Document:

Exhibit 10.1

COVENTRY HEALTH CARE

 

2006 Compensation Program

for Non-Employee Directors

 

 

ANNUAL COMPENSATION:    $225,000

 

	
            •
 	
            Includes services for five regularly scheduled Board meetings per year
 

	
            •
 	
            Does not include committee chair retainers or Board/committee meeting fees (whether in-person or telephonic)
 

	
            •
 	
            Prorated for Directors hired after January 1st 
 

	
            •
 	
            New Directors receive a one-time initial grant of 10,000 options vesting 25% over 4 years
 

 

EFFECTIVE DATE:    January 1, 2006

 

TIMING OF ELECTIONS:

 

Current Directors:  Elections must be made prior to the beginning of each calendar year

New Directors:  Elections must be made prior to the effective date of becoming a Director

 

INDIVIDUAL COMPENSATION CHOICES:

 

	
            •
 	
            Directors may elect the form and the timing of their compensation on an individual basis
 

	
            •
 	
            All elections of the “Form” of payment must be made in multiples of 25%
 

 

	
            Payment

“Form”
 	
            Maximum Allocation
 	
            Payment

“Current”
 	
            Payment

“Deferred”
 	
            Vesting
 
	
            Cash
 	
            50%1
 	
            Paid Quarterly
 	
            Credited quarterly2
 	
            None
 
	
            Restricted Stock/
 Stock Units
 	
            100%
 	
            Granted at beginning of year
 	
            Stock Units deferred as outlined below
 	
            Quarterly over the year of service
 
	
            Stock Options
 	
            100%
 	
            Granted at beginning of year
 	
            Exercisable as outlined below
 	
            Quarterly over the year of service
 

 

STOCK OPTIONS:

 

	
            •
 	
            Become exercisable when vested
 

	
            •
 	
            Maximum term of 10 years
 

_________________________

	
            1 
 	
            Percentage limit may be waived with the approval of the Chairman of the Compensation Committee
 

	
            2 
 	
            Deferred cash will be credited quarterly with interest based on the Company’s borrowing rate set at the beginning of each year (2005 rate is approximately 5%)
 

 

- 1 -

FINAL 11/7/05

 

 

 

EXCHANGING CASH ALLOCATION FOR STOCK:  

 

	
             
 	
            •
 	
            Compensation allocated to stock awards (options or restricted stock/stock units) would be converted to awards of equivalent value
 

	
             
 	
            •
 	
            Value would be determined using the same method used to expense the awards for financial accounting purposes
 

	
             
 	
            •
 	
            Restricted stock and Stock options granted under the Program are subject to the terms and conditions of the 2004 Incentive Plan, as amended.
 

 

TIMING OF DEFERRAL PERIOD APPLICABLE TO CASH AND RESTRICTED STOCK UNITS:

 

	
             
 	
            •
 	
            Termination of service as director for any reason
 

	
             
 	
            •
 	
            Unforeseeable emergency as defined by Internal Revenue Code (IRC) Section 409A
 

	
             
 	
              –
 	
            Definition is more restrictive than financial hardship distribution under Company 401(k) plan – e.g., does not include purchase of a primary residence or post-secondary educational expenses and fees
 

	
             
 	
            •
 	
            In the event of a change in control as defined by IRC Section 409A
 

 

FORM OF DISTRIBUTION:

 

Cash: Will be distributed as lump-sum payment

Restricted Stock Units:  Will be distributed as cash

Restricted Stock:  Will be issued as stock shares

 

TAX SUMMARY:

 

	
            •
 	
            Deferred stock units/cash are taxable at value when paid
 

	
            •
 	
            Stock options taxable on date exercised in amount equal to difference between (i) fair market value of shares acquired on option exercise and (ii) aggregate exercise price
 

 

 

- 2 -EXHIBIT 10.16
                                                                   -------------

         TEXAS DEED OF TRUST, MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT,
                     FIXTURE FILING AND FINANCING STATEMENT

                                      From

                               GMX RESOURCES INC.

                                       To

                             DAVID R. REID, TRUSTEE

                                       AND

                         HIBERNIA NATIONAL BANK, LENDER

                             Dated November 2, 2005

A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT. THE DEBTOR (THE BORROWER) IS AN OKLAHOMA
CORPORATION.

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

THIS INSTRUMENT COVERS AS-EXTRACTED COLLATERAL AND MINERALS AND OTHER SUBSTANCES
OF VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL
AND GAS), AND THE ACCOUNTS RELATED THERETO, WHICH WILL BE FINANCED AT THE
WELLHEADS OR MINEHEADS OF THE WELLS OR MINES LOCATED ON THE PROPERTIES DESCRIBED
IN SECTION 1.1 OF THIS INSTRUMENT. THIS INSTRUMENT, WHICH COVERS GOODS WHICH ARE
OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN, IS TO BE FILED
FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE
COUNTIES REFERENCED IN EXHIBIT A HERETO AND SUCH FILING SHALL SERVE, AMONG OTHER
PURPOSES, AS A FIXTURE FILING. THE BORROWER HAS AN INTEREST OF RECORD IN THE
REAL ESTATE AND REAL PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN SECTION
1.1 AND EXHIBIT A OF THIS INSTRUMENT.

A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
LENDER (AS HEREINAFTER DEFINED) OR THE TRUSTEE (AS HEREINAFTER DEFINED) TO TAKE
THE MORTGAGED PROPERTIES AND SELL
<PAGE>
THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE BORROWER
(AS HEREINAFTER DEFINED) UNDER THIS MORTGAGE.

WHEN RECORDED OR FILED                               THIS DOCUMENT
RETURN TO:                                           PREPARED WITH ASSISTANCE
                                                     OF TEXAS COUNSEL BY:

James A. Stuckey                                     James A. Stuckey
Phelps Dunbar, L.L.P.                                Phelps Dunbar, L.L.P.
365 Canal Street                                     365 Canal Street
Suite 2000                                           Suite 2000
New Orleans, LA  70130                               New Orleans, LA  70130

                                        2
<PAGE>
                                    RECITALS:

                  A. GMX Resources Inc., an Oklahoma corporation (herein called
"Borrower") is or will be indebted unto Hibernia National Bank, a national
banking association (herein called the "Lender") for loans made and to be made
pursuant to the terms of a certain loan agreement (Line of Credit) dated as of
July 29, 2005, between the Borrower and the Lender (such Loan Agreement, as so
amended, and as same may otherwise from time to time be amended, modified, or
supplemented, and all other agreements given in substitution therefor, or in
renewal, extension or restatement thereof, in whole or in part, being herein
called the "Loan Agreement").

                  B. The Borrower is or may also be indebted unto the Lender in
the future pursuant to the terms of certain other loan agreements or hedging or
other financial arrangements from time to time by and between the Borrower and
the Lender.

                  C. In order to secure the full and punctual payment and
performance of the Indebtedness (as hereafter defined), the Borrower has agreed
to execute and deliver this Mortgage.

                                   ARTICLE 1.
                                  GENERAL TERMS

        Section 1.1 Definitions. As used in this Mortgage, the terms "Borrower",
"Lender" and "Loan Agreement" shall have the meanings indicated above. As used
in this Mortgage, the following additional terms shall have the meanings
indicated:

                  "Accounts" means all "accounts" (as defined in the UCC) now
owned or hereafter acquired by the Borrower including without limitation
accounts resulting from the sale of Hydrocarbons at the wellhead and accounts
now or hereafter arising in connection with the sale or other disposition of any
Hydrocarbons, and all revenues and rights to payment relating to the Borrower's
fees for services as operator of any Mineral Properties or to joint interest
billings or to amounts recoverable by the Borrower from nonoperating parties by
virtue of nonconsent elections or otherwise, and further means all rights
accrued, accruing or to accrue to receive payments of any and every kind under
all Contracts, including without limitation bonuses, rents and royalties which
are payable out of or measured by production of any Hydrocarbons or are
otherwise attributable to the Mineral Properties and all other revenues owing to
the Borrower in connection with the Mineral Properties, including revenues from
the treatment, transportation or storage of Hydrocarbons for third parties.

                  "Advances" has the meaning set forth in Section 4.8 ("Advances
by Lender") of this Mortgage.

                   "Business Day" means a day other than a Saturday, Sunday or
legal holiday for commercial banks in New Orleans, Louisiana.

                  "Collateral" has the meaning set forth in Section 2.2 ("The
Security Interests") of this Mortgage.
<PAGE>
                  "Collateral Documents" means collectively all mortgages,
pledges, security agreements and other documents by which the Borrower grants
Liens and security interests in real or personal property or fixtures (or a
mixture thereof) to the Trustee or to the Lender.

                  "Contracts" means all (a) contracts and agreements described
in Exhibit A and all other contracts, operating agreements, farm-out or farm-in
agreements, sharing agreements, limited or general partnership agreements, area
of mutual interest agreements, mineral purchase agreements, contracts for the
sale, exchange, transportation or processing of Hydrocarbons, rights-of-way,
easements, surface leases, salt water disposal agreements, service contracts,
permits, franchises, licenses, pooling or unitization agreements, unit
designations and pooling orders now in effect or hereafter entered into by the
Borrower, including without limitation such contracts or agreements affecting
any of the Mineral Properties, Equipment or Hydrocarbons now or hereafter
covered hereby, or which are useful or appropriate in drilling for, producing,
treating, handling, storing, transporting or marketing oil, gas or other
minerals produced from any lands affected by the Mineral Properties, and (b) all
rights and choses in action (i.e., rights to enforce contracts or to bring
claims thereunder) relating to the foregoing, regardless of whether the same
arose or arise, or the events giving rise thereto occurred or occur on, before
or after the date hereof.

                  "Default" means the occurrence of any of the events specified
as an Event of Default, whether or not any requirement for notice or lapse of
time or other condition precedent has been satisfied.

                  "Deposit Accounts" means all deposit accounts of Borrower
maintained at the Lender from time to time.

                  "Equipment" means all equipment (whether in the form of
personal property, fixtures or otherwise) now owned or hereafter acquired by the
Borrower including without limitation all equipment now or hereafter located on
or used or held for use in connection with the Mineral Properties or in
connection with the operation thereof or the treating, handling, storing,
transporting, processing, purchasing, exchanging or marketing of Hydrocarbons,
including without limitation all wells, rigs, platforms, constructions,
extraction plants, facilities, gas systems (for gathering, treating, injection
and compression), water systems (for treating, disposal and injection),
compressors, casing, tubing, rods, flow lines, pipelines, derricks, tanks,
separators, pumps, machinery, tools and all other movable property and fixtures
now or hereafter located upon and dedicated to be used (or held for use) in
connection with any of the Mineral Properties, together with all additions,
accessories, parts, attachments, special tools and accessions now and hereafter
affixed thereto or used in connection therewith, and all replacements thereof
and substitutions therefor.

                  "Event of Default" has the meaning set forth in Section 5.1
("Events of Default") of this Mortgage.

                                        2
<PAGE>
                  "General Intangibles" means all "general intangibles" (as
defined in the UCC) now owned or hereafter acquired by the Borrower including
without limitation those related to the Mineral Properties, the Equipment or the
Hydrocarbons, the operation of the Mineral Properties or the Equipment (whether
the Borrower is operator or non-operator), or the treating, handling, storing,
transporting, processing, purchasing, exchanging or marketing of Hydrocarbons
(wherever located), or under which the proceeds of Hydrocarbons (wherever
located or sold) arise or are evidenced or governed, including, without
limitation, (i) all contractual rights and obligations or indebtedness owing to
the Borrower (other than Accounts) from whatever source arising in connection
with the sale or other disposition of any Hydrocarbons, including all rights to
payment owed or received by the Borrower pursuant to a "take-or-pay" provision
or gas balancing arrangement, (ii) all Contracts and other general intangibles
now or hereafter arising in connection with or resulting from Contracts, (iii)
all insurance proceeds and unearned insurance premiums affecting all or any part
of the Collateral, and (iv) all amounts received in judgment, settlement,
assignment or otherwise of claims or litigation and all things in action, rights
represented by judgments, claims arising out of tort and other claims relating
to the Collateral, including the right to assert and otherwise to be the
plaintiff and proper party of interest to commence, control, prosecute and
settle such action (whether as claims, counterclaims or otherwise, and whether
involving matters arising from casualty, condemnation, indemnification,
negligence, strict liability, other tort, contract or in any other manner).

                  "Hydrocarbons" mean all oil, gas, casinghead gas, condensate,
distillate, other liquid and gaseous hydrocarbons, sulfur, and all other
minerals, whether similar to the foregoing or not, including without limitation
those produced, obtained or secured from or allocable to the Mineral Properties,
and any products refined, processed, recovered or obtained therefrom, including
oil in tanks.

                  "Indebtedness" means all present and future amounts,
liabilities or obligations of the Borrower to the Lender or to any successor or
transferee of the Note or to the Trustee, including without limitation any such
amounts, liabilities or obligations under or pursuant to the Loan Agreement, the
Note, this Mortgage or the other Collateral Documents, or under or pursuant to
any present or future hedging or derivative agreements relating to interest
rates, currency exchange rates or commodity prices (such as any swap agreement,
any cap, collar, floor, exchange or forward transaction, any option, or other
similar transaction), in each case whether said amounts, liabilities or
obligations are liquidated or unliquidated, absolute or contingent, now existing
or hereafter arising, and including without limitation the Note and all other
promissory notes heretofore or hereafter executed by the Borrower pursuant to
the Loan Agreement, in principal, interest, deferral and delinquency charges,
prepayment premiums, costs and attorneys' fees, as therein stipulated, and under
and pursuant to all amendments, supplements and restatements to any of said
documents. The Indebtedness includes without limitation all Advances and other
amounts for which the Borrower is obligated under the terms of this Mortgage to
the Lender or to the Trustee. The Indebtedness also includes, without
limitation, all post-petition interest, expenses, and other duties and
liabilities with respect to indebtedness or

                                        3
<PAGE>
other obligations described above, which would be owed but for the fact that
they are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization, or similar proceeding. The Indebtedness secured by this Mortgage
further continues with respect to any renewals, modifications, amendments,
revisions or extensions of the Indebtedness. It is contemplated and acknowledged
that the Indebtedness may include revolving credit loans and advances from time
to time, and that this Mortgage shall have effect, as of the date hereof, to
secure all Indebtedness, regardless of whether any amounts are advanced on the
date hereof or on a later date or, whether having been advanced, are later
repaid in part or in whole and further advances made at a later date.

                  "Instruments" means all instruments (as defined in the UCC)
now owned or hereafter acquired by the Borrower.

                  "Inventory" means all "inventory" (as defined in the UCC) now
owned or hereafter acquired by the Borrower.

                  "Investment Property" means all "investment property" (as
defined in the UCC) now owned or hereafter acquired by the Borrower.

                  "Lien" means any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on jurisprudence, statute or contract, and including but
not limited to the lien or security interest arising from a deed of trust,
mortgage, encumbrance, pledge, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes. The term
"Lien" shall include reservations, exceptions, encroachments, easements,
servitudes, usufructs, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property. For the
purposes of this Mortgage, the Borrower shall be deemed to be the owner of any
property which it has accrued or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.

                  "Mineral Properties" means collectively:

                  (a) the oil, gas and/or other mineral properties and/or
        mineral rights which are described in Exhibit A, attached hereto and
        made a part hereof;

                  (b) without limitation of the foregoing, all other right,
        title and interest of Borrower, of whatever kind or character (whether
        now owned or hereafter acquired by operation of law or otherwise) in and
        to (i) the oil, gas and/or mineral leases or other agreements described
        in Exhibit A hereto, (ii) the lands described or referred to in Exhibit
        A (or described in any of the instruments described or referred to in
        Exhibit A), without regard to any limitations as to specific undivided
        interests, lands or depths that may be set forth in Exhibit A hereto or
        in any of the leases or other agreements described in Exhibit A hereto;

                                        4
<PAGE>
                  (c) all of Borrower's right, title and interest (whether now
        owned or hereafter acquired by operation of law or otherwise) in and to
        all presently existing and hereafter created oil, gas and/or mineral
        unitization, pooling and/or communitization agreements, declarations
        and/or orders, and in and to the properties, rights and interests
        covered and the units created thereby (including, without limitation,
        units formed under orders, rules, regulations or other official acts of
        any federal, state or other authority having jurisdiction), which cover,
        affect or otherwise relate to the properties, rights and interests
        described in clause (a) or (b) above, including without limitation those
        described on Exhibit A;

                  (d) all of Borrower's right, title and interest (whether now
        owned or hereafter acquired by operation of law or otherwise) in and to
        all easements, servitudes, rights-of-way, surface leases, licenses,
        permits and other surface or subsurface rights, which are now or
        hereafter used, or held for use, in connection with the properties,
        rights and interests described in clause (a), (b) or (c) above, or in
        connection with the operation of such properties, rights and interests,
        or in connection with the treating, handling, storing, processing,
        transporting or marketing of oil, gas, other hydrocarbons, or other
        minerals produced from (or allocated to) such properties, rights and
        interests, including without limitation those described on Exhibit A;
        and

                  (e) all rights, estates, powers and privileges appurtenant to
        the foregoing rights, interests and properties.

                  "Mortgage" means this Deed of Trust, Mortgage, Assignment,
Security Agreement, Fixture Filing and Financing Statement, as amended or
supplemented from time to time.

                  "Mortgaged Properties" has the meaning set forth in Section
2.1 ("Grant and Mortgage") of this Mortgage.

                  "Note" shall mean that certain line of credit note in the
principal amount of $50,000,000.00, dated July 29, 2005, made by Borrower and
payable to the order of Lender with a maturity date on or before July 29, 2008,
such note bearing interest as therein provided, and containing a provision for
an additional amount as attorneys' fees, together with any and all other notes
given in substitution therefor, or in modification, amendment, renewal or
extension thereof, in whole or in part.

                  "Other Proceeds" has the meaning set forth in Section 2.3
("Assignment") of this Mortgage.

                  "Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other form of entity.

                                        5
<PAGE>
                  "Proceeds" means all "proceeds" (as defined in the UCC)
including without limitation all cash and non-cash proceeds of, and all other
profits, rentals or receipts, in whatever form, arising from the collection,
sale, lease, exchange, assignment, licensing or other disposition of, or
realization upon, Collateral, including without limitation all claims of the
Borrower against third parties for loss of, damage to or destruction of, or for
proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, any Collateral, and any condemnation or requisition
payments with respect to any Collateral, and including proceeds of all such
proceeds, in each case whether now existing or hereafter arising.

                  "Proceeds of Runs" has the meaning set forth in Section 2.3
("Assignment") of this Mortgage.

                  "Production Proceeds" has the meaning set forth in Section 2.3
("Assignment") of this Mortgage.

                  "Security Interests" means the security interests in the
Collateral granted hereunder securing the Indebtedness.

                  "Trustee" has the meaning set forth in Section 2.1 ("Grant and
Mortgage") of this Mortgage.

                  "UCC" means the Uniform Commercial Code, Secured Transactions
(Texas Bus. & Comm. Code, Chapter 9), in the State of Texas, as amended from
time to time; provided that if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection or priority of the
Security Interests in any Collateral is governed by the Uniform Commercial Code
or comparable law as in effect in a jurisdiction other than Texas, "UCC" means
the Uniform Commercial Code as in effect in such other jurisdiction for purposes
of the provisions hereof relating to such perfection or effect of perfection or
non-perfection or priority.

                                   ARTICLE 2.
                  GRANTS IN TRUST, LIENS AND SECURITY INTERESTS

                  Section 2.1 Grant and Mortgage. (a) In order to secure the
full and punctual payment and performance of all present and future
Indebtedness, the Borrower does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER,
ASSIGN and SET OVER to Lyndsay P. Job, Trustee, with an address as stated in
Section 6.1 ("Notices") (the "Trustee"), and grant to Trustee a POWER OF SALE
(pursuant to this Mortgage and applicable law) with respect to, all for the
benefit of Lender, the following described properties, rights and interests
(herein collectively called the "Mortgaged Properties"):

                  (1) The Mineral Properties, together with all rents, issues,
                  profits, products and proceeds, whether now or hereafter
                  existing or arising, from or attributable to the Mineral
                  Properties, and any Hydrocarbons in, under and/or that may be
                  produced therefrom.

                                        6
<PAGE>
                  (2) Without limitation of the foregoing, the Borrower's rights
                  in the fixtures, improvements and other constructions now or
                  hereafter located on the Mineral Properties, including without
                  limitation any buildings, platforms, structures, towers, rigs
                  or other real property, fixtures or component parts thereof.

                  (3) Without limitation of the foregoing, the Contracts.

                  (4) Without limitation of the foregoing, the Equipment.

The descriptions of the Mineral Properties contained in Exhibit A are amplified
(but not limited) by the explanations contained in Exhibit 1 attached hereto and
made a part hereof.

TO HAVE AND TO HOLD the Mortgaged Properties unto the Trustee and his successors
and/or substitutes in this trust, and to their successors and substitutes, in
trust, however, upon and subject to the terms and conditions hereof and Borrower
does hereby bind itself and its successors and assigns to WARRANT AND FOREVER
DEFEND title to the Mortgaged Properties unto Trustee and Trustee's successors
and assigns, forever, against every person whosoever claiming or to claim the
same, or any part thereof, except for Liens expressly permitted hereunder.

                  SUBJECT, however, to (i) the restrictions, exceptions,
reservations, conditions, limitations and other matters, if any, set forth or
specified 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 specified in Exhibit A
and which are taken into consideration in computing any percentage, decimal or
fractional interests set forth in Exhibit A), and (ii) the condition that the
Lender shall not be liable in any respect for the performance of any covenant or
obligation of the Borrower in respect of the Mortgaged Properties.

                  (b) In the event that the Borrower acquires (by operation of
law or otherwise) additional undivided interests in some or all of the Mineral
Properties, this Mortgage shall automatically encumber such additions or
increases to the Borrower's interest in the Mineral Properties without need of
further act or document. Further, in the event the Borrower becomes the owner of
an interest in any part of the land described either in Exhibit A or in the
documents described in Exhibit A or otherwise subject to or covered by the
Mineral Properties, this Mortgage shall automatically encumber such ownership
interest of the Borrower without need of further act or document.

                  Section 2.2 The Security Interests. In order to further secure
the full and punctual payment and performance of all present and future
Indebtedness, the Borrower hereby grants to the Lender a continuing security
interest in and to the entire right, title and interest of the Borrower in, to
and under the following property, whether now owned or existing or hereafter
acquired or arising (by operation of law or otherwise) and regardless of where
located:

                                        7
<PAGE>
                  (1) the Mineral Properties;

                  (2) the Accounts;

                  (3) the Hydrocarbons, together with all liens and security
                  interests securing payment of the proceeds of the
                  Hydrocarbons, including, but not limited to, those liens and
                  security interests provided for under (i) statutes, rules,
                  orders or regulations enacted in the jurisdictions in which
                  the Mortgaged Properties are located, or (ii) statutes, rules,
                  orders or regulations made applicable to the Mortgaged
                  Properties under federal law (or some combination of federal
                  and state law);

                  (4) the Equipment;

                  (5) the General Intangibles (including the Contracts);

                  (6) the Deposit Accounts, all cash deposited therein from time
                  to time, and other monies and property of any kind of the
                  Borrower in the possession or under the control of the Lender;

                  (7) the Instruments;

                  (8) the Inventory;

                  (9) the Investment Property;

                  (10) all geological, geophysical, engineering, seismic,
                  reserve, production, accounting, title and legal data, reports
                  and information and all books and records in any form
                  (including, without limitation, customer lists, credit files,
                  computer programs, tapes, disks, punch cards, data processing
                  software, transaction files, master files, printouts and other
                  computer materials and records) of the Borrower, pertaining to
                  any of the Mineral Properties or Collateral; and

                  (11) all Proceeds and products of all or any of the Collateral
                  described in clauses 1 through 10 hereof.

The term "Collateral" means each and all of the items and property rights
described in clauses 1-11 above, together with the Mortgaged Properties and the
Proceeds of Runs.

                  Section 2.3 Assignment. (a) Borrower does hereby absolutely
and unconditionally assign, transfer and set over to Lender, effective as of
7:00 a.m. July 29, 2005, the following:

                  (i) all Hydrocarbons which accrue to Borrower's interest in
the Mortgaged Properties, and all proceeds of such Hydrocarbons, which proceeds
include, without limitation,

                                        8
<PAGE>
all advance or other payments for hydrocarbons not yet delivered, such as those
received pursuant to "take-or-pay" arrangements (herein collectively referred to
as the "Production Proceeds"), together with the immediate and continuing right
to collect and receive such Production Proceeds; and

                  (ii) all other monies which accrue to Borrower's interest in
the Mineral Properties, and all present and future rents therefrom, which rents
include, without limitation, all royalties, delay rentals, shut-in payments and
similar payments (herein collectively called the "Other Proceeds").

Borrower directs and instructs any and all purchasers of any Hydrocarbons and
all other obligors of Production Proceeds and Other Proceeds (herein
collectively called "Proceeds of Runs"), upon written notice from Lender, to pay
to Lender all of the Proceeds of Runs accruing to Borrower's interest until such
time as such purchasers or other obligors have been furnished with evidence that
all Indebtedness has been paid and that this Mortgage has been released.
Borrower agrees that no purchasers of the Hydrocarbons or other obligors of the
Proceeds of Runs shall have any responsibility for the application of any funds
paid to Lender.

        (b) Borrower hereby constitutes and appoints Lender as Borrower's
special attorney-in-fact (with full power of substitution, either generally or
for such periods or purposes as Lender may from time to time prescribe) in the
name, place and stead of Borrower to do any and every act and exercise any and
every power that Borrower might or could do or exercise personally with respect
to all Hydrocarbons and Proceeds of Runs (the same having been assigned by
Borrower to Lender pursuant to Section 2.3(a) hereof), expressly inclusive, but
not limited to, the right, power and authority to:

               (1) execute and deliver in the name of Borrower any and all
        transfer orders, division orders, letters in lieu of transfer orders,
        indemnifications, certificates and other instruments of every nature
        that may be requested or required by any purchaser of Hydrocarbons from
        any of the Mortgaged Properties for the purposes of effectuating payment
        of the Production Proceeds to Lender or which Lender may otherwise deem
        necessary or appropriate to effect the intent and purposes of the
        assignment contained in Section 2.3(a); and

               (2) if under any product sales agreements other than division
        orders or transfer orders, any Production Proceeds are required to be
        paid by the purchaser to Borrower so that under such existing agreements
        payment cannot be made of such Production Proceeds to Lender, to make,
        execute and enter into such sales agreements or other agreements as are
        necessary to direct Production Proceeds to be payable to Lender;

giving and granting unto said attorney-in-fact full power and authority to do
and perform any and every act and thing whatsoever necessary and requisite to be
done as fully and to all intents and purposes, as Borrower might or could do if
personally present. Borrower shall be bound thereby

                                        9
<PAGE>
as fully and effectively as if Borrower had personally executed, acknowledged
and delivered any of the foregoing certificates or documents. The powers and
authorities herein conferred upon Lender may be exercised by Lender through any
person who, at the time of the execution of the particular instrument, is an
officer of Lender. The power of attorney herein conferred is granted for
valuable consideration and hence is coupled with an interest and is irrevocable
so long as the Indebtedness, or any part thereof, shall remain unpaid. All
persons dealing with Lender or any substitute shall be fully protected in
treating the powers and authorities conferred by this paragraph as continuing in
full force and effect until advised by Lender that all the Indebtedness is fully
and finally paid. Lender may, but shall not be obligated to, take such action as
it deems appropriate in an effort to collect the Production Proceeds and any
reasonable expenses (including reasonable attorney's fees) so incurred by Lender
shall be a demand obligation of Borrower (which obligation the Borrower
expressly promises to pay) owing by the Borrower to Lender and shall bear
interest, from the date expended until paid, at the rate described in Section
4.8 ("Advances by Lender") hereof.

                  Section 2.4 Condemnation. The Borrower hereby assigns to the
Lender any and all awards that may be given or made in any proceedings by any
legally constituted authority to condemn or expropriate the Collateral, or any
part thereof, under power of eminent domain, and if there is such a condemnation
or expropriation, the Lender may, at its election, either pay the net proceeds
thereof toward the payment of the Indebtedness or pay the net proceeds thereof
to the Borrower.

                  Section 2.5 Scope and Term of Indebtedness. The Borrower
acknowledges that this Mortgage secures all Indebtedness under or pursuant to
the Loan Agreement, the Note, this Mortgage or the other Collateral Documents,
whether such loans or advances made or incurred by the Lender are optional or
obligatory by the Lender. This Mortgage is and shall remain effective, even
though the amount of the Indebtedness may now be zero or may later be reduced to
zero, until all of the amounts, liabilities and obligations, present and future,
comprising the Indebtedness have been incurred and are extinguished. When no
Indebtedness secured by this Mortgage exists and the Lender is not bound to
permit any Indebtedness to be incurred, this Mortgage shall be released by the
Lender upon thirty (30) days prior written notice sent by the Borrower to the
Lender in accordance with the provisions of this Mortgage.

                  Section 2.6 Delivery of Transfer Orders. Independent of the
other provisions and authorities herein granted, the Borrower agrees to execute
and deliver any and all transfer orders, letters in lieu thereof, division
orders and other instruments that may be requested by Lender or that may be
required by any purchaser of any Hydrocarbons for the purpose of effectuating
payment of the Proceeds of Runs to Lender. If under any existing sales
agreements, other than division orders or transfer orders, any Proceeds of Runs
are required to be paid by the purchaser to the Borrower so that under such
existing agreements payment cannot be made of such Proceeds of Runs to Lender,
the Borrower's interest in all Proceeds of Runs under such sales agreements and
in all other Proceeds of Runs which for any reason may be paid to the

                                       10
<PAGE>
Borrower shall, when received by the Borrower, constitute trust funds in the
Borrower's hands and shall be immediately paid over to Lender.

                  Section 2.7 Change of Purchaser. Should any Person now or
hereafter purchasing or taking Hydrocarbons fail to make payment to Lender of
the Proceeds of Runs within 30 days of when due, Lender shall have the right to
make, or to require the Borrower to make, a change of connection and the right
to designate or approve the purchaser with whose facilities a new connection
shall be made, and Lender shall have no liability or responsibility in
connection therewith so long as ordinary care is used in making such
designation.

                  Section 2.8 Payment of Proceeds. In the event that, for its
convenience, the Lender should elect with respect to all or particular Mineral
Properties or Contracts not to exercise immediately its right to receive
Hydrocarbons or Proceeds of Runs, then the purchasers or other Persons obligated
to make such payment shall continue to make payment to the Borrower until such
time as written demand has been made upon them by the Lender that payment be
made direct to the Lender. Such failure to notify such purchasers or other
Persons shall not in any way waive, remit or release the right of the Lender to
receive any payments not theretofore paid over to the Borrower before the giving
of written notice. In this regard, in the event payments are made direct to the
Lender, and then, at the request of the Lender payments are, for a period or
periods of time, paid to the Borrower, the Lender shall nevertheless have the
right, effective upon written notice, to require future payments be again made
to it.

                  Section 2.9 Limitation of Liability; Indemnity. The Lender and
its successors and assigns are hereby absolved from all liability for failure to
enforce collection of the Proceeds of Runs and from all other responsibility in
connection therewith, except the responsibility of each to account (by
application upon the Indebtedness or otherwise) to the Borrower for funds
actually received. The Borrower agrees to indemnify and hold harmless Lender
against any and all liabilities, actions, claims, judgments, costs, charges and
attorneys' fees by reason of the assertion that such parties received, either
before or after payment and performance in full of the Indebtedness, funds from
the production of Hydrocarbons or the Proceeds of Runs claimed by third persons
(and/or funds attributable to sales of production which (i) were made at prices
in excess of the maximum price permitted by or (ii) were otherwise made in
violation of contracts, agreements, laws, rules, regulations and/or orders
governing such sales), and the Lender shall have the right to defend against any
such claims or actions, employing attorneys of Lender's own selection and if not
furnished with indemnity satisfactory to them, the Lender shall have the right
to compromise and adjust any such claims, actions and judgments, and in addition
to the rights to be indemnified as herein provided, all amounts paid by the
Lender in compromise, satisfaction or discharge of any such claims, actions or
judgments, and all court costs, attorneys' fees and other expenses of every
character expended by the Lender pursuant to the provisions of this Section
shall be a demand obligation (which obligation the Borrower hereby expressly
promises to pay) owing by the Borrower to such parties and shall bear interest,
from the date expended until paid, at the rate described in Section 4.8
("Advances by Lender") hereof. WITHOUT LIMITATION, IT IS THE INTENTION OF
BORROWER AND BORROWER AGREES THAT THE

                                       11
<PAGE>
FOREGOING RELEASES AND INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH
RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING WITHOUT
LIMITATION CONSEQUENTIAL DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS
AND EXPENSES AND FURTHER INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES
AND EXPENSES, WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF STRICT
LIABILITY OR OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY.
However, such indemnities and releases shall not apply to any particular
indemnified party (but shall apply to the other indemnified parties) to the
extent the subject of the indemnification is caused by or arises out of the
gross negligence or willful misconduct of such particular indemnified party.

                  Section 2.10 Duty to Perform. Nothing herein contained shall
detract from or limit the obligation of the Borrower to make prompt payment of
the Indebtedness at the time and in the manner provided herein and in the Loan
Agreement, regardless of whether the Proceeds of Runs herein assigned are
sufficient to pay same. The Borrower will do and perform every act required of
it by this Mortgage at the time or times and in the manner specified.

                                   ARTICLE 3.
                         REPRESENTATIONS AND WARRANTIES

                  The Borrower represents and warrants to the Lender that:

                  Section 3.1 Title. The Collateral (including without
limitation the Mineral Properties) is accurately, completely, adequately and
sufficiently described herein and in Exhibit A as required by all applicable
laws for this Mortgage to create a Lien on all of the Collateral. The execution,
delivery and performance of this Mortgage and the creation of the liens and
grants in trust hereunder do not violate any provision of or constitute a
default under any operating agreement or other instrument affecting or
comprising any of the Collateral or to which the Borrower is a party. Except as
otherwise specifically disclosed to the Lender in writing with respect to any
particular part of the Mineral Properties, the Borrower represents and warrants
to the Lender that (a) the Mineral Properties described in Exhibit A hereto are
valid, subsisting leases and contracts, in full force and effect, (b) all
producing wells located on the lands described in Exhibit A have been drilled,
operated and produced in conformity with all applicable laws, rules and
regulations of all regulatory authorities having jurisdiction, and are subject
to no penalties on account of past production, and that such wells are in fact
bottomed under and are producing from, and the well bores are wholly within,
lands described in Exhibit A (or in the case of wells located on properties
unitized therewith, such unitized properties), (c) the Borrower, to the extent
of the interests specified in Exhibit A, has legal, valid and defensible title
to each property right or interest constituting the Mineral Properties, subject
to exceptions permitted by Section 6.2 of the Loan Agreement, and the respective
working interests and net revenue interests of the Borrower in and to the
Hydrocarbons as set forth on Exhibit A hereto, and the Borrower's percentage
interests in the Mineral Properties, cash flow, net income and

                                       12
<PAGE>
other distributions and in the costs of exploration, development and production,
all as set forth in Exhibit A hereto, are true and correct in all material
respects and accurately reflect the respective interests to which the Borrower
is legally entitled, (d) the Borrower is not obligated, by virtue of any
prepayment under any contract providing for the sale by the Borrower of
Hydrocarbons which contains a "take or pay" clause or under any similar
arrangement, to deliver Hydrocarbons produced or to be produced from the Mineral
Properties at some future time without then or thereafter receiving full payment
therefor, and (e) no agreement, contract or instrument set forth in Exhibit A or
contains any provision which would prevent the practical realization of the
benefits of this Mortgage as to the Collateral. With respect to all wells
existing on the date hereof, such shares of production and expenses are not
subject to change (pursuant to non-consent provisions of operating agreements
described in Exhibit A or otherwise) except, and only to the extent that, such
changes are expressly described in Exhibit A. The Borrower will warrant and
forever defend the Collateral unto the Lender against every person whomsoever
lawfully claiming the same or any part thereof except persons claiming under
encumbrances of record permitted by Section 6.2 of the Loan Agreement, and will
maintain and preserve the Lien hereby created so long as any of the Indebtedness
remains unpaid.

                  Section 3.2 Rents; Royalties. All rents, royalties and other
payments (except for those which are being contested in good faith and by
appropriate proceedings and for which the Borrower has established adequate
reserves and so long as the payment of same is not a condition to be met in
order to maintain an oil, gas and/or other mineral lease or other agreement in
force) due and payable under the Mineral Properties which are productive of oil
and/or gas (or are included in units productive of oil and/or gas) and all other
oil, gas and/or mineral leases, contracts and other agreements forming a part of
the Mortgaged Properties, have been and are being properly and timely paid, and
the Borrower is not in default with respect to any obligations (and the Borrower
is not aware of any default by any third party with respect to such third
party's obligations) under such leases, contracts and other agreements, or
otherwise attendant to the ownership or operation of the Collateral, where such
default could adversely affect the ownership or operation of the Collateral to
which such obligations relate. The Borrower is not currently accounting (and
does not anticipate accounting) for any royalties, or overriding royalties or
other payments out of production, on a basis (other than delivery in kind) where
such payments are based other than on proceeds received by Borrower from sale;
the Borrower has advised the Lender in writing of situations, if any, where a
contingent liability to so account may exist.

                  Section 3.3 No Limitations on Payments for Production. Except
as otherwise specifically disclosed to the Lender in writing with respect to any
particular part of the Mineral Properties, (i) neither Borrower, nor its
predecessors in title, have received prepayments (including, but not limited to,
payments for gas not taken pursuant to "take or pay" arrangements) for any
Hydrocarbons produced or to be produced from the Mineral Properties after the
date hereof; (ii) none of the Mineral Properties is subject to any contractual
or other arrangement whereby payment for production is to be deferred for a
substantial period after the month in which such production is delivered (i.e.,
in the case of oil not in excess of sixty (60)

                                       13
<PAGE>
days, and in the case of gas not in excess of ninety (90) days); (iii) none of
the Mineral Properties is subject to any contractual, or other, arrangement for
the sale of crude oil which cannot be cancelled on ninety (90) days (or less)
notice, and none of the Mineral Properties is subject to a gas sales contract
which contains terms which are not customary in the industry; (iv) none of the
Mineral Properties is subject at the present time to any regulatory refund
obligation and, to the best of Borrower's knowledge, no facts exist which might
cause the same to be imposed; (v) none of the Mineral Properties is subject to
an arrangement or agreement under which any purchaser or other Person is
entitled to "make-up" or otherwise receive deliveries of Hydrocarbons at any
time after the date hereof without paying at such time the full contract price
therefor; and (vi) no Person is entitled to receive any portion of the interest
of the Borrower in any Hydrocarbons produced or to be produced from the Mineral
Properties or to receive cash or other payments from the Borrower to "balance"
any disproportionate allocation of Hydrocarbons under any operating agreement,
gas balancing and storage agreement, gas processing or dehydration agreement, or
other similar agreements, except as permitted by the Loan Agreement.

                  Section 3.4 Pricing. The prices being received for the
production of Hydrocarbons do not violate any Contract, law or regulation. Where
applicable, all of the wells located on the Mineral Properties and production of
Hydrocarbons therefrom have been properly classified under appropriate
governmental regulations.

                  Section 3.5 Consents and Preferential Rights. There are no
preferential purchase rights held by third parties affecting any part of the
Collateral except for the right of first refusal on Phase III in favor of Penn
Virginia Oil & Gas under the Participation Agreement dated December 29, 2003, or
rights of third parties to prohibit the pledge or mortgage to Lender of any part
of the Collateral without the consent of such third parties.

                  Section 3.6 No Inconsistent Agreements. The Borrower has not
performed any acts or signed any agreements which might prevent the Lender from
enforcing any of the terms of this Mortgage or which would limit the Lender in
any such enforcement.

                  Section 3.7 Status of Contracts. All of the Contracts and
obligations of the Borrower that relate to the Mineral Properties (i) are in
full force and effect and constitute legal, valid and binding obligations of the
Borrower, and (ii) neither the Borrower nor, to the knowledge of the Borrower,
any other party to the Contracts (a) is in breach of or default, or with the
lapse of time or the giving of notice, or both, would be in breach or default,
with respect to any of its obligations thereunder or (b) has given or threatened
to give notice of any default under or inquiry into any possible default under,
or action to alter, terminate, rescind or procure a judicial reformation of any
Contract.

                  Section 3.8 Accounts. The Accounts represent bona fide
obligations of the respective account debtors, which obligations are free and
clear of any set off, compensation, counterclaim, defense, allowance or
adjustment other than discounts for prompt payment shown on the invoice, and
arose in the ordinary course of the Borrower's business.

                                       14
<PAGE>
                  Section 3.9 Status of Equipment. To the best of the Borrower's
knowledge, the Equipment, fixtures and other tangible personal property forming
a part of the Collateral are in good repair and condition and are adequate for
the normal operation of the Collateral in accordance with prudent industry
standards; all of such Collateral is located on the Mineral Properties, except
for that portion thereof which is located elsewhere (including that usually
located on the Mineral Properties but now temporarily located elsewhere) in the
course of the normal operation of the Mineral Properties.

                  Section 3.10 UCC Number. The Oklahoma Secretary of State does
not assign an organizational identification number to the Borrower.

                  Section 3.11 Chief Executive Office. The chief executive
office of the Borrower is located at 9400 North Broadway, Suite 600, Oklahoma
City, Oklahoma 73114. The chief executive office of the Borrower has been
continuously located within the State of Oklahoma from and after its formation.

                  Section 3.12 Name and State of Formation. The Borrower is
formed and organized under the laws of the State of Oklahoma. The exact name of
the Borrower is set forth on the cover page of this Mortgage.

                                   ARTICLE 4.
                                    COVENANTS

                  Section 4.1 Insurance and Notice. The Borrower will procure
and maintain for the benefit of the Lender original paid-up insurance policies
against such liabilities, casualties, risks and contingencies, in such amounts
and form and substance, with such financially sound and reputable companies, and
with such expiration dates, as are acceptable to the Lender, and containing a
non-contributory standard mortgagee clause or its equivalent in favor of the
Lender. The Borrower will at all times maintain costs of regaining control of
well insurance or similar insurance to the extent customary in the industry in
the pertinent area of operations. Each policy shall contain an agreement by the
insurer not to cancel or amend the policy without giving the Lender at least
thirty (30) days prior written notice of its intention to do so. Upon request of
the Lender, the Borrower will furnish or cause to be furnished to the Lender
from time to time a summary of the insurance coverage of the Borrower in form
and substance satisfactory to the Lender and if requested will furnish the
Lender original certificates of insurance and/or copies of the applicable
policies and all renewals thereof. In the event the Borrower should, for any
reason whatsoever, fail to keep the corporeal (tangible) Collateral or any part
thereof so insured, or to keep said policies so payable, or fail to deliver to
the Lender the original or certified policies of insurance and the renewals
therefor upon demand, then the Lender, if it so elects, may itself have such
insurance effected in such amounts and with such companies as it may deem proper
and may pay the premiums therefor (as an Advance as defined hereinbelow). The
Borrower will notify the Lender immediately in writing of any material blowout,
fire or other casualty to or accident involving the Mortgaged Properties, the
Equipment or the Hydrocarbons, whether or not such blowout, fire, casualty or
accident is covered by insurance. The Borrower will promptly

                                       15
<PAGE>
further notify the Borrower's insurance company and to submit an appropriate
claim and proof of claim to the insurance company if such a casualty or accident
occurs. In the event of any loss or any of such policies, the Lender may, at its
election, either apply the net proceeds thereof toward the payment of the
Indebtedness or pay the net proceeds thereof to the Borrower, either wholly or
in part, and under such conditions as the Lender may determine to enable the
Borrower to repair or restore the Collateral.

                  Section 4.2 Operation of the Mortgaged Properties. Whether or
not the Borrower is the operator of the Mortgaged Properties, the Borrower will,
at the Borrower's own expense, (a) do all things necessary to keep unimpaired
the Borrower's rights in the Mortgaged Properties (subject to any permitted
abandonment provisions hereinbelow), (b) cause the lands described in Exhibit A
to be maintained, developed, protected against drainage, and continuously
operated for the production of hydrocarbons in a good and workmanlike manner as
would a prudent operator, and in accordance with generally accepted practices
and applicable operating agreements, and (c) cause to be paid, promptly as and
when due and payable, all rentals and royalties payable in respect of the
Mortgaged Properties, and all expenses incurred in or arising from the operation
or development of the Mortgaged Properties. The Borrower will observe and comply
with all terms and provisions, express or implied, of the Mineral Properties,
and all agreements and contracts of any type relating to the Mortgaged
Properties, in order to keep the same in full force and effect, including,
without limitation, maintenance of productive capacity of each well or unit
comprising the Mortgaged Properties, and will not, without the prior written
consent of the Lender, surrender, abandon or release (or otherwise reduce its
rights under) any such lease, in whole or in part, so long as any well situated
thereon (whether or not such well is located on the Mineral Properties), or
located on any unit containing all or any part of such leases, is capable (or is
subject to being made capable through drilling, reworking or other operations
which it would be economically feasible to conduct) of producing hydrocarbons in
commercial quantities (as determined without considering the effect of this
Mortgage); provided, however, that the Borrower may, to the extent expressly
required by the terms of any such lease under a "Pugh clause" or similar
provision, or to the extent otherwise required by law, confirm to the lessor
thereof that the lease has by its terms terminated as to any specified portion
thereof on which no such well exists. Without the express prior written consent
of the Lender, Borrower will not abandon or consent to the abandonment of any
well producing from the Mortgaged Properties (or properties unitized therewith)
so long as such well is capable (or is subject to being made capable through
drilling, reworking or other operations which it would be commercially feasible
to conduct) of producing hydrocarbons in commercial quantities (as determined
without considering the effect of this Mortgage but considering the cost of such
drilling, reworking and other operations). Without the express prior written
consent of the Lender, the Borrower will not elect not to participate in a
proposed operation on the Mortgaged Properties where the effect of such election
would be the forfeiture either temporarily (i.e., until a certain sum of money
is received out of the forfeited interest) or permanently of any interest in the
Mortgaged Properties except in the ordinary course of business in good faith.

                                       16
<PAGE>
                  Section 4.3 Pooling and Unitization. The Borrower has the
right, and is hereby authorized, to pool or unitize all or any part of any tract
of land described in Exhibit A, insofar as relates to the Mortgaged Properties,
with adjacent lands, leaseholds and other interests, when, in the reasonable
judgment of the Borrower, it is necessary or advisable to do so in order to form
a drilling unit to facilitate the orderly development of that part of the
Mortgaged Properties affected thereby, or to comply with the requirements of any
law or governmental order or regulation relating to the spacing of wells or
proration of the production therefrom; provided, however, that the Hydrocarbons
produced from any unit so formed shall be allocated among the separately owned
tracts or interests comprising the unit in proportion to the respective surface
areas thereof; and provided further that the Borrower is not be entitled to form
any such unit without the written consent of the Lender (which consent shall not
be unreasonably withheld) if the effect of such formation would be to decrease
the amount of Hydrocarbons which would be subject to this Mortgage. Any unit so
formed may relate to one or more zones or horizons, and a unit formed for a
particular zone or horizon need not conform in area to any other unit relating
to a different zone or horizon, and a unit formed for the production of oil need
not conform in area with any unit formed for the production of gas. Immediately
after formation of any such unit, the Borrower shall furnish to the Lender a
true copy of the pooling agreement, declaration of pooling or other instrument
creating such unit, in such number of counterparts as the Lender may reasonably
request. The interest in any such unit attributable to the Mortgaged Properties
(or any part thereof) included therein shall become a part of the Mortgaged
Properties and shall be subject to the Lien hereof in the same manner and with
the same effect as though such unit and the interest of the Borrower therein
were specifically described in Exhibit A. The Borrower may enter into pooling or
unitization agreements not hereinabove authorized only with the prior written
consent of the Lender.

                  Section 4.4 Contracts. The Borrower will not enter into any
operating agreement or other Contract which materially adversely affects the
Collateral or the Mineral Properties, or which is not in the ordinary course of
business. The Borrower will promptly take all action necessary to enforce or
secure the observance or performance of any term, covenant, agreement or
condition to be observed or performed by third parties under any Contract, or
any part thereof, or to exercise any of its rights, remedies, powers and
privileges under any Contract, all in accordance with the respective terms
thereof. The Borrower will not do or permit anything to be done to the
Collateral that may violate the terms of any insurance covering the Collateral
or any part thereof.

                  Section 4.5 Filing. (a) The Borrower agrees that a facsimile,
photostatic or other reproduction of this Mortgage is sufficient as a financing
statement. This Mortgage shall be effective as a financing statement, filed as a
fixture filing with respect to all fixtures included within the Collateral, and
shall also be effective as a financing statement covering as extracted
collateral and minerals or the like (including oil and gas) and other substances
of value that may be extracted from the earth and accounts related thereto,
which will be financed at the wellhead or minehead of the wells or mines located
on the Mortgaged Properties. This Mortgage is to be filed for record in the real
property records of each county where any part of the Mortgaged

                                       17
<PAGE>
Properties is situated or which lies shoreward of any Mortgaged Property (i.e.,
to the extent a Mortgaged Property lies offshore within the projected seaward
extension of the relevant county boundaries), and may also be filed in the
offices of the Bureau of Land Management or the Minerals Management Service or
any relevant state agency (or any successor agencies). This Mortgage shall also
be effective as a financing statement covering any other Collateral and may be
filed in any other appropriate filing or recording office. The mailing address
of the Borrower and the address of the Lender from which information concerning
the Security Interests evidenced hereunder may be obtained are the respective
addresses of the Borrower and the Lender set forth in Article 6. The Borrower
shall pay all costs of or incidental to the recording or filing this Mortgage
and of any financing, amendment, continuation, termination or other statements
concerning the Collateral.

                  (b) The Borrower authorizes the Lender to file a financing
statement covering all personal property of the Borrower in the appropriate
filing office under the UCC.

                  Section 4.6 Collateral Protection. If the validity or priority
of this Mortgage or any rights, security interests or other interests created or
evidenced hereby shall be attacked, endangered or questioned or if any legal
proceedings are instituted with respect thereto, the Borrower will give prompt
written notice thereof to the Lender and at the Borrower's own cost and expense
will diligently endeavor to cure any defect that may be developed or claimed,
and will take all necessary and proper steps for the defense of such legal
proceedings, and the Lender (whether or not named as a party to legal
proceedings with respect thereto) is hereby authorized and empowered to take
such additional steps as in its judgment and discretion may be necessary or
proper for the defense of any such legal proceedings or the protection of the
validity or priority of this Mortgage and the rights, security interests and
other interests created or evidenced hereby, and all reasonable expenses so
incurred of every kind and character shall be considered Advances as provided in
Section 4.8 ("Advances by Lender") hereof, and shall be a part of the
Indebtedness.

                  Section 4.7 Taxation of Mortgage. In the event that any
governmental authority shall impose any taxation of mortgages or the
indebtedness they secure, the Borrower agrees to pay such governmental taxes,
assessments or charges either to the governmental authority or to the Lender, as
provided by law.

                  Section 4.8 Advances by Lender. The Borrower authorizes the
Lender in the Lender's discretion to advance any sums necessary for the purpose
of paying (i) insurance premiums, (ii) taxes, forced contributions, service
charges, local assessments and governmental charges, (iii) any Liens or
encumbrances affecting the Collateral (whether superior or subordinate to the
Lien of this Mortgage) not permitted by this Mortgage or the Loan Agreement,
(iv) necessary repairs and maintenance expenses or (v) any other amounts which
are covered by the Loan Agreement or which the Lender deems necessary and
appropriate to preserve the validity and ranking of this Mortgage, to cure any
Defaults or to prevent the occurrence of any Default, or otherwise authorized by
this Mortgage (collectively, the "Advances") of whatever

                                       18
<PAGE>
kind; provided, however, that nothing herein contained shall be construed as
making such Advances obligatory upon Lender, or as making Lender liable for any
loss, damage, or injury resulting from the nonpayment thereof. The Borrower
covenants and agrees that within five (5) days after demand therefor by the
Lender, the Borrower will repay the Advances to the Lender, together with
interest thereon at the rate provided in the Loan Agreement and the Note from
the date incurred. All such Advances (and interest) shall be included in the
Indebtedness secured hereby.

                                   ARTICLE 5.
                              DEFAULT AND REMEDIES

                  Section 5.1 Events of Default. Any of the following events
shall be considered an "Event of Default" as that term is used herein:

                  (a) Principal and Interest Payments. The Borrower fails to
        make payment when due of any principal or interest installment on the
        Note or any other Indebtedness to the Lender, and such failure continues
        unremedied for a period of three (3) Business Days after the earlier of
        (i) notice thereof being given by the Lender to the Borrower or (ii)
        such default otherwise becoming known to the president or chief
        financial officer of the Borrower.

                  (b) Loan Agreement. The occurrence of an Event of Default as
        defined in the Loan Agreement.

                  Section 5.2 Remedies. (a) Upon the occurrence of any Event of
Default, the Lender may take such action, without notice or demand, as it deems
advisable to protect and enforce its rights against the Borrower and in and to
the Collateral, including, but not limited to, the following actions, each of
which may be pursued concurrently or otherwise, at such time and in such order
as the Lender may determine, in its sole discretion, without impairing or
otherwise affecting the other rights and remedies of the Lender: (i) institute
proceedings for the complete foreclosure of this Mortgage in which case the
Collateral or any part thereof may be sold for cash or upon credit in one or
more portions; or (ii) to the extent permitted and pursuant to the procedures
provided by applicable law, institute proceedings for the partial foreclosure of
this Mortgage for the portion of the Indebtedness then due and payable, subject
to the continuing Lien of this Mortgage for the balance of the Indebtedness not
then due; or (iii) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained in this
Mortgage or the Loan Agreement; or (iv) recover judgment on the Note either
before, during or after any proceedings for the enforcement of this Mortgage; or
(v) apply for the appointment of a trustee, receiver, liquidator or conservator
of the Collateral, without regard for the adequacy of the security for the
Indebtedness and without regard for the solvency of the Borrower or of any
person, firm or other entity liable for the payment of the Indebtedness; or (vi)
pursue such other remedies as the Lender may have under applicable law.

                                       19
<PAGE>
                  (b) The proceeds or avails of any sale made under or by virtue
of this Article 5, together with any other sums which may be held by the Lender
under this Mortgage, whether under the provisions of this Article 5 or
otherwise, shall be applied to the Indebtedness in such manner as the Lender, in
its sole discretion, shall determine.

                  (c) Upon any sale made under or by virtue of this Article 5,
the Lender may bid for and acquire the Collateral or any part thereof and in
lieu of paying cash therefor may make settlement for the purchase price by
crediting upon the Indebtedness the net sales price after deducting therefrom
the expenses of the sale and the costs of the action and any other sums which
the Lender is authorized to deduct under this Mortgage.

                  Section 5.3 Deposit Accounts. The Lender has required the
Borrower to maintain and use the Deposit Accounts at the Lender. Upon an Event
of Default the Deposit Accounts shall be subject to access and withdrawal by the
Lender only. Payments due and payable on the Note may be debited from the
Deposit Accounts. All payments (in the form of checks, drafts, cash or
otherwise) received by the Borrower in satisfaction, in whole or in part, of any
Proceeds of Runs, Accounts or General Intangibles (or Proceeds therefrom) of the
Borrower shall be deposited by the Borrower in the Deposit Accounts in
accordance with the terms of the Loan Agreement. The Borrower will deposit for
credit to the Deposit Accounts all such items of payment and remittances within
one Business Day after the receipt thereof, and shall not commingle any such
items of payment and remittances with any of the Borrower's other property.
Funds in the Deposit Accounts are hereby made and shall remain subject to a
security interest in favor of the Lender to secure the Indebtedness, and the
Lender may apply or cause to be applied (subject to collection) any or all of
the balance from time to time standing in the Deposit Accounts against any
amounts then due and payable under the Indebtedness in such order as determined
by the Lender.

                  Section 5.4 General Authority. The Borrower hereby irrevocably
appoints the Lender its agent and attorney in fact, with full power of
substitution, in the name of the Borrower or the Lender, for the sole use and
benefit of the Lender, but at the Borrower's expense, to exercise, at any time
and from time to time while an Event of Default has occurred and is continuing,
all or any of the following powers with respect to all or any of the Collateral:

                  (i) to endorse the name of the Borrower upon any check, draft
        or other instrument payable to the Borrower evidencing payment upon any
        Accounts or General Intangible,

                  (ii) to notify postal service authorities to change the
        address for delivery of the assigned payments of Collateral to a
        "lockbox" address designated and controlled by the Lender, and to
        receive, open and dispose of assigned payments of Collateral addressed
        to the Borrower,

                  (iii) to demand, sue for, collect, receive and give
        acquittance for any and all Accounts and other monies due or to become
        due for or as Collateral or by virtue thereof,

                                       20
<PAGE>
                  (iv) to settle, compromise, compound, prosecute or defend any
        action or proceeding with respect to any of the Collateral, and

                  (v) to extend the time of payment of any or all of the
        Collateral and to make any allowance and other adjustments with
        reference thereto.

The aforesaid mandate and power of attorney, being coupled with an interest, is
irrevocable so long as any of the Indebtedness remain outstanding.

                  Section 5.5 Accounts and Contracts. While an Event of Default
has occurred and is continuing, (i) the Borrower will make no material change to
the terms of any Account or Contract without the prior written permission of the
Lender, and (ii) the Borrower upon request of the Lender will promptly notify
(and the Borrower hereby authorizes the Lender so to notify) each account debtor
in respect of any Account or General Intangible that such Collateral has been
assigned to the Lender hereunder, and that any payments due or to become due in
respect of such Collateral are to be made directly to the Lender or its
designee.

                  Section 5.6 Sale and Foreclosure. Upon the occurrence of an
Event of Default, Trustee is authorized and empowered and it shall be Trustee's
special duty at the request of Lender to sell the Collateral, or any part
thereof, as an entirety or in parcels as Lender may elect, at such place or
places and otherwise in the manner and upon such notice as may be required by
law or, in the absence of any such requirement, as Trustee may deem appropriate.
If Trustee shall have given notice of sale hereunder, any successor or
substitute Trustee thereafter appointed may complete the sale and the conveyance
of the property pursuant thereto as if such notice had been given by the
successor or substitute Trustee conducting the sale. Cumulative of the foregoing
and the other provisions of this Section 5.6:

                  (a) As to any portion of the Collateral located in the State
        of Texas (or within the offshore area over which the United States of
        America asserts jurisdiction and to which the laws of such state are
        applicable with respect to this Mortgage and/or the liens, grants in
        trust or security interests created hereby), such sales of all or any
        part of such Collateral shall be conducted at the courthouse of any
        county (whether or not the counties in which such Collateral located are
        contiguous) in the State of Texas in which any part of such Collateral
        is situated or which lies shoreward of any Collateral (i.e., to the
        extent a particular part of the Collateral lies offshore within the
        reasonable projected seaward extension of the relevant county boundary),
        at public venue to the highest bidder for cash between the hours of ten
        o'clock a.m. and four o'clock p.m. on the first Tuesday in any month or
        at such other place, time and date as provided by the statutes or laws
        of the State of Texas then in force governing sales of real estate under
        powers conferred by deed of trust, after having given notice of such
        sale in accordance with such statutes.

                  (b) A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER
        OF SALE MAY ALLOW TRUSTEE TO TAKE THE COLLATERAL AND SELL THEM WITHOUT
        GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY BORROWER UNDER
        THIS MORTGAGE.

                                       21
<PAGE>
                  Section 5.7 Remedies Under the UCC and Otherwise Respecting
the Collateral. Upon the occurrence of an Event of Default, Lender may exercise
its rights of enforcement with respect to the Collateral under the UCC or under
any other law, statute, order, rule or regulation, in force in any state, to the
extent the same is applicable. Cumulative of the foregoing and the other
provisions of this Section 5.7:

                  (i) Lender may enter upon the Mortgaged Properties or
        otherwise upon Borrower's premises to take possession of, assemble and
        collect the Collateral or to render it unusable; and

                  (ii) Lender may require Borrower to assemble the Collateral
        and make it available at a place Lender designates which is mutually
        convenient to allow Lender to take possession or dispose of the
        Collateral; and

                  (iii) written notice mailed to Borrower as provided herein at
        least five (5) days prior to the date of public sale of the Collateral
        or prior to the date after which private sale of the Collateral will be
        made shall constitute reasonable notice; and

                  (iv) in the event of a foreclosure of the liens and/or
        security interests evidenced hereby, the Collateral, or any part
        thereof, and the Mortgaged Properties, or any part thereof may, at the
        option of Lender, be sold, as a whole or in parts, together or
        separately (including, without limitation, where a portion of the
        Mortgaged Properties is sold by Trustee or by Lender, the Collateral
        related thereto may be sold in connection therewith); and

                  (v) the expenses of sale provided for in Section 5.9 shall
        include the reasonable expenses of retaking the Collateral, or any part
        thereof, holding the same and preparing the same for sale or other
        disposition; and

                  (vi) should, under this subsection, the Collateral be disposed
        of other than by sale, any proceeds of such disposition shall be treated
        as if the same were sales proceeds.

                  Section 5.8 Set-Off. Upon the occurrence of any Event of
Default, the Lender shall have the right to set-off any funds of the Borrower in
the possession of the Lender against any amounts then due by the Borrower to the
Lender pursuant to the Mortgage.

                  Section 5.9 Expenses. The Borrower will pay all reasonable
expenses, including but not limited to reasonable attorneys' fees, incurred in
connection with the full protection and preservation of, and foreclosure,
collection or other realization of or on, the Collateral or this Mortgage, or in
connection with the enforcement of any of the Borrower's obligations or the
Lender's rights and remedies set forth herein, whether or not suit or any
foreclosure proceedings are filed. All insurance expenses and all expenses of
protecting, storing,

                                       22
<PAGE>

warehousing, appraising, preparing for sale, handling, maintaining and shipping
the Collateral, any and all excise, property, sales, and use taxes imposed by
any federal, state or local authority on any of the Collateral, all expenses in
respect of periodic appraisals and inspections of the Collateral to the extent
the same may be requested from time to time, and all expenses in respect of the
sale or other disposition thereof shall be borne and paid by the Borrower. All
such expenses shall be treated as Advances as provided in Section 4.8 ("Advances
by Lender") hereof and thus included in the Indebtedness secured hereby.

                  Section 5.10 General Sales Provisions. To the extent permitted
by applicable law, the sale by Trustee or Lender hereunder of less than the
whole of the Collateral shall not exhaust the powers of sale herein granted or
the right to judicial foreclosure, and successive sale or sales may be made
until the whole of the Collateral shall be sold, and, if the proceeds of such
sale of less than the whole of the Collateral shall be less than the aggregate
of the Indebtedness secured hereby and the expense of conducting such sale, this
Mortgage and the liens and security interests hereof shall remain in full force
and effect as to the unsold portion of the Collateral just as though no sale had
been made; provided, however, that Borrower shall never have any right to
require the sale of less than the whole of the Collateral. In the event any sale
hereunder is not completed or is defective in the opinion of Lender, such sale
shall not exhaust the powers of sale hereunder or the right to judicial
foreclosure, and Lender shall have the right to cause a subsequent sale or sales
to be made. Any sale may be adjourned by announcement at the time and place
appointed for such sale without further notice except as may be required by law.
The Trustee or his successor or substitute may appoint or delegate any one or
more persons as agent to perform any act or acts necessary or incident to any
sale held by it (including, without limitation, the posting of notices and the
conduct of sale), and such appointment need not be in writing or recorded. Any
and all statements of fact or other recitals made in any deed or deeds, or other
instruments of transfer, given in connection with a sale as to nonpayment of the
Indebtedness or as to the occurrence of any Default, or as to Lender's having
declared all of Indebtedness to be due and payable, or as to the request to
sell, or as to notice of time, place and terms of sale and the properties to be
sold having been duly given, or, with respect to any sale by the Trustee, or any
successor or substitute trustee, as to the refusal, failure or inability to act
of Trustee or any substitute or successor trustee or the appointment of any
substitute or successor trustee, or as to any other act or thing having been
duly done, shall be taken as prima facie evidence of the truth of the facts so
stated and recited. With respect to any sale held in foreclosure of the liens
and/or security interests covered hereby, it shall not be necessary for the
Trustee, Lender, any public officer acting under execution or order of the court
or any other party to have physically present or constructively in his, her or
its possession, either at the time of or prior to such sale, the Collateral or
any part thereof.

                  Section 5.11 Effective as Mortgage. As to the Mortgaged
Properties, this instrument shall be effective as a mortgage as well as a deed
of trust, and upon the occurrence of an Event of Default may be foreclosed as to
the Mortgaged Properties, or any portion thereof, in any manner permitted by
applicable law, and any foreclosure suit may be brought by Trustee or by Lender.
To the extent, if any, required to cause this instrument to be so effective as a

                                       23
<PAGE>
mortgage as well as a deed of trust, Borrower hereby mortgages the Mortgaged
Properties to Lender. In the event a foreclosure hereunder as to the Mortgaged
Properties, or any part thereof, shall be commenced by Trustee, or his
substitute or successor, Lender may at any time before the sale of such
properties direct Trustee to abandon the sale, and may then institute suit for
the foreclosure of this Mortgage as to such properties. It is agreed that if
Lender should institute a suit for the foreclosure of this Mortgage, Lender may
at any time before the entry of a final judgment in said suit dismiss the same,
and require Trustee, or his or her substitute or successor, to sell the
Mortgaged Properties, or any part thereof, in accordance with the provisions of
this Mortgage.

                  Section 5.12 Receiver. In addition to all other remedies
herein provided for, Borrower agrees that, upon the occurrence of an Event of
Default, Lender shall as a matter of right be entitled to the appointment of a
receiver or receivers for all or any part of the Collateral, whether such
receivership be incident to a proposed sale (or sales) of such property or
otherwise, and without regard to the value of the Collateral or the solvency of
any person or persons liable for the payment of the Indebtedness secured hereby,
and Borrower does hereby consent to the appointment of such receiver or
receivers, waives any and all defenses to such appointment, and agrees not to
oppose any application therefor by Lender, and agrees that such appointment
shall in no manner impair, prejudice or otherwise affect the rights of Lender
under Section 2.3 ("Assignment") hereof. Borrower expressly waives notice of a
hearing for appointment of a receiver and the necessity for bond or an
accounting by the receiver. Nothing herein is to be construed to deprive Lender
of any other right, remedy or privilege it may now or hereafter have under the
law to have a receiver appointed.

                  Section 5.13 Foreclosure as to Matured Debt. Upon the
occurrence of an Event of Default, Lender shall have the right to proceed with
foreclosure of the liens and/or security interests evidenced hereby without
declaring the entire Indebtedness due, and in such event, any such foreclosure
sale may be made subject to the unmatured part of the Indebtedness and shall not
in any manner affect the unmatured part of the Indebtedness, but as to such
unmatured part, this Mortgage shall remain in full force and effect just as
though no sale had been made. Several sales may be made hereunder without
exhausting the right of sale for any unmatured part of the Indebtedness.

                  Section 5.14 Remedies Cumulative. All remedies herein provided
for are cumulative of each other and of all other remedies existing at law or in
equity and are cumulative of any and all other remedies provided for in the Loan
Agreement or any other agreement, and Trustee and Lender shall, in addition to
the remedies herein provided, be entitled to avail themselves of all such other
remedies as may now or hereafter exist at law or in equity for the collection of
the Indebtedness and the enforcement of the covenants herein and the foreclosure
of the liens and/or security interests evidenced hereby, and the resort to any
remedy provided for hereunder or under any such Loan Agreement or any other
agreement or provided for by law shall not prevent the concurrent or subsequent
employment of any other appropriate remedy or remedies.

                                       24
<PAGE>
                  Section 5.15 Lender's Discretion as to Security. Lender may
resort to any security given by this Mortgage or to any other security now
existing or hereafter given to secure the payment of the Indebtedness, in whole
or in part, and in such portions and in such order as may seem best to Lender in
its sole and uncontrolled discretion, and any such action shall not in any way
be considered as a waiver of any of the rights, benefits, liens or security
interests evidenced by this Mortgage.

                  Section 5.16 Borrower's Waiver of Certain Rights. To the full
extent Borrower may do so, Borrower agrees that Borrower will not at any time
insist upon, plead, claim or take the benefit or advantage of any law now or
hereafter in force providing for any appraisement, valuation, stay, extension or
redemption, and Borrower, for Borrower, Borrower's heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Collateral, to the extent permitted by applicable
law, hereby waives and releases all rights of appraisement, valuation, stay of
execution, redemption, notice of intention to mature or declare due the whole of
the Indebtedness, notice of election to mature or declare due the whole of the
Indebtedness and all rights to a marshaling of assets of Borrower, including the
Collateral, or to a sale in inverse order of alienation in the event of
foreclosure of the liens and/or security interests hereby created. Borrower
shall not have or assert any right under any statute or rule of law pertaining
to the marshaling of assets, sale in inverse order of alienation, the exemption
of homestead, the administration of estates of decedents, or other matters
whatever to defeat, reduce or affect the right of Trustee and/or Lender under
the terms of this Mortgage to a sale of the Collateral for the collection of the
Indebtedness without any prior or different resort for collection, or the right
of Lender under the terms of this Mortgage to the payment of the Indebtedness
out of the proceeds of sale of the Collateral in preference to every other
claimant whatever. If any law referred to in this section and now in force, of
which Borrower or Borrower's heirs, devisees, representatives, successors or
assigns or any other persons claiming any interest in the Mortgaged Properties
or any other Collateral might take advantage despite this section, shall
hereafter be repealed or cease to be in force, such law shall not thereafter be
deemed to preclude the application of this section.

                  Section 5.17 Acts Not Constituting Waiver. Lender may waive or
remedy any Event of Default without waiving or remedying any other prior or
subsequent Event of Default and Lender may remedy any Event of Default without
waiving the default remedied. Neither failure by Trustee or Lender to exercise,
nor delay by Trustee or Lender in exercising, any right, power or remedy upon
any default shall be construed as a waiver of such default or as a waiver of the
right to exercise any such right, power or remedy at a later date. No single or
partial exercise by Trustee or Lender of any right, power or remedy hereunder
shall exhaust the same or shall preclude any other or further exercise thereof,
and every such right, power or remedy hereunder may be exercised at any time and
from time to time. No modification or waiver of any provision hereof nor consent
to any departure by Borrower therefrom shall in any event be effective unless
the same shall be in writing and signed by Lender and then such waiver or
consent shall be effective only in the specific instances, for the purpose for
which given and to the extent therein specified. No notice to nor demand on
Borrower in any case shall of itself

                                       25
<PAGE>
entitle Borrower to any other or further notice or demand in similar or other
circumstances. Acceptance by Lender of any payment in an amount less than the
amount then due on any Indebtedness shall be deemed an acceptance on account
only and shall not in any way excuse the existence of a Default hereunder.

                  Section 5.18 Substitute Trustee. The Trustee may resign by an
instrument in writing addressed to Lender, or Trustee may be removed at any time
with or without cause by an instrument in writing executed by Lender. In case of
the death, resignation, removal, or disqualification of Trustee, or if for any
reason Lender shall deem it desirable to appoint a substitute or successor
trustee to act instead of the herein named trustee or any substitute or
successor trustee, then Lender shall have the right and is hereby authorized and
empowered to appoint a successor trustee, or a substitute trustee, without other
formality than appointment and designation in writing executed by Lender and the
authority hereby conferred shall extend to the appointment of other successor
and substitute trustees successively until the Indebtedness secured hereby has
been paid in full, or until the Collateral is sold hereunder. In the event the
Indebtedness is owned by more than one person or entity, the holder or holders
of not less than a majority in the amount of such Indebtedness shall have the
right and authority to make the appointment of a successor or substitute trustee
as provided for in the preceding sentence or to remove Trustee as provided in
the first sentence of this section. Such appointment and designation by Lender,
or by the holder or holders of not less than a majority of the Indebtedness
secured hereby, shall be full evidence of the right and authority to make the
same and of all facts therein recited. If Lender is a corporation or association
and such appointment is executed in its behalf by an officer of such corporation
or association, such appointment shall be conclusively presumed to be executed
with authority and shall be valid and sufficient without proof of any action by
the board of directors or any superior officer of the corporation or
association. Lender may act through an agent or attorney-in-fact in substituting
trustees. Upon the making of any such appointment and designation, all of the
estate and title of Trustee in the Mortgaged Properties shall vest in the named
successor or substitute Trustee and he or she shall thereupon succeed to, and
shall hold, possess and execute, all the rights, powers, privileges, immunities
and duties herein conferred upon Trustee; but nevertheless, upon the written
request of Lender or of the successor or substitute Trustee, the Trustee ceasing
to act shall execute and deliver an instrument transferring to such successor or
substitute Trustee all of the estate and title in the Mortgaged Properties of
the Trustee so ceasing to act, together with all the rights, powers, privileges,
immunities and duties herein conferred upon the Trustee, and shall duly assign,
transfer and deliver any of the properties and moneys held by said Trustee
hereunder to said successor or substitute Trustee. All references herein to
Trustee shall be deemed to refer to Trustee (including any successor or
substitute appointed and designated as herein provided) from time to time acting
hereunder.

                  SECTION 5.19 NO LIABILITY FOR TRUSTEE. THE TRUSTEE SHALL NOT
BE LIABLE FOR ANY ERROR OF JUDGMENT OR ACT DONE BY TRUSTEE IN GOOD FAITH, OR BE
OTHERWISE RESPONSIBLE OR ACCOUNTABLE UNDER ANY CIRCUMSTANCES WHATSOEVER
(INCLUDING, WITHOUT LIMITATION, THE

                                       26
<PAGE>
TRUSTEE'S STRICT LIABILITY OR NEGLIGENCE), EXCEPT FOR TRUSTEE'S GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT. The Trustee shall have the right to rely on any
instrument, document or signature authorizing or supporting any action taken or
proposed to be taken by him or her hereunder, believed by him or her in good
faith to be genuine. All moneys received by Trustee shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received, but need not be segregated in any manner from any other moneys (except
to the extent required by law), and Trustee shall be under no liability for
interest on any moneys received by him hereunder. Borrower hereby ratifies and
confirms any and all acts which the herein named Trustee or his or her successor
or successors, substitute or substitutes, shall do lawfully by virtue hereof.
Borrower will reimburse Trustee for, and indemnify and save Trustee harmless
against, any and all liability and expenses (including attorneys fees) which may
be incurred by him in the performance of his duties. Borrower will indemnify and
hold harmless Trustee from and against (and will reimburse Trustee for) all
expenditures, including reasonable attorneys' fees and expenses, incurred or
expended in connection with all claims, demands, liabilities, losses, damages
(including without limitation consequential damages), causes of action,
judgments, penalties, costs and expenses (including without limitation
reasonable attorneys' fees and expenses) which may be imposed upon, asserted
against or incurred or paid by Trustee (or by Lender on behalf of Trustee) on
account of, in connection with, or arising out of (A) any bodily injury or death
or property damage occurring in or upon or in the vicinity of the Mortgaged
Properties or any other Collateral through any cause whatsoever, (B) any act
performed or omitted to be performed hereunder or the breach of any
representation or warranty herein, (C) the exercise of any rights and remedies
hereunder, (D) any transaction, act, omission, event or circumstance arising out
of or in any way connected with the Mortgaged Properties or any other Collateral
or with this Mortgage, (E) any violation on or prior to the date this Mortgage
is released of record of any applicable environmental law rule order or
regulation, (F) any act, omission, event, condition, or circumstance existing or
occurring on or prior to the date this Mortgage is released of record (including
without limitation the presence on the Mortgaged Properties or any other
Collateral or release from the Mortgaged Properties or any other Collateral of
hazardous substances, solid wastes or pollutants of any kind disposed of or
otherwise released) resulting from or in connection with the ownership,
construction, occupancy, operation, use and/or maintenance of the Mortgaged
Properties or any other Collateral, regardless of whether the act, omission,
event or circumstance constituted a violation of any applicable environmental
law, rule, order or regulation at the time of its existence or occurrence, and
(G) any and all claims or proceedings (whether brought by private party or
governmental agencies) for bodily injury, property damage, abatement or
remediation, environmental damage or impairment or any other injury or damage
resulting from or relating to any hazardous or toxic substance, solid waste or
contaminated material or pollutant or any kind located upon or migrating into,
from or through the Mortgaged Properties or any other Collateral (whether or not
the release of such materials was caused by Borrower, a tenant or subtenant or a
prior owner or tenant or subtenant on the Mortgaged Properties or any other item
of Collateral, and whether or not the alleged liability is attributable to the
handling, storage, generation, transportation, removal or disposal of such
substance, waste, pollutant or contaminated material or the mere presence of
such substance, waste, pollutant or material on the Mortgaged Properties

                                       27
<PAGE>
or any other item of Collateral), which the Trustee may have liability with
respect to due to the making of the loan or loans evidenced by the Note, the
granting of this Mortgage, the exercise of any of his or her rights under this
Mortgage, or otherwise. WITHOUT LIMITATION, IT IS THE INTENTION OF BORROWER AND
BORROWER AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED
PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF
ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS' FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such
indemnities shall not apply to any particular indemnified party (but shall apply
to the other indemnified parties) to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of such particular indemnified party. The foregoing indemnities shall
not terminate upon the release, foreclosure or other termination of this
Mortgage but will survive the foreclosure of this Mortgage or conveyance in lieu
of foreclosure, and the repayment of the Indebtedness and the discharge and
release of this Mortgage and the other documents evidencing and/or securing the
Indebtedness. Any amount to be paid hereunder by Borrower to Trustee shall be a
demand obligation owing by Borrower to Trustee (which obligation the Borrower
expressly promises to pay), and shall bear interest from the date expended or
incurred until paid at the rate described in Section 4.8 (Advances by Lender)
hereof, and shall be a part of the Indebtedness.

                  Section 5.20 Limitation on Duty of Lender. Beyond the exercise
of reasonable care in the custody thereof, the Lender shall have no duty as to
any Collateral in its possession or control or in the possession or control of
any agent or bailee or any income thereon. The Lender shall be deemed to have
exercised reasonable care in the custody of the Collateral in its possession if
the Collateral is accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or responsible for any loss or
damage to any of the Collateral, or for any diminution in the value thereof, by
reason of the act or omission of any warehouseman, carrier, forwarding agency,
consignee or other agent or bailee selected by the Lender in good faith.

                  Section 5.21 Appointment of Agent. At any time or times, in
order to comply with any legal requirement in any jurisdiction, the Lender may
appoint a bank or trust company or one or more other Persons with such power and
authority as may be necessary for the effectual operation of the provisions
hereof and may be specified in the instrument of appointment.

                                   ARTICLE 6.
                                  MISCELLANEOUS

                  Section 6.1 Notices. Any notice or demand which, by provision
of this Mortgage, is required or permitted to be given or served to the
Borrower, the Lender and the

                                       28
<PAGE>
Trustee shall be deemed to have been sufficiently given and served for all
purposes if made in accordance with the Loan Agreement to the following
addresses:

        If to Borrower:              GMX Resources Inc.
                                     9400 North Broadway, Suite 600
                                     Oklahoma City, Oklahoma 73114

                                     Attention:   Chief Financial Officer

        If to Lender:                Hibernia National Bank
                                     5718 Westheimer, 6th Floor
                                     Houston, Texas  77057

                                     Attention:  David Reid

                                     Facsimile Number: (713) 435-5106

        If to Trustee:               Mr. David R. Reid
                                     Hibernia National Bank
                                     5718 Westheimer, 6th Floor
                                     Houston, Texas  77057

Notwithstanding the foregoing, or anything else in the Loan Agreement which may
appear to the contrary, any notice given in connection with a foreclosure of the
liens and/or security interests created hereunder, or otherwise in connection
with the exercise by Lender or Trustee of their respective rights hereunder,
which is given in a manner permitted by applicable law shall constitute proper
notice; without limitation of the foregoing, notice given in a form required or
permitted by statute or other law shall (as to the portion of the Collateral to
which such statute or other law is applicable) constitute proper notice.

                  Section 6.2 Amendment. Neither this Mortgage nor any
provisions hereof may be changed, waived, discharged or terminated orally or in
any manner other than by an instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge or termination is sought.

                  Section 6.3 Invalidity. In the event that any one or more of
the provisions contained in this Mortgage shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Mortgage.

                                       29
<PAGE>
                  Section 6.4 Waivers. No course of dealing on the part of the
Lender, its officers, employees, consultants or agents, nor any failure or delay
by the Lender or the Trustee with respect to exercising any of its respective
rights, powers or privileges under this Mortgage shall operate as a waiver
thereof.

                  Section 6.5 Cumulative Rights. The rights and remedies of the
Lender under this Mortgage and the Collateral Documents shall be cumulative, and
the exercise or partial exercise of any such right or remedy shall not preclude
the exercise of any other right or remedy.

                  Section 6.6 Titles of Articles, Sections and Subsections. All
titles or headings to articles, sections, subsections or other divisions of this
Mortgage or the exhibits hereto are only for the convenience of the parties and
shall not be construed to have any effect or meaning with respect to the other
content of such articles, sections, subsections or other divisions, such other
content being controlling as to the agreement between the parties hereto.

                  Section 6.7 Singular and Plural. Words used herein in the
singular, where the context so permits, shall be deemed to include the plural
and vice versa. The definitions of words in the singular herein shall apply to
such words when used in the plural where the context so permits and vice versa.

                  Section 6.8 Termination. Upon full and final payment and
performance of the Indebtedness and the termination of the Loan Agreement, this
Mortgage shall no longer have any force and effect, and the Lender shall pay to
the Borrower all amounts then remaining in the possession of the Lender from
collections on or proceeds of the Collateral. Upon request of the Borrower, the
Lender shall execute and deliver to the Borrower at the Borrower's expense such
releases and termination statements as the Borrower may reasonably request to
evidence that the Mortgage no longer has any force and effect.

                  Section 6.9 Successors and Assigns. (a) All covenants and
agreements contained by or on behalf of the Borrower in this Mortgage shall bind
its successors and assigns and shall inure to the benefit of the Trustee and the
Lender and their respective substitutes, successors and assigns; all references
herein to Borrower, Lender and Trustee shall be deemed to include and cover such
substitutes, successors and assigns, as applicable.

                  (b) This Mortgage is for the benefit of the Trustee and the
Lender and for such other Person or Persons as may from time to time become or
be the holders of any of the Indebtedness. The rights, interests and remedies of
Lender under this Mortgage shall be transferrable and negotiable, with the same
force and effect and to the same extent as the Indebtedness may be
transferrable, it being understood that, upon the transfer or assignment by the
Lender of any of the Indebtedness, the legal holder of such Indebtedness shall
have all of the rights granted to the Lender under this Mortgage. The Borrower
specifically agrees that upon any transfer of all or any portion of the
Indebtedness, this Mortgage shall secure with retroactive rank the then existing
Indebtedness of the Borrower to the transferee and any and all Indebtedness to
such transferee thereafter arising.

                                       30
<PAGE>
                  (c) If less than all of the Indebtedness secured by this
Mortgage is transferred by Lender, each part of such Indebtedness shall share
pro-rata in the security of this Mortgage, and the Lender or subsequent
transferor shall not be deemed to have warranted or agreed to have subordinated
any remaining or future Indebtedness to that portion of such Indebtedness
transferred.

                  (d) The Borrower hereby recognizes and agrees that the Lender
may, from time to time, one or more times, transfer all or any portion of the
Indebtedness to one or more third parties. Such transfers may include, but are
not limited to, sales of participation interests in such Indebtedness in favor
of one or more third party lenders. Upon any transfer of all or any portion of
the Indebtedness, the Lender may transfer and deliver its security interests in
any or all of the Collateral to the transferee of such Indebtedness and such
Collateral shall secure any and all of the Indebtedness in favor of such a
transferee then existing and thereafter arising, and after any such transfer has
taken place, the Lender shall be fully discharged from any and all future
liability and responsibility to the Borrower with respect to such Collateral,
and the transferee thereafter shall be vested with all the powers, rights and
duties previously vested in Lender with respect to such Collateral.

                  Section 6.10 Counterparts. This Mortgage may be executed in
several counterparts, all of which are identical, except that to facilitate
recordation, certain counterparts hereof may include only that portion of
Exhibit A which contains descriptions of the properties located in (or otherwise
subject to the requirements and/or protections of the recording or filing acts
or regulations of) the recording jurisdiction in which the particular
counterpart is to be recorded, and other portions of Exhibit A shall be included
in such counterparts by reference only. All of such counterparts together shall
constitute one and the same instrument.

                  Section 6.11 CHOICE OF LAW. WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW, THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED STATES
OF AMERICA, EXCEPT THAT, TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A
PORTION OF THE COLLATERAL IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A
PORTION OF THE COLLATERAL) NECESSARILY OR, IN THE SOLE DISCRETION OF LENDER,
APPROPRIATELY GOVERNS WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS
RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY
INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE

                                       31
<PAGE>
TRUSTEE OR THE LENDER GRANTED HEREIN, THE LAW OF SUCH STATE SHALL APPLY AS TO
THAT PORTION OF THE COLLATERAL LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF)
SUCH STATE.

                  Section 6.12 NOTICE OF FINAL AGREEMENT. THIS MORTGAGE, THE
LOAN AGREEMENT, THE NOTE AND THE OTHER DOCUMENTS SECURING THE NOTE REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
ANY PRIOR ORAL AGREEMENTS OR DISCUSSIONS BETWEEN THE PARTIES ARE HEREBY
SUPERSEDED BY AND MERGED INTO THIS MORTGAGE AND SUCH OTHER DOCUMENTS. THERE ARE
NO ORAL AGREEMENTS BETWEEN THE PARTIES. THE PROVISIONS HEREOF AND SUCH OTHER
DOCUMENTS MAY BE AMENDED OR WAIVED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY
BORROWER AND LENDER.

                  EXECUTED on this 2nd day of November, 2005.

                  SECTION 5.19 OF THIS INSTRUMENT CONTAINS AN INDEMNITY.

                               GMX RESOURCES INC.

                               By: /s/ Ken L. Kenworthy, Sr.
                                   --------------------------------------
                                   Name:   Ken L. Kenworthy, Sr.
                                   Title:  Executive Vice President & CFO

                                       32
<PAGE>
STATE OF OKLAHOMA       ss.
                        ss.
COUNTY OF OKLAHOMA      ss.

                  The foregoing instrument was acknowledged before me on this
2nd day of November, 2005, by Ken L. Kenworthy, Sr., as Executive Vice President
& CFO of GMX Resources Inc., an Oklahoma corporation, on behalf of said
corporation.

[SEAL]            /s/ Debra Barker
                  --------------------------------
                  Notary Public, State of Oklahoma

My Commission Expires:  3-16-06
                        --------------------------
                        02004134

                                       33
<PAGE>
                                    EXHIBIT 1

                            Introduction to Exhibit A
                            -------------------------

                  The Borrower hereby agrees and affirms that this Introduction
to Exhibit A is an amplification and explanation of the terminology, format and
information contained in Exhibit A and that this instrument shall be construed
as a whole with reference to the entirety of its provisions (including all
Exhibits).

                  1.  This instrument covers the Borrower's entire interest in
each of the mineral servitudes or fees, mineral leases, mineral royalties and
other mineral rights described in Exhibit A, as now owned or as hereafter
acquired. The inclusion of the Borrower's "net revenue interests", "working
interests" and undivided leasehold interests, by the listing of percentage,
decimal or fractional numbers or otherwise, as well as the inclusion of depth
limitations, spacing unit designations and agreements, well names and well
arabic numbers, are in some instances for purposes of certain representations of
the Borrower contained in this instrument and are generally for descriptive
purposes. The inclusion (or the inaccuracy thereof) of this information is not
in any way a limitation or restriction on the interest of the Borrower being
subjected to the lien and encumbrance of this instrument. All right, title and
interest of the Borrower in the properties described herein are subject to this
Mortgage, regardless of the presence of any units or wells (existing or future)
not described herein. In the event that the Borrower acquires additional
undivided interests in some or all of such mineral rights, this Mortgage shall
automatically encumber such additions or increases to the Borrower's interest in
such mineral rights without need of further act or document.

                  2.  The leases listed below each well or group of wells relate
to one or more of such listed wells. This instrument is intended to cover the
entire interest of the Borrower in any lease described in Exhibit A, including
(without limitation) even if a lease is listed under one set of wells but
erroneously is not listed under another set of wells. Reference is made to the
land descriptions contained in the documents of title recorded as described in
Exhibit A.

                  3.  References in Exhibit A to instruments on file in the
public records are made for all purposes. Unless provided otherwise, all
recording references in Exhibit A are to the official real property records of
the county or counties in which (or offshore of which) the mortgaged property is
located and in which records such documents are or in the past have been
customarily recorded.

                  4. Each reference to a lease or a contract in Exhibit A shall
be deemed a reference to said lease or contract as said lease or contract may
have been amended or ratified by all amendments or ratifications heretofore
executed, whether or not referred to herein.

                  5. A statement herein that a certain interest described herein
is subject to the terms of certain described or referred to agreements,
instruments or other matters shall not operate to subject such interest to any
such agreement, instrument or other matter except to the extent that such
agreement, instrument or matter is otherwise valid and presently subsisting nor
shall such statement be deemed to constitute a recognition by the parties hereto
that any such agreement, instrument or other matter is valid and presently
subsisting or binding against the Lender.
<PAGE>

Property descriptions intentionally omitted and will be provided upon request.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}]]