Document:

Exhibit 10.12(c)

 

SUBORDINATION AGREEMENT

 

This SUBORDINATION AGREEMENT
(“Agreement”) is made as of January 8, 2015, by and between the parties listed as Creditors on the signature
pages hereto (together, the “Creditor”), and heartland bank,
an Arkansas state bank (“Agent”), for the benefit of the Lenders (defined below).

 

Recitals

 

A.LILIS ENERGY,
INC., a Nevada corporation (“Borrower”) has requested and/or obtained certain loans or other credit accommodations
from Lenders to Borrower which are or may be from time to time secured by assets and property of Borrower.

 

B.Creditor has extended
loans or other credit accommodations to Borrower, and/or may extend loans or other credit accommodations to Borrower from time
to time.

 

C.In order to induce
Lenders to extend credit to Borrower and, at any time or from time to time, at Lenders’ option, to make such further loans,
extensions of credit, or other accommodations to or for the account of Borrower, or to purchase or extend credit upon any instrument
or writing in respect of which Borrower may be liable in any capacity, or to grant such renewals or extension of any such loan,
extension of credit, purchase, or other accommodation as Lenders may deem advisable, Creditor is willing to subordinate: (i) all
of Borrower’s indebtedness to Creditor (including, without limitation, principal, interest, fees, charges, costs and expenses),
whether presently existing or arising in the future (the “Subordinated Debt”) to all of Borrower’s indebtedness
and obligations to Lenders under that certain Credit Agreement (the “Credit Agreement”) dated of even date herewith
by and between Borrower, Agent and the lenders from time to time a party thereto (each a “Lender”; and collectively,
the “Lenders”); and (ii) all of Creditor’s security interests, if any, to all of Agent’s, for the
benefit of the Lenders, security interests in the Collateral (as defined in the Credit Agreement; and herein referred to as the
“Collateral”).

 

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

 

1.Creditor
hereby consents to the Senior Debt (defined below) and the security interests and liens securing the same and agrees that neither
incurrence of the Senior Debt nor the granting or existence of the security interests and liens securing the same shall constitute
a default under the Subordinated Debt and any of the documents or agreements evidencing the same.

 

2.Except as
set forth below, Creditor subordinates to Agent and to the Lenders any security interest or lien that Creditor may have in any
Collateral. Notwithstanding the respective dates of attachment or perfection of the security interest of Creditor and the security
interest of Agent, for the benefit of the Lenders, the security interest of Agent, for the benefit of the Lenders, in the Collateral,
shall at all times be senior to the security interest of Creditor. Notwithstanding the foregoing or any other provision of this
Agreement, until the earliest of (a) the date the Triggering Event (as defined on Schedule 2 hereto) shall occur, (b) the date
a Creditor Default (as defined on Section 4 below) shall occur, or (c) May 31, 2015 (the “Conversion Date”),
Creditor shall maintain any senior security interest or lien that Creditor may have on the date hereof and may hereafter continue
until the Conversion Date in the Retained Interests (as defined on Schedule 2, attached hereto and made a part hereof).

 

 

Subordination Agreement (Lilis
Energy)

    	1.

    	 

    

 

3.Except as
set forth in this Agreement, all Subordinated Debt is subordinated in right of payment to all obligations of Borrower to Agent
and to the Lenders now existing or hereafter arising, together with all costs of collecting such obligations (including attorneys’
fees), including, without limitation, all interest accruing after the commencement by or against Borrower of any bankruptcy, reorganization
or similar proceeding, and all obligations under the Credit Agreement (the “Senior Debt”).

 

4.Except as
set forth in this Agreement, Creditor will not demand or receive from Borrower (and Borrower will not pay to Creditor) all or any
part of the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise, nor will Creditor exercise any remedy
with respect to the Collateral, nor will Creditor accelerate the Subordinated Debt, or commence, or cause to commence, prosecute
or participate in any administrative, legal or equitable action against Borrower (“Enforcement Action”), until
such time as the Senior Debt is fully paid in cash unless, in each case (i) an event of default shall have occurred and
be continuing under any one or more agreements between and among a Creditor, the Borrower and/or any of their respective subsidiaries
which would entitle such Creditor to take such action (each, a “Creditor Default”), (ii) such Creditor shall
have provided the Lender written notice of the occurrence of each such Creditor Default and that it intends to take an Enforcement
Action (each, a “Creditor Enforcement Action Notice”), and (iii) a period of at least 30 days shall have elapsed
after the receipt by the Lender of the respective Creditor Enforcement Action Notice. Notwithstanding anything herein to the contrary,
nothing under this Agreement shall restrict in any way (a) each Creditor’s right to receive shares of the Borrower’s
common stock in satisfaction of principal, interest or other obligations owed to the Creditors, including but not limited shares
issuable upon conversion of the Subordinated Debt and exercise of other securities issued in connection therewith and satisfaction
or settlement of other obligations of the Borrower to the Creditors, (b) each Creditor’s right to seek specific performance
to receive shares of the Borrower’s common stock in satisfaction of principal, interest or other obligations owed to the
Creditors, and (c) so long as no Event of Default (as defined in the Credit Agreement) has occurred and is continuing, (1) each
Creditor’s right to receive regularly scheduled interest payments on the Subordinated Debt and (2) each Creditor’s
right to receive payment of liquidated damages, buy-in compensation and other fees and expenses required to be paid pursuant to
the Subordinated Debt documents in connection with the Borrower’s failure to perform its obligations under the Subordinated
Debt documents. Notwithstanding the foregoing, the Creditor may (i) subject to the subordinations set forth in this Agreement,
file proofs of claim against the Borrower in any proceeding involving the Borrower; or (ii) file necessary pleadings in opposition
to a claim objecting to or otherwise seeking the disallowance of any Subordinated Debt; provided, that any such claim shall be
subject to this Agreement.

 

5.Except as
set forth under this Agreement, Creditor shall promptly deliver to Agent, for the benefit of the Lenders, in the form received
(except for endorsement or assignment by Creditor where required by Agent) for application to the Senior Debt any payment, distribution,
security or proceeds received by Creditor with respect to the Subordinated Debt other than in accordance with this Agreement.

 

 

Subordination Agreement (Lilis
Energy)

    	2.

    	 

    

 

6.In the event
of Borrower’s insolvency, reorganization or any case or proceeding under any bankruptcy or insolvency law or laws relating
to the relief of debtors, these provisions shall remain in full force and effect, and Agent’s and the Lenders’ claims
against Borrower and the estate of Borrower shall be paid in full before any payment is made to Creditor; provided, however that
nothing in this Agreement prohibits or limits the right of Creditor to receive and retain any debt or equity securities of Borrower
or any Person that are issued by a reorganized Borrower that are distributed to Creditor in respect of the Subordinated Debt pursuant
to a confirmed plan of reorganization or similar dispositive restructuring plan in connection with any such proceeding and that
are subject to the subject to the terms of this Agreement.

 

7.No amendment
of the documents evidencing or relating to the Subordinated Debt shall directly or indirectly modify the provisions of this Agreement
in any manner which might terminate or impair the subordination of the Subordinated Debt or the subordination of the security
interest or lien that Creditor may have in any property of Borrower. By way of example, such instruments shall not be amended
to (i) increase the rate of interest with respect to the Subordinated Debt, or (ii) accelerate the payment of the principal or
interest or any other portion of the Subordinated Debt. Agent, upon the instruction of the Majority Lenders, shall have the sole
and exclusive right to restrict or permit, or approve or disapprove, the sale, transfer or other disposition of Collateral except
in accordance with the terms of the Senior Debt. Upon written notice from Agent to Creditor of Agent's agreement to release its
lien on all or any portion of the Collateral in connection with the sale, transfer or other disposition thereof by Agent (or by
Borrower with consent of Agent, upon the instruction of the Majority Lenders), Creditor shall be deemed to have also, automatically
and simultaneously, released its lien on such Collateral, and Creditor shall upon written request by Agent, immediately take such
action as shall be necessary or appropriate to evidence and confirm such release. All proceeds resulting from any such sale, transfer
or other disposition shall be applied first to the Senior Debt until payment in full thereof, with the balance, if any, to the
Subordinated Debt, or to any other entitled party. If Creditor fails to release its lien as required hereunder, Creditor hereby
appoints Agent as attorney in fact for Creditor with full power of substitution to release
Creditor's liens as provided hereunder. Such power of attorney being coupled with an interest shall
be irrevocable.

 

8.Upon
any distribution of any of the assets of Borrower or any of the Subordinated Debt Collateral in connection with any dissolution,
winding up, liquidation, arrangement or reorganization of Borrower, or any other person or entity, or upon any assignment
for the benefit of creditors or any other marshalling of the assets and/or liabilities of Borrower or otherwise, Agent is irrevocably
authorized (in its own name or in the name of Creditor or otherwise), but shall have no obligation, to demand, sue for, collect
and receive all such payments, dividends and distributions referred to in this Section 8, give acquittances therefor, file claims,
proofs of claim and take such other actions (including without limitation, voting the Subordinated Debt) as it may deem necessary
or advisable. Agent is granted a power of attorney by Creditor with full power of substitution to execute and file such documentation
and take any other action Agent may deem advisable to accomplish the foregoing if Creditor has not done so within thirty (30)
days of the deadline for such action, and to protect Agent’s interest in the Subordinated Debt and its right of enforcement
thereof. Such power being coupled with an interest is irrevocable.

 

 

Subordination Agreement (Lilis
Energy)

    	3.

    	 

    

 

9.Agent shall
have the option to make advances and provide financing in the future to Borrower or to a receiver, trustee or other fiduciary
appointed by a court in any insolvency or court proceeding for Borrower or to Borrower as a debtor-in-possession on such terms
and conditions and in such amounts as Agent and Lenders may, in their sole discretion, decide in connection therewith. Creditor
consents to the financing of Borrower or such fiduciary or debtor-in-possession after any such insolvency or court proceeding
and agrees that such financing shall be included within the Senior Debt and the subordination and other restrictions and provisions
of this Agreement shall be applicable thereto. Creditor agrees that it will not object to or oppose a sale or other disposition
of any property securing all or any part of the Senior Debt free and clear of security interests, liens or other claims of Creditor
under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if Agent has consented to such sale or
disposition. Creditor agrees not to asset any right it may have to “adequate protection” of Creditor’s interest
in any Subordinated Debt Collateral in any proceeding and agrees that it will not seek to have the automatic stay lifted with
respect to any of the Subordinated Debt Collateral without the prior written consent of Agent.

 

10.Creditor
agrees to execute, verify, deliver and file any proofs of claim in respect of the Subordinated Debt reasonably requested by Agent
in connection with any such insolvency or court proceeding and hereby irrevocably authorizes, empowers and appoints Agent, as
its agent and attorney-in-fact to (i) execute, verify, deliver and file such proofs of claim upon the failure of Creditor promptly
to do so prior to thirty (30) days before the expiration of the time to file any such proof of claim, and (ii) vote such claim
in any such insolvency or court proceeding upon the failure of Creditor to do so prior to fifteen (15) days before the expiration
of the time to vote any such claim; provided, however, that Agent shall have no obligation to execute, verify, deliver, file and/or
vote any such proof of claim.

 

11.Each Creditor,
severally and not jointly with the other Creditors, represents and warrants to Agent that:

 

(i) To
the knowledge of such Creditor, there is no event of default or event which with the giving of notice, passage of time or both
would constitute an event of default existing under the Subordinated Debt.

 

(ii)Such
Creditor is the owner and holder of the Subordinated Note, which has not been transferred or encumbered. The copy of the Subordinated
Note attached hereto is a true and complete copy of such note, which has not been amended or modified.

 

(iii)The
Subordinated Debt is secured solely by the collateral more particularly set forth on Schedule 1, attached hereto (the “Subordinated
Debt Collateral”).

 

(iv)This
Agreement has been duly executed and delivered by such Creditor and constitutes the valid and binding obligation of such Creditor,
enforceable in accordance with its terms. No consent, approval or authorization of or designation, declaration or filing with any
governmental authority is required in connection with the execution, delivery or performance by Creditor of this Agreement. This
Agreement constitutes the legal, valid and binding obligation of such Creditor, enforceable against such Creditor in accordance
with its terms.

 

 

Subordination Agreement (Lilis
Energy)

    	4.

    	 

    

 

12.If, at any
time after payment in full of the Senior Debt any payments of the Senior Debt must be disgorged by Agent or any Lender for any
reason (including, without limitation, the bankruptcy of Borrower), this Agreement and the relative rights and priorities set forth
herein shall be reinstated as to all such disgorged payments as though such payments had not been made and Creditor shall immediately
pay over to Agent, for the benefit of the Lenders, all payments received with respect to the Subordinated Debt to the extent that
such payments would have been prohibited hereunder. Creditor waives the benefits, if any, of any statutory or common law rule that
may permit a subordinating creditor to assert any defenses of a surety or guarantor, or that may give the subordinating creditor
the right to require a senior creditor to marshal assets, and Creditor agrees that it shall not assert any such defenses or rights.

 

13.This Agreement
shall bind any successors or assignees of Creditor and shall benefit any successors or assigns of Agent and each Lender. Subject
to Section 12 above, this Agreement shall remain effective until the Senior Debt has been paid in full and all obligations of any
Lender to advance funds to Borrower under the Credit Agreement have been terminated. This Agreement is solely for the benefit of
Creditor, Agent and the Lenders and not for the benefit of Borrower or any other party. If the Senior Debt is refinanced by another
lender or group of lenders on substantially similar terms or another lender or group of lenders acquires the Agent’s and
Lenders’ interest in the Senior Debt, this Agreement shall inure to the benefit of such other lender or lenders with the
same force and effect as if such other lender or lenders were originally the “Lenders” under the Credit Agreement.

 

14.Creditor
hereby agrees to execute such documents and/or take such further action as Agent may at any time or times reasonably request in
order to carry out the provisions and intent of this Agreement, including, without limitation, ratifications and confirmations
of this Agreement from time to time hereafter, as and when requested by Agent.

 

15.This Agreement
may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute
one instrument.

 

16.This
Agreement shall be governed by and construed in accordance with the laws of the State of NEW YORK; provided that AGENT AND
THE LenderS shall retain all rights under federal law. This Agreement has been entered into in pulaski county, arkansas, and is
performable for all purposes in pulaski county, arkansas.

 

17.This Agreement
represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and
commitments. Creditor is not relying on any representations by Agent or any Lender or Borrower in entering into this Agreement
and Creditor has kept and will continue to keep itself fully apprised of the financial and other condition of Borrower. This Agreement
may be amended only by written instrument signed by Creditor and Agent, upon the approval of the Majority Lenders.

 

[Signature page follows.]

 

 

Subordination Agreement (Lilis
Energy)

    	5.

    	 

    

 

IN WITNESS WHEREOF, the undersigned have executed
this Agreement as of the date first above written.

 

		BORROWER:
	 	 	 
	 	LILIS, INC.,
	 	a Nevada corporation
	 	 	 
	 	By: 	/s/ Abraham Mirman
	 	Name: 	Abraham Mirman
	 	Title: 	CEO
	 	 	 
	 	Address
for Notices:

                                                    

1900
Grant Street #920

Denver, CO 80203

Attn: Chief Financial Officer

 

 

Subordination Agreement (Lilis
Energy)

    	6.

    	 

    

 

CREDITORS:

 

	 	T.R. Winston & Company, LLC, a Delaware limited liability company
	 	 	 
	 	 	/s/ G. Tyler Runnels
	 	Name: 	G. Tyler Runnels
	 	Title:	Chairman & CEO
	 	 	 
	 	EZ Colony Partners, LLC, a Delaware limited liability company
	 	 	 
	 	 	/s/ Bryan Ezralow
	 	Name: 	Bryan Ezralow as Trustee of the Marc
	 	 	Ezralow 1994 Trust
	 	Title:	Manager and Member
	 	 	 
	 	Jonathan & Nancy Glaser Family Trust

                    DTD 12/16/1998 Jonathan M. Glaser and

                    Nancy E. Glaser TTEES

	 	 	 
	 	 	/s/ Jonathan Glaser
	 	Name: 	Jonathan Glaser
	 	Title: 	Trustee
	 	 	 
	 	Wallington Investment Holdings, Ltd.
	 	 	 
	 	 	/s/ Pierre Caland
	 	Name: 	Pierre Caland
	 	Title: 	Director
	 	 	 
	 	Steven B. Dunn and Laura Dunn Revocable Trust

                                                   DTD 10/28/10, Steven B. Dunn & Laura Dunn TTEES

	 	 	 
	 	 	/s/ Steven B. Dunn
	 	Name: 	Steven B. Dunn
	 	Title: 	Trustee
	 	 	 
	 	G. Tyler Runnels and Jasmine N. Runnels

                                                   TTEES The Runnels Family Trust DTD 1-11-2000

	 	 	 
	 	 	/s/ G. Tyler Runnels
	 	Name: 	G. Tyler Runnels
	 	Title:	Trustee
	 	 	 
	 	EMSE, LLC,
	 	a Delaware limited liability company
	 	 	 
	 	 	/s/ Bryan Ezralow
	 	Name: 	Bryan Ezralow
	 	Title:	Trustee
	 	 	 
	 	Address for Notices (all Creditors):
	 	 	T.R. Winston & Company, LLC
	 	 	2049 Century Park East
	 	 	Suite 320
	 	 	Los Angeles, CA 90067

 

 

Subordination Agreement (Lilis
Energy)

    	7.

    	 

    

 

	 	AGENT:
	 	 	 
	 	HEARTLAND BANK,
	 	 	 
	 	By: 	/s/ Phil Thomas
	 	Name: 	Phil Thomas
	 	Title: 	CLO/EVP
	 	 	 
	 	Address for Notices:

One Information Way, Suite 105

Little Rock, Arkansas 72202

Telephone No.: 501-734-0125

Attention: Greg White

Email: gwhite@rockfncl.com

 

 

Subordination Agreement (Lilis
Energy)

    	8.

    	 

    

 

SCHEDULE 1

 

COLLATERAL

 

 

Subordination Agreement (Lilis
Energy)

    	9.

    	 

    

 

SCHEDULE 2

 

SENIOR COLLATERAL

 

The Hydrocarbon Interests represented by the
following leases (the “Retained Interests”):

 

●

 

For the purposes of this Agreement, “Triggering
Event” shall mean the conclusion, by final, non-appealable judgment or negotiated settlement approved by the applicable
court, of the ongoing disagreement between Borrower and Great Western Oil & Gas Company, and their respective affiliates, including
the Creditor, regarding the Retained Interests.

 

 

Subordination Agreement (Lilis
Energy)

 

10.Exhibit 10.12(d)

 

MORTGAGE, SECURITY AGREEMENT, 

FIXTURE FILING AND FINANCING STATEMENT

(Colorado Oil and Gas Properties)

FROM

LILIS ENERGY, INC., Mortgagor

a Nevada corporation

(Charter/File/Organizational I.D. No. E0615822007-2)

 

TO

HEARTLAND BANK, 

in its capacity as Agent, Mortgagee

Dated as of January 8, 2015

 

THIS INSTRUMENT IS A MORTGAGE OF BOTH REAL
AND PERSONAL PROPERTY AND IS, AMONG OTHER THINGS, A MORTGAGE OF CHATTELS, A SECURITY AGREEMENT, A FIXTURE FILING AND A FINANCING
STATEMENT.

 

“THIS INSTRUMENT CONTAINS AFTER ACQUIRED
PROPERTY PROVISIONS.”

 

“THIS INSTRUMENT SECURES PAYMENT OF FUTURE
ADVANCES.”

 

THIS INSTRUMENT WAS PREPARED BY, AND RECORDED
COUNTERPARTS SHOULD BE RETURNED TO:

 

JACKSON WALKER L.L.P.

901 Main Street, Suite 6000

Dallas, Texas 75202-3797

Attention: David S. Stolle

 

    	 

    	 

    

 

MORTGAGE, SECURITY
AGREEMENT,

FIXTURE FILING
AND FINANCING STATEMENT

 

THIS MORTGAGE, SECURITY
AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this “Mortgage”) is from LILIS ENERGY, INC., a Nevada
corporation, as Mortgagor (the “Mortgagor”), to HEARTLAND BANK, an Arkansas state bank, as administrative
agent (“Agent”). The addresses of the Mortgagor and the Mortgagee are set forth in Section 9.14
hereof.

 

ARTICLE
I

DEFINITIONS

 

1.1.For all purposes
of this Mortgage, unless the context otherwise requires:

 

“Accounts and
Contract Rights” means all accounts (including accounts in the form of joint interest billings), contract rights and
general intangibles of the Mortgagor now or hereafter existing, or hereafter acquired by, or on behalf of, the Mortgagor or the
Mortgagor’s successors in interest, relating to the sale, purchase, exchange, extraction, transportation or processing of
Hydrocarbons produced or to be produced from the Mortgaged Property, together with all accounts and proceeds accruing to the Mortgagor
attributable to the sale of Hydrocarbons produced from the Mortgaged Property.

 

“As-Extracted
Collateral” means Hydrocarbons which may be extracted from the Mortgaged Property, and the accounts relating thereto,
which will be financed at the wellheads of the wells located on the Mortgaged Property and accounts arising out of the sale thereof.

 

“Borrower”
means the Mortgagor.

 

“Business Day”
means any day that is not a Saturday, Sunday or other day on which commercial banks in Dallas, Texas, are authorized or required
by Law to remain closed.

 

“Certificates
of Ownership Interests” means the Certificates of Ownership Interests, if any, delivered by the Mortgagor in connection
with the Credit Agreement.

 

“Code”
means the Uniform Commercial Code as in effect in Colorado.

 

“Credit Agreement”
means the Credit Agreement between the Borrower and Agent, for the benefit of the Lenders, pursuant to which one or more of the
Notes were issued, as the Credit Agreement may be amended from time to time.

 

“Credit Parties”
means Agent, any other Lender, and “Credit Party” means any of them.

 

“Effective Date”
means the date on which this Mortgage is executed.

 

    	1

    	 

    

 

“Event of Default”
has the meaning stated in Article VII of this Mortgage.

 

“Exhibit A”
means, unless specifically indicated otherwise, Exhibit A attached hereto.

 

“Hydrocarbon Proceeds”
has the meaning stated in Section 5.1 of this Mortgage.

 

“Hydrocarbons”
means oil, gas, casinghead gas, drip gasoline, natural gasoline and condensate and all other liquid or gaseous hydrocarbons.

 

“Indebtedness”
or “Secured Indebtedness” means all the indebtedness, obligations, and liabilities described or referred to
in Section 3.1 of this Mortgage.

 

“Lands”
means the lands described in Exhibit A and shall include any lands, the description of which is contained in Exhibit A
or incorporated in or referred to in Exhibit A by reference to another instrument or document, including, without limitation,
all lands described in the Oil and Gas Leases, and shall also include any lands now or hereafter unitized, pooled, spaced, or otherwise
combined, whether by statute, order, agreement, declaration or otherwise, with lands the description of which is contained in Exhibit A
or is incorporated in Exhibit A by reference.

 

“Law”
means at any time with respect to any Person or its Property, any statute, law, executive order, treaty, ordinance, order, writ,
injunction, judgment, ruling, decree, regulation, or determination of an arbitrator, court or other Governmental Authority, existing
at such time which 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.

 

“Lender”
means Heartland Bank, in its capacity as a lender, and such other or additional lenders as may from time to time be parties to
the Credit Agreement, and each of their successors and assigns.

 

“Loan Obligations”
means the “Obligations,” as such term is defined in the Credit Agreement.

 

“Loan Documents”
means the Notes, this Mortgage, the Credit Agreement and all other documents, instruments and agreements delivered to the Mortgagee
at any time in connection with the Credit Agreement, as any of the foregoing are amended, extended, renewed, restated or supplemented
from time to time.

 

“Mortgaged Property”
has the meaning stated in Article II of this Mortgage.

 

“Mortgagee”
means Agent, as contractual representative for itself and the other Credit Parties.

 

“Net Revenue Interest”
means Mortgagor’s share of the total production of oil, gas and other Hydrocarbons produced from the Lands, after deducting
Mortgagor’s share of all lessors’ royalties, overriding royalties, production payments and other payments out of, or
measured by, production.

 

    	2

    	 

    

 

“Notes”
means the promissory note or notes identified in Section 3.1.1 of this Mortgage, and all renewals, extensions, replacements
and modifications thereof or additional promissory notes issued under the Credit Agreement.

 

“Oil and Gas Leases”
means, collectively, oil, gas and mineral leases, oil and gas leases, oil leases, gas leases, other mineral leases, subleases and
assignments of operating rights pertaining to any of the foregoing, and all other interests pertaining to any of the foregoing,
including, without limitation, all royalty and overriding royalty interests, production payments and net profit interests, mineral
fee interests, and all contingent reversionary and carried interests relating to any of the foregoing and all other rights therein,
which are described and/or to which reference may be made on Exhibit A and/or in any document or instrument referred
to in Exhibit A and/or which cover or relate to any of the Lands.

 

“Operating Equipment”
means all personal property and fixtures pertaining, affixed or incidental to, situated upon or used or useful in connection with
all or any part of the Mortgaged Property, including, without limitation, all surface or subsurface machinery, equipment, facilities,
or other personal property of whatsoever kind or nature (excluding drilling rigs, trucks, automotive equipment or other personal
property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on any of the Lands
which are useful for the production, treatment, storage, transportation or sale of oil or gas, including, but not by way of limitation,
all oil wells, gas wells, water wells, injection wells, saltwater disposal wells, casing, tubing, rods, pumping units and engines,
Christmas trees, derricks, separators, gun barrels, flow lines, tanks, gas systems, (for gathering, treating and compression),
water systems (for treating, disposal and injection), power plants, poles, lines, transformers, starters and controllers, machine
shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems,
roads, loading racks and shipping facilities.

 

“Person”
means a natural person, a corporation, a partnership, a limited partnership, a limited liability company, an association, a joint
venture, a trust or any other entity or organization, including a government or political subdivision thereof or any governmental
agency or instrumentality thereof.

 

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

 

“Section”
and “Article” means and refer to a section or article of this Mortgage, unless specifically indicated otherwise.

 

“Secured Indebtedness”
or “Indebtedness” means all the indebtedness, obligations, and liabilities described or referred to in Section 3.1
of this Mortgage.

 

“Subject Interests”
has the meaning stated in Article II of this Mortgage.

 

    	3

    	 

    

 

“Well Data”
means all logs, drilling reports, division orders, transfer orders, operating agreements, abstracts, title opinions, files, records,
memoranda and other written or electronic information in the possession or control of the Mortgagor relating to any wells located
on any of the Lands described in Exhibit A.

 

1.2.Other Defined
Terms. The capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement, unless they are
otherwise defined herein or the context otherwise requires.

 

ARTICLE
II

GRANTING CLAUSE - MORTGAGED PROPERTY

 

2.1.The Mortgagor,
for and in consideration of the premises and as security for the Secured Indebtedness hereinafter defined, has GRANTED, BARGAINED,
SOLD, WARRANTED, MORTGAGED, PLEDGED, ASSIGNED, TRANSFERRED and CONVEYED, and by these presents does GRANT, BARGAIN, SELL, WARRANT,
MORTGAGE, PLEDGE, ASSIGN, TRANSFER and CONVEY, unto the Mortgagee all the Mortgagor’s right, title and interest, whether
now owned or hereafter acquired, in all of the hereinafter described properties, rights and interests; and, insofar as such properties,
rights and interests consist of equipment, general intangibles, accounts, contract rights, inventory, fixtures, proceeds and products
of collateral or any other personal Property of a kind or character defined in or subject to the applicable provisions of the Code,
the Mortgagor hereby grants to the Mortgagee a security interest in all of Mortgagor’s right, title and interest therein,
whether now owned or hereafter acquired, namely:

 

2.1.1.All of those
certain Oil and Gas Leases, Lands, minerals, interests, and other properties (all such Oil and Gas Leases, Lands, interests and
other properties being herein called the “Subject Interests”, as hereinafter further defined) which are described
on Exhibit A and/or to which reference may be made on Exhibit A and/or which cover any of the Lands described on
Exhibit A and/or which are located in or under any of the Lands described on Exhibit A and/or which are covered
by any of the leases, assignments or documents described on or referred to in any document or instrument referred to in Exhibit
A, which Exhibit A is made a part of this Mortgage for all purposes, and is incorporated herein by reference as fully
as if copied at length in the body of this Mortgage at this point;

 

2.1.2.All rights, titles,
interests, and estates now owned or hereafter acquired by the Mortgagor in and to (i) any and all properties now or hereafter pooled
or unitized with any of the Subject Interests, and (ii) all presently existing or future unitization, communitization, and pooling
agreements and the units created thereby which include all or any part of the Subject Interests, including, without limitation,
all units formed under or pursuant to any Laws. The rights, titles, interests, and estates described in this Section 2.1.2
shall also be included within the term “Subject Interests” as used herein.

 

    	4

    	 

    

 

2.1.3.All presently existing
and future agreements hereafter entered into between the Mortgagor and any third party that provide for acquisition by the Mortgagor
of any interest in any of the properties or interests specifically described in Exhibit A or which relate to any of the
properties and interests specifically described in Exhibit A;

 

2.1.4.The Hydrocarbons
(including inventory) which are in, under, upon, produced or to be produced from or attributable to the Lands and/or the Subject
Interests;

 

2.1.5.The Accounts and
Contract Rights;

 

2.1.6.The Operating Equipment;

 

2.1.7.The As-Extracted
Collateral;

 

2.1.8.The Well Data;

 

2.1.9.The rights and
security interests of the Mortgagor held by the Mortgagor to secure the obligation of the first purchaser to pay the purchase price
of the Hydrocarbons together with any and all accounts, proceeds, substitutions, replacements, corrections or amendments to, or
renewals, extensions or ratifications of, any of the foregoing, or of any instrument relating thereto;

 

2.1.10.All surface leases,
rights-of-way, franchises, easements, servitudes, licenses, privileges, tenements, hereditaments and appurtenances now existing
or in the future obtained in connection with any of the aforesaid, and all other things of value and incident thereto which the
Mortgagor may at any time have or be entitled to; and

 

2.1.11.All and any
different and additional rights of any nature, of value or convenience in the enjoyment, development, operation or production,
in any wise, of any Property or interest included in any of the foregoing clauses, and in all revenues, income, rents, issues,
profits and other benefits arising therefrom or from any contract now in existence or hereafter entered into pertaining thereto,
and in all rights and claims accrued or to accrue for the removal by anyone of oil and gas from, or other act causing damage to,
any of such properties or interests;

 

all the aforesaid properties,
rights and interests, together with any additions thereto which may be subjected to the lien of this Mortgage by means of supplements
hereto, being hereinafter called the “Mortgaged Property”;

 

subject, however, to (i)
the restrictions, exceptions, reservations, conditions, limitations, interests and other matters, if any, set forth or referred
to in the specific descriptions of such properties and interests in Exhibit A (including all presently existing royalties,
overriding royalties, payments out of production and other burdens which are referred to in Exhibit A and which are taken
into consideration in computing the decimal or fractional interest as set forth in the Certificates of Ownership Interests); (ii)
any operator’s lien arising by operation of applicable Law (or pursuant to the provisions of an operating agreement designating
a Person other than the Mortgagor as operator) which has been perfected under applicable Law prior to the date of this Mortgage
or of which the Mortgagee has constructive or actual notice as of the Effective Date; (iii) the assignment of production contained
in Article V hereof; (iv) liens, security interests, charges or encumbrances permitted by Section 4.5.6
of this Mortgage and (v) the condition that the Mortgagee shall not be liable in any respect for the performance of any covenant
or obligation of the Mortgagor with respect to the Mortgaged Property;

 

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TO HAVE AND TO HOLD the
Mortgaged Property unto the Mortgagee, its successors and assigns, forever, to secure the payment of the Secured Indebtedness and
to secure the performance of the obligations of the Mortgagor contained herein.

 

ARTICLE
III

INDEBTEDNESS SECURED

 

3.1.Notes and Secured
Indebtedness. This Mortgage is given to secure the following indebtedness, obligations and liabilities:

 

3.1.1.The Loan Obligations
of the Mortgagor, as evidenced in part by those certain promissory notes (together with all renewals, extensions, and modifications
thereof) executed by the Mortgagor and payable to the order of the Lender in the aggregate original principal amount of up to $25,000,000,
which notes bear interest as provided therein and contain provisions for payment of attorneys’ fees as therein set forth,
and including all obligations and indebtedness of the Mortgagor to the Lender in respect of Hedging Agreements and all Hedging
Transactions entered into thereunder, whether now existing or hereafter created;

 

3.1.2.Any sums advanced
as expenses or costs incurred by, or on behalf of, the Mortgagee (or any receiver appointed hereunder) which are made or incurred
pursuant to, or permitted by, the terms of this Mortgage or the other Loan Documents, plus interest thereon at the rate herein
specified or otherwise agreed upon, from the date of advance or expenditure until reimbursed; and

 

3.1.3.All other and
additional debts, obligations and liabilities of every kind and character of the Mortgagor now or hereafter owed to Agent, regardless
of whether such debts, obligations and liabilities are specifically listed and described above or are direct or indirect, primary
or secondary, joint, several, or joint and several, fixed or contingent, and whether incurred by the Mortgagor as a maker, endorser,
guarantor, surety or otherwise, and regardless of whether such present or future debts, obligations and liabilities may, prior
to their acquisition by Agent, be or have been payable to, or be or have been in favor of, some other Person or have been acquired
by Agent in a transaction with one other than the Mortgagor, together with any and all renewals and extensions of such debts, obligations
and liabilities, or any part thereof (it being contemplated that Agent may in the future lend additional sums of money to the Mortgagor,
from time to time, but shall not be obligated to do so, and that all such additional sums and loans shall be part of the Secured
Indebtedness).

 

3.2.Final Maturity.
Unless earlier payment is required by the terms of the Notes or the Credit Agreement (including earlier payment as a result of
the acceleration of payment of the Notes or amounts owed pursuant to the Credit Agreement), the Notes and amounts owed under the
Credit Agreement shall mature ten years following the date of this Mortgage or, if such due date can be extended under applicable
Law without filing an amendment to this Mortgage, such later date as is specified (by amendment or otherwise) in the Notes or Credit
Agreement.

 

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3.3.Future Advances.
The Mortgagor and the Mortgagee agree and acknowledge that any Lender may elect to make additional advances under the terms of
the Notes, the Credit Agreement or otherwise, and that any such future advances shall be subject to, and secured by, this Mortgage.
If the Secured Indebtedness decreases or increases pursuant to the terms of the Notes, the Credit Agreement, or otherwise, at any
time or from time to time, this Mortgage shall retain its priority position of record until (a) the termination of the Credit Agreement,
(b) the full, final and complete payment of all the Secured Indebtedness, and (c) the full release and termination of the liens
and security interests created by this Mortgage. The aggregate unpaid principal amount of the Secured Indebtedness outstanding
at any particular time which is secured by this Mortgage shall not aggregate in excess of $50,000,000. Such amount does not in
any way imply that any Credit Party is obligated to make any future advances to the Mortgagor at any time unless specifically so
provided in the Credit Agreement or any other Loan Document.

 

ARTICLE
IV

COVENANTS, REPRESENTATIONS, WARRANTIES AND

AGREEMENTS OF MORTGAGOR

 

The Mortgagor covenants,
represents, warrants, and agrees that:

 

4.1.Payment of Indebtedness.
The Mortgagor will duly and punctually pay or cause to be paid all of the Indebtedness.

 

4.2.Warranties.
(a) The Oil and Gas Leases are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the
properties to which they pertain; (b) the Mortgagor owns an interest in the oil and gas leases and properties described in Exhibit A
hereto and, to the extent of the interest specified in the Certificates of Ownership Interests, has valid and defensible title
to each Property right or interest constituting the Mortgaged Property and has a good and legal right to make the grant and conveyance
made in this Mortgage, it being understood that the Mortgagor’s interest in each Oil and Gas Lease or Operating Equipment
shall exceed Mortgagor’s Net Revenue Interest in production from such Oil and Gas Lease to the extent of the Mortgagor’s
proportionate share of all royalties, overriding royalties, and other such payments out of production burdening the Mortgagor’s
interest in each such Oil and Gas Lease; (c) the Mortgagor’s present Net Revenue Interest in the Mortgaged Property is not
less than that specified in the Certificates of Ownership Interests; (d) the Mortgaged Property is free from all encumbrances or
liens whatsoever, except as may be specifically set forth in Exhibit A or as permitted by the provisions of Section 4.5.6;
and (e) the Mortgagor is not obligated, by virtue of any deficiency presently existing under any contract providing for the sale
by the Mortgagor of Hydrocarbons which contains a “take or pay” clause or under any similar arrangement, to deliver
Hydrocarbons at some future time without then or thereafter receiving full payment therefor. The Mortgagor will warrant and forever
defend the Mortgaged Property unto the Mortgagee against every Person whomsoever lawfully claiming the same or any part thereof
(except with respect to liens or other encumbrances permitted by Section 4.5.6), and the Mortgagor will maintain and preserve
the lien and security interest hereby created so long as any of the Secured Indebtedness remains unpaid.

 

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4.3.Further Assurances.
Promptly, but in any event within five (5) Business Days following a written request from the Mortgagee, the Mortgagor will execute
and deliver such other and further instruments and will do such other and further acts as in the reasonable opinion of the Mortgagee
may be necessary or desirable to carry out more effectively the purposes of this Mortgage, including, without limiting the generality
of the foregoing, (a) prompt correction of any defect which may hereafter be discovered in the title to the Mortgaged Property
or in the execution and acknowledgment of this Mortgage, any Notes, or any other document used in connection herewith or at any
time delivered to the Mortgagee in connection with any Secured Indebtedness, and (b) prompt execution and delivery of all division
or transfer orders that in the opinion of the Mortgagee are needed to transfer effectively the assigned proceeds of production
from the Mortgaged Property to the Mortgagee.

 

4.4.Taxes. Subject
to the Mortgagor’s right to contest the same in good faith and by appropriate proceedings, the Mortgagor will promptly pay
all taxes, assessments and governmental charges legally imposed upon this Mortgage or upon the Mortgaged Property or upon the interest
of the Mortgagee therein, or upon the income, profits, proceeds and other revenues thereof; provided that, in the alternative,
the Mortgagor must, if it is unlawful for the Mortgagor to pay such taxes or to reimburse Mortgagee for such taxes, prepay that
portion of the Secured Indebtedness which the Mortgagee in good faith determines is secured by Property covered by such Law within
sixty (60) days after demand therefor by the Mortgagee.

 

4.5.Operation of
the Mortgaged Property. So long as the Secured Indebtedness or any part thereof remains unpaid, and whether or not the Mortgagor
is the operator of the Mortgaged Property, the Mortgagor shall, at the Mortgagor’s own expense and subject to the terms of
the Loan Documents:

 

4.5.1.Maintain, develop
and operate the Subject Interests in a good and workmanlike manner and will observe and comply in all material respects with all
of the terms and provisions, express or implied, of the Oil and Gas Leases in order to keep the Oil and Gas Leases in full force
and effect so long as the Oil and Gas Leases are capable of producing Hydrocarbons in commercial quantities;

 

4.5.2.Comply in all material
respects with all contracts and agreements applicable to or relating to the Mortgaged Property or the production and sale of Hydrocarbons
therefrom and all applicable proration and conservation Laws of the jurisdictions in which the Mortgaged Property is located, and
all applicable Laws, rules and regulations of every agency and authority from time to time constituted to regulate the development
and operation of the Mortgaged Property and the production and sale of Hydrocarbons therefrom;

 

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4.5.3.Commence such development
as may be reasonably necessary to the prudent and economical operation of the Mortgaged Property, including such work as may be
appropriate to protect the Mortgaged Property from diminution in the production capacity thereof and against drainage of Hydrocarbons
thereunder by reason of production on other Property;

 

4.5.4.At all times, maintain,
preserve and keep all Operating Equipment in proper repair, working order and condition, and make all necessary or appropriate
repairs, renewals, replacements, additions and improvements thereto, so that the efficiency of such Operating Equipment shall at
all times be properly preserved and maintained, provided that no item of Operating Equipment need be so repaired, renewed,
replaced, added to or improved, if the Mortgagor shall in good faith determine that such action is not necessary or desirable for
the continued efficient and profitable operation of the business of the Mortgagor and the failure to take such action shall not
prejudice the interests of the Mortgagee;

 

4.5.5.Not abandon or
cease developing, maintaining, operating and producing Hydrocarbons from, or cause or permit its agent to abandon, or cease developing,
maintaining, operating, and producing Hydrocarbons from, any producing Mortgaged Property without first having undertaken and completed
all reasonably prudent measures under the circumstances to restore such producing Mortgaged Property to economic production, and
then only if the aggregate projected future ad valorem and severance taxes and operating expenses with respect to said Mortgaged
Property exceed the projected future gross revenues attributable thereto;

 

4.5.6.Cause the Mortgaged
Property to be kept free and clear of all liens, security interests, charges and encumbrances of every character, other than (i)
Permitted Liens, and (ii) those hereafter consented to in writing by the Mortgagee; provided that no intention to subordinate
the first priority liens, security interests, and encumbrances granted in favor of or for the benefit of the Mortgagee is hereby
implied or expressed or is to be inferred by the permitted existence of the liens, security interests and encumbrances referred
to in this Section 4.5.6 or elsewhere herein;

 

4.5.7.Maintain or cause
to be maintained insurance with such insurers, in such amounts and covering such risks as is required by the Credit Agreement;
and

 

4.5.8.Not sell, convey,
trade, exchange, pool or unitize any portion of the Mortgaged Property or any of Mortgagor’s rights, titles, or interests
therein or thereto, except as specifically provided otherwise herein or in the Credit Agreement;

 

provided that with respect to Mortgaged
Property which is operated by operators other than the Mortgagor or any Affiliate of the Mortgagor, the 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 the Mortgagor; and provided further, that the Mortgagor agrees to promptly
take all commercially reasonable actions available to the Mortgagor under any operating agreement or otherwise to bring about the
performance of any such undertaking required to be performed by such operators.

 

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4.6.Recording.
The Mortgagor will promptly and at the Mortgagor’s expense, record, register, deposit and file this Mortgage and every other
instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to
preserve, protect and renew the lien and security interest hereof as a first lien and security interest on real or personal Property,
as the case may be, and the rights and remedies of the Mortgagee, and otherwise will do and perform all matters or things necessary
or expedient to be done or observed by reason of any Law or regulation of any state or of the United States or of any other competent
authority, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on the Mortgaged
Property.

 

4.7.Records, Statements
and Reports. The Mortgagor will keep proper books of record and account in which complete correct entries will be made of the
Mortgagor’s transactions in accordance with sound accounting principles consistently applied and will furnish or cause to
be furnished to the Mortgagee (a) all reports required under the Loan Documents, and (b) such other information concerning the
business and affairs and financial condition of the Mortgagor as the Mortgagee may from time to time reasonably request.

 

4.8.No Governmental
Approvals. The Mortgagor warrants that no approval or consent of any regulatory or administrative commission or authority,
or of any other governmental body, is necessary to authorize the execution and delivery of this instrument, or any of the other
Loan Documents or the Notes, or to authorize the observance or performance by the Mortgagor of the covenants herein or therein
contained.

 

4.9.Right of Entry.
Upon reasonable prior notice, the Mortgagor will permit the Mortgagee or its agents or designated representatives to enter upon
the Mortgaged Property, and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof.

 

4.10.Flood Insurance
Regulation. Notwithstanding any provision in this Mortgage to the contrary, in no event is any Building (as defined in the
applicable Flood Insurance Regulation) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulation)
located on the Mortgaged Property within an area having special flood hazards and in which flood insurance is available under the
National Flood Insurance Act of 1968 included in the definition of “Mortgaged Property” and no Building or Manufactured
(Mobile) Home is hereby encumbered by this Mortgage. As used herein, “Flood Insurance Regulations” shall mean (i) the
National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection
Act of 1973 as now or hereafter in effect or any successor statue thereto, (iii) the National Flood Insurance Reform Act of 1994
(amending 42 USC 4001, et seq.), as the same may be amended or recodified from time to time, and (iv) the Flood Insurance Reform
Act of 2004 and any regulations promulgated thereunder.

 

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ARTICLE
V

ASSIGNMENT OF PRODUCTION

 

5.1.Assignment.
As further security for the payment of the Secured Indebtedness and performance of the obligations contained herein, the Mortgagor
hereby transfers, assigns, warrants and conveys to the Mortgagee all Hydrocarbons, and the proceeds and products obtained or processed
therefrom (such proceeds and products being in this Article V called “Hydrocarbon Proceeds” or “Proceeds”),
produced and to be produced from, or which accrue by pooling, unitization or otherwise, to the Mortgaged Property, in order to
provide a source of future payment of the Loan Obligations and the other Secured Indebtedness. All parties producing, purchasing
or receiving any such Hydrocarbons, or having such, or Hydrocarbon Proceeds therefrom, in their possession for which they or others
are accountable to the Mortgagee by virtue of the provisions of this Article V, are authorized and directed to treat
and regard the Mortgagee as the assignee and transferee of the Mortgagor and entitled in the Mortgagor’s place and stead
to receive such Hydrocarbons and all Hydrocarbon Proceeds therefrom; and such parties and each of them shall be fully protected
in so treating and regarding the Mortgagee, and shall be under no obligation to see to the application by the Mortgagee of any
such proceeds or payments received by the Mortgagee.

 

5.2.Payments.
This Article V constitutes a present assignment effective as of the Effective Date, but in the event that the Mortgagee
should elect not to exercise immediately its right to receive Hydrocarbons or Hydrocarbon Proceeds, then the purchasers or other
persons obligated to make such payment may continue to make payment to Mortgagor until such time as written demand has been made
upon them by the Mortgagee that payment be made directly to the Mortgagee. Such failure to notify shall not in any way waive the
right of the Mortgagee to receive any payments not theretofore paid out to the Mortgagor before the giving of written notice. In
the event payments are made directly to the Mortgagee, and then, at the request of the Mortgagee, payments are for a period or
periods of time paid to the Mortgagor, the Mortgagee shall nevertheless have the continuing right, effective upon written notice,
to require that future payments be again made to the Mortgagee. The Mortgagor and the Mortgagee agree, and it is the intention
of the Mortgagor and the Mortgagee, that in no event will any reduction in the Loan Obligations or the other Secured Indebtedness
be measured by the fair market value of the Hydrocarbons, other minerals, proceeds, or other rents, profits, or income assigned
to the Mortgagee under this Mortgage.

 

5.3.No Restriction
on the Rights. Nothing herein contained shall detract from or limit the absolute obligation of the Mortgagor to make payment
of the Secured Indebtedness regardless of whether the Hydrocarbons and Hydrocarbon Proceeds assigned by this Article V
are sufficient to pay the same, and the rights under this Article V shall be in addition to all other security now
or hereafter existing to secure the payment of the Secured Indebtedness.

 

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5.4.Use of Hydrocarbon
Proceeds. The Mortgagee or any receiver appointed in judicial proceedings for the enforcement of this Mortgage shall have the
right to receive all of the Hydrocarbons herein assigned and the Hydrocarbon Proceeds therefrom and may, in the sole discretion
of the Mortgagee, apply all of such Hydrocarbon Proceeds as follows or in such other order of priority as the Mortgagee may determine:

 

First:
To the payment and satisfaction of all costs and expenses incurred in connection with the collection of such Hydrocarbon Proceeds;

 

Second:
To the payment and satisfaction of the Loan Obligations; and

 

Third:
To the payment and satisfaction of any other or additional amounts owed to Agent; and

 

Fourth:
Any surplus thereafter remaining shall be paid to the Mortgagor or the Mortgagor’s successors or assigns, as their interests
may appear of record or otherwise as required by Law.

 

Upon any sale of the Mortgaged Property or
any part thereof pursuant to Article VIII, the Hydrocarbons thereafter produced from the Mortgaged Property so sold,
and the Hydrocarbon Proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment
contained in this Article V.

 

5.5.Mortgagee as
Agent and Attorney-in-Fact. The Mortgagor hereby irrevocably designates and appoints the Mortgagee as the Mortgagor’s
true and lawful agent and attorney-in-fact (with full power of substitution, either generally or for such limited periods or purposes
as the Mortgagee may from time to time prescribe), with full power and authority, for and on behalf and in the name of the Mortgagor,
to execute, acknowledge and deliver all such division orders, transfer orders, certificates and other documents of every nature,
with such covenants, warranties, indemnities and other provisions as may from time to time, in the opinion of the Mortgagee, be
necessary or proper to effectuate the intent and purpose of the assignment contained in Section 5.1 hereof. The Mortgagor
shall be bound thereby as fully and effectively as if the Mortgagor had personally executed, acknowledged and delivered any such
division order, transfer order, certificate and other documents. The powers and authorities herein conferred on the Mortgagee may
be exercised by the Mortgagee through any Person who, at the time of the execution of a particular instrument, is an officer of
the Mortgagee. The power of attorney conferred by this Section 5.5 is granted for a valuable consideration and hence
is coupled with an interest and is irrevocable so long as the Secured Indebtedness, or any part thereof, shall remain unpaid. All
Persons dealing with the Mortgagee, or any officer thereof above designated, or any substitute, shall be fully protected in treating
the powers and authorities conferred by this Section 5.5 as continuing in full force and effect until advised in writing
by the Mortgagee that all the Secured Indebtedness is fully and finally paid.

 

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5.6.Indemnity.
The Mortgagor agrees to indemnify the Mortgagee and each Credit Party on a current basis against all claims, actions, liabilities,
judgments, costs, reasonable attorneys’ fees or other charges of whatsoever kind or nature, INCLUDING, WITHOUT LIMITATION,
ANY OF THE FOREGOING IN THIS SECTION ARISING FROM THE SOLE, COMPARATIVE, CONCURRENT OR CONTRIBUTORY NEGLIGENCE, BUT EXCLUDING GROSS
NEGLIGENCE OR INTENTIONAL MISCONDUCT, OF THE MORTGAGEE OR ANY CREDIT PARTY (all hereinafter in this Section 5.6
called “claims”) made against or incurred by the Mortgagee or any Credit Party as a consequence of the assertion,
either before or after the payment in full of the Secured Indebtedness, that the Mortgagee or any Credit Party received Hydrocarbons
herein assigned or the proceeds thereof claimed by third persons, and the Mortgagee and the Credit Party shall have the exclusive
right to defend against any such claims, employing attorneys therefor, and unless furnished with reasonable indemnity, the Mortgagee
and the Credit Party shall have the right to pay or compromise and adjust all such claims. The Mortgagor will indemnify and pay
to the Mortgagee and the Credit Party any and all such amounts as may be paid in respect thereof or as may be successfully adjudged
against the Mortgagee or any Credit Party. The obligations of the Mortgagor as hereinabove set forth in this Section 5.6
shall survive the release of this instrument.

 

ARTICLE
VI

ADDITIONS TO MORTGAGED PROPERTY; SUBROGATION

 

6.1.Additions to
Mortgaged Property. It is understood and agreed that the Mortgagor may periodically subject additional properties to the lien
and security interest of this Mortgage. In the event that additional properties are to be subjected to the lien and security interest
hereof, the parties hereto agree to execute a supplemental mortgage, satisfactory in form and substance to both Mortgagor and Mortgagee,
together with any security agreement, financing statement or other security instrument required by the Mortgagee, all in form and
substance satisfactory to the Mortgagor and Mortgagee and in a sufficient number of executed (and, where necessary or appropriate,
acknowledged) counterparts for recording purposes. Upon execution of such supplemental mortgage, all additional properties thereby
subjected to the lien and security interest of this Mortgage shall become part of the Mortgaged Property for all purposes.

 

6.2.Subrogation.
To the extent that the proceeds of any Secured Indebtedness was or is used to pay any indebtedness or obligations secured by any
lien, security interest, charge or prior encumbrance against the Mortgaged Properties or such proceeds have been or will be advanced
by the Mortgagee or the Credit Parties to the Mortgagor or to any other Person, then the Mortgagee shall, for the benefit of the
Credit Parties, be subrogated to any and all of such liens, security interests, charges or prior encumbrances, irrespective of
whether such liens, security interests, charges or prior encumbrances are released (unless such release is executed by the Mortgagee).

 

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ARTICLE
VII

EVENTS OF DEFAULT

 

7.1.Events of Default.
In the event anyone or more of the following “Events of Default” has occurred and has not been waived:

 

7.1.1.Any event of
default or default specified in the Loan Documents shall have occurred and the cure period, if any, with respect thereto shall
have elapsed; or

 

7.1.2.The failure of
any principal or interest on the Notes to be paid when due or to be paid at the maturity thereof, whether stated or by acceleration;

 

then and in any such event
the Mortgagee, at its sole option and discretion, may declare all or any portion of the unpaid principal of and the interest accrued
on the Notes and all other Secured Indebtedness secured hereby to be immediately due and payable, without any notice or demand
of any kind, all of which are hereby expressly waived.

 

ARTICLE
VIII

ENFORCEMENT OF THE SECURITY

 

8.1.General Remedies.
Upon the occurrence and during the continuance of an Event of Default, the Mortgagee may, at its sole option and discretion, subject
to any mandatory requirements or limitations of Law then in force and applicable thereto:

 

8.1.1.Exercise all of
the rights, remedies, powers and privileges of the Mortgagor with respect to the Mortgaged Property or any part thereof, give or
withhold all consents required therein which the Mortgagor would otherwise be entitled to give or withhold, and perform or attempt
to perform any covenants in this Mortgage which the Mortgagor is obligated to perform; provided that no payment or performance
by the Mortgagee shall constitute a waiver of any Event of Default, and the Mortgagee shall be subrogated to all rights and liens
securing the payment of any debt, claim, tax, or assessment for the payment of which the Mortgagee may make an advance or pay;

 

8.1.2.Appoint as a matter
of right, or seek the appointment of, a receiver or receivers to serve without bond for all or any part of the Mortgaged Property,
whether such receivership be incident to a proposed sale thereof or otherwise, and the Mortgagor does hereby consent to the appointment
of such receiver or receivers to serve without bond, and does hereby agree not to oppose any application therefor by the Mortgagee,
and does hereby agree that there shall be no necessity of showing fraud, insolvency or mismanagement by the Mortgagor for the appointment
of a receiver or receivers of the Mortgaged Properties, and such receiver may be appointed by any court of competent jurisdiction
upon ex parte application, and without notice, notice being expressly waived, and any such receiver shall have all
powers conferred by the court appointing such receiver, which powers shall, to the extent not prohibited by applicable Law, include,
without limitation, the right to enter upon and take immediate possession of the Mortgaged Property or any part thereof, to exclude
the Mortgagor therefrom, to hold, use, operate, manage and control such Mortgaged Property, to make all such repairs, replacements,
alterations, additions and improvements to the same as such receiver or the Mortgagee may deem proper or expedient, to lease, sell
or otherwise transfer the Mortgaged Property or any portion thereof as such receiver or the Mortgagee may deem proper or expedient,
to sell all of the severed and extracted Hydrocarbons included in the same subject to the provisions of Article V hereof,
and to demand and collect all of the other earnings, rents, issues, profits, proceeds and other sums due or to become due with
respect to such Mortgaged Property. It is Mortgagor’s express intention and agreement pursuant to the provisions of Colorado
Revised Statutes §38-38-602(3) that Mortgagee shall have the right and be absolutely entitled to the appointment of a receiver
as provided herein;

 

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8.1.3.Execute and deliver
to such person or persons as may be designated by the Mortgagee appropriate powers of attorney to act for and on behalf of the
Mortgagor in all transactions with any federal, state or local agency relating to any of the Mortgaged Property; and

 

8.1.4.Exercise any and
all other rights or remedies granted to the Mortgagee pursuant to the provisions of any of the Loan Documents or by Law;

 

provided that the Mortgagee shall have
no obligation to do or refrain from doing any of the acts, or to make or refrain from making any payment, referred to in this Section 8.1.
Any receiver or receivers of the Mortgaged Property, or any portion thereof, shall serve without bond.

 

8.2.Judicial Proceedings;
Receiver. This Mortgage shall be effective as a mortgage and may be foreclosed as to any of the Property covered hereby in
any manner permitted by the Laws of any state in which any part of the Mortgaged Property is situated, and any foreclosure suit
may be brought, to the extent permitted by Law, by the Mortgagee. The Mortgagee may proceed, where permitted by Law, by a suit
or suits in equity or at law, whether for a foreclosure hereunder, or for the sale of the Mortgaged Property, or for the specific
performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or without any
showing of fraud, insolvency or mismanagement by the Mortgagor, for the appointment of a receiver or receivers of the Mortgaged
Property and of the income, rents issues, products, profits and proceeds thereof (any such receiver or receivers to serve without
bond) pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate
legal or equitable remedy. The appointment of a receiver shall in no manner affect the rights of the Mortgagee under Article V
hereof. Any sale of the Mortgaged Property under this Article VIII shall take place at such place or places and otherwise
in such manner and upon such notice and terms as may be required by Law; or, in the absence of any such requirements, as the Mortgagee
may deem appropriate. The Mortgagor expressly agrees that the Mortgagee, sheriff or other official conducting the sale may offer
the Mortgagee as a whole or in such parcels or lots as the Mortgagee elects, regardless of the manner in which the Mortgaged Property
may be described. The Mortgagor agrees that each of the oil and gas leases, wells, spacing and other units and the undivided interests
thereof described in Exhibit A are encumbered by this Mortgage as separate and distinct parcels and lots, and the Mortgagee,
sheriff or other official conducting the sale may, subject to mandatory provisions of applicable Law, have such Property sold at
one or more sales, as an entirety or in parcels. Any sale of the Mortgaged Property conducted under this Article VIII
may be postponed from time to time as provided by applicable Law; or, in the absence of any such provisions, the Mortgagor, sheriff
or other official conducting the sale may postpone the sale of the Mortgaged Property or any part thereof by public announcement
at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made
at the time of sale fixed by the preceding postponement. Sales may be made from time to time until all Mortgaged Property is sold
or the Secured Indebtedness is paid in full. Nothing in this section dealing with foreclosure procedures or specifying particular
actions to be taken by Mortgagee or by any judicial officer shall be deemed to contradict or add to the requirements and procedures
now or hereafter specified by Colorado law, and any such inconsistency shall be resolved in favor of Colorado law applicable at
the time of foreclosure.

 

    	15

    	 

    

 

8.3.Certain Aspects
of a Sale. The Mortgagee shall have the right to become the purchaser at any such sale of the Mortgaged Property held by any
court, receiver or public officer, and the Mortgagee shall have the right to credit upon the amount of the bid made therefor, the
amount payable out of the net proceeds of such sale to it. Recitals contained in any conveyance made to any purchaser at any sale
made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limiting the
generality of the foregoing, nonpayment of the unpaid principal sum of, interest accrued on, and fees payable in respect of, the
Secured Indebtedness after the same have become due and payable, and advertisement and conduct of such sale in the manner provided
herein.

 

8.4.Receipt to Purchaser.
Upon any sale, the receipt of the Mortgagee, sheriff or other official making such sale under judicial proceedings shall be sufficient
discharge to the purchaser or purchasers at any sale for his or their purchase money, and such purchaser or purchasers, or his
or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Mortgagee,
sheriff or other official therefor, be obligated to see to the application of such purchase money, or be in anywise answerable
for any loss, misapplication or nonapplication thereof.

 

8.5.Effect of Sale.
After all rights of cure or redemption under Colorado Law have expired, any such sale or sales of the Mortgaged Property shall
operate to divest all right, title, interest, claim and demand whatsoever either at law or in equity, of the Mortgagor of, in,
and to the premises and the Property sold, and shall be a perpetual bar, both at law and in equity, against the Mortgagor, and
the Mortgagor’s successors or assigns, and against any and all Persons claiming or who shall thereafter claim all or any
of the Property sold from, through, or under the Mortgagor, or the Mortgagor’s successors or assigns. Nevertheless, the Mortgagor,
if requested by the Mortgagee to do so, shall join in the execution and delivery of all proper conveyances, assignments and transfers
of the Properties so sold.

 

8.6.Application
of Proceeds. The proceeds of any such sale of the Mortgaged Property, or any part thereof, shall be applied as follows (as
appropriately modified to comply with any mandatory provisions of Law):

 

First:
To the payment of all expenses incurred by the Mortgagee in the performance of its duties including, without limiting the generality
of the foregoing, all expenses of any entry, or taking of possession, of any sale, of advertisement thereof, and of conveyances,
and, as well, court costs, compensation of agents and employees and legal fees;

 

    	16

    	 

    

 

Second:
To the payment and satisfaction of the Loan Obligations (as defined herein);

 

Third:
To the payment of any other amounts owed to Agent; and

 

Fourth:
Any surplus thereafter remaining shall be paid to the Mortgagor or the Mortgagor’s successors or assigns, as their interests
shall appear of record.

 

8.7.Mortgagor’s
Waiver of Appraisement, Marshaling, etc. Rights. The Mortgagor agrees, to the full extent that the Mortgagor may lawfully so
agree, that the Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement,
valuation, stay, extension or redemption Law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Mortgage or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant
to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but the Mortgagor, for the Mortgagor
and all who may claim through or under the Mortgagor, so far as the Mortgagor or those claiming through or under the Mortgagor
now or hereafter lawfully may, hereby waives the benefit of all such Laws.  The Mortgagor, for the Mortgagor and all who
may claim through or under the Mortgagor, waives, to the extent that the Mortgagor may lawfully do so, any and all right to have
the Mortgaged Property marshaled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that
the Mortgagee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. If any Law
in this Section 8.7 referred to and now in force, of which the Mortgagor or the Mortgagor’s successor or successors
might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such Law shall not thereafter
be deemed to constitute any part of the contract herein contained or to preclude the operation or application of the provisions
of this Section 8.7.

 

8.8.Power of Attorney
to Mortgagee. Upon the occurrence of an Event of Default, Mortgagor does hereby designate Mortgagee as the agent of Mortgagor
to act in the name, place, and stead of Mortgagor in the exercise of each and every remedy set forth herein and in conducting any
and all operations and taking any and all action reasonably necessary to do so, recognizing such agency in favor of Mortgagee to
be coupled with the interests of Mortgagee under this Mortgage and, thus, irrevocable so long as this Mortgage is in force and
effect.

 

8.9.Costs and Expenses.
All costs, expenses (including attorneys’ fees), and payments incurred or made by the Mortgagee in protecting and enforcing
its rights hereunder, upon providing prior notice to Mortgagor shall constitute a demand obligation owing by the Mortgagor to the
party incurring such or making costs, expenses, or payments and shall bear interest at a rate per annum equal to the maximum rate
of interest permitted by applicable Law, all of which shall constitute a portion of the Secured Indebtedness.

 

    	17

    	 

    

 

8.10.Operation of
the Mortgaged Property by the Mortgagee. Upon the occurrence of an Event of Default which has not been waived by the Mortgagee,
and in addition to all other rights herein conferred on the Mortgagee, the Mortgagee (or any Person designated by the Mortgagee)
shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property
without the necessity of posting bond, and to exclude the Mortgagor, and the Mortgagor’s agents or servants, wholly therefrom,
and to hold, use, administer, manage and operate the same to the extent that the Mortgagor shall be at the time entitled to do
any of such things and in the Mortgagor’s place and stead. The Mortgagee (or any Person designated by the Mortgagee) may
operate the same without any liability or duty to the Mortgagor in connection with such operations, except to use ordinary care
in the operation of such Mortgaged Property, and the Mortgagee or any Person designated by the Mortgagee, shall have the right
to collect and receive all Hydrocarbons produced and sold from the Mortgaged Property, to make repairs, purchase machinery and
equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of the Mortgagor
with respect to the Mortgaged Property. When and if the expenses of such operation and development (including costs of unsuccessful
work-over operations or additional wells) have been paid and the Secured Indebtedness paid, such Mortgaged Property shall, if there
has been no sale or foreclosure thereof, be returned to the Mortgagor.

 

8.11.No Additional
Duties Created. Notwithstanding any provision of this Article VIII or any other provision of this Mortgage, with
respect to that portion of the Mortgaged Property located in any jurisdiction, the Mortgagee shall be entitled to enforce the rights
and remedies described herein with respect to such portion of the Mortgaged Property in such jurisdiction in accordance with the
Laws in effect in such jurisdiction at the time such enforcement action is taken, and the Mortgagor hereby waives its right to
require the Mortgagee to comply with any contrary terms and provisions of this Mortgage in such circumstance, it being the intention
of the Mortgagor and Mortgagee that the waivers of Mortgagor herein and the powers granted to the Mortgagee herein are for the
sole benefit of the Mortgagee and are neither intended to limit the rights and powers of the Mortgagee, nor intended to establish
a standard or duty of performance by the Mortgagee in excess of or in addition to that required by the Laws of such jurisdiction
as in effect at the time the particular right or remedy is sought to be enforced.

 

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

 

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8.13.Limitation
on Rights and Waivers. All rights, powers and remedies herein conferred shall be exercisable by the Mortgagee only to the extent
not prohibited by applicable Law; and all waivers and relinquishments of rights and similar matters shall only be effective to
the extent such waivers or relinquishments are not prohibited by applicable Law.

 

ARTICLE
IX

MISCELLANEOUS

 

9.1.Advances by
the Mortgagee. Each and every covenant herein contained shall be performed and kept by the Mortgagor solely at the Mortgagor’s
expense. If the Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Mortgage,
the Mortgagee or any receiver appointed hereunder, may, but shall not be obligated to, make advances to perform the same in the
Mortgagor’s behalf, and the Mortgagor hereby agrees to repay such sums upon demand plus interest at a rate per annum equal
to the maximum rate of interest permitted by applicable Law. No such advance shall be deemed to relieve the Mortgagor from any
Event of Default hereunder.

 

9.2.Defense of Claims.
The Mortgagor will notify the Mortgagee, in writing, promptly of the commencement of any legal proceedings affecting or which could
adversely affect the lien and security interest hereof or the status of or title to the Mortgaged Property, or any part thereof,
and will take such action, employing attorneys agreeable to the Mortgagee, as may be necessary to preserve the Mortgagor’s
and the Mortgagee’s rights affected thereby; and should the Mortgagor fail or refuse to take any such action, the Mortgagee
may take such action on behalf and in the name of the Mortgagor and at the Mortgagor’s expense. Moreover, the Mortgagee may
take such independent action in connection therewith as it may in its discretion deem proper without any liability or duty to the
Mortgagor except to use ordinary care, the Mortgagor hereby agreeing that all sums advanced or all expenses incurred in such actions
plus interest at the maximum rate of interest permitted by applicable Law, will, on demand, be reimbursed to the Mortgagee or any
receiver appointed hereunder.

 

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9.3.Defeasance.
If the Secured Indebtedness shall be paid and discharged in full, no Credit Party has any further obligation to advance amounts
to or for the benefit of the Mortgagor, and all related transactions and confirmations thereunder have expired or been terminated,
as applicable, and the Mortgagee has no commitment to permit or intention to allow the creation of additional Secured Indebtedness,
then the Mortgagee will, upon request of the Mortgagor and at the Mortgagor’s expense, execute and deliver to the Mortgagor
all releases and other instruments reasonably requested by the Mortgagor for the purpose of releasing and discharging of record
the lien and security interest created hereunder. Otherwise this Mortgage shall remain and continue in full force and effect. The
Mortgagor shall pay all legal fees and other fees, costs and expenses incurred by the Mortgagee for preparing and reviewing instruments
of termination and release and the execution and delivery thereof and the Mortgagee may require payment of the same prior to delivery
of such instruments. The release of this Mortgage and the termination of the liens and security interests created by this Mortgage
shall not terminate or otherwise affect the Mortgagee’s right or ability to exercise any right, power or remedy relating
to any claim for breach of warranty or representation, for failure to perform any covenant or other agreement, under any indemnity
or for fraud, deceit or other misrepresentation or omission.

 

9.4.Other Security.
The Mortgagee may receive or may hold security from Persons other than the Mortgagor for the Secured Indebtedness and may release
or modify the same without notice to or consent of the Mortgagor. 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 Mortgage, which
shall continue as a first lien and security interest upon the Mortgaged Property not expressly released until all Secured Indebtedness
secured hereby is fully paid and no Credit Party shall have any commitment to advance amounts or extend credit to or for the benefit
of the Mortgagor or any other payor of Indebtedness.

 

9.5.Instrument an
Assignment, Etc. This Mortgage shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage,
contract, financing statement, real estate mortgage, pledge, or security agreement, and from time to time as any one or more thereof.

 

9.6.Limitation on
Interest. No provision of this Mortgage or of the other Loan Documents shall require the payment or permit the collection of
interest, or be construed to create a contract regarding the same, in excess of the maximum rate permitted by Law or which is otherwise
contrary to Law. If any excess of interest in such respect is herein or in the other Loan Documents provided for, or shall be adjudicated
to be so provided for herein or in the other Loan Documents, such amount which would be deemed excessive interest shall be deemed
a partial prepayment of the principal of the Secured Indebtedness and treated hereunder as such; and, if the entire principal amount
of the Secured Indebtedness owed is paid in full, any remaining excess shall be repaid to the payors on the applicable Indebtedness.
In determining whether the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate in effect
from day to day, the Mortgagor and the holders of the Indebtedness shall, to the maximum extent permitted under applicable Law,
(i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments
and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the Indebtedness so that the interest rate is uniform throughout the entire term of the Indebtedness; provided
that if the interest received by the holders of the Indebtedness for the actual period of existence thereof exceeds the Highest
Lawful Rate in effect from day to day, the holders of the Indebtedness shall apply or refund to the payors on the applicable Indebtedness
the amount of such excess as provided in this Section, and, in such event, the holders of the Indebtedness shall not be subject
to any penalties provided by any Laws for contracting for, charging, taking, reserving, or receiving interest in excess of the
Highest Lawful Rate in effect from day to day.

 

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9.7.Severability.
If any provision of this Mortgage or in any of the other Loan Documents is invalid or unenforceable in any jurisdiction, the other
provisions hereof or of any of the other Loan Documents shall remain in full force and effect in such jurisdiction, and such other
provisions shall be liberally construed in favor of the Mortgagee in order to effectuate the provisions hereof, and the invalidity
of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such provision in any other
jurisdiction. The parties hereby agree that to the extent any provision hereof is invalid or unenforceable in any jurisdiction,
that this document will be deemed to contain a substitute provision, as similar as possible in intent and application to the invalid
or unenforceable provision that meets any statutory or other legal requirements in such jurisdiction required for the provision
to be given effect. Any reference herein contained to statute or Law of a state in which no part of the Mortgaged Property is situated
shall be deemed inapplicable to, and not used in, the interpretation hereof.

 

9.8.Rights Cumulative.
Each and every right, power and remedy herein given to the Mortgagee shall be cumulative and not exclusive; and each and every
right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often
and in such order as may be deemed expedient by the Mortgagee, and the exercise, or the beginning of the exercise, of any such
right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter, any other right,
power or remedy. No delay or omission by the Mortgagee in the exercise of any right, power or remedy shall impair any such right,
power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing.

 

9.9.Waiver of Covenants
by Mortgagee. Any and all covenants in this Mortgage may from time to time by instrument in writing signed by the Mortgagee
be waived to such extent and in such manner as the Mortgagee may desire, but no such waiver shall ever affect or impair the Mortgagee’s
rights and remedies or liens and security interests hereunder, except to the extent specifically stated in such written instrument.

 

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9.10.Successors
and Assigns.

 

9.10.1.This instrument
is binding upon the Mortgagor, and the Mortgagor’s heirs, successors and assigns, and shall inure to the benefit of the Mortgagee,
and their respective successors and assigns, and the provisions hereof shall likewise be covenants running with the Lands.

 

9.10.2.The parties hereto
agree that the Notes may be transferred without the necessity for a notarial act of transfer thereof, and that any such transfer
shall carry with it into the hands of any future holder or holders of the Notes full and entire subrogation of title in and to
the Notes and to any and all rights and privileges under this instrument herein granted to the Mortgagee, as holder of the Notes.
This Mortgage is for the benefit of the Mortgagee and for such other Person or Persons as may from time to time become or be the
holders of any of the Secured Indebtedness, and this Mortgage shall be transferable and negotiable, with the same force and effect
and to the same extent as the Secured Indebtedness may be transferable.

 

9.11.Article and
Section Headings. The article and section headings in this instrument are inserted for convenience and shall not be considered
a part of this Mortgage or used in its interpretation.

 

9.12.Counterpart.
This Mortgage may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original,
and all of which are identical except that, to facilitate recordation in any particular county or parish, counterpart portions
of Exhibit A which describe properties situated in parishes or counties other than the county or parish in which such counterpart
is to be recorded may be omitted. Exhibit A might not be paginated and any pagination might not be consecutive. Exhibit A
may also contain language indicating that it is attached to a document other than this Mortgage or that a particular page is the
end of Exhibit A, when neither is applicable. Such language shall be ignored for the purposes of interpreting this
Mortgage.

 

9.13.Special Filing
as Financing Statement.

 

9.13.1. This Mortgage
shall likewise be a Security Agreement and a Financing Statement and Mortgagor, as debtor (the “Debtor”), hereby
grants to the Mortgagee, its successors and assigns, as secured party (hereinafter, the “Secured Party”), a
security interest in all personal Property, fixtures, as-extracted collateral, accounts, equipment, inventory, contract rights
and general intangibles described or referred to in granting Sections 2.1.1 through 2.1.11 of Article II
hereof and all proceeds and products from the sale, lease or other disposition of the Mortgaged Property or any part thereof. The
addresses shown in Section 9.14 hereof are the addresses of the Debtor and Secured Party and information concerning
the security interest may be obtained from the Secured Party at its address. Without in any manner limiting the generality of any
of the foregoing provisions hereof: (a) some portion of the goods described or to which reference is made herein are or are to
become fixtures on the Lands described or to which reference is made herein; (b) the minerals and the like (including oil and gas)
included in the Mortgaged Property and the accounts resulting from the sale thereof will be financed at the wellhead(s) or minehead(s)
of the well(s) or mine(s) located on the Lands described or to which reference is made herein; and (c) this Mortgage is to be filed
of record, among other places, in the real estate records of each county in which the Lands, or any part thereof, are situated,
as a financing statement, but the failure to do so will not otherwise affect the validity or enforceability of this instrument.

 

    	22

    	 

    

 

9.13.2. The charter/file/organizational
I.D. number of the Mortgagor is as set forth on the cover page hereof.

 

9.13.3. The Mortgagee
is authorized to complete and file financing statements naming the Mortgagor as debtor.

 

9.13.4. Following the
occurrence of any Event of Default specified in Section 7.1, or at any time thereafter, in addition to all other rights,
powers and remedies herein conferred or conferred by operation of Law, the Mortgagee shall have all of the rights and remedies
of an assignee and secured party granted by applicable Law, including but not limited to, the Code as then in effect.

 

9.14.Notices.
Whenever this Mortgage requires or permits any consent, approval, notice, request, or demand from one party to another, the consent,
approval, notice, or demand must be in writing to be effective and shall be personally delivered or sent to the party to be notified
at the address or facsimile number stated below (or such other address as may have been designated by written notice by the party
pursuant to this Section 9.14):

 

	MORTGAGOR-DEBTOR	 	MORTGAGEE-SECURED
    PARTY
	 	 	 
	LILIS ENERGY, INC.	 	HEARTLAND BANK
	1900 Grant Street, #920	 	One Information Way, Suite 300
	Denver, Colorado 80203	 	Little Rock, Arkansas 72202
	Attention: Chief Financial Officer	 	Attention: Greg White
	Telephone: 303-951-7920	 	Telephone: 501-734-0125

 

Each such notice, request
or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified
in this Section and confirmation of receipt is received (the receipt thereof shall be deemed to have been acknowledged upon
the sending Person’s receipt of its facsimile machine’s confirmation of successful transmission; provided that if the
day on which such facsimile is received is not a Business Day or is after 4:00 p.m. on a Business Day, then the receipt of such
facsimile shall be deemed to have been acknowledged on the next following Business Day), (ii) if given by mail, three (3) Business
Days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid, or (iii) if given
by any other means, when delivered at the address specified in this Section.

 

9.15.No Waiver by
Mortgagee. No course of dealing on the part of Mortgagee, its officers or employees, nor any failure or delay by Mortgagee
with respect to exercising any of its rights or remedies hereunder shall operate as a waiver thereof nor shall the exercise or
partial exercise of any such right or remedy preclude the subsequent exercise thereof or the exercise of any other right or remedy.

 

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9.16.Governing Agreement.
This Mortgage is made pursuant and subject to the terms and provisions of the Credit Agreement. In the event of a direct conflict
between the terms and provisions of this Mortgage and those of the Credit Agreement, the terms and provisions of the Credit Agreement
shall govern and control, except that if the two documents contain different formal definitions for the same term or terms, the
formal definition of such term or terms herein shall be applicable in construing this Mortgage. The inclusion in this Mortgage
of provisions not addressed in the Credit Agreement shall not be deemed a conflict, and all such additional provisions contained
herein shall be given full force and effect. The indemnification and releases contained herein are in addition to any indemnification
or releases contained in the Credit Agreement.

 

9.17.Drafting of
Mortgage. Mortgagor declares that it has contributed to the drafting of this Mortgage or has had the opportunity to have it
reviewed by its counsel before signing it and agrees that it has been purposefully drawn and correctly reflects its understanding
of the transaction that it contemplates.

 

9.18.Execution by
Mortgagee; Corrections. The Mortgagee may at any time without obtaining the consent of the Mortgagor execute this Mortgage
(and have such execution witnessed or acknowledged) for any purposes which it deems necessary or appropriate and, if deemed appropriate,
subsequently file this Mortgage of record. Additionally, in the event it is determined that Exhibit A contains any errors
or inaccurate or incomplete descriptions of the Oil and Gas Leases and Lands intended to be covered hereby or referred to in any
Certificates of Ownership Interests, the Mortgagee may, without obtaining the consent of the Mortgagor, attempt to correct any
such errors or omissions and make accurate and complete any such inaccuracies, omissions or misdescriptions and, if deemed appropriate,
subsequently file or re-file this Mortgage of record.

 

9.19.Governing Law.
This Mortgage is intended to be performed in the State of Colorado and the substantive Laws of such State and or the United States
of America shall govern the validity, construction, enforcement and interpretation of this Mortgage, except that to the extent
that the Law of a State in which a portion of Mortgaged Property is located (or which is otherwise applicable to a portion of the
Mortgaged Property) necessarily governs with respect to procedural and substantive matters relating to the creation, perfection,
priority and enforcement of the liens, security interests and other rights and remedies of the Mortgagee granted herein, the Law
of such State shall apply as to that portion of the Mortgaged Property located in (or which is otherwise subject to the Laws of)
such State.

 

9.20.Credit Agreement.
This Mortgage shall be deemed to be encompassed by the definition of “Security Documents” as such term is defined and
used in any Credit Agreement that may be in effect from time to time.

 

9.21.NOTICE:
THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF 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.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK]

 

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IN WITNESS WHEREOF, the
Mortgagor has executed or caused to be executed this Mortgage as of the date first set forth above.

 

		MORTGAGOR:
	 	 	 
	 	LILIS ENERGY, INC.,
	 	a Nevada corporation
	 	 	 
	 	By:	
	 	Name:	
	 	Title:	

 

ACKNOWLEDGEMENT

 

	STATE OF	 	§
	 	 	§
	COUNTY OF	 	§

 

The foregoing instrument
was acknowledged before me this ____ day of January, 2015, by _________________, _________________ of Lilis Energy, Inc.,
a Nevada corporation, on behalf of said corporation.

 

	Witness my hand and seal.	 	 
	 	 	 
	 	 	Notary Public in and for the State of _____
	[NOTARIAL SEAL]	 	My Commission Expires:  _____________

 

    	 

    	 

    

 

EXHIBIT A

TO MORTGAGE, SECURITY AGREEMENT,

FIXTURE FILING AND FINANCING STATEMENT

 

This Exhibit A sets forth
the description of certain Property interests covered by the Mortgage in Elbert County, Colorado. All of the terms defined in the
Mortgage are used in this Exhibit A with the same meanings given therein.

 

This Exhibit A and the
Mortgage cover and include the following:

 

(a)All right, title and
interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the oil, gas and mineral leases
described herein and/or lands described in and subject to such oil, gas and mineral leases (regardless, as to such leases and/or
lands, of any surface acreage and/or depth limitations set forth in any description of any of such oil, gas and mineral leases),
and all right, title and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to any
of the oil, gas and minerals in, on or under the lands, if any, described on this Exhibit, including, without limitation, all contractual
rights, fee interests, leasehold interests, overriding royalty interests, non-participating royalty interests, mineral interests,
production payments, net profits interests or any other interest measured by or payable out of production of oil, gas or other
minerals from the oil, gas and mineral leases and/or lands described herein; and

 

(b)All of the foregoing
interests of Mortgagor as such interests may be enlarged by the discharge of any payments out of production or by the removal of
any charges or encumbrances, together with all interests, whether now owned and existing or hereafter acquired or arising, of Mortgagor
in, to and under or derived from all renewals and extensions of any oil, gas and mineral leases described herein, it being specifically
intended hereby that any new oil and gas lease (i) in which an interest is acquired by Mortgagor after the termination or expiration
of any oil and gas lease, the interests of Mortgagor in, to and under or derived from which are subject to the lien and security
interest hereof, and (ii) that covers all or any part of the Property described in and covered by such terminated or expired leases,
shall, to the extent, and only to the extent such new oil and gas lease may cover such Property, be considered a renewal or extension
of such terminated or expired lease; and

 

(c)All right, title and
interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to and under or derived from any operating,
farmout and bidding agreements, assignments and subleases, whether or not described in this Exhibit, to the extent, and only to
the extent, that such agreements, assignments and subleases (i) cover or include any present right, title and interest of Mortgagor
in and to the leases and/or lands described in this Exhibit, or (ii) cover or include any other undivided interests now or hereafter
held by Mortgagor in, to and under the described leases and/or lands, including, without limitation, any future operating, farmout
and bidding agreements, assignments, subleases and pooling, unitization and communitization agreements and the units created thereby
(including, without limitation, all units formed under orders, regulations, rules or other official acts of any governmental body
or agency having jurisdiction) to the extent and only to the extent that such agreements, assignments, subleases, or units cover
or include the described leases and/or lands; and

 

    	 

    	 

    

 

(d)All right, title and
interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to and under or derived from all presently
existing and future advance payment agreements, oil, casinghead gas and gas sales, exchange and processing contracts and agreements,
including, without limitation, those contracts and agreements that are described on this Exhibit, to the extent, and only to the
extent, those contracts and agreements cover or include the described leases and/or lands; and

 

(e)All right, title and
interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to and under or derived from all existing
and future permits, licenses, easements and similar rights and privileges that relate to or are appurtenant to any of the described
leases and/or lands.

 

Notwithstanding the intention
of the Mortgage to cover all of the right, title and interest of Mortgagor in and to the described leases and/or lands, whether
now owned and existing or hereafter acquired or arising, Mortgagor hereby specifically warrants and represents that the interests
covered by this Exhibit are not greater than the working interest nor less than the net revenue interest, overriding royalty interest,
net profit interest, production payment interest, royalty interest or other interest payable out of or measured by production set
forth in connection with each oil and gas well described in this Exhibit. In the event Mortgagor owns any other or greater interest,
such additional interest shall also be covered by and included in the Mortgage.

 

Any reference herein to Wells
or Units is for warranty of interest, administrative convenience and identification and is not intended to limit or restrict the
right, title, interest of properties covered by the Mortgage and all of Mortgagor’s right, title and interest in the Lands,
Subject Interests and Mortgaged Property described herein are and shall be subject to the Mortgage, regardless of the presence
of any Units or Wells not herein referenced.

 

The Leases covered by the
Mortgage shall include all leases and force pooled interests now or thereafter owned by Mortgagor included within the geographic
areas set forth in this Exhibit whether or not the schedules of leases included in this Exhibit list all such leases.

 

No depth limitation exception
contained in any description of leases and other real Property interests set forth in this Exhibit shall exclude from the grants
of the Mortgaged Property and collateral contained in the Mortgage any depth owned by Mortgagor within the geographic area described
in this Exhibit for such leases and other real Property interests.

 

    	 

    	 

    

 

The designation “Working
Interest” or “W.I.” when used in this Exhibit means an interest owned in an oil, gas, and mineral
lease that determines the cost-bearing percentage of the owner of such interest. The designation “Net Revenue Interest”
or “N.R.I.” means that portion of the production attributable to the owner of a working interest after deduction
for all royalty burdens, overriding royalty burdens or other burdens on production, except severance, production, and other similar
taxes. The designation “Overriding Royalty Interest” or “ORRI” means an interest in production
which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of
severance, production, and other similar taxes and, in instances where the document creating the overriding royalty interest so
provides, costs associated with compression, dehydration, other treating or processing, or transportation of production of oil,
gas, or other minerals relating to the marketing of such production. The designation “Royalty Interest” or “RI”
means an interest in production which results from an ownership in the mineral fee estate or royalty estate in the relevant land
and which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share
of severance, production, and other similar taxes and, in instances where the document creating the royalty interest so provides,
costs associated with compression, dehydration, other treating or processing or transportation of production of oil, gas, or other
minerals relating to the marketing of such production.

 

The references to book
or volume and page herein refer to the recording location of each respective Mortgaged Property described herein in the county/parish
where the land covered by the Mortgaged Property is located.

 

This Mortgage covers all
lands, leases and properties of the Mortgagor, whether now owned or hereafter acquired, located in any county/parish identified
elsewhere in this Exhibit or located in any county/parish wherein this Mortgage has been recorded.

 

(Exhibit A continues on next page)

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