R, R E I V E D

JUN M m

Wnemis Managenwnt S«v» |jasing''« Environmril

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

William A. H a l l , I I I

TO

John T. M i t c h e l l , Trustee,

For the Benefit of

Northpark National Eank

Effe c t i v e as of June 8, 1990

-THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY "KWISIONS."

"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."

"THIS INSTRUMENT SHALL BE EFFECTIV AS, AMONG OTHER THINGS, A SECURITY AGREEMENT AND FINANCING STATEMENT UNDER THE UNIFORM COMMERCIAL CODE. COLLATERAL INCLUDES, AMONG OTHER PROPERTY, FIXTURES AND OIL AND GAS AND ACCOUNTS ATTRIBUTABLE TO THE SALE THEREOF TO BE FINANCED AS THE WELLHEAD(S) OF THE WELL(S) LOCATED ON THE LAND DESCRIBED OR TO WHICH REFERENCE IS MADE IN THIS INSTRUMENT, INCLUDING,WITHOUT LIMITATION, THE LAND DESCRIBED OR TO WHICH REFERENCE IS MADE IN EXHIBIT A ATTACHED HERETO."

Recorded counterparts should be returned t o :

Hughes & Luce 2800 Momentum Place 1717 Main Street Dallas, Texas 75201 Attn: John T. M i t c h e l l

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

THIS MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION and FINANCING STATEMENT, dated as of June B, 1990, i s from William A. H r l l , I I I , (herei c a l l e d the "Mortgagor"), whose address i s 1100 Louisiana, Sulci 1750, Houston, Texas 77002 to John T. M i t c h e l l , of 280- fcomentum Place, 1717 Main s t r e e t , Dallas, Texas 75201. as Trustee (herein called the "Trustee"), ard NorthPark National Bank (herein called "Bank"), whose address i s P.O. Box 12206, Dallas, Texas 75225.

Westhall Associates, Inc., a Delaware corporation ("Westhall"), and the Bank have entered i n t o a Letter Lean Agreement dated as of June 8, 1990 (herein, as the same may be amended, modified or supplemented frcm time to time, cal l e d the "Loan Agreement"), pursuant to which the Bank has agreed to lend to Westhall amounts not to exceed at any one time outstanding the lesser of (x) the Borrowing Base (as defined i n the Loan Agreement) i n eff e c t at such time, and (y) $350,000. Westhall, to evidence i t s indebtedness to the Bank under the Loan Agreement, has executed and delivered to the Bank i t s promissory note, dated June 8, 1990, (herein called the "Loan Note"), i n the o r i g i n a l p r i n c i p a l ameunt of $350,000, to mature on June 1, 1991, payable to the order of the Bank, bearing i n t e r e s t at the rates provided for therein, and containing provisions for payment of attorneys' fees and acceleration of ma t u r i t y i n the event of defa u l t , as therein set f o r t h .

For a l l purposes of t h i s instrument, unless the context otherwise requires:

A. "Oil and gas leases" i h a l l include o i l and gas leases, o i l , gas and mineral leases and r a t i f i c a t i o n s of o i l , gas and mineral leases and o i l and gas leases and s h a l l aliiG include subleases and assignments of operating r i g h t s .

B. "Hydrocarbons" s h a l l mean o i l , gas, casinghead gas, condensate and ether l i q u i d or gaseous hydrocarbons.

C. "Leases" s h a l l include a l l o i l and gas leases (as defined above) described i n Exhibit A attached hereto and incorporated herein by reference f o r a l l purposes.

D. "Production Sale Contracts" a h a l l mean contracts now i n effec t , or hereefter entered i n t o by the Mortgagor, or the Mortgagor's successors i n i n t e r e s t , f o r the aale, purchase, exchange or processing of Hydrocarbons produced from the Lands (as herein defined).

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E. 'Lands" shall include any lands <i) which are covered by any of the Leases or described in Exhibit A or ( i i ) the description of which is incorporated in Exhibit A by reference to another instrument or document, and shall also include any lands now or hereafter unitized or pooled with land:; which are covered by any of the Leases or described in Exhibit A or tbe description of which is incorporated in Exhibit A by reference.

F. "Operating Equipment" shall mean a l l surface or subsurface machinery, equipment, f a c i l i t i e s , supplies or other property of whatsoever kind or nature (excluding d r i l l i n g rigs, trucks, automotive equipment or other property taken to the premises to d r i l l a well or for other similar temporary uses) now or hereafter located on or under any of *-he Lands which are useful for the production, treatment, storage or transportation of Hydrocarbons, includinq, but not by way of limitation, a l l o i l wells, gas wells, water wells, injection wells, salt water disposal wells, casing, tubing, rods, pumping units and engines, Christmas trees, derricks, separators, gun barrels, flow lines, pipelines, tanks, gas systems (for gathering, treating B"d compression), chemicals, solutions, water systems (for treating, disposal and injection), power plants, poles, lines, transformers, starters and controllers, machine shops, tools, storage yards and equipment stored therein, buildings and c nips, telegraph, telephone and other communication systems, roads, loading docks, loading racks and shipping f a c i l i t i e s , together with a l l improvements, betterments and additions thereto and replacements thereof.

G. "Mortgaged Property" shall mean the prroerties, rights and interests hereinafter described and defined as the Mortgaged Property.

H. "Indebtedne s", "Note" and "Notes" shall have the respective meanings set forth in Section 1.2 hereof.

I . "Highest Lawful Rate" shall mean the maximum legal rate of interest permitted by the applicable laws of the State of Texas or the United States of America, whichever shall permit the higher lawful rate, and as to which the Mortgagor could not successfully e=sert * claim or defense of usury, and to the extent that the maximum legal rate is determined by reference to the laws of the State of Texas, Bank hereby notifies Mortgagor and discloses to Mortfe^or, that for purposes of Tex. Rev. Civ. Stat. Ann. Art. 5059-1.CM, es i t may from time to time be amended, the "applicable rate ceiling" shall be the "indicated rate" ceiling fror.. time to time in effect as limited by Art. 5069-1.04(b). To the extent

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permitted by applicable law. Bank reserves the r i g h t to change the "applicable rate c e i l i n g " from to time by notice and disclosure to Mortgagor. The "maximum legal rate of in t e r e s t permitted by applicable law" for purposes hereof and each Note s h a l l not be l i m i t e d to the "applicable rate c e i l i n g " under A r t . 5069-1.04 i f laws now or hereafter i n e f f e c t and applicable to t h i s Mortgage and each Note and/or the Bank (and the interest contracted f o r , taken, reserved, charged or received hereunder or thereunder) s h a l l permit a higher rate of interest.

J. " A f f i l i a t e " s h a l l mean as to any Person, any other Person who direct Ly or i n d i r e c t l y c o n t r o l s , i s under common cont r o l with, or i s c o n t r o l l e d by such Person. As used i n t h i s d e f i n i t i o n , " c o n t r o l " ( i n c l u d i n g , with i t a c o r r e l a t i v e meanings, "controlled by" and "under common control with") s h a l l mean possession, d i r e c t l y or i n d i r e c t l y , of power to d i r e c t or cause the d i r e c t i o n o management or p o l i c i e s (whether through ownership of s e c u r i t i e s or partnership or other ownership i n t e r e s t s , by contract or otherwise), provided t h a t , in any event: ( i ) any Person who owns d i r e c t l y or i n d i r e c t l y ten p rcent (10\) or more of the s e c u r i t i e s having ordinary voting power fo r the e l e c t i o n of di r e c t o r s or other governing body cf a corporation or ten percent (10%) or more of the partnership or other ownership in t e r e s t s of any other Person (other than as a l i m i t e d partner of such other Person) w i l l be deemed to c o n t r o l such corporation or other Person.

K. "P.rson" s h a l l mean an i n d i v i d u a l , corporation, partnership, j o i n t venture, t r u s t or unincorporated organization, j o i n t stock company or other similar organization, government or any p o l i t i c a l subdivision thereof, a court, or any other legal e n t i t y , whether acting i n an i n d i v i d u a l , f i d u c i a r y or other capacity.

A l l capitalized terms used herein s h a l l have the meanings designated in the Lean Agreement unless otherwise defined herein

NOW, THEREFORE, the Mortgagor, f o r and i n consideration of the premises and of the debts and t r u s t s hereinafter mentioned, has granted, bargained, sold, mortgaged, assigned transferred and conveyed, and by these presents does grant, bargain, s e l l , mortgage, assign, transfer and convey unto the Trustee, for the use and benefit of the Bank, the fo l l o w i n g described property, whether now owned or hereafter acquired:

(a) An undivided 25% of a l l of Mortgagor's r i g h t , t i t l e and i n t e r e s t i n the Leases, the Lands (whether such interest i n the Lands arises by v i t u r e of the Leases or

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r her o i l end gas leases, assignments or deeds) and the H;drocarbons which are in, under, produced or saved from the Lands, even though the Mortgagor's interest in the Leases or the Lands may be incorrectly or insufficiently described or referred to in Exhibit A attached hereto and whether such interest i s in the natt-re of a fe», mineral, overriding royalty, royalty or other interest;

(b) An undivided 25% of a l l of Mortgagor's rights, t i t l e and interest in or derived from the Production Sale Contracts, operating agreements, farmout agreements, subleases, assignments and other contracts and agreements which relate to the Leases or Lands and any well located thereon and a l l other agreements and contracts which are described or referred to in Exhibit A;

(c) An undivided 25% of a l l of Mortgagor's right, t i t l e and interest in the Operating Equipment;

(d) An undivided 25% of a l l of Mortgagor's right, t i t l e and interest in a l l presently existing or hereafter effective unitization, communitization, pooling agreements and declarations of pooled units and the properties covered and the units created thereby (inc iding a l l units formed under orders, regulations, rule cr other o f f i c i a l acts of any federal, state or governmental agencv having jurisdiction) which relate to any of the Lands or Leates:

(e) An undivided 25% of a l l of Mortgagor's right, t i t l e and interest in and to a l l easements, rights-of-way, surface rights, servitudes, privileges and immunities related to the Lands or Leases;

(f) An undivided 25% of a l l of Mortgagor's right, t i t l e and interest in Hydrocarbons as and after extracted from the Lands and a l l accounts resulting from the sale thereof at the wellhead(s);

(g) An undivided 25% of a l l of Mortgagor's right, t i t l e and interest in a l l information concerning the Leases and the Lands and any well located on the Lends, including, without limitation, abstracts of t i t l e , t i t l e opinions, geological and geophysical information and logs

(h) An undivided 25% of e l l of Mortgagor's right, t i t l e and interest in a l l contract rights and general intangibles heretofore or hereafter generated or acquired in connection with, or which ere necessary or convenient for, the operation of the Lands, or the exploration for or production, storage, transportation, processing or marketing of Hydrocarbons produced from the Lands;

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( i ) An undivided 25% of any end a l l r i g h t s of Mortgagor t o liens and security interests i n the Mortgaged Property *ecurirv.< payment of proceeds from the sale of Hydrocarbons from ihe Mortgaged Property including but not limited to those liens and sec u r i t y interests provided by Tex. Bus. a Com. Code Ann. § 9.319 (Tex. UCC)(Vernon 1968);

( j ) An undivided 25% of a l l other i n t e r e s t , i f any, of every kind and character i n a l l of the real and personal properties respectively described or referred to above or i n Exhibit A which Mortgagor may now own or aL any time hereafter acquire, in c l u d i n g , but without l i m i t a t i o n , a l l interest which Mortgagor may now or at any time hereafter own i n the o i l , gas and other minerals in and under, and the o i l and gas leases and leasehold estates coveting, the Lands; and

(k) A l l proceeds and products of the foregoing,

together with any and al.'. corrections or amendments t o , or renewals, extensions or r a t i f i c a t i o n s of, any of the same, or of any instrument r e l a t i n g thereto, and aU tenements, hereditamei ts and appurtenances now e x i s t i n g or i n the future obtained in connection with any of the aforesaid, and a l l other things of value and incident thereto which the Mortgagor might at any time have or be e n t i t l e d t o , a l l the aforesaid properties, r i g h t s and interests, together with any additions thereto which may be subjected to the l i e n of t h i s instrument by means of supplements hereto, being hereinafter c a l l e d the "Mortgaged Property".

Subject, hovever, tc (a) the r e s t r i c t i o n s , exceptions, reservations, conditions, l i m i t a t i o n s , interest? and other matters, i f any, set f o r t h or referred to in the s p e c i f i c descriptions of such properties and inte r e s t s i n Exhibit A (including a l l presently existing and recorded r o y a l t i e s , payments out of production and other burdens which are referred to in E x h i b i t A), (b) Permitted Liens (as defined i n Section 2.5(e)), and (c,N the condition that neither the Trustee nor the Bank sh a l l be l i a b l e i n any respect f o r the performance of any covenant or o b l i g a t i o n of the Mortgagor i n respect of the Mortgaged Property.

TO HAVE AND TO HOLD the Mortgaged Property together with a l l the r i g h t s , hereditaments and appurtenances i n anywise appertaining or belonging thereto, unto the Trustee and his successors and substitutes i n t h i s t r u s t , and his and t h e i r assigns forever, i n t r u s t to secure the payment of the Indebtedness (as defined herein) and the performance of the obligations of the Mortgagor contained herein.

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The expression "Mortgagor's successors", as used herein, s h a l l mean the Mortgagor's heirs, successors and assigns. Mortgagor hereby binds i t s e l f and i t s successors to warrant and forever defend, a l l and singular the Mortgaged Property, unto the Trustee, and his successors and substitutes i n t h i s t r u s t , and to his and t h e i r assigns, forever, against every person whomsoever l a w f u l l y claiming or to claim the same or any part thereof.

insofar as such properties, r i g h t s and inte r e s t s described i n (a) through (K), i n c l u s i v e , above consist of equipment, general intangibles, accounts, contract r i g h t s , inventory, f i x t u r e s , proceeds or products of c o l l a t e r a l (as such terms are defined i n the Uniform Commercial Code as i n e f f e c t in the appropriate j u r i s d i c t i o n w ith respect to each of said properties, r i g h t s and i n t e r e s t s ) or any other personal property of a kind or character defined i n or subject to the applicable provisions of the Uniform Commercial Code (as i n ef f e c t in the appropriate j u r i s d i c t i o n w ith respect to each of said properties, r i g h t s and i n t e r e s t s ) , the Mortgagor hereby grants t ^ the Bank a security i n t e r e s t therein to secure the payment of the Indebtedness (as defined herein) and the performance of tbe obligations of the Mortgagor contained herein.

The Mortgagor, i n consideration of the premises and to induce the Bank to make the loans above described, hereby covenants and agrees with both the Trustee and the Bank as foilows:

ARTICLE I

Indebtedness Secured

1.1 Items of Indebtedness Secured. The following items of indebtedness are secured hereby:

(a) the Loan Note, and a l l other obligations and l i a b i l i t i e s of Westhall under the Loan Agreement;

(b) any sums advanced or expenses or costs incurred by the Trustee or the Bank (or any receiver appointed hereunder) which are made or incurred pursuant t o , or permitted by, the terms hereof, plus i n t e r e s t thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs u n t i l reimbursed;

(c) a l l future advances or other value, of whatever class or f o r whatever purpose, at any time hereafter made

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or given by the Bank to the Mortgegor and/or tc Westhall, whether or not the advances o- value are given pursuant to conmitment, whether or not the advances or value are presently contemplated by the parties hereto and whether or not Mortgagor and/or Westhall i s indebted to Bank at the time of such advance, and any and a l l other debts, l i a b i l i t i e s and duties of every kind and character of Mortgagor and/or Westhall t i Bank, whether now or hereafter existing, and .agardless of whether such present or future debts, l i a b i l i t i e s or duties are direct or indirect, primary or secondary, joint, several, or joint and several, fixed or contingent, and regardless of whether such present or future deot«, l i a b i l i t i e s or duties may, prior to their acquisition by Bank, be or have been payable to, or be or have been in favor of, some other person of have been acquired by Bank in a transaction with one other than Mortgager and/or Westhall (it be in* contemplated that Bank m»y make auch acquisitions from others), howsoever such indebtedness shall arise or be incurred or evidenced;

(d) interest on a l l of the debts, l i a b i l i t i e s , and duties set forth in subparagraph (a) through (c) above; and

(e) any extensions, renewals or modifications of all such indebtedness described in subparagraphs (a) through (d) above whether or not the Mortgagor executes any extension or modification agreement or renewal instrument.

1.2 Indebtedness and the Notes Defined. A l l the items of indebtedness described in Section 1.1 are herein collectively referred to as the "Indebtedness". Any promissory note evidencing any part of the Indebtedness, including, vithout limitation, the Loan Note, i s hereinafter referred tc individually as a "Note" and a l l such promissory notes are hereinafter referred collectively as the "Notes".

ARTICLE I I

Particular Covenants and Warranties pf the Moitgagor

2.1 Payment of the Indebtedness. The Mortgagor w i l l duly and punctually pay, or w i l l cause Westhall to duly tnd punctually pay, the Indebtedness, including each and every obligation owing on account of the Notes.

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2.2 Warranties. Tha Mortgagor warrants that (a) the Leases are v a l i d , subsisting leases, superior and paramount to a l l other o i l and gas leases respecting the properties to which they r e l a t e and no person or e n t i t y has asserted that any Lease has terminated, (b) the Mortgagor has good and indefeasible t i t l e to each property r i g h t or i n t e r e s t constituting the Mortgaged Property, (c) Mortgagor has a good and legal r i g h t to grant and convey a l i e n and security interest i n a l l of the Mortgaged Property as herein provided, (d) the Mortgaged Property i s free from a l l encumbrances or liens whatsoever, except as may be s p e c i f i c a l l y set f o r t h i n E x h i l i t A and except for Permitted Liens (as defined i n Section 2.5(e)), and (e) the Mortgagor i s not obligated, by virtue of any prepayment under any contract providing f o r the sale by the Mortgagor of Hydrocarbons which contains a "take or pay" clause or under any s i m i l a r arrangement, to deliver Hydrocarbons at some future time without then or tnereafter uceiving f u l l payment therefor. The Mortgagor w i l l warrant and forever defend the Mortgaged Property unto the Trustees against every person whomsoever l a w f u l l y claiming the same or any part thereof, and :he Mortgagor w i l l maintain and preserve the lien nereby created so long as any of the Indebtedness remrins unpaid.

2.3 Further Assurances. The Mortgagor w i l l execute and deliver such other and further instruments and w i l l do such other and f u r t h e r acts as i n the opinion of the Trustee may be necessary or desirable to carry out more e f f e c t u a l l y the purposes of t h i s instrument, i n c l u d i n g , without l i m i t i n g the generality of the foregoing, (a) prompt correction of any defect which may hereafter be discovered i n the t i t l e to the Mortgaged Property or in the execution and acknowledgment of this instrument, any Ncte, or any other document executed i n connection herewith, and (b) prompt execution and delivery of a l l division or transfer orders which i n the opinion of the Bank are needed to transfer e f f e c t u a l l y to the Bank the assigned proceeds of production from the Mortgaged Property.

2.A Taxes. Subiect to the Mortgagor's r i g h t to contest the same, the Moitgagor w i l l promptly pay, before the same become delinquent, a l l taxes, assessments and governmental charges l e g a l l y imposed upon t h i s instrument or upon the Mortgaged Property or upon the i n t e r e s t of the Trustee or the Bank therein, or upon the income and p r o f i t s thereof.

2.5 operation of the Mortgaged Property. So long as the Indebtedness or any part thereof remains unpaid, and whether or not the Mortgagor i s the operator of the Mortgaged Property, the Mortgagor s h a l l , at the Mortgagor's own expense:

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(a) Do a l l things necessary to keep, or cause to be kept, i n f u l l force and e f f e c t , the Leases anj to keep, or cause to be kept, unimpaired the Mortgagor's rights i n the Mortgaged Property and not, except as would be done by s prudent operator, abandon any v a i l or f o r f e i t , surrender or release any Lease or any r i g h t s i n the Mortgaged Property without the p r i o r w r i t t e n consent of the Trustee;

(b) Cause the Lands to be maintained, developed, protected against drainage, and continuously operated for the production of Hydrocarbons i n a good and workmanlike manner as would a prudent operator, and i n accordance with generally accepted practices, applicable operating agreements, a i l covenants (both expressed and implied), terms and conditions of the Leases, s l l covenants, terms and conditions contained i n any assignment or farmout agreement under or through which an interest i n the Leases i s now held, and a l l applicable f e d e r a l , state and local laws, rules and regulations, excepting those being contested i n good f a i t h ;

(c) Cause to be paid, promptly as and when due and payable, a l l rentals and r o y a l t i e s payable i n respect cf the Mortgaged Property and Mortgagor's share ot a l l costs and expenses incurred i n or a r i s i n g from the operation or development of the Mor«.<;eged Property;

(d) Cause the Operating Equipment to be kept i n good and e f f e c t i v e operating condition, and a l l repairs, renewals, replacements, additions and improvements thereof or thereto, needful to the production of Hydrocarbons from the Lands to be promptly made;

(e) Cause the Mortgaged Property to be kept free and clear of liens, charges and encumbrances of every character, other than (1) the l i e n hereof and the assignment of production contained herein, (2) taxes which c o n s t i t u t e a l i e n but which are not due and payable, (3) defects or i r r e g u l a r i t i e s i n t i t l e which do not i n t e r f e r e materially w i t h the development, operation or value of the Mortgaged Property and do not a f f e c t m a t e r i a l l y t i t l e thereto, (4) those, i f any, set f o r t h or referred t o i n Exhibit A, (5) those, i f any, described i n Exhibit A as being contested by the Mortgagor i n good f a i t h i n such manner as not t o jeopardize the Trustee's and the Bank's rights i n and to the Mortgaged Property and (6) those consented to i n w r i t i n g by the Trustee or the Bank (the liens, charges and encumbrances described in (1) through (6), i n c l u s i v e , of t h i s subparagraph (e) are r e f e r r e d to herein as the "Permitted Liens");

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(O Pay promptly, before the same become part due, all b i l l s for labor and material, in respect of the Mortgaged Pioperty, and, except for Permitted Liens, never to termit to be fixed thereon any Her. *»••« though inferior td the lien hoieof, for any such bi'ila which may be legally due and payable, and never to yerr.it to be created or to exist, in respect of any of tht Mortgaged Property* any ctr#»r or additional lian on a in r ity with 01 superior to the lien hereof, except the liens, if an-, set t >rth in Exhibit A;

(g) Permit tha Bank, its stints and representatives, t r go upo*.. er<iir..ne, inspect and remain on the Mortgaged iTopnty tw ;o go upon the derrick floor of any w i l or v.ii'3 at any time drilled or being drilled thereon, and tn gauge, measure and inspect any 3..d a l l tanks at a..y time on the Mortgaged Property or holding oil, gaaolinn or casinghead gasoline therefrom; and Mortgager shall do al l things necessary or proper to enable the he /. Jt hereunder to exerc.'se said rights whenever it so u>«>res; and

(h) Carr? with standard insurance companies and in adequate amounts, both of which are satisfactory to the Bank, the following insurance and provide certificates evidencing thc erne to the Bank upon ita requaat: (1) compensation insurance and public liability and propert. damage insurance ir. lespect of a l l activi ties in which he Mortgagor micO.t incur personal liability for the '2eath of or injury to an employee or third peraon, or damare to or destruction of another's property, ttnd (2) to the extent such insurance is carried by other*; engaged in similar undertakings in the same general areas in which the Mortgaged Property is localid, well control insurance and insurance in respect of the Operating Equipment, agtinst loss or damage by fire, . . ght.jing, hail, torn* .0 explosion, theft and other similar risks. To the extent that such insurance is carrier by a third-party operator on behalf of Mortgagor. Mortgagor si.all obtain, and provide the Bank u Lh copies of* certificates of insurance showing the Mortgagor as a named insured. Mortgagor hereby assigns to Bank any and all monies that may b- om* payable nr der any auch policies of insurance by reason of carnage, loss or destruction of any of the Mortgaged Property, and P-.nk may apply al l or any part of the sums so collected, at its election, toward payment of the Indebtedness, whether or not auch indebtedness is hen due and payable ir. auch manner as Bank may elect.

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2 6 Rr: u^dinq Qbliqitiflna and Maintained ot Lien• The Mortgigor v ' i l promptly, and at tha Mortgager's expense, record, register, deposit and f i l e this and every other instrument in addition or supplemental hereto in such offices and places and at S'jch times and as often as may b% necessary to create, preserve, protect and renew the lien t.e>reo£ as a f i r s t li'jn on real i * personal property as the ca. * mjy be and the rignts and remedies of the Trustee snd of the B*nk, ar.d otherwise w i l l do and observe a l l things or matte.s necessary or expedient to be done or observed by reason of any law or regulation of any c*>ece or rf ''.ie United States of America ox of any other competent rutMricy, for the ^urpo.e of effectively creating, main rifting and preserving the lien hereof on the Mortgaged Property.

2.7 salt oi Mortgage of Vba Bttiii'taifl Froraj.h/. Except for sales of severed Hydrocarbons in the ordinp-y course of the Mortgagor's business and tne lien and secu ity interest created by this instrument, th*. Mortgagor w i l l not i t l l , convev, moitgage, pledge, pool, unitize or otherwise dispose of or er.cum-er : hr Mortgaged Property nor any portion thereof, nor any the M' \ oogor's right, t i t l e or interest therein, with-'ut fist r,* . ring the written consent of the Trustee; and the Mortgagor > 11 not enter into any arrangement with any gas pi""-tine t ompany or ether purcha'.er of Hydrocarbons regarding the Moiueiged Property whereby aaid gs* pipeline company or purchaser may set off any cloirr against the Mortgagor by withholding payment for any HyJiocarbons actually delivered.

2.8 Records. Statements and Reports. The Mortgagor w i l l keep proper books of record ond account in which complete and correct entries w i l l be made of the Mortgagor's transactions in accordance with generally a -opted accounting principles and will fjrnish or cauae to be furnished to the Bank monthly, a .report showing the grosc proceeds from the sale of Hydiocarbons produced from the Lands 'including any ther*'*' taken by the Mortgagor for the Mortgagor's own use), the quantity of such Hydrocarbons sold, the severance, grosj production, occupation, or gtthaving taxes deducted from or paid out of such proceeds, the numbei of wells operated, drille d and ibandonod, and auch othar information as the Bank may reasonably request (upon request of tha Bank, auch reports referred to above shell aet forth auch information on a lease or unit basis), and turh o< v r information concerning the business and affairs :.nj financial condition of the Mortgagor •a the Bank may from time to tine reaaonably request.

2.9 Ho Qovtrnmtntal Approvala. The Mortgagor warrants that no approval or consent of any regulatory or edministrat: m commission or authority, or of any other

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governments" body, i s necesa.y to authorize the execution and delivery of this instrument or of the Notes, or to authorize the observance or performsnce by the Mortgagor of the covenants herein or Jn the Jv'tes contained, or that sue* approvals as are req.' red have seen obtained.

AP* [CL'i I I I

&s_s_i-.nn^nt -af Produe. lon

J.3 Aar? 1 rnjuiinj:. As lurther security for the payment of tne Indebtedness, the Mortgagor hereby transfers, assigns, warrants and conveys to the Bank, effective as of June 1, 199", at 7:00 A x., local time, a l l Hydrocarbons in and under, o: which are 'ci.ereai. rer produced from and which accrue to, the J jnds. or are allocated thv»:to pursuant to pooling or • .litigation of ti*e Leases or otherw-'.se, and a l l proceeds i>eref ron. A) 1 pertier producing, purc'nising, taking, possessing, precessing or receiving «:.y ;uch Hydrocarbons, or having such, or proceeds theiefrom, in their possession for which they or others are -cccur table t-> 'he Bank by virtue of the provisions of this Article are authorii.' and directed to treat and regard t**e 'Jank as the assignee and transferee cf the Mortgagor and e t i l l e d in the Mortgagor's place and stead to receive s«rh Kyotoctrbons an1 a l l proceeds therefrom: and said parties and ear*1 cf them shall be fully protected in so tr'-'ting ani regarding the Bank, and sha.ll be under no crjxgation to see to the "vjplicati -i by the B.-vik of any such proceeds or payments received by i t .

2 ? Terms of Assignment. The foregoing assignment it: mad a ".-.on, and subject to, the following terms;

(a) The Trustee or the Bank may, a' unv time or times, give written or telegraphic notice .r some cr oil of the parties pro'ijc-ng, purchasing, taking, possessing, processing or recei >.:g any such Hydroca::tans, or having in * j i r possessin* .ny such Hyirocarbons belonging to Mortgagor or sue** | ro.'eeda fcr which they or others are accountable to the rank by vir* ie of tne provisions of thir Article I I I , to hold and dispose of tuch Hydrocarbons for the account of "rhe Bank tnd to mtke payment of tuch proceeda direct to the Bank t t i t t principal office tnd the Btnk shall thereafter receive, collect tnd retain, ns part of the Mortgaged Property, all such Hydror ."•thorn-. t)1 f >r the benefit tnd further security of tha Indebted net:*. In the event payment*, tre made directly tc :he yank - nd then, at the request of ':h» Bank, payments art. for t period or pe.r.'ndt of time, pi-:d

290400W.9 13 -

to the Mortgagor, tne Bank sha l l nevertheless have the right, effective upon notice, to require that future payments be again made to i t .

(b) A l l parties producing, purchasing, taking, possessing, processing or receiving sny such Hydrocarbons, or having in their possession any such Hydrocarbons or such proceeds for wh. sh they or others are accountable to the Bank by virtue of the provisions of this A r t i c l e XII, are authorised Blid directed by Mortgagor, upon receipt of notice from the Bank or Trustee given pursuant to the above Subsection 3.2(a), to treat and regard the Bank as the assignee and transferee of Mortgagor entitled in i t s place and stead tc receive such Hydrocarbons and proceeds; and such parties and each of them s h a l l be fully protected in so treating and regarding the Bank and shall be unde.' no obligation to see to the application by the Bank of any such proceeds received by i t . This Article I I I const:icutes a present assignment effective as of the date hereof, but until such notice from the Bank or Trustee i s received by such parties, payments of a l l proceeds attributable to such Hydrocarbons s h a l l be payable directly to Moitgagor. Without in any way limiting the effectiveness ?t the authorisation and direction in the next preceding sentence, i f Mortgagor shall receive any proceeds which undei this Section 3.2. are payable to the Bank, Mortgager w i l l hvld the same in trust and w i l l remit such proceeds, or cause auch proceeds to be remitted, inmedi»-tely, to the Bank.

(c) Without limiting the foregoing provisions of t u s Article I I I , Mcrtgigor st.fc.ul tes that this Article I I I is intended to urant to t'ie Bank a security interest in Mortgagor's interest in the Hydrocarbons to be extracted irom or at*-ihjtaole to the Mortgaged Property, a i l in and to the pr*-c«i*dr, resulting from the sale trx-eri m\ the well .53-*.

3 ' Arcjon-- to Eliect Assignment. Mortgagor covenants anc' agrees, f c cause, after the Bank sh .11 have so requested, a l l pipeline companies or other purchasers of the Hydrocarbons, produced from the Mort. *ged Fiope.ty to pay promptly to the Bank at itr princin.-I office, Mortgagor's interest in the proceeds derived fram the sale thereof, in accordat.ee with the terns of this assignment, and forthwith to execute, acknowledge snd deliver to said pipeline companies and other purchasers such further and proper division orders, transfer orders, ce r t i f i c a t e s and other documents as may be necessary requested or proper to effect the intent of this

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assignment; and the Bank shall not be required at any time, as a condition to i t s right to obtain the proceeds of such Hydrocarbons, to warrant i t s t i t l e thereto or to make any guaranty whatsoever. In addition, and without lim i t a t i o n , Mortgagor covenants and agrees, to provide to the Bank the name and address of every pipeline company or other purchaser of the Hydrocarbons produced from the Mortgaged Property when <f etermined, together with % ccoy of the applicable sales contracts. A l l expenses incurred by the Bank in the collection of said proceeds shall be repaid promptly by Mortgagor; and prior to such repayment, sucN expenses shall be a part of the Indebtedness secured hereby. I f under any Production Sales Contracts, other than division orders or transfer orders, any poceeds of runs are required to be paid by the purchaser to Mortgagor so that under such existing agreement* payment cannot be made of such proceeds of runs to the Bank, Mortgagor's interest in a l l proceeds of runs under such sales agreements and in a l l other proceeds of rums which tor any reason may be paid to Mortgagor shall, when received by Mortgagor, constitute trust funds in Mortgagor's hands and -shall be immediately paid over to the Bank.

3.4 Power ot Attorney. Without limitation upon of the foregoing, Mortgagor hereby designates and appoint e Bank as true and 1 awful agent and Utorney-in-fact (wit.. * u l l power of substitution, either gene: - l l y or for such periods or purposes as the Bunk may from time to time prescribe), with f u l l power f»,.d authority, for and on behalf of and in thp iiame of Mortgage, to execute, acknowledge and deliver a l l such

sien o.Jers, transfer orders, certificates and other d ments of every nature, with such provisions as may from time to time, ir the opinion of the Bank, be necesssry or proper to effect the intent and purpose of the assienment contained in th?s A r t i c l e I I I ; and Mortgagor shall oe bound thereby as f u l l y and effectively as i f Mortgagor had personally executed, acknowledged and delivered any of the foregoing rdars, certificates or documents. The power? aiid authorities i.erein conferred on the Bank may be ezercieed by the Bank through any person who, bt the time of exercise, is the president, a senior vice p*-**.ident or a vice president of tlie Bank. The power et attorney conferred by this S "tion 3.4 is granted for valuable consideration and coupled *• xth an interest and is irrevocable so long as the Indebtedness, or any portion thereof, shall remain unpaid. A l l persons dealing with the B?nK, or any substitute, shall be f u l l y protected in treating the powers and authorities conferred by t h i r Section 3.4 ss continuing in f u l l force and ef •. ec' u n t i l advised by the Bank that the Indebtedness is i 'ly anu f i n a l l y paid.

2904PTO0.9

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3.5 Application of Proceeds. A l l payment*- received by the Bank pursuant to Section 3.1 hereof shall be placed in a cash collateral account at the Bank and on the f i r s t business day of each calendar month applied a follows:

F i r s t : To the payment and satisfaction of a l l costs and expenses incurred in connection with the collection of such proceeds, and the payment and reimbursement of a l l item:, of the Indebtedness not evidenced by any Note.

Second: To the payment and satisfaction of the accrued interest on the Notes.

Ihird : To the amounts of principal then due and owing on the Notes.

Fourth: The balance, i f any, shall either be applied on the then unmatured principal amounts of the Notes, such application to be on such of the Notes and installments thereof as the Bank may select, or, at the option of the Bank, released to the Mortgagor.

3.6 NcJiiabilitY of-the Bank in Collecting- The Bank is hereby absolved from a l l l i a b i l i t y for failure to enforce collection of any proceeds so assigned and from a l l other responsibility in connection therewith, except the responsibility to account to the Mortgagor for funds actually received.

3.7 Assignment Hot a Restriction on tht Bank's Rights-Nothing herein contained shall detract from or limit the absolute obligation of the Mortgagor to make payment of the Indebtedness regardless of whether the proceeds assigned by this Article are sufficient to pay the same, and the rights under this A r t i c l e shall be in addition to a l l other security now or hereafter existing to secure the payment of the Indebtedness.

3.8 Status of Againnmant. Notwithstanding the other provisions of t h i s Article, the Trustee or any receiver appointed in j u d i c i a l proceedings for the enforcement of this instrument sh a l l have the right to receive a l l of the Hydroca. bons herein assigned and the proceeds therefrom after any Note has been declared due and payable in accordance with the pro*: ••5©n* of such Note and to apply a l l of said proceeds as pro deJ -ii Section 3.5 hereof. Upon any sale of the Mortg-mail rcperty or any part thereof purauant to Article V, the v h:c5.bons thereafter produced from the property so sold, ins thw pro* -»eds therefrom, sh a l l be included in auch sale anc shall pass to the purchaser free and clear of the assignment contained in this A r t i c l e .

Z9O4M00.9 16

3.9 Indemnity. The Mortgagor agrees to indemnify the Trustee and the Bank against all claims, actions, l i a b i l i t i e s , judgments, costs, attorneys' fees or other charges of whatsoever kind or nature (all hereinafter in this Section 3.9 called "claims") made against or incurred by them or either of them as a consequence of the assertion, either before or after the payment in ful l of the Indebtedness, that they or either of them received Hydrocarbons herein aaaigned or the proceeds thereof claimed by third persons, and the Trustee and the Bank shall hjve the right to defend against any such claims, employing attorneys therefor, and unless furnished with reasonable indemnity, they or any of them shall have the right to pay or compromise and adjust a l l such claims. The Mortgagor wil' indemnify and pay to the Trustee or the Bank any and all 8t<£h amounts as may be paid in respect thereof or as may be successfully adjudged against the Bank and the Trustee or either of them. The obligations of the Mortgagor as hereinabove set forth in this Section 3.9 shall survive the release of this instrument.

3.10 Failure to Make Payment. Should any person now ur hereafter purchasing or taking Hydrocarbons attributed to the Lands fail to make payment promptly to the Bank of the hereby assigned proceeds of runs after being notified to do so, the Bank shall have the right to make, or to require Mortgagor to make, a change of connection and the right to designate or approve the purchaser with whose fa c i l i t i e s a new connection shall be made, without liability or responsibility in connection therewith so long as ordinary e r e is used in making such designation.

ARTICLE IV

Events of Default

4.1 Events of Default. In case any one or more of the following "events of default" shall occur and shall not have been remedied:

(a) default in the payment of principal of or interest on any Note, or in the payment of any other Indebtedness secured hereby, when due;

(b) the occurrence of an Event of Default (other than any relating to non-payment of principal of or interest on the Loan Note or any other Indebtedness) under the terms and provisions of the Loan Agreement and, if any period of grace is applicable to such Event of Default, the continuance of such Event of Default for such period of grace.

29040000.9 - 17 -

(c) the t i t l e of Mortgagor to the Mortgaged Property or any material part thereon shall become the subject matter of l i t i g a t i o n which would or might, i n Bank's opinion, upon fin a l determination result i n a material impairment or loss of the security provided by this instrument;

(d) any warranty or representation made by the Mortgagor herein shall prove to be untrue in any material respect; or

(e) f a i l u r e by the Mortgagor, within t h i r t y (30) days after notice thereof from the Bank, to cure a default in the due performance or observance of any covenant or agreement contained i n this instrument and not constituting a default in the payment of principal of or interest upon any Note or i n the payment of any other Indebtedness;

(f) either ( i ) default in the payment of any indebtedness of Mortgagor or default in respect of any nott, loan agreement or credit agreement relating to any such indebtedness and such default continues for more than the period of grace, i f any, specified therein or ( i i ) any such indebtedness becomes due before i t s stated maturity by acceleration of the maturity thereof or becomes due by i t s terms and i s not promptly paid or extended;

(g) Mortgagor shall ( i ) apply for or consent to the appointment of a receiver, trustee, custodian, intervenor or liquidator of Mortgagor or of a l l or a substantial part of his assets, ( i i ) f i l e a voluntary petition i n bankruptcy, admit in writing that he is unable to pay his debts as they become due or generally not pay his debts as they become due, ( i i i ) make a general assignment for the benefit of creditors, (iv) f i l e a petition or answer to seek reorganization or an arrangement with creditors or to take advantage of any bankruptcy or insolvency laws, (v) f i l e sn answer admitting the material allegations of or consenting to, or default in answering, a petition f i l e d against him i n any bankruptcy, reorganization or insolvency proceeding or ( v i ) take action for the purpose of effecting any of the foregoing;

(h) an involuntary petition or complaint i s f i l e d against Mortgagor seeking bankruptcy or reorganization of Mortgagor or the appointment of a receiver, custodian, trustee, intervenor or liquidator of him, or a l l or substantially a l l of his assets, and auch petition or

290400009

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complaint i J not dismissed within 60 days of the filing thereof; or an order, order for relief, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition or complaint seeking reorganisation of Mortgagor or appointing a receiver, custodian, trustee, intervenor or liquidator of Mortgagor, or of a l l or substantially all of his assets; or

(i) any final judgment(s) for the payment of money shall be rendered against Mortgagor and acch judgment or judgments shall not be satisfied or discharged at least 10 days prior to the date on which sny of his assets could be lawfully sold pursuant to legal means to satisfy such judgment,

then and in any such event the Bank, at its option, may declare the entire unpaid principal of and the interest accrued on the Notes and all other Indebtedness secured hereby to be forthwith due and payable, without any notice or demand of any kind, both of which are hereby expressly waived, whereupon the same shall become immediately due and payable without demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices, a l l of which the Mortgagor expressly waives. Whether or not Bank elects to accelerate as herein provided. Bank may simultaneously, or thereafter, without any further notice to Mortgagor, exercise any other right or remedy provided in this instrument or otherwise existing under any other loan documents.

ARTICLE V

Enforcement of the Security

5.1 Power of Sale of Real Property Constituting a_£axl of the Mortgaged Property. Upon the occurrence of an eve.'.t of default and if such event shall be continuing, the Trustee shall have the right and power to s e l l , to the extent permitted by law, at one or more sales, as an entirety or in parcels, as he may elect, the real property constituting a part of the Mortgaged Property, at such place or places and otherwise in such manner and upon such notice as may be required by law, or, in the absence of sny such requirement, ss the Trustee may deem appropriate, and to make conveyance to the purchaser or purchasers; and the Mortgagor ahall warrant ti t l e to such real property to auch purchaser or purchasers. The Trustees may postpone the sale of a l l or sny portion of such real property by public announcement at the time and

Z9040000 9 - 19 -

place of such sa le , and from time to time thereafter may further postpone such sale by public announcement made at time of sale fixed by the preceding postponement. The right of sale hereunder s h a l l not be exhausted by one or any sale , and the Trustee may make other and successive sales unt i l a l l of the trust estate be legally sold.

5.2 Rights of the Trustee With Reapect to Personal Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an event of default and i f such event s h a l l be continuing, the Trustee w i l l have a l l r i g h t s and remedies granted by law, and p a r t i c u l a r l y by the Uniform Commercial Code, including, but not limi t e d t o , the r i g h t to take possession of a l l personal property c o n s t i t u t i n g a part of the Mortgaged Property, and for t h i s purpose the Trustee may enter upon any premises on which any or a l l of such personal property is s i t u a t e d and take possession of and operate such personal property (or any portion thereof) or remove i t therefrom. The Trustee may require the Mortgagor to assemble such personal property and make i t available to the Trustee at a place to be designated by the Trustee which i s reasonably convenient to a l l p a r t i e s . Unless such personal property i s perishable or threatens to decline speedily i n value or i s of a type customarily sold on a recognized market, the Trustee w i l l give the Mortgagor reasonable notice of the time and place of any pu b l i c sale or of the time after which any private sale or other disposition of such personal property i s to be made. This requirement of sending reasonable notice w i l l be met i f the notice is mailed by f i r s t - c l a s s mail, postage prepaid, to the Mortgagor at the address shown below the signatures at the end of t h i s instrument at least f i v e (5) days before the time of the sale or d i s p o s i t i o n .

5.3 Riohts of the Trustee With Respect to Fixtures Cojia±itatiBa.JL̂ ixt of the Mortgaged Property- upon the occurrence of an event of default and i f such e nt s h a l l be continuing, the Trustee may elect t o t r e a t the xtures constituting a part of the Mortgaged Property e ei t h e r real property c o l l a t e r a l or personal property c o l l a t e r a l and proceed to exercise such rights as apply to such type of c o l l a t e r a l .

5.4 J u d i c i a l Proceedings. Upon the occurrence of an event of default and i f such event s h a l l be continuing, the Trustee, in l i e u of or i n addition t o exercising any power of sale hereinabove given, may proceed by a s u i t or s u i t s i n equity or at law, whether for a foreclosure hereunder, or for the sale of the Mortgaged Property, or f o r the s p e c i f i c performance of any covenant or agreement herein contained or i n aid of the execution of any power herein granted, or for

290*0000.9 - 20 -

the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate legal or equitable remedy.

5.5 Possession of the Mortgaged Property. I t shall not be necessary for the Trustee to hsve physically present or constructively in his possession at any sale held by the Trustee or by any court, receiver or public officer any or a l l of the Mortgaged Property, and the Mortgagor shall deliver to the purchaser at such sale on the date of sale the Mortgaged Property purchased by such purchasers at such sale, and i f i t should be impossible or impracticable for any of such purchasers to take actual delivery of the Mortgaged Property, then the t i t l e and right of possession to the Mortgaged Property shall pass to the purchaser at such sale as completely as i f the same had been actually present and delivered.

5.6 Bank as Purchaser. The Bank shali have the right to become the purchaser at any sale held by the Trustee or by any court, receiver or public officer, and the Bank shall have the right to credit upon the amount of the bid made therefor the amount payable from the net proceeds of such sale to i t .

5.7 Receipt to Purchaser. Upon any sale, whether made unci, the power of sale herein granted and conferred or by virtue judicial proceedings, the receipt of the Trustee, or of the officer ma King sale under j u d i c i a l proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for hi? or their purchase money, and such purchaser or purchasers, cr his or their assigns or personal representatives, s h a l l not, after paying such purchase money and receiving such receipt of the Trustee or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof.

5.8 Effect of Sale. Any sale or sales of the Mortgaged Property, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, sh a l l operate to divest a l l right, t i t l e , interest, claim and demand whatsoever either at law or in equity, of the Mortgagor of, in and to the premises and the property sold, and ahall be a perpetual bar, both at law and in equity, against the Mortgagor, and the Mortgagor's successors or assigns, and against any and a l l persons claiming or who shall thereafter claim all or any of the property sold from, through or under the Mortgagor, or the Mortgagor's successors or assigns. Nevertheless, the Mortgagor, i f requested by the Trustee so to do, shall join in the execution and delivery of a l l proper conveyances, assignments and transfers of the properties so sold.

29040000.9

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5.9 Application of Proceeds. The proceeds of any sale of tl»-> Mortgaged Property, or any part thereof, whether under *-t«p oowv* of sale herein granted and conferred or by virtue of

nroceedings, shall be applied as follows:

. i r s t : To the payment of a l l expenses incurred by me Trustee in the performance of his duties including, without limiting the generality of the foregoing, a commission of five percent (5%) to the Trustee and expenses of any entry, or taking of possession, of any sale, or advertisement thereof, and of conveyances, and as well, court costs, compensation of agents and employees and legal fees.

Second: To the payment of the Notes and of the other items of Indebtedness with interest to the date of such payment.

Third: Any surplus thereafter remaining shall be paid to the Mortgagor or the Mortgagor's successors or assigns, as their interests s h a l l appear.

5.10 The Mortgagor's Waiver of Appraisement. Marshalling and Other Rights. The Mortgagor agrees, to the f u l l extent that the Mortgagor may lawfully so agree, that the Mortgagor will not at any time insist up->n or plead or in any manner whatever claim the benefit of &v\ appraisement, valuation, rtay, extension or redemption 1»w now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of thia i n s t r — * or the absolute sale of the Mortgaged Property -ession thereof by any purchaser at any sale medi any provision hereof, or pursuant to the decree c - competent jurisdiction; but the Mortga J. gagor and a i l who may claim through or under th r-o far as the Mortgagor or those claiming through o mortgagor now o* hereafter lawfully m*.y, hereby waives the benefit of a l l such law*-; provided, however, that appraisement c' any of the Mortgaged Property located in the State of Oklahoma i s hereby expressly waived or not, at the option of the Trustee, such option to be exercised prior to or at the time the judgment i s rendered in any foreclosure hereof. The Mortgagor, for the Mortgagor and a l l who may claim through or under the Mortgagor, waives, to the ' t e n t that the Mortgagor may lawfully do so, any and a l l right to have the Mortgaged Property marshalled upon any foreclosure of the lien hereof, or sold in inverse order cf alienation, and agrees that the Trustee or any court having jurisdiction to foreclose such l i e n may s e l l the Mortgaged Troperty as an entirety. I f any law in this paragraph referred to and now in force, of which the Moitgagor or the Mortgagor's successor or

29O4MO0.9 - 22 -

successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, surh law shall not thereafter be deemed to constitute any part of he contract herein contained or to preclude the operation cr application of the provisions of this paragraph.

5.11 Costs and Expenses. A l l costs and expenses (including attorneys' fees) incurred by the Trustee or the Bank in protecting and enforcing their rights hereunder, shall constitute a demand obligation owing by the Mortgagor to the party incurring such costs and expenses and shall draw interest at an annual rate equal to the Highest Lawful Rate until paid, a l l of which shal constitute a portion of the Indebtedness.

5.12 SAle.-gJ.tbe Mortgaged Property in Tana, i f any part of the Indebtedness is not paid when due, whether by acceleration or otherwise, the Trustee i s hereby authorised and empowered to s e l l any part of the Mortgaged Property located in the State of Texas at public sale to the highest bidder for cash at the door of the county courthouse of the county in Texas in which the Texas portion of the Mortgaged Property or any part thereof i s situated, as herein described, between the hours of 10:00 A.M. and 4:00 P.M. on the f i r s t Tuesday of any month, after advertising the time, place, and terms of said sale, and the portion of the Mortgaged Property to be sold, by posting (or by having some person or persons acting for Trustees post) for at least twenty-one (21) days preceding the date of the sale, written or printed notice of the proposed sale (stating the ea r l i e s t time at which the sale may occur) at the courthouse door of said county in which the sale is to be made and after f i l i n g such notice in the office of the county clerk of the county in which such portion of the Mortgaged Property i s located at least twenty-one (21) days preceding the date of sale; and i f such portion of the Mortgaged Property lies in more than one county, such notice of sale shall be posted at the courthouse door of each county in which such part of the Mortgaged Property i s situated, and shall be f i l e d for record in each of such counties, and such part of the Mortgaged Property may be sold at the courthouse door of any one of such counties, and the notice so posted shall designate in which county such property shall be sold. If no area at the courthouse where the sale i * to occur has been designated by the commissioners court as the area where public sale* i re to take place, then the notice of sale shall designate the area at the court house where the sale covered by such notice i s to occur, and the sale shall occur in that area. In addition to such posting of notice, the Bank or other holder of the Indebtedness s h a l l , at least twenty-one (21) days receding the date of ssle, serve or cause to ba

?9040G-rc 9 - 23 -

served written n o t i c e of the proposed ssle by c e r t i f i e d mail on the Mortgagor and on each other debtor, i f any, obligated t o pay the Indebtedness according to the records of the B?»nk. Service of auch n o t i c e shall be completed upon deposi' i che notice, enclosed i n a postpaid wrapper properly addref >ed to the Mortgagor and such other debtors at t h e i r most invent address or addresses as shown by the records of the l i n k , i n a post office or o f f i c i a l depository under the care and custody of the United States Postal Service. The a f f i d a v i t of any person having knowledge of the facts to the e f f e c t that service was completed s h a l l be prima f a c i e evidence of service. The Mortgagor agrees that no notice of any sale, other than as set out in t h i s paragraph, need be given by the Trustee, the Bat., or any other person. The Mortgagor hereby designates as i t s address for the purpose of such notice the address set out on the signature page hereof; and agrees that such address s h a l l be changed only by depositing notice of such change enclosed i n a postpaid wrapper i n a post o f f i c e or o f f i c i a l depository under the care and custody of the United States Postal Service, c e r t i f i e d m a i l , postage prepaid, return receipt requested, addressed tc the Bsnk or other holder of the Indebtedness at the address fo r the Bank bet out herein (or to such other address as the Bank or other holder of the Indebtedness may have designated by notice given as above provided to the Mortgagor and such other debtors) . Any such notice of change of address of the Mortgagor or other debtors or of the Bank or of other holder of the Indebtedness s h a l l be e f f e c t i v e three (3) business days a f t e r such deposit i f such post office or o f f i c i a l depository i s located i n the State of Texas, otherwise to be e f f e c t i v e upon receipt. The Mortgagor authorizes and empowers the Trustee to s e l l the Texas portion of the Mortgaged Property in l o t s or parcels or i n i t s e n t i r e t y as the Trustee shall deem expedient; arid to execute and deliver to the purchaser or purchasers thereof good and s u f f i c i e n t deeds of conveyance thereto by fee simple t i t l e , w i t h evidence of general warranty by the Mortgagor, and tne t i t l e of such purchaser or purchasers when so made by the Trustee, the Mortgagor binds i t s e l f to warrant and forever defend, where po r t i o n s of the Mortgaged Property l i e i n d i f f e r e n t counties, sales in such counties may be conducted in any order that the Trustee may deem expedient; and one or mora such sales may be conducted in the same month, or i n successive d i f f e r e n t months as the Trustee may deem expedient.

5.11 BtCilala i n DtB-dl I t i s agreed that i n any deed or deeds gi.er by Trustee or auy s u b s t i t u t e Trustee duly appoint:"' hereunder, any and a l l statements of fact or other r e c i t a l s therein made as to the i d e n t i t y of the holder or h >lde--- nf the Indebtedness or as to the occurrence or

29040001 < - 24 -

existence of sny d e f a u l t , or as o the acceleration of the maturity of the Indebtedness, or as to the request to s e l l , notice of sale, time, place, term&. and manner of sale, and receipt, d i s t r i b u t i o n and application of the money realized therefrom, or as to the due and proper appointment of a substitute Trustee, and, without being l i m i t e d by the foregoing, as to any act or thing having been duly done by the holder of the Indebtedness, or any of them i f there be more than one, or by the Trustee or any s u b s t i t u t e Trustee, s h a l l be taken by a l l courts of law and equity es prima facie evidence that the said statements and r e c i t a l s state facts and are without f u r t h e r question to be so accepted, and Mortgagor does hereby r a t i f y and confirm any and a l l acts that Trustee, or any substitute Trustee, may l a w f u l l y do i n the premises by v i r t u e hereof.

5.14 Operation of the Mortgaged Property by the Trustee. Upon the occurrence of an event of default and i n addition to a l l other rights herein conferred on the Trustee, the Trustee (or any person, f i r m or corporation designated by the Trustee) shall hav che r i g h t and power, but s h a l l not be obligated, to enter upon and take possession of any of the Mortgaged Property, and to exclude the Mortgagor, and the Mortgagor's S""nt8 or servants, wholly therefrom, and to hold, use, administer, manage and operate the same to the extent that the Mortgagor shall be at the time e n t i t l e d and i n i t s place and stead. The Trustee, or any person, f i r m or corporation designated by the Trustee, may operate the same without any l i a b i l i t y to the Mortgagor in connection with such operations, except to use ordinary care i n the operation of such properties, and the Trustee or any person, f i r m or corporation designated by the Trustee, s h a l l have the r i g h t to c o l l e c t , receive and receipt f o r a l l Hydrocarbons produced and sold from said properties, to make repairs, purchase machinery and equipment, conduct work-over operations, d r i l l additional wells and to exercise every power, r i g h t and p r i v i l e g e of the Mortgagor with respect to the Mortgaged Property. When and i f the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) have been paid and the Indebtedness paid, said properties s h a l l , i f there has been no sale or foreclosure, be returned to the Mortgagor.

5.15 Appointment Oi Receiver., i n addition to a l l other remedies herein provided f o r . Mortgagor agrees that upon the occurrence of an event of default the Bank s h a l l as a matter of right be e n t i t l e d to the appointment of a receiver or receivers for a l l or any part of the Mortgaged Property, whether such receivership be incident to a proposed sale (or sales) of such property or otherwise, and without regard to

29040C009

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the value of the Mortgaged Property or the solvency of any person or persons l i a b l e for the payment of the Indebtedness, and Mortgagor does hereby consent to the appointment of such receiver or receivers, to the extent permitted by law waives any and a l l defenses to such appointment, and agrees not to oppose any a p p l i c a t i o n therefor by the Bank and agrees tha* such appointment s h a l l i n no manner a f f e c t the r i g h t s of the Bank under A r t i c l e I I I hereof. Nothing herein i s to be construed to deprive the Bank of any other r i g h t , remedy or privilege i t may now have under the laws to have a receiver appointed. An money advanced by the Bank i n connection with any such receivership shail be a demand ob l i g a t i o n owing by Mortgagor to the Bank and shall bear i n t e r e s t from the date of making such advancement by the Bank u n t i l paid at the Highest Lawful Rate and s h a l l be a part of the Indebtedness and s h a l l be secured by t h i s Mortgage and by any other instrument securing the Indebtedness.

ARTICLE VI

Miscellaneous Provisions

6.1 Successor Trustees. Any Trustee may resign i n w r i t i n g addressed to the Bank or be removed at any time with or without cause by an instrument i n w r i t i n g duly executed by the tfpnk. In case of the death, resignation or removal of a Trustee, a successor Trustee or Trustees may be appointed by the Bank by instrument of s u b s t i t u t i o n complying with any applicable requirements of law, and i n the absence of any such requirement without formality other than appointment and designation i n w r i t i n g . Such appointment and designation shall be f u l l evidence of the r i g h t and authority to make the same and of a l l f a c t s therein r e c i t e d , and upon the making of any such appointment and designation t h i s conveyance sh a l l vest in the named successor Trustee a l l the estate and t i t l e of the prior Trustee i n a l l of the Mortgaged Property, and he shall thereupon succeed to a l l the r i g h t s , powers, p r i v i l e g e s , immunities and duties hereby conferred upon the p r i o r Trustee. A l l references herein to the Trustee s h a l l be deemed to refer to any Trustee or Trustees from time to time acting hereunder.

6.2 Advances bv the Bank or the Trustees. Each and every covenant herein contained s h a l l be performed and kept by the Mortgagor s o l e l y at the Mortgagor's expense. I f the Mortgagor s h a l l f a i l to perform or keep any of the covenants of whatsoever kind or nature contained i n t h i s instrument, the Bank, or the Trustee or any receiver appointed hereunder, may, but shall not be obligated to, make advances to perform the

290400009 - 26 -

same in the Mortgagor's behalf, and the Mortgagor hereby agrees to repay such sums upon demand plus interest at the Highest Lawful Rate until paid or, in the event any promissory note evidences such indebtedness, upon the terms and conditions thereof. No such advance sh a l l be deemed to relieve the Mortgagor from any default hereunder. In addition tc the lien hereof, the Bank shall be subrogated to a l l rights and liens securing the payment of sny debt, claim, tax or assessment for the payment of which i t s shall have made such advance.

6.3 Defense of Claims. The Mortgagor w i l l notify the Trustee, in writing, promptly of the commencement of any legal proceedings affecting the lien hereof or the Mortgaged Property, or any part thereof, and t i l l take such action, employing attorneys agreeable to the "rustee, as may be necessary to preserve the Mortgagor's, the Trustee's and the Bank's rights affected thereby; and should the Mortgagor f a i l or refuse to take any such action, the Trustee or the Bank may, upon giving prior written notice thereof to the Mortgagor, take such action in behalf and in the name of the Mortgagor and at the Mortgagor's expense. Moreover, the Bank, or the Trustee on behalf of the Bank, may take such independent action in connection therewith as they may in their discretion deem proper, the Mortgagor hereby agreeing that a l l sums advanced or a l l expenses incurred in such actions plus interest at the Highest Lawful Rate, w i l l , on demand, be reimbursed to the Bank, the Trustee or any receiver appointed hereunder.

6.4 The Mortgaged Property to Revert. I f the Indebtedness sh a l l be fully paid and the covenants herein contained shall be well and truly performed, then a l l of the Mortgaged Property shall revert to the Mortgagor and the entire estate, right, t i t l e and interest of the Trustee and the Bank shall thereupon cease; and the Trustee in such case shall, upon the request of the Mortgagor and at the Mortgagor's cost and expense, deliver to the Mortgagor proper instruments acknowledging satisfaction of this instrument.

6.5 Renewals. Amendments and Other Security. Renewals and extensions of the Indebtedness may be given at any time and amendments may be made to agreements relating to any part of such Indebtedness or the Mortgaged Property tnd the Bank may take or may now hold other security for the Indebtedness without notice to or consent of the Mortgagor. The Trustee or the Bank may resort f i r s t to such other security or sny part thereof or f i r s t to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either aecurity, and such

29O4OW0.9 - 27 -

action shall not be a waiver of any rights conferred by this instrument, which shall continue as a f i r s t lien upon the Mortgaged Property not expressly released until the Notes and a l l othei Indebtedness secured hereby are fully paid.

6.6 Instrument an Assignment, etc. This instrument shall be deemed to be and may be enforced from time to time as sn assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, or security agreement, mo from time to time as any orr more thereof.

6.7 Limitation on Interest. No provision herein or in any Note, instrument, or any othe loan document executed by Mortgagor evidencing the Indebtedness shall require the payment or permi the collection of interest in excess of the maximrm permitted by law. If an/ excess of interest in such respect is provided for herein or in any such Note,

• rumpnt , or any other loan document, the provisions of this tio 1 1 .5.7 shall govern, and Mortgagor shall not be obligated

tc pay the amount of such interest to the exter.t that i t is in excess ot the amount permitted by law. The intention of the parties being to conform s t r i c t l y to the usury laws now in force, a l l rotes, instruments and other loan documents executed by Mortgagor evidencing the Indebtedness sh a l l be held subject to reduction to the amount allowed under said u*v.ry laws os now or hereafter construed by the courts having ju* isulction.

6.8 Choice of Law. THIS DEED OF TRUST SHALL BE GOVERNED BY *ND CONSTRUED IR ACCORDANCE WITH THE LAMS OF THE STATE OF TEXAS, EXCEPT IM THOSE INSTANCES WHERE THE MORTGAGED PROPERTIES COVERED HEREBY ARE LOCATED IH STATES OTHER THAR THE STATE OP TEXAS. IR SUCH EVENT, THF LAW IR FORCE IH THE STATE WHERE THE MORTGAGED PROPERTIES ARE LOCATED SHALL GOVERN THE CONSTRUCTION OF THIS DEED OF TRUST AS TO THE MORTGAGED PROPERTIES LOCATED IR SUCH STATE.

6.9 Unenforceable or Inapplicable Proviaionn. I f any provision hereof or of the Notes i s invalid or unenforceable ir. any jurisdiction, the other provisions hereof or of the Notes shall remain in f u l l force and effect in auch jurisdiction, and the remaining provisions hereof shall be liberally construed in favor of the Trustee and the Bank in order to effectuate the provisions hereof, and the invalidity of any provision hereof in any juri s d i c t i o n shall not affect the valid4.ty or enforceability of any such provision in sny other jurisdiction. Any reference herein contained to a statute or law of a atate in which no part of the Mortgaged Property is situated shall be deemed inapplicable to, and not used in, the interpretation h<3reof.

2904WJ0 1 - 28 -

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

6.11 Waiver tv the Trustee. Any and a l l covenants in this instrument may from time to time by instrument in writing signed by the Trustee be waived to such extent and in such manner as the Trustee may desire, but no such waiver shall ever affect or impair either the Trustee's or the Bank's rights or liens hereunder except to the extent s p e c i f i c a l l y stated in such written instrument.

6.12 Action by Individual Trustee. Any Trustee from time to time serving hereunder shall have the absolute right, acting individually, to take any action and to give any consent and to exercise any right, remedy, power, privilege or authority conferred upon the Trustees i f there be more than one, and any action taken by either Trustee from time to time serving hereunder shall be binding upe* he other Trustee and no person dealing with either Trustee nom time to time serving hereunder shall be obligated to confirm the power and authority of such Trustee to act without the concurrence of the other Trustee. In this instrument, the term "Trustee" shall mean the Trustee hereinabove named, and any successor Trustees.

6.13 Successors ana Assigns. This instrument i s binding upon the Mortgagor, the Mortgagor's successors and assigns, and shall inure to the benefit of the Trustee, his successors, and the Bank, i t s successors snd assigns, and the provisions hereof shall likewise be covenants running with the land.

6.14 A r t i c l e and Section Headings- The a r t i c l e and section headings in this instrument are inserted for convenience of reference and shall not be considered s part Ci this instrument or used in i t a interpretation.

6.15 Exe-jtion in Counterparts. This instrument may be executed in sny number of counterparts, aach of which shall

29040000.9 - 29 -

for a l l purposes be deemed to be an or ig ina l , and a l l of which are identical except that, to f a c i l i t a t e recordation or f i l i n g , in any part icular counterpart portions of Exhibit A hereco which describe properties situated in counties other than the county in which such counterpart i s to be recorded or f i l e d may have been omitted.

6.16 Special F i l i n g as Financing Statement. This Mortgage and Deed of Trust shall l ikewise be a Security Agreement and a Financing Statement. This Mortgage and Deed of Trust shall be f i l e d for record, among other places, in the r e s l estate records of each county in which the o i l and gas leases described in Exhibit A hereto, or any part thereof, are situated, and, when f i l e d in such counties, shal l be effect ive as a financing statement covering f ixtures located on the Lands and Hydrocarbons as and after they are extracted and accounts arising from the sale of such extracted Hydrocarbons which are to be financed at the wellhead(s) of the welJ(s) located on the Lands. A photographic or other reprodv-tion of th i s Mortgage and Deed of Trust sha l l be suf f ic ient as a financing statement.

6.17 Notices- Any notice, request, demand or other instrument which may be required or permitted to be given or served upon the Mortgagor shall be su f f i c i en t ly given when mailed by f i r s t - c l a s s mail, addressed to the Mortgagor at the address shown below the signatures at the end of this instrument or to such different address as the Mortgagor shal l have designated by written notice received by the Bank or the Trustee.

IN WITNESS WHEREOF, the Mortgagor has executed or caused to be executed th i s Mortgage, Deed of Trust , Assignment, Security Agreement and Financing Statement as of the day, month and year f i r s t above written.

MORTGAGOR

William A. Hal l , I I I

Address:

1100 Louisiana Suite 1750 Houston, Texas 77002

29040000.9

- 30 -

THE STATE OF TEXAS

COUNTY OF HARRIS $

This instrument was acknowledged before me on this day of June , 1990, by William A. Hall. I I I .

Notary Public in and for the State of Texas

My Commission Expires:

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VERMILION AREA, BLOCK 292

EUGENE ISLAND BLOCK 278