     

    (c)  any
      litigation or proceeding involving any Borrower or any of its Subsidiaries
      as a
      defendant or in which any Property of any Borrower or any of its Subsidiaries
      is
      subject to a claim and in which the amount involved is $50,000 or more and
      which
      is not covered by insurance or in which injunctive or similar relief is
      sought;

     

    (d)  the
      receipt by any Borrower of any written Environmental Complaint;

     

    (e)  any
      actual, proposed, or threatened testing or other investigation by any
      Governmental Authority or other Person concerning the environmental condition
      of, or relating to, any Property of any Borrower or adjacent to any Property
      of
      any Borrower following any allegation of a violation of an Environmental
      Complaint;

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    (f)  any
      Release of Hazardous Substances by any Borrower or from, affecting, or related
      to any Property of any Borrower or adjacent to any Property of any Borrower
      except in accordance with applicable Requirements of Law or the terms of a
      valid
      permit, license, certificate, or approval of the relevant Governmental
      Authority, or the violation of any Environmental Law, or the revocation,
      suspension, or forfeiture of or failure to renew, any permit, license,
      registration, approval, or authorization which could reasonably be expected
      to
      have a Material Adverse Effect;

     

    (g)  the
      change in identity or address of any Person remitting to any Borrower proceeds
      from the sale of hydrocarbon production from or attributable to any Borrowing
      Base Oil and Gas Properties;

     

    (h)  any
      change in the senior management of any Borrower; and

     

    (i)  any
      other
      event or condition which could reasonably be expected to have a Material Adverse
      Effect.

     

    5.7  Letters
      in Lieu of Transfer Orders; Division Orders.
      Promptly upon request by Lender at any time and from time to time, and without
      limitation on the rights of Lender pursuant to Sections
      2.16
      and
2.17,
      execute
      such letters in lieu of transfer orders, in addition to the letters signed
      by
      Borrowers and delivered to Lender in satisfaction of the condition set forth
      in
Section
      3.1(f)(v)
      and/or
      division and/or transfer orders as are necessary or appropriate to transfer
      and
      deliver to Lender proceeds from or attributable to the Borrowing Base Oil and
      Gas Properties. Lender agrees not to provide any such documents described above
      in this Section
      5.7
      to any
      of Borrowers’ purchasers of production prior to the occurrence of an Event of
      Default.

     

    5.8  Additional
      Information.
      Furnish
      to Lender, promptly upon the request of Lender, such additional financial or
      other information concerning the assets, liabilities, operations, and
      transactions of Borrowers as Lender may from time to time request, including,
      without limitation, updated lists of additional or new Purchasers of Production;
      and notify Lender not less than ten Business Days prior to the occurrence of
      any
      condition or event that may change the proper location for the filing of any
      financing statement or other public notice or recording for the purpose of
      perfecting a Lien in any Collateral, including, without limitation, any change
      in its name or the location of its principal place of business or chief
      executive office; and upon the request of Lender, execute such additional
      Security Instruments as may be necessary or appropriate in connection
      therewith.

     

    5.9  Compliance
      with Laws.
      Except
      to the extent the failure to comply or cause compliance would not have a
      Material Adverse Effect, comply with all applicable Requirements of Law,
      including, without limitation, (a) the Natural Gas Policy Act of 1978, as
      amended, (b) ERISA, (c) Environmental Laws, and (d) all permits, licenses,
      registrations, approvals, and authorizations (i) related to any natural or
      environmental resource or media located on, above, within, in the vicinity
      of,
      related to or affected by any Property of any Borrower, (ii) required for the
      performance of the operations of any Borrower, or (iii) applicable to the use,
      generation, handling, storage, treatment, transport, or disposal of any
      Hazardous Substances; and cause all employees, crew members, agents,
      contractors, subcontractors, and future lessees (pursuant to appropriate lease
      provisions) of any Borrower, while such Persons are acting within the scope
      of
      their relationship with any Borrower, to comply with all such Requirements
      of
      Law as may be necessary or appropriate to enable any Borrower to so
      comply.

     

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

    5.10  Payment
      of Assessments and Charges.
      Pay all
      taxes, assessments, governmental charges, rent, and other Indebtedness which,
      if
      unpaid, might become a Lien against the Property of any Borrower, except any
      of
      the foregoing being contested in good faith and as to which adequate reserve
      in
      accordance with GAAP has been established or unless failure to pay would not
      have a Material Adverse Effect.

     

    5.11  Maintenance
      of Corporate Existence and Good Standing.
      Maintain its corporate existence or qualification and good standing in its
      jurisdictions of incorporation and in all jurisdictions wherein the Property
      now
      owned or hereafter acquired or business now or hereafter conducted necessitates
      same.

     

    5.12  Payment
      of Note; Performance of Obligations.
      Pay the
      Note according to its terms and do and perform every act and discharge all
      of
      its other Obligations.

     

    5.13  Further
      Assurances.
      Promptly cure any defects in the execution and delivery of any of the Loan
      Documents and all agreements contemplated thereby, and execute, acknowledge,
      and
      deliver such other assurances and instruments as shall, in the opinion of
      Lender, be necessary to fulfill the terms of the Loan Documents.

     

    5.14  Initial
      Fees and Expenses of Counsel to Lender.
      On the
      Closing Date, promptly reimburse Lender for all reasonable fees and expenses,
      including estimated recording fees, of Porter & Hedges, L.L.P., special
      counsel to Lender, in connection with the preparation of this Agreement and
      all
      documentation contemplated hereby, the satisfaction of the conditions precedent
      set forth herein, the filing and recordation of Security Instruments, and the
      consummation of the transactions contemplated in this Agreement.

     

    5.15  Subsequent
      Fees and Expenses of Lender.
      Upon
      request by Lender, promptly reimburse Lender (to the fullest extent permitted
      by
      law) for all amounts reasonably and actually expended, advanced, or incurred
      by
      or on behalf of Lender to satisfy any obligation of Borrowers under any of
      the
      Loan Documents; to collect the Obligations; to ratify, amend, restate, or
      prepare additional Loan Documents, as the case may be to the extent necessary
      or
      appropriate in Lender’s discretion; for the filing and recordation of Security
      Instruments; to enforce the rights of Lender under any of the Loan Documents;
      and to protect the Properties or business of Borrowers, including, without
      limitation, the Collateral, which amounts shall be deemed compensatory in nature
      and liquidated as to amount upon notice to Borrowers by Lender and which amounts
      shall include, but not be limited to (a) all court costs, (b) reasonable
      attorneys’ fees, (c) reasonable fees and expenses of auditors and accountants
      incurred to protect the interests of Lender, (d) fees and expenses incurred
      in
      connection with the participation by Lender as a member of the creditors’
committee in a case commenced under any Insolvency Proceeding, (e) fees and
      expenses incurred in connection with lifting the automatic stay prescribed
      in
§362 Title 11 of the United States Code, and (f) fees and expenses incurred
      in
      connection with any action pursuant to §1129 Title 11 of the United States Code
      all reasonably incurred by Lender in connection with the collection of any
      sums
      due under the Loan Documents, together with interest at the per annum interest
      rate equal to the Floating Rate, calculated on a basis of a calendar year of
      360
      days, as the case may be, counting the actual number of days elapsed, on each
      such amount from the date of notification that the same was expended, advanced,
      or incurred by Lender until the date it is repaid to Lender, with the
      obligations under this Section surviving the non-assumption of this Agreement
      in
      a case commenced under any Insolvency Proceeding and being binding upon any
      Borrower and/or a trustee, receiver, custodian, or liquidator of any Borrower
      appointed in any such case.

     

    
      
         

      

      
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    5.16  Operation
      of Oil and Gas Properties.
      Develop, maintain, and operate its Oil and Gas Properties in a prudent and
      workmanlike manner in accordance with industry standards and every Requirement
      of Law.

     

    5.17  Maintenance
      and Inspection of Properties.
      Maintain all of their tangible Properties in good repair and condition, ordinary
      wear and tear excepted; make all necessary replacements thereof and operate
      such
      Properties in a good and workmanlike manner; and permit any authorized
      representative of Lender to visit and inspect, at the expense of Borrowers,
      any
      tangible Property of Borrowers.

     

    5.18  Maintenance
      of Insurance.
      Maintain insurance with respect to their Properties and businesses against
      such
      liabilities, casualties, risks, and contingencies as is customary in the
      relevant industry and sufficient to prevent a Material Adverse Effect, all
      such
      insurance to be in amounts and from insurers acceptable to Lender, maintained
      by
      Borrowers, and, upon any renewal of any such insurance and at other times upon
      request by Lender, furnish to Lender evidence, satisfactory to Lender, on the
      Closing Date of the maintenance of such insurance. Lender shall have the right
      to request that it be named as a loss payee under any such renewals of
      insurance. Lender shall have the right to collect, and Borrowers hereby assign
      to Lender, any and all monies that may become payable under any policies of
      insurance relating to business interruption or by reason of damage, loss, or
      destruction of any of the Collateral. In the event of any damage, loss, or
      destruction for which insurance proceeds relating to business interruption
      or
      Collateral exceed $50,000.00, Lender may, at its option, apply all such sums
      or
      any part thereof received by it toward the payment of the Obligations, whether
      matured or unmatured, application to be made first to interest and then to
      principal, and shall deliver to Borrowers the balance, if any, after such
      application has been made; provided, however, if no Event of Default has
      occurred and is continuing and Borrowers promptly use such products to replace
      damaged or lost Collateral, Lender shall deliver any such proceeds received
      by
      it to Borrowers for such purpose. In the event of any such damage, loss, or
      destruction for which insurance proceeds are $50,000.00 or less, provided that
      no Default or Event of Default has occurred and is continuing, Lender shall
      deliver any such proceeds received by it to Borrowers. In the event Lender
      receives insurance proceeds not attributable to Collateral or business
      interruption, Lender shall deliver any such proceeds to Borrowers.

     

    5.19  INDEMNIFICATION.
      INDEMNIFY AND HOLD LENDER AND ITS SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES,
      AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT
      OF
      LENDER (COLLECTIVELY THE “LENDER PARTIES”) UNDER ANY LOAN DOCUMENT HARMLESS FROM
      AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES,
      CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL
      ACTIONS, REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND
      EXPENSES INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION,
      ATTORNEYS’ FEES AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN
      PART, FROM (A) THE PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM
      ANY
      BORROWING BASE OIL AND GAS PROPERTIES OF ANY BORROWER, WHETHER PRIOR TO OR
      DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF
      ANY
      BORROWING BASE OIL AND GAS PROPERTIES OF ANY BORROWER, WHETHER PRIOR TO OR
      DURING THE TERM HEREOF, AND WHETHER BY ANY BORROWER OR ANY PREDECESSOR IN TITLE,
      EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF ANY BORROWER OR ANY OTHER
      PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH
      THE
      HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION,
      OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR
      UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY
      OF
      ANY BORROWER, (D) ANY CONTAMINATION OF ANY BORROWING BASE OIL AND GAS PROPERTIES
      OR NATURAL RESOURCES ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING,
      STORAGE, TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY ANY BORROWER
      OR ANY EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF ANY BORROWER WHILE
      SUCH
      PERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH ANY BORROWER,
      IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN
      ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND
      ENFORCEMENT OF ANY LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF A LETTER
      OF CREDIT OF A WRONGFUL DISHONOR BY LENDER OF A CLAIM OR DRAFT PRESENTED
      THEREUNDER, OR ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY
      LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT
      LIMITATION, ANY OF THE FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE,
      WHETHER SOLE OR CONCURRENT, ON THE PART OF LENDER PARTIES OR ANY OF ITS
      SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
      AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF LENDER UNDER ANY LOAN DOCUMENT
      BUT
      NOT INCLUDING ANY OF THE FOREGOING ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL
      MISCONDUCT OF LENDER PARTIES; WITH THE FOREGOING INDEMNITY SURVIVING
      SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
      AGREEMENT.

     

    5.20  Hedging
      Transaction Reports.
      For
      each Commodity Hedge Agreement to which any Borrower is a party, deliver to
      Lender contemporaneously with the quarterly Financial Statements a detailed
      report setting out such Borrower’s (i) position as of the end of such calendar
      quarter including, but not limited to, such Borrower’s settlement payments and
      receipts during such calendar quarter and settlement payables and receivables
      as
      of the end of such calendar quarter, (ii) volumes hedged, (iii) prices at which
      such volumes were hedged, (iii) the period covered under each Commodity Hedge
      Agreement and (iv) any other information which Lender may request.

     

    
      
         

      

      
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    5.21  Production
      and Expense Reports.
      Deliver
      to Lender, on or before the forty-fifth (45th)
      day
      after the end of each fiscal quarter, a production and expense report covering
      quantities of production from the Borrowing Base Oil and Gas Properties, volumes
      of production sold, Purchasers of Production, gross revenues and expenses
      (including lease operating expenses).

     

    5.22  Commodity
      Hedge Agreements.
      Upon
      the occurrence and continuation of an Event of Default, promptly deliver to
      Lender all settlement proceeds delivered to Borrowers from Commodity Hedge
      Agreement counterparties for application against the Obligations.

     

    5.23  Additional
      Borrowers.
      Notify
      Lender at the time that any Person becomes a Subsidiary of any Borrower and
      promptly thereafter (and in any event within thirty days), cause such Person
      to
      (a) become a Borrower hereunder by executing and delivering Lender a counterpart
      of this Agreement or such other document as Lender shall deem appropriate for
      such purpose, and (b) deliver to Lender documents of the types referred to
      in
Section
      3.1
      and
      favorable opinions of counsel to such Person (which shall cover, among other
      things, the legality, validity, binding effect and enforceability of the
      documentation referred to in clause (a)), all in form, content and scope
      reasonably satisfactory to Lender.

     

    5.24  Additional
      Properties.
      Concurrently with the delivery of the Reserve Report hereunder, an updated
      listing of any Oil and Gas Properties, acquired by any Borrower or any right
      to
      earn, purchase or otherwise acquire any such Oil and Gas Property, since the
      date of the most recent list delivered pursuant to this provision. Promptly
      upon
      Lender’s request, Borrowers shall execute and deliver Security Instruments, and
      shall take any other steps as may be requested, to ensure that any such Oil
      and
      Gas Properties, or other rights thereto, acquired by any Borrower are subject
      to
      the Liens thereunder in favor of Lender.

     

    ARTICLE
      VI

     

    NEGATIVE
      COVENANTS

     

    So
      long
      as any Obligation remains outstanding or unpaid or any Commitment exists, no
      Borrower will:

     

    6.1  Indebtedness.
      Create,
      incur, assume, or suffer to exist any Indebtedness, whether by way of loan
      or
      otherwise; provided,
      however,
      the
      foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
      accounts payable incurred in the ordinary course of business, which are not
      unpaid in excess of 90 days beyond invoice date or are being contested in good
      faith and as to which such reserve as is required by GAAP has been made, accrued
      or deferred taxes and other liabilities not constituting borrowed money, (c)
      crude oil, natural gas, or other hydrocarbon Commodity Hedge Agreements
      permitted under Section
      6.17
      hereof
      (d) Rate Management Transactions, in form and substance and with a Person
      acceptable to Lender, (e) Indebtedness secured by Permitted Liens, (f)
      Subordinated Debt subject to the terms of the Subordination Agreement,
      (g) Indebtedness under the UHC Credit Documents (subject to Section 6.18
      hereof)
      or (h) other Indebtedness not to exceed at any time $500,000 in the
      aggregate.

     

    
      
         

      

      
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    6.2  Contingent
      Obligations.
      Create,
      incur, assume, or suffer to exist any Contingent Obligation; provided,
      however,
      the
      foregoing restriction shall not apply to (a) performance guarantees and
      performance surety or other bonds provided in the ordinary course of business,
      or (b) trade credit incurred (including credit or guaranties relating to the
      purchase of equipment) or operating leases entered into in the ordinary course
      of business in an aggregate amount not to exceed at any time
      $100,000.

     

    6.3  Liens.
      Create,
      incur, assume, or suffer to exist any Lien on any of its Oil and Gas Properties
      or any other Property, whether now owned or hereafter acquired; provided,
      however,
      the
      foregoing restrictions shall not apply to Permitted Liens.

     

    6.4  Sales
      of Assets.
      Without
      the prior written consent of Lender, sell, transfer, or otherwise dispose of,
      in
      one or any series of transactions, any Collateral or other Property, whether
      now
      owned or hereafter acquired, or enter into any agreement to do so; provided,
      however,
      the
      foregoing restriction shall not apply to (a) the sale of hydrocarbons or
      inventory in the ordinary course of business provided that no contract for
      the
      sale of hydrocarbons shall obligate any Borrower to deliver hydrocarbons
      produced from any of the Borrowing Base Oil and Gas Properties at some future
      date without receiving full payment therefor within 90 days of delivery, (b)
      the
      sale or other disposition of Property destroyed, lost, worn out, damaged, or
      having only salvage value or no longer used or useful in the business of any
      Borrower or (c) the sale of Property not to exceed during a calendar year
      $500,000 in value.

     

    6.5  Leasebacks.
      Enter
      into any agreement to sell or transfer any Borrowing Base Oil and Gas Properties
      and thereafter rent or lease as lessee such Property or other Property intended
      for the same use or purpose as the Property sold or transferred.

     

    6.6  Sale
      or Discount of Receivables.
      Except
      to minimize losses on bona fide debts previously contracted, discount or sell
      with recourse, or sell for less than the greater of the face or market value
      thereof, any of its notes receivable or accounts receivable.

     

    6.7  Loans
      or Advances.
      Make or
      agree to make or allow to remain outstanding any loans or advances to any
      Person; provided,
      however,
      the
      foregoing restrictions shall not apply to (a) advances or extensions of credit
      in the form of accounts receivable incurred in the ordinary course of business
      and upon terms common in the industry for such accounts receivable, or
      (b) advances to employees of any Borrower for the payment of expenses in
      the ordinary course of business.

     

    6.8  Investments.
      Acquire
      Investments in, or purchase or otherwise acquire all or substantially all of
      the
      assets of, any Person; provided,
      however,
      the
      foregoing restriction shall not apply to the purchase or acquisition of (a)
      Oil
      and Gas Properties, (b) Investments in the form of (i) debt securities issued
      or
      directly and fully guaranteed or insured by the United States Government or
      any
      agency or instrumentality thereof, with maturities of no more than one year,
      (ii) commercial paper of a domestic issuer rated at the date of acquisition
      at
      least P-2 by Moody’s Investor Service, Inc. or A-2 by Standard & Poor’s
      Corporation and with maturities of no more than one year from the date of
      acquisition, or (iii) repurchase agreements covering debt securities or
      commercial paper of the type permitted in this Section, certificates of deposit,
      demand deposits, eurodollar time deposits, overnight bank deposits and bankers’
acceptances, with maturities of no more than one year from the date of
      acquisition, issued by or acquired from or through Lender or any bank or trust
      company organized under the laws of the United States or any state thereof
      and
      having capital surplus and undivided profits aggregating at least
      $100,000,000.00, (c) other short-term Investments similar in nature and degree
      of risk to those described in clause (b) of this Section, or (d) money-market
      funds.

     

    
      
         

      

      
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    6.9  Dividends
      and Distributions.
      Declare, pay, or make to any Person, whether in cash or Property of any
      Borrower, any dividend or distribution on, or purchase, redeem, or otherwise
      acquire for value, any share of any class of its capital stock at any time;
      provided,
      however,
      that so
      long as no Event of Default has not occurred and is continuing, or would result
      therefrom (a) a Subsidiary Borrower make distributions to Parent Borrower
      and (b) Parent Borrower may make distributions to its shareholders to the
      extent such shareholders are shareholders of Parent Borrower as of
      March 31, 2006.

     

    6.10  Issuance
      of Stock; Changes in Corporate Structure.
      Except
      in strict compliance with Section
      2.8(b)(iii),
      issue
      or agree to issue additional shares of capital stock, in one or any series
      of
      transactions or, except in relation to Parent Borrower’s Series A and Series B
      Preferred Stock; or, except in compliance with the Merger Agreement, enter
      into
      any transaction of consolidation, merger, or amalgamation; or liquidate, wind
      up, or dissolve or suffer any liquidation or dissolution or enter or agree
      to
      enter into any arrangement that would result in a Change of Control except
      in
      relation to the Merger.

     

    6.11  Transactions
      with Affiliates.
      Except
      in relation to transactions among Borrowers and Big Lake Services Company,
      LLC,
      a Delaware limited liability company, directly or indirectly, enter into any
      transaction (including the sale, lease, or exchange of Property or the rendering
      of service) with any of its Affiliates, other than upon fair and reasonable
      terms no less favorable than could be obtained in an arm’s length transaction
      with a Person which was not an Affiliate and provided Borrowers obtain Lender’s
      prior written approval of any such transaction.

     

    6.12  Lines
      of Business.
      Expand,
      on its own or through any Subsidiary, into any line of business other than
      those
      in which any Borrower is engaged as of the date hereof.

     

    6.13  Plan
      Obligations.
      Assume
      or otherwise become subject to an obligation to contribute to or maintain any
      Plan or acquire any Person which has at any time had an obligation to contribute
      to or maintain any Plan.

     

    6.14  Current
      Ratio.
      Permit,
      as of the close of any fiscal quarter, the ratio of (i) the sum of Current
      Assets plus the unused portion of this credit facility to (ii) Current
      Liabilities to be less than 1.00 to 1.00.

     

    6.15  EBITDA
      to Current Borrowing Base Ratio.
      Permit,
      as of the close of any fiscal quarter, calculated on a consolidated basis,
      the
      ratio of (a) quarterly EBITDA plus Stock Subscription Value to (b) the
      product of one twenty-fourth (1/24th)
      multiplied by the then-current Borrowing Base to be less than 1.0 to 1.0 for
      each fiscal quarter commencing with the fiscal quarter ending September 30,
      2006. As used in this Section 6.15, “Stock Subscription Value” means
      (i) for the period from the Closing Date to March 31, 2007, the
      aggregate cash received plus the amount of valid and outstanding receivables
      of
      Lothian Oil Inc. in relation to stock subscriptions executed and delivered
      to
      Lothian Oil Inc. for the applicable quarter, but prior to March 31, 2007 and
      (ii) for all periods after March 31, 2007, $0.00.

     

    
      
         

      

      
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    6.16  Minimum
      Consolidated Tangible Net Worth.
      Permit
      its Consolidated Tangible Net Worth to be less than $11,500,000 beginning with
      the date of Closing, plus (a) 50% of the consolidated net income (excluding
      losses) of Borrowers, beginning with the quarter ending June 30, 2006 and
      (b) 100% of any increase in shareholder’s equity resulting from the sale or
      issuance of any equity interests of Parent Borrower or any of its Subsidiaries,
      beginning with the quarter ending June 30, 2006.

     

    6.17  Commodity
      Hedge Agreements .
      During
      the term of this Agreement, enter into any Commodity Hedge Agreements unless
      they (a) (i) are entered into in the ordinary course of business for
      the purpose of directly mitigating risks associated with Borrower’s liabilities
      and commitments and not for purposes of speculation or taking a “market view;”
(ii) do not contain any provision exonerating the non-defaulting party from
      its
      obligation to make payments on outstanding transactions to the defaulting party,
      (iii) are entered into with or through a counterparty that has a credit rating
      satisfactory to Lender in its sole discretion (iv) do not cover monthly
      notional volumes of hydrocarbons that exceed in the aggregate ninety percent
      (90%) of the Proved Developed Producing Reserves that are projected to be
      produced from the Borrowing Base Oil and Gas Properties for the applicable
      period and with respect to the most recent Reserve Report or as otherwise
      determined as calculated by Lender and (v) not secured by any Properties of
      any Borrower or any Guarantor or (b) consists of put transactions on terms
      acceptable to Lender in its sole discretion.

     

    6.18  UHC
      Credit Documents.
      Amend
      or modify, or agree to amend or modify, any terms of the UHC Credit Documents,
      except as may be provided in the Subordination Agreement.

     

    ARTICLE
      VII

     

    EVENTS
      OF DEFAULT

     

    7.1  Enumeration
      of Events of Default.
      Any of
      the following events shall constitute an Event of Default:

     

    (a)  default
      shall be made in the payment when due of any installment of principal or
      interest under this Agreement or the Note or in the payment when due of any
      fee
      or other sum payable under any Loan Document and such default shall continue
      for
      three (3) days after any such payment is due;

     

    (b)  (i) default
      shall be made by any Borrower under any provision under Article VI
      of this
      Agreement or (ii) default shall be made by any Borrower in the due
      observance or performance of any of its respective obligations under the Loan
      Documents, and such default shall continue for 30 days after the earlier of
      notice thereof to any Borrower by Lender or knowledge thereof by any
      Borrower;

     

    
      
         

      

      
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    (c)  any
      representation or warranty made by any Borrower in any of the Loan Documents
      proves to have been untrue in any material respect or any representation,
      statement (including Financial Statements), certificate, or data furnished
      or
      made to Lender in connection herewith proves to have been untrue in any material
      respect as of the date the facts therein set forth were stated or
      certified;

     

    (d)  default
      shall be made by any Borrower (as principal or guarantor or other surety) in
      the
      payment or performance of any bond, debenture, note, Commodity Hedge Agreement,
      Rate Management Transaction, or other Indebtedness or under any credit
      agreement, loan agreement, indenture, promissory note, or similar agreement
      or
      instrument executed in connection with any of the foregoing, and such default
      shall remain unremedied for in excess of the period of grace, if any, with
      respect thereto;

     

    (e)  any
      Borrower shall (i) apply for or consent to the appointment of a receiver,
      trustee, or liquidator of it or all or a substantial part of its assets, (ii)
      file a voluntary petition commencing an Insolvency Proceeding, (iii) make a
      general assignment for the benefit of creditors, (iv) be unable, or admit in
      writing its inability, to pay its debts generally as they become due, or (v)
      file an answer admitting the material allegations of a petition filed against
      it
      in any Insolvency Proceeding;

     

    (f)  an
      order,
      judgment, or decree shall be entered against any Borrower by any court of
      competent jurisdiction or by any other duly authorized authority, on the
      petition of a creditor or otherwise, granting relief in any Insolvency
      Proceeding or approving a petition seeking reorganization or an arrangement
      of
      its debts or appointing a receiver, trustee, conservator, custodian, or
      liquidator of it or all or any substantial part of its assets, and such order,
      judgment, or decree shall not be dismissed or stayed within 30
      days;

     

    (g)  the
      levy
      against any significant portion of the Property of any Borrower, or any
      execution, garnishment, attachment, sequestration, or other writ or similar
      proceeding which is not permanently dismissed or discharged within 60 days
      after
      the levy;

     

    (h)  a
      final
      and non-appealable order, judgment, or decree shall be entered against any
      Borrower for money damages and/or Indebtedness due in an amount in excess of
      $250,000, and such order, judgment, or decree shall not be dismissed or stayed
      within 60 days;

     

    (i)  any
      Borrower shall have (i) concealed, removed, or diverted, or permitted to be
      concealed, removed, or diverted, any material portion of its Property, with
      intent to hinder, delay, or defraud its creditors or any of them, (ii) made
      or
      suffered a transfer of any material portion of its Property which maybe
      fraudulent under any bankruptcy, fraudulent conveyance, or similar law, (iii)
      made any transfer of its Property to or for the benefit of a creditor at a
      time
      when other creditors similarly situated have not been paid, or (iv) suffered
      or
      permitted, while insolvent, any creditor to obtain a Lien upon any of its
      Property through legal proceedings or distraint which is not vacated within
      30
      days from the date thereof;

     

    
      
         

      

      
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    (j)  any
      Security Instrument shall for any reason not, or cease to, create valid and
      perfected first-priority Liens subject to Permitted Liens against the Collateral
      purportedly covered thereby and such default shall continue for five (5) days
      after such default or any Borrower shall assert that any Security Instrument
      does not or discontinues to create valid Liens thereunder;

     

    (k)  the
      occurrence of a Material Adverse Effect and the same shall remain unremedied
      for
      in excess of 30 days after notice given by Lender; or

     

    (l)  the
      occurrence of a Change of Control.

     

    7.2  Remedies.
      

     

    (a)  Upon
      the
      occurrence of an Event of Default specified in Sections
      7.1(e)
      or
7.1(f),
      immediately and without notice, (i) all Obligations shall automatically become
      immediately due and payable, without presentment, demand, protest, notice of
      protest, default, or dishonor, notice of intent to accelerate maturity, notice
      of acceleration of maturity, or other notice of any kind, except as may be
      provided to the contrary elsewhere herein, all of which are hereby expressly
      waived by Borrowers; (ii) the Commitment shall immediately cease and terminate
      unless and until reinstated by Lender in writing; and (iii) Lender is hereby
      authorized at any time and from time to time, without notice to Borrowers (any
      such notice being expressly waived by Borrowers), to set-off and apply any
      and
      all deposits (general or special, time or demand, provisional or final) held
      by
      Lender and any and all other indebtedness at any time owing by Lender to or
      for
      the credit or account of Borrowers against any and all of the Obligations
      although such Obligations may be unmatured.

     

    (b)  Upon
      the
      occurrence of any Event of Default other than those specified in Sections
      7.1(e)
      or
7.1(f),
      (i)
      Lender may, by notice to Borrowers, declare all Obligations immediately due
      and
      payable, without presentment, demand, protest, notice of protest, default,
      or
      dishonor, notice of intent to accelerate maturity, notice of acceleration of
      maturity, or other notice of any kind, except as may be provided to the contrary
      elsewhere herein, all of which are hereby expressly waived by Borrowers;
      (ii) the Commitment shall immediately cease and terminate unless and until
      reinstated by Lender in writing; and (iii) Lender is hereby authorized at any
      time and from time to time, without notice to Borrowers (any such notice being
      expressly waived by Borrowers), to set-off and apply any and all deposits
      (general or special, time or demand, provisional or final) held by Lender and
      any and all other indebtedness at any time owing by Lender to or for the credit
      or account of any Borrower against any and all of the Obligations although
      such
      Obligations may be unmatured.

     

    (c)  Upon
      the
      occurrence of any Event of Default, Lender may, in addition to the foregoing
      in
      this Section, exercise any or all of its rights and remedies provided by law
      or
      pursuant to the Loan Documents.

     

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

     

    ARTICLE
      VIII

     

    MISCELLANEOUS

     

    8.1  Transfers;
      Participations.
      Lender
      may, without the consent of Borrowers not to be unreasonably withheld, at any
      time, sell, transfer, assign, or grant participations in the Obligations or
      any
      portion thereof. Lender may forward to each Transferee and prospective
      Transferee all documents and information relating to such Obligations, whether
      furnished by Borrowers or otherwise obtained, as Lender determines necessary
      or
      desirable. Each Borrower agrees that each Transferee, regardless of the nature
      of any transfer to it, may exercise all rights (including, without limitation,
      rights of set-off) with respect to the portion of the Obligations held by it
      as
      fully as if such Transferee were the direct holder thereof; subject to any
      agreements between such Transferee and the transferor to such
      Transferee.

     

    8.2  Survival
      of Representations, Warranties, and Covenants.
      All
      representations and warranties of Borrowers and all covenants and agreements
      herein made shall survive the execution and delivery of the Note and the
      Security Instruments and shall remain in force and effect so long as any
      Obligation is outstanding or any Commitment exists.

     

    8.3  Notices
      and Other Communications.
      Except
      as to verbal notices expressly authorized herein, which verbal notices shall
      be
      confirmed in writing, all notices, requests, and communications hereunder shall
      be in writing (including by telecopy). Unless otherwise expressly provided
      herein, any such notice, request, demand, or other communication shall be deemed
      to have been duly given or made when delivered by hand, or, in the case of
      delivery by mail, three days following deposit in the mail, certified mail,
      return receipt requested, postage prepaid, or, in the case of telecopy notice,
      when receipt thereof is acknowledged orally or by written confirmation report,
      addressed as follows:

     

    (a)  if
      to
      Lender, to:

     

    Sterling
      Bank

    2550
      North Loop West, Suite 800

    Houston,
      Texas 77092

    Attention:
      Daniel G. Steele

    Telecopy:
      (713) 507-7948

    

    (b)  if
      to
      Borrowers, to:

     

    Lothian
      Oil Inc.

    405
      N.
      Marienfeld, Suite 200

    Midland,
      Texas 79701

    Attention:
      C. Scott Wilson

    Telecopy:
      (432) 686-2644

    

    Notwithstanding
      anything to the contrary under this Agreement, any provision relating to any
      notices, requests and communications to be made by Lender to any Borrower shall
      only be required to be made to Parent Borrower, and Lender shall only be
      required to rely on notices, requests and communications from Parent Borrower
      on
      behalf of itself and the other Borrowers and not from any other Borrower. Any
      party may, by proper written notice hereunder to the others, change the
      individuals or addresses to which such notices to it shall thereafter be
      sent.

     

    
      
         

      

      
        39

        
          

        

      

      
         

      

    

    8.4  Parties
      in Interest.
      Subject
      to the restrictions on changes in corporate structure set forth in Section
      6.10 and
      other
      applicable restrictions contained herein, all covenants and agreements herein
      contained by or on behalf of Borrowers or Lender shall be binding upon and
      inure
      to the benefit of Borrowers or Lender, as the case may be, and their respective
      legal representatives, successors, and assigns.

     

    8.5  Rights
      of Third Parties.
      All
      provisions herein are imposed solely and exclusively for the benefit of Lender
      and Borrowers. No other Person shall have any right, benefit, priority, or
      interest hereunder or as a result hereof or have standing to require
      satisfaction of provisions hereof in accordance with their terms, and any or
      all
      of such provisions may be freely waived in whole or in part by Lender at any
      time if in its sole discretion it deems it advisable to do so.

     

    8.6  Renewals;
      Extensions.
      All
      provisions of this Agreement relating to the Note shall apply with equal force
      and effect to each promissory note hereafter executed which in whole or in
      part
      represents a renewal or extension of any part of the Indebtedness of Borrowers
      under this Agreement, the Note, or any other Loan Document.

     

    8.7  No
      Waiver; Rights Cumulative.
      No
      course of dealing on the part of Lender, its officers or employees, nor any
      failure or delay by Lender with respect to exercising any of its rights under
      any Loan Document shall operate as a waiver thereof. The rights of Lender under
      the Loan Documents shall be cumulative and the exercise or partial exercise
      of
      any such right shall not preclude the exercise of any other right. Neither
      the
      making of any Loan nor the issuance of a Letter of Credit shall constitute
      a
      waiver of any of the covenants, warranties, or conditions of Borrowers contained
      herein. In the event any Borrower is unable to satisfy any such covenant,
      warranty, or condition, neither the making of any Loan nor the issuance of
      a
      Letter of Credit shall have the effect of precluding Lender from thereafter
      declaring such inability to be an Event of Default as hereinabove
      provided.

     

    8.8  Survival
      Upon Unenforceability.
      In the
      event any one or more of the provisions contained in any of the Loan Documents
      or in any other instrument referred to herein or executed in connection with
      the
      Obligations shall, for any reason, be held to be invalid, illegal, or
      unenforceable in any respect, such invalidity, illegality, or unenforceability
      shall not affect any other provision of any Loan Document or of any other
      instrument referred to herein or executed in connection with such
      Obligations.

     

    8.9  Amendments;
      Waivers.
      Neither
      this Agreement nor any provision hereof may be amended, waived, discharged,
      or
      terminated orally, but only by an instrument in writing signed by the party
      against whom enforcement of the amendment, waiver, discharge, or termination
      is
      sought.

     

    8.10  Controlling
      Agreement.
      In the
      event of a conflict between the provisions of this Agreement and those of any
      other Loan Document, the provisions of this Agreement shall
      control.

     

    
      
         

      

      
        40

        
          

        

      

      
         

      

    

    8.11  Disposition
      of Collateral.
      Notwithstanding any term or provision, express or implied, in any of the
      Security Instruments, the realization, liquidation, foreclosure, or any other
      disposition on or of any or all of the Collateral shall be in the order and
      manner and determined in the sole discretion of Lender; provided,
      however,
      that in
      no event shall Lender violate applicable law or exercise rights and remedies
      other than those provided in such Security Instruments or otherwise existing
      at
      law or in equity.

     

    8.12  GOVERNING
      LAW. THIS
      AGREEMENT AND THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE DEEMED TO BE
      CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
      BY
      THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
      RELATING TO CONFLICTS OF LAW; PROVIDED,
      HOWEVER,
      THAT (I) CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
      REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY
      AND (II) EXCEPT, WITH REGARD TO THE SECURITY INSTRUMENTS TO THE EXTENT THAT
      THE LAWS OR ANY JURISDICTION IN WHICH THE MORTGAGED PROPERTIES NECESSARILY
      GOVERN.

     

    8.13  JURISDICTION
      AND VENUE.
       ALL
      ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN
      CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT OR ANY OTHER LOAN
      DOCUMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF LENDER, IN
      COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. EACH BORROWER HEREBY
      SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN
      HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
      TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
      IT BY LENDER IN ACCORDANCE WITH THIS SECTION.

     

    8.14  WAIVER
      OF RIGHTS TO JURY TRIAL. EACH
      BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY,
      AND UNCONDITIONALLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT,
      PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT
      OF
      ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF
      LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT
      OR
      ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF
      THIS SECTION ARE A MATERIAL INDUCEMENT FOR LENDER ENTERING INTO THIS
      AGREEMENT.

     

    8.15  ENTIRE
      AGREEMENT. THIS
      AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
      RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN
      THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF,
      INCLUDING, WITHOUT LIMITATION, THE TERM SHEET DATED MARCH 31, 2006, FROM
      LENDER TO BORROWERS FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER
      WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
      PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
      CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
      UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

     

    
      
         

      

      
        41

        
          

        

      

      
         

      

    

    8.16  IMPORTANT
      INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT.
      To help the government fight the funding of terrorism and money laundering
      activities, Federal law requires all financial institutions to obtain, verify,
      and record information that identifies each person or entity that opens an
      account, including any deposit account, treasury management account, loan,
      other
      extension of credit, or other financial services product. What this means for
      any Borrower: When any Borrower opens an account, if any Borrower is an
      individual, Lender will ask for such Borrower's name, residential address,
      tax
      identification number, date of birth, and other information that will allow
      Lender to identify such Borrower, and, if such Borrower is not an individual,
      Lender will ask for such Borrower's name, tax identification number, business
      address, and other information that will allow Lender to identify such Borrower.
      Lender may also ask, if such Borrower is an individual, to see such Borrower's
      driver’s license or other identifying documents, and, if such Borrower is not an
      individual, to see such Borrower's legal organizational documents or other
      identifying documents. Lender will verify and record the information that the
      Lender obtains from such Borrower pursuant to the USA PATRIOT Act, and will
      maintain and retain that record in accordance with the regulations promulgated
      under the USA PATRIOT Act.

     

    8.17  Counterparts.
      For the
      convenience of the parties, this Agreement may be executed in multiple
      counterparts, each of which for all purposes shall be deemed to be an original,
      and all such counterparts shall together constitute but one and the same
      Agreement.

     

    8.18  Amendment
      and Restatement.
      This
      Agreement amends, rearranges and restates the Prior Credit Agreement. All
      Security Instruments, as defined in the Prior Credit Agreement shall also
      constitute Security Instruments as defined in this Agreement, and they shall
      continue to secure all Obligations of Borrowers hereunder.

    

    8.19  Ratification
      and Merger.
      Effective as of the Effective Time as defined in the Merger Agreement, Lothian
      Oil Inc. shall be merged with and into United Heritage Corporation, the separate
      existence of Lothian Oil Inc. shall cease, and United Heritage Corporation
      shall
      continue as the surviving corporation after the merger and the name of United
      Heritage Corporation shall be changed to Lothian Oil Inc. As of the Effective
      Time and subject to the satisfaction of the condition set forth in this
      Agreement, Lender hereby (a) consents to the proposed transactions set
      forth in the Merger Agreement, (b) waives any violation of a noncompliance
      with any provision of this Agreement resulting directly from the merger, and
      (c) agrees not to exercise any rights or remedies available to it under the
      Loan Documents which arise solely as the result of the violation or
      noncompliance resulting from the merger. As of, and subsequent to, the Effective
      Time, and subsequent to United Heritage Corporation’s name change to Lothian Oil
      Inc., and reincorporation as a Delaware corporation, Lothian Oil Inc.
      (a) shall assume all obligations of the predecessor Lothian Oil Inc. as the
      Parent Borrower under this Agreement and all other Loan Documents and
      (b) confirms thereafter that the representations and warranties set forth
      in this Agreement and all other Loan Documents with respect to it as a Borrower
      are true and correct in all respects as of the Effective Time.

     

    [Signatures
      appear on the following page.]

     

     

    
      
         

      

      
        42

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF, this Agreement is deemed executed effective as of the date
      first above written.

     

    
      	 	 	 
	 	
              BORROWERS:

            
	 	 
	 	
              UNITED
                HERITAGE CORPORATION

            
	 
 	 
 	 
 
	 	By:  	/s/
              C.
              Scott Wilson
	 	
              
C.
              Scott Wilson
	 	
              Chief
                Executive Officer and
                President

            

    

     

    
      	 	 	 
	 	
              LOTHIAN
                OIL INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ C.
              Scott Wilson
	 	
              
C.
              Scott Wilson
	 	Chief
              Financial Officer

    

     

    
      
        	 	 	 
	 	
                
                  LOTHIAN
                    OIL (USA) INC.

                

              
	 	 	 
	 	
                By:
                  

              	
                /s/
                  C. Scott Wilson

              
	 	 	
                
                  
                    

                  

                  C.
                    Scott Wilson

                

              
	 	 	
                Chief
                  Financial Officer

              

      

      
      

    

    
      
        	
                 

              	
                 

              	
                 

              
	
                 

              	
                
                  LOTHIAN
                    OIL TEXAS I, INC.

                

              
	
                 

              	
                 

              	
                 

              
	
                 

              	
                By:
                  

              	
                /s/
                  C. Scott Wilson

              
	
                 

              	
                 

              	
                
                  

                

                C.
                  Scott Wilson

              
	
                 

              	
                 

              	
                Chief
                  Financial Officer

              

      

       

    

    
      
        	
                 

              	
                 

              	
                 

              
	
                 

              	
                
                  UHC
                    NEW MEXICO CORPORATION

                

              
	
                 

              	
                 

              	
                 

              
	
                 

              	
                By:
                  

              	
                /s/
                  C. Scott Wilson

              
	
                 

              	
                 

              	
                
                  

                

                C.
                  Scott Wilson

              
	
                 

              	
                 

              	
                
                  Chief
                    Executive Officer and
                    President

                

              

      

    
      
         

      

      
        43

        
          

        

      

      
         

      

    

     

    

    
      	
               

            	
               

            	
               

            
	
               

            	
              
                LENDER:

              

            
	 	 
	 	
              STERLING
                BANK

            
	
               

            	
               

            	
               

            
	
               

            	
              By:
                

            	
              /s/
                Daniel
                G. Steele

            
	
               

            	
               

            	
              
                
Daniel
                G. Steele

            
	
               

            	
               

            	
              
                Senior
                  Vice President

              

            

    

     

     

    
      
         

      

      
        44

        
          

        

      

      
         

      

    

    
 

    EXHIBIT
      I

     

    FORM
      OF NOTE

     

    

    
      
        
          
            Exhibit
              10
              1 for 8-K-Amended and Restated Credit Agreement.DOC EXHIBIT
              I

          

           

        

        
           

          
            

          

        

        
           

          
          

        

      

    

    

    EXHIBIT
      II

     

    FORM
      OF BORROWING REQUEST

     

    

     

    

    
      
        
          
            Exhibit
              10
              1 for 8-K-Amended and Restated Credit Agreement.DOC EXHIBIT
              II

          

           

        

        
           

          
            

          

        

        
           

          
          

        

      

    

    

    EXHIBIT
      III

     

    FORM
      OF COMPLIANCE CERTIFICATE

     

    

     

    

    
      
        
          
            Exhibit
              10
              1 for 8-K-Amended and Restated Credit Agreement.DOC EXHIBIT
              III

          

           

        

        
           

          
            

          

        

        
           

          
          

        

      

    

    

    EXHIBIT
      IV

     

    

     

    DISCLOSURES

     

    LIABILITIES

    None

    

    

    ENVIRONMENTAL
      MATTERS

    None

    

    

    REFUNDS

    None

    

    

    GAS
      CONTRACTS

    None

    

    

    CASUALTIES

    None

    

    

    SUBSIDIARIES

    

    I.
       Lothian
      Oil Inc.

    

    Lothian
      Oil (USA) Inc.

    United
      Heritage Corporation

    

    II. Lothian
      Oil (USA) Inc.

    

    Lothian
      Oil Texas I, Inc.

    Texas
      Oil
      Texas II, Inc.

    

    II. United
      Heritage Corporation

    

    UHC
      New
      Mexico Corporation

    UHC
      Petroleum Corporation

    UHC
      Petroleum Services Corporation

    National
      Heritage Services Corporation

    
 

    
      
        
          
            Exhibit
              10
              1 for 8-K-Amended and Restated Credit Agreement.DOC EXHIBIT
              IV

          

           

        

        
           

          
            

          

        

        
           

          
          

        

      

    

    

    EXHIBIT
      V

     

    BORROWING
      BASE OIL AND GAS PROPERTIES

     

    

     

    

    
      
        
          
            Exhibit
              10
              1 for 8-K-Amended and Restated Credit Agreement.DOC EXHIBIT
              V

          

           

        

        
           

          
            

          

        

        
           

          
          

        

      

    

     

    EXHIBIT
      VI

     

    PURCHASERS
      OF PRODUCTION 

     

    
      	
              Purchaser
                Name

            	 	
              Purchaser
                Address

            
	 	 	 
	
              Navajo
                Refining Company

            	 	
              501
                East Main

              Artesia,
                New Mexico 88210

              (505)
                748-3311

            
	 	 	 
	
              ConocoPhillips
                Company

            	 	
              600
                North Dairy Ashford

              Houston,
                Texas 77079-1175

              P.O.
                Box 2197

              Houston,
                Texas 77252-2197

              (281)
                293-1000

            
	 	 	 
	
              Shell
                U.S. Gas & Power

            	 	
              1301
                McKinney, Suite 700

              Houston,
                Texas 77010

               

            
	 	 	 
	
              Plains
                Marketing

            	 	
              333
                Clay Street, Suite 1600

              Houston,
                Texas 77002

              (713)
                646-4100

              (713
                646-4680 (fax)

            
	 	 	 
	
              Duke
                Energy Field Services, LLC

            	 	
              370
                17th
                Street, Suite 2500

              Denver,
                Colorado 80202

              (303)
                595-3331

            
	 	 	 
	
              Versado
                - Targa Resources, Inc.

            	 	
              1000
                Louisiana, Suite 4700

              Houston,
                Texas 77002

              (713)
                584-1000

              (713)
                584-1100

            

    

    

     

    

    
      
        
          
            Exhibit
              10
              1 for 8-K-Amended and Restated Credit Agreement.DOC EXHIBIT
              VI

          

           

        

        
           

          
            

          

        

        
           

          
          

        

      

    

    

    EXHIBIT
      VII

     

    

     

    AFFILIATE
      TRANSACTION 

     

    None.

     

    

      

       

    

    
      
         

      

      
        

          Exhibit
            10 1 for 8-K-Amended and Restated Credit Agreement.DOC EXHIBIT
            VIINew
      Mexico

     

    

    DEED
      OF
      TRUST, MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT AND FINANCING
      STATEMENT

     

    from

     

    UHC
      NEW
      MEXICO CORPORATION

    (Federal
      Income Tax Identification No. 02405769000)

     

    to

     

    DANIEL
      G.
      STEELE, TRUSTEE

     

    for
      the
      benefit of

     

    STERLING
      BANK

    (Federal
      Income Tax Identification No. 74-1765680)

    (Mortgagee
      and Secured Party)

     

    A
      CARBON,
      PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A
      FINANCING STATEMENT. FOR PURPOSES OF FILING THIS INSTRUMENT AS A FINANCING
      STATEMENT THE ADDRESS OF THE MORTGAGOR AND DEBTOR IS 405 N.
      MARIENFELD,
      SUITE
      200, MIDLAND, TEXAS 79701
      AND THE
      ADDRESS OF THE MORTGAGEE AND SECURED PARTY IS 2550
      NORTH LOOP WEST, SUITE 800, HOUSTON, TEXAS 77092.

     

    THIS
      IS A
“LINE OF CREDIT MORTGAGE” FOR PURPOSES OF § 48-7-4(B) NMSA 1978.

     

    THIS
      INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

     

    THIS
      INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.

     

    THIS
      INSTRUMENT COVERS PROCEEDS OF COLLATERAL.

     

    THIS
      INSTRUMENT COVERS PRODUCTS OF COLLATERAL.

     

    THIS
      INSTRUMENT COVERS MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE EXTRACTED
      FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND GAS). THIS FINANCING
      STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE
      RECORDS OF THE COUNTY RECORDERS OF THE COUNTIES LISTED ON EXHIBIT
      A
      HERETO.
      THE MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH
      INTEREST IS DESCRIBED IN EXHIBIT
      A
      ATTACHED
      HERETO.

     

    THIS
      INSTRUMENT WAS PREPARED BY AND WHEN RECORDED OR FILED SHOULD BE RETURNED
      TO:

     

    EPHRAIM
      DEL POZO

    Porter
      & Hedges, L.L.P.

    1000
      Main
      St., 36th Floor

    Houston,
      Texas 77002

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    DEED
      OF
      TRUST, MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT AND FINANCING
      STATEMENT

    

    UHC
      NEW
      MEXICO CORPORATION, a New Mexico corporation (together with its successors
      and
      assigns, hereinafter referred to as “Mortgagor”),
      for
      and in consideration of the sum of TEN DOLLARS ($10.00) to Mortgagor in hand
      paid by DANIEL G. STEELE, whose address is c/o Sterling Bank, 2550 North Loop
      West, Suite 800, Houston, Texas 77092, and his successors and substitutes in
      trust, as hereinafter provided (the “Trustee”),
      and
      Sterling Bank, a Texas state chartered banking institution (together with its
      successors and assigns, hereinafter referred to as “Mortgagee”)
      of
      Houston, Harris County, Texas, and of the agreement of the Mortgagee to extend
      credit to Mortgagor as evidenced by that certain Amended and Restated Credit
      Agreement (such agreement, as modified, amended, or supplemented hereinafter
      called the “Credit
      Agreement”)
      of even
      date herewith by and between Mortgagor, United Heritage Corporation, Lothian
      Oil
      Inc., Lothian Oil (USA) Inc., and Lothian Oil Texas I, Inc. (collectively,
      “Borrowers”)
      and
      Mortgagee and by that certain promissory note hereinafter described, and of
      the
      loans as hereinafter recited, and in order to secure the payment of the
      indebtedness hereinafter referred to and the performance of the obligations,
      covenants, agreements and undertakings of Mortgagor hereinafter described,
      does
      hereby GRANT, BARGAIN, SELL, CONVEY, MORTGAGE, PLEDGE, TRANSFER, ASSIGN and
      SET
      OVER to the Trustee for the benefit of Mortgagee with power of sale, the
      following property:

     

    (a) All
      of
      Mortgagor’s rights, titles, interests and estates whether now owned or hereafter
      acquired in and to the oil, gas, oil and gas, and/or oil, gas and other mineral
      leases which are described on attached Exhibit
      A
      hereto
      (all references herein to such Exhibit
      A
      shall
      include the introductory and explanatory comments thereto contained in the
      preamble to Exhibit
      A),
      including, without limitation, overriding royalty interests, production
      payments, net profits interests or other interests irrespective of whether
      such
      interests are cost bearing and of whatsoever nature or kind and however
      characterized, together with any and all mineral interests, royalty interests,
      fee interests or other interests derived from a landowner or landowners of
      the
      lands described on attached Exhibit
      A,
      all of
      which such rights, titles, interests and estates of Mortgagor and howsoever
      characterized being hereinafter collectively called the “Leases”;

     

    (b) All
      rights, titles, interests and estates now owned or hereafter acquired by
      Mortgagor in and to (i) the properties now or hereafter pooled or unitized
      with
      any of the Leases; (ii) all presently existing or future unitization,
      communitization, pooling agreements and declarations of pooled units and the
      units created thereby (including, without limitation, all units created under
      orders, regulations, rules or other official acts of any Federal, State or
      other
      governmental body or agency having jurisdiction and so called “working
      interest units”
      created
      under operating agreements or otherwise) which may affect all or any portion
      of
      the Leases including, without limitation, those units which may be described
      on
Exhibit
      A;
      (iii)
      all operating agreements, contracts, farm out agreements, farm in agreements,
      area of mutual interest agreements, equipment leases and other agreements which
      relate to any of the Leases or interests in the Leases described or referred
      to
      herein on Exhibit
      A
      or to
      the production, sale, purchase, exchange, processing, transporting or marketing
      of the Hydrocarbons (hereinafter defined) from or attributable to such Leases
      or
      interests; and (iv) the Leases described on Exhibit
      A
      and
      covered by this Mortgage (hereinafter defined) even though Mortgagor’s interest
      therein be incorrectly described or a description of a part or all of such
      Leases or Mortgagor’s interest therein be omitted; it being intended by
      Mortgagor and Mortgagee herein to cover and affect hereby all interests which
      Mortgagor may now own or may hereafter acquire in and to the Leases and lands
      described on Exhibit A notwithstanding that the interests as specified on
Exhibit
      A
      be
      limited to particular lands, specified depths or particular types of property
      interests;

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    (c) All
      rights, titles and interests now owned or hereafter acquired by Mortgagor in
      and
      to all oil, gas, casinghead gas, condensate, distillate, liquid hydrocarbons,
      gaseous hydrocarbons and all products refined therefrom and all other minerals
      (collectively called the “Hydrocarbons”)
      in and
      under which may be produced and saved from or attributable to the Leases, the
      lands covered thereby and Mortgagor’s interests therein, including all oil in
      tanks and all rents, issues, profits, proceeds, products, revenues and other
      income from or attributable to the Leases, the lands covered thereby, and
      Mortgagor’s interests therein which are subjected or required to be subjected to
      the liens and security interests of this Mortgage; and further including any
      and
      all liens and security interests in the Hydrocarbons and the proceeds therefrom
      securing payment of proceeds from the sale of Hydrocarbons, including but not
      limited to those liens and security interests provided for in the New Mexico
      Uniform Commercial Code;

     

    (d) All
      tenements, hereditaments, appurtenances and properties in anywise appertaining,
      belonging, affixed or incidental to the Leases, properties, rights, titles,
      interests and estates described or referred to in subparagraphs (a) and (b)
      above, which are now owned or which may hereafter be acquired by Mortgagor,
      including, without limitation, any and all property, real or personal, now
      owned
      or hereafter acquired and situated upon, used, held for use, or useful in
      connection with the operating, working or development of any of such Leases
      or
      properties (excluding drilling rigs, trucks, automotive equipment or other
      personal property which may be taken to the premises for the purpose of drilling
      a well or for other similar temporary uses) and including any and all oil wells,
      gas wells, injection wells or other wells, buildings, structures, field
      separators, liquid extraction plants, plant compressors, pumps, pumping units,
      wellhead valves, field gathering systems, pipelines, salt water disposal
      facilities, tanks and tank batteries, fixtures, valves, fittings, machinery
      and
      parts, engines, boilers, meters, apparatus, equipment, appliances, tools,
      implements, cables, wires, towers, casing, tubing and rods, power, telephone
      and
      telegraph lines, surface leases, rights-of-way, easements, servitudes, licenses
      and other surface rights together with all additions, substitutions,
      replacements, accessions and attachments to any and all of the foregoing
      properties;

     

    (e) Any
      property that may from time to time hereafter, by writing of any kind, be
      subjected to the lien and security interest hereof by Mortgagor or by anyone
      on
      Mortgagor’s behalf; and the Trustee is hereby authorized to receive the same at
      any time as additional security hereunder;

     

    (f) All
      of
      the rights, titles and interests of every nature whatsoever now owned or
      hereafter acquired by Mortgagor in and to the Leases, as the same may be
      enlarged by the discharge of any payments out of production or by the removal
      of
      any charges or Permitted Encumbrances (hereinafter defined) to which any Leases,
      properties, rights, titles, interests or estates are subject, or otherwise;
      together with any and all renewals and extensions of any of the Leases,
      properties, rights, titles, interests or estates; all contracts and agreements
      supplemental to or amendatory of or in substitution for the contracts and
      agreements described or mentioned above; and any and all additional interests
      of
      any kind hereafter acquired by Mortgagor in and to the Leases;

     

    
      
         

      

      
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    (g) All
      accounts, equipment, contract rights, inventory and general intangibles as
      such
      terms are defined in Article 9 of the Uniform Commercial Code from time to
      time
      in effect in the State of New Mexico (including without limitation, seismic
      geological and geophysical data and interpretations) constituting a part of,
      relating to, or arising out of the property and collateral described or
      mentioned in paragraphs (a) through (f) above, and all proceeds and products
      of
      the property and collateral described or mentioned in this and said preceding
      paragraphs; and

     

    (h) All
      of
      Mortgagor’s rights, now owned or hereafter acquired, in and to all lease
      records, well records and production records which relate to any of the
      foregoing property;

     

    provided,
      however
      the foregoing is made subject to the overriding royalties, unit declarations,
      operating agreements, contracts, encumbrances, agreements, exceptions,
      limitations and other matters, if any, described or referred to in Exhibit
      A
      (all of
      the properties, interests and rights, subject as aforesaid, being hereinafter
      sometimes referred to as the “Mortgaged
      Properties”).

     

    Any
      fractions or percentages specified on Exhibit
      A
      referring to Mortgagor’s interest (whether working interest, net revenue
      interest or otherwise) are contained thereon solely for the purpose of the
      warranties made by Mortgagor under Article
      II
      hereof
      and shall not limit the quantum of interest granted under Article I with respect
      to any unit or well. If any Lease or unit described on Exhibit
      A
      respecting any well mentioned hereon is incorrectly described, nevertheless
      this
      Mortgage shall cover all Mortgagor’s interest in the Leases allocable to and the
      unit for such well. If any of the lands covered by the Lease or other instrument
      mentioned on Exhibit
      A
      are
      incorrectly described, then nevertheless this Mortgage shall cover all
      Mortgagor’s interest in such Lease or other instrument as to all of the lands
      covered thereby, unless limited by express words to the contrary on Exhibit
      A.

     

    TO
      HAVE
      AND TO HOLD the Mortgaged Properties, together with all and singular the rights,
      estates, hereditaments, powers and privileges appurtenant or incident thereto,
      unto the Trustee and his successors or substitutes in this trust and to his
      or
      their successors and assigns, forever.

     

    BUT
      IN
      TRUST, NEVERTHELESS, for the benefit and security of the holders of the
      indebtedness secured hereby and upon the trusts and subject to the terms and
      provisions herein set forth.

     

    ARTICLE
      I.

     

    Secured
      Indebtedness

     

    1.1 This
      instrument (hereinafter called the “Mortgage”)
      is made
      irrevocably in trust, with power of sale to secure and enforce the payment
      of
      the following notes, obligations, indebtedness and liabilities:

     

    
      
         

      

      
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    (a) All
      amounts owing or to become owing on that certain promissory note dated of even
      date herewith in the amount of $20,000,000.00, made by Borrowers and payable
      to
      the order of Mortgagee, bearing interest at the rate therein provided and
      containing provisions for the payment of a reasonable additional amount as
      collection and attorneys’ fees, and all other notes given in substitution
      therefor or in renewal, extension or modification thereof, in whole or in part,
      such note being hereinafter called the “Note”.
      Reference is hereby made to said Note for all of their terms and
      provisions;

     

    (b) All
      Obligations (as defined in the Credit Agreement) incurred or arising pursuant
      to
      or permitted by the provisions of this Mortgage, and any other security
      instrument or the Credit Agreement or other loan agreements which Mortgagor
      has,
      either alone or with others, executed, or in the future may execute, to secure
      the Note; and

     

    (c) All
      other
      loans and future advances made by the Mortgagee to Mortgagor and all other
      debts, obligations and liabilities of every kind and character now or hereafter
      owing by Mortgagor to the Mortgagee, whether direct or indirect, primary or
      secondary, fixed or contingent, and whether originally payable to the Mortgagee
      or to a third party and subsequently acquired by the Mortgagee and including,
      without limitation, any fees, expense or costs (including attorneys’ fees)
      advanced by any Mortgagee to enforce its rights hereunder or pursuant to the
      Credit Agreement. Nothing herein shall be construed to impose any obligation
      upon Mortgagee or any Mortgagee to make any such loans or advances.

     

    1.2 The
      indebtedness referred to in clauses (a), (b), (c) and (d) of Section
      1.1
      and all
      renewals, extensions and rearrangements thereof are hereinafter sometimes
      referred to as the “Secured
      Indebtedness”.

     

    1.3 This
      Deed
      of Trust shall be applicable to Secured Indebtedness in an amount not to exceed
      Twenty-Two Million Dollars ($22,000,000.00).

     

    ARTICLE
      II.

     

    Representations,
      Warranties and Covenants

     

    2.1 Mortgagor
      represents, warrants and covenants to and with the Trustee, Mortgagee that
      Mortgagor is the lawful owner of the Mortgaged Properties and has good right
      and
      authority to grant, bargain, sell, transfer, assign and mortgage the same;
      that
      Mortgagor’s interests in the Mortgaged Property is no less than that Net Revenue
      Interest and no greater than the Working Interest set forth on Exhibit A;
      that
      all oil, gas and/or mineral lease and leasehold estates, gas purchase and sales
      contracts, pipeline easements and rights-of-way, processing contracts,
      franchises, licenses and other agreements comprising or relating to the
      Mortgaged Properties or any portion thereof are valid and subsisting and are
      in
      full force and effect; that such leases are subject to no overriding royalties
      or other burdens or charges, except as reflected herein or in the Exhibit
      annexed hereto and that all rents, royalties and other payments due and payable
      by Mortgagor under each of the Mortgaged Properties have been properly and
      timely paid and all ad valorem, property, oil and gas production, excise and
      severance taxes payable by Mortgagor have been duly paid; that the Mortgaged
      Properties are free and clear from all liens and encumbrances except the lien
      evidenced by this Mortgage and except as shown in Exhibit
      A;
      that
      all producing wells located on the Mortgaged Properties or properties unitized
      therewith have been legally drilled and are not deviated from the vertical
      more
      than the maximum permitted by applicable laws, rules and regulations, and that
      such wells are in fact bottomed under and are producing from lands described
      in
      said Exhibit
      A
      or lands
      unitized therewith; and Mortgagor does hereby bind itself, its heirs and legal
      representatives to forever warrant and defend the title to the Mortgaged
      Properties unto the said Trustee, his successors and assigns, against the claims
      of all persons whomsoever claiming or to claim the same or any part thereof.
      Any
      additional rights, title, or interest which Mortgagor may hereafter acquire
      or
      become entitled to in the properties aforesaid or in the oil, gas or other
      minerals in and under or produced therefrom shall inure to the benefit of this
      trust, the same as if expressly described and conveyed herein.

     

    
      
         

      

      
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    2.2 So
      long
      as the Secured Indebtedness or any part thereof remains unpaid, Mortgagor
      covenants and agrees with the Mortgagee as follows:

     

    (a) That
      Borrowers will make prompt payment of the Note and of all installments of
      principal and interest thereon as the same become due, and also of all other
      Secured Indebtedness.

     

    (b) That
      Mortgagor will continuously maintain Mortgagor’s existence as a corporation with
      full power to own and operate the Mortgaged Properties and, if required by
      law,
      Mortgagor’s right to do business in each State where any part of the Mortgaged
      Properties are situated, and that Mortgagor will promptly pay, if applicable,
      all income, franchise and other taxes owing by Mortgagor and any stamp,
      documentary or recording taxes which may be required to be paid with respect
      to
      this Mortgage or any other instrument evidencing or securing any of the Secured
      Indebtedness.

     

    (c) That
      Mortgagor will cause the oil and gas (or oil, gas and mineral) leases included
      in or relating to the Mortgaged Properties (herein called “Subject
      Leases”)
      to be
      maintained and operated for the production of oil or gas in a good and
      workmanlike manner and in accordance with sound field practices and all
      applicable federal, state and local laws, rules and regulations and will not
      allow any of Subject Leases to be surrendered, abandoned, or terminated or
      impaired in any manner.

     

    (d) That
      Mortgagor will cause all debts and liabilities of any character incurred in
      the
      operation, maintenance or development of the Mortgaged Properties (including,
      without limitation, all costs of the administration and development of each
      Subject Lease, and all leasehold costs attributable thereto, including, but
      not
      by way of limitation, all costs of completing, processing, storing, transporting
      and marketing oil or gas which are allocated as leasehold expenses by customary
      industry account) to be paid punctually when due other than disputes properly
      contested by Mortgagor in good faith.

     

    (e) That
      Mortgagor will cause the Mortgaged Properties and all related machinery,
      pipelines, equipment, improvements and personal property of any kind now or
      hereafter used or obtained in connection with the operation thereof to be kept
      in safe, good and effective operating condition and all necessary repairs,
      replacements, additions and improvements thereto to be made.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (f) That
      Mortgagor will observe and comply with all of the terms and provisions, express
      or implied, of the Subject Leases and assignments constituting a part of the
      Mortgaged Properties in order to keep the same in full force and effect.
      Mortgagor will also protect all oil and gas properties included in the Mortgaged
      Properties against drainage of oil, gas and hydrocarbons thereunder by reason
      of
      production on other properties.

     

    (g) That
      Mortgagor will observe and comply with all of the material terms and provisions
      of all easements, licenses, franchises, permits and contracts (both existing
      and
      future) which are part of the Mortgaged Properties or which are incident to
      the
      operation of any of the Mortgaged Properties. Without limiting the foregoing,
      Mortgagor agrees to fully comply with all material covenants and make timely
      payments of all amounts payable under gas purchase and gas processing contracts
      held by Mortgagor and also to fully perform all obligations and covenants of
      the
      seller under all gas sales contracts and all condensate, distillate and other
      products sales contracts and processing contracts held by
      Mortgagor.

     

    (h) That
      if
      the validity or priority of this Mortgage or of any right, titles, liens or
      interests created or evidenced hereby with respect to the Mortgaged Properties
      or any part thereof shall be endangered or questioned or shall be attacked
      directly or indirectly or if any legal proceedings are instituted against
      Mortgagor with respect thereto, Mortgagor will give written notice thereof
      to
      the Mortgagee promptly and, at Mortgagor’s own cost and expense, Mortgagor will
      diligently endeavor to cure any defect that may be developed or claimed, and
      will take all necessary and proper steps for the defense of such legal
      proceedings, including, but not limited to, the employment of counsel agreeable
      to the Mortgagee, the prosecution or defense of litigation and the release
      or
      discharge of all adverse claims. If Mortgagor fails or refuses to take such
      action, the Trustee and the Mortgagee, or any of them (whether or not named
      as
      parties to legal proceedings with respect thereto), are hereby authorized and
      empowered to take such additional steps as in their judgment and discretion
      may
      be necessary or proper for the defense of any such legal proceedings, including,
      but not limited to, the employment of independent counsel, the prosecution
      or
      defense of litigation, and the compromise or discharge of any adverse claims
      made with respect to the Mortgaged Properties, and all expense so incurred
      of
      every kind and character shall be a demand obligation owing by Mortgagor and
      shall bear interest at the Interest Rate (as defined in the Credit Agreement)
      from the date of expenditure until paid and shall be secured by the lien
      evidenced by this Mortgage and the party incurring such expenses shall be
      subrogated to all rights of the person receiving such payment.

     

    (i) That
      Mortgagor will not, without the prior written consent of the Mortgagee, suffer
      or permit any lien other than Permitted Encumbrances (as defined in Exhibit
      A
      hereto)
      to be hereafter claimed or created on any of the Mortgaged Properties, and
      should a lien other than Permitted Encumbrances become attached hereafter in
      any
      manner to any part of the Mortgaged Properties without the prior written consent
      of the Mortgagee, Mortgagor will cause such lien to be promptly
      discharged.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (j) That
      Mortgagor will pay all taxes and assessments of every kind and character
      charged, levied or assessed against the Mortgaged Properties, or any part
      thereof, and all franchise taxes, production, severance or other similar taxes
      or charges, before any such taxes and assessments shall become delinquent;
      but
      Mortgagor shall have the right to contest any such tax in good faith, and while
      any such contest is pending shall not be in default hereunder; and, in the
      event
      Mortgagor should fail or refuse to pay or discharge the same, the holder of
      said
      indebtedness hereunder shall have the right, but shall not be obligated, to
      pay
      off said charges against said property and shall be subrogated to the rights,
      liens and equities thereof, and the amount so paid, together with interest
      at
      the same rate as is provided in the Note for interest on past due principal
      from
      the date of payment, shall be added to said indebtedness and shall be part
      of
      the Secured Indebtedness.

     

    (k) That
      none
      of the buildings, improvements and personal property constituting portions
      of
      the Mortgaged Properties will be removed or destroyed if to do so would have
      an
      adverse effect on the condition or operation of the Mortgaged Properties or
      on
      the business or financial condition of Mortgagor.

     

    (l) That
      Mortgagor will keep accurate books and records in accordance with generally
      accepted accounting principles in which full, true and correct entries shall
      be
      promptly made as to all operations on the Mortgaged Properties, and all such
      books and records shall at all times during reasonable business hours be subject
      to inspection by the Mortgagee and its duly accredited representatives, and
      if,
      and as often as, requested by the Mortgagee, Mortgagor shall make reports of
      such income in such form as the Mortgagee prescribes setting out full data
      as to
      production and revenues from the Mortgaged Properties.

     

    (m) That
      Mortgagor will, on request of the Mortgagee, promptly correct any defect, error
      or omission which may be discovered in the contents of this Mortgage, the Note,
      or other documents executed in connection herewith or in the execution or
      acknowledgment of any thereof, and will execute and deliver any and all
      additional instruments as may be requested by the Mortgagee to correct such
      defect, error or omission or to identify any additional properties which are
      or
      become subject to this Mortgage and will execute, acknowledge and deliver such
      further assurances and instruments as shall be, in the opinion of the Mortgagee,
      necessary or proper to convey and assign to the Trustee all of the Mortgaged
      Properties herein conveyed or assigned, or intended so to be.

     

    (n) That
      Mortgagor will indemnify and hold harmless the Trustee and the Mortgagee from
      and against all claims, demands, liabilities and causes of action on account
      of
      any act performed or omitted to be performed hereunder or on account of any
      transaction arising out of or in any way connected with the Mortgaged Properties
      or with this Mortgage or any of the Secured Indebtedness, save and except for
      their gross negligence, willful misconduct or breach by Mortgagee and/or Trustee
      of the Security Documents or any document or instruments executed in connection
      with the Security Documents.

     

    
      
         

      

      
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    (o) That
      Mortgagor will proceed with reasonable diligence to correct any material defect
      in title to the Mortgaged Properties which, in the reasonable opinion of
      Mortgagee constitutes a material defect should any such defect be found to
      exist
      after the execution and delivery of this instrument; and in this connection,
      should it be found after the execution and delivery of this instrument that
      there exists upon the Mortgaged Properties any lien or encumbrance, equal or
      superior in rank to the lien created by this instrument, or should any such
      hereafter arise, Mortgagor will promptly discharge and remove any such lien
      or
      encumbrance from said property or otherwise cause such lien to rank junior
      to
      the lien created by this instrument or in a manner satisfactory to Mortgagee
      in
      its sole discretion.

     

    (p) That
      Mortgagor will keep such part of the Mortgaged Properties as is of an insurable
      nature and of a character usually insured by persons operating similar
      properties insured with companies of recognized responsibility satisfactory
      to
      the Mortgagee against loss or damage by fire and against other hazards
      customarily insured against and in such amounts as provided in the Credit
      Agreement.

     

    (q) That
      Mortgagor will promptly pay its share of all costs and expenses incurred under
      any joint operating agreement affecting the Mortgaged Properties or any portion
      thereof and will furnish the Mortgagee as and when requested full information
      as
      to the status of any joint account maintained with others under any such
      operating agreement.

     

    (r) That
      Mortgagor will permit the Mortgagee and its accredited agents, representatives
      and employees at all times upon reasonable notice to go upon, examine, inspect
      and remain on the Mortgaged Properties, and to go upon the derrick floor of
      any
      well at any time drilled or being drilled thereon, provided that such
      examination or inspection shall be at the risk and expense of the Mortgagee
      and
      its agents, representatives and employees and shall not unreasonably interfere
      with the business of Mortgagor or any operator or the operations on the
      Mortgaged Properties, and will furnish to the Mortgagee on request all pertinent
      information in regard to the development and operation of the Mortgaged
      Properties or any part thereof.

     

    (s) That
      the
      Mortgagee at all times shall have the right to release any part of the property
      now or hereafter subject to the lien hereof or any part of the proceeds of
      production or other income herein or hereafter assigned or pledged or any other
      security it now has or may hereafter have securing said indebtedness, without
      releasing any other part of said property, proceeds or income, and without
      affecting the lien hereof as to the part or parts thereof not so released,
      or
      the right to receive future proceeds and income.

     

    (t) That,
      promptly upon receipt of any written request from the Mortgagee, Mortgagor
      will
      furnish and deliver, pursuant to such request, all title materials in the
      possession of Mortgagor or to which Mortgagor has access, including all title
      opinions and abstracts of title prepared by competent abstractors and covering
      title to the real property hereby mortgaged. Should Mortgagor fail to furnish
      such title opinions and abstracts within 10 days of such request, the Mortgagee
      may proceed to obtain such title materials, and any and all costs so incurred
      shall be added to and included in the indebtedness secured hereby and shall
      be
      payable by Mortgagor upon demand, the obligation for such payment being secured
      by all liens and remedies granted in this Mortgage. Any abstracts furnished
      by
      Mortgagor or so acquired by the Mortgagee shall be and constitute a part of
      the
      Mortgaged Properties, as above defined.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (u) That
      Mortgagor will, if requested by the Mortgagee, furnish the Mortgagee any
      information or data possessed by Mortgagor with respect to the Mortgaged
      Properties, and in the case of oil and gas leases full information, including
      independent engineering reports and seismic data and interpretation, shall
      be
      furnished with regard to the wells drilled or reworked or drilling or reworking
      operations being conducted thereon, including, without limitation, electrical
      logs, core analyses and well pressure reports; provided, that Mortgagor shall
      not be obligated to disclose information subject to a valid and binding
      confidentiality agreement with a third party without first obtaining the consent
      of such third party, and Mortgagor, to the extent requested by the Mortgagee,
      will use its reasonable efforts to obtain such consent.

     

    (v) That
      Mortgagor shall make available to the Mortgagee, or its engineers, attorneys
      or
      representatives, at any time requested, its complete files and contracts on
      the
      properties included in this instrument and the wells, pipelines and other
      property located thereon, or regarding the operations of (or the production
      from) the Mortgaged Properties, and in the event the Mortgagee or the Trustee
      should take possession of the Mortgaged Properties under this Mortgage, the
      Mortgagee shall be entitled to possession of all such files and contracts
      including seismic data and interpretation. Should this Mortgage be foreclosed
      (howsoever such foreclosure may be effected), the purchaser at the foreclosure
      sale shall be entitled to all such files.

     

    (w) That
      Mortgagor will not enter into any new operating agreement or any material
      amendment of any existing operating agreement affecting the Mortgaged Properties
      without the prior written consent of the Mortgagee which consent shall not
      be
      unreasonably withheld, delayed or conditioned, which consent may be withheld,
      including, without limitation, if any such new Operating Agreement or amendment
      would reduce Mortgagor’s net revenue interest.

     

    (x) That
      Mortgagor will, promptly upon demand by the Mortgagee, pay all reasonable costs
      and expenses heretofore or hereafter actually incurred and paid to unaffiliated
      third parties by the Mortgagee for legal, engineering or geological services
      rendered to it in connection with the making of the initial or any future loan
      to Mortgagor secured in whole or in part by the lien hereof and/or in the
      enforcement of any of its rights hereunder as provided for in the Credit
      Agreement.

     

    (y) That
      Mortgagor will continuously maintain in good condition and operate, or cause
      to
      be maintained and operated, in a good and workmanlike manner any pipelines
      and
      pipeline systems included in the Mortgaged Properties in accordance with the
      valid rules and regulations of duly constituted authorities.

     

    
      
         

      

      
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    2.3 Mortgagor
      agrees to take all such reasonable action and to exercise all rights and
      remedies as are reasonably available to Mortgagor to cause the owner or owners
      of the working interest in the Mortgaged Properties to comply with the covenants
      and agreements contained herein. With respect to those Leases which are being
      operated by operators other than Mortgagor, Mortgagor shall not be obligated
      itself to perform any undertakings contemplated by the covenants and agreements
      contained herein which are performable only by such operators and are beyond
      the
      control of Mortgagor; however, Mortgagor agrees to promptly take all reasonable
      actions available to Mortgagor under any operating agreement or otherwise to
      bring about the performance of any such undertakings required to be performed
      by
      such operators.

     

    2.4 Mortgagor
      agrees that, if Mortgagor fails to perform any act or to take any action which
      hereunder Mortgagor is required to perform or take or to pay any money which
      hereunder Mortgagor is required to pay, the Mortgagee, in Mortgagor’s name or
      its own name, may (but shall not be obligated to) perform or cause to be
      performed such act or take such action or pay such money, and any expenses
      so
      incurred by the Mortgagee and any money so paid by the Mortgagee shall be a
      part
      of the Obligations under the Credit Agreement owing by Mortgagor and shall
      bear
      interest from the date of making such payment until paid at the Interest Rate
      (as defined in the Credit Agreement) and shall be a part of the Secured
      Indebtedness and shall be secured by the lien evidenced by this Mortgage and
      by
      any other instrument securing the Secured Indebtedness, and the Mortgagee,
      upon
      making such payment, shall be subrogated to all of the rights of the person,
      corporation or body politic receiving such payment.

     

    ARTICLE
      III.

     

    Assignment
      of Production, Accounts,

    Contract
      Rights and Proceeds

     

    3.1 To
      facilitate the discharge of all such indebtedness and as cumulative of any
      and
      all rights and remedies herein provided for, Mortgagor hereby BARGAINS, SELLS,
      TRANSFERS, ASSIGNS, SETS OVER and DELIVERS to the Mortgagee all of the following
      which shall be applied by Mortgagee as provided herein and in the Credit
      Agreement:

     

    (a) All
      oil,
      gas, casinghead gas, distillate and other minerals, and the proceeds therefrom,
      produced and to be produced from the interests of Mortgagor in the oil, gas
      and
      mineral leases, properties, processing plants and interests now or hereafter
      constituting a part of the Mortgaged Properties from and after the Effective
      Date (as hereinafter defined), and Mortgagor hereby authorizes and empowers
      said
      Mortgagee to demand, collect and receive said oil, gas, casinghead gas,
      distillate and other minerals, and the proceeds therefrom, produced and to
      be
      produced from the interests of Mortgagor in said Mortgaged Properties, and
      to
      execute any release, receipt, division order, transfer order and relinquishment
      or other instrument that may be required or necessary to collect and receive
      such production or the proceeds therefrom and Mortgagor hereby authorizes and
      directs all pipeline companies, gathering companies and others purchasing oil,
      gas or other mineral production from said properties or having in their
      possession any production from said properties or the proceeds therefrom, to
      pay
      and deliver to the Mortgagee all such production or proceeds therefrom accruing.
      Mortgagor agrees that all division orders, transfer orders, receipts and other
      instruments which the Mortgagee may from time to time execute and deliver for
      the purpose of collecting or receipting for such production or the proceeds
      therefrom may be relied upon in all respects, and that the same shall be binding
      upon Mortgagor. Mortgagor agrees to execute and deliver all necessary and
      appropriate instruments, including transfer and division orders, which may
      be
      required by the Mortgagee in connection with the receipt by the Mortgagee of
      such production or the proceeds therefrom and to indemnify and keep and hold
      the
      Mortgagee free and harmless from all parties whomsoever having or claiming
      an
      adverse interest in said leases, properties and interests and the production
      and
      proceeds therefrom, and in this respect agrees to pay all expenses, costs,
      charges and reasonable attorneys’ fees that may be incurred by the Mortgagee as
      to any of said matters.

     

    
      
         

      

      
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    (b) All
      amounts or proceeds hereafter payable to or to become payable to Mortgagor
      or to
      which Mortgagor is entitled under all gas sales contracts, all oil, distillate
      or condensate sales contracts, all gas transportation contracts, and all gas
      processing contracts relating to or now or hereafter to become a part of the
      Mortgaged Properties.

     

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

     

    Mortgagor
      hereby authorizes and directs that all such pipeline companies, purchasers,
      transporters and other parties owing monies to Mortgagor under contracts herein
      assigned, pay such amounts directly to the Mortgagee and such authorization
      shall continue until this Mortgage is released. The Mortgagee is authorized
      to
      collect, receive and receipt for all such amounts and no party making payment
      shall have any responsibility to see to the application of any funds paid to
      the
      Mortgagee, but shall be fully protected in making such payment to the Mortgagee
      under the assignments herein contained. Should the Mortgagee bring suit against
      any third party for collection of any amounts or sums included within this
      assignment (and the Mortgagee shall have the right to bring any such suit)
      it
      may sue either in its own name or in the name of Mortgagor.

     

    The
      offices where the records of Mortgagor with respect to the accounts and
      contracts rights concerning the Mortgaged Properties are kept is located at
      the
      address shown opposite the signature of Mortgagor to this Mortgage and/or 303
      West Main Street, Artesia, New Mexico, 88210-2133 and Mortgagor agrees that
      the
      place at which such records are kept will not be changed without the prior
      written notice to of the Mortgagee.

     

    3.2 Independent
      of the foregoing provisions and authorities herein granted, Mortgagor agrees
      to
      execute and deliver any and all transfer orders, payment orders, division orders
      and other instruments that may be reasonably requested by the Mortgagee or
      that
      may be required by any purchaser of the production from any of the Mortgaged
      Properties for the purpose of effectuating payment to the Mortgagee of the
      proceeds of Hydrocarbon sales to the Mortgagee. If under any existing sales
      agreements, other than division orders or transfer orders, any proceeds of
      Hydrocarbon sales are required to be paid by the purchaser to Mortgagor so
      that
      under such existing agreement payment of such proceeds of Hydrocarbon sales
      cannot be made to the Mortgagee, Mortgagor’s interest in all proceeds of
      Hydrocarbon sales under such sales agreements and in all other proceeds of
      Hydrocarbon sales which for any reason may be paid to Mortgagor shall, when
      received by Mortgagor, constitute trust funds in Mortgagor’s hands and shall be
      immediately paid over to the Mortgagee.

     

    
      
         

      

      
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    3.3 Mortgagor
      authorizes and empowers the Mortgagee to receive, hold and collect all sums
      of
      money paid to the Mortgagee in accordance with this assignment and to apply
      the
      same as is hereinafter provided, all without any liability or responsibility
      on
      the part of the Mortgagee, save as to good faith in so receiving and applying
      said sums. All payments provided for in this assignment shall be paid promptly
      to the Mortgagee, and applied pursuant to the terms of the Credit Agreement.
      It
      is understood and agreed that should said payments provided for by this
      assignment be less than the sum or sums then due on said indebtedness, such
      sum
      or sums then due shall nevertheless be payable by Mortgagor in accordance with
      the provisions of the note or notes or other instrument or instruments
      evidencing said indebtedness and neither this assignment nor any provision
      herein contained shall in any manner be construed to affect the terms and
      provisions of said note or notes or other instrument or instruments. Likewise,
      neither this assignment nor any provision herein contained shall in any manner
      be construed to affect the lien, rights and remedies herein granted securing
      said indebtedness, nor Mortgagor’s liability therefor. The rights under this
      assignment are cumulative of the other rights, remedies and powers granted
      under
      this Mortgage and are cumulative of any other security which the Mortgagee
      now
      holds or may hereafter hold to secure the payment of said
      indebtedness.

     

    3.4 If
      a
      default has occurred and is continuing, should any person now or hereafter
      purchasing or taking oil, gas, other hydrocarbons or other minerals attributed
      to the Mortgaged Properties fail to make payment promptly to the Mortgagee
      of
      the hereby assigned proceeds of Hydrocarbon sales, the Mortgagee shall have
      the
      right to make, or to require Mortgagor to make, a change of connection and
      the
      right to designate or approve the purchaser with whose facilities a new
      connection shall be made, without liability or responsibility in connection
      therewith, so long as ordinary care is used in making such designation, and
      Mortgagor agrees to pay to the Mortgagee the amount of any proceeds of
      Hydrocarbon sales not promptly paid to the Mortgagee by any person having
      responsibility for payment thereof; provided,
      however, Mortgagee shall only require the change of purchaser if such change
      would not cause a breach of Mortgagor’s obligation to an existing purchaser
      under an existing contract as of the date hereof.

     

    3.5 Mortgagee
      is hereby absolved from all liability for failure to enforce collection of
      the
      proceeds of hydrocarbon sales and from all other responsibility in connection
      therewith, except the responsibility to account to Mortgagor for funds actually
      received. Mortgagor agrees to indemnify and hold harmless the Mortgagee and
      the
      Trustee against any and all liabilities, actions, claims, judgments, costs,
      charges and attorneys’ fees by reason of the assertion that Trustee, or
      Mortgagee received with respect to the Mortgaged Properties or for Mortgagor’s
      account either before or after payment in full of the Secured Indebtedness
      funds
      from the production of oil, gas, other hydrocarbons or other minerals claimed
      by
      third persons, and if Mortgagor fails to do so, the Mortgagee and the Trustee
      shall each have the right to defend against any such claims or actions,
      employing attorneys of their own selection, and if not furnished with indemnity
      satisfactory to them, they shall have the right to compromise and adjust any
      such claims, actions and judgments, and in addition to the rights to be
      indemnified as herein provided, all amounts paid by the Mortgagee or the Trustee
      in compromise, satisfaction or discharge of any such claim, action or judgment,
      and all court costs, attorneys’ fees and other expenses of every character
      incurred by the Trustee, or the Mortgagee pursuant to the provisions of this
      section shall be part of the Obligations under the Credit Agreement owing by
      Mortgagor, shall bear interest from date of expenditure until paid at the
      Interest Rate (as defined in the Credit Agreement), and shall be a part of
      the
      Secured Indebtedness. Notwithstanding the foregoing, nothing contained herein
      shall be deemed to require Mortgagor to indemnify Mortgagee for its willful
      misconduct or gross negligence or breach by Mortgagee of the provisions of
      the
      Security Documents or any documents or instruments executed in connection with
      the Security Documents.

     

    
      
         

      

      
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    3.6 Nothing
      herein contained shall detract from or limit the absolute obligation of
      Mortgagor to make prompt payment of the Note, of all amounts owing thereon,
      and
      of all amounts owing hereunder at the time and in the manner provided in the
      Note, the Credit Agreement or provided herein, regardless of whether the
      proceeds herein assigned are sufficient to pay the same, and the rights under
      this assignment shall be cumulative of all other security of any and every
      character now or hereafter existing to secure the payment of the Note and all
      other Secured Indebtedness.

     

    ARTICLE
      IV.

     

    Waiver
      and Partial Release

     

    4.1 The
      Mortgagee may at any time and from time to time in writing:

     

    (a) Waive
      compliance by Mortgagor with any covenant herein made by Mortgagor to the extent
      and in the manner specified in such writing; or

     

    (b) Consent
      to Mortgagor’s doing any act which hereunder Mortgagor is prohibited from doing,
      or to Mortgagor’s failing to do any act which hereunder Mortgagor is required to
      do, to the extent and in the manner specified in writing; or

     

    (c) Release
      any part of the Mortgaged Properties, or any interest therein, or any proceeds
      of Hydrocarbon sales from the lien of this Mortgage, without the joinder of
      the
      Trustee.

     

    No
      such
      act by Mortgagee shall in any way impair the rights of the Mortgagee hereunder
      except to the extent specifically agreed to by the Mortgagee in such
      writing.

     

    4.2 The
      lien
      and other security rights of the Mortgagee hereunder shall not be impaired
      by
      any indulgence, including but not limited to:

     

    (a) Any
      forbearance, renewal, extension or modification (whether one or more) which
      the
      Mortgagee may grant with respect to any Secured Indebtedness; or

     

    (b) Any
      surrender, compromise, release, renewal, extension, exchange or substitution
      which the Mortgagee may grant in respect of any item of the Mortgaged Properties
      or any part thereof or any interest therein, or any of the proceeds of
      Hydrocarbon sales; or

     

    
      
         

      

      
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    (c) Any
      release or indulgence granted to any endorser, guarantor or surety of any
      Secured Indebtedness.

     

    ARTICLE
      V.

     

    Possession
      Until Default; Defeasance

     

    5.1 Unless
      a
      default specified in Section
      6.1
      hereof
      shall occur and be continuing, Mortgagor shall retain full right to the
      Mortgaged Properties (except the proceeds of Hydrocarbon sales assigned under
      Section
      3.1
      hereof),
      subject, however, to all of the terms and provisions of this
      Mortgage.

     

    5.2 If
      all of
      the Secured Indebtedness be paid as the same become due and payable and if
      the
      covenants, warranties, undertakings and agreements made in this Mortgage are
      kept and performed, then and in that event only all rights under this Mortgage
      shall terminate and the properties hereby conveyed shall become wholly clear
      of
      the liens, conveyances and assignments evidenced hereby, and such liens shall
      be
      released by the Mortgagee in due form at Mortgagor’s cost.

     

    ARTICLE
      VI.

     

    Remedies
      in Event of Default

     

    6.1 The
      term
“default” as used in this Mortgage shall mean the occurrence of any of the
      following events:

     

    (a) The
      occurrence of an Event of Default under the Credit Agreement; or

     

    (b) The
      failure of Mortgagor to pay over to the Mortgagee any proceeds of the sale
      of
      the oil, gas, other hydrocarbons and other minerals produced, saved, or sold
      from or allocated to the Mortgaged Properties which are paid to Mortgagor rather
      than the Mortgagee as provided in Section
      3.2
      hereof
      within ten (10) days after receipt by Mortgagor.

     

    6.2 To
      the
      extent the properties comprising the Mortgaged Properties are located in
NEW
      MEXICO,
      the
      provisions of this Section
      6.2
      shall
      specify the effects of a default, the remedies available to Mortgagee following
      a default under this Mortgage, and any limitations on the exercise of such
      remedies:

     

    (a) Upon
      the
      occurrence and during the continuance of a default, Mortgagee may do, or may
      direct Trustee to do, at its option and to the extent permitted by applicable
      law, any one or more of the following:

     

    (i) If
      Mortgagor has failed to keep or perform any covenant whatsoever contained in
      this instrument or the other Security Documents, Mortgagee may, but shall not
      be
      obligated to any person to do so, perform or attempt to perform such covenant.
      Any payment made or expense incurred in the performance or attempted performance
      of any such covenant shall be a part of the Obligations, and Mortgagor promises,
      upon demand, to pay to Mortgagee, at the place where the Note is payable, or
      at
      such other place as Mortgagee may direct by written notice, all sums so advanced
      or paid by Mortgagee, with interest at the Interest Rate from the date when
      paid
      or incurred by Mortgagee; provided
      that,
      should applicable law provide for a maximum permissible rate of interest on
      such
      amounts, such rate shall not be greater than such maximum permissible rate.
      No
      such payment by Mortgagee shall constitute a waiver of any default. In addition
      to the liens hereof, Mortgagee shall be subrogated to all rights and liens
      securing the payment of any debt, claim, tax or assessment for the payment of
      which Mortgagee may make an advance, or which Mortgagee may pay.

     

    
      
         

      

      
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    (ii) The
      Mortgagee may take possession of the Mortgaged Properties or any part thereof
      (the Mortgagor agreeing to give immediate peaceable possession) and collect
      and
      maintain, operate or control the same to the full extent of the Mortgagor’s
      rights to collect or maintain, operate or control the same, and may apply all
      or
      any part of the income and proceeds to the payment of any development, operation
      or maintenance expense incident thereto in any order of application as the
      Mortgagee may elect; provided
      that in
      the event of any dispute or question whatsoever concerning such income and
      proceeds or the application thereof, the Mortgagee may hold the same in a
      special account until such dispute or question is finally settled to the
      Mortgagee’s satisfaction. Should the Mortgagee elect to collect such income and
      proceeds, this indenture shall constitute full and complete authority to any
      purchaser of oil, gas, casinghead gas or other hydrocarbons from the Mortgaged
      Properties or allocated thereto, or any part thereof, to deliver directly to
      the
      Mortgagee all proceeds from the sale of such products, and notice hereof without
      the requirement of anything more shall constitute an unqualified order on such
      purchaser to make such delivery. Every such purchaser is hereby authorized
      and
      directed to accept as sufficient the Mortgagee’s written statement to the effect
      that a default has occurred hereunder and that it is entitled to such proceeds;
      and every such purchaser is hereby relieved from all responsibility with respect
      to the delivery of said proceeds or the Mortgagee’s application
      thereof.

     

    (iii) Mortgagee
      may, without notice, demand, presentment, notice of intent to accelerate or
      protest, or notice of protest, all of which are hereby expressly waived by
      Mortgagor and all other parties obligated in any manner whatsoever on the
      Obligations, declare the entire unpaid balance of the Obligations immediately
      due and payable, and upon such declaration, the entire unpaid balance of the
      Obligations shall be immediately due and payable, and the liens hereof shall
      then be subject to foreclosure in accordance with applicable law.

     

    (iv) Mortgagee
      may request Trustee to proceed with foreclosure, and in such event Trustee
      is
      hereby authorized and empowered, and it shall be his special duty, upon such
      request of Mortgagee, and to the extent permitted by applicable law to sell
      all
      or any part of the Mortgaged Properties at one or more sales, as an entirety
      or
      in parcels as Mortgagee may determine whether or not such portions or parcels
      are contiguous, with or without having first taken possession of same, at such
      place or places and otherwise in such manner and upon such notice as may be
      required by applicable law, and to make conveyance to the purchaser or
      purchasers thereof. The parties hereto are cognizant of and acknowledge the
      rights and duties, granted and imposed, under the New Mexico Deed of Trust
      Act.
      N. M. Stat.
      Ann.
      § 48-10-1 et
      seq.
      It is
      the intent of the parties that the provisions herein relating to the power
      of
      sale granted herein are to be subject to the provisions of the New Mexico Deed
      of Trust Act. Additionally, it is the intent of the parties that the power
      of
      sale granted herein may be exercised by Mortgagee pursuant to the terms and
      provisions of the New Mexico Deed of Trust Act.

     

    
      
         

      

      
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    Any
      such
      sale shall be made at public auction to the highest bidder or bidders for cash
      (except that the Mortgagee may make a credit bid), at the courthouse of the
      county wherein the Mortgaged Properties are situated; provided
      that, if
      the Mortgaged Properties are situated in more than one county, such sale of
      the
      Mortgaged Properties, or part thereof, may be made in any county wherein any
      part of the Mortgaged Properties are situated. If the Mortgaged Properties
      to be
      sold is situated in New Mexico, any such sale shall be made at public auction,
      at the time provided by law for the foreclosure sale of real estate under real
      estate mortgages, after having given notice, legally describing the Mortgaged
      Properties to be sold, of the time and place of such sale by (i) publication
      of
      such notice as provided by law for foreclosure of mortgages on real estate,
      to
      wit, in the English language in some newspaper of general circulation published
      in the county where the Mortgaged Properties are to be sold once each week
      for
      four (4) consecutive weeks, the last insertion being at least three (3) days
      before the date of such sale, or, in case there be no newspaper published in
      the
      county where such publication is required, then publication shall be made by
      posting notice in at least six conspicuous places within the county for and
      during the period of time specified in the case of newspaper publications,
      (ii)
      posting, or causing to be posted, written or printed notice at least twenty
      (20)
      days before the date of sale in some conspicuous place on the Mortgaged
      Properties to be sold, if such can be accomplished without a breach of peace,
      and at one of the places provided for posting public notices at the courthouse
      of the county in which the Mortgaged Properties are to be sold,
      (iii) recording of the notice in the office of the clerk of each county in
      which the Mortgaged Properties are situated, and (iv) giving notice as provided
      in N. M. Stat.
      Ann.
§
      48-10-12 (1978).

     

    Holder
      may, at its option, accomplish all or any of the aforesaid in such manner as
      permitted or required by the New Mexico Deed of Trust Act (N. M. Stat.
      Ann.
      § 48-10-1 et
      seq.)
      relating to the sale of real estate or by Chapter 55 of the New Mexico Statutes
      Annotated 1978 relating to the sale of collateral after default by a debtor
      (as
      said sections and chapter now exist or may be hereinafter amended or succeeded),
      or by any other present or subsequent articles or enactments relating to same.
      Nothing contained in this subsection 6.2
      shall be
      construed to limit in any way the Trustee’s rights to sell the Mortgaged
      Properties by private sale if, and to the extent that, such private sale is
      permitted under the laws of the State of New Mexico or by public or private
      sale
      after entry of a judgment by any court of competent jurisdiction ordering same.
      If the applicable law in force as of the Effective Date, as hereinafter defined,
      should hereafter be amended to require a different notice of sale applicable
      to
      sales of property of the nature of the Mortgaged Properties under powers of
      sale
      conferred by this instrument, Trustee may in his sole discretion, to the extent
      permitted by applicable law, give either the notice of sale required by
      applicable law in effect on the Effective Date or the notice of sale prescribed
      by the amended Law; and nothing herein shall be deemed to require Mortgagee
      or
      Trustee to do, and Mortgagee and Trustee shall not be required to do, any act
      other than as required by applicable law in effect at the time of any such
      sale.

     

    
      
         

      

      
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    At
      any
      sale pursuant to this subsection
      6.2(a)(iv),
      (i)
      each and every recital contained in any instrument of conveyance made by Trustee
      shall conclusively establish the truth and accuracy of the matters recited
      therein including, without limitation, nonpayment of the Obligations,
      advertisement and conduct of such sale in the manner provided herein and
      otherwise by law and appointment of any successor Trustee hereunder; (ii) any
      and all prerequisites to the validity thereof shall be conclusively presumed
      to
      have been performed; (iii) the receipt of Trustee or of such other party or
      officer making the sale shall be sufficient to discharge to the purchaser or
      purchasers for his or their purchase money, and no such purchaser or purchasers,
      or his or their assigns or personal representatives, shall thereafter be
      obligated to see to the application of such purchase money or be in any way
      answerable for any loss, misapplication, or non-application thereof; (iv) to
      the
      fullest extent permitted by applicable law, Mortgagor shall be completely and
      irrevocably divested of all of its right, title, interest, claim, and demand
      whatsoever, either at law or in equity, in and to the property sold, and such
      sale shall be a perpetual bar both at law and in equity against Mortgagor and
      against all other persons claiming or to claim the property sold or any part
      thereof by, through or under Mortgagor; and (v) to the extent and under such
      circumstances as are permitted by applicable law, Mortgagee may be a purchaser
      at any such sale and may credit the bid against the Obligations. After such
      sale, Trustee shall make to the purchaser or purchasers thereunder good and
      sufficient deeds, assignments, or bills of sale in the name of Mortgagor,
      conveying or transferring the Mortgaged Properties, or any part thereof, so
      sold
      to the purchaser or purchasers containing such warranties of title as are
      customarily given, which warranties shall be binding upon Mortgagor. Sale of
      a
      part of the Mortgaged Properties shall not exhaust the power of sale, but sales
      may be made from time to time until the Obligations is paid and performed in
      full. It shall not be necessary to have present or to exhibit at any such sale
      any of the Personal Property.

     

    In
      addition to the rights and other powers of sale granted under the preceding
      provisions of this subsection
      6.2(a)(iv),
      if
      default is made in the payment of any installment of the Obligations, Mortgagee
      may, at its option, at once or at any time thereafter while any matured
      installment remains unpaid, without declaring the entire Obligations to be
      due
      and payable, orally or in writing direct Trustee to enforce the trust created
      by
      this instrument and sell the Mortgaged Properties subject to such matured
      Obligations and the liens securing its payment, in the same manner, on the
      same
      terms, at the same place and time and after having given notice in the same
      manner, all as provided in the preceding provisions of this subsection
      6.2(a)(iv).
      After
      such sale, Trustee shall make due conveyance to the purchaser or purchasers.
      Sales made without maturing the Obligations may be made hereunder whenever
      there
      is a default in the payment of any installment of the Obligations without
      exhausting the power of sale granted hereby and without affecting in any way
      the
      power of sale granted under this subsection
      6.2(a)(iv),
      the
      unmatured balance of the Obligations (except as to any proceeds of any sale
      which Mortgagee may apply as prepayment of the Obligations), or the liens
      securing payment of the Obligations. The sale or sales by Trustee of less than
      the whole of the Mortgaged Properties shall not exhaust the power of sale herein
      granted, and Trustee is specifically empowered to make successive sale or sales
      under such power until the whole of the Mortgaged Properties shall be
      sold.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    It
      is
      intended by each of the foregoing provisions of this subsection
      6.2(a)(iv)
      that
      Trustee may, after any request or direction by Mortgagee, sell any items
      constituting a part of the Mortgaged Properties, either all as a unit and as
      a
      part of a single sale, or may sell any part of the Mortgaged Properties
      separately from the remainder of the Mortgaged Properties. If the proceeds
      of
      such sale or sales of less than the whole of such Mortgaged Properties shall
      be
      less than the aggregate of the Obligations and the expense of enforcing the
      trust created by this instrument, the liens of this instrument shall remain
      in
      full force and effect as to the unsold portion of the Mortgaged Properties
      just
      as though no sale or sales of less than the whole of the Mortgaged Properties
      had occurred, but Mortgagee shall have the right, at its sole election, to
      request Trustee to sell less than the whole of the Mortgaged
      Properties.

    

    In
      the
      event any questions should be raised as to the regularity or validity of any
      sale hereunder, Trustee shall have the right and is hereby authorized to make
      resale of said property so as to remove any questions or doubt as to the
      regularity or validity of the previous sale, and as many resales may be made
      as
      may be appropriate. It is agreed that, in any deed or deeds given by Trustee,
      any and all statements of fact or other recitals therein made as to the identity
      of Mortgagee, or as to the occurrence or existence of any default, or as to
      the
      request to sell, notice of sale, time, place, terms, and manner of sale, and
      receipt, distribution, and application of the money realized therefrom, or
      as to
      the due and proper appointment of a substitute trustee, and, without being
      limited by the foregoing, as to any other act or thing having been duly done
      by
      Mortgagee or by Trustee, shall be taken by all courts of competent jurisdiction
      as prima facie evidence that the said statements or recitals are true and
      correct and are without further question to be so accepted, and Mortgagor does
      hereby ratify and confirm any and all acts that Trustee may lawfully do in
      the
      premises by virtue hereof.

     

    In
      the
      event of the resignation or death of Trustee, or his failure, refusal or
      inability, for any reason, to make any such sale or to perform any of the trusts
      herein declared, or, at the option of Mortgagee, without cause, Mortgagee may
      appoint, in writing, a substitute trustee, who shall thereupon succeed to all
      the estates, titles, rights, powers, and trusts herein granted to and vested
      in
      Trustee. Such substitution shall be made by recording notice of the
      substitution, acknowledged by Mortgagee, in the office of the county clerk
      of
      each county in which all or any part to the Mortgaged Properties are situated
      at
      the time of the substitution. Additionally, Mortgagee shall give written notice
      to Mortgagor, Trustee, and the substitute trustee. If Mortgagee is a banking
      association or a corporation, such appointment may be made on behalf of such
      Mortgagee by any person who is then the president, or any vice-president, or
      the
      cashier or secretary, or any other authorized officer or agent of Mortgagee.
      In
      the event of the resignation or death of any such substitute trustee, or his
      failure, refusal, or inability to make such sale or perform such trusts, or,
      at
      the option of Mortgagee, without cause, Mortgagee may appoint successive
      substitute trustees from time to time in the same manner. Wherever herein the
      word “Trustee” is used, the same shall mean the person who is the duly appointed
      trustee or substitute trustee hereunder at the time in question.

     

    
      
         

      

      
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    (v) Mortgagee
      may, or Trustee may upon written request of Mortgagee, in lieu of or in addition
      to exercising the power of sale provided for in subsection
      6.2(a)(iv)
      hereof,
      proceed by suit or suits, at law or in equity, to enforce the payment and
      performance of the Obligations in accordance with the terms hereof, of the
      Note
      and of the Security Documents evidencing it, to foreclose the Liens and this
      instrument as against all or any part of the Mortgaged Properties, and to have
      all or any part of the Mortgaged Properties sold under the judgment or decree
      of
      a court of competent jurisdiction.

     

    (vi) To
      the
      extent permitted by applicable law, Mortgagee, as a matter of right and without
      regard to the sufficiency of the Mortgaged Properties, and without any showing
      of insolvency, fraud, or mismanagement on the part of Mortgagor, and without
      the
      necessity of filing any judicial or other proceeding other than the proceeding
      for appointment of a receiver, shall be entitled to the appointment of a
      receiver or receivers of the Mortgaged Properties, or any part thereof, and
      of
      the income, royalties, revenues, bonuses, production payments, delay rentals,
      benefits, rents, issues, and profits thereof. Mortgagor hereby consents to
      the
      appointment of such receiver or receivers, agrees not to oppose any application
      therefor by Trustee or Mortgagee and agrees that such appointment shall in
      no
      manner affect the rights of Mortgagee under Article
      III
      hereof.

     

    (vii) Entry
      Upon Mortgaged Properties; Personal Property.

     

    (A) Mortgagee
      may (without notification, if permitted by applicable law) enter upon the
      Mortgaged Properties, take possession of the Mortgaged Properties, and remove
      the Collateral, as hereinafter defined, or any part thereof, with or without
      judicial process, and, in connection therewith, without any responsibility
      or
      liability on the part of Mortgagee, take possession of any Collateral located
      on
      or in the Mortgaged Properties which is not a part of the Mortgaged Properties,
      and hold or store such property at Mortgagor’s expense. If necessary to obtain
      the possession provided for in this subsection
      6.2(a)(vii),
      Mortgagee or Trustee may undertake any and all remedies to dispossess Mortgagor,
      including specifically one or more actions for forcible entry and detainer
      and
      restitution.

     

    
      
         

      

      
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    (B) Mortgagee
      may require Mortgagor to assemble the Collateral and any other items of the
      Mortgaged Properties, or any part thereof, and make it available to Mortgagee
      at
      a place to be designated by Mortgagee which is reasonably convenient to
      Mortgagor and Mortgagee.

     

    (C) Mortgagee
      may retain the Collateral and any other items of the Mortgaged Properties,
      or
      any part thereof, in satisfaction of the Obligations whenever the circumstances
      are such that Mortgagee is entitled to do so under the New Mexico
      UCC.

     

    (D) Mortgagee
      may buy any items of the Mortgaged Properties, or any part thereof, at any
      private disposition if the Mortgaged Properties, or the part thereof, being
      disposed of, is a type customarily sold in a recognized market or a type which
      is the subject of widely distributed standard price quotations.

     

    (b) Mortgagee
      as Purchaser of Mortgaged Properties.
      If
      Mortgagee is the purchaser of the Mortgaged Properties, or any part thereof,
      at
      any sale thereof, whether such sale be under the power of sale hereinabove
      vested in Trustee, or upon any other foreclosure of the liens hereof, or
      otherwise, Mortgagee shall, upon any such purchase, acquire good and marketable
      title to the Mortgaged Properties so purchased, free of the liens of these
      presents.

     

    (c) Possession
      by Purchaser of Mortgaged Properties.
      In case
      the liens hereof shall be foreclosed by Trustee’s sale, or by other judicial or
      non-judicial action, the purchaser at any such sale shall receive, as an
      incident to such purchaser’s ownership, immediate possession of the Mortgaged
      Properties, or any part thereof sold to such purchaser, and, subsequent to
      foreclosure, Mortgagor shall be divested of any and all interest and claim
      thereto, including any interest or claim to all insurance policies, bonds,
      loan
      commitments, contracts, and other intangible property covered by this
      instrument, Mortgagor shall be considered a tenant at sufferance of the
      purchaser at the foreclosure sale, and any person occupying the Mortgaged
      Properties, or portion thereof so sold, after demand has been made for
      possession thereof, shall be guilty of forcible detainer and shall be subject
      to
      eviction and removal, forcible or otherwise, with or without process of law,
      and
      all damages by reason thereof are hereby expressly waived. This remedy is
      cumulative of any and all remedies the purchaser may have hereunder or
      otherwise.

     

    (d) Partial
      Release; Other Security.
      Any
      part of the Mortgaged Properties may be released by Mortgagee without affecting,
      subordinating, or releasing the lien, security interest, and assignment hereof
      against the remainder of the Mortgaged Properties. The lien, security interest,
      and other rights granted hereby shall not affect or be affected by any other
      security taken for the Obligations or any part thereof. The taking of additional
      security or the rearrangement, extension, or renewal of the Obligations, or
      any
      part thereof, shall not release or impair the lien, security interest, and
      other
      rights granted hereby or affect the liability of any endorser, guarantor, or
      surety or improve the right of any permitted junior lienholder; and this
      instrument, as well as any instrument given to secure any rearrangement,
      renewal, or extension of the Obligations secured hereby, or any part thereof,
      shall be and remain a first and prior lien, except as otherwise provided herein,
      on all of the Mortgaged Properties not expressly released until the Obligations
      is completely paid.

     

    
      
         

      

      
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    (e) Application
      of Proceeds.
      The
      proceeds of any sale of, and the proceeds and other income generated by the
      holding, leasing, operating, or other use of the Mortgaged Properties shall
      be
      applied by Mortgagee (or the receiver, if one is appointed) to the extent that
      funds are so available therefrom in the following orders of priority: (i) first,
      to the payment of the reasonable costs and expenses of taking possession of
      the
      Mortgaged Properties and of holding, using, leasing, maintaining, repairing,
      improving, and selling the same, including, without limitation, (A) Trustee’s
      fees and receiver’s fees, (B) costs of advertisement, (C) attorneys’ and
      accountants’ fees, (D) court costs, and (E) at Mortgagee’s option, payment of
      any and all impositions and prior liens, security interests, or other rights,
      titles, or interests on the Mortgaged Properties (without in any way implying
      Mortgagee’s prior consent to the creation thereof or any obligation on the part
      of Mortgagee to discharge the same); (ii) second, to the payment of all amounts,
      other than the principal amount and accrued but unpaid interest, which may
      be
      due to Mortgagee under the Credit Agreement, the Note or the Security Documents,
      together with interest thereon as provided in any such document; (iii) third,
      to
      the payment of all accrued but unpaid interest due on the Note; (iv) fourth,
      to
      the payment of the principal amount outstanding on the Note in inverse order
      of
      maturity; (v) fifth, to the payment of any Obligations or obligation secured
      by
      a subordinate agreement or security interest on the Mortgaged Properties; and
      (vi) sixth, to Mortgagor. Mortgagor and any other party liable on the
      Obligations and the Obligations shall be liable for any deficiency remaining
      in
      the Obligations and Obligations subsequent to the sale referenced in this
subsection 6.2(e).

     

    (f) Suit
      to Collect or Foreclose.
      In the
      event a foreclosure hereunder should be commenced by Trustee in accordance
      with
subsection
      6.2(a)(iv),
      Mortgagee may at any time before the sale direct Trustee to abandon the sale,
      and may then institute suit for the collection of the Obligations, or for the
      foreclosure of the liens hereof. If Mortgagee should institute a suit for the
      collection of the Obligations, or for a foreclosure of the liens hereof, it
      may
      at any time before the entry of a final judgment in said suit dismiss the same,
      and require Trustee to sell the Mortgaged Properties, or any part thereof,
      in
      accordance with the provisions of this instrument.

     

    (g) Waiver
      of Appraisement; Redemption Period.
      To the
      full extent Mortgagor may lawfully do so, Mortgagor agrees that Mortgagor will
      not at any time insist upon, plead, claim or take the benefit or advantage
      of
      any appraisement, valuation, stay, extension or redemption laws, now or
      hereafter in force, in order to prevent or hinder the enforcement of this
      instrument or the absolute sale of the Mortgaged Properties, or any part
      thereof, or the possession thereof by any purchaser at any such sale, but
      Mortgagor, insofar as Mortgagor now or hereafter may lawfully do so, hereby
      waives the benefit of all such laws; provided
      that the
      appraisement of any of the Mortgaged Properties is hereby expressly waived
      or
      not waived at the option of Trustee or Mortgagee, such option to be exercised
      prior to or at the time judgment is rendered in any foreclosure of this
      instrument.

     

    
      
         

      

      
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    Furthermore,
      the Mortgagor expressly waives and relinquishes all laws now existing and
      hereafter enacted providing for any creation or extension of a period of
      redemption from any sale hereunder or any extension of time for the enforcement
      of the collection of the Obligations. Mortgagor and Mortgagee agree that there
      shall be no period of redemption for any sale of Mortgaged Properties pursuant
      to the power of sale granted in subsection
      6.2(a)(iv).
      To the
      extent applicable law prescribes, and Mortgagor is unable pursuant to such
      Law
      to waive and relinquish, a right of redemption, Mortgagor and Mortgagee agree
      that any such prescribed period of redemption will be the shortest period
      allowed by such law. Specifically, Mortgagor and Mortgagee, pursuant to Section
      39-5-19 of the New Mexico Statutes Annotated 1978, agree that the period of
      redemption after any judicial foreclosure sale shall be one (1) month in lieu
      of
      nine (9) months.

     

    (h) Other
      Rights of Mortgagee; Rights Cumulative.
      Mortgagee shall have and may exercise any and all other rights which Mortgagee
      may have under the New Mexico UCC, by virtue of the Security Documents, at
      law,
      in equity or otherwise. All rights available to Mortgagee and Trustee hereunder
      are cumulative of and in addition to all of the rights granted to Mortgagee
      at
      Law or in equity, or under the Security Documents.

     

    (i) Easements
      or Contracts Violative of Mortgage.
      The
      purchaser at any Trustee’s or foreclosure sale hereunder may disaffirm any
      easement granted or rental, lease, or other contract made in violation of any
      provision of this instrument and may take immediate possession of the Mortgaged
      Properties free from, and despite the terms of, such grant of easement or
      rental, lease, or other contract.

     

    ARTICLE
      VII.

     

    Security
      Agreement

     

    7.1 Without
      limiting any of the provisions of this instrument, Mortgagor (referred to in
      this Article as “Debtor”,
      whether
      one or more), expressly GRANTS unto the Mortgagee (referred to in this Article
      as “Secured
      Party”,
      whether
      one or more), a security interest in all the Mortgaged Properties hereinabove
      described (including both those now and those hereafter existing) to the full
      extent that such properties may be subject to the Uniform Commercial Code of
      the
      state or states where such properties are situated. The security interest
      granted hereby also covers and includes all contract rights, equipment,
      inventory, general intangibles and accounts with respect to said properties
      and
      all products and proceeds of said properties (said properties, contract rights,
      equipment, inventory, general intangibles, accounts, products and proceeds
      thereof being hereinafter collectively referred to as the “Collateral”
      for the
      purposes of this paragraph). Debtor covenants and with Secured Party
      that:

     

    
      
         

      

      
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    (a) In
      addition to and cumulative of any other remedies granted in this instrument
      to
      Secured Party or the Trustee, Secured Party may, in event of default, proceed
      under said Uniform Commercial Code as to all or any part of the Collateral
      and
      shall have and may exercise with respect to the Collateral all the rights,
      remedies and powers of a secured party after default under said Uniform
      Commercial Code, including, without limitation, the right and power to sell,
      at
      public or private sale or sales, or otherwise dispose of, lease or utilize
      the
      Collateral and any part or parts thereof in any manner authorized or permitted
      under said Uniform Commercial Code after default by a debtor, and to apply
      the
      proceeds thereof toward payment of any costs and expenses and attorneys’ fees
      and legal expenses thereby incurred by Secured Party, and toward payment of
      the
      Secured Indebtedness in such order or manner as Secured Party may
      elect.

     

    (b) Upon
      a
      default, Secured Party shall have the right (without limitation, subject to
      said
      Uniform Commercial Code) to take possession of the Collateral and to enter
      upon
      any premises where same may be situated for such purpose without being deemed
      guilty of trespass and without liability for damages thereby occasioned, and
      to
      take any action deemed necessary or appropriate or desirable by Secured Party,
      at its option and in its discretion, to repair, refurbish or otherwise prepare
      the Collateral for sale, lease or other use or disposition as herein
      authorized.

     

    (c) To
      the
      extent permitted by law, Debtor expressly waives any notice of sale or other
      disposition of the Collateral and any other right or remedies of a debtor or
      formalities prescribed by law relative to sale or disposition of the Collateral
      or exercise of any other right or remedy of Secured Party existing after default
      hereunder; and to the extent any such notice is required and cannot be waived,
      Debtor agrees that if such notice is mailed, postage prepaid, to Debtor at
      the
      address shown with debtor’s signature hereinbelow at least ten days before the
      time of the sale or disposition, such notice shall be deemed reasonable and
      shall fully satisfy any requirement for giving of said notice.

     

    (d) Secured
      Party is expressly granted the right to receive the monies, income, proceeds
      or
      benefits attributable or accruing to the Collateral and to hold the same as
      security for the Secured Indebtedness or to apply it on the principal and
      interest or other amounts owing on any of the Secured Indebtedness, whether
      or
      not then due, in such order or manner as Secured Party may elect. All rights
      to
      marshaling of assets of Debtor, including any such right with respect to the
      Collateral, are hereby waived.

     

    (e) All
      recitals in any instrument of assignment or any other instrument executed by
      Secured Party incident to sale, transfer, assignment, lease or other disposition
      or utilization of the Collateral or any part thereof hereunder shall be prima
      facie evidence of the matter stated therein, no other proof shall be required
      to
      establish full legal propriety of the sale or other action or of any fact,
      condition or thing incident thereto, and all prerequisites of such sale or
      other
      action and of any fact, condition or thing incident thereto shall be presumed
      to
      have been performed or to have occurred.

     

    (f) Upon
      acceleration of the Secured Indebtedness, Secured Party may require Debtor
      to
      assemble the Collateral and make it available to Secured Party at a place to
      be
      designated by Secured Party that is reasonably convenient to both parties.
      All
      expenses of retaking, holding, preparing for sale, lease or other use or
      disposition, selling, leasing or otherwise using or disposing of the Collateral
      and the like which are incurred or paid by Secured Party as authorized or
      permitted hereunder, including also all attorneys’ fees, legal expenses and
      costs, shall be added to the indebtedness secured by this instrument, and Debtor
      shall be liable therefor.

     

    
      
         

      

      
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    (g) Should
      Secured Party elect to exercise its right under said Uniform Commercial Code
      as
      to part of the personal property and fixtures described herein, this election
      shall not preclude Secured Party from exercising the rights and remedies granted
      by the preceding paragraphs of this instrument as to the remaining personal
      property and fixtures.

     

    (h) Secured
      Party may, at its election, at any time after delivery of this instrument,
      sign
      one or more copies hereof in order that such copies may be used as a financing
      statement under said Uniform Commercial Code. Such signature by Secured Party
      may be placed between the last sentence of this instrument and the Debtor’s
      acknowledgment or may follow the Debtor’s acknowledgment. Secured Party’s
      signature need not be acknowledged and is not necessary to the effectiveness
      hereof as a deed of trust, mortgage, assignment, pledge or security
      agreement.

     

    7.2 (a) Any
      copy
      of this instrument which is signed by both Debtor and Secured Party may also
      serve as a financing statement under said Uniform Commercial Code between the
      Debtor, whose address is designated with its signature, and the SECURED
      PARTY, WHOSE ADDRESS IS SET FORTH ON THE COVER PAGE HEREOF.

     

    (b) So
      long
      as any amount remains unpaid on the Secured Indebtedness, Debtor will not
      execute and there will not be filed in any public office any financing statement
      or statements affecting the Collateral other than financing statements in favor
      of Secured Party hereunder, unless the prior written specific consent and
      approval of Secured Party shall have first been obtained.

     

    (c) Secured
      Party is authorized to file, in any jurisdiction where Secured Party deems
      it
      necessary, a financing statement or statements, and at the request of Secured
      Party, Debtor will join Secured Party in executing one or more financing
      statements pursuant to said Uniform Commercial Code in form satisfactory to
      Secured Party, and will pay the cost of filing or recording this instrument,
      as
      a financing statement, in all public offices at any time and from time to time
      whenever filing or recording of any financing statement or of this instrument
      is
      deemed by Secured Party to be necessary or desirable.

     

    (d) The
      offices where the records of Debtor with respect to the Collateral and the
      Mortgaged Properties are kept is located at the address shown opposite the
      signature of Debtor to this Mortgage and/or 303 West Main Street, Artesia,
      New
      Mexico, 88210-2133, and Debtor agrees that the place at which such records
      are
      kept will not be changed without the prior written consent of the
      Mortgagee.

     

    
      
         

      

      
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    Debtor
      further warrants and represents to Secured Party that, except for the security
      interest granted hereby in the Collateral and other claims previously disclosed
      in writing to Secured Party, Debtor is the owner of the Collateral, free of
      any
      adverse claim, security interest or encumbrance, and Debtor agrees to defend
      the
      Collateral against all claims and demands of any person at any time claiming
      the
      same or any interest therein. Debtor further warrants and represents that it
      has
      not heretofore signed any financing statement and no financing statement signed
      by Debtor is now on file in any public office except those statements true
      and
      correct copies of which have been delivered to Secured Party.

     

    ARTICLE
      VIII.

    Concerning
      the Trustee

     

    8.1 The
      Trustee may resign by an instrument in writing addressed to the Mortgagee.
      The
      Trustee or any successor or substitute Trustee may be removed at any time with
      or without cause by an instrument in writing executed by the Mortgagee and
      such
      power of removal may be exercised as frequently and at such times as the
      Mortgagee may elect. In case of the absence, death, resignation or removal
      of
      the Trustee, or the inability, failure, or refusal of the Trustee to act, a
      successor or substitute Trustee may be appointed by the Mortgagee by instrument
      complying with any applicable requirements of law, and in the absence of any
      such requirement, without other formality than appointment and designation
      in
      writing executed by the Mortgagee. Such right to appoint a substitute Trustee
      shall exist and may be exercised as often and whenever the Mortgagee may elect.
      Such appointment and designation shall be full evidence of the right and
      authority to make the same and of all facts therein required, and upon the
      making of any such appointment and designation, all of the estate and title
      of
      the Trustee in the Mortgaged Properties shall vest in the named successor
      Trustee and he shall thereupon succeed to, hold, possess and exercise all the
      rights, powers, privileges, immunities and duties herein conferred upon the
      Trustee. All references herein to the Trustee shall be deemed to refer to the
      Trustee (including any successor appointed and designated as herein provided)
      from time to time acting hereunder.

     

    If
      no
      successor Trustee shall have been appointed as contemplated by the foregoing
      provisions in this Section, or if appointed shall not have accepted the
      appointment, within thirty (30) days after the occurrence of a vacancy in the
      office of the Trustee, the Mortgagee or such retiring Trustee may apply to
      any
      court of competent jurisdiction to appoint a successor Trustee or
      Trustees.

     

    8.2 Any
      Trustee from time to time serving hereunder shall have the absolute right,
      acting independently, to take any action and to exercise any right, remedy,
      power or privilege conferred upon the Trustee, and any action taken by any
      Trustee from time to time serving hereunder shall be binding upon all other
      Trustees and no person dealing with any Trustee from time to time serving
      hereunder shall be obligated to confirm the power and authority of such Trustee
      to act without the concurrence of the other Trustees.

     

    8.3 The
      Trustee shall not be required to take any action for the enforcement of this
      instrument or the exercise of any rights or remedies hereunder or to appear
      in
      or defend any action, suit or other proceeding in connection therewith, where,
      in the opinion of the Trustee, such action will be likely to involve him in
      expense or liability, unless the Trustee be tendered security and indemnity
      satisfactory to him, against cost, expense or liability in connection
      therewith.

     

    
      
         

      

      
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    8.4 It
      shall
      be no part of the duty of the Trustee to see to any recording, filing or
      registration of this instrument or any other instrument supplemental hereto,
      or
      to see to the payment of or be under any duty in respect of any tax or
      assessment or other governmental charge which may be levied or assessed on
      the
      Mortgaged Properties or against Mortgagor or to see to the performance or
      observance by Mortgagor of any of the covenants or agreements herein contained.
      The Trustee shall not be responsible for the execution, acknowledgment or
      validity of this instrument or of any instrument supplemental hereto or of
      the
      Note, or for the sufficiency of the security purported to be created hereby,
      and
      makes no representation in respect thereof or in respect of the rights of the
      holder of the Note. The Trustee shall have the right to consult with counsel
      upon any matters arising hereunder, and shall be fully protected in relying
      as
      to legal matters on the advice of the counsel. The Trustee shall not incur
      any
      personal liability hereunder except for his own gross negligence or willful
      misconduct; and the Trustee shall have the right to rely on any instrument,
      document or signature authorizing or supporting any action taken or proposed
      to
      be taken by him hereunder, believed by him in good faith to be
      genuine.

     

    ARTICLE
      IX.

    Miscellaneous

     

    9.1 This
      instrument is a deed of trust and mortgage of both real and personal property,
      a
      security agreement, a financing statement and an assignment, and also covers
      proceeds and fixtures.

     

    9.2 All
      options and rights of election herein provided for the benefit of the Mortgagee
      are continuing, and the failure to exercise any such option or right of election
      upon a particular default or breach or upon any subsequent default or breach
      shall not be construed as waiving the right to exercise such option or election
      at any later date. By the acceptance of payment of any indebtedness secured
      hereby after its due date, the Mortgagee does not waive the right either to
      require prompt payment when due of all other sums so secured or to regard as
      a
      default failure to pay any other sums due which are secured hereby. No exercise
      of the rights and powers herein granted and no delay or omission in the exercise
      of such rights and powers shall be held to exhaust the same or be construed
      as a
      waiver thereof, and every such right and power may be exercised at time and
      from
      time to time.

     

    9.3 No
      release of any part of the Mortgaged Properties shall in anywise alter, vary
      or
      diminish the force, effect or lien of this instrument on the balance of
      Mortgaged Properties.

     

    9.4 Any
      provision contained herein or in the Note or in any other instrument evidencing
      or relating to any Secured Indebtedness to the contrary notwithstanding, neither
      Mortgagee nor any Mortgagee nor the holder of any other Secured Indebtedness
      shall be entitled to receive or collect, nor shall Mortgagor be obligated to
      pay, interest on any of the Secured Indebtedness in excess of the maximum rate
      of interest permitted by applicable law, and if any provision of the Note or
      of
      any other such instrument shall ever be construed or held to permit the
      collection or to require the payment of any amount of interest in excess of
      that
      permitted by applicable law, the provisions of this section shall control and
      shall override any contrary or inconsistent provision of the Note or other
      instrument.

     

    
      
         

      

      
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    9.5 Any
      notice, request, demand or other instrument which may be required or permitted
      to be given or furnished to or served upon Mortgagor shall be addressed to
      it at
      its address set forth below, or such other address as Mortgagor may furnish
      to
      the Trustee or the Mortgagee in writing. Notices to the Trustee and the
      Mortgagee shall be deemed to have been properly given if delivered in like
      fashion to them at THE
      ADDRESS SET FORTH ON THE COVER PAGE HEREOF,
      or at
      such other address as the Trustee or the Mortgagee may furnish to Mortgagor
      in
      writing.

     

    9.6 Renewals
      and extensions of the Secured Indebtedness may be given at any time and
      amendments may be made to this Mortgage and other agreements relating to any
      of
      the Secured Indebtedness or the Mortgaged Properties and/or such properties
      may
      at any time be released or partially released and/or the Mortgagee may take
      or
      hold other security for the Secured Indebtedness without notice to or joinder
      or
      consent of any persons hereafter acquiring any interest in the Mortgaged
      Properties. The Trustee or the Mortgagee may resort first to such other security
      or any part thereof or first to the security herein given or any part thereof,
      or from time to time to either or both, even to the partial or complete
      abandonment of either security, and such action shall not be a waiver of any
      rights conferred by this instrument, which shall continue as a first lien upon
      all of the Mortgaged Properties not expressly released until the Secured
      Indebtedness is fully paid.

     

    9.7 If
      any
      provision hereof or of the Credit Agreement or the Note is invalid or
      unenforceable in any jurisdiction, the other provisions hereof or of the Note
      shall remain in full force and effect in such jurisdiction, and the remaining
      provisions hereof shall be liberally construed in favor of the Trustee,
      Mortgagee in order to effectuate the provisions hereof, and the invalidity
      or
      unenforceability of any provision hereof in any jurisdiction shall not affect
      the validity or enforceability of any such provision in any other
      jurisdiction.

     

    9.8 Mortgagee
      and Trustee shall at all times have the right to assign and/or transfer any
      and
      all of their rights and privileged under this Mortgage. All of the terms,
      provisions, covenants and conditions hereof shall be binding upon Mortgagor
      and
      Mortgagee, and shall inure to the benefit of the Trustee and the Mortgagee,
      and
      Mortgagor’s covenants shall constitute covenants running with the lands covered
      by the Mortgaged Properties, but this provision shall not be construed to
      authorize any sale or other disposition of the Mortgaged Properties contrary
      to
      any other provisions hereof.

     

    9.9 The
      Mortgage may be executed in multiple counterparts, each of which is deemed
      to be
      an original for all purposes although all such executed copies shall evidence
      and constitute one and the same Mortgage; provided that
      it shall
      never be necessary for Mortgagee or Trustee to produce more than one fully
      executed counterpart with all divisions to prove the existence of all such
      counterparts. The counterpart recorded in a particular jurisdiction may have
      attached to it only the division or subdivisions of the exhibit that contain
      descriptions of Mortgaged Properties located in such jurisdiction. Whenever
      a
      recorded counterpart of the Mortgage contains less than all of the divisions,
      the descriptions contained in the omitted divisions are hereby incorporated
      into
      said recorded counterpart by reference.

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

    9.10 The
      term
“Mortgagor”
      herein
      used shall mean and include the corporation executing this instrument, and
      its
      successors in interest in the Mortgaged Properties. 

     

    9.11 This
      Mortgage shall be governed by and construed and interpreted under the laws
      of
      the State of New Mexico (without giving effect to conflicts of laws principles),
      except to the extent that the laws of the State where the Mortgaged Properties
      are located shall be mandatorily applicable.

     

    9.12 To
      the
      extent that Section 57-7-1 NMSA 1978 may be applicable to this Mortgage, any
      indemnity agreement of Mortgagor contained herein shall not extend to liability,
      claims, damages, losses, or expenses, including attorney’s fees, arising out of:
      (a) the preparation or approval of maps, drawings, opinions, reports, surveys,
      change orders, designs, or specifications by the indemnitee; or (b) the giving
      of or the failure to give directions or instructions by the indemnitee, or
      the
      agents or employees of the indemnitee, where such giving or failure to give
      directions or instructions is the primary cause of bodily harm to persons or
      damage to property.

     

    THIS
      WRITTEN AGREEMENT AND THE OTHER SECURITY DOCUMENTS DESCRIBED IN THE CREDIT
      AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
      CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
      OF THE PARTIES.  THERE
      ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF, the undersigned have caused this instrument to be executed
      by
      their duly authorized undersigned officers as of the date set forth in the
      acknowledgments below, but effective as of March 31, 2006.

     

    
      	 	 	 
	 	“MORTGAGOR”
	 	 
	
              ADDRESS
                OF MORTGAGOR:  

              405
                N. Marienfeld, Suite 200

              Midland,
                TX 79701

            	UHC
              NEW
              MEXICO CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ C.
              Scott
              Wilson
	 	
              
                
C.
                Scott Wilson

            
	 	Chief
              Executive Officer and President 

    

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

    This
      Deed
      of Trust, Mortgage, Assignment of Production, Security Agreement and Financing
      Statement is executed by the undersigned solely for the purpose of acknowledging
      and accepting the benefits conferred on Mortgagee and to evidence its agreement
      with the covenants of Mortgagee set forth herein.

     

    
       

      
        	 	 	 
	 	“MORTGAGEE”
	 	 
	
                 

              	
                STERLING
                  BANK,

                a
                  Texas state chartered banking institution

              
	 
 	 
 	 
 
	 	By:  	/s/ Daniel
                G.
                Steele
	 	
                
                  
Daniel
                  G. Steele

              
	 	Senior
                Vice President

      

       

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ACKNOWLEDGMENTS

     

    

    
      	STATE
              OF TEXAS	
              §

            

      	 	§

    
      	COUNTY
              OF HARRIS	
              §

            

    

     

    This
      instrument was acknowledged before me on June 15,
      2006,
      by C. Scott Wilson, Chief Executive Officer and President of UHC New Mexico
      Corporation, a New Mexico corporation, on behalf of said
      corporation.

     

    
      	 	 	 
	 
 	 
 	 
 
	(Seal)	  	/s/ Rhonda
              Muschalik
	 	
              
Notary
              Public, State of
              Texas

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      

      
        	STATE
                OF TEXAS	
                §

              

        	 	§

      
        	COUNTY
                OF HARRIS	
                §

              

      

       

    

     

    This
      instrument was acknowledged before me on June 16, 2006, by Daniel G. Steele,
      Senior Vice President, of Sterling Bank, a Texas state chartered banking
      institution, on behalf of said banking institution.

     

    
       

      
        	 	 	 
	 
 	 
 	 
 
	(Seal)	  	/s/ Rhonda
                Muschalik
	 	
                
Notary
                Public, State of
                Texas

      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    EXHIBIT
      A

     

    ATTACHED
      TO AND FORMING A PART OF THE

    DEED
      OF
      TRUST, MORTGAGE, ASSIGNMENT OF PRODUCTION,

    SECURITY
      AGREEMENT AND FINANCING STATEMENT

     

    PART
      I

     

    PREAMBLE

     

    This
      Exhibit
      A
      contains
      this Preamble and the specific description of the “Leases”
      comprising a portion of the “Mortgaged
      Properties”,
      as
      those terms are defined in the Deed of Trust, Mortgage, Assignment of
      Production, Security Agreement and Financing Statement (the “Mortgage”)
      to
      which this Exhibit
      A
      is
      attached.

     

    Divisions.
      This
Exhibit
      A
      may be
      composed of several divisions and subdivisions--at least one for each state
      and
      county or parish in each state in which any part of the Mortgaged Properties
      are
      located in more than one county, the division hereof containing the description
      of such oil, gas and mineral lease will generally include the relevant portion
      of each of the counties in which any part of such oil, gas and mineral lease
      is
      located. Counties containing portions of such multi-county leases may therefore
      be covered by more than one division of this Exhibit
      A.
      Each
      subdivision is in turn composed of further subdivisions--each one covering
      one
      or more of the oil, gas and mineral leases included among the Mortgaged
      Properties.

     

    Counterparts.
      The
      Mortgage may be executed in multiple counterparts, each of which is deemed
      to be
      an original for all purposes although all such executed copies shall evidence
      and constitute one and the same Mortgage; provided that
      it shall
      never be necessary for Mortgagee or Trustee to produce more than one fully
      executed counterpart with all divisions to prove the existence of all such
      counterparts. The counterpart recorded in a particular county or parish may
      have
      attached to it only the division or subdivisions of this exhibit that contain
      descriptions of Mortgaged Properties located in such county or parish. Whenever
      a recorded counterpart of the Mortgage contains less than all of the divisions,
      the descriptions contained in the omitted divisions are hereby incorporated
      into
      said recorded counterpart by reference.

     

    Definitions.
      For all
      purposes of this Exhibit
      A
      unless
      the context otherwise requires, the hereinafter-identified terms have the
      following meanings:

     

    “Net
      Revenue Interest” or “NRI”
      means
      (i) with respect to a Unit for which a Net Revenue Interest is stated, that
      interest in the applicable Hydrocarbons (as defined in the Mortgage) produced,
      saved and sold from such unitized area which is afforded to Mortgagor by virtue
      of its ownership of the Leases included in whole or in part in such area after
      deducting all burdens against the production therefrom, and (ii) with respect
      to
      a Well for which a Net Revenue Interest is stated, that interest in the
      applicable hydrocarbons produced, saved and sold from the Well which is afforded
      to Mortgagor by virtue of its ownership of the Lease (hereinafter defined)
      on
      which such Well is located after deducting all burdens against the production
      therefrom.

     

    
      
         

      

      
        A-1

        
          

        

      

      
         

      

    

     

    “Working
      Interest” or “WI”
      means
      (i) with respect to a Unit for which a Working Interest is stated, Mortgagor’s
      share of the costs of operations conducted thereon, and (ii) with respect to
      a
      Well for which an Working Interest is stated, Mortgagor’s share of costs of the
      operation thereof.

     

    “Overriding
      Royalty Interest”
      means
      (i) with respect to a Unit for which an Overriding Royalty Interest is stated,
      that interest in the applicable Hydrocarbons (as defined in the Mortgage)
      produced, saved, and sold from such unitized area which is afforded to Mortgagor
      by virtue of its ownership of such expense-free interest in the Leases included
      in whole or in part in such area after deducting landowner royalties and any
      other burdens to which such interest may be subject, and (ii) with respect
      to a
      Well for which an Overriding Royalty Interest is stated, that interest in the
      applicable Hydrocarbons produced, saved and sold from the Well which is afforded
      to Mortgagor by virtue of its ownership of such expense-free interest in the
      Lease (hereinafter defined) on which such Well is located after deducting
      landowner royalties and any other burdens to which such interest may be
      subject.

     

    “Well”
      means a
      well producing or capable of producing oil and/or gas that is described or
      referred to in this Exhibit
      A.

     

    “Unit”
      means a
      unit, pool, or communitized area described or referred to in this Exhibit
      A.

     

    “After
      Payout”
      or
“APO”
      specifies the Net Revenue Interest and the Working Interest of Mortgagor after
      the occurrence of a particular event, such as payout of certain costs with
      respect to a Well or Wells, as described in a Lease, assignment or assignments
      thereof, or one or more of the agreements to which the affected property is
      subject as shown in this Exhibit
      A.

     

    “Before
      Payout”
      or
“BPO”
      specifies the Net Revenue Interest and the Working Interest of Mortgagor before
      the occurrence of a particular event, such as payout of certain costs with
      respect to a Well or Wells, as described in a Lease, assignment or assignments
      thereof, or one or more of the agreements to which the affected property is
      subject as shown in this Exhibit
      A.

     

    “Permitted
      Encumbrances”
      shall
      mean (i) minor irregularities in title which do not (a) materially interfere
      with the occupation, use and enjoyment by Mortgagor of any of the Mortgaged
      Properties in the normal course of business as presently conducted, or (b)
      materially impair the value thereof for such Mortgaged Properties, (ii) all
      interests in the Mortgaged Properties securing obligations owed to, or claimed
      by, any Person other than Mortgagee, whether such interest is based on the
      common law, statute or contract, and whether such interest includes liens or
      security interests arising by virtue of mortgage, encumbrance, pledge, security
      agreement, conditional sale or trust receipt or lease, consignment or bailment
      for security purposes, so long as each said interest has been expressly
      consented to by Mortgagee in writing, (iii) liens of landlords, vendors,
      carriers, warehousemen, mechanics, laborers, operators, joint interest owners,
      taxing and other governmental authorities, materialmen and other similar liens
      arising by law, or otherwise arising in the ordinary course of business, in
      each
      case, for sums not yet due or being contested in good faith by appropriate
      action promptly initiated and diligently conducted, if such reserve as shall
      be
      required by generally accepted accounting principles shall have been made
      therefor, (iv) the second liens created under the Subordinated Security
      Documents (as defined in and subject to the Subordination Agreement between
      BaseLine Capital, Inc. and Mortgagor dated of even date herewith) and (v)
      specific exceptions and encumbrances affecting each of the Mortgaged Properties
      as described in this Exhibit INSOFAR ONLY as said exceptions and encumbrances
      are valid and subsisting and are enforceable against the particular Lease which
      is made subject to said exceptions and encumbrances are valid and subsisting
      and
      are enforceable against the particular Lease which is made subject to said
      exception and encumbrance.

     

    
      
         

      

      
        A-2

        
          

        

      

      
         

      

    

     

    Format
      of Description.
      The
      format of the description is as follows:

     

    With
      respect to each Lease, the description includes the Lease, the date, the Lessor,
      the Lessee, the recording information, the governmental or state serial number
      assigned to the lease (if applicable), and a description of the lands covered
      by
      the Lease. If the recorded instrument is a short form of memorandum of a Lease,
      the term “Lease”
      shall be
      deemed to include all of the terms and provisions of the Lease referred to
      in
      such short form or memorandum. Certain property descriptions are in abbreviated
      to Sections, Townships, and Ranges. In such descriptions, the following terms
      may be abbreviated as follows:

     

    Northwest
      Quarter--NW, NW/4, or NW/4;

    Southwest
      Quarter--SW, SW/4, or SW/4;

    Southeast
      Quarter--SE, SE/4, or SE/4;

    Northeast
      Quarter--NE, NE/4, or NE/4;

    North
      Half--N/2 or N/2;

    South
      Half--S/2 or S/2;

    East
      Half--E/2 or E/2;

    West
      Half--W/2 or W/2;

     

    The
      applicable Section, Township, and Range may be identified by a series of three
      numbers, each separated by a dash, with the first number being the Section
      number, the second number being the Township number, and the third number being
      the Range number. The Township and Range numbers are followed by an N, S, E,
      or
      W to indicate whether the Township or Range is North, South, East, or West,
      respectively; e.g.,
      T-2S,
      R-3W. Certain descriptions merely refer to the subdivision or survey in which
      the property is located in whole or in part. In such cases, the recorded Leases
      and any amendments thereof and any other recorded instruments affecting
      Mortgagor’s title more particularly describe the land within such subdivision or
      survey in which Mortgagor owns an interest, and the descriptions contained
      in
      such instruments are incorporated herein by this reference. In the case of
      certain federal and state leases, the interests set forth may be in the nature
      of either record, title or operating rights. The land description does not
      necessarily signify that Mortgagor owns the entire interest in such Lease as
      to
      all of such Land or as to all depth intervals. The statement of an Working
      Interest and a Net Revenue Interest for a Well or Unit does not necessarily
      signify that Mortgagor owns the same applicable Lease or leases as to the areas
      or depth intervals not attributable to the Well or Unit.

     

    
      
         

      

      
        A-3

        
          

        

      

      
         

      

    

     

    The
      statement of a Working Interest and a Net Revenue Interest with respect to
      a
      Well or Wells signifies that Mortgagor owns that Working Interest and Net
      Revenue Interest in the Well or Wells with respect to the intervals in which
      the
      Well or Wells are currently completed, and excludes a unitized area or
      formation, if any, included within a Unit which is also described in this
Exhibit
      A.

     

    Each
      Well
      or Unit with respect to which the Working Interest and Net Revenue Interest
      of
      Mortgagor is stated is described as follows: (i) each well is described by
      reference to the Well name given to the Well in Mortgagor’s records, which may
      or may not be the name stated in the records of the applicable state or federal
      regulatory authority, and (ii) each Unit is described by the name by which
      such
      Unit is referred to in Mortgagor’s records, which may or may not be the name
      used (if a name is used) in the instrument creating such Unit.

     

    The
      matters to which any Lease, Well or Unit described in this Exhibit
      A
      are
      stated to be subject within a given Prospect may burden any Lease, Well, or
      Unit
      described in this Exhibit within the same Prospect.

     

    
      
         

      

      
        A-4

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